Photo = Reuters
Citron Research, a hedge fund specializing in short selling, which suffered huge losses due to short selling of GameStop (tick name GME), announced the suspension of short selling research. US short selling hedge funds, including Citron, have been fiercely fighting with individual US investors over the game stop. Their announcement of the end of the short sale following the liquidation of the GameStop short sale is interpreted as the meaning of declaring a’white flag surrender’. There is already an interpretation in the market that’David has won’ over this situation.
○ Citron Research’s “Short Selling Master”
On the 29th (local time), Citron Richch said through a Twitter account, “We will stop short selling research and stop publishing short selling reports for the past 20 years.” “Now, a prospect that can create hundreds of percent profit opportunities for investors. We will focus on discovering.”
Citron Research has used a unique strategy called’short selling research’ among the various investment strategies that exist on Wall Street. They first break down corporate corruption, accounting corruption, and falsehood through research. After that, they short-sell these stocks and publicly announce the fact and the basis for short-selling. As a result, if the stock price plummets, Citron repays the borrowed stock at an appropriate time and closes the short position.
Citron has made such investments for dozens of companies over the past 20 years, and a well-known case in Korea is Nanox, an Israeli medical device company invested by SK Telecom. Nanox, which was listed in August last year, plunged more than 60% after Citron raised suspicions of lack of technology and contract fraud, and then returned to the initial level of the listing.
It is the US individual investors who have gathered in the online community’Reddit’ that has driven hedge funds, which have been victorious against leading listed companies, into a crisis of bankruptcy. They gathered at Reddit’s’Wall Street Betz’ and concentrated their buying trend on a few stocks with high short selling balances. Gamestop, whose short selling balance exceeds 140% of the total number of floating stocks, became the top priority. As a result, GameStop stocks, which were traded at $17 at the beginning of this year, surged 1914.55% to the peak this year ($347.51 on the 27th).
Citron Research and other institutions that had to buy back GameStop stock suffered huge losses. Melvin Capital was able to overcome the crisis by incurring a loss of 30% of its total assets and airing $2.75 billion in emergency funds from other hedge funds such as Citadel. Citron is also known to have lost all of the funds invested in the GameStop short sale.
○ From group litigation to political intervention… Unending Game Stop
Despite the White Flag Declaration, the anger of US investors toward hedge funds seldom subsided. When Robin Hood and E-Trade Securities, which are securities companies mainly used by individual investors, stopped trading GameStop on the 28th (local time), individuals began a class action suit. They pointed out that when hedge funds earned profits against individuals through short selling strategies, securities companies who were bystanders were raising the hand of hedge funds when the opposite situation was created.
Political circles also responded to their voices. ‘Bigger’ lawmakers from both parties, including Alexandria Okaciocortes and Ted Cruz, said they would investigate Robin Hood’s suspension of business. New York State Attorney General Rutisha James issued a statement on the 28th, saying, “We are looking at the activities that took place within Robin Hood, including deals related to Gamestop.”
On Wall Street, it is predicted that the paradigm of the capital market, where hedge funds enjoyed unprecedented power, could be reversed. Hedge funds have demonstrated their power to sometimes counter large state institutions beyond moving capital markets with creative investment techniques and strategies. A typical example is George Soros, who led the UK government to withdraw from the European Exchange Rate Adjustment System (ERM) through a short selling of the pound in 1990.
On the other hand, individuals have always been treated as’underdogs’ by the market. The’Occupy Wall Street’ protest in 2011 attracted great attention around the world, but failed to lead to substantial financial regulation measures. With this, Bloomberg of the United States said, “The Game Stop incident is an echo of the occupation of Wall Street.”
○ Domestic stock prices are also’focused on attention’
The domestic stock market is also paying attention to the game stop situation. After the’Donghak Ant Movement’ that unfolded last year, individual investors have emerged as mainstream forces in the Korean stock market, and they have a strong distrust in short-selling investments that are not insufficient compared to American investors. It is explained that if an individual takes action, a situation that shakes the market like the case of Game Stop can be produced in Korea.
An analyst at a securities company said, “It is still in its infancy, but in the KOSDAQ market, personal buying tax is flowing, centering on the stocks with the top short selling balance.” It looks like it is doing.”
Shin Jin-ho, CEO of Midas Asset Management, said, “The GameStop incident served as an opportunity to re-evaluate all the codes of conduct that the Wall Street hedge fund has built over the past 50 years. It is worth paying attention.”
Reporter Jeon Beomjin [email protected]