IPO underwriters to help investors to short Facebook

Some managers who desperately support the legitimate Morgan Stanley (Morgan Stanley) traders in the social networking site Facebook is the initial public offering (IPO) of its shares to participate in the awful IPO short sellers bet the only new listing The stock will fall.
Informed sources said that the trading unit of Goldman Sachs Group (Goldman Sachs Group Inc.) and JP Morgan Chase & Co. (JP Morgan Chase & Co.) is lending Facebook stock to meet the needs of one of the participants of the hedge fund short selling. The two companies are Facebook's IPO underwriters.
Assist investors in short-selling of Facebook stock role played by Goldman Sachs and JP Morgan Chase revealed a long time, may cause a conflict of interest in a Wall Street business. Specifically, in a department of a brokerage firm to attract attention from investors in a stock and to receive remuneration, the company another department may help to bet on the stock fell to earn pours.
Overall, Wall Street is a conflict of interest, these conflicts of interest so that they make money; the face of the interests of the gains and losses of millions of dollars, Yale School of Management (Yale School of Management) Professor of Business Ethics Kane (Daylian, Cain,) said, , it is difficult to correctly deal with these conflicts.
Short sale, investors sell borrowed stock in order to lower prices to buy the stock fell, and then put the stock back to the other side, and make the difference.
Clients of Goldman Sachs, JP Morgan Chase and other banks also played a role in fueling the Facebook stock downlink. Facebook the IPO after those few days decline in stock prices intensified the universal outrage of the investors in the IPO operation. First day of listing, the company's stock trading because of exchange technical problems affected.
Informed sources said that is not uncommon for Wall Street firms to help investors to short the underwriting of the IPO stock, but the lead underwriter Morgan Stanley did not lend Facebook stock.
Last Thursday, Facebook's stock price as $ 38 per share. Morgan Stanley to help support last Friday, its shares rose more than $ 38.
Monday, Facebook shares fell 11 percent on Tuesday continued to fall 8.9%, which provides a good opportunity to reap handsome profits for short sellers. The stock rebounded on Wednesday, and Thursday's closing price of $ 33.03 per share.
On behalf of Goldman Sachs, JP Morgan Chase and Morgan Stanley declined to comment.
Investment banks often talks to isolate the various departments of China "(Chinese wall), responsible for the brokerage department of the IPO underwriting departments and agencies responsible for hedge fund clients, has such an isolation system to ensure that they will not be interoperable between none.
Facebook after the listing of those days share price continued to fall, short selling in the stock trading to traders and investors confused, even angry. Many small traders do not even know the securities laws allow them to just after the IPO can be short selling the stock. In fact, there is no requirement to prohibit short selling of newly listed stocks.
Facebook fell, there are a lot of demand for the stock reverse bet. This means that any Facebook listed for trading on Friday, the company's shares can be lent the stock to open a high-priced. For hedge funds, managing partner of the family risk and transaction financing advisory York company S3 Partners Sloan, Robert Sloan, said that the Facebook stock borrowed last Friday, investors borrow stock to pay interest rates at an annualized rate of 10 % to 40%, while the general by Facebook such a large company stock interest rate of 0.25% to 0.5%.
Friday's trading volume in Facebook stock, at least 25% (ie, more than 143 million shares) is a short sale. The data from various exchanges handled 94% of its turnover in the four days before the Facebook listing. On Monday, the proportion of short sales dropped to 16 percent, but rose to 20 percent on Tuesday.
On Wednesday, the proportion of the total volume of short selling for at least 36%.
Sloan said that since Friday, Facebook's stock has been "hard to borrow". He said that some Wall Street banks loan interest rate of 3 percent on Wednesday Facebook stock.
Short selling a newly issued shares such a thing outside the circle of Wall Street traders are not often talk about, but it is a very common practice.
However, the method of operation of short selling a new issue of shares more than the short-selling of other stocks can be tricky.
As a rule, investors need to "positioning" a stock you want to lend, is to find a stock lending.
If the IPO, there is another constraint in order settlement is completed and stock delivery before anyone other than the underwriters can not actually hold the stock. The Facebook listing process, investors purchase shares is credited to the account of investors after the markets closed until Tuesday.
However, the hands of the customer's brokerage firm from the IPO allotment stock lending, so we can guarantee that most of the stock of the hands to the delivery of short sellers.
Friday, Morgan Stanley, caught in a dilemma situation. Its prime brokerage business is located on the sixth floor office, the phone rang non-stop, the department to provide services to hedge funds. The prime brokerage business operations independent of the department of the syndicated Facebook stock underwriting by syndicated departments responsible.
Informed sources said that the hedge fund manager on the phone, want to lend the shares of Facebook to engage in short selling transactions. However, Morgan Stanley do not want to stock lending. The insider said that the prime brokerage sales personnel on the grounds that, if the banks are the main underwriters of the IPO, this approach has always been prohibited.
Facebook fell, a hedge fund manager of a prime brokerage business manager, you feel that you protect it? Where do we can borrow the stock.
Later, hedge fund manager told the customer representative of Morgan Stanley, Morgan Stanley refused to lend stocks are suffering losses. , A Morgan Stanley spokesman declined to comment.
Lower Manhattan the T3 Trading Group LLC trader baffled. Monday to try to short-selling of Facebook stock, but their clearing firm to tell them, this practice is prohibited.
At the same time, T3 traders from friends and former colleagues work in a rival company constantly heard the news they make money from the short selling of Facebook stock trading.
T3, traders and chief strategy officer Lei Dele (Scott Redler), said the deal to be done empty to make a profit, but we do not have a short channels. He said that even if other people short-selling transactions in progress technically not illegal, but know someone who can pay big bucks also very depressing to change the rules of their own will.