Trump Media’s Strategy to Combat Short Selling

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Written By Dean McHugh

Trump Media has proactively issued guidance to its shareholders on how to prevent their stocks from being utilized by short sellers, who wager on the decline of stock prices.

This advisory was posted on their website on Wednesday, reflecting a response to the significant volatility in the price of DJT stock since its public trading commencement on March 26.

Recent Stock Performance and Market Reactions

Following the public listing, Trump Media’s stock has experienced a sharp decline. Despite a brief surge of over 15% in its share price on Wednesday, the closing price of $26.40 still marks a substantial 63% drop from its opening price on March 26.

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The stock continued to struggle, with a 20% slump last week and dramatic drops of more than 18% on Monday and over 14% on Tuesday.

By Wednesday, the stock was trading nearly 46% lower than its April 1 closing price, shortly after revealing a significant $58 million loss for 2023 with a mere $4.1 million in revenue.

Stakeholder Impact and Major Shareholder Influence

Former President Donald Trump, who holds nearly 60% of the stock, remains the largest shareholder of Trump Media. His stake could increase by 36 million shares if DJT’s price remains above $17 due to a provision in the merger agreement that took the company public.

Despite these stakes, both Trump and Trump Media have observed a considerable erosion in their market value since late March due to the declining stock prices.

Enhanced Shareholder Guidance

In an effort to address these concerns, Trump Media enhanced its frequently asked questions section on its website on Wednesday and detailed this update in an SEC filing the next day.

The new instructions provide detailed steps shareholders can take with their brokerage firms to prevent their shares from being loaned out for short selling.

These include holding shares in a cash account, opting out of securities lending programs, transferring shares to a designated transfer agent, or holding them in a retirement account.

Providing Clarity and Tools to Shareholders

The updated FAQ now includes a form letter for shareholders to send to their brokers, specifying that their shares be held in cash accounts and not be made available for loaning activities.

This contrasts with the initial, simpler guidance provided, highlighting Trump Media’s ongoing efforts to equip its shareholders with the necessary tools to safeguard their investments.

Understanding the Risks and Brokerage Practices

Trump Media also pointed out the inherent risks associated with short selling, where losses can potentially exceed the initial investment.

Credit: DepositPhotos

This risk is particularly pronounced as brokerage firms loan out shares to sophisticated and institutional investors for short sales, often requiring significant cash or collateral to cover potential losses.

Final Remarks and Investor Sentiments

With only about 5 million of the over 136 million company shares available for shorting, and many already locked in short positions, Trump Media is keen to inform and protect its retail investors, emphasizing the alternative revenue streams brokerage firms gain from lending shares for short selling.

The company underscores the disparity in potential gains and losses between sophisticated institutional investors and the average retail investor, aiming to bolster shareholder confidence during turbulent market conditions.


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