A Short-Selling Story. Bear: Sinch. Hunter: Marshall Wace

In 2000, as CEO of my first tech startup, we were preparing for an IPO. We did our road show and met with institutional investors in various countries. I still remember a presentation in Frankfurt where an experienced fund manager told me that he liked what we do, but would never invest. Of course I wanted to understand his reasons and he was kind enough to explain to me in 30 minutes how small companies like ours were complete toys for professional investors who had the means to manipulate the stock price to their benefit, and usually with greatly damaging results for the company (and their regular shareholders). Our IPO failed (because the „Internet bubble“ burst exactly at that time) and I could never verify his statements, but still assume he knew what he was talking about.

Today, huge hedge funds (with many billions under management) derive big profits from short-selling stock of public companies. Basically, they borrow stock of the target company from a broker, sell it on the market and expect to buy it back later at a lower cost and give it back to the broker from whom they borrowed the stock. It is quite unique in the world (business or private) that someone borrows something and benefits from its decline or even destruction. And if enough such short-selling (quite acccidentially) happens to find the same target, the short-selling itself is driving the stock price down and thus serves the interests of the short-sellers. Would some short-sellers cooperate, the situation would be perceived as an illegal „Bear Raid“. But, of course, short-sellers would never engage in something like that and if many of them hunt the same Bear, it is purely accidential 😉

In 2022, Sinch became such a raided Bear and one of the most shorted stock in Europe, hunted by probably 20+ short sellers.

In Europe, there are some regulations around short selling (https://www.esma.europa.eu/regulation/trading/short-selling)

One of them states:

…significant net short positions (NSPs) in shares must be reported to the relevant competent authorities (when they reach 0.2% of the issued share capital and every 0.1% above that) and disclosed to the public (when they reach 0.5% of the issued share capital and every 0.1% above that)“

There are some public websites that list such information, but they look incomplete and sometimes inconsistent.



A first lonely Bear Hunter attacked Sinch already in 2020: Marshall Wace, one of the biggest hedge funds out of London with tens of billions Euros under management. In Europe, short sellers need to disclose their stakes once their ownership reaches 0.5% of a company stock. Marshall Wace reached this threshold in March 2020, when the Sinch stock traded at 327 SEK (about 32 Euro) per share. The lonely hunter Marshall Wace finally gave up in Dec 2020, when the stock price reached 1130 SEK (about 113 Euro) and accepted losses of more than €200 million, quite annoying even for such a large hedge fund. Probably somebody got fired or if not, will not be a big lover of Sinch.

In March 2022, Marshall Wace showed up in the short-seller lists again, but this time some well-known co-hunters joined them. We’ll come back to those later, but let’s stick with Marshall Wace for now. Between March 2022 and Dec 2022, the registries show about 40 trades by them with ownership of Sinch between 0.5% and 1.56%. The typical pattern is that they increase their short position in Sinch before a quarterly report and reduce afterwards. That worked well for them for the Q1/22 and Q2/22 reports and they reached a (not yet realized) profit of about €35m. It did not work out for the Q3/22 report and their profit was reduced down to below €20 million. But not a bad result for being short on about €20m to €40m and just 6 months.

However, the risk of short-sellers is being squeezed out by raising share prices, as they have to buy the shares back earlier or later in the market to give them back to their broker. That’s what happened to Marshall Wace in 2020 with €200m of losses and around the Q3/2022 report, they had a mini-squeeze that cost them about €10m. As of Dec 1, 2022, Marshall Wace was short on 0.85% of Sinch stock, about 7m shares. If they would buy these (and give them back to their broker), they’d have to pay about €25m and would get out of the Raid with a profit of about €18m.

Sinch stock trades currently around 35SEK per share. If that share price would double, Marshall Wace would loose their €18m accumulated 2022 profit. How likely that is, is another story/analysis for later.

But let’s look at how much the stock price is generally impacted by (short-selling) transactions.

I took a current screenshot (Dec 1, 2022) after some early trading in the day (and verified with a few other samples that this is not an unsual day). A trading volume of less than 4m shares increased the stock price by more than 6%. A detailed view shows that the 3.9m traded shares came mostly (80%+) from buy orders.

Now, Marshall Wace owns about 7m shares and selling that would increase the stock price by about 10%. Sinch is currently shorted by 8.2% of its stock, i.e. the short-sellers need to buy almost 70m shares. Would they all do so on the same day, the share price would go through the roof, i.e. easily double the share price and all their accumulated profits would fly out the window.

One of my favorite mathematics classes at university was „Game Theory“: how do systems react if various actors behave in certain ways? A Bear Raid is a classic case where the Raiders can all win as long as they stick together and the share price goes down (ideally towards zero, i.e. Destruction of the Company). Once some Raiders get scared and start to sell, the group power of the Raid gets weaker and the share price increases due to the early Raider exits. But the worst case is the Short Seller Squeeze, which happens if there is a strong positive dynamic around the share price that forces more and more Raiders to buy and thus to accelerate the Squeeze. Here it is important to understand that the short sellers can loose any amount of money, as they have to buy back shares even if they are 1000x more expensive then when they started. And that happened in the past years with some famous Squeezes, where short sellers lost billions of Euros.

I’ll look into that in another post.