For Newbies ..2 Apr 2019 18:13
Read this on forward selling just an example of what goes on it stinks....
What is the problem for shareholders?
There are two evident problems with this practice:
The forward sellers make their profits at the expense of pre-existing (and often long-term) shareholders, who’s stakes are diluted and hence devalued.
The buyers of the forward sellers’ shares may not be aware of what is going on (that was certainly the case in the Nighthawk example) and are purchasing shares that the company is issuing at a price that is inflated relative to the issue price. In the New World case, anyone buying shares from the forward seller at 0.075p was paying 36% more than they could have paid, had the company made the shares directly available to investors.
A less obvious problem is that for this practice to succeed, there needs to be a strong market for the shares that the company is issuing to the forward sellers. In my experience, one often finds very bullish comments about the worth of the company at such times, which can mislead investors and encourage them to overpay. In the case of New World, investors ultimately found themselves with worthless shares, as the company subsequently delisted.
There is obviously a strong incentive for the company or the forward seller to promote such commentary which misleads investors.
In the ^^^^^ case, I believed that there was a clear instance of market abuse, which I evidenced and explained to the FCA in this letter – but never received anything other than an acknowledgement of my complaint, and a refusal to discuss it. Watch this space for ShareSoc’s response to the FCA’s recent consultation on their mission!
For these reasons, I believe the practice of forward selling should be banned and companies seeking to raise equity finance should instead be encouraged to do so from existing shareholders, and new investors, on equal terms, with preference being given to the former where demand exceeds supply.
Say No More Bill
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