Sino Agro Food Inc (fka SIAF)

[DougS.]

I think there's another possibility here, with the collateral shares still the main problem. I was staring at the chart yesterday looking at the volume patterns and the price action. It really looks like a position is getting rolled out. The trading has a "lather, rinse, repeat" quality to it. It occurred to me that it looks a lot like a repo agreement that's executed with bonds. So I wondered whether there were similar financial instruments for doing this for equities? According to Google, yes there are. And whether this can be done with OTC companies. Yes, it can.

It’s a complicated subject because there isn’t much information that articulates how it actually works. Almost everything I’ve read comes from lenders themselves and gives a sanitized version that effectively says things like “securities lending mitigates risk” or “promotes market liquidity”. But with regard to small caps, I think this is just another game for them to push the limits of the law. The point is that short term lending of collateral is a real and common operation.
http://www.theotcspace.com/sites/default/files/2011/11/003-the-repo-market.pdf


The way I understand it, it would work something like this: SIAF gets a US loan at a ridiculous rate. Sounds too good to be true? Probably. Those collateral shares are sold out and bought back on regular basis by the lender (sometimes daily) to a collateral management firm in exchange for cash. The collateral management firm collects a fee to hold the collateral for a short duration presenting minimal risk. The lender then turns around and uses the cash received for collateral to short SIAF. Under Frank Dodd they are not permitted to engage in proprietary trading but there’s nothing stopping them from conducting "MM activities". We all know hedge funds do it and presumably, lenders operate with the same rules. They cover their position and buy collateral back from the collateral management firm the next day or next week and pocket the difference in the stock price minus the collateral management fee. Lather, rinse repeat until the collateral is returned to the company.