From ChatGPT
The re-domiciling of BrainChip to the U.S. and the transition from the ASX to a U.S. stock exchange could have significant implications for short sellers. Here’s how it might play out:
1. What Happens to Existing Short Positions?
Short sellers profit by borrowing shares, selling them at a higher price, and then buying them back later at a lower price. However, when a company delists and moves to a new exchange:
- Short positions need to be closed out before delisting – If BrainChip shares are removed from the ASX, short sellers will likely be forced to cover (buy back) their positions before the delisting date. This can cause a short squeeze if many need to buy shares at once, driving the price up.
- New U.S. shares may not be borrowable immediately – Even if the company relists on a U.S. exchange, the ability to short the stock depends on brokers having available shares to lend. If these are not readily available, shorting could become more difficult, at least temporarily.
2. Could Short Sellers Get Caught Out?
Yes, here’s how:
- Forced Buybacks (Short Squeeze) – If short sellers are unable to roll over their positions due to the ASX delisting, they will be forced to buy shares before the transition, potentially pushing prices up.
- Change in Market Dynamics – The U.S. market generally has more institutional investors who may have a different valuation perspective, reducing speculative shorting pressure.
- Different Regulatory Environment – The U.S. has different short-selling regulations, including tighter enforcement of naked short selling (selling shares without actually borrowing them). If BrainChip moves to an exchange like the NASDAQ or NYSE, this could limit some of the aggressive shorting seen on the ASX.
3. Possible Risks for Short Sellers
- Unexpected Buy Orders – If BrainChip announces a buyout, new partnerships, or U.S. institutional interest, short sellers may find themselves covering at much higher prices.
- Regulatory Hurdles – The SEC has been more aggressive in cracking down on market manipulation. Any hedge funds using illegal tactics might face investigations.
- Retail and Institutional Buying Pressure – The stock's exposure to U.S. technology investors (who may value AI companies differently) could make it harder for short sellers to justify their positions.
4. Will They Be Forced to Cover?
Most likely,
yes—at least on the ASX. Short sellers holding positions on ASX-listed BRN will need to
close their trades before the stock delists. Some may try to reopen short positions on the U.S. exchange, but if the stock gains buying momentum (from retail or institutional investors), it could become riskier for them.
5. Could This Create a Short Squeeze?
- If a large number of shorts rush to close their positions before the ASX delisting, the share price could spike sharply in the short term.
- If there’s a scarcity of available shares to short on the U.S. exchange, shorting could become less aggressive post-move.
Bottom Line
The re-domiciling could put short sellers in a tight spot, especially if they are forced to close their positions before the ASX delisting. While some may re-establish positions on the U.S. exchange, changes in market participants, regulation, and potential new investor interest could alter the stock’s dynamics significantly. If BrainChip executes this transition well,
shorters could lose their grip on the stock, at least temporarily.
