Investors in U.S. listed H.K.\Chinese stocks who hold over $800 billion of long shares and $20 billion of shorted shares may be facing delisting from U.S. stock exchanges by President Trump as part of the U.S.\China tariff battle under the Holding Foreign Companies Accountable Act of 2020. Treasury Secretary Bessent confirmed that “everything is on the table.”

Stocks delisted from the NYSE and Nasdaq stock exchanges would move to Over-The-Counter (OTC) trading where Bid\Offer spreads are wider, liquidity is thinner, transaction costs are higher and trading volatility in these shares would be greater. Moving to OTC trading may preclude some institutional investors from holding these securities due to internal restrictions on non-exchange trading and\or liquidity risk controls.

If delisting becomes closer to reality, we will see long selling and short buying as investors liquidate or trim their exposure ahead of delisting. While shareholders still keep their share rights regardless of whether the shares trade on exchanges or OTC the risk profile of these shares will change appreciably due to transactional reasons rather than fundamental reasons.

In April we have seen U.S. listed H.K.\Chinese stock short interest decrease by $2.7 billion, which consisted of $212 of new short selling more than offset by a $2.9 billion decrease in the mark-to-market value of shares shorted. Short sellers have been actively shorting into this declining sector, backing up their winning bets.

U.S. listed H.K.\Chinese stock short sellers are up $2.22 billion in April month-to-date mark-to-market profits, +10.53%, cutting year-to-date mark-to-market losses more than half to -$1.98 billion, -8.85%.

Short sellers not only have to take transactional risk into consideration but also financing risk. Institutional long selling will deplete the lending pool of many of these stocks causing, at minimum, stock borrow rates to increase, or at maximum, stock loan recalls and buy-ins. Stock borrow financing charges accrue every day, even on weekends, regardless of settlement or trading issues of a stock. If stock trading liquidity evaporates and shorts find it difficult to buy-to-cover and return stock borrows, lenders will continue charging financing fees. And most importantly, they can increase those fees into the double or triple digits with borrowers having no recourse but to pay those increased expenses. Caveat Subscriptor, let the short seller beware of the risks of holding on to their positions if stocks get delisted by the major exchanges.

Our Blacklight SaaS platform and Black App provides an up-to-date view of short selling and short covering on an equity, sector, index, or country-wide basis allowing investors\traders to better manage their existing long and short positions. The Black MaP and Black App products provide a total view of long and short positioning in the market with a breakdown between Active\Passive long investors, 24 Fund type entities, over 50k securities globally across 108 countries and data from 58 regulatory exchanges.

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The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC (“S3 Partners”) to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks, and merits, as well as the legal, tax, accounting, and investment consequences, of such decisions.