Update: well, our feeling was correct:
- MASSACHUSETTS SUBPOENAS MORGAN STANLEY OVER FACEBOOK
- MASSACHUSETTS SEEKS MS COMMENTS TO INSTUTIONAL INVESTORS ON FB
- MASSACHUSETTS SUBPOENAS MORGAN STANLEY OVER FACEBOOK COMMENTS
It is by now well-known that certain large banks were heavy defenders (by mandate and then by sheer panic) of the Facebook share price post-IPO. Margin Stanley appears to have been the name of choice for this defender, and by dint of primary greenshoe allocation, and today's price action suggests that whether it was them or not - whoever it was just gave up their undying defense. The following volume profile (how many shares were traded at each price point since the share's release) illustrates dramatically the massive bid-side presence (remember there are no short-sellers per se) as they defended first $42 (78mm shares bid), $41 (11.6mm shares bid), $40 (18.4mm shares), $39 (3.9mm shares), $38.50 (6.5mm shares), and finally $38 (22.7mm shares bid) before the first day or two were over. This is at least 140mm shares that were bid for above the volume-weighted average price of $37.98 across all 844mm trades that have occurred since Facebook began trading on NASDAQ. $32.1bn of trading volume across the three days. It appears that today's action - which seemed to be left undefended as algos were in charge was the breaking point for MS.
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Think of the green arrow (oval) as the pivot on the teeter-totter of volume - which is now volume-weighted at almost perfectly the IPO price...
Next, for all the extended debate in the media and the blogosphere of the simple concept of a Greenshoe it becomes painfully clear that virtually nobody in the financial media space has even opened one chapter of a Series 7 book (and certainly not done a refresher course). No matter: the math is simple: if MS was the bid at or above $38 on a VWAP basis, and as the chart above shows they clearly were, they lost money using a reference synthetic "short" basis of $38, if they defended more than 15% of the float, i.e. bought more than 15% of the 484mm shares issued.
For all those who are naively assuming that just because the stock price has plunged, that MS can make money because it had a parallel short as it was IPOing: wrong. MS does not have a right to pocket the upside, and merely the cash proceeds to the company are less. As to whether and how much pain MS has taken, we will have to wait until the June 30 press release, or some ad hoc JPM-esque press conference.
Finally, our first tweet today was the following. We hope some enterprising lawyer will not disappoint us:
Will Facebook set the record for shortest time from IPO to shareholder class action lawsuit? We may find out today
— zerohedge (@zerohedge) May 22, 2012 [6]