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Short Selling Intelligence: How to Generate Alpha and Mitigate Risk for Investment Managers Charlotte Wall, Managing Director, Data Explorers 2009 FactSet Investment Process Symposium 1 Introduction: Short Selling and Securities Lending Introduction: Short Selling and Securities Lending Part 1: Opening the Short ` Sh t Sale Short S l (Open) (O ) Lender (Long Holder) Sec Lending (Loan) Lending Fee & Collateral Short Seller (Sell) Settlement Market Price Buyer (Long or Buy to Cover) 2 Introduction: Short Selling and Securities Lending Introduction: Short Selling and Securities Lending Part 2: Buy to Cover ` B tto C Buy Cover (Cl (Close)) Lender (Long Holder) Collateral Sec Lending (Return) Short Seller (Buy to Close) Market Price Settlement Seller (Long or Short Sell) 3 Introduction: Where does Securities Lending Data Come From? Come From? Global market participants provide securities lending data to Data Explorers in return for market transparency, benchmarking and risk analytics ` Borrowers Lenders Prime Brokers Hedge Funds Asset managers Global Custodians Pension Funds Mutual Funds Stock Loan Data Stock Loan Data Market Transparency, Benchmarking and Risk Analytics 4 Introduction: Short Selling Data ‐ Why is it Important? Short Selling – Opaque Market ` ` Lack of information available on a timely basis Lack of information available on a timely basis Alpha ` ` ` ` Idea Generation ‘Dog that Didn’t Bark’ – something that does not happen is as important as something that does. R t l l Rental value of long securities fl iti Risk ` ` 5 How bearish are short sellers in securities I own or am thinking How bearish are short sellers in securities I own or am thinking of investing in – is it a ‘crowded short’ and how has the short base changed? Stock Screening: Upcoming Earnings Stock Screening: Upcoming Earnings Source: FactSet Research Systems Inc. ¾Earnings in the next week ¾Earnings in the next week ¾Market Cap > $500mm ¾Pct Shares Outstanding on Loan > 10% 6 Portfolio Index Review: DESLI Global 50 Portfolio Index Review: DESLI Global 50 Source: FactSet Research Systems Inc. 7 Example: Total S.A. Example: Total S.A. Source: FactSet Research Systems Inc. 8 Example: Volkswagen Example: Volkswagen Source: FactSet Research Systems Inc. 9 Rights Issue Example: Danone S.A. (Demand) Rights Issue Example: Danone S.A. (Demand) Source: FactSet Research Systems Inc. 10 Rights Issue Example: Danone S.A. (Supply) Rights Issue Example: Danone S.A. (Supply) Source: FactSet Research Systems Inc. 11 Rights Issue Example: Taylor Wimpy (Demand) Rights Issue Example: Taylor Wimpy (Demand) Source: FactSet Research Systems Inc. 12 Rights Issue Example: Taylor Wimpy (Supply) Rights Issue Example: Taylor Wimpy (Supply) Source: FactSet Research Systems Inc. 13 Single Name: Citigroup Single Name: Citigroup Source: FactSet Research Systems Inc. 14 Single Name: Moody’ss Corp Single Name: Moody Corp Source: FactSet Research Systems Inc. 15 Single Name: Strayer Educational Single Name: Strayer Educational Source: FactSet Research Systems Inc. 16 Conclusion ` ` ` ` Short selling and securities lending data historically has not been widely used or understood not been widely used or understood Market turmoil has placed more focus on the short market Data Explorers makes it easier to add short data to the investment manager’s decisions making toolkit Do you want to be an ‘early adopter’? 17 Q ti ? Questions? 18