Hedge funds call foul over lost £18 billion

Hedge funds call foul over lost £18 billion


Shares in the German carmaker VW rocketed by 348 percent on Monday and Tuesday this week, when it became apparent that only 5 percent of its shares were actually available. 

Many traders had bet on VW shares falling, and so when Porsche announced that it controlled 74 percent of the shares, and the German state of Lower Saxony owned the other 20 percent, it led to panic buying from traders desperate to buy back and close their positions.


The problem seems to have arisen because it was predicted that VW shares would decline, so short sellers prepared themselves to buy back shares at a cheaper rate after the drop in value occurred. However, unbeknownst to them, the shares were already on loan, and when Porsche completed an effective takeover, the cost of their shares rocketed.


The £18 billion loss would have been avoided if hedge funds had been subject to FSA rules about transparency, but at that time traders were not required to be open about who shares belonged to - much to the consternation of those who bet on the decline.


For a brief time VW was the world’s most valuable company.


By Danielle Williams

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