Dortmund.April 11,2017. Three explosions hit the bus carrying FC “Borussia Dortmund” in the way to the stadium, where the german team had to play against FC Monaco in the Champions league. A policeman and one football player were injured. The game was cancelled. According to the prior investigations, Islamic State was behind the attacks. However, the later research led to a Russian-German citizen, who wanted to trick the system and earn some money. Even though it seems like they were recording Jason Bourne: the revenge of the stock exchange, we think that it is a great opportunity to learn what’s behind the attacks.
Short-selling
The idea behind the attacks was something known as short-selling or shorting. The basic idea of short-selling is the exact opposite of traditional of long positions where the investor owns securities and sells them when the price goes up. Nevertheless, short positions require to bet that the price of the securities will drop so that we sell them while the price is higher and repurchase them once the price has dropped.
In the picture we can see the diagram of a basic short-selling operation. In practice, the securities are borrowed as a warranty for another operation or just as speculation assets. We find a common practice in financial institutions that lend the securities received as a warranty to investment funds for the purpose of shorting.
The basic framework of the operation begins with an agent borrowing shares or some other kind of securities (1) in order to sell them in a stock market, for instance (2). This operations are usually made in very small frames of time, determined by the terms agreed with the owner. After the securities are sold, the investor observes the evolution of the stock market and repurchases them when the price has dropped (3). That way, the investor earns (or loses) the difference before the securities are returned to the owner (4).
The day of the attacks
April 11th, the bus carrying the players of FC “Borussia Dortmund” was attacked, but why was it chosen as a target? FC “Borussia Dortmund” is the only team from the Bundesliga listed on the stock market so the bomber thought it would be a good idea to create and attack in order to make the value of the stocks artificially drop. The same day the suspect borrowed 15,000 put warrants (the security used for the operation, with a value of 78.000€).
The following step was to keep track of the evolution of the stock market to watch the response of the market and the financial effects of the attacks.
In the following 24 hours to the attack, the stock value dropped only 4,34% (from 5,75 to 5,50). The oscillation of the price, as we can see, was quite stable during the following days and in a couple of weeks it was reestablished.
The consequences
The result of the operation probably wasn’t what the suspect thought it would be. The price of the shares dropped only 4,34% which meant that the repurchase would have made too little money (as an indicator, 4,34% of 78.000€ are 3,385.2€). Such a big risk for such a small reward. Maybe, next time, he can try with market abuse and insider dealing to gamble with a better risk/reward ratio.
Asier Hernandez for ApricotLawyer.com
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