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There are still ways to bet against Wirecard despite ban
[LONDON] Germany's unprecedented ban on short-selling Wirecard AG shares hasn't closed the door on all transactions that bet on potential declines for the digital payments company.
While the country's financial regulator, BaFin, prohibited investors from expanding short positions through April 18, there are questions about how the rule will be enforced and whether it can be applied to all types of financial products.
Wirecard has been under pressure over the past month after a series of Financial Times reports about suspicions of fraud at the company's Singapore unit. Even though Wirecard repeatedly denied wrongdoing, investors were increasing their bets that the stock would fall ahead of BaFin's controversial move. The company, which replaced Commerzbank AG in Germany's benchmark DAX index last year, has lost about one-third of its value in recent weeks.
Trading in a variety of Wirecard-based derivatives continues, but that's not explicitly banned. The watchdog is focused on investors expanding net-short positions, and that means buying Wirecard-linked contracts could still breach the ban depending how the positions are measured. The German regulator and Wirecard declined to comment for this story.
Chief executive officer Markus Braun said in an interview with Frankfurter Allgemeine Zeitung published on Friday that Wirecard didn't request the regulator's protection, and he again denied the allegations, calling them "unfounded" based on the findings of an internal inquiry.
Here's a look at four ways to position for a possible Wirecard slide.
Derivatives exchange Eurex offers trading in put options on Wirecard. The contracts will return a profit if shares of the company fall. According to data compiled by Bloomberg, an average of 5,400 contracts were traded daily over the past week. Deutsche Boerse AG, operator of Eurex and the Frankfurt stock exchange, lists thousands of notes linked to Wirecard. There is no suspension of trading in the certificates, a spokesman said.
Boerse Stuttgart offers structured products on its Euwax derivatives platform. The exchange's website lists about 6,500 different notes from warrants to so-called knock-outs with Wirecard as the underlying security. Put products on Wirecard are still being traded in Stuttgart, a spokesman for the exchange said.
Traders on the Stuttgart stock exchange can buy so-called factor certificates, which allow bets against Wirecard. The six-time leveraged contract issued by UniCredit Bank AG surged at the start of February, more than doubling to around 85 euros from about 34 euros after the Financial Times first reported on alleged accounting fraud. The notes have since slumped to around four euros. UniCredit, which declined to comment on the securities, offers other inverse products tied to Wirecard.
It's complicated, but investors can set up what's dubbed a synthetic short. The process entails selling DAX futures, and then buying all the stocks in the index according to their weightings, except Wirecard.