Not having a whale of a time: SoftBank market value tanks
Wednesday 16th September 2020
The Japanese multinational conglomerate has raised eyebrows amongst investors in the past week as their recent seemingly short-term investment strategy into US tech stocks has seen it acting akin to a hedge fund.
Shares of the company fell an additional 3% on Wednesday, leaving it with a market cap of $112.1 billion, a sharp fall from the $124.4 billion valuation just three sessions ago. The fears arose as the Nasdaq plunged 10% over three days, marking the index’s worst performance since August. This in itself is not inherently surprising, as there were fears that the valuations were reaching unsustainable levels, and the index had been performing well for 5 consecutive months. Investor fears in SoftBank have arisen as it has gained a reputation for betting on heavy loss-making start-ups in the past such as Uber and DoorDash.
Whilst SoftBank’s $30 billion notional call exposure is quite large, the overall notional value of calls being traded on the US stocks has tripled this year – sometimes at over $300 billion a day (source: Goldman Sachs). Dean Curnutt, the chief executive of Macro Risk Advisors, said that retail traders have actually led to the momentum on the markets recently: “The data doesn’t have a mark of a whale. It has the mark of lots of little, tiny whales that add up to one big one.”
In retail trader news
Online investing platform Robinhood has been hit by an SEC probe, with possible repercussions of $10 million in fines. The Securities and Exchange Commission has launched an investigation as the trading app failed to disclose that it was selling clients’ orders to high-speed trading firms. Robinhood’s business model has been built on selling its customers’ orders to Wall Street market makers, and this accounted for 70% of its revenue in the first quarter. It has differed from other competitors who utilise the same strategy as it charges the market makers a percentage of the spread of each trade it sells, generating larger profits for the company.
This has come amidst other controversy surrounding the company, as it is still being investigated by the SEC and the Financial Industry Regulatory Authority over gross negligence claims as a result of the March outage. During the market rebound in early March, the app experienced a two-day outage which led to investors losing thousands of dollars.
