Naked-Shorts Ban Lifts Open Text Shares

SAN FRANCISCO -- Short-sellers scrambling to cover their positions in Open Text(OTEX Quote) may have lifted that stock in trading Thursday.

Shares in the Waterloo, Ont. business-software developer rose by $4.77, or 16.5%, to $33.61 at one point, before falling back to $32.01, up 11%, in recent trading.

In the absence of any other news on the company, Benchmark analyst Mark Schappel attributed the move to the Securities and Exchange Commission's new rule against "naked" short-selling, which took effect Thursday. "What you're seeing today is because of the new short-selling rule."

"We think the stock is benefiting from the SEC's emergency order protecting investors against naked short-selling," he also wrote in a note. Benchmark does not make a market in shares of Open Text.

Trading desks indicate that either investors are covering naked short positions or clearing houses and prime brokers are buying back naked shorts from their brokers, according to Schappel.

If the price move is based only on correcting short positions to comply with the new rules, the effect will be a short-term and Open Text shares may fall back to their previous level in coming days. The consensus one-year target price is $41, according to Thomson Reuters.

Open Text has always attracted a large short position, Schappel says.

According to Nasdaqtrader.com, Open Text's short interest is 17.19 million shares, or 34% of shares outstanding, effective Aug. 29.

Schappel also attributed a big jump in the price of newspaper publisher Media General(MEG Quote) to the rule change. That stock was up $7.09, or 81.9%, to $15.75 in recent trading on triple its usual volume.