Some index funds may be big losers today as LongFin (NASDAQ:LFIN) is to be removed from Russell indexes just days after being added.
The issue appears to be only 1.14M shares (out of 14M offered) being purchased in the IPO. LongFin thus fails to meet the minimum 5% free float requirement.
Shares are down 30% in early action.
Is this an opportunity? The answer in our opinion is no.
The name didn’t meet requirements, so the run-up was for fools. It was a bubble waiting to pop.
For LongFin to meet the FTSE’s guidelines, its free float must be 5% of shares outstanding or in this case 3,827,049 shares. It’s not made clear if major holders/insiders are under any sort of lock-up agreement. If we assume they all sold, the public float would be 1,490,989 shares.
The only way for the public float to be equal to or greater than 3,827,049 is if more shares were issued and not disclosed or someone sold while under lock-up. The total share count is 76,540,989.
As of March 16, LongFin was added to FTSE Russell 2000 and 3000 indices. This prompted buying from associated ETFs, driving the price up. Now that the mistake has been caught, selling continues. AVOID AT ALL COSTS.
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