Short sellers unable to target Facebook Short-sellers remain unable to target Facebook because there is a limited supply of shares to borrow, which potentially props up the price in spite of what has been a sharp tumble. That is despite the fact that the initial trade of shares settled with custodians on Tuesday, which meant that groups have begun making stock available to prime brokers to lend to clients. Additionally, some exchange-traded funds will begin buying Facebook stock after the settlement, providing further support to its struggling stock price. Facebook stock on Wednesday turned around a two-session drop, rising 2.5 per cent, to $31.75, in early trading in New York. But it is still 16 per cent below its $38 offer price, and worth $17bn less than its initial valuation of $104bn. Initial figures from Data Explorers, which tracks stock lending, show that just 4 per cent of Facebook shares are sold-short, or some 18m of the 421m shares freely floating, according to Reuters figures. Short-selling involves borrowing shares from a long-term investor, who does not intend to sell them, and selling them in the market with the aim of buying them back in the future, or "covering," at a lower price. However, Facebook shares are extremely expensive to borrow, suggesting that it is supply, not demand, that is limiting the short. Supply may be limited by the high percentage of retail traders who own the stock, as small investors are less likely to make their shares available to be borrowed by institutions. It may also be limited by the large number of brokerages who worked on Facebook's IPO, which had 33 underwriters, and who may be hesitant to make their inventories available for borrowing - thus supporting the stock price. The limited shorting is in sharp contrast to what happened to shares of other social-media IPOs, such as floats of LinkedIn and Zynga. LinkedIn, for example, saw 70 per cent of its free floating shares on loan after the settlement of its IPO trade, according to the figures. However LinkedIn saw a first-day "pop" of more than 100 per cent from its initial pricing, and also sold a much more limited float of shares, fewer than 10 per cent of its shares. Facebook sold 16 per cent and "popped" just 0.6 per cent. Meanwhile, Global X Funds, a $25m exchange-traded fund focused on social networking, said it would begin buying Facebook stock on Thursday at the close, citing the end of the 5-day period before settlement that is typically the most volatile for an IPO. "You want to make sure that that process of price discovery has happened," said Bruno del Ama, Global X chief executive. I would be shocked if any funds were adding shares earlier. The extent of shorting will also determine whether options trading on Facebook, which will begin on May 29, will be in meaningful volume. Options could help damp Facebook's price volatility by allowing investors to hedge their holdings, reducing some selling pressure. "There is not likely to be meaningful options volume if the stock is difficult to borrow, which is likely to be the case given the intense retail interest in the IPO," said Ralph Edwards, head of derivatives strategy at ITG. Additional reporting by James Mackintosh