Eletropaulo Metropolitana Eletricidade de Sao Paulo SA, Brazil’s largest electricity distributor, surged after lending for short selling reached a limit.
The AES Corp. unit jumped as much as 14 percent before paring the gain to close up 1.3 percent at 14.03 reais. Trading volume was more than triple the three-month average. The benchmark Bovespa index slipped 0.8 percent.
Shares that have been sold short and not yet repurchased rose to 28.33 percent of the stock’s free float, exceeding the Brazilian exchange’s 20 percent limit, data compiled by Bloomberg show. The clearing house informed traders that the lending ratio limit had been reached, said Pedro Galdi, the chief strategist at Sao Paulo-based brokerage SLW Corretora
“As a result investors who shorted the stock ran to buy it back and cover their open positions,” Galdi said by phone.
Short sellers borrow shares and sell them into the market on a bet they’ll be able to repay the loan later by buying back the stock at a lower price. Eletropaulo has slumped 61 percent in the past year, the biggest selloff among 15 global peers tracked by Bloomberg.
BM&FBovespa SA, which operates the bourse, said in an e-mailed statement that investors are required to cover their positions when deemed necessary, without elaborating.