Short sellers test the water on Twitter

Credit: Reuters/Brendan McDermid

The Twitter logo is displayed on the floor of the New York Stock Exchange, November 8, 2013.

Data shows the cost to borrow Twitter shares jumped from about 5 percent to near 20 percent annually, indicating increased demand to borrow shares. That's an elevated level for borrowing, as most stocks have a borrow cost of 1 percent or less, but not entirely unusual for an offering with the fanfare of Twitter.

'Intraday data is beginning to show a security with signs of increasing scrutiny by the short side,' David Lewis, senior vice president at SunGard's Astec Analytics in London, said in an email.

He said, however, this was on a limited volume of about two million shares. Twitter's float is about 465 million shares; it is unclear how big the borrowing pool will be.

Investors who sell securities short borrow shares and then sell them, expecting the price to fall so they can buy the shares back, return them to the lender, pay borrowing fees and pocket the difference.

Buy or hold recommendations from research analysts on Wall Street outnumber advice to sell Twitter shares by 11 to two according to Reuters data. The price target on Twitter shares ranges from $20 to $54.

Twitter shares were trading up 1 percent on Wednesday afternoon at $42.32, about 63 percent higher than the IPO price of $26 per share a week ago. In its first day of trading the stock touched a high of $50.09 before pulling back.

(Reporting by Rodrigo Campos; Editing by Tim Dobbyn)