New data from the SEC today shows fails to deliver in stock of AMC Entertainment Holdings, Inc. dropped 85% in the second half of August:
Investors have closely watched fails to deliver in this popular stock. Its large and persistent fails to deliver, or trades that don’t close, may be a sign of naked short selling.
Let’s review what short selling is and how naked short selling fits in. Short selling is borrowing a stock to sell, then giving it back to the owner later.
A short seller is betting the stock’s price will drop. That means he’ll make money because the shares he has to return aren’t as valuable as those he sold.
Naked short selling is selling short shares without borrowing them first. It’s generally illegal.
Naked short selling can powerfully push down the price of a stock. If you never have to find shares to borrow, you can sell as many as you want!
A long term pattern of huge fails to deliver, which we see in AMC stock, often happens because of naked short selling. Trades don’t close because the shares never existed in the first place.
Hedge funds have been short selling AMC shares all year, and have taken some brutal losses along the way.
I suspect they are using illegal naked short sales to drive down the price and save themselves.
I suspect hedge funds are using illegal naked short sales to drive down the price and save themselves. $AMC #AMCTweet
Just because fails to deliver dropped at the end of August doesn’t mean the problem is gone. As you can see from the chart above, when they become extremely elevated the market makers tend to clear them up, only to see them rise again.
AMC still has a huge amount of fails to deliver compared to other stocks. With 140,978 shares failing to deliver on August 31st, AMC has 28 times the fails to deliver of Apple.
The SEC and market makers have a long way to go to make the market in AMC shares work properly.
What will it take to get their attention?
More on AMC:
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