Trading in shares of AMC Entertainment Holdings Inc. just gets stranger and stranger.
A new report from the SEC shows fails to deliver dropped to 205,675 shares in the first half of July, the latest reporting period. This is down from a high of nearly 9.7 million just two weeks ago.
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So, were exchanges busy little bees cleaning up over 9 million shares worth of failed trades?
Maybe. Or maybe those shares went somewhere else…
The Depository Trust & Clearing Corporation (DTCC) settles most US securities transactions. It has an “obligation warehouse” where it puts failed trades.
Once those failed trades go to the obligation warehouse, they basically cease to exist.
We don’t know for sure if that’s what happened with these 9 million shares because the SEC and DTCC won’t tell us. But given the complexity of settling that many failed trades, I’m willing to bet the DTCC just wiped the slate clean.
So why does this matter?
Allowing huge numbers of trades to fail enables naked short selling. Naked short selling is selling short shares without borrowing them first.
It’s a powerful way to push down a stock’s price. After all, if you don’t have to find shares to borrow, you can short as many shares as you want!
No wonder Compliance Week calls it “one massive embezzlement scheme that for years has mostly gone ignored.”
Why would the DTCC do this? Perhaps because of how it’s funded.
The DTCC makes money by clearing trades and is owned by its users.
Hedge funds are some of its heaviest users.
No wonder the DTCC just sweeps trades under the rug instead of investigating what happened.
The SEC should investigate the pattern of massive fails to deliver in stocks like AMC. And the DTCC must ensure trades are actually completed.
Until then, we’ll continue to see these shenanigans in markets.
What do you think happened to these 9 million shares? Leave a comment at the bottom and let me know!
More on markets:
AMC Fails to Deliver Hit 9.7 Million
How DTCC Makes Fails to Deliver Disappear
Wall Street Banks Turn on Each Other as Federal Probe Looms
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