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What Failure-to-Deliver Data Says About AMC Stock

The number of failures to deliver on AMC stock has been drawing attention in recent weeks. Here's what you should know.

AMC Entertainment  (AMC) - Get Free Report shareholders are keeping an eye on one metric in particular. Data regarding failures to deliver for the last half of April has recently been released, and it has recorded very high levels of trading activity for AMC stock over that period.

Let's take a deeper look at what this metric says about AMC stock.

Figure 1: What Failure-to-Deliver Data Says About AMC Stock

Figure 1: What Failure-to-Deliver Data Says About AMC Stock

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What Is Failure to Deliver?

Failure to deliver (FTD) in trading occurs when one party fails to meet its obligations on a settlement date. This applies to stocks, futures contracts, options, etc. On the buyer's side, it implies a lack of money to proceed with the order. On the seller's side, it implies not having the equity to sell.

One of the factors in which this metric is relevant is in relation to naked short selling, which has been illegal since the financial crisis of 2008. The practice allows people to sell short a certain stock without even having the stock available to be shorted.

This is connected to failure to deliver because naked shorting generates so-called "phantom shares," which are basically shares that do not exist. It could damage the liquidity of the shorted asset and dilute its share price.

AMC's Failure-to-Deliver Data

According to the latest available data from the SEC, in the first half of April, there were 2,859,026 FTDs of AMC shares registered. With the exception of what we saw during mid-March, that's been the highest amount in the last six months. See the chart below:

Figure 2: AMC's failure to deliver data.

Figure 2: AMC's failure to deliver data.

It's worth noting that, in this process, there is a technicality as revealed by the SEC. If an FTD position resulting from the sale of a security is owned by a person who intends to deliver as soon as the delivery restrictions are removed, there is a deadline of 35 calendar days following the trade day to close the FTD position by purchasing the undeliverable securities.

So after this 35-day period, it is possible to notice increases in the share prices of certain stocks, especially those with high shorting activity.

However, this becomes relevant just when there are sudden surges of FTDs — usually above 1 million, as occurred recently with AMC shares.

Digging deeper into the latest FTD numbers, we can see that during the April 11 trading session, 1,128,577 failures to deliver were recorded. Previously, on March 23, AMC recorded 1,327,129 failures to deliver — the first time since September 2021 that metric exceeded 1 million.

Final Thoughts

Failure-to-deliver data is closely watched primarily by AMC traders, retail investors, and shareholders. The huge community of AMC apes (as its shareholders are known) on Reddit believes that the movie theater company's shares have been hurt by predatory short-selling practices such as naked shorting.

Although it is not possible to officially substantiate these allegations, there is currently an ongoing Department of Justice investigation on 30 short-selling firms for possible malpractice.

There is the possibility that individual investors are on the opposite side of naked short selling and are being handed phantom stocks. In this case, to avoid being trapped, you can ask your broker for a physical share certificate or register your shares directly through the DRS (Direct Registration System).

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)