Increasing registration numbers are a result of a shareholder initiative aimed at preventing GME shares from falling into the hands of brokers and market-makers. This "diamond hands"-approved strategy is being increasingly adopted by GameStop's shareholders, a.k.a "apes."
Here's a closer look at why GameStop shareholders are trying to lock GME’s float through DRS.
(Read more from Wall Street Memes: Here's A Crucial Metric That GameStop Stock Investors Should Look At)
What Is The Direct Registration System?
The Direct Registration System (DRS) service provides shareholders with the ability to lock up their assets without needing a brokerage house behind them. When registering shares through DRS, shareholders can register and transfer their shares, via an agent, in book-entry form.
One benefit of registering shares through DRS is protection in case a broker goes bankrupt. However, more crucially for GME apes, shares registered through DRS cannot be lent to short-sellers by brokerage firms. In theory, if enough retail investors use DRS, fewer shares will be available for short sellers to borrow, preventing them from driving the stock downwards.
GME Shareholders Are Turning Into Direct Registration
There is a strong DRS campaign among GameStop shareholders, which has mainly taken place on Reddit communities r/superstonk and r/gme. Retail investors have organized and encouraged the use of DRS to shield GME, both from massive short-selling activity and the general lack of transparency of trading structures in the stock market. Through DRS, shareholders can keep their shares away from market makers and payment per order flow (PFOF) brokers.
Directly registering GameStop shares in the DRS is also a way to "lock in" the shares and strengthen the philosophy of "diamond hands" investors. Selling stocks through DRS is not as practical as selling through a broker. The ideal DRS user is an investor who plans to hold shares for a long period and has no intention of executing day or swing trades.
Will The "Apes" Lock in GME’s Float?
According to GameStop's latest Form 10-Q dated April 30, 12.7 million of GameStop's common stock had already been registered with a major transfer agent, ComputerShare.
Considering GameStop's current float of 63.37 million shares, according to Yahoo Finance, this comprises about 20% of the float. More recent data from May are not yet official, but GameStop's shareholders estimate on Reddit that the number of shares locked up through DRS already exceeds 14 million shares.
The chart below provided by drsgme.org shows how GameStop's 76 million outstanding shares are allocated across DRS, ETFs, mutual funds, institutional investors, and insiders. It also shows how much of the available float is available. Highlighted are the latest official data for April.
Completely eliminating the float would theoretically prevent short sellers from continuing to bet against the stock. The latest available data reveals that about 23% of GME's float is being shorted. And were the supply of shares to dry up, short-sellers needing to cover their positions could send GameStop shares soaring via a dramatic short squeeze.
GameStop shareholders are systematically registering their shares through the Direct Registration System (DRS). Could this be a solution that could send GME stock to the moon once again?
(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)