AMC Entertainment has joined the NYSE Threshold Securities list again.
The last time made this list was sometime in June of 2021.
This educational article is going to go over what this means for the company and how it even made the list in the first place.
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What is a Threshold Securities List?
A threshold security protects stocks that have had 5 consecutive settlement days in a clearing house as “Fail-To-Delivers“.
Protection from the SEC also requires that the stocks FTDs total more than 10,000 shares.
A fail-to-deliver for our new retail investors basically means that an investors trading contract, such as a call option, was not executed when it should have been.
This occurs when a clearing house does not deliver on their obligation to close the contract.
This creates fail-to-delivers which in turn limits the momentum and growth of a stocks price action.
In other words, it tampers with the natural flow of a stock’s growth.
FTDs and naked shorting
Another known cause for FTDs is the practice of naked short selling.
This is when hedge funds trade imaginary shares that they don’t own or exist.
These transactions fail to clear since the shares were never in a traders account to begin with.
This illicit activity is basically like adding zeros to a check you received without the full amount being in that account.
When you get caught you’ll eventually have to pay it back.
It’s that or you go to jail but we all know these sleezy people always get bail.
Well now the SEC has gotten involved and is saying no more.
We’ve been heard community.
And this is massive news.
Here’s how this will affect AMC’s stock price.
Why is a threshold security significant to AMC?
A threshold security comes with regulations that heavily play in retail’s favor.
One of the regulations is known as rule 204.
Rule 204 requires brokers and dealers that are participants of a clearing house to close out failure-to-deliver positions.
Yes you read that correctly.
Here is the source straight from the SEC’s “key points” under III. Regulation SHO.
“Closing out requires the broker or dealer to purchase or borrow securities of like kind and quantity.”SEC
AMC Entertainment was added to the NYSE Threshold Securities list on Friday, June 25th 2021 during the ‘meme stock frenzy’.
This year it made the list this month.
Section 203(b)(3) states that clearing houses must close FTDs if they persist on to 13 consecutive trading days.
Why it Matters
- It’s a win-win situation for retail investors. If hedge funds continue to manipulate the market and generate FTDs then they’ll be obligated by law to cover the millions of dollars and shares they’ve been failing to process.
- On the other hand, if shorts begin to properly exercise contracts then we will begin to see momentum pick up rather quickly from executed trades. This too can create several gamma squeezes due to the amount of volume being pumped into the market.
By adding AMC Entertainment to the Threshold Securities list, the SEC is basically stepping in and calling hedge funds out on the court.
It’s a way of saying things need to be done the right way or else.
I’m extremely curious to see how this will play out.
What do you think?
Leave your thoughts below.
- NYSE Threshold Securities AMC List – visit here
- SEC Key Points About Regulation SHO – visit here
- Threshold Securities – Investor.gov – visit here
- Threshold List Definition – Investopedia – visit here
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