AMC Entertainment (NYSE:AMC) stock is in the spotlight after CEO Adam Aron revealed that the company had repeatedly contacted the New York Stock Exchange and Financial Industry Regulatory Authority (FINRA) to inquire about its fail-to-deliver (FTD) shares:
Many of you are incensed by the high number of "Fail to Deliver" AMC shares, and that AMC again has been on the Threshold List for multiple weeks. We repeatedly have gone to the NYSE and FINRA, and did so again in July, to put and keep this entire situation on their radar.
— Adam Aron (@CEOAdam) August 2, 2023
The concept of failure to deliver has been a central topic for meme stock investors this year. The scenario occurs when one party in a contract fails to deliver on their obligation, which could be shares, options or futures. In AMC’s case, the FTD situation likely relates to shares being shorted. If a short seller does not own all or any of the shares at the time of settlement, a FTD situation can occur. This is also known as naked short selling. In addition, FTD can result in the creation of phantom shares, which have a dilutive nature and can lower the price of a stock.
AMC Stock: CEO Adam Aron Highlights “Fail to Deliver” Situation
As Aron has pointed out, AMC has been included on the NYSE’s Threshold Securities list for several weeks now. Inclusion on the list requires an aggregate FTD position for five consecutive days at a clearing agency, at least 10,000 FTD shares, and at least 0.5% of the issuer’s shares outstanding. Based on data from Fintel, AMC has had a daily FTD position of over 10 million shares since June 27. From May 3 to June 26, AMC’s FTD never exceeded 10 million shares.
Some AMC shareholders believe that naked short selling is the major contributor to AMC’s FTD. At the same time, the Securities and Exchange Commission (SEC) notes that not all naked short selling is done maliciously, although this is mainly applicable to illiquid and thinly traded securities. The SEC explains that naked short selling could occur “if there is a sudden surge in buying interest in that security, or if few investors are selling the security at that time.” AMC carries an average daily trading volume of 23 million shares, so it is definitely not in the thinly traded stocks camp.
On the bright side, AMC announced that the period from July 21 to July 27 was its “Best Admissions-Revenue Week” since its inception 103 years ago. 65 AMC U.S. location recorded their highest-ever box office weeks of all time following the successful releases of Barbie and Oppenheimer.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
