Retail investors are not shocked over the news of the surge of GME fails to deliver, in fact it seems it has been a long time coming. According to data released by the SEC, fails to deliver shares of GME increased to 1350%. Occasionally we will see fails to deliver happen for clerical errors or other non-alarming reasons, however we can also see fails to deliver be a telltale sign of naked short selling.
Fails to deliver is described as a situation in the stock market when a company that has sold shares fails to deliver them to the purchasing broker by the transaction settlement date. When one owes the shares to a buyer, but “fails to deliver” it is known as naked short selling. Naked Short selling is illegal practice, where essentially there is a short selling of shares that do not actually exist.
AMC and GME Fail to Deliver
In the most recent data from the SEC, GME shares failing to clear increased from 1,632 to 23,708 in the later half of January. Similarly, to GME, it was also recently reported that AMC Entertainment also fail to deliver at the end of January, failing to clear nearly 190,000 — this is an increase from 20,000, in the previous weeks. To retail investors, this pattern of failing to deliver has been highly suspicious and investors want answers. With the new data that the SEC has reported regarding fails to deliver, there is a chance that this could be further probed. Especially because in recent months we’ve seen an increase of investigations of trading practices by the DOJ, most recently reported was the investigation with Citadel.
Pattern of Fail to Deliver
So, what is going on with the insane increases in fail to deliver for these meme stocks? As mentioned before, in some cases, fails to deliver don’t point to anything serious, but other times when there is a persistent pattern of fails to deliver, it can be an indication of naked short selling. Naked short selling is illegal and is a powerful way to decrease a stock’s price. As retail investors continue to build hype around the recently reported SEC fails to deliver data, there is hope that the DOJ will do due diligence with making sure illegal activity is not taking place. Recent investigations with large firms such as Melvin Capital and Citron Research, where it’s been reported that the FBI has raided the home of a short seller giving hope that the DOJ will probe further given the pattern of GME fails to deliver.
Ryan Cohen’s Tweet
Ryan Cohen of $GME Gamestop tweeted out a pair of shorts indicating “Naked shorting”