A percolating theme among retail investors came to a boil on Thursday and some memes headlines ended the day on a simmer
Since being knocked out of the January short squeeze by online brokers trying to avoid margin calls, retail investors have sought alternatives to their multi-front war on short selling hedge funds, and beyond. months of research, they seem to have found it.
Completely remove brokers.
In recent days, a growing number of retail investors have swapped their TD Ameritrade torches, forks and accounts for direct registration platforms like Computershare CPU,
who saw an influx of business from the crowd of memes.
AMC Entertainment AMC Shares,
climbed 8% at its peak Thursday, to close at 5.7%, as “direct recording” chatter took hold on social media, with Reddit users flooding message boards with screenshots alleged evidence that they had moved their trading accounts to transfer agents that allow shares of a company to be held directly rather than through the more common “street” ownership. Typically, a broker holds an investor’s shares on their books and keeps a record that shows you own the asset without the broker or individual ever having to own the physical shares.
There are, of course, advantages to this indirect ownership.
However, the trend towards direct recording – in some ways the equivalent of a late-teen Generation X kid finding his Sony DiscMan hidden in an old briefcase and deciding that it was the pinnacle of music technology – started weeks ago as self-proclaimed. “Apes” realized after January that using commission-free trading apps did not mean they were buying shares in a company, but rather paying a broker to hold their shares via a “street name” .
It didn’t take long for these monkeys to decide that this kind of indirect ownership was fueling short sellers, who borrow stocks and create the kind of synthetic trading environment that some retail investors say has allowed hedge funds and other institutions run short sales and avoid the pain of being in a hurry themselves.
“Over the past few weeks, we’ve seen a significant increase in direct registration transactions in some US-listed ‘meme stocks’,” Paul Conn, president of Computershare Global Capital Markets, told MarketWatch’s MemeMoney.
“Retail investors have asked their broker or bank to withdraw their investments from the ‘street name’ system and in their own name directly from the company’s share register, which Computershare manages as an agent of the company. company concerned. “
Computershare declined to share specific data describing the magnitude of the inflows it saw. But if a quick read of Reddit is any indicator of interest, with users posting screenshots of what they describe as newly activated accounts, the transfer agent from Abbotsford, Australia finds a good flow of new business.
“Some of the benefits of direct registration include the right to receive dividends and other corporate communications directly from the company,” Conn said.
“Registered investors also receive their proxy and can attend, ask questions and vote directly at a company’s shareholders’ meeting. Another benefit includes the right to transfer ownership directly, ”he said.
But for the retail monkeys of Reddit, there’s another huge benefit to recording direct in memes stocks: preventing brokers, short sellers, and market makers from creating a condition in which the stock amount sold short in a given company exceeds the total amount of shares outstanding. . So-called short selling, where investors profit from betting on stocks without owning them, is illegal on Wall Street, but many Redditors believe that short selling is indeed due in part to ownership. indirect. Short bets are inherently risky as the losses on a wrong bet can be endless.
“When the music stops, there isn’t enough stock for everyone,” said Susanne Trimbath, CEO of STP Advisory Services and an economist who has been instrumental in educating retail investors about market structure.
“These retail investors are trying to stop the music.”
But while the music was still playing Thursday, it was a sweet tune for some memes stocks.
In addition to AMC (which seemed to finally capitalize on #AMCSqueeze trending days on Twitter), shares of BlackBerry BB,
Clover Health CLOV,
and Palantir PLTR,
all closed above.
“This buying frenzy is among brokers,” Trimbath reflected. “At this point, it’s easier to find money than it is to find stocks.”
This sentiment was shared by a number of retail investors who used the power of memes to illustrate their disruption.
Despite an early pop, the actions of GameStop GME,
closed on the wrong side of the dish on Thursday, with a loss of 0.02%.
It should be noted that direct registration is not a panacea for everything that is wrong with the structure of the market.
It is important to note that locking stocks through direct registration can put pressure on short sellers, but it also exposes the monkeys to significant losses if the stock falls into a free fall.