What happened
Actions of AMC Entertainment Holdings (NYSE: AMC) it plummeted on Tuesday, with brokers taking action to end the frenzy of trading in volatile stocks.
And
In the past few weeks, traders have used the WallStreetBets Reddit group and other social media sites to launch coordinated buying campaigns on a small number of heavily shorted stocks, hoping to trigger sales squeezes. Several trading platforms soon found themselves unable to keep up with increasing trading volumes – and the corresponding regulatory deposits that they were required to maintain.
In response, Robinhood and other brokers have imposed restrictions that have limited investors’ ability to buy AMC shares and other volatile stocks in the past few days.
AMC Entertainment’s shares fell sharply on Tuesday. Image source: Getty Images.
Traders thought they found a solution in Squarein (NYSE: SQ) Cash App, which continued to give users the ability to buy and sell AMC shares. However, earlier today, Square said that Axos, the clearinghouse that processes its trades, has temporarily suspended purchases of AMC shares.
What now
The moves by brokerages and clearing houses to limit trading at AMC have artificially reduced demand for their shares, which in turn has led to a sharp drop in share prices. However, that demand had been artificially inflated in the first place by traders looking to capitalize on the short pressures fueled by WallStreetBets.
Ultimately, the inflated price of AMC’s shares did not reflect the true value of its difficult movie business. So it was only a matter of time before AMC’s stock price was corrected. Today’s decline may just be the beginning of a bigger move to find a more reasonable price for AMC’s shares.