what happened
Shares of AMC Entertainment Holdings (NYSE: AMC) plunged on Tuesday when brokers ended the trading frenzy in the volatile stock.
Approximately
In recent weeks, traders have been using the WallStreetBets Reddit group and other social media sites to launch coordinated buying campaigns on a small number of heavily shorted stocks in hopes of creating short pressures. Several trading platforms quickly failed to keep up with the rising trading volumes – and the corresponding regulatory deposits they had to maintain.
In response, Robinhood and other brokers have imposed restrictions that have limited investors’ ability to buy shares of AMC and other volatile shares in recent days.
AMC Entertainment’s share fell sharply on Tuesday. Image Source: Getty Images.
Traders thought they would find a solution in Squaresay (NYSE: SQ) Cash App, which still gave users the ability to buy and sell shares of AMC. Earlier today, however, Square said that Axos, the clearing house broker that processes its transactions, has temporarily halted purchases of AMC shares.
Now what
The movements by brokers and clearing houses to restrict the trading of AMC artificially reduced the demand for its shares, which in turn led to a sharp decline in the share price. Yet the demand was artificially inflated in the first place by traders using WallStreetBets driven short press.
Ultimately, AMC’s upward share price does not reflect the true value of its struggling cinema industry. So it was only a matter of time before AMC’s share price corrected. Today’s decline may just be the beginning of a bigger step in finding a more reasonable price for AMC’s shares.