Apes Have Locked Up This Many Million GameStop Shares On DRS: What's Going On?

Zinger Key Points
  • Shares that are directly registered aren’t available for brokers to lend out to short sellers.
  • Amid a shrinking supply an inability for short sellers could cause the mother of all short squeezes: #MOASS.
Apes Have Locked Up This Many Million GameStop Shares On DRS: What's Going On?

GameStop Corporation GME printed its second-quarter earnings on Wednesday after the close, and while the gaming retailer beat analyst estimates, the total number of shares directly registered with GameStop’s transfer agent, Computershare, was the figure more hotly anticipated by the Apes.

The updated number of directly registered shares is astonishing when compared to GameStop’s filings for the first quarter, indicating the movement, which began in the first half of 2021, is gaining steam.

As of July 30, a whopping 71.3 million shares of GameStop’s Class A common stock were directly registered with the Australia-based stock transfer company compared to 12.7 million for the period ending April 30 (the equivalent of 50.8 million when adjusted for GameStop's 4-1 split on July 22).

With GameStop’s outstanding and unvested restricted share count coming in at 309.5 million, 23.04% are directly registered.

Read Benzinga's Sept. 19, 2021 Report: GameStop Stock: The Naked Shorting, The SEC And Why The Apes Aren't 'Dumb Retail'

The Reasoning Behind The Move: Mid-2021, fervent GameStop longs began transferring their GameStop holdings from various so-called “boomer brokerages” to Computershare, a stock transfer company, which Benzinga reported on in September of that year. The process allows each Ape to become the registered owner of their shares as opposed to a beneficial owner, which serves two main objectives:

Shares that are directly registered aren’t available for brokers to lend out to short sellers.

When a shareholder transfers their shares to a Direct Registration System such as Computershare, the broker is forced to locate those shares for transfer.

In short, the less shares that are available for brokers to lend to short sellers, the riskier short selling becomes, especially in the event shorts are forced to scramble to cover their positions amid a shrinking supply. This, in turn, could cause the mother of all short squeezes: #MOASS.

The Back Drop: The existence of highly controversial trading practices such as short selling, naked shorting and lit versus dark exchanges hit the public psyche in January 2021, when GameStop skyrocketed 2,311% over just 11 trading days between Jan. 13 and Jan. 28.

The event, which took place during the middle of two years of rolling COVID-19 lockdowns, after retail traders took to the stock market in droves, kicked off a battle between "small money" and Wall Street that eventually wound up before Congress.

Among a number of other quasi-consequences, hedge fund Melvin Capital was forced to close its doors and Robinhood Markets, Inc HOOD saw its userbase begin to plummet after restricting trading on GameStop and a number of other securities in late January 2021.

The Aftermath: After many months of hearings, Maxine Waters (D-CA), chairwoman of the House Financial Services Committee, in August released a report entitled “Game Stopped: How the Meme Stock Market Event Exposed Troubling Business Practices, Inadequate Risk Management, and the Need for Regulatory and Legislative Reform,” but little has been done to end the practices in the U.S.

North of the border, Canada’s IIROC has been making moves to put a stop to naked short selling, issuing new guidance last month on the activity, although many feel the notice falls short.

See Also: 'Dumb Money:' GameStop Short Squeeze Inspires Movie Starring Seth Rogen, Pete Davidson

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