Monday, October 30, 2006

The mistery of AMD's 117% institutional ownership

A fellow in the message board detected that AMD had 118.8% institutional ownership the day he posted. That number would mean that institutions own all AMD's float and then some 19% more, clearly absurd.

Thus, what is the nature of the error?

A typo? No, because the data for today indicates a different number (117% today) that is changing by the day.

Is the Nasdaq web page doing something goofy such as combining all of ATI (ATYT) institutional holdings with AMD's?... perhaps.

But I suggested that this number may come from naked shorting: AMD's institutional ownership had always been very high (eighty-percentish), to begin with, and it may have happened that the institutional investors actually liked the earnings report (due to increased profits, revenue share, and even gross margins higher than historical and above Intel's while growing in the hottest segment, mobile) and decided not to sell but to buy while "the market" was crazy selling AMD as if it was going to bankruptcy, trading extraordinarily high volumes (about 20% of the float every day for a week), suggesting that the volume and the price slide came from inexistent shares, that is, the result of naked shorting, and in the face of this flooding of cheap AMD "shares", some institutions bought some more taking their percentage above 100%...

Naked Shorting, means shares that were sold short without being borrowed first. A quick explanation: when someone sells short, in theory that someone borrows the shares to sell them at market price, if the shares go down in price, then the liability is smaller and the short seller keeps the difference. The brokerages do the borrowing part, meaning that they must locate who to borrow the shares from. What if there is no borrowing, that a brokerage just takes the money and delivers a temporary certificate for the shares? This scenario is covered by an excellent presentation by Patrick Byrne, the C.E.O. of It seems that the S.E.C. is so weak that the brokerage/dealers may sell short without any borrowing, flooding the market with pseudo shares and thus forcing the price of the shares down, while the pseudo shares may linger FOR MONTHS AND YEARS without being cleared out of the system. On top of that, there is no official data to prove Byrne wrong, that's the point: There is the problem of brokerages that fail to deliver the real shares to whoever bought them and there is no way to find out the extent of the problem.

It is good that even "Syndrome" agreed with my suspicions and cited the same links I provided even though, as it is typical in him, "forgetting" to indicate who had the original idea.

I am not knowledgeable about how the Nasdaq calculates its numbers, I would like to know what is the matter.


Anonymous said...

You may be on to something, hundreds of millions shares traded in 3 days, and onlt 100 million in the hands of retail.