Today I Want to talk about how massive liquidations are coming as hedge funds are being bailed out of their margin calls as we speak. Certain: Prime Brokers have been offering credit substitutions for hedgies to meet their margin requirements, but that's just about to come to an end. So stay tuned and let's make some money. And now I'll drive straight in with the key information.

So seven for one trade we'd sing. The Cfdc Clearing and Risk Department has issued a warning that certain Prime broker Arrangements providing centralized credit substitutions may require registration as a derivative clearing organization. So let me explain what that actually means and how that impacts these margin calls. Basically certain.

Prime Brokers have been offering a credit substitution to hedge funds that are about to fail their margin requirements. Now you may see Tom What exactly is a credit substitution? Well, let's say a hedge fund owns tons and tons of shares in a company that's just received a massive margin haircut. That hedge fund can go to this Prime broker and substitute their shares that are technically worth 0 margin purposes for Pure cash that obviously receives zero haircut. Let's say a hedge fund owns tons and tons of child Schwab stock for example, which as it's a bank stock has now received a 100 haircut.

This hedge fund can now go to a prime broker and exchange his worthless shares for cash on a temporary basis to meet his margin requirements. But how exactly does that impact AMC and how exactly with the removal of this credit substitution cause margin course? Well, let's say this hedge fund has around a hundred billion dollars worth of equity and has taken out around 300 billion dollars worth of loans. That's a leverage ratio of three to one. Now we know that a leverage ratio of three to one is actually fairly small in the hedge fund.

World Citadel As a prime example, have a leverage ratio of seven to one. Most hedge funds are somewhere between five to one and ten to one. Now that means their total cash value is obviously 400 billion dollars because 300 billion plus 100 billion is 400 100 billion, but their margin requirement is still 300 billion dollars. That means they can buy 400 billion dollars worth of shares.

But if their portfolio value decreases by 25, their Equity is wiped out and they receive a margin call at that 300 billion dollar level. So the assets can be sold and the loans repaid. Now, what we're basically seeing is some of these hedge funds getting very, very close to that 300 billion dollar. Mark And maybe some of these hedge funds have fallen below that 300 billion dollar mark down to 280 billion dollars.

That means there'd be margin called and they'd be forced to sell off all of their assets and close out of all of their short positions and repay as much of the loan as they physically can. Now, as a prime example, they may even have a 10 billion dollar AMC short position inside that 280 billion dollar portfolio value. Therefore, if they did receive a margin call, they'd be forced to buy back 10 billion dollars worth of AMC shares to close out of that short position. Now, where these hedge funds are being sneaky is inside their portfolio value.

They currently have tons and tons of child Schwab stock which is valued at zero dollars for margin purposes. but the face value of that Charles Schwab Stock May indeed be 30 billion dollars. So they're approaching these Prime Brokers and asking for a credit substitution so they can basically trade their 30 billion dollars worth of Charles Schwab stock valued at zero dollars for 30 billion dollars in cash. That then helps them to meet their margin requirement because their portfolio value of 280 billion suddenly increases now up to 310 billion and they meet those margin requirements.

But obviously so far this is an unregistered practice and it's only a temporary measure until their portfolio Falls Further, or until these Prime Brokers actually have to register a specific service or stop offering these substitutions. And obviously, when these substitutions end, that 300 10 billion dollar portfolio falls back to 280 billion dollars below that margin requirement and they will end up being margin called guys. If you haven't already, be sure to sign up to MooMoo Using the link in the description below, you can currently receive up to 15 free shares entirely commission free trading Free Level 2 Market Data and most importantly of all, MooMoo is very easy to use. They've got tons of technical indicators and advanced charting tools.

Now unusual. It was a tweeter. seeing the SEC proposed requiring Clearing Houses to monitor margin exposure on an ongoing basis and it gives them the authority to make intraday margin calls as frequently as circumstances. Warren Basically, the SEC wants to allow these Clearing Houses to issue Force margin calls to these hedge funds if at any point, their margin requirements drop below what's necessary.

Now you may be saying Tom Credit substitution doesn't sound too bad and it doesn't sound illegal. What makes you think that they're going to stop this process? Well, banks have been trying to do the exam same thing with their assets that are worth less than par value and everyone is losing their mind. This article says the idea floated to regulators and lawmakers by Service Groups and supported by other Banks could allow Banks to take Securities that are currently worth saying 90 cents on the dollar and give them to the FDIC at full price. That would effectively shift losses clogging the bank's balance sheets to the FDIC which is basically exactly what's happening here.

It's shifting losses clogging these hedge funds balance sheets straight into these Prime Brokers But obviously many are asking if these Bank CEOs are on drugs because obviously of the current banking crisis. This idea of credit substitution is not liked by The Regulators or by lawmakers or by most other people for that matter. The only ones that seem to like it are obviously the banks and the hedge funds themselves that are barely avoiding margin calls. And therefore, as soon as these hedge funds stop being bailed out by these Prime Brokers they will be margin called and liquidations will be huge now.

I Also wanted to talk about AMC short volume versus long volume I Wanted to talk about synthetic shares and I wanted to talk about AMC dilution and how it's a massive, massive problem and lose. Tweet is saying that over the last 12 months there's been 4.8 billion shares of AMC shortage and only 3.4 billion shares of AMC bore now I said why is that crazy It means that 1.38 billion shares were shorted and are still out on loan and still need to be bought back. And that's not counting 2021, just 2022. So that's literal proof that 1.38 billion synthetic shares were created last year as 1.38 billion extra shares were shorted compared to what was purchased.

Hang loose Received their reply to that tweet that said, thank you for addressing that Mostly Bad actors seem to continually perpetrate the notion that the squeeze is over no matter how you feel about the board's actions. With their Underwriters, City and Antara, nothing changes the fact that billions of no locate shares exist. And that is absolutely true. Even though what's currently going on with Citibank and Antara, it's sketchy.

There's still billions of synthetic shares out there. But I Did want to talk about how dilution would be a massive massive issue for AMC if it does happen which I don't think it would Adam Aaron has said he doesn't want to dilute AMC further. but let's just talk about what would happen in a scenario that AMC does dilute further. Right now, we've got an AMC float of 516 million shares.

We've always hypothesized there's between two and four billion synthetics. Now after the 10 for One reverse split, that's around 200 million to 400 million synthetic shares that would still exist obviously with 10 times less shares in issue and a 10 times higher share price give or take. But obviously, the problem is that Adam Aaron has 400 million AMC shares that he can possibly issue post split. Now, obviously, those 400 million new shares could be sold to the Shorts where they'd be able to close out of their entire synthetic short position on the cheap.

And that's obviously why dilution post split. But also, pre-split is a massive massive issue because even without the reverse split, Adam Aaron still has 4 billion ape shares that he can still issue. And again, those four billion Apes would be used to close out of those 4 billion AMC synthetics. Now you may be saying Tom How can new ape shares close out of AMC Synthetics? Surely they're two completely different stocks, right? But you have to remember the ruling that allows shares or assets of like type and kind to be used to close out of short positions.

I actually even managed to find a specific ruling on rule 204 of Regulation Sho close out requirement that says rule 24 requires Brokers and dealers that are particip Prince of a registered clearing agency to take action to close out FTD positions and closing out requires the broker or dealer to purchase or borrow Securities of like kind and quantity so they don't have to use new AMT shares the close out of AMC shorts. They could use Ape shares or new Ape shares to close out of AMC shorts and just argue the point that these Shares are of like kind or very, very similar and that's why I Do think that dilution is a massive issue regardless of the split. dilution, post split, or dilution pre-split is still a massive issue if dilution happens on a massive massive scale. Now, as I said, Adam Aaron has said numerous times that he has no intention of diluting the stock.

Further, he said the reason why he wants to perform the reverse split is to remove that price Arbitrage between ape and AMC. Therefore, I Do believe that if Adam Aaron performs this reverse split for the right reason, it's not inherently bad. It's only a big issue if he decides to dilute on massive massive scale. He's obviously said AMC has a huge cash reserve and therefore has no real need to issue dilution.

But I do think that if he did Issue dilution if he issued 400 million new shares which is the same as issuing 4 billion shares pre-split That effectively allows those two to four billions in shares to be closed out of at a fixed low price. I Guess it would also depend on all of the new shares being purchased by those synthetically shorting hedge funds and nobody else. but I Wouldn't say that's impossible, but guys, be sure to let me know what you think down in the comments below. And as always, guys, be sure to ding that notification Bell because that way you'll be alerted when I put a new video.

Cheers!.