VOTING RIGHTS, DATE OF RECORD, FAILURE TO DELIVER, SYNTHETIC SHARES, AND OVERVOTING: Is it possible to overvote?
I've been seeing a lot of theories flying around regarding the Proxy Statement and Voting Rights so I'll try to provide more information. This is not financial advice and I don't have any insider knowledge of how this really works but this is what I've found.
I don't think it is possible to over vote in the shareholder meeting.
There are a few types of shares that are floating around.
- Real Shares
- Loaned Shares
- Counterfeit Shares
- Failure to Receive
- Synthetic Positions
1. Real Shares
These are the only shares that have beneficial ownership in terms of voting and basic shareholder rights. These are the only shares that are traded on the market, as far as I can tell. When you buy a share and IT IS SETTLED, you fully own a real share. You have rights to dividends that are paid by the issuer, aka GME.
2. Loaned Shares
Shares that are loaned lose their beneficial ownership rights. Once loaned these cannot be traded unless the shares are covered and returned by shorts. They cannot vote in shareholder meetings if they are not returned by the Date of Record. The Date of Record for GME is 04/15 (Page 8) which means all shares must have been returned by that date and SETTLED in order to have beneficial ownership rights to vote. They still retain rights to a dividend that must be paid by the borrower which have a different date of record.
3. Counterfeit Shares
These are the shares that are assumed to be produced by Naked Shorts but are not tradable on the market. However it is not actually possible to create a counterfeit share. The SEC states that:
Naked short selling has no effect on an issuer's total shares outstanding (Section 7).
There technically cannot be any counterfeit shares as the shares traded in the float and settled are real shares with full beneficial ownership rights. Instead there are Failure to Receive Shares which are the other end of Failure to Deliver. It's a bit of semantics but that's life.
4. Failure to Receive Shares (FTR)
These are the shares that are not settled after 3 days and are on the other end of the failure to deliver. These shares have no rights of beneficial ownership meaning that they cannot vote in shareholder meetings. They can, however be traded as a normal share. These are the 'synthetic' or 'counterfeit' shares that everyone is worried about. This is where shorts can create more shares that than are in the float.
FTR shares can be covered by the NSCC and DTC through the Stock Borrow Program (SBP). When an FTD occurs, the SBP can provide a loaned share to the buyer to cover the FTD. There is still an FTD but the buyer then has a real share with full beneficial ownership rights. It is possible that many of the loaned shares from big institutions are included in this program. This reduces the number of FTRs but does not change the number of FTDs and it does not fully cover all FTRs, in 2005 it only covered 20%. Meaning that the short position still needs to cover.
5. Synthetic Positions
These are a call/put strategy that does not actually create any synthetic or fake shares. This comment explains it better as it's something I don't really understand. However, these are not 'synthetic', 'counterfeit' or fake shares. I haven't been able to find any information with the SEC or anywhere else that would imply that synthetic shares as we know them are real.
SO WHAT DOES THIS MEAN
It means that when the voting is counted it is possible that there will never be more than 100% of the vote. Shares that are loaned cannot vote and FTR shares cannot vote meaning that only real shares can vote. There are some possibilities of mistakes related to settlement which could result in there being a higher number of votes than expected but according to some sources these are easily fixable.
Information on the Date of Record and Voting Rights
Again, there are a few terms and dates flying around:
- Date of Record
- Proxy Statement
- Date of Record for Dividend
- Ex-Dividend Date
1. Date of Record
The Date of Record is the date that you have to shares settled and in your possession. If they are not in your possession on this date then you are not recorded as the beneficial owner of those shares.
Such date in any case shall be not more than 60 days and, in case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof (Cornell Law School).
This is what people are getting confused by in terms of the Date of Record. It must be SET within that period and cannot be moved. It does not mean that you have up to 10 days prior to recall your shares.
People may also be confused by this:
At least 20 days before each meeting of the shareholders, the officer or agent having charge of the stock transfer books for the shares of the subsidiary holding company shall make a complete list of the stockholders of record entitled to vote at such meeting, or any adjournments thereof, arranged in alphabetical order, with the address and the number of shares held by each (Cornell Law School).
This means that all of the names from the date of record, which for GME is 04/15 must be listed and available 20 days before the meeting. This does not mean that you can recall your shares by this date or buy them by this date to have rights to vote. That date is definitively 04/15.
2. Proxy Statement
The Proxy Statement as we have all seen has all of the information about beneficial ownership and voting information to make informed decisions about the shareholder meeting.
The date included on Page 8 is the Date of Record. As you can see it is clearly set 04/15 which was 8 days before the Proxy Statement was released. This has been the case with every Date of Record and Proxy Statement released by GME. There is no requirement to release the Date of Record before the Proxy Statement is filed. I've made a post about this before with the historical dates of filing and Dates of Record.
You can see that last year Hestia Capital estimated the date well in advance because of information provided to banks and brokers.
If you were a holder of shares on 04/15 you should be receiving additional information by April 28th or you can check their Proxy Vote website here to get the same information, which they state will be available on 04/28.
3. Dividend Date of Record
The Date of Record for a shareholder meeting is different than that of a Dividend Date of Record. These are usually produced when the dividend is announced. I do not see any mention of a dividend in the Proxy Statement and they say on page 40 " Currently, we do not pay dividends on our common stock".
4. Ex-Dividend Date
The Ex-Dividend Date is usually one day before the Date of Record where your share must be settled to be recorded in your possession. If it is not, then you do not receive a dividend. If you have an FTR share you are still entitled to a dividend payment. I believe these still work the same way as Loaned Dividends where the borrower must pay the dividend.
WHAT DOES ALL THIS MEAN PT. II
All of this together means that the hype around share recall was misinformation. Shares would have to be in the possession of the owner by 04/15. It is too late to recall share for voting rights but a lender can recall their shares at any time for any reason.
This also means that it is highly unlikely that there will be more votes in the shareholder meeting than are in the float because FTR and Loaned shares are unable to vote.
This still does mean that there is likely many FTR or what we have been calling 'synthetic' shares. Enough to be well over the number of shares available in the float. It's likely that the urgency around voting is to determine whose shares are FTR when the holders on the Date of Record are fully collated and available to determine how many shares are not 'real' shares. This will also make it possible, I believe to determine who is loaning out shares.
TL;DR
- Share recall has come and gone.
- I do not believe there can be over 100% vote in the shareholders meeting.
- Our terms are wrong but the theories still hold.
- BUY AND HOLD
Please correct me if I'm wrong on any of this but try to provide some sort of evidence supporting your argument.
EDIT:
This post here also has a huge amount of information and links to more evidence about dates.
This post explains how the actual vote happens and what info you need to know.
Posted Apr 23, 2021, 10:16 AM UTC · edited