The outside edge of the snap ring sits in a very shallow lip on the inside edge of the larger groove. The inside edge of the snap ring is held by the bearing assembly (not pictured here, but shown in the photo of the snap ring being held), which is in turn attached to the counter-shaft. There is room for the snap ring to move in this defective transmission housing. In a good transmission the groove is narrower and holds the snap ring securely so it does not move.