Regulator releases post-mortem into GameStop saga

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Regulator releases post-mortem into GameStop saga

Reuters - The U.S. securities regulator released its long-awaited post-mortem into January's GameStop saga https://www.reuters.com com business why-did-sec-release - report-Gamestop - 2021 - 10 - 18, in which retail traders banded together on social media and piled into GameStop and other meme stocks in an attempt to punish hedge funds that had bet against the company, sending its shares soaring.

While the episode was explored in some detail during a congressional hearing https: www.reuters.org/documents/status/show/57513/, it was discussed and analyzed by the US House of Representatives. com business retail consumer hedge-funds - gametop Reddit - conference over - robinhood-face - grilling-by - congress-over - 2021 - 02-18 earlier this year, the Securities and Exchange Commission report released on Monday offers some new details on what went down. GameStop had already started to win interest on Reddit in 2019, including in discussions about short squeezes. The SEC said that attention grew during the whole of 2020.

In 2021, price increases, trading interest, and social media interest accelerated. By Jan. 27 the number of unique accounts trading GameStop on a given day had reached 900,000 compared to 10,000 at the beginning of the month, the SEC said.

In addition to institutional investors, he acquired shares of GameStop Corp., several hedge funds, and retail shareholders.

Some of those purchases may have been partly driven by hedge funds that had betted against GameStop, trying to cover their positions, and some of these funds made bad losses.

In contrast, some long cards were cashed into by GameStop.

Some investors that had been invested in the target stocks prior to the market events benefited from the price rises unexpectedly, while others joined the market rally to trade profitablely, the SEC wrote.

One theory for GameStop's meteoric rise was a so-called gamma squeeze, which happens when market makers purchase a stock to hedge risk created by writing call options on that stock. This further puts upward pressure on stock prices.

The SEC did find that GameStop options trading volume for retail investors increased significantly, but that was mostly driven by an increase in the buying of put options than call options. The data also showed that market-makers were buying call options, not writing.

These observations by themselves are not consistent with a gamma squeeze, the SEC wrote.

The unusually large amount of short selling in GameStop sparks speculation about naked shorting - selling shares without having to borrow the underlying security.

By early 2021, individual investors were increasingly downloading broker-dealer apps and more than 100 stocks experienced large price moves or increased trading volumes that exceeded the broader market, the SEC said.

For example, single-day price changes on Jan. 27 from closing prices on Jan 26 for KOSS Corporation 480.0% Naked Brand Group 252.3% and Express Inc 214.1% were larger than any single-day gameStop price change, according to the SEC.