NEW YORK - The U.S. Securities and Exchange Commission released a report examining the frenzied trading in shares of retailer GameStop Corp and other'meme' stock on Monday, and recommended some areas for further regulatory consideration.
The report could have implications that affect where retail stock orders are executed and how service is paid for, when brokers can restrict trading, and the amount of transparency around short sales.
In January, Shares of GameStop surged more than 1,600% as retail investors colluded with Reddit's WallStreetBets on online forums to try to bid up the heavily shorted stock and force hedge funds to unwind their bets against it, with the hope the short squeeze would drive the price even higher.
The extreme volatility in GameStop shares, together with other popular meme stocks, prompted the clearinghouse that guarantees trades before they are completed to raise the collateral from brokers to clear the trades.
That led several brokerages, including Robinhood Markets and Charles Schwab Corp., to temporarily restrict trading in the red-hot stocks, halting the rally, infuriating retail traders and rattling market confidence.
In late 2019 large brokers like Schwab and Fidelity eliminated Robinhood's — lead and followed trading commissions.
Then, in early 2020, with COVID 18 lockdowns keeping people at home, major entertainment and sporting events canceled and government stimulus checks sent to many U.S. households, retail trading levels soared.
While the main narrative around the GameStop frenzy was institutional investors taking on big hedge funds, retail investors were also major players in the buying and selling of investments.
Hedge fund Melvin Capital required a $2.75 billion lifeline when it had to close out its short position in GameStop at a massive loss in January.
Anybody who sold GameStop shares at $482.95 and bought them then would have lost money, which would include both games that bought the shares with a bid of $482.95/month ;
GameStop share is currently at $183.28, around 1,275% higher than they were a year ago.
- Congress held several hearings on GameStop episode;
The SEC has asked for public comments on the effect of the gamification of trading apps on investment and whether the public is at risk;
The main post-trade utility for U.S. stocks suggests shortening the settlement cycle of stock trades to one day after the trade happens, from two days;
Various companies and industry groups made recommendations on improving transparency around the execution of retail orders.