SEC says GameStop meme stock frenzy fueled by ‘investor sentiment’


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Unprecedented trading volume drove GameStop shares up 2,700% in January

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Following its much-anticipated review of events surrounding the “meme stock” trading saga in January, the Securities and Exchange Commission determined that “bullish sentiment” from individual investors on social media platforms such as Reddit was primarily responsible for the unprecedented jump in GameStop’s stock. was responsible. cost.

Not a bad act.


“The extreme volatility in Mem shares in January 2021 tested the ability and resilience of our securities markets in a way that few could have anticipated,” the SEC said. wrote. “At the same time, trading in meme shares during this time highlighted an important feature of United States securities markets in the 21st century: widespread participation.”

anchor the protection The last Change Change %
GME Gamestop Corp. 186.02 +2.74 +1.50%

According to the SEC, the number of investor accounts trading at Gamestop increased to nearly 900,000 at the end of January, from less than 10,000 at the beginning of the month. Shares of GameStop rose nearly 2,700% between its intraday low on January 8 and its intraday high on January 28.

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While the agency acknowledged that short sellers closing their positions at GameStop contributed to the increase in the video game retailer’s stock price at the time, they argued that such purchases were “a small fraction of the total purchase volume.” , and GME share prices remained high. The direct effect of covering the short position would have been reduced.”

“Whether driven by a desire to squeeze short sellers and thus profit from the resulting increase in price, or by a belief in GameStop’s fundamentals, it was the positive sentiment, not the buy-to-cover, that persisted for weeks at GameStop.” stock price appreciation.”

– Securities and Exchange Commission

“Whether driven by a desire to squeeze short-sellers and thus profit from the resulting increase in price, or by a belief in GameStop’s fundamentals, it was positive sentiment, not buy-to-cover, that persisted for weeks.” — Long price appreciation of Gamestop stock,” the agency said.

anchor the protection The last Change Change %
hood Robinhood Markets, Inc. 40.65 -0.38 -0.93%

The agency poured cold water on a popular theory that brokerages such as Robinhood Markets were pressured by hedge funds and wholesalers to restrict trading on Gamestop and other meme stocks.

“In their client account agreements, certain broker-dealers reserve the right to decline a customer’s order or to cancel trades without prior notice,” the SEC said. “Such actions may be taken, for example, for legal, compliance, or risk management reasons.”

In addition, the SEC found no evidence of a gamma squeeze, where market makers buy a stock to reduce the risk associated with writing call options on that stock, or “naked” short selling, where hedge funds arrange to borrow shares. sell without doing.

Rather than offering specific policy recommendations, the SEC said the events provide an “opportunity to reflect” on market structure issues, such as the impact of digital engagement on retail investor behavior, pay for order flows, in dark pools and wholesale. Trading through sellers, and selling short .

The agency believes that reducing the time it takes brokers to clear equity trades can help mitigate market risk during periods of further volatility.

The SEC also said that consideration should be given to whether “game-like features and celebratory animations intended to potentially generate positive feedback from trading lead investors would otherwise trade more “And may cause the payment broker to pay for the order flow and its incentives. -For dealers to “find new ways to increase customer business”, including the use of digital engagement practices.

In addition, the agency argued that better reporting on short sales could help the agency keep track of shorting and stock price dynamics.

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