Why did the SEC publish a report on GameStop?

(Corrects paragraph 6 to make clear that Schwab didn’t limit the shopping for or promoting of GameStop shares, however adjusted the margin necessities and restricted some superior choices methods)

By John McCrank

NEW YORK (Reuters) – The US Securities and Trade Fee on Monday launched a report analyzing the frenzied buying and selling of retailer GameStop Corp’s shares and different “meme” shares in January, and advisable sure areas for evaluate regulatory course of.

The report may have implications that have an effect on the place retail inventory buy orders are executed and the way this service is paid, when brokers can limit buying and selling and the diploma of transparency round brief gross sales. .

Listed here are some key particulars of the GameStop saga:

WHAT HAPPENED?

GameStop shares jumped greater than 1,600% in January as retail traders colluded on on-line boards like Reddit’s WallStreetBets to try to bid on closely shorted shares and power hedge funds to unwind their shares. betting in opposition to it, within the hopes that the brief squeeze would push the value up even larger.

The intense volatility of GameStop shares, together with different standard meme shares, has prompted the clearinghouse that ensures trades earlier than they’re accomplished to raise brokers’ collateral to clear trades.

This has led a number of brokerage homes, together with Robinhood Markets, to quickly limit buying and selling in Scorching shares, serving to to dampen the restoration, infuriating retail merchants and shaking market confidence. Others, equivalent to Charles Schwab Corp, have adjusted margin necessities and restricted superior possibility methods on the shares involved.

WHY THE TAKE-UP OF RETAIL TRADE?

In late 2019, giant retail brokers like Schwab and Constancy adopted Robinhood’s lead and eradicated buying and selling commissions.

Then, in early 2020, with COVID-19 lockdowns preserving individuals at residence, main sporting and leisure occasions canceled, and authorities stimulus checks despatched out to many American households, retail ranges shot up. soared.

Whereas the primary story round GameStop’s frenzy was that retail traders have been going after giant hedge funds, institutional traders have been additionally main gamers in shopping for and promoting.

WHO HAS BEEN INJURED?

Hedge fund Melvin Capital wanted a $ 2.75 billion lifeline when it needed to liquidate its brief place on GameStop at an enormous loss in January.

Anybody who purchased GameStop shares at $ 482.95 on January 28 after which bought them since would have misplaced cash.

GameStop shares are at the moment at $ 183.28, about 1275% greater than a yr in the past.

WHAT HAPPENED SINCE?

– Congress held a number of hearings on the GameStop episode;

– The SEC has requested public touch upon the results of “gamification” of buying and selling purposes and whether or not the general public is in danger;

– The main post-trade utility for US equities advisable shortening the settlement cycle of inventory transactions to in the future after the commerce, as a substitute of two days;

– Numerous corporations and trade teams have made suggestions on enhancing transparency relating to the achievement of retail orders.

(Reporting by John McCrank, enhancing by Rosalba O’Brien)

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