Will Gamestop Frenzy Change Inventory Markets? SEC releases report on market situations in early 2021

Lower than a 12 months in the past, in January 2021, GameStop Corp. – GME made nationwide headlines when its inventory worth fell from lower than $ 19 on December 31, 2020 to $ 325 a share on January 29, 2021. The rise within the firm’s share worth in The problem was largely due to retail buyers (who shared funding recommendation on social media platforms like Reddit) shopping for the inventory to pressure a “brief squeeze” on hedge funds that had closely shorted GME. Amid hovering costs and volatility, Robinhood (the dealer by means of which many retail buyers traded) suspended buying and selling in GME.

The lack of retail merchants to execute their GME transactions by means of Robinhood has led to important damaging media protection and even Congressional hearings. In October 2021, SEC employees additionally intervened by releasing their report on GME and “similar inventory” occasions. Amongst others, the report commented on: brokers’ digital engagement practices; cost of the order circulate; sale of transactions to market makers; and the dynamics of brief promoting.

However the report additionally drew consideration to a lesser-known however essential set off for the January occasions: The Nationwide Securities Clearing Company’s excessive margin appeals to member clearing homes, like Robinhood. In January 2021, NSCC requested Robinhood to pay a $ 1 billion margin name, or face potential liquidation by means of the Securities Investor Safety Company (SIPC). Based on the report, the occasions of January 2021 “raises questions concerning the doable results of sharp margin calls on smaller-cap brokers and different methods to cut back their threat. “

Now that we’ve had time to digest the report, we have to pay shut consideration to any doable rule modifications concerning the cost of order circulate, the best way brokers design their purposes to encourage buying and selling, margin calls. on clearing homes and the NSCC settlement cycle shortening.

This episode … raises questions concerning the doable results of sharp margin calls on smaller-capitalized brokers and different methods to cut back their threat.


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