The Securities and Exchange Commission issued a long-awaited report Monday on the decision by many stock brokers to limit the ability of gamestop corporations and other meme stocks to buy shares in January, but the document provides some clues on how the agency could change to prevent such incidents in the future. Could not reach a definite conclusion about the rules of market structure and why these restrictions were made.
“The events of January have given us an opportunity to consider how we can further our efforts to make equity markets as fair, orderly and efficient as possible,” SEC Chairman Gary Gensler said in a statement. “Creating markets for everyday investors comes at the center of the SEC’s mission.”
The report details the rapid rise in price of Gamestop GME,
Shares in January of this year, noting that the video game retailer’s stock price rose 2700% from January 2 to January 2, the highest intraday of $ 3.
It notes that price volatility came against the backdrop of growing interest in the company on social media, with investors arguing that the company was undervalued for fundamental reasons and ripe for so-called low-pressure, as statistics showed that more than 100% of the company’s outstanding shares were owned by investors. To catch that stock price will fall.
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The SEC argued that the rise in stock prices in January had forced many short sellers to close their positions and that this dynamic fuel price increase was not a major factor.
Buying shares to cover short sales “was a small fraction of the overall purchase volume … GME share prices continued to rise after the direct effects of covering short positions diminished,” the report said. “Because of the desire to suppress short sellers and thus gain as a result of price increases, or because of the belief in the basics of gamestop, it was a positive feeling, not a buy-cover, which lasted for several weeks to assess the price of gamestop stock.”
The report also highlights the potential role of clearing agencies in the decisions of retail brokers such as Robinhood Hood.
Restrict buying of Gamestop and other meme stocks in January.
A subsidiary of the National Securities Clearing Corporation, a depository trust and clearing company, the Central Clearinghouse for Stock Trading in the United States serves as a guarantor for the sale of securities, enabling market participants to assume that their business has been executed even when the actual settlement is threefold. Occurs within days.
Robinhood and other brokers say they have restricted volatile stock purchases because an increase in increasingly volatile stock purchase orders has forced the NSCC to post billions of dollars in additional securities to hedge brokers against the risk of failure to supply purchased securities. The SEC report noted that on January 22, NSCC “made intraday margin calls from a total of 226 clearing members for 26 26.9 billion” or increased %% of the total required margin among its members.
The SEC reported that Robinhood and other brokers held that these margin requirements were the only reason limiting gamestop purchases, but senior officials at the agency told reporters in a call Monday that they could not rule out other possible reasons.
In addition, the SEC report does not assure retail investors that such trading restrictions will not be imposed on them in the future. “In their Customer Accounts Agreement, some brokers-dealers reserve the right of customers to reject orders or cancel business without prior notice,” the report said. “Such action may be taken, for example, due to legal, compliance or risk management.” The SEC report did not recommend any new rules that would affect these customer agreements.
Senior SEC officials noted in the call that despite the volatility in meme stocks in January, the underlying infrastructure of the US equity market remained strong. Meanwhile, the report encourages readers to view the Gamestock story as an event that highlights the growing participation of Americans in the securities market.
“Extreme volatility in meme stocks in January 2021 could lead some to speculate in such a way as to test the strength and resilience of our securities market,” the report said. “At the same time, transactions in meme stocks at this time highlight an important feature of the U.S. securities market in the twenty-first century: broad participation.”
The report concludes that events provide an “opportunity to reflect” on issues surrounding the market structure, including the impact of digital engagement practices, or “gamification” on the behavior of retail investors, the wisdom of reform that will shorten the current three. Possible reform of day-to-day settlement cycles and payment practices for order flows, where market makers pay brokers for the right to execute orders to their customers.
Gensler had previously said he had instructed staff to conduct research in the area and that the agency could be engaged in formulating rules to reform these practices.