Wall Street's top regulator has issued its report on the extraordinary episode that saw retail traders taking on hedge funds, sending shares of GameStop and other meme stocks into the stratosphere.
A highly anticipated U.S. Securities and Exchange Commission report on January’s frenzied GameStop Corp. trading debunked some conspiracy theories that have swirled around social media for months and adds momentum to Chair Gary Gensler’s push to toughen rules.— released Monday — details the SEC’s assessment of one of the most remarkable periods of the pandemic economy, when retail traders took on Wall Street and sent shares of GameStop and other meme stocks into the stratosphere.
Yet the SEC said that story isn’t entirely backed up by the evidence. GameStop purchases by those covering shorts were “a small fraction of overall buy volume” and the company’s share price remained high even after the direct effects of such trades should have waned, according to the regulator. “Staff believes that hedge funds broadly were not significantly affected by investments in GME and other meme stocks,” the regulator said in its report. “Staff did not observe that any advisors to private funds and registered funds experienced liquidity issues or difficulties with counterparties.”
In its report, the SEC did note that clearinghouses demanded billions of dollars in additional margin from member firms and that brokers temporarily barred clients from purchasing additional shares.Factors that may prompt brokers to restrict trading: The SEC said the wild GameStop trading raises questions about thinly capitalized brokers’ ability to meet margin calls. The SEC said such risks could be mitigated by shortening settlement cycles for trades.
Short selling: The SEC said increased disclosure of bearish bets on stocks would help regulators better track market dynamics.
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