SEC Reports on GameStop10.19.2021
The Securities and Exchange Commission published a Staff Report on Equity and Options Market Structure Conditions in Early 2021, which focuses on the January 2021 trading activity of GameStop Corp (GME), the most famous of the “meme stocks.” Because the meme stock episode raised several questions about market structure, the staff report also provides an overview of the equity and options market structure for individual investors.
Our staff @SECGov just released a report on the market events we experienced in January — both in the equity markets and the options markets, with a focus on the individual investor.
— Gary Gensler (@GaryGensler) October 18, 2021
“January’s events gave us an opportunity to consider how we can further our efforts to make the equity markets as fair, orderly, and efficient as possible,” said SEC Chair Gary Gensler. “Making markets work for everyday investors gets to the heart of the SEC’s mission. I would like to thank the staff for bringing their expertise to this important report, and for their ongoing work on to address the issues that January’s events raised.”
The meme stocks experienced a dramatic increase in their share price in January 2021 as bullish sentiments of individual investors filled social media. As the companies’ share prices skyrocketed to new highs, increased attention followed, and their shares became known as “meme stocks.” Then, as the end of January approached, several retail broker-dealers temporarily prohibited certain activity in some of these stocks and options. GME experienced a confluence of all of the factors that impacted the meme stocks: (1) large price moves, (2) large volume changes, (3) large short interest, (4) frequent Reddit mentions, and (5) significant coverage in the mainstream media.
The Report concludes with the staff identifying areas of market structure and our regulatory framework for potential study and additional consideration. These include:
- Forces that may cause a brokerage to restrict trading;
- Digital engagement practices and payment for order flow;
- Trading in dark pools and wholesalers; and
- The market dynamics of short selling.
SIFMA issued the following statement from president and CEO Kenneth E. Bentsen, Jr. on the SEC Staff Report on Equity and Options Market Structure in Early 2021:
“The U.S. equity markets are the deepest, most liquid and most efficient in the world, with investors, in particular retail investors, benefiting from narrower spreads, lower transaction costs and faster execution speeds. Efficient and resilient market structure is key to sustaining investor confidence and participation in the equity markets.
“Notwithstanding the positive growth and evolution of the U.S. equity markets, SIFMA and our members have long called for the SEC to consider improvements to reflect that continued evolution. But any changes to market structure should seek to build on the benefits achieved by investors and issuers. To that end, SIFMA has been engaged in conversations with our broad membership on the equity and options market structure, including but not limited to issues raised for consideration in the report.
“As we review the SEC staff report and recommendations, we look forward to continued engagement on these issues to ensure we meet the goal of regulators and market participants: to promote market resiliency and ensure the U.S. equity markets continue to benefit investors and play an essential role in capital formation.”
With Zoe Zhang and Richard Knight, Execution Quant Group, CLSA
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