SEC Investigates GameStop and Others Into ‘Meme Stock’ Craze | Item
Over a two-week period in late January and early February, GameStop’s value rose from $ 2 billion to over $ 24 billion as a stampede of small investors bought the stock, encouraged by d ‘others on social networks. The stock then crashed, in part due to a brief halt in trading by the FinTech Robinhood platform. Similar fluctuations in value have occurred with other previously dying stocks like AMC Entertainment Holdings and BlackBerry.
“On May 26, 2021, we received a request from SEC staff for the voluntary production of documents and information regarding an SEC investigation into trading activity in our securities and securities of other companies,” GameStop wrote in a statement. regulatory filing Wednesday. “We are in the process of reviewing the request and producing the requested documents and intend to cooperate fully with SEC staff regarding this matter. This investigation should not have a negative impact on us. “
“Other companies” could include AMC, BlackBerry, Nokia and others whose stock values have been driven by similar buying and selling patterns fueled by social media.
Compliance professionals predicted early on that the SEC would examine the meme stock craze for potential market manipulation as a “pump and dump” system.
But the new SEC chairman Gary Gensler told the World Conference on Financial Technology and Trade Wednesday that he asked staff to broaden the agency’s focus even further to examine some of the market forces and models that contributed to the frenzy.
“I have asked staff to make recommendations to the Commission on best execution, NMS settlement, order flow payment (both on and off exchange), minimum price increments and the NBBO (best national offer and national offer), with the aim of continuing to make our markets as efficient as possible, ”he said.
Gensler pointed out that 47% of shares sold are not done on the open public exchange but rather by wholesalers (38%) and alternative trading systems (9%). Many retail investor transactions executed in memes stocks have taken place through these less public exchanges.
Robinhood drew criticism after halting trading for two days when GameStop’s action peaked. The platform said it had to stop trading because it did not have enough money to meet collateral requirements.
Gensler’s criticisms of Robinhood’s business model, however, have not focused on stopping the trade. He said Robinhood’s model of using payment for order flow – in which Robinhood makes money not from its customers but from wholesale brokers who execute transactions on behalf of Robinhood’s customers – is a problem. . Thinking they are getting a good deal when they don’t receive any commission, Robinhood clients may be at a disadvantage, Gensler said, because they are not getting the best stock price available when they buy or sell through Robinhood.
“Robinhood has explicitly offered to accept less price improvements for its customers in exchange for higher payment for the order flow for itself,” he said. “As a result, many Robinhood customers have borne the costs of lower runs; these costs may have exceeded any savings they might have thought they had obtained through commission-free transactions.
Gensler also said he was in favor of reducing the time it takes to complete trades from the current two days (T + 2) to one day or even the same day.