NEW YORK (Reuters), – Monday’s report by the U.S. Securities and Exchange Commission examined the intense trading that took place in stocks of retailers. GameStop Corp (NYSE:), as well other’meme’ stocks, January. We recommended areas of regulatory concern.
This report may have implications on where and how retail stock orders are executed, the payment for that service, trading restrictions, as well as transparency regarding short-term sales.
These are the key facts from GameStop’s saga.
GameStop shares rose more than 1,600% in January, as investors conspired on Reddit’s WallStreetBets forums to attempt to buy the stock at a high price and for hedge funds to disperse their bets.
GameStop shares’ extreme volatility and the other well-known meme stocks prompted the establishment of the clearinghouse, which guarantees trades before they are finished to obtain collateral from brokers so that trades can be cleared.
This led to the formation of several brokerages including Robinhood (NASDAQ) Markets Charles Schwab (NYSE:) Corp. to temporarily limit trading in red-hot stock, curbing rally, irritating retail traders, and rattling markets confidence.
WHY IS RETAIL TRADING SO IMPORTANT?
Fidelity and Schwab, large retail brokers, followed Robinhood’s footsteps and eliminated trading commissions at the end of 2019.
Retail trading rose dramatically after COVID-19 lockeddowns in 2020. Major entertainment events were cancelled and stimulus checks to U.S. homes was sent.
Although the GameStop panic was centered around retail investors who took on large hedge funds, institutions were key players in both the buying and the selling.
WHO WAS HUT?
Melvin Capital hedge fund needed $2.75 Billion to save its position in GameStop, which it lost in January.
Anyone who purchased GameStop shares for $482.95 Jan. 28, and sold them thereafter would have lost their money.
GameStop shares trade at $183.28 right now, which is nearly 1,275% above the level they were one year ago.
What HAS HAPPENED IN THE END?
Congress had several hearings about the GameStop episode.
– SEC requests public input on “gamification” in trading apps.
– U.S. stocks’ main post-trade utility has suggested reducing the settlement time for stock trades by one day from the date they occur.
Many companies and groups from the industry have suggested ways to improve transparency regarding retail order execution.
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