Svea Herbst Bayliss & Krystal Hu

(Reuters) – Jose Castillo repaid $60,000 in cash GameStop Corp (NYSE: ) Stocks from his brokerage last Summer, even though they were not for sale.

This 26-year old information technology worker lives in Minneapolis and is one of a growing number investors in meme stocks. These are shares like GameStop that day traders love. They’re being pulled from their brokerages by concerned about the possibility of the shares being lent out to short-selling hedge funds.

Castillo took shares out Fidelity Investments. He transferred them to Castillo’s name via Computershare Ltd., an Australian stock transfer firm.

Brokerages try to reassure customers that they don’t lend shares of their clients who trade on borrowed funds. The shares cannot be loaned if they have their cash.

Castillo trade GameStop stock without borrowing money, but Castillo still fears that his shares will be lent.

Reddit is the social media site that day traders used after this year’s meme stock trading frenzy. He claimed he had read about “direct registration of shares” on Reddit. Investors are declaring that they now have their shares removed from brokers through Computershare companies, in the belief this will protect them against short-selling.

Castillo stated in an interview that “there is so much happening with a stock shorted,” and suggested that people began to wonder how they could make certain that it was theirs, as well as that no one else has any control over it.

Fidelity declined to comment.

Paul Conn is the President of Computershare’s Global Capital Markets Group. He said that in September he noticed a rise of direct registration business driven by day trader-driven traders.

Conn stated that retail investors asked their bank or broker to take their investment from the “street name” system into their name and onto their share register.

Hedge funds sell shares short by taking out loans and then selling them in the hope that they will lose value and be able to buy them back at a lower price and keep more. Experts in financial markets said that the push for direct registration will not stop this practice because most collateral used by hedge funds comes from retail brokerages rather than prime brokers.

    “The shares used to stock-loan from margined retail accounts are minimal compared to the stock-loan inventory from prime brokers and long lenders such as mutual funds and pension funds,” said research firm S3 Partners managing director Ihor Dusaniwsky.

According to Refinitiv data, GameStop share trading volumes have fallen to the lowest point in over a year from July. This was around the time Reddit users started to support direct share registration.

According to Joshua Mitts (a Columbia Law School securities professor), removing shares from the stock market can make them more susceptible for wild price swings that could ultimately hurt retail investors.

From a psychological perspective, it is clear that this resonates. However, it doesn’t make economic sense because trading will become more volatile with less shares,” Mitts stated.

GameStop representatives declined to comment. Some of the most popular trading apps include Robinhood Markets Inc (NASDAQ:), and SoFi Technologies Inc. Traditional brokerages, such as Charles Schwab Fidelity and (NYSE:) Corp would be affected if direct registrations increased. These companies benefited from the surge in trading meme stocks this year.

Representatives from Charles Schwab and Robinhood reiterated the fact that hedge funds can only borrow shares of those customers who borrowed money from brokerages.

Jeff Chiappetta (the brokerage’s managing direct of trading and education) stated in a statement that there has been an increase in clients asking to have certain securities held outside Charles Schwab to protect them against being loaned out.

Chiappetta said that many clients requested to borrow their shares from Charles Schwab, even though they had purchased shares.

The spokesperson for SoFi did not reply to our request for comment.

TRANSACTION CURBS

Robinhood’s peers and retail investors began to doubt brokerages after they placed trading restrictions late January on GameStop stock shares. Social media was filled with thousands of people claiming that trading restrictions were put in place to safeguard hedge funds who had suffered losses of billions of dollars by shorting GameStop’s stock, but did not anticipate a Reddit-fueled rally.

Robinhood, a commission-free brokerage that does not charge fees for orders flow, relies on payments from the market maker for routing trades. Retail investors have become suspicious about this model due to the fact that Citadel Securities, Robinhood’s market maker also operates hedge funds which engage in short selling.

Citadel and Robinhood both insist that trading restrictions were not meant to protect hedge fund managers, but rather were required because Robinhood had insufficient collateral to complete customers’ trades.

Last month, a U.S. judge dismissed a lawsuit against Robinhood alleging that the brokerages and trading apps prevented retail investors from purchasing fast-rising meme stocks and thus triggering a sale.