By Michelle Price

(Reuters) – The U.S. securities regulator released its long-awaited post-mortem into January’s GameStop saga https://www.reuters.com/business/why-did-sec-release-report-gamestop-2021-10-18, in which retail traders banded together on social media and piled in to GameStop and other “meme” stocks in an attempt to punish hedge funds that had bet against the company, sending its shares soaring.

While the episode was explored in some detail during a congressional hearing https://www.reuters.com/business/retail-consumer/hedge-funds-robinhood-face-grilling-by-congress-over-gamestop-reddit-rally-2021-02-18 earlier this year, the Securities and Exchange Commission report, published on Monday, offers some new details on what went down. Let’s take a look at some key points:

880,000 NEW ACCOUNTS STARTED TRADING GAMESTOP IN JANUARY

Reddit had noticed GameStop in 2019. Discussions about short squeezes and other topics were already starting to focus on it. The SEC stated that this attention increased throughout 2020.

“Price and trading interest increases as well as social media interest have all increased significantly in 2021.”

According to the SEC, January 27th saw 900,000. This was compared to the 10,000 accounts that traded GameStop at the start of the month.

INSTITUTIONAL INSIDERORS ALSO DO THE RALLY

Apart from retail investors, many institutional investors including hedge funds also bought shares. GameStop Corp (NYSE:

Hedge funds could have partially driven these purchases by placing bets against GameStop in an effort to protect their position. Unfortunately, some funds lost badly.

Some funds, however, that had been long GameStop accounts were cashed in.

According to the SEC, “Investors who were invested in the targeted stocks just prior to market events have benefited unexpectedly from their price rises while others including quantitative and higher-frequency hedge fund joined the rally to trade profitably.”

NO GAMMA SQUEEZE

GameStop’s rapid rise could be explained by a “gamma squeeze”, which is when market makers acquire stock to offset the risks associated with writing options on it. The stock prices are then under more pressure.

SEC reported that GameStop Options trading volume was significantly increased by retail investors. However, that increase was mainly due to an increase of the buying and selling of call options. Data also revealed that market-makers preferred to buy call options than write them.

The SEC stated that “these observations are not consistent to a gamma squeeze.”

NO NAKED SHORTING

The unusually large amount of short selling in GameStop sparked speculation of “naked” shorting – selling shares without arranging to borrow the underlying security.

The seller cannot deliver the securities to the purchaser if a naked sale takes place. The SEC stated that “Based on staff review, GameStop did not experience persistent failed to deliver”.

GAMESTOP WAS NOT THE ONLY PART OF IT

The SEC stated that individual investors had begun to download broker-dealer applications in the early 2021s. More than 100 stocks saw large price movements or an increase in trading volume, which was significantly higher than the wider market.

According to the SEC, the single-day price movements on Jan. 27, from Jan. 26, for KOSS Corporation (480.0%), AMC Entertainment (3NYSE:) Holdings Inc (301.2%) and Naked Brand Group (2252.3%) were greater than any one-day GameStop price movement (214.1%).