Svea Herbst Bayliss & Krystal Hu

(Reuters. ) – This story amends paragraph 23 in order to clarify that Citadel Securities is not involved with hedge funds.

Jose Castillo took his $60,000 of worth 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 the shares from Fidelity Investments, and transferred them under his name to Computershare Ltd. This stock transfer company in Australia is Computershare Ltd.

Brokerages are trying to assure investors that they do not lend shares to customers trading with borrowed money. 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 was the platform day traders used to find out about “direct registration” for shares, he said. 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 explained that there was so much to a short stock, that people thought about how they can make sure they own the stock and ensure that nobody else does anything I don’t like with it.

Fidelity declined to comment.

Paul Conn is the president of Computershare’s global capital market group. He said that in September he noticed a wave start to register direct. This was driven by meme stock investor.

Conn explained that retailers have requested their broker/bank to move their investments out of the street name system and directly into their names, onto the company’s stock 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.

Refinitiv data shows that GameStop share trading volumes have fallen to the lowest point in over a year from July. Reddit users advocated for direct shares registration at that time.

Computershare has a direct registration provider called Computershare that allows you to transfer shares from brokerages. This means that fewer shares can be traded. Joshua Mitts from Columbia Law School is a professor of securities law. He said that removing shares makes them less vulnerable to price swings and 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 spokespeople declined to comment. Some of the most popular trading apps include Robinhood Markets Inc (NASDAQ) and SoFi Technologies Inc as well as traditional brokerages like Charles Schwab Fidelity and Corp (NYSE:) would suffer if the trend towards direct registrations intensified. The surge in trading of meme stocks last year has been a boon for them.

Charles Schwab and Robinhood representatives reinforced the belief that customers can borrow only their shares to lend to hedge funds if they have used brokerages for investment.

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 stated that clients, who purchased shares in cash and did not borrow from Charles Schwab were often among the many people who requested this service.

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

TRADE CURBS

Robinhood’s peers and retail investors began to doubt brokerages after they placed trading restrictions late January on GameStop stock shares. Social media saw thousands of investors claim that the trading bans were meant to shield hedge funds from losing billions of money shorting shares without anticipating an Reddit-fueled rally.

Robinhood is an example of a commission-free brokerage. They rely on order flow payments and receive market maker fees for routing trades. This model is also suspect for retail investors, as Citadel Securities, one Robinhood market maker, has common ownership with Citadel’s hedge fund manager Citadel and engages in short selling.

Citadel and Robinhood insist that trading restrictions weren’t put in place in order to protect hedge funds. They were necessary because Robinhood didn’t have sufficient collateral to execute customer trades.

Last month, a U.S. judge dismissed a lawsuit against Robinhood alleging that the brokerages and trading apps prevented retail investors buying “meme stocks”, which are rapidly rising in value and caused a selloff.