It was long awaited, the report of the American Securities and Exchange Commission, which deals with the price rush of the Gamestop share at the beginning of the year.
But he leaves many questions unanswered, such as the concrete consequences.
In the 44-page paper that the financial regulator published on Monday, investors get a look behind the scenes of the complex stock market trading in the US.
The report reads like an attempt to demystify the gamestop hype and explain what is happening on the market.
Antonia Mannweiler
Editor in business.
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The background to the report is the stock market fever that broke out at the end of January.
The focus was primarily on the stock of a hitherto relatively unknown video game retailer from Texas.
The share price soared within a very short time: In mid-December 2020, the shares still cost around $ 20 - around a month later they reached a record high of $ 483.
From January 13th to 29th, an average of 100 million Gamestop shares were traded per day, an increase of 1,400 percent compared to the previous year's average.
Short Selling, Gamification, and Clearing
The extreme and unforeseen volatility of "Meme" stocks in January would have tested the resilience of the markets, the SEC writes in the report. She therefore wants to take a close look at the “gamification” of trading, which could tempt investors to trade more. The exchange supervisory authority also writes that a larger part of trading is carried out outside of official stock exchanges - and is therefore less transparent. OTC trading is subject to less stringent regulatory requirements. This area could be examined more closely in the future.
The SEC is only more specific in two places.
For example, some US brokers temporarily restricted trading in Gamestop and other volatile values.
The reason for this was the increased security requirements of the clearing houses, which are responsible for processing.
This usually takes two days.
From the SEC's point of view, the risk can be minimized by shortening the settlement cycle.
Regarding short sales, the regulators suggest better reporting that will enable the SEC to better understand price dynamics.
Other volatile values as well
Small investors had exchanged information on the Gamestop value on social media and stocked up on the titles en masse. In addition to fundamental arguments, one reason for this was that hedge funds had “shorted” the share, ie sold it short. This means that they had borrowed the stock, sold it and bet on falling prices in order to buy back the stocks later at a lower price. However, the surge in the price of Gamestop shares made it more and more expensive for short sellers to smooth out their positions, i.e. to buy back the shares in the market. Critics had repeatedly criticized the high short positions in the Gamestop share. In January they reached more than 120 percent of the free float. In the report, the SEC writes that this proportion is less than 2.5 percent for other larger values.And - no higher short position has ever been observed in any other stock.
But the SEC does not want to accept the argument that the “short squeeze” would have triggered the upward spiral in the price.
It was not the purchases that were necessary to smooth out the short positions that were the reason for the week-long increase in value.
Instead, the SEC points to the positive market sentiment.
Because while Gamestop received a lot of attention, it was far from the only volatile value in the month.
On January 27th alone, the prices of Koss, a manufacturer of headphones, the cinema chain AMC or the Naked Brand Group, an underwear company, had a larger price jump within one day than on any other Gamestop trading day.