Factbox: Fun facts from the U.S. SEC report on January's GameStop saga

KOSS

18/10/2021 22:37

By Michelle Price
    Oct 18 (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.  urn:newsml:reuters.com:*:nL1N2RE1TF  urn:newsml:reuters.com:*:nL1N2RE25Z
    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. Here are some takeaways: 
    
    880,000 NEW ACCOUNTS STARTED TRADING GAMESTOP IN JANUARY
    "GameStop had already started to receive attention on Reddit
in 2019, including in discussions about short squeezes. That
attention grew throughout 2020," the SEC said.
    "Price increases, trading interest, and social media
interest all accelerated in 2021." 
    By Jan. 27, the number of unique accounts trading GameStop
on a given day had reached 900,000 compared with 10,000 at the
beginning of the month, the SEC said. 
    
    INSTITUTIONAL INVESTORS ALSO DROVE THE RALLY
    In addition to retail investors, institutional investors,
including several hedge funds, also purchased shares of GameStop
Corp  GME.N .
    Some of those purchases may have been partly driven by hedge
funds that had betted against GameStop, trying to cover their
positions, and some of those funds made bad losses.
    In contrast, some funds that were long GameStop cashed in. 
    "Some investors that had been invested in the target stocks
prior to the market events benefited unexpectedly from the price
rises, while others, including quantitative and high-frequency
hedge funds, joined the market rally to trade profitably," the
SEC wrote. 

    NO 'GAMMA SQUEEZE'
    One theory for GameStop's meteoric rise was a so-called
gamma squeeze, which happens when market makers purchase a stock
to hedge the risk created by writing call options on that stock.
That, in turn, puts even more upward pressure on the stock
price. 
    The SEC did find that GameStop options trading volume by
retail investors increased substantially, but that was mostly
driven by an increase in the buying of put, rather than call,
options. The data also showed that market-makers were buying,
rather than writing, call options. 
    "These observations by themselves are not consistent with a
gamma squeeze," the SEC wrote. 

    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.
    When a naked short sale occurs, the seller fails to deliver
the securities to the buyer. "Based on the staff's review of the
available data, (GameStop) did not experience persistent fails
to deliver," the SEC said. 
    
    IT WASN'T ALL ABOUT GAMESTOP
    By early 2021, individual investors were increasingly
downloading broker-dealer apps and more than 100 stocks
experienced large price moves or increased trading volume that
significantly exceeded the broader market, the SEC said. 
    For example, single-day price changes on Jan. 27 from the
closing prices on Jan. 26 for KOSS Corporation (480.0%), AMC
Entertainment Holdings Inc  AMC.N  (301.2%), Naked Brand Group
 NAKD.O  (252.3%) and Express Inc  EXPR.N  (214.1%) were larger
than any single-day GameStop price change, according to the SEC.

 (Reporting by Michelle Price in Washington
Editing by Matthew Lewis)
 ((michelle.price@thomsonreuters.com; +12026041711; Twitter:
@michelleprice36;))