After months of detailed investigation and thorough analysis into the January meme stock short squeeze that rocked Wall Street and fostered a seething populist distrust in modern market structure, the U.S. Securities and Exchange Commission can now officially confirm that…it happened.
In a long-awaited 44-page staff report released on Monday, the SEC recaps what led up to the short squeeze on GameStop /zigman2/quotes/203755179/composite GME -3.06% and other meme stocks, what happened during the unprecedented market event, and how zero-commission trading apps like Robinhood /zigman2/quotes/228268942/composite HOOD +1.62% and market makers like Citadel Securities responded to it.
Notably, there was no mention of any collusion or much else of to chew on, other than individual investors got together and made things real weird for a few days.
While ink was spilled on mild musings regarding settlement timing, gamification of trading and—of course—payment for order flow, those points were mentioned almost entirely in hindsight and provided little more context than was gleaned in February’s…less-wonky House hearings into the GameStop squeeze.
“Payment for order flow is prevalent in the options market,” reads the report, digging into a conversation seemingly discussed ad nauseum since January. “Potentially more so than in the equities market, but order flow that is purchased by consolidators is executed on exchange.”
There also was a section in which SEC staff debated the notion that the crazy surge was the result of a “Gamma squeeze” on the stock and attempts to answer the retail investor theory that the shorts failed to cover in the chaos of the squeeze.
In a string of paragraphs that will surely enrage Reddit’s ‘Apes,’ the SEC concluded that there was no Gamma squeeze and that short covering was not statistically relevant and was no match for GameStop bulls who just kept buying.
But the report will get more attention for what’s not in it.
In a note accompanying the report, SEC chairman Gary Gensler writes “January’s events gave us an opportunity to consider how we can further our efforts to make the equity markets as fair, orderly, and efficient as possible.”
Gensler’s staff, however, appears to have taken a pass on the opportunity that many were waiting for them to seize with both hands: addressing market issues that have given rise to a daily skirmish between individual investors and institutional Wall Street short-sellers.
Despite an investigation that took roughly the same amount of time to gestate a human being, the SEC’s “conclusions” take up roughly only the last page-and-a-half of its report.
While the closing section does specifically address why a brokerage would restrict trading, gamification of trading, payment for order flow, dark pools, short selling, and market structure, none of the SEC’s findings were submitted as recommendations. Instead, they were carefully presented as topics that the SEC thinks might merit further investigation.
Even the language chosen to present the report’s conclusions come off as breathtakingly vanilla.
“There are many different types of investors,” the report’s conclusion reads. “They buy and sell stocks for many different reasons.”
In addition to sounding like a college sophomore attempting to fill out their Finance 101 term paper word count, the report also likely will disappoint many investors who were looking to Gensler as a man of action who had made it clear to Congress that he was on the side of retail investors.
While the late afternoon release of the report will prevent real-time market response from retail investors, one can assume that Reddit boards will be rife with outrage by Tuesday’s opening bell.
But at least Apes can enjoy Monday evening as both GameStop and AMC Entertainment /zigman2/quotes/200235402/composite AMC -0.76% led an early meme stock surge. GameStop got back in the green popping 1.7% while AMC surged 5.5%.