US SEC Praises Share Market Structure, Exonerates Short Sellers In GameStop Report – .

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US SEC Praises Share Market Structure, Exonerates Short Sellers In GameStop Report – .


WASHINGTON, Oct. 18 (Reuters) – US markets performed well during January’s GameStop (GME.N) volatility, while short selling was not the main cause of the unprecedented rise in ‘same stock’, according to a highly anticipated Securities and Exchange Commission (SEC) Report.

The report released on Monday provides a post-mortem of how amateur traders using commission-free retail brokers took GameStop and other popular stocks to extreme highs, crushing hedge funds that had bet against them.

Amid the intense volatility, several brokerage houses restricted trading in the affected stocks, slowing the recovery, infuriating retail traders, sparking outrage from policymakers and leading to a hearing in Congress.

Despite the string of extraordinary events, the SEC concluded that the basic plumbing in the market remained “healthy,” an SEC official said. The report also found that positive sentiment towards video game retail company GameStop rather than dislocations caused by short selling was the main driver behind the GameStop stock surge. Read more

Short sellers borrow shares from brokers and then sell them in the market, with the agreement that they will buy back the shares and return them to the lender at a later date. If the price has fallen, the short seller can buy back the shares at a lower price than he paid for them, thus locking in a profit.

When a heavily shorted stock soars, short sellers are forced to buy back the stocks at higher prices to close their positions, pushing the stock even higher – known as a “short squeeze”.

The SEC found, however, that “it was the positive sentiment, not the buy to cover, that kept the GameStop share price appreciating for weeks.”

He also refuted a popular theory, triggered by the unusually high volume of short selling in GameStop, that some hedge funds were “bare” by selling stocks short – by selling without arranging to borrow the stocks. The SEC said it had found no evidence of this.

The report does not answer several outstanding questions, including whether bad actors have manipulated social media to generate positive sentiment in GameStop, or whether hedge funds have attempted to pressure retail brokers to restrict trading in GameStop. , which all parties involved denied.

An SEC official said he could not discuss misconduct in the report that could lead to possible enforcement action.

Agency chairman Gary Gensler told Congress earlier this year that the agency would address other issues raised by the saga, including short sale disclosures, game-style negotiation prompts used by brokers and brokers’ practice of sending orders from clients to wholesale market makers for a fee.

“The events of January have given us an opportunity to consider how we can continue our efforts to make the stock markets as fair, orderly and efficient as possible,” Gensler said in a statement on Monday.

Reporting by Katanga Johnson and Chris Prentice in Washington Editing by Michelle Price and Rosalba O’Brien

Our Standards: The Thomson Reuters Trust Principles.

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