The shares of the ailing computer game retailer had risen from around $ 20 to just under $ 500 in January.
(Photo: Reuters)
Often things that we wait a particularly long time turn out to be a major disappointment. The situation is similar with the report by the US Securities and Exchange Commission on the price frenzy of the Gamestop share in the spring. The papers of the ailing computer game retailer had shot up by more than 2000 percent in January.
The SEC worked on the events for several months. Their result: Private investors who organized themselves in online forums such as Reddit were solely responsible for the capricious prices. Overall, the stock markets even had works relatively well.
The SEC has thus missed the opportunity to deal more intensively with the structural problems in the stock market and to propose consequences. As a reminder: the rally was triggered by massive bets from shortsellers on falling prices – from which private investors tried to profit.
Short sellers had borrowed stocks and sold them outright, hoping to buy them back for less before the redemption date. More than 100 percent of the Gamestop shares were shortened in this way – an insane figure, at Wirecard it was around 30 percent shortly before bankruptcy.
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Retail investors tried to take advantage of this situation and drove the price higher in the hope that the short sellers would have to buy back the shares to end their losing bets. This would have meant that the prices would have risen further and more shortsellers would have had to end their bets – a so-called short squeeze.
Brisk trading on unregulated stock exchanges
Alone: The SEC notes that shortsellers who closed their bets were statistically irrelevant to the price rise. This begs the question: If more than 100 percent of the Gamestop share was shorted in January, but now only 15 percent, how could such large short positions be closed without influencing the price? Is it possible, for example, to disguise one’s short positions? The SEC does not provide these answers in its report.
The solution may lie in another detail of the report: The stock exchange supervisory authority also writes that a large part of the orders of private investors were bought by wholesalers and executed outside of the open securities trading of the stock exchanges in so-called dark pools – i.e. unregulated stock exchanges.
The SEC should have clarified what role these dark pools played in the rally of the Gamestop share. Likewise, the question of how the trading of shortsellers can become more transparent and what role it plays that online brokers like Robinhood sell their information about trading on their app to wholesalers. The SEC now wants to investigate – at least. Maybe this time it is worth the wait.
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