SEC To Review Brokers' Restrictions on GameStop, AMC Trading

Securities regulators said Friday they plan to closely review the actions of some brokerage firms [Editor's note: the link may be paywalled; alternative source] that restricted investors' ability to trade volatile stocks such as GameStop this week. From a report: The Securities and Exchange Commission's statement on Friday is the clearest indication yet that regulators are examining potential misconduct around the trading mania that swamped stocks such as GameStop, AMC Entertainment and Novavax. Robinhood Markets restricted investors' ability to purchase shares in GameStop and 12 other companies on Thursday as it dealt with the impact on its financial requirements of a surge in trading. Robinhood raised $1 billion to shore up its ability to clear and execute trades in those popular and volatile stocks, which the broker on Friday allowed clients to resume trading. Regulators also said they are on the lookout for potentially manipulative trading. This week's sharp price swings have been aided by bullish individual traders communicating on websites such as Reddit's WallStreetBets about which shares to buy. Traders drove up demand for stocks that other investors such as hedge funds had bet against, resulting in a "short squeeze" that ramped up the prices of GameStop more than 10-fold.

Re:

[heybiff]

Yes, lots has changed. More software, automation, and more underlings to take the fall.

Re:Start holding breath

[ShanghaiBill]

Yes, lots has changed. More software, automation, and more underlings to take the fall.

The problem is that there is not enough software and automation. Transactions take days to clear. Wall Street is still based on ancient paper-based processes.

If you sell a stock, the transaction appears to be instant. But it only appears that way. The broker puts the money in your account and the seller's account is debited by their broker. But the two brokerages still need to settle the transaction and that takes up to five days.

The problem, in this case, is that it wasn't known if the brokerage on the other end of the transaction would still be solvent in five days. A short squeeze has no upper limit.

So Robinhood halted trading. They had no way to know that the shares being bought and sold actually existed. Many of them did not.

With modern tech, there is no excuse for a process that takes five days. Transactions should clear in seconds.

Re:

[Rhipf]

Maybe the problem isn't that there is a delay on the back end but rather that there isn't a delay on the front end. Do we really need a stock exchange where micro (and even milli) seconds makes a huge difference? The best solution is probably to drastically remove the large back end delay and slightly increase the front end delay.
Does the stock exchange really benefit from microsecond trades? Does society benefit from a stock exchange that is more of a gambling game than a way for companies to gain some cap

Re:

[ShanghaiBill]

Do we really need a stock exchange where micro (and even milli) seconds makes a huge difference?

The problem with the Gamestop squeeze has nothing whatsoever to do with HFT.

Does the stock exchange really benefit from microsecond trades?

Yes. There are many benefits to fast transactions, but that has already been discussed ad nauseam on this forum and elsewhere.

HFT has nothing to do with the current situation.

Re:

[ezdiy]

The problem is that there is not enough software and automation. Transactions take days to clear. Wall Street is still based on ancient paper-based processes.

Nah, this is all automated on FIX level, there's no paper involved. The problem is that there's no causal lockstep between brokerages - once the short margin calls pile up on the counter party brokerage, RH doesn't see their post-call ticker soon enough. This inadvertently creates naked shorts, and RH has to throttle the order flow so as to not expose

Re:

[alvinrod]

The problem with the 2008 fiasco is that idiotic government policy was partially to blame for the whole fiasco and everyone in power wanted to sweep it all under the rug and forget about the whole mess. As far as I'm aware the government has absolutely no involvement with GameStop or AMC and so there's far less risk of this blowing up in the face of some politician, or some several politicians whose legislation may have enabled or exacerbated the problem.

Re: Start holding breath

[flyingfsck]

No political influence? Yellin got paid $800,000 by the chief perps. I wonâ(TM)t call that no political complicity.

Re:

[greenwow]

This time it's worse since Elizabeth Warren is attacking 1st amendment rights since she wants to make it illegal to talk about short squeezes on the Internet, and she also wants to limit retail buying of stocks that are heavily shorted.

...and do nothing!

[heybiff]

...or perhaps take 6 months and spend hundreds of thousands to wring their hands.

Re:

[heybiff]

No doubt. That's how stocks work, especially the twitchier day traders. But those who got in under $100 are gonna make out no matter what. Wish I was in on it.

Re:Beware

[SvnLyrBrto]

Bingo.

I have a stop-loss order in place for $150. So if the bottom falls out while I'm not paying attention, I'll at least make a decent profit. But I'm staying in for now because I'm willing to take less of a profit, personally, if it means doing my part to screw over short-selling hedge fund scum. I have my own issues with the way Elon Musk blows his mouth off sometimes. But I'm 100% in his camp when it comes to the rapacious vultures who would sabotage a good company for a few quick short-term bucks. Fuck short-sellers. Fuck them sideways with rusty tetanus-infested rebar.

Re: Beware

[Orange Man Bad]

Uh, maybe. It is possible for the price to drop like a rock through your stop loss. There has to be a buyer though or you're fucked. Your broker isn't going to suck it up on the way down, only put it on the wire for sale.

If you need that money or might miss it you should consider cashing in your current good fortune and walking away. There will be other adventures like this but only if you have the money to play.

Re:

[bloodhawk]

Not necessarily, if the crash is fast it can fall right through your $150 stop-loss with no buyers.

Re:

[alvinrod]

Here there are some buyers, namely the short sellers who borrowed stock which they immediately sold in the hopes of driving down the price enough to make a handsome profit when they needed to buy it back later in order to return what they'd borrowed. Normally there's enough shares of stock that they could try to find an out or cut a deal with someone who has enough shares to cover their shorts, but the idiots in this case actually shorted more than 100% of outstanding shares. If that sounds like something t

Re:

[jonwil]

Does anyone have actual numbers showing what the %shorted really is (not just some people saying "we closed our short positions" but independent figures for the actual %shorted right now)

https://www.highshortinterest.... [highshortinterest.com] claims its still at 121% shorted but its unclear how accurate and up-to-date their figures are (its a good bet a bunch of people on reddit will see the 121% figure and assume rightly or wrongly that there is still a short squeeze on Gamestop)

Re:Beware

[istartedi]

If you think a stop-loss can protect you from a plunge, you're mistaken. As others have pointed out, the stock can gap down through your stop loss. If it's a market order stop loss, you'll be sold at market. If it's a limit order stop loss it simply won't transact which is better because you'll be OK if it comes back, but you're taking a much deeper loss if it doesn't. I don't know if they're transforming stop-loss to limit or market orders these days, because I never use them.

Buy a put. Too expensive? Use a collar. None of the options look good because they're too expensive? Consider just selling now. None of this makes sense? Stay away from the stock market until you learn more.

Re:

[Finallyjoined!!!]

??

Any chance you can re-post in English?

Re:

[bloodhawk]

if you could not understand that you need to follow his very last sentence
"Stay away from the stock market until you learn more."

Re:

[Cederic]

Stop-loss: An instruction to your broker that if the share price falls below a specific price (which will be below the current share price) they should sell the share at the best available price. (A stop-loss can be percentage too, e.g. 'sell if the share price ever drops by 15% from its peak')

Put: An option (i.e. you have the option of using it or not) to sell shares at a specific price. Buying a put option costs money, but if you're worried that the share price might halve and don't want to sell, the 'put

Re:

[gravewax]

first things first. a stop-loss may not protect you in a rapid decline as there will be insufficient buyers to cover everyones stop-losses, very easy to see this dropping through $100 barrier with you being unable to sell as everyone elses stop losses that are ahead of yours in the queue will be covered first.

secondly use some smarts on your stop loss, At $150 their will be 10's of thousands of orders (potentially many of them ahead of you), if you want a $150 stop loss make it $150.25 or $151 so you can

Re: Beware

[flyingfsck]

A stop loss can execute at any time if someone placed a limit order in the same ballpark and there are no other trades in that millisecond. Due to high freq trading, stop loss orders are not useful anymore.

Re:

[RightSaidFred99]

But, but, but... my hands are diamonds or some dumb Internet shit.

Also review other limits

[SuperKendall]

On TD Ameritrade, I found there was a ceiling of around $1k you could set on a limit sale - so you couldn't set some fairly high limit even if you wanted to, it simply wouldn't allow it.

I know it's there to prevent people from making mistakes, but it also limits the small investor in ways that a large investor would not be.

Re:

[Actually, I do RTFA]

Yup, and with RH if you enter too high a limit they may ignore it as a bug.

What a mess.

[RightSaidFred99]

From what I've read, they stopped the trading on this stock for "valid" reasons, meaning the way the stocks are covered would have screwed them over had they kept allowing the trades as-is. But the Interwebz, never being a thing to let a fake narrative spread, has declared Evil Robin Hood in Cahoots with Evil Hedge Funds.

If anything comes out of this, about the only thing should be "true" instant trading so your stock broker isn't exposed when weird shit like this happens. You want to buy the stock, fine -

Re:What a mess.

[evilquaker]

Indeed: here's a good summary: https://www.bloomberg.com/news... [bloomberg.com] There is no reason in 2021 that we should have T+2 settlement. Hopefully this will spur innovation to finally solve this problem.

Re:What a mess.

[Beeftopia]

Realize that Bloomberg is not a neutral party. I was listening to Bloomberg radio this morning (the "Bloomberg Surveillance" program, usually quite informative) and they asked a simple question of a field reporter about the relationship between Citadel, Point72 and RobinHood and the reporter absolutely sidestepped the question like a running back juking a defender.

This is just about a guy discovering a company had naked shorts against it, and discovered deep pocketed hedge funds were shorting it too, and would have to pony up some cash if the stock went the other way.

However... there's the other angle - how many strings the hedge fund owners have access to, which is doubly fascinating, and informative. "How did that guy get trading shut down on all these platforms? Why are all these financial news companies railing against the Reddit mob? What is the link between these guys and the government [foxnews.com] and the federal reserve [citadel.com]?"

I remember back in March 2000, when Nasdaq reached its peak. Just before that, a teenager brought down Yahoo. You could almost hear the gears turning: "Are these companies really worth billions if one teenager can disable one of the titans?" I think there might be a bit of a dawning realization going on now too.

Re:

[evilquaker]

This is just about a guy discovering a company had naked shorts against it, and discovered deep pocketed hedge funds were shorting it too, and would have to pony up some cash if the stock went the other way.

Agreed on the short squeeze aspect, but what evidence is there of naked shorting? I haven't seen any. Simply having short interest > 100% of float doesn't indicate naked shorting.

Re:What a mess.

[Beeftopia]

So I assumed /u/DeepFuckingValue (the first Reddit user to extol the virtues of GameStop, or at least the most high profile) spotted naked shorts because of the short interest being greater than 100pct of float. But apparently that's not necessarily true. Here's the entire story, and they don't mention naked shorts. [vice.com]

GME has been naked shorted the past month (see "Threshold List" [investopedia.com] and then do a search here for NYSE [nyse.com], and GME appears, which means it failed to deliver. ).

Here are some links about naked shorting in GameStop. [google.com]

Re:

[aitikin]

Thank you, that was an informative read.

Re:

[jeff4747]

Innovation is not the issue. There's nothing technical that prevents a much shorter time to resolve the trades. The time is there because it makes people money.

The middlemen get to quasi-short the transaction, if they want to. They also get to use the money until the trade settles.

After all, we're in a world with high-speed trading systems where brokers were competing to be physically closest to the exchange's computers in order to inject themselves into transactions in milliseconds. Settling a retail t

Re:What a mess.

[drkshadow]

The stock did not stop trading. The stock traded up and down all day on Thursday. What was stopped from trading were the individual investors -- they had an option "sell" and not an option "buy." The ones that this benefit were the holders of short-positions, who needed to close their position or face even larger losses.

*The Stock Did Not Stop Trading*

*The Brokerages (RobinHood) Did Not Stop Trading*

The brokerages only stopped small-time traders from buying, which would have made the price go up. They knowingly caused the market to be flooded with SELL orders (the only order that could be placed), knowingly and effectively collapsing the price of the stock, against the open market's valuation (for whatever reason it was valued as it was). Meanwhile, the market was fully open to large traders who placed bad bets who would be most hurt by the stock's increase in value.

Re:What a mess.

[Afell001]

This is the issue. By stopping individual investors in specific brokerages from being able to buy (and only sell), the short sellers are able to mitigate their losses by pushing the stock price down. They would have driven it to the floor if they could, so they could make somewhat of a profit. Who knows what kind of pressure the short sellers were bringing to bear on the brokerages. It's something the SEC will look into and then sweep under the rug. If they do anything, I will be very surprised, and even then, I would expect that those who brought pressure on the brokerages would merely get a slap on the wrist because...money and power.

Re:

[KT0100101101010100]

The brokerages only stopped small-time traders from buying, which would have made the price go up. They knowingly caused the market to be flooded with SELL orders (the only order that could be placed), knowingly and effectively collapsing the price of the stock, against the open market's valuation (for whatever reason it was valued as it was). Meanwhile, the market was fully open to large traders who placed bad bets who would be most hurt by the stock's increase in value.

This.

A massively uneven playing field was intentionally created, with the result of manipulating the affected stocks downward.

And now, under the veil of 'lifting' restrictions, they're actually extending them by limiting ~50 stocks to something between 1 and 10 units.

Re:

[godrik]

From what I've read, they stopped the trading on this stock for "valid" reasons, meaning the way the stocks are covered would have screwed them over had they kept allowing the trades as-is. But the Interwebz, never being a thing to let a fake narrative spread, has declared Evil Robin Hood in Cahoots with Evil Hedge Funds.

Well, I do feel like it is probably a case of the two things being true at the same time. I believe Robinhood had valid reasons to stop the trade AND it is very likely they wanted to stop the trade for external reasons.

Re:

[SpankiMonki]

The reason they stopped trading stocks is because RobinHood is owned by the company that shorted AMC/GameStop in the first place.

What is the source of your information on Robinhood's ownership? Which company is it that you are saying owns Robinhood?

Re:

[SpankiMonki]

Jeez, why is the media not covering any of this.

Citadel.

I asked for a source. Do you have a credible source that says Citadel owns Robinhood?

They are the ones that lost $21B in this debacle.

Gonna need a source for that as well. According to this source, [businessinsider.com] there's an estimated $19B in total losses for all the big short sellers of GME, not just one company. I can't find anything that says Citadel had a large short position in GME. Can you?

Citadel also gave the new Biden Treasury Secretary $800M when her role was announced.

LOL. $800M is a lot of money. According to this source, [foxnews.com] Citadel paid Yellen $337,500 in Oct. of 2020, $292,500 in October of 2019 and $180,000 in December of 2019, all of w

Re: What a mess.

[flyingfsck]

There may very well be an evil hedge fund on the hood side also. Due to the large number of trades I suspect as much.

That was fast for SEC

[Orange Man Bad]

Normally, they take at least a few weeks to even notice a huge event and months to say anything about it.

The whole affair has created such turmoil across the markets they got involved SUPER fast. For them, anyway.

So what next? I'm guessing they will hammer a few key players on Reddit and in some brokerages and at Robinhood as well depending on what was really happening at RH behind the scenes and not the PR bullshit they've put out. We really don't know for sure what was going on behind closed doors but

HFTs

[Random361]

Now they need to do something about HFTs.

Former SEC compares short squeeze to January 6th

[schwit1]

One of the most revealing 40-second video clips you'll ever watch: [twitter.com]

Former SEC Commissioner Laura Unger compares short squeeze to January 6th at the Capitol.

THEY GET VERY UPSET WHEN THE PLEBS DON’T KNOW THEIR PLACE:

high speed trading for you means 2 days to settle

[kiviQr]

We live in era where companies invent connections that take fewer milliseconds than competition, yet brokerage takes 2 days to close you purchase.

No sympathy and expect no change

[empty-atmosphere]

Lots will be said, but doubtful anything will change. Investment banks only exist to make money and do not really mind how they do it. When smaller investors get in the way of that ethos, do not be surprised if quiet (yet legal) manipulation takes place or adjustment of rules to allow for it. Most of us like a good movie, so quietly happy that this is helped AMCs debt situation. The actions taken by minnows in a shoal has shown up the casino that this market sector really is now. Complaints about th

Stop short sellers

[bsdetector101]

maybe Securities regulators need to stop short sellers who undercut companies, seems unethical !