The Securities and Exchange Commission has released a hotly anticipated report on January’s trading frenzy that rocketed so-called meme stocks into the stratosphere. It dismisses conspiracy theories that swept social media to ostensibly explain the bizarre trading activity, choosing the most anodyne explanation instead: that what fueled the GameStop rally was nothing more than hundreds of thousands of new investors—at one point, reaching nearly 1 million per day—entering into a sudden feeding frenzy over these stocks.
“Whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop,” the SEC writes, “it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock.”
Its 44-page report also throws a wet blanket on the hypothesis that a “short squeeze” is what sent GameStop shares sky-high—from under $20 in December to $483 by the end of January. While the agency admits it’s true that many short sellers were forced to cover their short positions, it argues that the evidence just doesn’t support this being the driving factor. It says traders covering their short positions accounted for only a “small fraction of overall buy volume,” and GameStop’s stock prices stayed elevated even after the effects of their covering should’ve waned.
As for other blame, the regulator does take a swing at mobile brokerage apps like Robinhood. It insinuates they’re recklessly gamifying trading: “Consideration should be given to whether gamelike features and celebratory animations … intended to create positive feedback from trading lead investors to trade more than they would otherwise.”
But it stops short of saying what to do about them. Observers had eagerly awaited the report because (they’d hoped) it would recommend specific policy changes that the SEC believes should be made in the debacle’s wake. The agency leaves these and other questions unanswered, and also doesn’t address the role that armchair traders on Reddit played, or whether anybody made large sums of money by whipping up positive sentiment online to manipulate the market.