Yesterday, the SEC Staff released a report on the meme stock craze that occurred earlier this year. The report delves into the conditions that led to extreme price movements in GameStop and surveys the various elements of the markets that were impacted by the unusual market activity. The Staff identified a few areas that may require more study and consideration, which include: (i) forces that may cause a brokerage to restrict trading; (2) digital engagement practices (e.g., game-like features and “celebratory animations”); (3) trading in dark pools and through wholesalers; and (4) short selling and market dynamics.
Commissioners Peirce and Roisman issued a statement criticizing the Staff report, noting:
In the wake of an anomalous market event, it can be tempting to identify a convenient scapegoat and leverage the event to pursue regulatory actions without regard to the factual record. The report, however, finds no causal connection between the meme stock volatility and conflicts of interest, payment for order flow, off-exchange trading, wholesale market-making, or any other market practice that has drawn recent popular attention. Indeed, in our discussions about causes of the January episode, whether with staff or with market participants, we have seen no evidence that these practices were a cause of these events.
Reading the report reminded me of my finest GameStop moment. To celebrate the release of a new Mario Kart game, I accompanied my son to the local GameStop dressed in a full Mario costume, complete with giant cartoon head, denim overalls and big yellow buttons. The GameStop employees were generally befuddled and I don’t recall there being any other customers in the store. I had originally acquired the costume for my son’s Mario Kart-themed birthday party, where I drove around a go-cart track like a maniac dressed in the Mario costume. I guess these are the things we do as parents so our kids think we are cool.
– Dave Lynn