On October 18th, the SEC staff published Equity and Options Market Structure Conditions in Early 2021, a comprehensive analysis of the January 2021 trading activity of GameStop Corp (GME), the most notable of the “meme stocks”. Meme stocks are stocks that rise dramatically in price over a short period because of a sudden increase in online or social media interest, resulting in an investing surge. The report details such incidents as well as areas that merit further study and potential consideration.
The report indicates that, as certain companies experienced a sudden rise in attention in early 2021, their share prices soared to unprecedented heights. Their shares became known as so-called “meme stocks”. Meme stocks, namely GME, were most affected by:
large price moves
large volume changes
large short interest
frequent mentions on social media platforms, such as Reddit
significant coverage in the mainstream media
Since the meme stock event raised a number of questions about market structure, the report also includes an overview of the equity and options market structure for individual investors. After compiling the report, the staff recognized the following areas of regulatory framework and market structure that may be fitting for potential study and further consideration:
the market dynamics of short selling
forces that may cause a brokerage to restrict trading
digital engagement practices and payment for order flow
trading in dark pools and wholesalers
By the end of January 2021, many retail broker-dealers temporarily disallowed certain transactions in some of these stocks and options. In view of January’s unusual investment developments, the SEC will consider ways to further its endeavors to make the equity markets as fair, orderly, and efficient as possible.