Before we proceed, standard disclosure:
This article has NOTHING to do with any recommendation to trade in any securities mentioned. If you claim such, you are a liar.
So GameSTOP stock was tomb-stoned yesterday falling 60.0% to $90 per share. Our view was that it was due to the following reasons
- DTCC raised initial margin required to be posted by Brokers in order to trade in GameSTOP to an absurd level. This is capital from the brokers and not to do with the money in one’s share account. In fact, you could have a $1 billion in your trading account, but the initial margin is posted by the broker to the clearing house and cannot touch the money in your account. This was a safeguard measure introduced after MF Global collapse.
- The above effectively killed the retail buying interest for GameSTOP shares as many retail buyers from eTORO to RobinHood could not enter the market to ‘prop up’ the share price.
- Reddit community claims that the price destruction yesterday was due to hedge funds trading the same lot of shares between one another at lower and lower prices.
We want to also comment on aspect that is data related, which relates to whether Regulation SHO, which forbids naked short selling was enforced?
The above shows the number of ‘fails to deliver’ over 2019 involving Game Stop (blue lines). A red line indicates that this number exceeded the 95 percentile for the day over all traded securities (16,000).
This means that for a vast period in December, Game STOP shares were consistently failed to be delivered to the clients. Inherently, the market maker who executed the trade was short Game STOP shares because they sold Game STOP shares to a buyer without actually possessing the share.
This behavior is illegal based on Regulation SHO of the SEC which forbids this.
But hey, we are talking about the United States here. The same country which allows for ballots to determine Presidential elections appear from under tables.
*Lu pikir sendiri
Ultimately, securities regulation enforcement is about integrity.
A country which lacks integrity in governance presents a higher risk to investors than a country which does.
Now for a picture of a puppy about to viscously attack a rubber ducky.
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