This GameStop report breakdown is a basic overview of the different elements which appeared in the so called ‘comprehensive’ 45 page report by the SEC. You can access the entire report here.
Gamestop report breakdown – basically, a ton of trash!
I’m plowing through the new report and want to give you a high-level overview of what I’m seeing (“The Sun Never Sets on Citadel – Part 4” still in the works). Halfway through the SEC report. I’ll give updates as quickly as I can.
I will update the end with my take on why topics were/weren’t included, conclusions, and takeaways.
DRS IS THE WAY. NOTHING IN THIS REPORT CHANGES THAT.
First glance [note: does not include snooping through the footnotes yet]:
The GME doc focus is on INDUSTRY STRUCTURE
- SEC is NOT pulling back the curtain on naked shorting.
- They are looking at how trades are transacted – this is not going to get to u/broccaaa or u/criand levels of detail
- language is simplified, takes a lot of time to explain market structure. So they expect a lot of public attention on this report, i.e. smooth brains.
- They are not exposing the “industry guts”. No smoking gun of Citadel being a bad actor, Brazilian puts, etc.
Initial conclusion: Gary Gensler is teeing up a pitch to remove Payment For Order Flow
- “order flow” is mentioned 19 times, apparently
I’m underwhelmed, but unsurprised. The SEC is a political entity; this is a topic with a lot of industry convergence; there are a lot of players; so this doc is not going to be a no-holds-barred expose. The SEC here is working to try and keep the peace.
Page by page:
- p.2 – mentions incentives of Broker Dealers (B/D), OTM trades
- p.3 – T+2 for trades, T+1 for options [NO expectation they will mention other timelines then, they are using these to frame the reader’s T+x expectations]
- p.4 – language is meant to cover the SEC’s ass – “everybody is regulated just fine here, regulators are doing their jobs”
- p.5 – 1st FINRA mention
- p.6 – gamification mention
- p.7 – RH mentioned by name, fractional shares overview
- p.8 – Webull, SoFi, Interactive Brokers, TDA, Etrade, Ally, CharlesSchwab, Fidelity all mentioned by name re: commission-free trading
- p.9 – CharlesSchwab claimed: the majority of their new clients in 2020 were <40 years old, <$100k in assets
- RH: average user is 31 years old, has a balance of $240 (lol)
- p.10 – mentions Apex is a B/D for B/D’s.
- Apex: 6m new accounts in 2020, 137% increase, 1m of those were average 19 y.o.
- p.11 – <60% of retail trades executed on lit exchanges [note: this is in-line with what we knew already, Citadel claimed to execute 47% of retail trades, so the remaining 53% is less than 60 and executed on lit exchanges]
- OCC mentioned for the 1st time [VERY INTERESTING – mentioned before DTCC, NSCC]
- p.12 – Market Makers compete against superior information (i.e. firms who know which way the stock will be going, MM has to take the other side of the trade).
- p.13 – SEC made recent updates to NBBO – oops, trying to CYA there SEC?
- p. 14 – [CONFIRMED:] NBBO does NOT include odd lots, non-displayed orders
- mentions clearing agencies, describes how they act as counterparties [feels like this is a setup for their narrative – clearing agencies are going to be key to the SEC report]
- NSCC mentioned 1st time
- p.15 – INSIGHT: NSCC maintains clearance accounts for trades from each member, with mandatory deposits to cover volatility (i.e. people need to know that the other party they’re trading with won’t back out if the price changes. NSCC maintains collateral to confirm that all trades will be executed, and can draw upon that if one member decides to get fishy)
- NSCC measurement was parametric Value at Risk (VaR) based on historical data
- NSCC can impose Excess Capital Premium, a deposit in excess of the “normal” deposit if they determine additional risk in a position
- [CONFIRMED:] NSCC changed rules after “the sneeze” likely due to GME situation
- [feels like they’re setting up NSCC to be possibly at fault – an easy mark since they’ve already changed their rules]
- p.16 – >100 stocks had large price movements exceeding the broader market
- p.17 – YouTube, Reddit, _all_treet_ets (other sub) mentioned by name [YT seems like a reference to DFV]
- 3 retail arguments for GME [their take not mine]:
- undervalued by fundamental measurements
- transition to e-commerce
- “unusually high levels of short interest”
- Also, SEC noted high volatility in 2020
- p.18 – GME had 84% SI in Apr. 2020 [CONFIRMED: GME has been shorted hard for awhile]
- p.20 – 10k accounts trading GME at beginning of Jan ‘21, 200k trading GME at end of Jan ‘21
- p.21 – GME SI in 1/21: 122.97% HOLY SHIT, SEC confirming more shorts than shares
- p.22 – “Staff did not observe… liquidity issues” [Juicy. Either the report is getting ready to throw someone under the bus, of they are spouting the industry line of “everything is fine, situation normal”)
- p.23 – Diving into ETF’s. Specific callouts to XRT, GAMR volume and price disparity
- p.24 – GME >50% SI in 2012, then 2015, 2016, 2018 [CONFIRMED: GME has been shorted for a loooong time]
- p.25 – SEC claims the >100% SI was due to rehypothecation… lol, okay
- GME only stock with more shorts than shares – SEC said it! Say it louder for the folks in back!
- p.26 – SEC observed that shorts covering was only a small portion of price pressure.
- report spent about a paragraph saying that shorts did apply price pressure, i.e. were covering, but concluded with this line. Telling.
- p.27-29 is mainly charts
- p.30 – XRT is an “imperfect” short on GME, was in fact shorted to cover GME positions. [CONFIRMED: apes knew this was the case 8 mos. ago – but SEC said it! Holy shit!]
- mentions ETF MM’s were the perpetrators of the shorts [INSIGHT: I believe Citadel is XRT’s AP – could be a direct mention that Citadel was the one shorting XRT]
- “short squeeze did not appear to be main driver of events.” [is SEC saying shorts did not cover?]
- p.31 – “…and gamma squeeze less likely.” [OK, so SEC is trying to say “shorts might have covered, and the sneeze was caused by retail”]
- record clearing volumes for OCC, NSCC
- “NSCC made margin calls”: 36 members, $6.9 bn [ONLY $6.9 bn?! Then why did Thomas Pfefferty say “infinite”?!]
- “one member… offset it’s exposure with a transfer from an affiliate” [direct reference to Citadel bailing out RH?! What?!]
- HOLY SHIT WHAT IS THIS?
- p.32 – OCC no changes to margin. [Suuuuuper sus. Something fishy here]
- B/D made decision to handle trade restrictions [Ok, so they are saying the blame goes to the individual brokers]
- p.34 – [INSIGHT:] RH’s restrictions started with options. [This is a major clue.]
- p.35 – Jan 21, 2021 – 62% of GME traded off-exchange; Jan 28, 2021 – 32% traded off-exchange [HOLY FUCK THAT IS MASSIVE – 30% difference going to lit markets. Price rose at the same time. Internalizers couldn’t handle it. Major clue.]
- p.37 – HOLY HOLY HOLY FUCKING SHIT just read this:
- “vast majority of GME trades were internalized”
- Citadel mentioned by name
- internalizing dollars during the squeeze was “an order of magnitude larger”
This GameStop report breakdown was posted on Reddit by u/swede_child_of_mine. We take no credit whatsoever for this post. This is not financial or legal advice. Do your own research always.