GameStop: What Happened in 2021


Excerpt from the 2021 SEC Report on GameStop created form PDF for easy reading.

Extracted By: Larry Billinghurst, Oct 19 2021

The Run-Up to January 2021 and Increasing Individual Investor Participation

The underlying causes of the meme stock phenomenon that are unrelated to Market structure are a subject of speculation that is beyond the scope of this report.  Regardless of the causes, many individual investors traded in the meme stocks, which may reflect increases in investor participation in 2020 in both the equities and options markets.   By early 2021, increasing numbers of individual investors were downloading apps for broker-dealers.

Against that backdrop, in January 2021, more than 100 stocks experienced large price moves or increased trading volume that significantly exceeded broader market movements.  For some of these stocks, the amount of “short interest,” measured as the number of shares sold short.

For example, off-exchange equities activity, a partial proxy for retail activity because retail orders are typically routed to off-exchange market makers and executed off exchange, continued to grow throughout 2020 with the 60-day moving average rising from 38.4% on March 23 to 46.5% at the end of the 2020 and the single day percentage exceeding 50% for the first time on December 23, 2020 at 50.4%. 

In December 2020, over the counter non-exchange listed equity volume (including “penny” stocks) surged, with a daily average of nearly 50 billion shares, compared to roughly 14.7 billion shares per day in November 2020, which had been the most active month over the prior two years. 

By the end of the first quarter of 2020, standardized listed options trading had grown to over 30 million contracts a day on average, more than 50% higher than the 19.6 million contracts per day traded in December 2019. 

 Further, the percentage of options volume stemming from small trades of just one contract on 50 of the most-traded stocks had risen to 14% from 10% at the end of 2019 and retail broker-dealers reported large or record levels of options trades. 

Further, the average size of electronic auctions fell by mid-2020 to six contracts  per auction from around nine contracts, while the number of auctions per day grew by about 134%.    

See “Q2 2020 Options Review: Record Volumes Continue,” NYSE (July 14, 2020) 

Through the remainder of 2020, options volume remained high and ended the year at with an average of 34.3 million contracts trading per day in December 2020, the most active month of 2020, compared to a daily average of 24.5 million contracts in January 2020. 

  Source: The Options Clearing Corporation at

 In January, reports mentioned a notable increase in broker-dealer app downloads, including Robinhood (more than 3 million) and Webull (more than 800,000).  as a portion of the total shares outstanding, exceeded the market average, while others had frequent mentions on social media, including Reddit.  Notably, many of the stocks were consumer-focused companies that were familiar names to the public. 

GME experienced a confluence of all of these factors: (1) large price moves, (2) large volume changes, (3) large short interest, (4) frequent Reddit mentions, and (5) significant coverage in the mainstream media.  The price and volume movements in GME coincided with substantial interest expressed in certain online forums devoted to investing, including YouTube channels and the subreddit WallStreetBets.  Some social media posts heavily touted the prospects for GME.  Some of this discussion argued that GME was undervalued based on fundamental analysis and therefore constituted an attractive investment, while other discussion focused on its ability to transition to an e-commerce company.  Alternatively, others contended that unusually high levels of short interest in GME presented the potential for a coordinated “short squeeze.”

GME Equities Trading

GME’s stock exhibited substantial volatility throughout the prior year. 

At the start of 2020, GME was priced at just over $6 per share.  By April 2020, it had fallen by 50% to under $3 per share.  News about GameStop led to large swings in price and increased volume.   For example, on August 31, 2020, Chewy, Inc. (“Chewy”) co-founder Ryan Cohen disclosed an investment in GameStop.  That day, GME’s share price closed up 23.93% over the prior day ($6.68), with 38 million shares traded, totaling 34 million more than the prior day.

By the end of 2020, GME traded for a little under $20 per share.  GME’s closing price went from approximately the bottom 10th percentile to approximately the median over the course of the year.

See Schedule 13-D filed on August 18, 2020 by RC Ventures LLC, available at

 For all of 2020, GME’s average daily share volume was approximately 6.7 million shares per day.  Source:  NYSE TAQ.

 The standard deviation of daily closing price returns for GME in 2020 was 7.46%.

 See Figure 1

 GameStop had already started to receive attention on Reddit in 2019, including in discussions about short squeezes.  That attention grew throughout 2020.   For instance, GME’s short interest ratio of 84% was reportedly noted on Reddit in April 2020. Price increases, trading interest, and social media interest all accelerated in 2021.

Media attention on GME increased with the January 11 announcement that Mr. Cohen, of Chewy, would join the GameStop board of directors.58   That day, GME reached an intra-day high of $20.65, approximately 17% above its prior day closing price.  GME’s

price and volume began to increase noticeably on January 13, when the closing price rose to $31.40 from $19.95 the prior day, and the share volume rose to approximately 144 million shares, compared with approximately 7 million shares the day before.  On January 22, 2021, the price of GME rose from $43 to $72 (a 71% increase) in approximately three hours.  By January 27, GME closed at a high of $347.51 per share, representing a more than 1,600% increase from its closing price on

January 11.  The following day, share prices jumped further to an intraday

high of $483.00.   As the price increased, so too did the trading volume.   From January 13-29, an average of approximately 100 million GME shares traded per day, an increase of over 1,400% from the 2020 average. 

See, e.g., “How WallStreetBets Pushed GameStop Shares to the Moon,” Bloomberg

(January 25, 2021), available at

 See, e.g., “GameStop Soars with Activist Ryan Cohen Gaining Board Seats,” Bloomberg (January 11, 2021), available at

 On January 22, 2021, the day of GME’s highest share volume in the month, 197.2 million GME shares traded.

 Overall, GME’s intraday share price increased approximately 2,700% from its Intraday low on January 8 to its intraday high on January 28, followed by a decrease of over 86% from that day to the closing price at the end of the first week of February.  The daily closing price changes at the end of January were also highly volatile in dollar terms, ranging from a rise of $199.53 (between January 26 and 27) to a fall of $153.91 (between January 27 and January 28).

See Figure 2 and 3 in SEC report

 The increases coincided with a sharp increase in the number of individual Accounts actively trading GME.   As shown in Figure 4, by January 27, the number of unique accounts trading GME on a given day increased from less than 10,000 at the beginning of the month to nearly 900,000.

 Some institutional accounts had significant short interest in GME prior to January 2021.

GME short interest (as a percent of float) in January 2021 reached 122.97%, far exceeding other meme stocks like Dillard’s, Inc. (symbol: DDS) (77.3%), Bed Bath & Beyond, Inc. (symbol: BBBY) (66.02%), National Beverage Corp. (symbol: FIZZ) (62.59%), Koss Corp. (symbol: KOSS) (0.92%), Naked Brand Group, Ltd. (symbol: NAKD) (7.3%), and AMC Entertainment Holdings Inc. (symbol: AMC) (11.4%).

In addition to individual investor activity, there was significant participation by institutional investors, including several hedge funds that purchased GME. 

Some of those purchases may have been used, at least in part, to cover short positions.   The potential of “buy-to-cover” volume to increase share prices, thus leading to further buys to cover is often referred to as a “short squeeze.”  The role a short squeeze may have played is discussed further below.

 After peaking in late January, the volume of trading in GME shares and GME’s Price declined substantially.   GME’s decline coincided with several brokerages’ decision to restrict trading in GME on January 28, discussed below.  By February 3, GME’s price was below $100 per share, and fell as low as $40.59 by February 19, still significantly above its January 4 closing price.  GME’s price rose back above $100 at the end of February and has remained above that level since.

Note: Through most of 2020, GME’s short interested hovered around 100% as a percentage of public float.

    By the end of January 2021, some funds had closed out their short positions in meme stocks, realizing significant losses. In contrast, some funds that were long GME saw significant gains. Some investors that had been invested in the target stocks prior to the market events benefitted unexpectedly from the price rises, while others, including quantitative and high-frequency hedge funds, joined the market rally to trade profitably.  Staff believes that hedge funds broadly were not significantly affected by investments in GME and other meme stocks.  Staff did not observe that any advisers to private funds and registered funds experienced liquidity issues or difficulties with counterparties.

 Yet while the swings in GME’s share price and volume attracted significant  attention, they were not unusual for January 2021.   For instance, single-day price changes on January 27 from the closing prices on January 26 for KOSS (480.0%), AMC (301.2%), NAKD (252.3%), and Express, Inc. (symbol:   EXPR) (214.1%) were larger than any single-day GME price change.66   In fact, since 2020 began, 134 common stocks had at least one one-day price increase greater than GME’s largest one-day price increase.

See, e.g., “‘We got lucky’:  hedge funds that cashed in on the Reddit rally,” Financial Times (February 17, 2021), available at and “Melvin  Capital,  hedge fund targeted by Reddit board, closes out of GameStop short position,”  CNBC (January 27, 2021),  available  at

See, e.g., “‘We got lucky’:  hedge funds that cashed in on the Reddit rally,”

see also “This  Hedge Fund Made $700 Million  on GameStop,”  The Wall Street Journal (February 3, 2021), available at

See, e.g., “‘We got lucky’:  hedge funds that cashed in on the Reddit rally,” 

See, e.g., “Hedge Funds Beat the Stock Market Thanks to the GameStop Saga,” Forbes (February 17, 2021), available at (describing returns from one hedge fund index as compared to the broader stock market); 

see also “Glenview, Other Stock Funds Jump in January: Hedge Fund Update,” Bloomberg (February 2, 2021), available at (describing varying hedge fund performance in January).

Impact on Exchange-Traded Funds 

    The market events of January 2021 also affected some exchange traded funds (“ETFs”) and private funds.  GME’s volatility was significant enough to impact ETFs that held GME stock.  For example, the SPDR® S&P® Retail ETF (“XRT”) saw its position in GME increase from 1.5% of its portfolio as of December 31, 2020 to 19.98% of its portfolio on January 27, 2021. That same day, XRT experienced net redemptions of $506 million, representing 76.3% of its net assets, which was the second largest net redemption in the fund’s history.  

    Over the three-day period ended January 28, 2021, XRT traded at an average bid-ask spread of $0.073, compared to a 52-week average bid-ask spread of $0.011.70    In the same way, the Wedbush ETFMG Video Game Tech ETF (“GAMR”) position in GME increased from 2.04% of its portfolio as of December 31, 2020 to as much as 17% of its portfolio on January 28, 2021.  Over the three-day period ended January 28, 2021, GAMR traded at an average bid-ask spread of $1.32 compared to a 52-week average bid-ask spread of $0.186.71   

 While this volatility raised questions about whether the market price of an impacted ETF’s shares might decouple from the ETF’s net asset value (“NAV”), staff observed that operations proceeded in a normal course for ETFs, despite heightened activity.

 For example, XRT’s closing price exhibited a premium of 1.25% to NAV on January 28, which is larger than its recent historical norms but does not seem indicative of a failure of the creation and redemption process or any other operational challenge beyond the observed volatility of its holdings.

See “SPDR® S&P® Retail ETF Semi-Annual Report,” State Street

Global  Advisors SPDR, (December 31, 2020), available at

 XRT seeks to track a modified equal weighted index where each of its holdings are roughly of similar size (as opposed to capitalization weighted where each holding’s proportion of the portfolio is determined by the market value of the company).   As GME’s     price increased, the size of the GME position held by XRT increased, as XRT did not rebalance its holdings during this time.

Source: Bloomberg.

During periods of extraordinary volatility in the underlying ETF holdings, it may be difficult for authorized participants or market makers to confidently ascribe precise values to an ETF’s holdings, thereby making it more difficult to effectively hedge their positions.   Market participants might widen their quoted spreads in the ETF shares as a result. ETFs do not sell or redeem individual shares.  Instead, “authorized participants” purchase and redeem ETF shares directly from the ETF in blocks called “creation units” typically using a “basket” of securities and other assets identified by the ETF.  The combination of the creation and redemption process with secondary market trading in ETF shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of ETF shares at or close to the NAV per share of the ETF.  This arbitrage opportunity would exist if an ETF trades at a price that represents a premium (above) or a discount (below) its NAV.

 Short Selling and Covering Short Positions

GameStop at the time was notable for its significant short interest (the ratio of shares currently sold short to shares outstanding). Figure 5 shows GME’s short interest over time, along with average levels of short interest among other non-financial common stocks.  In the past, GME had several periods of high short interest, but none as high as the levels achieved from 2019 to mid-January 2021.  GME short interest hit 50% of shares outstanding first in 2012 and then again in 2015, 2016, and 2018, before rising even further in 2019. 

Unless otherwise indicated, information in this subsection was derived from staff review of data maintained in the CAT database or obtained from Compustat, the Center for Research in Security Prices, LLC, ORTEX, and Bloomberg, as well as from the Nasdaq Stock Market LLC, New York Stock Exchange LLC, NYSE Arca, Inc., NYSE American LLC, and Cboe Exchange, Inc.

Short selling involves the sale of a stock that the seller does not own. For example, if a stock has 100 shares outstanding and 5 of them are currently being sold short, then the stock would have short interest of 5%. Short selling is typically done: (1) when a person expects a stock to decline and borrows the stock from someone else to sell it at a current high price and later “cover” the sale by purchasing it at a lower price to give back to the lender; (2) by a market maker selling to a customer that wants to buy at a time when the firm does not have enough of the stock in its inventory to fill the customer’s order; or (3) to hedge (i.e., reduce the economic exposure of) a long position in the same or a related security. Short selling is uniquely risky because stock prices can potentially rise indefinitely, in which case the short seller can lose more than the value of their original investment. Recognizing this risk, broker-dealers typically require that the short selling investor post collateral in a margin account of at least 50% of the shorted position in addition to the cash obtained from the short sale. Some issuers and individual investors have been vocal in their public criticisms of short selling. See, e.g., comments received in response to the Commission’s proposed amendments to Regulation SHO, Securities Exchange Act Release No. 59748 (April 10, 2009), 74 FR 10842 (April 20, 2009), Comment File No. S7-08-09, available at: Nevertheless, short selling provides a financial incentive for individuals to uncover negative information (such as fraud), and can also act to dampen the boom/bust cycle, since shorts can reduce irrational exuberance when stocks are going up, and covering shorts acts as upward pressure on declining stocks. See, e.g., Vivian W. Fang, Allen H. Huang, and Jonathan M. Karpoff. “Short selling and earnings management: A controlled experiment.” The Journal of Finance 71.3 (2016): 1251-1294, Robert F. Stambaugh, Yu Jianfeng, and Yu Yuan. “The short of it: Investor sentiment and anomalies.” Journal of Financial Economics 104.2 (2012): 288-302.  2021, GME short interest hovered around 100%, hitting its high of 109.26% on December 31, 2020.

Given the high levels of short interest, together with the price movements in GameStop, a natural question is the degree to which these price movements arose from a “short squeeze.” Indeed, some of the meme stock trading was described in news coverage as an act of rebellion against short-selling professional investors who had targeted GameStop and other stocks. A short squeeze might occur when an event triggers short sellers en masse to purchase shares to cover their short positions. For example, if there is a sudden increase in the price of the stock being shorted, short sellers would face margin calls requiring them either to post additional collateral or to exit their position. Short sellers that cover their positions by buying the underlying stock would cause additional upward price pressure on the stock, which could force other short sellers to exit their positions, adding further upward price pressure and so on. Because short sellers are out of the market, at least temporarily, a stock price could continue to rise, unchecked by those who are pessimistic regarding its performance. Further, because short sellers could lose more than the capital they have invested, the extreme risk could deter further short selling in the stock. While the price of GameStop did eventually fall, one could ask to what extent a short squeeze lay behind its price increase dynamics.

In seeking to answer this question, staff observed that during some discrete periods, GME had sharp price increases concurrently with known major short sellers covering their short positions after incurring significant losses. During these times, short sellers covering their positions likely contributed to increases in GME’s price. For example, staff observed that particularly during the earlier rise from January 22 to 27 the price of GME rose as the short interest decreased. Staff also observed discrete periods of sharp price increases during which accounts held by firms known to the staff to be covering short interest in GME were actively buying large volumes of GME shares, in some cases accounting for very significant portions of the net buying pressure during a period. Figure 6 shows that buy volume in GME, including buy volume from participants identified as having large short positions, increased significantly beginning around January 22 and remained high for several days, corresponding to the beginning of the most dramatic phase of the run-up in GME’s price.

Figure 6 shows that the run-up in GME stock price coincided with buying by those with short positions. However, it also shows that such buying was a small fraction of overall buy volume, and that GME share prices continued to be high after the direct effects of covering short positions would have waned. The underlying motivation of such buy volume cannot be determined; perhaps it was motivated by the desire to maintain a short squeeze. 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, it was the positive sentiment, not the e buying-to-cover that sustained the weeks-long price appreciation of GameStop stock.

Another possible explanation could be a “gamma squeeze,” which occurs when market makers purchase a stock to hedge the risk associated with writing call options on that stock, in turn putting further upward pressure on the underlying stock price. As noted above, though, staff did not find evidence of a gamma squeeze in GME during January 2021. One of the main drivers of a gamma squeeze is an influx of call option purchases, which causes market makers to hedge their writing of the call options by purchasing the underlying stock, driving up the stock price in the process. While staff did find GME options trading volume from individual customers increased substantially, from only $58.5 million on January 21 to $563.4 million on January 22 until peaking at $2.4 billion on January 27, this increase in options trading volume was mostly driven by an increase in the buying of put, rather than call, options. Further, data show that market-makers were buying, rather than writing, call options. These observations by themselves are not consistent with a gamma squeeze.

Another possible explanation could be a “gamma squeeze,” which occurs when market makers purchase a stock to hedge the risk associated with writing call options on that stock, in turn putting further upward pressure on the underlying stock price. As noted above, though, staff did not find evidence of a gamma squeeze in GME during January 2021. One of the main drivers of a gamma squeeze is an influx of call option purchases, which causes market makers to hedge their writing of the call options by purchasing the underlying stock, driving up the stock price in the process. While staff did find GME options trading volume from individual customers increased substantially, from only $58.5 million on January 21 to $563.4 million on January 22 until peaking at $2.4 billion on January 27, this increase in options trading volume was mostly driven by an increase in the buying of put, rather than call, options. Further, data show that market-makers were buying, rather than writing, call options. These observations by themselves are not consistent with a gamma squeeze.

Finally, as discussed above, the volatility in GME impacted some ETFs due to their holdings in GME, and potential short interest in the ETFs themselves. The most notable of these was XRT, an ETF of retail companies. XRT garnered attention in the press and on Reddit due to a combination of its GME exposure and its pre-existing short interest, which was several multiples of XRT’s shares outstanding.82 As GME increased in value, price changes in XRT became increasingly driven by those of GME. Shorting XRT could have served as an indirect, though imperfect, way of shorting GME. In fact, staff observed a large spike in net redemptions of nearly 6 million shares in XRT on January 27, which may be consistent with short selling activity. 83 This redemption activity was generated nearly entirely by ETF market making firms. It therefore was likely the result of net selling of XRT by market participants against market makers (e.g., market makers buying from investors selling short) where the market makers, rather than offsetting those purchases, subsequently redeemed the XRT shares from the ETF sponsor for shares of the underlying stocks. Such shorting could have led XRT to trade either at a premium or discount relative to its NAV depending on market dynamics. As noted above, XRT’s closing price exhibited a premium of 1.25% to NAV on January 28, which is larger than its recent historical norms but does not seem indicative of a failure of the creation and redemption process or any other operational challenge beyond the observed volatility of its holdings. It is noteworthy, therefore, that the price of XRT remained close to its NAV during this period. Differential costs of shorting were insufficient to overcome the ability to arbitrage the price/NAV differential, as the creation and redemption process through authorized participants continued to function, which helped keep the ETF’s share price close to its NAV.

The price surge in GME also raises questions of market efficiency that relate to short selling. Staff have observed that it was unusually costly to borrow shares in GME.84 Academic research implicates constraints on short selling as a possible contributor to bubbles where stock prices rise above what may be justified by fundamentals.85 Such constraints on short selling could arise from cost or from risk aversion. To the extent that GameStop was costly and risky to short, the reluctance to sell short could have contributed to the run-up in prices and the subsequent steep decline. While a short squeeze did not appear to be the main driver of events, and a gamma squeeze less likely, the episode highlights the role and potential impact of short selling and short covering.

Clearing Agency Margin and Capital Issues

    Clearing agencies (i.e., NSCC and, to a lesser extent, OCC) played important roles during the January 2021 GME market events. The risk management mechanisms of these clearing agencies effectively led others in the transaction chain—such as retail broker-dealers—to pause and manage the risk exposure that arose as the rate of transactions accelerated. Both NSCC and OCC experienced record volumes cleared on January 27, 2021. After the market events of late January 2021, both NSCC’s and OCC’s margin requirements returned to prior and more historically consistent levels. 

    As mentioned above, in highly volatile trading where share prices whipsaw by hundreds of dollars, NSCC may require more margin to guard against an increased risk of defaults (which may occur if, for example, buyers do not carry-through on paying for a stock that has plummeted or sellers do not carry-through on delivering a stock that has skyrocketed). On January 27, 2021, in response to market activity during the trading session, NSCC made intraday margin calls from 36 clearing members totaling $6.9 billion, bringing the total required margin across all members to $25.5 billion. Of the $6.9 billion, $2.1 billion were intraday mark-to-market calls, while the remaining $4.8 billion was a special ECP charge. Specifically, NSCC observed unusual volatility in certain securities, including GME, which presented heightened risk to the clearinghouse and its members.86 As a result, it calculated and assessed against certain affected members the remaining $4.8 billion as an additional special charge pursuant to its established rules. NSCC imposed this charge on 18 members, all of whom provided the additional margin. NSCC subjected one additional member to the special charge, but that member ultimately did not have to meet that charge after offsetting its exposure with a transfer from an affiliate. 

     In addition, several NSCC members were subject to an ECP charge based on the ratio of the excess risk in their portfolios relative to their capital. Because these members’ ratios of excess risk versus capital were not driven by individual clearing member actions, but by extreme volatility in individual cleared equities, NSCC exercised its rules-based discretion to waive the ECP charge for all members on January 28, 2021. Absent this waiver, one retail broker-dealer would have had an additional ECP charge of more than double its margin requirement of $1.4 billion on January 28, 2021. NSCC removed this waiver on February 2, 2021, meaning that any member whose ratio of excess risk versus capital incurred an ECP charge would have been obligated to pay the charge going forward. 

    OCC margin requirements followed a similar pattern to those at NSCC, although OCC did not take any non-routine actions to increase financial resources during this period. 

    NSCC, like most similar central counterparties, does not instruct its member firms to stop trading or clearing individual symbols because its rules do not give it that ability. However, as discussed below, some broker-dealers restricted activities in a limited number of individual stocks in reaction to margin calls and capital charges imposed by NSCC. This would be a decision made by the broker-dealers and not directed by NSCC. 

Broker-Dealer Reactions and Trading Restrictions 

    In their customer account agreements, some broker-dealers reserve the right to decline customer orders or cancel trades without prior notice. Such actions could be taken, for example, for legal, compliance, or risk management reasons. As GME and other meme stocks experienced increased levels of volatility, some broker-dealers with a largely individual investor customer base restricted some types of trading88 by their customers in those stocks. One narrative at the time attributed the broker-dealer trading restrictions to pressure from hedge funds and their commercial partners (e.g., the wholesalers and consolidators) for the restrictions. This narrative was the subject of testimony at a Congressional hearing, where witnesses testified that the trading restrictions did not result from such pressure. Instead, some of the impacted broker-dealers maintained that the trading restrictions were a reaction to margin calls and capital charges imposed by NSCC in response to the extraordinary volatility in GME and other stocks.

    The actions of one broker-dealer help illustrate what happened. The staff observed that, on January 26, 2021, one broker-dealer began increasing both initial and maintenance margin requirements in customer margin accounts holding GME. Margin requirements began at 80% and then increased to 100% the following day. This firm also reduced the trade limit on GME option contracts from 5,000 contracts to 3,000 contracts per customer. The next day, the firm first limited GME option contracts to 300 and later reduced it again to 100 contracts. On January 28, the firm stated that it would restrict all new customer purchases in eight securities—AMC; BlackBerry Ltd.; BBBY; EXPR; GME; KOSS; NAKD; and Nokia Corp.— and place them in position closing only (“PCO”) status.

    On January 29, the firm stated that it would lift the PCO status and implement a series of limits on the amount of shares its customers could hold in both equity securities and options in a number of securities (“restricted securities”). The firm made adjustments throughout the day. At one point, on January 29, the firm’s list of restricted securities grew to over 50 names. In addition to these position limits, the firm stated that it was no longer permitting fractional share purchases in restricted securities. The firm said it would only allow new whole share positions, subject to the position limits, in the restricted securities. According to the firm, customers owning existing fractional shares in restricted securities were only able to sell or close their positions. The firm said it eased the limits over the next week and removed them entirely on February 5, 2021. 

    Some broker-dealers temporarily restricted trading for stated reasons they did not explicitly or publicly attribute to NSCC margin. For example, on January 28, one such firm stated that it restricted purchases in GME and AMC for its customers and required customers to post additional margin for one day only.

    Other broker-dealers restricted trading due to capacity issues. For example, one firm’s system created a unique ID for each order, but purportedly reached a limit in the number of unique IDs it was able to create on January 27, 2021. The following day, January 28, when the firm realized that it would likely run out of unique IDs again, it restricted customers from making new purchases of shares of GME and AMC and from opening option positions in these stocks during the last one and a half hours of the trading day. Customers were still permitted to close their existing long or short GME and AMC positions, and the restriction was lifted before the market opened on January 29. 

    The staff also observed differing practices among broker-dealers when notifying customers about trading restrictions. Some broker-dealers notified customers when they imposed trading restrictions through various methods including emails, pop-up messages when accessing the account or trying to transact in a security that was restricted, posts on dedicated customer service sections of the platform, and social media posts. 

Role of Off-Exchange Market Makers

      GME trading in January 2021 shifted the prevailing distribution of GME equity executions across venues. Specifically, the proportion of off-exchange activity initially rose as individual investor activity increased, then fell as volatility increased. Approximately half of GME’s dollar and share volume reported to the consolidated tape in 2020 was executed on a national securities exchange. On January 21, 2021 (when GME opened at $39.23 and closed at $43.03), 62.60% of the day’s dollar volume was executed off exchange. But, beginning on January 22 (when GME opened at $42.59 and closed at $65.01), the percentage of dollar volume executed off exchange consistently dipped below 50%, reaching a low of 32.83% on January 28 (when GME opened at $265.00 and closed at $193.60). 

    An increasing percentage of volume executed on exchange when volatility spikes may indicate that market participants, including wholesalers, are seeking to avoid internalizing customer orders to reduce potential losses when hedging becomes more difficult.

    The vast majority of GME stock trades executed off exchange in January 2021 were internalized (approximately 80%) as opposed to executed on ATSs.99 The market for internalization of GME was highly concentrated, with 88% of internalized dollar volume in January executed by just three wholesalers. 100 Citadel Securities accounted for nearly 50% of internalizer dollar volume during the month, rising to as high as 55% of daily internalized dollar volume twice.101 Virtu Americas accounted for approximately 26% of the internalized volume during January.102 While the percentage of GME trading internalized declined during the last week in January, the absolute volumes executed by internalizing firms during the days of the most intense trading in this period were, in some cases, an order of magnitude larger than what had previously been typical for these firms. For example, Citadel internalized an average of just under $37 million of GME per day in December 2020. 103 On January 27, Citadel internalized nearly $4.2 billion of GME.104 Similarly, Virtu internalized an average of $23.4 million of GME each day in December 2020 and $2.2 billion of GME on January 26. 105 On January 29, Citadel internalized approximately $2.2 billion of GME stock, while Virtu internalized approximately $1.4 billion.106 3.8 

Available Liquidity for GME

To better understand the market for GameStop’s equities and options during January 2021, it is important to look beyond the volatility in GME’s share price. While volatility, price, and volume increased dramatically in the last two weeks of January, market participants also experienced multiple volatility-induced trading disruptions and deteriorations in some measures of liquidity.

Consistent with increased volatility in GME, various measures of liquidity declined substantially during January 2021. As shown in Figure 9 below, bid-ask spreads widened significantly for GME in January 2021. For example, on January 28, 2021, the daily average relative effective spread for GME stock was 0.54%, three times the average of 0.18% for 2020. Nominal quoted spreads for GME stock were nearly 50 times larger than the 2020 daily average.

The size of the best priced quotes in GME stock also decreased as the share price of GME increased. During the first eight months of 2020, the average daily median size at the best bid was 4,720 shares. In contrast, on January 29, 2021, when GME opened at $379.71 (up from the prior day’s close at $193.60), the median size at the best bid was only 19 shares. However, other measures of depth in GME remained relatively robust. Measured in dollar value, the notional value (i.e., share price times number of shares quoted) of GME’s inside depth at the best bid and ask prices did not fluctuate as dramatically during January 2021, signifying that liquidity providers continued to commit capital to quoting GME, albeit with fewer shares as the share price dramatically increased. Further, as the proportion of volume in GME shifted to exchanges at the end of the month, the dollar value of displayed inside liquidity increased. As extreme intraday volatility in GME occurred, exchanges’ Limit-Up, Limit-Down (“LULD”) trading pauses were triggered on six trading days in late January. LULD is a trading mechanism that attempts to address extraordinary volatility in stocks. If either the National Best Bid equals the stock’s upper bound or the National Best Offer equals the stock’s lower bound for fifteen seconds, the stock’s trading will be paused for five minutes. Significant price movement in GME during January 2021 triggered 40 LULD pauses, compared with only one in all of 2020. On January 28 alone, 19 LULD pauses were triggered in GME.

GME Options Trading 

Consistent with the trading activity in GME stock, trading in GME options increased significantly in January 2021. From the beginning of 2020 through September of that year, GME options traded a median of about 16,000 contracts per day, with a maximum of about 172,000 in one day, with a median dollar volume totaling just over $800,000 per day and a maximum of about $42 million in one day. In the fourth quarter of 2020, GME options traded a median of about 84,000 contracts per day, with a maximum of about 560,000 in one day, with a median dollar volume totaling approximately $10.5 million per day and a maximum of about $120 million in one day. On January 27, 2021, as shown in Figures 10 and 11, below, over 2 million contracts traded, worth over $8 billion.

Based on dollar volumes, the increased trading concentrated heavily in call options, a large percentage of which were short-dated. Implied volatility rose dramatically.  For example, as shown in Figure 13, below, measures of implied volatility for 50 delta  GME contracts reached levels nine times higher than the typical 2020 range.

Individual customer accounts made up a high percentage of options trading in GME during this time. A small number of retail brokers facilitated this activity, with three brokers (Robinhood, TD Ameritrade, and E*Trade Securities) representing over 66% of individual customer accounts trading GME options. A small number of retail-focused online brokerages had the majority of volume from individual customer accounts, with Robinhood and TD Ameritrade alone accounting for over half of this volume. In mid-January, individual customer accounts reached a peak of 91% of the non-market maker volume in options. By late January, individual customer accounts were associated with only 56% of non-market-maker volume. Between January 22 and January 27, GME traders began to suddenly close their call option positions. 


The extreme volatility in meme stocks in January 2021 tested the capacity and resiliency of our securities markets in a way that few could have anticipated. At the same time, the trading in meme stocks during this time highlighted an important feature of United States securities markets in the 21st century: broad participation. There are many different types of investors, and they buy and sell stocks for many different reasons. However, when share prices change rapidly and brokerage firms suddenly suspend trading, investors may lose money. 

Underneath the memes are actual companies, with employees, customers, and plans to invest in the future. Those who bought GameStop became co-owners of a company through a system of mutual trust and participation that sustains our economy. People may disagree about the prospects of GameStop and the other meme stocks, but those disagreements are what should lead to price discovery rather than disruptions. These events present an opportunity to reflect on the market structure and regulatory framework and identify additional areas for potential study and further consideration in the interests of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.

These areas include:

1. Forces that may cause a brokerage to restrict trading. A number of clearing brokers experienced intraday margin calls from a clearinghouse. In reaction, some broker-dealers decided to restrict trading in a limited number of individual stocks in a way that some investors may not have anticipated. This episode highlights the integral role clearing plays in risk management for equity trading, but raises questions about the possible effects of acute margin calls on more thinly-capitalized broker-dealers and other means of reducing their risks. One method to mitigate the systemic risk posed by such entities to the clearinghouse and other participants is to shorten the settlement cycle.

2. Digital engagement practices and payment for order flow. Consideration should be given to whether game-like features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise. In addition, payment for order flow and the incentives it creates may cause broker-dealers to find novel ways to increase customer trading, including through the use of digital engagement practices. 

3. Trading in dark pools and through wholesalers. Much of the retail order flow in GME was purchased by wholesalers and executed off exchange. Such trading interest is less visible to the wider market—and payments to broker-dealers may raise questions about the execution quality investors receive. Further, though wholesalers increasingly handle individual investor order flow, they face fewer requirements concerning their operational transparency and resiliency as compared to exchanges or ATSs.

4. Shortselling and market dynamics. While short selling and calls on social media for short squeezes received a great deal of media attention, the interplay between shorting and price dynamics is more complex than these narratives would suggest. Improved reporting of short sales would allow regulators to better track these dynamics.


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