SEC Staff Releases Report on Equity and Options Market Structure Conditions in Early 2021

The Securities and Exchange Commission today published a Staff Report on Equity and Options Market Structure Conditions in Early 2021, which focuses on the January 2021 trading activity of GameStop Corp (GME), the most famous of the "meme stocks." Because the meme stock episode raised several questions about market structure, the staff report also provides an overview of the equity and options market structure for individual investors.

"January's events gave us an opportunity to consider how we can further our efforts to make the equity markets as fair, orderly, and efficient as possible," said SEC Chair Gary Gensler. "Making markets work for everyday investors gets to the heart of the SEC's mission. I would like to thank the staff for bringing their expertise to this important report, and for their ongoing work on to address the issues that January’s events raised."

The meme stocks experienced a dramatic increase in their share price in January 2021 as bullish sentiments of individual investors filled social media. As the companies' share prices skyrocketed to new highs, increased attention followed, and their shares became known as "meme stocks." Then, as the end of January approached, several retail broker-dealers temporarily prohibited certain activity in some of these stocks and options. GME experienced a confluence of all of the factors that impacted the meme stocks: (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 Report concludes with the staff identifying areas of market structure and our regulatory framework for potential study and additional consideration. These include:

1. Forces that may cause a brokerage to restrict trading;
2. Digital engagement practices and payment for order flow;
3. Trading in dark pools and wholesalers; and
4. The market dynamics of short selling.