Welcome back to the channel everyone today, i want to read through and digest the long-awaited sec gamestop report. I obviously don't want to read the entire report cover to cover for you. I want to pick out the key information and the key points to me that really stood out so stay tuned and let's make some money, and now i want to dive straight in with the key information. So, as a bit of an overall summary for this report, i have to admit i'm quite disappointed by the work that the sec have put in.

I think what i can gather from this report is that overall, the shc really aren't on our side and there's some very, very embarrassing points in this report. That's probably been proven or disproven where they think it's factual. So let's get started by diving into the contents. Page, the first half of the report really focuses on the us market structure and securities regulatory framework.

Basically, all of those regulations that are 100 follow to the letter all the time and basically how the market works and how trades are placed and executed. Then the second half of the report really dives into gamestop and what actually happened again, i'm not going to read each individual heading here for you, because i'm sure you can do that yourself. But there is obviously a lot in this report that i want to bring specific attention to now. I don't really want to dive too deep into the first half of this report, because it basically explains how a trade is placed, how our trade is settled.

What payment for order flow actually is what the market structure actually is and what regulations there are and more most of you probably know all about that, and if you don't i'll, leave the link to this report down in the description below so you can read through It yourself for this video. I basically just want to touch on the key points and the embarrassing points in the second half of this report. Again, there's a lot in here that you already know, because it explains the process of what happened to the gamestop stock back in january, which you've probably seen. And if you haven't you, can just go and have a look at the chart and scroll back to january.

So the first paragraph i want to draw your attention to is something that the sec outlines and basically says: there's no variance on it and there was no breaking of regulations. It says the exchange act includes various rules, requirements and principles such as those that prohibit exchanges from engaging in unfair discrimination and require them to promote the protection of investors and the public interest, as well as those that require sros to file all proposed rule changes with The commission, the report, obviously then, doesn't go on to say. However, these individual firms broke all of these rules. It basically just leaves it like that, as in all of the rules and requirements are followed, but really we know that that isn't really the case.

You can just look at the sheer number of violations that basically every firm in the financial system has received over the previous 5, 10, 15, 20 or even more years. We know that citadel have had an entire long list of violations of all of those rules and requirements that are supposedly always followed 100 to the t now. The next thing i want to draw your attention to is something that i just don't think is good enough from the sec. 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. We've literally asked the sec to do their job and figure out the underlying causes of the meme stock as in amc and gamestop phenomenon, and they basically said it's speculation and we're not gon na. Look at that. Sorry guys.

They've basically said we're not going to look at naked shorting we're not going to look at any of this supposed market manipulation or illegal activity. We're just going to look at market structure now. The first slightly embarrassing thing that i wanted to draw your attention to. Is this paragraph here by the end of january 2021, some funds had closed out their short positions in meme stocks, realizing significant losses.

Little indication 62 takes you to this pot here, which says, and melvin capital hedge fund targeted by reddit boards, closes out of gamestop short positions. So basically, the sec report is relying on a cnbc article that was basically debunked the day after this we know that melvin didn't actually close out of their short position and that's why they had to borrow so much money from citadel to stop themselves from going bankrupt And from going belly up basically - and it then says, staff believes that hedge funds broadly were not significantly affected by investments in gamestop and other meme stocks. Staff did not observe that any advisers to private funds and registered funds experienced liquidity issues or difficulties with counterparties. Let's just make a quick note of that one: there shall we so the report basically says that loads of hedge funds supposedly covered their short positions.

The hedge funds weren't significantly impacted by their investments or shorts in gamestop, and that supposedly no funds or advisors or counterparties experience liquidity issues, because in about 11 pages, it explains all of the broken dealers and hedge funds that experience liquidity issues and margin calls because it Wasn't just robin hood that had that two billion dollar margin call there was actually many other brokers as well. One thing i found very very interesting is that potentially market makers didn't actually hedge for the call options that were purchased back in january. 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, because, obviously, if market makers have written tons and tons of call options that are now in the money, they should theoretically purchase that stock to hedge their Risk but, as noted above though, staff did not find evidence of a gamma squeeze in gamestop during january 2021..

Does that mean that market makers didn't actually hedge that risk for all of those written call options? Okay, fair enough. The report then says, while staff did find gamestop option trading volume from individual customers increased substantially from only 58 million on january 21st to 563 million on january 22nd until peaking at 2.4 billion on january 27th. This increase in options trading volume was mostly driven by an increase in the buying of put rather than call options. So supposedly individual customers were buying, put options on gamestop and not call options interesting.

Because then, if we look at the graphs in figure 11, the gamestop options - dollar volume 2020 to january 2021 - now obviously there's a lot here at the end of january. There's a hell of a lot of red and not much blue but interestingly, red relates to call options and not put options. So surely the majority of the options purchased were call options not put options. I guess, if you look at the specific options, contract volume and not the dollar volume, you can see a kind of slightly similar story, but slightly different.

There does still appear to be a lot of red here, but also a lot of blue as well, but there's more reds back here. So maybe it's kind of even the number of call options and put options. But surely, if options trading increased from 58 million dollars to 2.4 billion dollars, then there should have been a lot of cool options that were hedged for, but supposedly staff did not find evidence of a gamma squeeze in january. Now.

The next thing that i found really interesting is the fact the report doesn't even really talk about naked shorting. It kind of skirts around the question. The unusually high amount of short selling raised the question of whether some of the short sales were naked, namely made without arranging to borrow the underlying security. When a naked short sale occurs, the seller fails to deliver the securities to the buyer, and staff did observe.

Spikes in fails to deliver in gamestop, however, fails to deliver can occur either with short or long sales, making them an imperfect measure of naked short selling. Moreover, based on the staff's review of the available data, gamestop did not experience. Persistent fail to deliver at the individual clearing member level, specifically, staff observed that most clearing members were able to clear any fails relatively quickly as in within a few days and for most part did not. Experience fails across multiple days, but they failed to address or even failed to investigate whether there was naked shorts.

They basically said they could be naked shorts. That's sometimes shown in the fail to deliver but fails to deliver, isn't a perfect measure and there was some fail to deliver, but we're not going to touch on or tell you about naked shorts. Surely, as the sec, it's their job to investigate whether there was naked shorts or not, rather than just say there could be naked shorts. Oh look, there's a few fails to deliver, but not too many of them.

Now i do have to admit it's a bit awkward that it was live on cnbc, where melissa lee said naked shorts, yeah and yet the sec can't even comment on naked shorts, even after it's been on live tv. The next interesting thing is that this report does prove that you can indirectly short amc and gamestop by shorting their etfs. Finally, as discussed above, the volatility in gamestop impacted some etfs due to their holdings in gamestop and potential short interest in the etfs themselves. It then says: shorting xrt, which is one of those etfs, could have served as an indirect, though imperfect way of shorting gamestop.

In fact, staff observed a large spike in net redemptions of nearly 6 million shares in xrt on january 27th, which may be consistent with short selling activity. So i guess that is interesting - that something we've speculated on a while, which is those market makers, are actually shorting. The etfs, in order to short amc in gamestop, even though they can't find any amc in gamestop, shares to short, because they're just shorting the etfs instead is actually correct and is actually happening. Now, let's go back and talk about those margin calls the next interesting part is here.

It says on january 27th, 2021 in response to market activity. During the trading session, the nscc made intraday margin calls from 36 clearing members totaling 6.9 billion dollars. Of that 6.9 billion dollars, 2.1 billion was intraday marked to market calls, while the remaining 4.8 billion was a special ecp charge. It then says the nfcc exercised its rule-based discretion to waive the ecp charge for all members on january 28th, 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 28th.

So supposedly, there's no liquidity issues, but the nscc made intraday margin calls not just intraday margin requirements, but additional margin calls for 6.9 billion dollars to 36 different clearing members because that brought their total required margin across all members to 25.5 billion. So there must have been a number of members that were short and got margin called for 6.9 billion. Next, i think they've managed to contradict themselves. Yet again.

The nfcc, 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, didn't vlad admit on a spaces call with elon musk. But the nfcc asked him to restrict trading in these symbols to massively reduce his margin, call from two billion dollars, or was it two or three billion dollars either way it went down from two or three billion dollars all the way down to only 700 million dollars. Obviously, vlad then pco those stocks changed them to position closing. Only, therefore, he didn't have to meet the two or three billion dollar margin call, and only had to stump up 700 million.

Now it also touches on whether citadel pressured robin hood to limit trading as well. It says one narrative at the time attributed the broker-dealer trading restrictions to pressure from hedge funds and their commercial partners, as in wholesalers and consolidators for the restrictions. This narrative was the subject of a 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 the nfcc.

In response to the extraordinary volatility in gamestop and other stocks, so it basically doesn't even comment as to whether citadel did actually pressurize robin hood. It basically just says it was the narrative of a congressional hearing job done awkward. Now, as a conclusion, it does say that the sec wants to look deeper into more things, such as forces that may cause a brokerage to restrict trading digital engagement practices and payment for order flow trading in dark pools and through wholesalers and short selling and market dynamics, Which, i guess is all promising points for them to look at further, but i have to admit overall, i am quite disappointed with the report. I was hoping the report was going to say: we've done an investigation, we've done our investigation, we've done the investigation that you were wanted and we found these major fraudulent events that happened and we're gon na bring down the hammer and get rid of citadel.

Maybe that's me setting my expectations far too high for this sec report, and maybe i was always gon na - be disappointed with the outcome guys be sure to. Let me know down in the comments below what you think about the sec report. Are you disappointed with what i've touched on today as well? Have you read through the full report, and what do you think overall? Do you think it's disappointing or is it kind of what you expected and just more fluff from the sec and as always guys if you enjoyed this video, be sure to check out some of my others, alternatively, subscribe to the channel and do that notification bell? Because that way, you'll be alerted when i upload a new video cheers.