Robinhood Markets, Inc. was reportedly forced to re-impose trading restrictions on GameStop shares after the stock price began to soar again on news it had lifted the initial restraints on GME as a result of the now-infamous short squeeze play by the WallStreetBets community of Redditors.
The minute-by-minute saga continues to play out on social media and national news outlets, with each new twist seemingly bolstering the narrative that an unlikely group of hedge fund dragon slayers made up of regular joes has Wall Street on the ropes. However, clues that this sexy plotline was not all that it was cracked up to be had been emerging since the very day the news broke. Stories like BlackRock’s potential $2.4 Billion windfall on their GameStop investments were barely mentioned on social media in the frenzy of proclaiming David’s victory over Goliath. Still today, few are talking about the smaller hedge funds like Senvest Management, which made a tidy $700 Million from the rally – its most profitable investment ever – and other similar stories.
While much of the popular excitement centered on the 53% loss suffered by Melvin Capital, the hedge fund targeted by the Redditors in their attempt to short squeeze the firm’s GameStop position, recent data has shown that it was actually institutional investors driving the “wild price action” of the GME rollercoaster. In fact, the idea that retail investors were behind the debacle is failing to hold up as more information leads industry insiders to suspect that the investment rookies were being weaponized against the hedge fund by other big players.
According to University of Chicago law professor Todd Henderson, the $GME “price inflation was likely driven by vindictive hedge funds trying to squeeze out a hedge fund that was short GameStop”. But, a recent discovery by Wall Street on Parade (WASOP) may shed light on a deeper game being played, that suggests the entire GameStop fiasco could be an excuse to bring down the regulatory gauntlet on the retail investment market altogether, with Melvin Capital offered up as a sacrificial lamb.
Under the table
Citadel, the multinational investment firm, that together with Point 72 (formerly S.A.C. Capital Advisors) rushed to shore up Melvin Capital with a $2.75 Billion-dollar infusion in the wake of the ostensibly grassroots squeeze on its short position, was profiting from the orders Redditors were placing through the online brokerage firm Robinhood or any of the other such firms that Citadel processes market orders for through its trading platform Citadel Securities, which include TD Ameritrade, Charles Schwab, WeBull, Fidelity Brokerage Services, and Ally Invest Securities.
According to Wall Street on Parade, Citadel’s unique position in the securities exchange marketplace allows it to offer massively profitable “pay to play” trading services that have resulted in billions of dollars flowing into company coffers from millions of daily automated trades. By examining over 600 SEC reports filed by nine online brokers, WASOP discovered that these firms were directing stock and option orders to Citadel in exchange for rebates from the trading and investment giant.
Further suspicions of how all that money is moved in the interim are raised by a statement found on Citadel Securities’ website that mentions “18 alternative liquidity venues,” which WASOP suggests could be tied to Dark Pools – private exchanges owned by Wall Street’s biggest financial institutions that are not accessible to the public. One such dark pool owned by Goldman Sachs, JP Morgan, UBS, and other banking behemoths has been playing with GameStop stocks since December 2020.
As a result of the repeal of the Glass-Steagall Act, these large banks are able to engage in all manner of behind-the-scenes predatory manipulations of the stock market, such as the creation of stock market bubbles to “suck in” the small retail investor in colossal, virtual boiler room scams, that rely on intentionally false or misleading research reports distributed by ‘reputable’ investment firms to their clients to make a given stock price go up, but penalizing brokers if they tried to get their customers out on the high end.
These and other scams are perpetrated daily by the biggest fish on Wall Street and its possible that the GameStop event is yet another one of these, albeit with a larger dimension and possible ulterior motives beyond immediate profit as the relationship between Citadel and Biden’s Secretary of the Treasury and former FED chairman might suggest.
The house always wins
As if faced with an existential dilemma, Yellen has voiced her desire to “understand deeply” what has led to the so-called “Reddit Rally” and has called for a meeting with the U.S. Securities and Exchange Commission (SEC), Federal Reserve Board, Federal Reserve Bank of New York and Commodity Futures Trading Commission to look into the mysterious retail trading frenzy.
With the media’s focus squarely on the plight of amateur investors as $GME stock continues to fluctuate wildly and the Redditors at the center of the story vacillating between selling and holding, talk of dealing with market “distortions” revolve around the retail investors themselves who are now in the crosshairs of regulators. According to Andrea Cicione from the TS Lombard economic research institute, thanks to the GameStop scandal, market distortions caused by investors conspiring to cause them “might find its way into regulation in a more explicit way.”
The likelihood that any regulatory initiatives that might result from Yellen’s meeting will touch companies like Citadel or any of the real market distorters is low, to say the least. The new head of the U.S. Treasury has received almost one million dollars in speaking fees from Citadel since stepping down as Federal Reserve Chairman in 2018, including a $50,000 to $100,000 refund she hasn’t paid back to the investment firm for a canceled event.
Citadel’s investment in Yellen is unlikely to yield strict regulations on their and other Wall Street firms’ activities; as they are happy to pay speaking fees and relatively nominal fines for any breaches – a form of legalized corruption that pervades financial markets. Far more likely is a new regulatory framework to control the market activity of the equally new breed of retail investors, which the GameStop circus has now motivated to enter the Wall Street casino where the house always wins.
Photo | A trader works the floor of the New York Stock Exchange as Janet Yellen’s congressional testimony is seen on a television screen, July 12, 2017. Richard Drew | AP