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I've avoided #Gamestop takes hitherto as I'm working with my colleagues @IHSMarkit in my day job to understand the dynamics. A couple points in advance of reviewing more data and analysis tonight/tomorrow. 1/n
First some background. In my first job as a regulator @CFTC I sat in the #Surveillance unit tasked with monitoring futures, options, and swaps markets under #GaryGensler. This experience was briefly highlighted in NPR yesterday. 2/n https://www.npr.org/2021/01/27/960723183/wall-street-insider-turned-tough-market-cop-bidens-pick-to-head-sec
The first thing I would look for in outlier events like GME (e.g., May 6, 2010) is (1) who has positions, (2) who is changing their positions between trading days, (3) who is trading inside the trading day, and (4) what kinds of orders are being placed/executed. 3/n
What do I mean by who? First, you look at the individual firms that are trading, esp around pricing turning points and settlements, and what kind of relationship do they have with one another. Second, you look at categories of traders, e.g., banks, investment managers, etc. 4/n
Analysts opining in public right now are mostly shooting in the dark. The Reddit narrative may/may not be true. Given the sheer volumes being traded (40.6m today). Retail longs are prob only part of the story and there are many professionals, 5/n
including hedge funds, in on the long side of the trading and (de facto) the short squeeze. Better transparency from @SEC_News could help narrow the range of plausible explanations for the microstructure phenomena we're witnessing. 6/n
There may be other policy tools for @SEC_News, and I may even opine on them soon, but there are some clear transparency initiatives the SEC's Division of Trading and Markets could initiate. 7/n
1) Implement sect 984 of Dodd-Frank that req'd @SEC_News to make "rules that are designed to increase the transparency of information available to brokers, dealers, and investors, with respect to the loan or borrowing of securities." Congress wanted these rules done by 2012! 8/n
2) What might transparency under 984 look like? @CFTC Commitment of Traders reporting is one model. This would provide the public transparency into what analytically relevant categories of securities borrowers, including short sellers, are doing in $GME. 9/n
Relevant categories might include e.g., retail, broker-dealers, investment mgrs., etc. This would provide better insight into who is shorting and what their motivations may be. It would also focus observers and traders on narratives that fit the data. 10/n
3) Another idea from @CFTC is "net position change" data. This data provided high level transparency into how positions change between trading days. It also revealed how much trading volume actually led to changes in inter-day positions. 11/n https://www.cftc.gov/MarketReports/NetPositionChangesData/index.htm
