Comment Not about retail investors (Score 5, Interesting) 127
Here's why the SEC would be interested in this, and it has to do with the financial equivalent of parallel construction.
There's an HFT firm called Citadel that has a very cozy partnership with Robinhood, which is where a lot of these retail investor accounts are coming from.
As part of that partnership, Robinhood routes trades through Citadel, who does the actual buying and selling (what's called "execution") of user stock orders. Citadel makes money by buying the stock themselves and then selling to the user for a slightly higher price. Robinhood gets a kickback from this, it's a practice called PFOF and a lot of discount brokers do it.
The problem is that like all brokerages, Robinhood has something called Duty of Best Execution to its users. This means that they'll route stock trades through whoever will give users the best price. However, Robinhood doesn't do that - they route through whoever pays them the best kickback via PFOF.
As part of that relationship, Citadel also knows every trade made by a Robinhood user.
Now, Citadel knows that hedge funds like Melvin and Citron have massive short interest in Gamestop. They also know that if Gamestop's stock was to pop right around the time those hedge funds have to cover their short sales, they'd potentially become insolvent and could be snatched up for cheap.
However, price manipulating like that is illegal. So what do they do? They use the trade data from Robinhood to justify a massive buy of Gamestop stock. This is perfectly legal. And naturally, as soon as Melvin and Citron are in trouble, Citadel swoops in and buys a stake in them.
This also means that Citadel is making money off every angle: they make money front-running the retail trades, make money buying the smaller hedge funds, and make money off Gamestop's stock.
This is the kind of thing the SEC cares about, not retail investors.
They're also naturally concerned about the pyramid scheme-like nature of Gamestop stock, where a lot of average people are going to get burned, particularly if they got in late.