So, from my thoroughly amateurish viewpoint;
Many of the apps such as Robinhood restricted (and still are restricting) the number of GME shares that can be bought. The reasons given dont really seem to hold up under scrutiny - eg. why wasnt it restricted the previous week when folk were buying? Why is it only buying, not selling, that is restricted? Why the arbitrary limits on how many shares can be owned per individual? Additionally people on WSB have posted examples of Robinhood (and others) cancelling their call options, selling their stocks without their permission, forcing stop-lossses, rejecting sell limit prices etc.
Not only is all of the above super-dodgy, but it also completely disproportionately affects the retail investors who are buying GME, rather than the Hedge Funds, who trade through other means and are largely unrestricted.
This is before you get into the conflicts of interest with Robinhood and the hedge funds, and their revenue streams, company bailouts etc.
You can argue that these are all just faults of Robinhood and not indicative of wider manipulation, but honestly I just think that is plain naive.
Anyway, whilst these restrictions are in place, you see several quite obvious examples of short-ladder attacks. I.e. hedge funds selling a few shares between each other at ever-decreasing prices, dropping the GME price down, and potentially hitting those enforced stop-losses, and generally causing panic sales. Panic sales since of course, selling isnt restricted for the retail investors, only buying - meaning that they are powerless to stop the short-ladder attack by simply buying up the shares that are being passed back and forth - they simply watch whilst the share price drops lower and lower. And of course, anyone who does panic sell during this period can have their shares happily swept up by the hedge funds to cover their original short positions (the WSB is to continue holding and buying more where possible).
It can be argued that WSB are guilty of artificially inflating the GME prices (although I think that has far more of an element of simple supply and demand. Also, I dont know the legal definition of market manipulation, but I dont consider it market manipulation for someone to say "hey, this stock has been massively shorted and the price appears to be rising, ill buy into this as the price is likely to continue to rise and i will have a guaranteed buyer later"). What cannot be argued is that the hedge funds, market makers, brokerages and apps clearly have far more power to pull the strings and manipulate markets than retail investors do, and I think that has been demonstrated over the last few [trading] days.
Not a financial advisor or a lawyer. I have held a portfolio with a few stocks and shares for many years, but never really gotten into the intricacies of options, shorts, margin trading and all that jazz. I am sure there are folk on WSB and other mediums that can explain and highlight things far better than I can.
From a personal standpoint, I mostly agree with the argument that hedge funds dont really provide any product or service or value to the economy, and exist simply to make themselves richer. It seems a very one-sided equation.
So let's unpack this onion layer by layer.
Robinhood is an exchange.
1) They were set to go public in the next couple of months, at a $20Bn valuation - Goldman is the IPO banker btw -
2) Some Private Equity funds own RH.
3) Citadel buys a significant chunk of the order flow, it goes in their system.
They don't hold securities, their job is to match buyers with sellers. Anytime you buy and sell securities they need to go to market makers and say Walrus bought 50 shares of $GME at $100 a piece, Revan bought 130 shares of $GME at $102 a piece, 4Bars bought 50 options at 200 call strike and 11101 bought 30 options strike 250 March 19. Please reconcile my account. The market maker takes a look at the book and says, dear Robinhood, the stock has jumped a lot so those stocks and options that you sold to customers are worth a lot than you priced it in, so please post some collateral in my account and I'll deliver you the shares / underwrite the options as requested. This went for a week, until at some point, Robinhood ran out of cash to cover the margin. They can't touch customer funds, they have to rely on their own funds and at some points they tapped out.
This is an indisputable fact - they drew their credit lines, raised capital from existing investors and are in talks with banks to raise debt. It's the equivalent of a consumer maxing out their credit cards, asking their significant other to cover the rent until next month and applying for new credit cards. So when they put restrictions on the longs they really had no choice - they were insolvent, they just couldn't say for fear of a run on the bank. I've never seen anything like that before and got pretty angry at that, but I think that's what happened.
On the other hand you have Reddit - which is a pretty disparate collection of individuals and no one speaks for the subreddit at all. My take is and judging by the colorful language they describe themselves (which apparently you can't repeat here because a bunch of PC brigadeers will take offense) is that this is just some harmless fun by a bunch of guys that finally stumbled into a pretty big kill - Melvin Capital and some other hedge funds. Now it's taken on the mantle of a "movement" to right the wrongs of 2008 and Occupy Wall Street and Zucotti Park and yadi yadi yada fuelled by a bunch of fancy billionaires who are influential on Twitter/CNBC/Bloomberg (Elon, Chamath, Alexis etc). So WSB crew think that this is a movement and they're putting power into the hands of small investor who haven't been able to participate in the risk asset appreciation over the last decade etc. But I think this is a complete misnomer to describe the Gamestop battle as a bunch of small investor financial anarchists on one side (WSB crew) vs some evil hedge funds on the other (Melvin, Citadel, Point72 etc) who have the short interest on the trade.
I think there's a great deal of collusion by a lot of different players (obviously I can't prove that) if you look at who holds the long side of the trade there's a bunch of financial institutions like Fidelity, UBS, BlackRock, Vanguard, State Street, FMR, Dimension Fund, AIG, Alliance Bernstein + Scion, Hestia etc. So this is not a retail uprising, this is just institutions vs institutions and some will win and some will lose. Some retail will be set for life and some others will end up holding the bag.
I think Citadel's role here needs to be examined. They control the flow, so they know who's buying what security at what price (they don't need to know your name specifically). They also gave $2B to Melvin to prop them up when Melvin was bleeding money. Now Melvin was highly levered and with the losses they were posting Citadel was going to be on the hook. Nature of the relationship needs to be clarified, because that's a conflict of interest right there. Hedge funds talk (and so do retail investors on WSB btw) and they do some of the same trades a a lot of the time so it's possible there's collusion and propping each other.
I'd recomend - revoking RH's license. Limiting hedge interest to 100% of the float (i.e. not 140%). Charging high frequency traders a small amount per trade. If Citadel is found of wrongdoing shut it down, if not just break up the HF part from the Market Making part. And just making a little harder for retail investors to trade options, it's fckn ridiculous my barista is trading straddles on $GME ffs
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