Less than a year ago, in January 2021, GameStop Corp. - GME made national headlines when its stock price rose from under $19 on December 31, 2020 to $325 a share on January 29, 2021. The increase in the faltering company’s stock price was largely due to retail investors (who were sharing investing tips on social media platforms like Reddit) buying the stock to force a "short squeeze" on hedge funds that had heavily shorted GME. Amid the spiking prices and volatility, Robinhood (the broker-dealer through which many of the retail investors were trading) suspended trading in GME.

The inability of retail traders to execute their GME trades through Robinhood led to significant negative media coverage and even Congressional hearings. In October 2021, the SEC Staff also weighed in, releasing its Report on the GME and "meme stock" events. Among other things, the Report commented on: digital engagement practices of brokers; payment for order flow; sale of trades to market makers; and the dynamics of short selling.

But the Report also drew attention to a lesser known but crucial trigger to the January events: the National Securities Clearing Corporation's steep margin calls on member clearing firms, like Robinhood. In January 2021, the NSCC required Robinhood to pay a $1bn margin call or else face potential liquidation through the Securities Investor Protection Corporation (SIPC). According to the Report, the events in January 2021  "raises questions about the possible effects of acute margin calls on more thinly-capitalized broker-dealers and other means of reducing their risks."

Now that we have had time to digest the Report, we should pay close attention to any possible rule changes regarding payment for order flow, the ways that broker-dealers design their apps to encourage trading, margin calls on clearing firms, and the shortening of the NSCC's settlement cycle.