The GameStop mania is back. Is Wall Street ready this time?
Meme stocks are back. Is Wall Street ready? The sudden revival of GameStop mania this week comes just as the U.S. financial industry is racing to fix a big problem with the market’s plumbing that roiled investors during the original meme-stock craze in 2021.
On May 28, the industry is set to begin settling stock trades in one business day, rather than two, the current standard—an overhaul that would fill a key demand from regulators. Settlement is the behind-the-scenes process in which shares are delivered to buyers, and cash to sellers. The upgrade is intended to prevent a repeat of the notorious episode of Jan.
28, 2021, when brokerages including Robinhood Markets prevented investors from buying additional shares of GameStop and AMC Entertainment. The shut-off sparked an investor outcry, congressional hearings and lawsuits, and was a key plot point in the Sony Pictures film “Dumb Money." Robinhood blocked purchases of meme stocks that day after being unable to meet a $3 billion margin call from the Depository Trust & Clearing Corp., which runs the clearinghouse for U.S. stock trades.
Other brokers imposed similar restrictions after getting hefty DTCC margin calls. The DTCC requires brokers to pony up more cash when markets become volatile. Compounding the problem in January 2021, many brokerages were experiencing one-directional flow into meme stocks—heavy buying and not much selling—which further increased their margin requirements, according to DTCC’s formulas.
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