SEC debunks conspiracy theories about meme stock mania

The SEC issued its long-awaited report on the meme stock mania, which downplayed the narrative that a "short squeeze" was the primary driver behind GameStop's historic stock moves — and shot down conspiracy theories about the event.

Why it matters: The postmortem was highly anticipated, largely because of what it could hint about what the regulator thinks should be done in wake of the saga. But the report stopped short of specific policy recommendations.

Details: The 45-page report threw cold water on theories that bubbled up online to explain trading activity in GameStop.

• For instance, SEC staff found no evidence of hedge funds “naked shorting,” i.e. short-selling shares that hadn't been borrowed, as some online posters claimed.
• It also ruled out the possibility that players like Citadel Securities were snapping up GameStop stock to hedge against the call options they were themselves writing.

Worth noting: The SEC said hedge funds covering their short positions — which pushes prices higher — wasn’t the main factor behind GameStop’s prolonged share price surge. Instead, the agency blamed excitement around the stock.

What they're saying: "[I]t was the positive sentiment, not [hedge funds] buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock," the report says.

What to watch: The report didn't recommend specific policy changes, but said certain areas were ripe "for potential study and further consideration," like short-selling disclosures, and payment for order flow — all issues SEC Chair Gary Gensler previously flagged in appearances before Congress.

• The report took aim at gamification in mobile trading apps: "Consideration should be given to whether gamelike features and celebratory animations ... intended to create positive feedback from trading lead investors to trade more than they would otherwise."

Between the lines: The report leaves other questions about the saga unanswered, like how the brokerages decided they would restrict trading in GameStop and other meme stocks — and if hedge funds played any role (the hedge funds say they didn't).

• It also doesn't address activity on Reddit message boards, and whether “bad actors manipulated social media to whip up positive sentiment,” as Reuters notes.