The SEC says 900,000 Reddit-fueled traders pumped GameStop shares during the meme stock frenzy – not short-seller covers. Here are 5 takeaways from its report.

• Reddit-fueled retail traders, not short-sellers, drove the meme stock frenzy in January, the SEC said in a report released Monday.
• The 44-page report looked into what led to the January frenzy and the roles Robinhood and payment for order flow played in the saga.
• But the SEC didn’t signal any coming rule changes, and instead laid out issues to consider rather than making recommendations.
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The Securities and Exchange Commission published a long-awaited report on Reddit darling GameStop’s retail-trading frenzy on Monday, saying the phenomenon was caused by a rapid rise in investor accounts betting on the stock.

“Whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop, it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock,” the regulator said.

In its 44-page report, the SEC debunked the theory that a “short squeeze” may have sent shares of GameStop and other meme stocks soaring. While many short sellers were forced to cover their short positions, the agency said, there is no evidence that this narrative was a major factor.

GameStop purchases by those covering their short positions were a “small fraction of overall buy volume,” and the share price continued to stay high after the direct effects of such covering would have waned, the SEC said.

Here are 5 takeaways from the report:

1. GameStop’s rally was driven by 880,000 new investors trading the stock in January

“By January 27, the number of unique accounts trading GME on a given day increased from less than 10,000 at the beginning of the month to nearly 900,000.”

2. Hedge funds remained largely unscathed

A handful of hedge funds including Gabe Plotkin’s Melvin Capital lost billions of dollars over their bearish bets against GameStop. But the SEC said these firms were not badly affected.

“Staff believes that hedge funds broadly were not significantly affected by investments in GME and other meme stocks. Staff did not observe that any advisers to private funds and registered funds experienced liquidity issues or difficulties with counterparties,” the regulator said.

3. Questions on “game-like” trading apps, payment for order flow incentives

The SEC said regulators should consider whether game-like features are encouraging investors to trade more.

“Consideration should be given to whether game-like features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise.”

“In addition, payment for order flow and the incentives it creates may cause broker-dealers to find novel ways to increase customer trading, including through the use of digital engagement practices,” the regulator said.

The report did note that much of the retail order flow in GameStop was purchased by wholesalers and executed off-exchange.

4. No assurance to retail investors that they won’t face trading restrictions in future

Robinhood and some other brokerages restricted trading in meme stocks during the epic rally, causing fury among users over missing out on gains. The investing app said the National Securities Clearing Corporation asked for a $3 billion deposit to cover trading risks on highly-volatile stocks.

“In their customer account agreements, some broker-dealers reserve the right to decline customer orders or cancel trades without prior notice. Such actions could be taken, for example, for legal, compliance, or risk management reasons,” the report said.

5. Few clues on change to market-structure rules

The agency didn’t provide specific policy recommendations. It did say that the events call for a review of the factors that made brokerages restrict trading, digital engagement practices, dark pools and market makers, and short-selling. Chair Gary Gensler has previously pointed to payment for order flow and “gamification” of trading as coming under the SEC’s scrutiny.

“January’s events gave us an opportunity to consider how we can further our efforts to make the equity markets as fair, orderly, and efficient as possible. Making markets work for everyday investors gets to the heart of the SEC’s mission,” Gensler said.