How hedge funds and brokers have manipulated the market
by Lucy Komisar
Part 8 - The Size of the Trades Raises Questions
Toward the end of January, as prices spiked during the run-up to a squeeze, the total number of trades more than quadrupled, but the average trade size dropped. There was a curious phenomenon of hundreds of thousands of micro transactions, trades of just a few shares, even one share each. But dark pools are set up to handle massive trades that must be hidden because they might otherwise “move the market.” The key players were known short funds.
Data from Superstonk shows that Citadel made over 1.98 million OTC trades during the week of January 25 and over 1.496 million OTC trades during the week of February 1. For nine weeks, 77.7 percent of trades were for under 60 shares.
In February, when Robinhood resumed allowing retail investors to buy stock, it limited buys to one share per trade. Furthermore, FINRA data shows that Robinhood Securities showed up on OTC trading for the first time during the week of February 8.
Why did Robinhood take the trades of its clients and move them through a dark pool instead of through Citadel? And why one share per trade?
Data from Superstonk shows that Citadel made over 1.98 million OTC trades during the week of January 25 and over 1.496 million OTC trades during the week of February 1. For nine weeks, 77.7 percent of trades were for under 60 shares.
In February, when Robinhood resumed allowing retail investors to buy stock, it limited buys to one share per trade. Furthermore, FINRA data shows that Robinhood Securities showed up on OTC trading for the first time during the week of February 8.
Why did Robinhood take the trades of its clients and move them through a dark pool instead of through Citadel? And why one share per trade?
Some subsequent correlations are worth noting. GME’s share price suddenly dropped from $348 to $172 in minutes on March 10. During that week, Robinhood was the top OTC trader and had one share per trade. The following week, Robinhood also traded heavily OTC, with 297,276 shares traded 297,194 times. This also correlates with large price drops in GME.
As u/nayboyer2 said in April, “Since Robinhood entered the OTC marketplace on the week of 2/8/2021, they have made 2.357 million trades with 2.362 million shares, for an average of exactly 1 share/trade.”
Trading single shares through dark pools, designed for massive trades, is using sophisticated high-frequency trading to manipulate the market. The SEC has expressed concern about the use of dark pools for small trades. Superstonk user u/nayboyer2 asked, “What in the actual hell is going on behind the scenes to allow this kind of OTC trading to continue, undisturbed, for almost 3 months?”
As u/nayboyer2 said in April, “Since Robinhood entered the OTC marketplace on the week of 2/8/2021, they have made 2.357 million trades with 2.362 million shares, for an average of exactly 1 share/trade.”
Trading single shares through dark pools, designed for massive trades, is using sophisticated high-frequency trading to manipulate the market. The SEC has expressed concern about the use of dark pools for small trades. Superstonk user u/nayboyer2 asked, “What in the actual hell is going on behind the scenes to allow this kind of OTC trading to continue, undisturbed, for almost 3 months?”
What are the SEC, FINRA, and the DTCC doing in the face of such apparent market manipulation? The SEC is reviewing payment for order flow, as well as whether off-exchange trading distorts stock prices. But at a May 6 House Financial Services Committee hearing about GameStop, Gary Gensler (SEC), Robert W. Cook (FINRA), and Michael C. Bodson (DTCC) and their congressional questioners never mentioned naked short selling, fails to deliver, or other documented indicators of market corruption. These regulators are the only ones who can truly unravel this mystery.
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