GameStop (GME) Bulls Rejoice as Citadel Limits Without-fee Withdrawals

GameStop (NYSE:GME), a retailer of video games, consumer electronics, and gaming merchandise that precipitated the meme stock mania, is in the limelight once once again as the hedge fund behemoth Citadel limits client withdrawals.

Before discussing this story, let's take a look at the reasons behind the immense hatred that many GameStop shareholders retain for Citadel.

Why Do Citadel and GameStop Bulls Remain at Loggerheads?

As most of our readers would know, GameStop and AMC Entertainment (NYSE:AMC) were all the rage toward the start of the yr, when the meme stock mania was in full swing. The saga began when traders on the Reddit-based investment forum, WallStreetBets, identified the exorbitant curt involvement in GameStop shares, which hovered around 140 percent of the stock'southward entire bladder at the time. Those traders decided to unleash a fierce ownership wave in shares of GameStop, AMC Entertainment, etc., equally a ways of punishing hedge funds for their ambitious shorting tactics. However, the short clasp concluded when the popular retail brokerage platform Robinhood restricted the retail buying activity in these meme stocks, paving the way for a dramatic pass up in GameStop'due south short involvement.

So, where does Citadel fit into this scenario? Well, the beefiness between the hedge fund giant and GameStop bulls pivots around three factors. First, GME bulls blame Citadel for pressuring Robinhood to limit ownership activity in meme stocks. Conduct in mind that a hefty proportion of Robinhood's revenue comes from Citadel as a part of the arrangement where the hedge fund giant provides market-making services in return for the brokerage platform's client order period. Even so, it should be noted that Citadel has denied making such demands in a statement to Reuters:

"Citadel Securities never requested, intimated, agreed or otherwise sought to limit or to restrict the trading of such securities."

Moving alee, GameStop bulls also blame Citadel for manipulating the stock via fail-to-delivers (FTDs) and naked shorting. For the uninitiated, an FTD normally occurs when an investor is under a contractual obligation to buy and deliver specific shares but fails to exercise so due to a shortage of funds. Yet, the failure to deliver can also occur in the instance of naked brusk selling – an illegal practice where a short trade is opened past selling shares that have not been affirmatively determined to be. Funds with an outstanding FTD are mandated past the SEC to find and deliver the requisite shares to a buyer within a grace window. A clever nevertheless illegal mode to resolve these FTDs is to purchase deep-in-the-money telephone call options. These options are then exercised immediately to learn and deliver the requisite shares. This resolves the FTDs without compelling such funds to close their naked shorts. Notwithstanding, there is yet another loophole – dark pools. A dark pool is a private substitution where trades are settled betwixt counterparties. The price at which such trades are settled is never reported, thereby ensuring that these trades don't affect the stock price. Crucially, the shut-out requirement for FTDs is just applicative on regulated exchanges and not dark pools, thereby providing a convenient exit. The chart below illustrates GameStop'south FTDs:

Source: https://stocksera.pythonanywhere.com/ticker/failure_to_deliver/?quote=GME

Notice the peak toward the get-go of the yr. Since and so, this mensurate has declined. Even so, GameStop bulls keep to maintain that Citadel remains a manipulative forcefulness for the stock. Unfortunately, information technology is quite difficult to gauge a fund'south brusque positions, given that the Form 13F filing with the SEC primarily reports long positions.

Finally, GameStop's proponents blame Citadel for bailing out Melvin Capital to the tune of $2 billion when that fund's outsized short position in GME shares blew up back in January. Melvin had also secured $750 million from Steven A. Cohen's Point72 Nugget Management.

Citadel's Withdrawal Restrictions

This brings us to the crux of the thing. The $43 billion Citadel fund has now updated its liquidity terms for all investors, limiting quarterly without-fee withdrawals to just 6.25 per centum from the previous 10 percent. This means that information technology would now accept a client 16 quarters or four years to fully withdraw funds invested with Citadel. Under the previous authorities, information technology would have taken 2.5 years to do so. Many GameStop bulls have chosen to view this development as a but comeuppance for clients that complacently endorse Citadel'south supposedly manipulative behavior.

@citsecurities #amc #GME #kengriffin #citadel movie.twitter.com/3qnw179iG4

— Leon Z. (@LeroyJe50292138) December seven, 2021

Information technology's articulate that Citadel will do anything to end from going bankrupt, leveraged seven:i in 2008. Bet it's 10:1 or higher today. #GME #AMC #APESNOTLEAVING picture show.twitter.com/ZMb3bxPbM0

— Diamond💎Hands (@jeremy17538313) December 7, 2021

Readers should note that Bloomberg has taken a different take on this development, choosing to view it every bit Citadel's growing power to unilaterally dictate terms to its clients at a fourth dimension when almost all hedge funds are bleeding. As an illustration, November turned out to be the worst month for hedge funds since the beginning of the COVID-xix lockdowns back in March 2020, with average losses of between 1.6 and 2 per centum, every bit per a tabulation past manufacture inquiry firm PivotalPath. Nonetheless, the boilerplate hedge fund is still upwardly 11.4 pct for the start ten months of 2021. In fact, Citadel generated a return of 8 percent in September solitary.

There might be a much more nuanced explanation behind this motion. On the 17th of June 2021, the National Securities Clearing Corporation (NSCC) filed an amendment to an already submitted proposal which aimed to analyze some of the proposed changes. In order to run across emergency funding requirements to cope with the T+2 (two days after the initiation of the transaction) settlement catamenia, the NSCC currently requires sufficient liquidity to settle outstanding transactions in instance of a default past ane of its members. These funding requirements also include the collection of supplemental liquidity deposits from members during choice expiration windows to match the higher volume of transactions. The proposed rule now allows the NSCC to collect supplemental liquidity deposits daily instead of only effectually pick expiration windows. Moreover, these deposits can be demanded on a notice of 1 hour, and their magnitude would be calculated on the basis of the members' transaction volumes over the past 24 hours. With this change, Citadel would need to necktie up a lot more capital for supplemental liquidity requirements. Is limiting client withdrawals a role of the hedge fund's strategy to preserve precious cash in anticipation of this dominion change? It is hard to say and so conclusively at this stage.

Do you remember GameStop bulls are right to blame Citadel? Allow united states know your thoughts in the comments section beneath.

Source: https://wccftech.com/gamestop-gme-bulls-rejoice-as-citadel-limits-without-fee-withdrawals/

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GameStop (GME) Bulls Rejoice as Citadel Limits Without-fee Withdrawals