Retail broker trading restrictions and market liquidity: an examination of GameStop

Ryan Garvey, Jingbin He and Fei Wu

Applied Economics, 2024, vol. 56, issue 34, 4140-4153

Abstract: We examine changes in market liquidity when several popular U.S. retail brokers restrict client trading in GameStop stock over a six-day period in early 2021 due to higher clearinghouse deposit requirements. When retail investor participation in a high-attentionstock becomes restricted, trading activity declines and trading venue shifts occur – there is less trading in dark markets and more fragmented trading across U.S. stock exchanges. We also find that when a stock order flow mix becomes comprised of fewer retail investors and a higher concentration of institutional investors, the quoted bid-ask spread widens, and trading cost measures rise significantly.

Date: 2024
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DOI: 10.1080/00036846.2023.2210819

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