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U.S. one dollar banknotes are seen in front of displayed GameStop logo in this illustration taken Feb. 8.Dado Ruvic/Reuters

The frenzied trading in shares of GameStop and other so-called meme stocks in January led to big losses for some hedge funds, an outcry from retail investors who were suddenly shut out of buying and calls on Capitol Hill to overhaul rules governing the markets.

But a long-awaited report from the Securities and Exchange Commission on the hyperbolic trading in shares of the struggling video game retailer and other stocks found that everything worked largely the way it was supposed to.

The 45-page report, released Monday, suggested no policy changes in response to the heavy trading in GameStop and other little-regarded shares that soared in value, thanks in part to posters on Reddit and Twitter, where many have gathered amid a pandemic boom in amateur trading.

A senior SEC official who spoke to reporters before the report’s release said it was intended only to outline the events surrounding the meme stock trading, but not directly recommend any specific changes.

The report was highly anticipated after months of speculation that the commission’s chairman, Gary Gensler, could seek aggressive structural changes to the way the U.S. stock market works. Gensler himself had suggested that some notable options were on the table — particularly regarding the way some popular retail brokerages, like Robinhood, are compensated by bigger Wall Street firms.

Under the practice, called payment for order flow, brokerage firms sell the right to execute retail investors’ trades to bigger trading houses, which make tiny profits on the difference between the buying and selling prices. This system has enabled Robinhood and other brokers to offer free stock trading, but critics say this is problematic: Retail brokers have an incentive to encourage more trading by individual investors, even though it may not be in their best interest.

The SEC’s report echoed that concern: “These payments can create a conflict of interest for the retail broker-dealer,” the report said.

The practice was challenged in a proposed class-action lawsuit by retail investors against Robinhood, and some critics have suggested that the time had come to ban it. Gensler had suggested on Capitol Hill and to news outlets that he was willing to consider limits or an outright ban, but the report Monday contained little indication that such bold changes would be coming.

In a statement that accompanied the report, Gensler did not offer any signal of what action he might take. The report, he said, offered some issues for further consideration, and he noted that “making markets work for everyday investors gets to the heart of the SEC’s mission.”

A Robinhood spokesperson noted in a statement that the agency’s report “highlights opportunities to modernize market structure for the benefit of retail investors, including shortening the settlement cycle and potentially removing sub-penny limitations.”

The SEC’s report was the latest attempt by government officials to make sense of the meme-stock surge, when a trading boom drove astronomical price increases for stocks such as GameStop and the ailing movie chain AMC Entertainment.

The report confirmed that the rapid price increases had been fueled in part by so-called short squeezes, as investors who bet against the stock, including hedge funds, had to quickly change course and buy the shares themselves to close out their positions.

Momentarily, it seemed, small traders had upended the traditional balance of power on Wall Street.

But as trading volume surged and prices soared, several brokers blocked individual investors from buying the shares of key meme stocks, reversing their rise. The halt prompted outrage among individual investors, a flurry of lawsuits and a plethora of online theories suggesting that powerful Wall Street firms had forced trading to stop.

The SEC’s report instead pointed out that Robinhood and other platforms had halted trading in certain shares after the industry-run clearinghouse that settles most stock trades — a process that takes two additional business days — demanded nearly $7 billion from 36 clearinghouse members on Jan. 27, the peak of the frenzy.

That demand — referred to as a margin call — was meant to ensure that the stock trading system would survive even if the growing risk associated with the heavy trading in meme stocks caused a brokerage firm to collapse. To reduce the amount demanded, some platforms limited trading in those popular stocks.

The clearinghouse’s demands, the SEC found, reflected a market functioning normally — although it suggested that policymakers could consider ways to speed up the settlement of trades, potentially reducing the effect of such margin calls in the future.

Close observers of the market regulation process said they were not surprised that the report didn’t include major new policy proposals.

“The SEC’s report is just one more piece of evidence to support market structure reforms,” said Tyler Gellasch, the executive director of the Healthy Markets Association, a group that pushes for market reforms. “But it is obviously a heavily negotiated document,” Gellasch, a former SEC lawyer, added. “It was never going to break new ground.”

While the report did not propose changes to the way the market functions, it did suggest that new rules may be necessary to address the so-called gamification of trading.

“Consideration should be given to whether gamelike features and celebratory animations that are likely intended to create positive feedback from trading lead investors to trade more than they would otherwise,” one of its conclusions stated.

But such criticism is not new, either. In March, for example, Robinhood removed a feature that set off animated confetti when users reached various trading milestones, including their first trade on the app.

Agency officials noted that a public comment period on such user-engagement practices had recently closed and that the agency was considering submissions. Gensler noted in a presentation to lawyers last week that algorithmic “nudges” and design choices that might be harmless in a music-player app could raise conflicts of interest when employed in a financial services app.

“When do these design elements and psychological nudges cross the line and become recommendations?” Gensler asked in a speech last week. “The answer to that question is important, because that might change the nature of the platform’s obligations under the securities laws.”

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