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The Market Plumbing Behind the Meme Stock Frenzies

Options Frenzy Powers Biggest Tech ETF Inflow Since Dot-Com Boom
Photographer: Michael Nagle/Bloomberg

Learning about financial market structure can make for sleep-inducing reading. But stock market plumbing became a topic of global interest earlier this winter amid an investing frenzy on social media. GameStop Corp.’s social-media-fueled surge was underpinned by changes in how brokerages make their money, and it was halted by old rules on how much collateral they need to keep on hand. So here’s a guide to some of the most important concepts to inform your next Reddit debate.

Despite their name, penny stocks sometimes cost more than a dollar. The core idea is this: They’re the tiniest companies, the backwater of equities. Although some stocks listed on the New York Stock Exchange or Nasdaq meet the definition, the vast majority trade over the counter — basically the Wild West, where there are no listing requirements and almost anything goes. Before the pandemic, daily over-the-counter (OTC) volume was usually below 10 billion shares. But when people were quarantined at home, retail trading exploded. Total OTC volume topped 20 billion shares in November, then exceeded 140 billion by Feb. 8. Companies such as Zomedica Corp., a maker of pet medicine with no revenue, were suddenly the most traded stocks in America.