The US securities regulator has hinted it may tighten up the rules around the reporting of short-selling in a study into the GameStop affair of early 2021.

The Securities and Exchange Commission issued a report on Monday into the GameStop affair of January 2021 when retail investors drove up the share price of the US listed firm to thwart short-selling strategies from US hedge funds.

The SEC outlined four key lessons from the unusual trading that took place at the start of the year centred on: Forces that may cause a broker to restrict trading; digital engagement practices and payment for order flow; trading in dark pools and through wholesalers; and short selling and market dynamics.

Reflecting on the last of the four areas, the SEC wrote in its report: “While short selling and calls on social media for short squeezes received a great deal of media attention, the interplay between shorting and price dynamics is more complex than these narratives would suggest. Improved reporting of short sales would allow regulators to better track these dynamics.”

The SEC highlighted “the possible effects of acute margin calls on more thinly-capitalised broker-dealers” and suggested that a shorter US equity settlement cycle could help mitigate these effects.

Almost half of the respondents to a recent survey by Citigroup believe that the US equity settlement cycle will be reduced to T+1 in the next five years.

The SEC also said in its report: “Much of the retail order flow in GameStop Corp was purchased by wholesalers and executed off exchange. Such trading interest is less visible to the wider market—and payments to broker-dealers may raise questions about the execution quality investors receive.”

The regulator added: “Further, though wholesalers increasingly handle individual investor order flow, they face fewer requirements concerning their operational transparency and resiliency as compared to exchanges or Alternative Trading Systems (ATSs).”

Gary Gensler, the new chairman of the SEC, said in May he had instructed staff to propose new guidelines around transparency in the stock loan market.