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Beneath the clean, simple surface of a trading app sits a huge and mostly hidden system. The settlement delay, the clearinghouse, the collateral, the guarantee standing behind every single trade. Most of the time, you never think about this. But then a crisis hits and that machinery suddenly decides what you can and cannot do. Hi, I'm Andy Tempte and Welco Money Lessons. Join me every Saturday morning for bite sized lessons that are designed to improve financial literacy around the world. Today is June 20, 2026, and Happy Father's Day, everyone. Last week, we looked at information asymmetry and insider trading. Who in the market knows what and when acting on that knowledge, breaks the law. Before that, we covered short selling, borrowing shares to bet that a stock will fall. And we've covered leverage, borrowing money to make a bigger bet on a stock. And then we've met the market specialist, the trader on the exchange floor who sees the flow of orders that the rest of us can't. Today, we watch all of those pieces collide. And then I want to take you into the market. Plumbing almost nobody thinks about until it reaches up and grabs them. The event is GameStop. The year is 2021. Now, GameStop is a video game retailer with stores and shopping malls across the country. Back in 2020, its sales were shrinking and its stock had fallen to around $4 a share. A lot of professional investors looked at it and saw a company that was on its way out. So they placed bets that the stock would keep falling using short selling. But by late January 2021, those bets had piled up to an extreme. So many investors had bet against GameStop that the number of shares sold short reached about 140% of the stock's float, which is the shares available to buy and sell in the open market. You might wonder how more than 100% of the available shares could be sold short. Well, when you borrow a share and sell it, whoever buys it can turn around and lend it to the next short seller. So the same share gets borrowed and sold short more than once. And every loan gets counted. That's not fraud. And no fake shares are created. These are real shares passing through several hands. Now, in late January 2021, something unusual happened to GameStop. A large group of ordinary investors, many of them, gathered in a Reddit forum called Wall Street Bets and rallied by a man who went by the name Roaring Kitty, started buying the stock in huge numbers. Two things pulled them in. First, Roaring Kitty had argued for months that game stock was badly undervalued, written off too soon. By and for many, the appeal Was simpler a chance to beat Wall street at its own game by turning the tables on the big funds that had bet so heavily against the stock. At the start of January, a single share cost about $17. By January 28th of that same year, the price had briefly touched around $483. Why did it climb so far so fast? Well, part of the answer is the short squeeze that we saw in our June 6 episode with Volkswagen. When a heavily bet against stock starts rising, the people who bet against it are forced to buy shares to limit their losses. And that buying drives the price up even more. The setup for a squeeze was certainly in place, though regulators later found that a wave of everyday buyers drove much of the rise in price on its own, One thing was plain. The professional investors who had bet against Gamestop lost staggering amounts of money. One large fund called Melvin Capital lost about half of its value that month and needed a rescue package of around 2.75 billion billion from other investors just to stay in business. Now, on the morning of January 28, with the price still climbing, Robinhood, which is the commission free app that had brought millions of first time investors into the stock market, helping to democratize it, did something startling. It stopped letting its customers buy Gamestop. You could sell shares you already owned, but you could not buy any more. Several other brokerages put similar limits in place. Now, Robinhood had built its whole reputation on opening up the stock market to everyday people. That democratization that we mentioned. So when the app blocked them from buying at the exact moment they were finally winning, many of its customers were absolutely furious. To them, it felt like the rules had been changed the instant they got ahead. Lawsuits were filed within hours, and everybody thought that something nefarious was happening. So why did the buy button go dark? Well, the answer lives in a part of the market you never see. When you tap buy and the purchase goes through on your screen, you do not own the shares. Yet behind the means, the handover, your money going one way, the shares coming back the other, with the transfer officially recorded, still has to be completed. Completing a trade is called settlement. And In January of 2021, that settlement took two business days. During those two days, somebody has to stand behind the trade and guarantee that it goes through, even if one side fails to deliver. That one is called a clearinghouse. In the US Stock market, it is an organization called the National Securities Clearing Corporation, which is part of a larger body called the Depository Trust and Clearing Corporation. This organization sits in the middle of nearly every stock trade and promises that each One will be completed. Now, standing in the middle like that is risky. So the clearinghouse protects itself the way that any careful lender would. It requires every brokerage to put down a deposit called collateral. And it sizes that deposit to how much the brokerage is trading and how wildly prices are moving. Those wild price swings are the key. In the two days before a trade is finished, a sharply swinging price raises the odds that one side won't be able to pay up, leaving the clearinghouse to cover the difference. So the bigger the swings, the bigger the cushion or deposit it demands. On an ordinary day, this is routine and invisible to everyone. But in late January 2021, trading was not ordinary. Trading volume was enormous and GameStop's price was lurching by the hour. And the deposit that Robinhood was required to put down by the clearinghouse shot up to around $3 billion billion dollars, many times what a normal day of trading would require. That was far more than Robinhood could come up with that morning. And unable to pay, the firm cut the one thing that was in its control that was driving the deposit higher. New buying. Letting customers only sell, not buy, lowered how much Robinhood owed the clearing house and bought it time to raise emergency cash. The buy button went dark because the market plumber, the clearinghouse, had handed Robinhood a bill that it couldn't pay in time. Nothing nefarious was going on. Now, what does this mean for you? Let's step back from GameStop for a moment, because the lesson is bigger than one stock. Beneath the clean, simple surface of a trading app sits a huge and mostly hidden system. The settlement delay, the clearing house, the collateral, the garrison guarantee, standing behind every single trade. Most of the time, you never think about this. But then a crisis hits and that machinery suddenly decides what you can and cannot do. There is a hopeful note here, because the system can learn from its mistakes. The two day settlement delay that set off the whole collateral problem was one of the first things that regulators moved to fix. So In May of 2024, the US settlement from two days to one, a change known as T1, and the SEC pointed to GameStop directly as one of the reasons for the change. A shorter delay means less time for the clearinghouse to be at risk, which means smaller deposits and less of the pressure that froze the buy button in the first place. The plumbing that boxed people in 2021 was rebuilt in part because. Because of what happened to them. Now, next week, we'll tackle a phrase that we've leaned on all series long without ever really defining it. We say the market went up or the market had a rough day. But what is the market exactly? We'll look at where the famous measures of it, like the Dow and The S&P 500, come from and what they really tell you. Until next week, I wish you grace, dignity and compassion. My name is Andy Tempte, and this is Money Lessons. You can find the show on all the major streaming services as well as out on YouTube. Please, like, subscribe, rate, and most importantly, share this public educational good with your friends, your family, your colleagues, and maybe the neighbor down the street. The show is produced by Nicholas Tempte, and we'll see you next time on Money Lessons.