The GME Heat Lamp Theory was first brought up by user 6days1week on Reddit. Before getting into the theory, it is important to understand a few events that happened prior.
As stated in the main timeline, on January 28, 2021 the price of Gamestop shares surged and several brokers immediately suspended Gamestop stock from trading. This led to more questions than answers as something like this rarely happens.
It is determined it was mostly brokers set up as “payment from order flow” and using the same clearing house (Apex Clearing) were the ones who either coordinated or were instructed to stop GameStop from trading.
A few weeks later on Feb 18, 2021 CEO of Interactive brokers is interviewed and states there would have been “full systematic collapse” if GameStop had not been stopped from trading in the stock market.
At this point investors seem to share the opinion that Fidelity is one of the trustworthy brokers so a mass transfer of shares from many different brokers to Fidelity begins. Fidelity CEO at the time puts out a video thanking these new investors as well as stating they are hiring many new representatives to help out with this influx of business. Before reading about the GME Heat Lamp Theory it is important to also learn the difference between a broker and a transfer agent.
The difference between a broker and transfer agent
A few weeks after this mass transfer of shares to Fidelity, there is talk about a company called “Computershare”. This is the transfer agent for many big names such as Mcdonalds, Wal-mart, Jack in the Box, GameStop and many more.
The transfer agent is, in a sense, the official record keeper of shares. By keeping your shares with the transfer agent rather a broker (who is essentially a middle man), you have the shares directly registered under your name. This means there is no middleman (your broker) that can lend your shares, or stick you with “IOU’s”. This means the share you bought, is 100% on record as belonging to you.
The issue at this point seems to be that shares bought with brokers are either getting loaned out without the users permission, or sometimes are not even bought at all. Some brokers are later discovered to not even be connected to a public trading exchange (lit exchange). All types of terms and conditions also stipulate your broker can also sell your shares for any reason (and users report this happening as well).
This is where the GME heat lamp theory comes in to place.
The GME Heat Lamp Theory (simple explanation)
In a nutshell, there are 2 main ways investors can hold shares in Computershare. One is Direct Stock Plan, and the other is in Book form. (This will be referred to as plan vs book)
The GME Heat Lamp theory suggest shares held in DIRECT STOCK PLAN allow the DTC to manipulate shares and price. Also, even having just 1 fraction of a share allows for ALL the shares in the account to be compromised or used for ill intent. The consensus is to sell all fractional shares and convert all Direct Stock Plan type shares to BOOK only.
A more detailed explanation
This post does a great job at providing a description of the GME Heat Lamp Theory, however the image has the username of the person who typed it out blurred so I am unable to give credit, but essentially what it says is the following:
The algorithm Computershare uses to determine how many shares are held at DTC (Depository Trust Company) for “operational efficiency” appears to be manipulated by volatility.
So market makers and short hedge funds bring massive volume and huge price action around the count date to trigger the Computershare Algorithm to move more shares to the DTC.
Additionally, the having shares as fractional and in plan form have the potential to compromise all shares in the investor’s Computershare account.
Diving in a little deeper in the GME Heat Lamp Theory
The original author who wrote the GME Heat Lamp Theory did a great job of explaining why but there is still doubts among investors. Other users have also put together snippets from various sources that seem to back this theory up.
In an interview with Computershare president Paul Conn, he states the following:
Question: As you discussed in previous interviews. the direct stock purchase plan describes shares that I buy through Computershare that you keep in a separate sort of custodial type account which is different from book shares do I have that right?
Answer: Different from shares held in the DRS form that’s absolutely correct. So shares that are held in DRS are recorded as common shares on the register of the company, so that they’re held in in pure legal form in the investor’s name. Shares that are purchased through the plan are held in a sub-class so they are reported to the issuer just as if they were common shares but the underlying shares are held in a nominee owned by computershare. Those shares however can be moved between the plan and DRS anytime electronically free of charge. The only reason we do this is purely for efficiency. When we’re buying shares, we need to deliver securities into the marketplace so having them available in a nominee helps, so that’s the way it’s structured.
The SEC’s take
Additionally, the SEC clarifies in SEC Bulletin 7/12/23 that holding shares in plan form is not the same as DRS (direct registered shares)
The SEC states the following on an article about the types of ownership available to investors.
“Purchases made through the issuer (or its transfer agent) of securities you intend to hold in DRS are usually executed under the guidelines of an issuer’s stock purchase plan, which uses a broker-dealer to execute the orders. Thus, to hold in DRS once the securities are acquired, you would need to instruct the transfer agent to move the securities from the issuer plan to DRS.”
Where to read the full GME Heat Lamp Theory
Reading the original GME heat lamp theory is the best way to learn how this theory came into place. The original post has been deleted however the Superstonk Library of Due Diligence has an archived copy in an easy to read digital book form that can be found here. Reading the original text might be the best way to be kept up to date on this theory came into place.
What is the final consensus on the GME heat lamp theory?
It is up to you to make your own informed decision about the GME Heat Lamp Theory however the concesus seems to be that holding shares in book form is the only true way to have your shares 100% registered under your name and unable to be used for market manipulation.
Update January 29, 2024 – PeruvianBull examines the GME Heat Lamp Theory. PeruvianBull is a finance and macro economist analyst and author of The Dollar End Game.