Half a decade has passed since the GameStop upheaval that threatened to destabilize the global financial system. Despite the passage of time, the potential for a similar crisis still exists, warns Thomas Peterffy, founder and chairman of Interactive Brokers.

The GameStop event, characterized by retail investors inflating the stock price of the ailing video game retailer, had the potential to trigger a financial crisis.

Peterffy explained that if the investors who had purchased GameStop shares on margin had offloaded even a small portion of their shares, it would have compelled brokers to retrieve the shares they had lent to short sellers. This could have sparked a bidding war that the system was ill-equipped to manage.

“Short selling in GameStop infamously outnumbered the total number of shares available for trading, so brokers would have needed to rush to the market and "bid it up to infinity. The system wouldn't be able to handle that kind of spiral,” ," Peterffy told Barron’s.

However, the investors retained their shares, averting a system breakdown. Despite the initial chaos, the GameStop episode resulted in a spike in retail trading volumes and a paradigm shift in the perception of investing.

Brokerage firms are now vying to serve this increasingly discerning client base.

The GameStop incident prompted regulators to plug gaps in the financial system. The Securities and Exchange Commission (SEC) implemented several rule changes to enhance clearinghouse efficiency, including reducing the time trades take to settle.

Despite these modifications, the risk of investors being locked out of their brokerage accounts during a significant stress event persists, as noted by Gary Gensler, the SEC chair during the Biden administration.

While the GameStop saga has led to some changes, the balance of power remains largely the same, with Wall Street reclaiming its dominant position.

However, the incident has indelibly altered the investing landscape, with retail investors emerging as a significant market force.