THE US Securities and Exchange Commission (SEC) yesterday said its regulators were keeping an eye on the whipsawing share prices of some Wall Street stocks that had been targeted by a social media-driven campaign to make wealthy hedge funds suffer.

“The commission is closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days,” the SEC said in a statement, a day after some platforms restricted trading in GameStop, AMC Entertainment and other stocks caught up in the surge. 

“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”

The regulator also said it “will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities”.

Investors who organised over Reddit and other forums have in recent days targeted shares of companies that had been short-sold by hedge funds, which have bet that the price of the company would fall.

Their tactics have caused massive spikes in share prices and on Thursday, Robinhood, an app popular among retail investors whose stated goal is to “democratise finance for all”, decided to limit trades on the most volatile stocks.

British market watchdog the Financial Conduct Authority also took notice yesterday, issuing a statement saying they were “warning UK investors in certain US listed shares which are being discussed online to use extreme caution. 

“Volatile markets are unpredictable and mean you can quickly lose money.”

The move to restrict trades was decried by lawmakers from across the United States.

Texas’ attorney-general Ken Paxton joined the ranks of those scrutinising the issue, saying he had launched a probe into Robinhood and 12 other online brokerage services.

Trading of GameStop resumed yesterday on Robinhood. 

US media reported the company had also raised US$1 billion (RM4.1 billion) from its investors to help it stay afloat and allow its customers to continue trading, though on Thursday, Robinhood chief Vlad Tenev told CNBC the company was not facing a liquidity crunch.

Robinhood needs to maintain a certain amount of funds in the financial institutions that facilitate orders made on its platforms, and when it sees increased demand, that liquidity needs to increase as well.

Major investors like hedge funds have bet against GameStop, citing the video game chain store’s ill financial health as consumers shift towards buying over the internet.

As the company’s stock surged under the Reddit-fuelled onslaught, the big Wall Street firms were forced to buy back shares at higher prices to cover their losses – further driving up the price. – AFP, January 30, 2021.