Washington, DC Securities and Exchange Commission
Adam Jeffery | CNBC
The Securities and Exchange Commission said Friday it will act to protect investors by reviewing recent trade volatility that has fueled a meteoric rise in stocks such as GameStop and AMC Entertainment.
In a statement, the national financial regulator promised to protect individual traders and examine the actions taken by brokerages that may “disadvantage investors or otherwise inhibit their ability to trade certain securities”.
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity, which is prohibited by federal securities laws,” the SEC said.
“The Commission is working closely with our regulatory partners, both within the government and at FINRA and other self-regulatory organizations, including stock exchanges, to ensure that regulated entities comply with their obligations to protect investors and identify and pursue potential iniquities. “
The statement came as strong short-term stocks rose again during Friday’s session. Video game retailer GameStop, theater operator AMC and headset maker Koss accounted for 50%, 53% and 43%, respectively.
The SEC’s commitment to restrict brokerages that could have an “unjustifiably” limited trading capacity is probably good news for WallStreetBets Reddit members and other retailers who helped trigger the rally.
By buying sharply shortened shares or their call options, retail investors forced stock betting investors, known as short sellers, to cover their positions by buying the shares back, in an effort to prevent further losses.
When this happens en masse, it is called a “short squeeze” and can lead to a dramatic and volatile rise in the price of a stock.
Many retailers took to Twitter and other social media platforms on Thursday to protest Robinhood’s decision to restrict access to certain shares at the center of the controversy. The popular online brokerage later said it would allow limited buying in GameStop and other volatile stocks on Friday.
For the week, GameStop was up 420%, Koss was up 1,800% and AMC was up 280%.
A pedestrian passes a GameStop Corp. store. from Rome, Italy, Thursday, January 28, 2021.
Alessia Pierdomenico | Bloomberg | Getty Images
The violent variations of these actions, as well as Robinhood’s decision to restrict trading, have angered politicians on both sides of the political aisle.
Senator Elizabeth Warren told CNBC on Thursday that she blamed the SEC’s failure to act for a few days of market speculation.
“We need an SEC that has clear rules about market manipulation and then has the backbone to go in and enforce those rules,” the Massachusetts Democrat said. “To have a healthy stock market, you have to have a policeman in rhythm.”
“This should be the SEC,” she added. “They have to step up and do their job.”
Representative Patrick McHenry of North Carolina, a Republican on the Financial Services Committee, said Friday he was concerned about unequal access to capital markets.
I want to “make sure we don’t eliminate people from additional market access and therefore leave them to activities like the ones we saw with GameStop and a few other marketable securities,” he told Squawk Box. .
“What I see here is this broader case, which is: ordinary investors, on a daily basis, are interrupted by the access that insiders have, such as C-suite members of companies, and hedge funds and private capital receive in naturally, “he added. “And that the standard of credit investors has forked our markets into an extremely prosperous lie.”