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- Nasdaq CEO Adena Friedman told CNBC that the exchange tracks conversations on social media.
- She said Nasdaq would halt negotiations if it linked the conversation to unusual activities in a particular action.
- Friedman said it is not clear whether the recent activity of Reddit would be considered illegal by the SEC.
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Nasdaq CEO Adena Friedman told CNBC on Wednesday that the exchange monitors conversations on social media and will halt negotiations if they correspond to the conversation with unusual activity in a stock.
His comments come as a flurry of activity on Reddit has triggered devastating price hikes in stocks like GameStop, AMC and Nokia, with no fundamental movements behind stock movements.
These shares are listed on the New York Stock Exchange, not Nasdaq, although Friedman’s appearance on CNBC calls into question the role of the stock exchange in regulating extreme stock activity.
Friedman said Nasdaq’s role as a “self-regulatory organization” is to ensure that activity in the market is “legitimate” and to eradicate market manipulation. She did not detail what kind of technology Nasdaq uses to “evaluate social media conversations”, but said that if Nasdaq manages to combine unusual deals with social media activities, the exchange will suspend shares and potentially engage with the SEC evaluate and investigate.
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An illegal market manipulation activity pursued by the SEC is a “bomb and eviction” scheme.
An investor buys a stock and then publicly “pumps” it, spreading a rumor or other catalyst for the stock to rise. Other people see the rumors and buy the shares, causing the price to rise. The person who originated the rumor sells the shares at a higher price in a “garbage dump” and obtains the profits.
Friedman said Nasdaq collaborates with FINRA and the SEC to identify and investigate pumping and dumping schemes, but she said it is not clear whether Reddit’s current activity qualifies as a pumping and dumping scheme.
“Regulators kind of need to keep up with the technology that is now available,” said Friedman.