The US Securities and Exchange Commission in Washington, DC
Adam Jeffery | CNBC
The Securities and Exchange Commission said on Friday that it will work to protect investors, looking at the recent volatility in trading that has generated a meteoric rise in stocks like GameStop and AMC Entertainment.
In a statement, the country’s top financial regulator pledged to protect individual traders and examine actions taken by brokerage firms that may “put investors at a disadvantage or unduly inhibit their ability to trade certain securities”.
“We will act to protect retail investors when the facts demonstrate abusive or manipulative commercial activity prohibited by federal securities laws,” said the SEC.
“The Commission is working closely with our regulatory partners, both in government and at FINRA and other self-regulatory organizations, including stock exchanges, to ensure that regulated entities fulfill their obligations to protect investors and to identify and pursue possible irregularities. “
The statement came at a time when sharply sold and bullish stocks skyrocketed again during Friday’s session. Video game retailer GameStop, movie operator AMC and headphone maker Koss rose 50%, 53% and 43%, respectively.
The SEC’s promise to restrict brokers that may have “improperly” limited customers’ ability to trade is probably good news for members of WallStreetBets Reddit and other retail brokers who helped trigger the recovery.
By buying heavily sold shares or their call options, retail investors forced investors to bet against the shares, known as short sellers, to hedge their positions by buying back shares in an effort to avoid further losses.
When this happens en masse, it is called “short squeeze” and can lead to a dramatic and volatile increase in the price of a share.
Many individual traders accessed Twitter and other social media platforms on Thursday to protest Robinhood’s decision to restrict access to certain stocks that are at the heart of the controversy. The popular online brokerage later said it would allow limited purchases on GameStop and other volatile stocks on Friday.
During the week, GameStop rose 420%, Koss rose 1,800% and AMC rose 280%.
A pedestrian passes a GameStop Corp store. in Rome, Italy, on Thursday, January 28, 2021.
Alessia Pierdomenico | Bloomberg | Getty Images
The violent swings in such actions, as well as Robinhood’s decision to restrict trade, drew the ire of politicians on both sides of the political corridor.
Senator Elizabeth Warren told CNBC on Thursday that she blamed the SEC’s failure to act for the days-long market speculation blitz.
“We need a SEC that has clear rules on market manipulation and then has the backbone to get in and enforce those rules,” said the Massachusetts Democrat. “To have a healthy stock market, you need to have a police officer on the streets.”
“It must be the SEC,” she added. “They need to work hard and do their job.”
North Carolina Representative Patrick McHenry, the Republican in the House Financial Services Committee ranking, said on Friday that he is concerned about unequal access to capital markets.
I want to “ensure that we are not cutting people off from further access to markets and therefore leaving them with activities like the ones we saw on GameStop and some other negotiable titles,” he said in the “Squawk Box”.
“What I’m seeing here is this bigger case, which is: average daily investors are deprived of the access that insiders like executive members of companies and hedge and private equity funds naturally have,” he added. “And that the credit investor pattern has forked our markets into a highly successful lie.”