US Regulators To Discuss Measures To Counter Reddit Rally
Hedge funds, retail investors and stock brokers are gearing up to tighten regulation of US markets. Officials are expected to meet this week to assess the impact of social media-driven trade hype that has driven up prices of some stocks and silver..
Over the past two weeks, massive purchases by hobbyist traders have caused sharp fluctuations in the prices of stocks against which major US fund managers have bet. Among them were shares of the seller of video games GameStop and the operator of cinemas AMC Entertainment..
But the stocks bought by small traders fell again as their brokers imposed buying restrictions. At the same time, GameStop fell 80% from its peak a week ago, and AMC – by 60%. GameStop shares, listed on the Frankfurt Stock Exchange, fell another 28% in early deals, while AMC shares fell 9.6%.
Their US-registered shares have surged to 2,300% and 800% respectively since mid-January, helped by posts on the popular Reddit forum WallStreetBets..
Silver, which rallied briefly on Monday amid buying up of metal by retail traders, has stabilized about 10% below its recent peak.
«The decline is obvious», – said Oriano Face, Premium Selling Trader at CMC Markets Brokerage in Singapore. He added that it would be easy for small investors to regroup and target new companies if desired..
«I think that from the point of view of regulators, there are concerns that they may continue to do so.», – he said.
The head of the US Securities and Exchange Commission (SEC), which regulates the markets, will meet with the Treasury Secretary Janet Yellen and executives from the Federal Reserve and the Commodity Futures Trading Commission, possibly as early as Thursday, a Treasury official told Reuters.
Yellen asked to discuss recent volatility and trade compliance with fair and efficient market rules.
It is unclear if the meeting will lead to concrete action, but experts expect attention to also focus on the growing role of non-bank companies such as hedge funds in financial markets, as retail traders prepare to continue to fight against them..
«The last boss fight. It will happen tomorrow with Yellen, the SEC and the Federal Reserve, said in a post on Wednesday on Reddit. – They will either try to stop the party or look for money to pay us, not destroy everything at the same time».
This phenomenon has pushed stock indices from New York to Seoul to record highs and boosted asset values - from cryptocurrencies to new listings in stock markets..
The shortseller assault on GameStop has taken it to the next level as small traders seem to have acted in concert to organize purchases through Reddit. Posts encouraging the purchase of silver also boosted metal prices on Monday, although the gains were short-lived..
«The retail investor power exists», – sure Chris Brankin, CEO of TD Ameritrade in Singapore.
«We could see other similar events more regularly, but rest assured that regulators will seek to curb any market (volatility) or manipulation», – he said.
As a result of these actions, Melvin Capital, one of the largest funds betting on the fall in the price of GameStop shares, lost 53% in January. Others such as Point72 Asset Management billionaire investor Stephen Cohen, lost almost 9%, investors said.
Online broker Robinhood has also come under pressure and has struggled to raise more than $ 3 billion a week in an effort to meet the funding needs caused by the trading boom..
Robinhood loosened some of its trading restrictions even further on Tuesday, increasing the limits on the purchase of GameStop shares, for example, from 20 shares to 100 shares..