There’s been a lot of hand-wringing over the past few days as regulators and government officials have scrambled to react to the wave of Reddit-induced market volatility, and the trading app Robinhood’s decision to restrict GameStop and AMC stock.
White House Press Secretary Jen Psaki said that Treasury Secretary Yellen is “monitoring” the situation; House Speaker Nancy Pelosi made some vague comments that suggested she was reviewing it, too; Reps. Alexandria Ocasio-Cortez and Rashida Tlaib called for a hearing of the House Financial Services Committee, which it turns out they’ll get; and the Senate Banking Committee will have a similar hearing.
SEC already released a note about the Gamestop debacle earlier this week, but it’s piling on with a new letter from its acting chair and commissioners (that includes Hester Peirce, whose attention toward the crypto space has earned her the nickname “Crypto Mom”).
“In addition, we will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws,” reads the note. “Market participants should be careful to avoid such activity. Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.”
It’s a mostly impenetrable commentary on a situation that’s growing more complex by the hour, but it confirms that the SEC is investigating all sides—not just Robinhood, but “issuers” like Gamestop and AMC, too.
Statement of Acting Chair Lee and Commissioners Peirce, Roisman, and Crenshaw regarding recent market volatility: https://t.co/7BS7LP0SRY
— SEC_News (@SEC_News) January 29, 2021
The fracas began earlier this week, as users on a Reddit message board called r/wallstreetbets launched a coordinated effort to pump the share price of ailing companies like Gamestop, AMC, and Nokia. Hundreds of these retail investors started buying in, and things started spiraling from there—the stock began the week below $100, and remains well over $300.
Robinhood was the online brokerage of choice for many of these traders; so when the company decided to disallow new purchases of Gamestop and AMC on Thursday morning, there were significant consequences for the market.
Whether this qualifies as market manipulation is an open question, and Robinhood has already been hit with lawsuits alleging just that.
The SEC has said it’s “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.”
“Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes,” the note continues. “Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.”
That is to say, they’re looking into it.