![]() ![]() This attracted the ire of many investors and commentators who argued that Robinhood had unfairly blocked retail investors from trading, while institutional investors could continue to trade. To ensure that they are complying with their duty to protect customers’ interests, platforms should consider the effectiveness of the warnings that they are providing and whether these warnings need to go further.Īs the price of GameStop shares rocketed, the trading platform Robinhood controversially suspended trading in GameStop shares. Retail investment platforms will already take steps to warn their customers about the risks of trading. The FCA handbook requires regulated firms to pay due regard to the interests of their customers and treat them fairly. Some may not have understood the risks involved. They may have bought GameStop shares at their peak, in order to be part of the online phenomenon. Many of those who lose out will be inexperienced investors. Some investors have made exponential gains on their GameStop share purchases but many stand to make substantial losses. ![]() Instituitions should therefore consider the legal and regulatory obligations that become relevant in these circumstances. Regulators are likely to scrutinise how institutions behave at times of market volatility, including when this is caused by online collaboration by retail investors. This is because, traditionally, institutions’ conduct is more likely to impact market integrity, due to their greater buying and selling power. Regulators and prosecutors are generally more focussed on financial institutions than amateur investors. How should financial institutions and trading platforms with retail clients react? It remains to be seen whether WallStreetBets has been (or will be) used in this way. users have bought shares, spread misinformation to encourage others to buy the same shares, then sold when the share price has been pushed up. However, this kind of investigation is not impossible, particularly if it transpires that WallStreetBets has been used to operate a “pump and dump” scheme, i.e. It would be a major endeavour for a prosecutor to trawl through posts on WallStreetBets searching for misinformation. While sharing that information does not fall foul of MAR, there are many other posts on WallStreetBets that may be inaccurate or misleading. The most influential information that was shared on WallStreetBets was true and publicly available: GameStop shares were being widely shorted. They should also not engage in behaviour with the purpose of positioning prices at distorted levels. In particular, investors must not disseminate false or misleading information, where they know or ought to know that the information was false or misleading. When doing so, posters must comply with MAR. This means that all investors in UK or EU listed shares must comply with MAR rules, including retail investors who give or receive trading advice on WallStreetBets.Īlthough GameStop is a NYSE listed company (so not subject to MAR), users of WallStreetBets also post about UK and EU listed shares. The Market Abuse Regulation (MAR) 1 applies to all UK and EU listed financial instruments. The FCA warned that firms and individuals “ should ensure they are familiar with, and abiding by, all regulations including the market abuse and short selling regimes in the jurisdiction they are trading in.” Are WallStreetBets users doing anything illegal? The SEC stated that it would “ act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.” Financial Conduct Authority (FCA) issued warnings to investors. Securities and Exchange Commission (SEC) and the U.K. Regulatory involvementĪmid the price volatility, both the U.S. ![]() This forced short sellers to purchase GameStop shares to cover the shorts amid the rising price, causing a ‘short squeeze’. With that knowledge, many WallStreetBets users chose to purchase GameStop shares. Posts noted that if the price did not fall as anticipated, short sellers would make a loss. GameStop’s share price began to rise when retail investors spread the news on WallStreetBets that GameStop shares had been widely shorted. ![]()
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