NEW YORK (Reuters) – The recent stock market frenzy surrounding GameStop Corp and other actions called “memes” highlights the shortcomings and challenges in U.S. markets as retail investors become a larger presence, they said Tuesday stock market leaders.
“The regulatory structure of U.S. equity markets, in my view, is flawed,” Jeff Sprecher, executive director of New York Stock Exchange owner Intercontinental Exchange Inc., said in a panel at the FIA virtual conference Mouth of the Future Industry Association.
Regulators have focused on competition between market intermediaries, such as brokers and stock exchanges, rather than buyers and sellers who want to get the best prices, and the GameStop event exposed problems with that structure, he said.
In January, retail investors coordinated through social media forums in an attempt to punish hedge funds by buying shares of GameStop and other very short names, raising their prices and forcing short-term sellers to close positions with large losses.
At the height of the trading craze, several retail brokers restricted the purchase of GameStop after the warranty requirements needed to clear the transactions increased, which angered many retailers.
The saga has sparked hearings in Congress, regulatory investigations and put short-term sales under control.
“I hope that in the future regulators will reclaim some of the punitive rules and allow the market itself to deal with the intermediary structure,” Sprecher said.
The challenge now is to determine what constitutes unacceptable business behavior, as retailers coordinate online, said Loh Boon Chye, CEO of Singapore Exchange.
Market manipulation, when it comes to the online activity of retail investors, has not been defined, which is “worrying,” said CME Group CEO Terry Duffy.
He pointed to the legalization of gambling and marijuana in most U.S. states as examples of regulators taking a more practical approach.
“People want to be responsible for their own destiny,” he said.
Reports by John McCrank; Edited by Richard Chang