The U.S. Stock and Securities and Exchange Commission in Washington, DC
Adam Jeffery | CNBC
The Securities and Exchange Commission said Friday it will work to protect investors by reviewing recent trading volatility that has fueled a meteoric rise in stocks such as GameStop and AMC Entertainment.
In a statement, the nation’s top financial regulator pledged to protect individual traders and to examine actions taken by brokers that could “disadvantage investors or unduly inhibit their ability to trade certain securities.”
“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by federal securities laws,” the SEC said.
“The Commission works closely with our regulatory partners, both across government and FINRA and other self-regulatory organizations, including stock exchanges, to ensure that regulated entities comply with their investor protection obligations and to identify and prosecute possible offenses “.
The statement came as long-running, very short shares shot up again during Friday’s session. Video game retailer GameStop, theater operator AMC and headset maker Koss accounted for 50%, 53% and 43%, respectively.
The SEC’s commitment to curbing brokers that may have an “unduly” limited ability to operate with customers is good news for members of WallStreetBets Reddit and other retailers who helped bring about the rally.
By buying heavily short stocks or their call options, retail investors have forced investors to bet on stocks, known as short sellers, to hedge their positions by buying new shares in an effort to avoid further losses.
When this happens en masse, it is called “short compression” and can lead to a dramatic and volatile rise in the stock price.
Many traders took to Twitter and other social media platforms on Thursday to protest Robinhood’s decision to restrict access to certain actions at the center of the controversy. Strong trading volumes put pressure on online brokers like Robinhood, who have to pay customers in cash when they close a position. Brokers also needed additional cash to supply their capital with additional capital compensation to protect trading partners from excessive losses.
Robinhood later said it would allow limited buying in GameStop and other volatile stocks on Friday.
During the week, GameStop was up 420%, Koss was up 1,800% and AMC was up 280%.
A pedestrian passes a GameStop Corp. store. in Rome, Italy, on Thursday, January 28, 2021.
Alessia Pierdomenico | Bloomberg | Getty Images
The violent oscillations of these actions, as well as Robinhood’s decision to restrict trade, have provoked the anger 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 on disrupting market speculation for days.
“We need an SEC that has clear rules on market manipulation and that has the backbone to get in and enforce those rules,” the Massachusetts Democrat said. “To have a healthy stock market, you have to have a policeman at your pace.”
“This should be the SEC,” he added. “They have to strengthen themselves and do their job.”
Representative Patrick McHenry of North Carolina, a Republican on the House Financial Services Committee, said Friday that he is concerned about unequal access to capital markets.
I want to “make sure we don’t cut people off from additional market access and therefore leave them to activities as we’ve seen with GameStop and some other negotiable securities,” he told Squawk Box.
“What I see here is this bigger case, which is: average and everyday investors are cut off from the access offered by the privileged, such as members of C-suite companies, and hedge funds and private equity.” , added. “And that the standard for credit investors has forked our markets into a very prosperous lie.”