The U.S. Securities and Exchange Commission said Friday (Jan. 29) that they will evaluate the recent emergence of huge swings in stock trading prices and protect retail investors. These stock price swings have driven stocks like GameStop and AMCEntertainment to soar rapidly after they began being maliciously shorted.
The top U.S. financial regulator pledged in a statement to protect retail investors and to review actions taken by brokerage firms that could “disadvantage investors or unduly inhibit their ability to trade certain securities,” according to CNBC.
The SEC said, “We will take action to protect retail investors if it turns out that there has been an abuse of power or manipulation of trading in violation of the federal securities laws.”
“The Commission is working closely with our regulatory partners, including government departments, FINRA, and other self-regulatory organizations, including stock exchanges, to ensure that regulated entities meet their obligations to protect investors and identify and pursue potential misconduct.”
The statement comes as stocks, which were heavily shorted a few days ago but have since soared higher, soared again during Friday’s (Jan. 29) trading session. Shares of video game retailer GameStop, theater operator AMC and headphone maker Koss rose 50 percent, 53 percent and 43 percent, respectively.
The SEC’s pledge to crack down on brokerages that may have “unduly” restricted their customers’ ability to trade could be good news for members of the WallStreetBets discussion community on Reddit forums, as well as other retail investors who contributed to the rally in these stocks.
Asked if the SEC had contacted them, the administrator of the WallStreetBets community board page tweeted Friday that the commission had not yet contacted them.
As large numbers of retail investors team up to buy stocks or calls that are being sold short by funds in large numbers with malicious intent, forcing those who are short those stocks to also buy back shares to cover their positions and prevent further losses.
When this happens on a large scale, the phenomenon known as “short squeeze” (short squeeze) occurs and can lead to a sharp and dramatic rise in stock prices.
Missouri Republican Senator Josh Hawley (Josh Hawley) said that Wall Street has faced a difficult situation. He argued that the spike in Gamestop’s stock price demonstrates the power of individual investors and that hedge funds don’t want small investors to have the ability to start “real competition.
New York State Attorney General Letitia James also announced Thursday (Jan. 28) that she is investigating recent trading activity on the trading platform Robinhood. On Thursday, the trading platform restricted users from buying certain securities, which could lead to multiple lawsuits against the company.
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