The U.S. 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 the recent volatility in trading that has fueled a meteoric rise in stocks such as GameStop and AMC Entertainment.
In a statement, the country’s leading financial regulator promised to protect individual traders and to investigate the actions taken by brokers that “could harm investors or otherwise unduly impede their ability to trade certain securities.”
“We will act to protect retail investors when facts show offensive or manipulative trading activities prohibited by federal security laws,” the SEC said.
“The Commission works closely with our regulatory partners, across government as well as with FINRA and other self-regulatory organizations, including stock exchanges, to ensure that regulated entities meet their obligations to protect investors and to identify and pursue potential breaches. “
The statement came when heavy short-term stocks soared during Friday’s session. Video game retailer GameStop, theater operator AMC and headphone maker Koss have raised 50%, 53% and 43% respectively.
The SEC’s promise to alleviate brokers who have an improperly limited ability of clients to trade is likely to be good news for WallStreetBets Reddit members and other retailers who helped fuel the protests.
By buying the shares with major short-circuits or their call options, retail investors forced investors to bet against the stock, short-sellers, by covering their positions by buying back shares to prevent further losses.
If this happens en masse, it will be called a “short press” and could lead to a dramatic, volatile rise in the share price.
Many individual traders took to Twitter and other social media platforms on Thursday to protest against Robinhood’s decision to restrict access to certain shares in the midst of the controversy. The heavy trading volumes are putting pressure on online brokers like Robinhood, who have to pay customers cash when they close a post. The brokers also need additional cash to provide their clearing facility with extra capital to protect trading partners from excessive losses.
Robinhood later said it would allow limited purchases in GameStop and other volatile stocks on Friday.
For the week, GameStop rose 420%, Koss 1,800% and AMC 280%.
A pedestrian walks past a GameStop Corp. store in Rome, Italy on Thursday, January 28, 2021.
Alessia Pierdomenico | Bloomberg | Getty Images
The violent swing in such stocks, as well as Robinhood’s decision to restrict trade, drew the anger of politicians on both sides of the political path.
Senator Elizabeth Warren told CNBC on Thursday that she blamed the SEC’s failure to act on the days-long blitz of market speculation.
“We need an SEC that has clear rules about market manipulation and then has the backbone to go in and apply those rules,” the Massachusetts Democrat said. “To have a healthy stock market, you have to have a policeman tailored.”
“It should be the SEC,” she added. “They need to act and do their job.”
Rep. Patrick McHenry of North Carolina, the Republican’s position on the House Financial Services Committee, said Friday he is concerned about unequal access to capital markets.
I want to ‘ensure that our people do not turn off extra access to markets and therefore leave them to activities as we have seen with GameStop and some other tradable effects,’ he said in ‘Squawk Box’.
“What I see here is this bigger issue, namely: Average, everyday investors are cut off from the access that insiders like members of C-suite have from companies, and hedge funds and private equity get natural, of course,” he added. “And that the credit investor standard has divided our markets into a very prosperous lie.”