The battle between David and Goliath, pitting retail investors against hedge funds, has brought the old issue of unfair advantage for big financial market players back to the forefront of regulators` concerns. One of these benefits could be the absence of disclosure requirements for short selling. Regulators had already discussed this issue and there was no consensus on what action should be taken. While short selling has often been associated with stock market crashes, the empirical literature shows that it is a key ingredient for an efficient and successful market that provides liquidity and promotes price discovery. A source no less than Jordan Belfort, the real Wall Street investor played by Leonardo DiCaprio in the Hollywood movie „The Wolf of Wall Street,” identified r/WallStreetBets shares as a modified „pump and dump” or an illegal scheme to raise a stock`s price through false and misleading statements about the company. For example, an investor buys the shares of company X. The investor then spreads false rumors that Company X has entered into an exclusive agreement with Company Y, which will certainly increase the value of Company X. However, the investor does not have such information. The investor hopes that this news will fraudulently lead other investors to buy the shares of Company X because they believe that the value of the company will increase. If false rumors are believed and other investors buy company X`s shares, the share price rises. The investor spreading the rumor then sells his shares in Company X before the falsity of the information is made public and takes the proceeds before the subsequent decline in the share price.
Since the „deal” was a hoax, the value of the company doesn`t really go up, and the stock price drops quickly once the rumors dissipate, leaving all the people who bought shares based on the false rumors left with big losses. These systems are widely used on social media sites and elsewhere on the Internet; Often, proponents of false rumors claim that they have inside information or a tip and urge people to buy the stock quickly. Excellent analysis. I also think that the position limits of options should be reviewed in light of new entrants and the possibility that social media will allow „joint negotiation” perhaps by default, which requires aggregation for 13D purposes, even in the absence of a written agreement. In terms of AI and machine learning, I think there is a bigger problem in terms of alternative data and resources for SupTech (see FinCoNet approach) and fintech. It is interesting to note that in terms of research, the unexpected effects of MiFID II have led, for example, to the migration of research to large-cap stocks, corporate access, etc., and theoretically, mid-cap/value stocks should offer opportunities for risk-return appreciation (i.e. „value” investments). as described by EMH and other related concepts), but this was not quite the case.
Indexing, which is portfolio diversification, but is heavily focused on technology stocks and creates potential bias/arbitrage opportunities for investors in small-cap companies and may need to be reconsidered. Perhaps such an approach to climate change by creating a common open source data network that investors and regulators can access is a way to provide clear and objective measures of company performance and reward those who take a value-added approach in their stock market analysis. Again, nothing in the above is necessarily illegal. However, the SEC will likely investigate whether any of the investors who held the stock long-term or who attempted to short sell the stock manipulated investors. On January 12, GameStop Corp. (ticker symbol: GME) priced $19.95/share with a trading volume of approximately 7 million. Just 15 days later, GME closed at $347.51 on a volume of 93.45 million transactions. Investors who bought on Jan.
12 and sold on Jan. 27 enjoyed a nearly 1,800 percent increase in value. In 15 days. The reason for the meteoric rise is now very well documented. A Reddit community forum called „Wall Street Bets” (r/WallStreetBets) has used the power of its more than 2.9 million followers to wage war against Wall Street hedge fund short sellers. First of all, what just happened? Was it legal? And what lessons does this bring to companies that later fall into a similar frenzy? Of course, regulators and investors need to come up with a strategic plan to investigate last week`s unusual events. Misinformation abounds and there are many misunderstandings. A start is to 1) understand the essential questions – what happened and why, as well as 2) propose the next steps. For legal reasons, a broker-dealer is generally not required to accept a trade for execution, although it must execute the trade immediately once it has actually been accepted for trading.
It seems that Robinhood immediately rejected the transactions he did not want to execute. Many, many people – especially those who have not benefited from rising stock prices – question the legitimacy of using R/WallStreetBet`s influence to manipulate company stock prices despite weak corporate fundamentals. At the forefront of the survey is the United States. Congress and the U.S. Securities and Exchange Commission (SEC), but the U.S. Department of Justice (DOJ) is probably not far behind. There are several ways the r/WallStreetBets community has violated state and/or federal laws. However, what could potentially be illegal is how some trading platforms have responded to the GameStop stock rush. Robinhood, for example, temporarily stopped buying more GameStop stock on Thursday, allowing its users only to sell or hold the shares. Robinhood changed course on Friday.
Investment firms would not be the only companies trapped in a delicate legal position in scenarios such as the r/WallStreetBets phenomenon. Even companies that are approached by social media platforms through no fault of their own will find themselves in a difficult situation. The idea that a company would raise capital in such a race – as AMC investigated – could be a recipe for disaster, and shareholder lawsuits would likely follow. The most important reason is the difficulty for the company to adequately disclose all the risk factors associated with raising capital during either of these series, as the fundamentals of the company are separate from its price per share or market capitalization. Even though these Redditors came together for the express purpose of bankrupting a hedge fund by buying a particular stock, Seyhun said he thought it was legal. It is a matter of first impressions that will significantly test the limits of what constitutes market manipulation. In the past, the SEC has investigated individuals who have banded together to inflate or deflate stock prices. For example, in 2015, the SEC investigated a group of activist investors who were coordinating their efforts to buy and sell stocks. The main problem during this investigation was that the group had not filed a Schedule 13D with the SEC.
A Schedule 13D is a filing with the SEC that must be filed with the SEC when a person or group acquires more than 5% of a class of publicly traded securities. The online community of day traders has come together to put a $5 billion key into the plans of Wall Street hedge funds trying to „sell” GameStop stock. Short selling, or short selling, is a strategy used by traders based on speculation that the price of a stock will fall. Basically, traders borrow stocks from a broker and sell them on the market at their current price. Once the share price falls, traders buy it back, return the stock to the broker and pocket the difference. A perfectly legal strategy with which you can make a lot of money. In fact, on the same day Robinhood decided to cease operations, a class action lawsuit was filed against the company by a retail investor on his own behalf and „all of Robinhood`s customers in the United States who were unable to execute trades on GME after Robinhood knowingly, intentionally and intentionally removed it completely from their platform.” This lawsuit is undoubtedly just the beginning of Robinhood`s legal problems following the decision.