The U.S. Securities and Exchange Commission (SEC) has promised to review the recent events surrounding the GameStop (GME) pump and the subsequent restrictions on stock trading enforced by Robinhood exchange, the SEC’s acting chair and commissioners stated on Friday.
“The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” said the SEC, noting, “As always, the Commission will work to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation.”
Losing the “little guy’s” trust
While the SEC did not mention Robinhood, GameStop, or Reddit directly, there’s hardly any doubt as to which specific “regulated entity” that “took actions that may disadvantage investors” the regulator was referring to.
As CryptoSlate reported, Robinhood has recently restricted GME trading on its platform, limiting users’ ability to buy the booming shares. This decision infuriated both the general public and politicians from both sides of the aisle alike.
Fully agree. 👇 https://t.co/rW38zfLYGh
— Ted Cruz (@tedcruz) January 28, 2021
Furthermore, finance experts were quick to point out that Robinhood’s biggest customer, hedge fund Citadel, is also an investor in Melvin Capital—a Wall Street company that reportedly suffered a huge loss thanks to the pump of GME organized by Reddit group WallStreetBets.
Citadel is an investor in Melvin Capital, which got run over by Wall Street Bets. Citadel is also Robinhood’s biggest customer. 🤔
— Tyler Winklevoss (@tyler) January 28, 2021
In this light, Robinhood’s decision could’ve easily been interpreted as an attempt to protect “big guys” on the market by restricting retail investors. Notably, the exchange has later also limited crypto trading as “meme coin” DOGE seemingly got the same treatment as GameStop’s stock, surging by 800% in just one day.
A robust public dialogue
According to the SEC’s statement, the regulator is currently “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.”
“Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence,” the SEC stated, adding, “The Commission will continue our work on behalf of investors and the markets.”
To that end, the regulator also wants to initiate a “robust” public dialogue on the structure and operation of securities markets that would involve market participants and investors.
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