When retail in traders en masse decide that a trading platform is impinging upon their rights, the SEC should be obligated to open an investigation. Isn't this pretty much a major component of their intended purpose?
Selling a stock short is NOT illegal. It is a perfectly valid type of investment according to the SEC:
“D. Are short sales legal? Although the vast majority of short sales are legal, abusive short sale practices are illegal. For example, it is prohibited for any person to engage in a series of transactions in order to create actual or apparent active trading in a security or to depress the price of a security for the purpose of inducing the purchase or sale of the security by others. Thus, short sales effected to manipulate the price of a stock are prohibited.”
Basically – you can’t short sell a stock to manipulate the price down so you can buy a lot more of it later. If you believe a stock is overpriced and short sell it, that is legal. That is exactly what tons of retail traders and hedge funds do every day, including on Gamestop.
On the other hand, manipulating a stock price upwards to cause a short squeeze IS illegal according to the same SEC article:
“Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.”
Unprecedented numbers of people on Reddit, Twitter, and elsewhere collaborated to intentionally create a short squeeze on GME in the last week. No one talked about a fundamental case why Gamestop the company was worth a lot of money and would be successful in the future; instead everyone made the argument that due to a very high short interest of 100%+, that a short squeeze would send the price “to the moon”. That is illegal according to the SEC.
Multiple brokerages, especially Robinhood, probably had their attorneys tell them that “Hey, you are aiding and abetting illegal activity by enabling a short squeeze and could be liable criminally or civilly if you continue to allow this blatant illegal activity on your platform”. So they decided to stop it by only allowing people to close their positions rather than open new ones in support of the short squeeze.
Another strong reason is that if the short squeeze caused the GME stock to go to 5000 in a sudden leap, tons of traders (both retail and professional) could instantly go broke, and then the brokerage (Robinhood) would be left holding the bag. For example, picture a retail investor with a Robinhood account had sold call options in the amount of $100,000 and their account was worth $200,000. If the price gapped from 300 to 5000 and those options were exercised, that trader could have a loss of $10,000,000. He would lose the value of his account, $200,000… but the brokerage would have to make up the rest of the settlement and take a loss of $9,800,000. Now multiply that by thousands of accounts…. no brokerage wants to take the risk of being bankrupted, so they shut it down.
The two strong reasons Robinhood and other brokers stopped trading was to prevent legal liability from enabling illegal activity on their platform, and for wanting to avoid potentially massive banktuptcy from traders unable to cover their losses.
0- https://www.reddit.com/r/wallstreetbets/comments/l594yg/gme_...
Nothing different than Jim Cramer talking up a stock on CNBC every fucking night.
Edit: I know this because I watched a youtube video from a popular redditor named deepfuckingvalue a few weeks ago and bought into the thesis fully as a value investment. He goes under the name RoaringKitty on youtube.
I lost multiple years worth of salary this morning when RobinHood decided to stop selling GME.
You also quoted the SEC saying that manipulating a stock price to cause a short squeeze is illegal but also that short squeezes occur naturally. Expecting a short squeeze and intending to profit off of it is not illegal.
You make the point that some people on wallstreetbets made comments that crossed the line on manipulation. I'm sure that's true, but if you see a few problematic comments out of millions it's obviously absurd to say that a stock mustn't be bought because of them.
Ironically, you are criticizing what is clearly not manipulation (valuing GME highly and expecting to profit off of a coming short squeeze) in order to defend what clearly is manipulation (banning a million retail investors from taking one side of a trade at a critical moment).
Buying $300 worth of stock and then posting a rocket emoji on a message board: an assault on the basic foundations of capitalism.
That argument was made last year and early this year. The argument this week has been that the stock price will increase specifically because of a short squeeze, and the popular comment on WSB has been that buying and/or holding GME stock is a rebellious act that will cause that short squeeze to happen.
If deliberately causing a short squeeze constitutes illegal market manipulation, then at least some of the WSB comments advocate for going over that line. On the other hand, the SEC would probably have its hands full linking these comments to actual trades that were meaningful enough to move the stock price -- SEC rules aren't written with a horde of enraged small-dollar investors in mind as the culprits.
Notice that RoaringKitty has taken profits from his GME holdings over the past few weeks, most recently about two days ago, and has not continued buying into the stock.
> I lost multiple years worth of salary this morning when RobinHood decided to stop selling GME.
With all due respect, GME has been a highly speculative play for at least this entire week. It's not a good idea to speculate with money that you can't afford to lose.
I don't really think the market should allow for this sort of thing. I agree with you there. But that's how the rules are written, and now when the little guy figures out the rules they shut it down.
GME is trading at between 4x and 8x it's all time high in 2008. The graph of the stock price basically looks like a flat line until a few days ago where it dramatically spiked to far, far more than it's previous peak.
Are you saying that GME will actually be worth it's current stock price a year from now? Why is that?
Also robinhood doesn't allow selling naked options so that entire point of yours is moot.
If you buy or sell stocks with the intent to manipulate the price (either through a pump and dump scheme, or a short squeeze scheme) that is illegal. It doesn't matter whether the action is only buying or only selling. It is the intent.
https://www.reddit.com/r/wallstreetbets/comments/l594yg/gme_...
If I think the price is going up and buy, that's legal. If I manipulate the price to go up after I buy, that's illegal. It's the same thing.
That's why every brokerage has a risk department. If you're a brokerage and you let thousands of customers write uncovered GME calls, you deserve to lose all your money and go out of business. Simple as that.
What if the price of a stock went from $300 to $5000 for legitimate reasons, perhaps due to some technological breakthrough. The exact same situation would happen. Would shutting down trading also be justified?
That feels like a huge violation of their stated intent though.
Is that how we're determining efficacy now...? Semantics?
I take it that you like FINRA because of the R in the name.
In actual fact, they use the term "enforcement action." Here's their report from 2020. See for yourself:
https://www.sec.gov/files/enforcement-annual-report-2020.pdf
Reminds me of the scene in the The Big Short where the hot chick in the pool who currently works for the SEC (at the time) is in town in Vegas for a conference hoping to run into some Wall Street banker dudes so she can schmooze and float her resume to them. And it's not a conflict of interest.
No one serious thinks Gamestop stock is worth $400+. Robinhood cut off buying at the point when unsophisticated investors were caught up in a stampede to "stick it to the man." Seems like they did the right thing.
No. This is against the Free Market hypothesis. We are supposed to let the Dumb Money get into the market, fail out and learn their lesson.
Absolute nonsense. The exchange is protecting the trader from himself!!
The exchange is designed to make money selling and buying. There is no reason they would stop either unless some big wig made a phone call.
Over many stocks and long periods of time, this works quite well. However the system breaks down if everyone is trying to buy the same heavily manipulated stock.