The War On Wall Street: GameStop Sparks Revolution With Retail Investors

This post was originally published on this site

I don’t know about you, but I’ve been glued to the financial news during the past week. 

And, for the first time, both my husband and my son were actually interested in my work. It is mind-boggling.

My husband first told me these stories of people making exorbitant amounts of money trading stock options, and no, not people we know from the investment community. My son, who turned 11 this month, wanted to know what’s all the buzz in the news about his favorite store: GameStop GME .

I’m delighted that so many are suddenly interested in this topic. This is what I do. I’m happy to oblige.

I joined a panel organized by Boston University’s Review of Banking and Financial Law on Friday to discuss this topic, and here are some of my takeaways. 

Professional intervention

The urban legend goes something like this: Retail investors woke up one day and decided to band together and take on Wall Street, and its wealthy hedge fund managers. These retail investors thanks to the pandemic now trade stock on online apps, such as Robinhood, and also complain about their investments outcomes over the pages of online sites, such as the WallStreetBets Reddit forum.

These investors have been pushing up the stock of struggling companies, such as GameStop, BlackBerry, and AMC. If you are like me, you have been witnessing never-seen-before levels of market volatility in the last few days, weeks. 

MORE FOR YOU

What is going on here? Are there other forces—perhaps professional forces—riding this wave? 

Matt Levine asked the same thing in his recent Bloomberg column: “Maybe a lot of the move in GameStop’s price was not caused by retail traders on Robinhood and Reddit, but by professionals, hedge funds and proprietary trading firms and professional day-trading shops. When retail buying was shut down, other buying continued.”

I’m sure that we are not the only ones asking this question. The Securities and Exchange Commission is likely already looking into it. Time will tell what’s really going on.

Corporate Governance & the future of these struggling companies 

I’m just thinking out loud here – what should the corporate insiders (executives & directors) do? Can they sell their shares and make a lot of money?

According to the WSJ, only a few top executives and board members at GameStop and BlackBerry have sold shares this month. Most of them sold it before last week’s craziness.

I have not seen many reports on such insiders selling their shares. I’m not surprised to be honest. Not sure how the SEC will react if they try to do so at this point. In any event, if this sort of data and information interests you, check out InsiderScore, which provides data on transactions by corporate insiders.

Should we change our current policy on short-selling?

First, as noted in our session, correctly, by Toney Casey, the SEC has to be so careful. This is a delicate situation in which any proposed change might face backlash from the anti-establishment crowd. To illustrate, look at what Robinhood is facing after crashing the party. It is accused by some of caving to pressure from powerful institutions on Wall Street.

If you want to learn more about the different reasons that may explain the Robinhood decision, check out Ben Edwards’ Blog

Nevertheless, as an academic, I’d like to raise the following issues that I believe need to be address in some form or another: 

First, we need some guidance from the SEC on the question of short interest: What part of a company’s float can be shorted? Perhaps the SEC can put limits on the amounts of shares that can be shorted?

What about disclosure? Currently, there is no duty to disclose one’s short position. Josh Mitts and John Coffee have written about this issue and asked the SEC to impose such a duty.  

According to Mitts, the “GameStop short squeeze was a predictable consequence of the SEC’s failure to update its rules to protect ordinary investors from predatory hedge funds.” I agree that there is a need for some legislative intervention. I also like his idea of the SEC situating data scientists alongside lawyers at regional offices.

If you want to learn more on the parallel between long- and short-side activism, check out an article by Branara Bliss, Peter Molk and Frank Partnoy

Are you an insider or outsider, Elon Musk?

Oh, where do I begin with Elon Musk. Let me tell you a little secret: I’m a bit of a geek, in case you haven’t figure this out already. 

In any event, I like Elon Musk. I do not know if it’s because he is cute, a billionaire, eccentric, bad boy, or just leading cool tech companies. A disclaimer: my husband is also a fan. He explained to me in detail how Elon used the “Spaceballs” theme for the Super-Fast Tesla Mode. 

But, where are your lawyers, Elon? It is my understanding that Elon has already gotten into a lot of trouble with the SEC in the past, thanks to his tweets. So, where are his lawyers here? Not sure. 

Some of you might say, what’s the problem here? As a corporate law professor, I have two words for you: fiduciary duty. My students already know this, it’s all about fiduciary duties. As the CEO of large public companies, he owes fiduciary duties, and his tweets might put him in hot water with the SEC… again. Maybe not, maybe the SEC currently has bigger fish to fry with everything that is going on. As always, time will tell.  

Finally, I wanted to give a shout out to the other panelists: Jeremy KressYaron NiliBen EdwardsBrian QuinnElisabeth de Fontenay, and Cathy Hwang

If you missed the event and are interested in viewing the recording, note that I’ll be sharing the link on my Twitter account as soon as it becomes public. Yes, I also tweet. You are welcome to share your thoughts, comments and questions.

Related Posts