- Retail traders communicating online to lift stocks possibly violated manipulation laws, the European Union’s top market regulator said Wednesday.
- While discussing the opportunity to trade shares isn’t market abuse, organizing strategies to move prices “could constitute market manipulation,” it said.
- The European Securities and Market Authority said it will continue monitoring market events and consider new investor protections.
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The casual traders that banded together on Reddit to lift GameStop, AMC, and other unloved stocks last month potentially violated market-manipulation rules, the European Securities and Markets Authority said Wednesday.
The statement is among the more decisive statements suggesting retail traders’ online communications violated trading laws. Day traders uniting in online forums like the Wall Street Bets subreddit sent highly shorted stocks skyrocketing in January. The meme-stock rally evolved into a global market disruption that’s since prompted scrutiny from regulators, lawmakers, and Wall Street’s old guard.
US agencies including the Securities and Exchange Commission and the Justice Department are reportedly looking into the GameStop phenomenon and the online chatter that fueled stocks’ outsize volatility. ESMA’s remarks go further and lift some of the fog over what might or might not count as manipulation online.
“Discussing the opportunity to buy or sell shares of an issuer does not constitute market abuse,” the EU’s top market regulator said in a statement. “However, organizing or executing coordinated strategies to trade or place orders at certain conditions and times to move a share’s price could constitute market manipulation.”
Investors should seek out reliable information for trades and understand that heightened volatility increases the risk of loss, the regulator added. ESMA will continue to monitor market events and consider adopting new regulations to bolster investor protections and market integrity, according to the statement.
The Reddit-trader frenzy died down in February, but authorities still aim to investigate the event further. The House Financial Services Committee is scheduled to hold a hearing on Thursday regarding recent market volatility, GameStop’s rally, and brokerages’ roles in the phenomenon. Robinhood CEO Vladimir Tenev, Reddit CEO Steve Huffman, and popular Wall Street Bets member Keith Gill are all set to testify.
Senate Banking Committee Chairman Sherrod Brown has indicated the Senate will hold a hearing on the “current state of the stock market,” though a date hasn’t yet been announced.