SEC’s GameStop Report Investigates Role of ‘Game-Like’ Brokerage Apps

Pedestrians walk a GameStop store connected 14th Street astatine Union Square, successful the Manhattan borough of New York connected Jan. 28, 2021. (John Minchillo/AP Photo)

A study by the Securities and Exchange Commission (SEC) released Monday that investigated the trading contention surrounding GameStop earlier this twelvemonth has challenged the relation of “game-like” trading apps that whitethorn impulse investors to commercialized stocks excessively frequently.

GameStop experienced a surge of enactment successful January pursuing societal media chatter that led to the word “meme stocks.” Some brokerage apps temporarily banned immoderate trades arsenic a effect of the volatile activity, with the SEC pursuing an probe (pdf).

“January’s events gave america an accidental to see however we tin further our efforts to marque the equity markets arsenic fair, orderly, and businesslike arsenic possible,” SEC Chair Gary Gensler said successful a press release.

“Making markets enactment for mundane investors gets to the bosom of the SEC’s mission. I would similar to convey the unit for bringing their expertise to this important report, and for their ongoing enactment connected to code the issues that January’s events raised,” helium added.

The New York Stock Exchange halted trading of the banal of video crippled retailer GameStop on Feb. 25 arsenic its terms surged supra $100 per stock successful overnight trading. The banal had been favored by tiny investors successful online outlets similar the Reddit forum r/Wallstreetbets.

The halts were triggered by the banal terms expanding oregon decreasing excessively quickly, the exchange stated connected its website, citing the Limit Up-Limit Down (LULD) rule. The rule was adopted by large exchanges successful 2012 to trigger a 5- oregon 10-minute trading halt connected an idiosyncratic banal successful immoderate circumstances, specified arsenic erstwhile its terms abruptly shifts up oregon down.

Two months aft the arguable online trading spike, the video crippled retailer announced it would merchantability up to 3.5 cardinal of its shares.

The shares were sold done an “at-the-market” offering, which fto companies spot their banal connected the marketplace implicit a play of time.

The caller study emphasized that the relation of online brokerage firms to promote investors to commercialized much often needs further review.

“Consideration should beryllium fixed to whether game-like features and celebratory animations that are apt intended to make affirmative feedback from trading pb investors to commercialized much than they would otherwise,” the SEC said successful the report.

The arguable trades person had beardown consequences crossed the industry. In summation to impermanent trading by immoderate online brokerage apps, companies person been fined for their involvement.

Massachusetts regulators fined MassMutual $4 cardinal and ordered it to overhaul its societal media policies aft accusing the institution of failing to supervise an worker whose online cheerleading of GameStop’s banal helped motorboat the frenzy that shook Wall Street earlier this year.