Tuesday, May 11, 2021

US regulator examines Gamestop’s trading brakes as stock price fluctuates

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U.S. regulators said on Friday they would review trading restrictions imposed by Robinhood and other online brokers and act on any evidence of market manipulation, as a mad week of price swings continued for GameStop and other hot actions.

the Securities and Exchange Commission statement Followed by news that Robinhood, the online brokerage used by a new army of day traders, had raised $ 1 billion in convertible debt to shore up its finances. On Thursday, he was forced to suspend trading of certain shares.

The cash injection allowed it to lift some of the brakes, which once again pushed share prices up. GameStop, the video game retailer at the center of the frenzy, was up 75% by lunchtime in New York City, recouping all losses from Thursday. Gains since the start of the year have exceeded 1,500%.

GameStop is one of several actions targeted by users of Reddit bulletin boards in hopes of inflicting losses on hedge funds that had staked heavily against the company and others. When brokerages cut back trading on Thursday, users reacted with outrage and politicians demanded an investigation.

The SEC said it was working with other regulators and exchanges “to ensure that regulated entities meet their obligations to protect investors and to identify and prosecute potential wrongdoing.”

“The committee will closely examine measures taken by regulated entities that could disadvantage investors or unduly inhibit their ability to trade certain securities,” he added.

Frenzied trading over the past week fueled concerns that a speculative equity bubble could trigger a sharp market pullback, and volatile trading conditions prompted several important market players to act to protect themselves. Online brokers increased margin requirements for clients – meaning they needed more money in their accounts to trade – and clearing houses made similar demands to brokers themselves.

Clearing houses are central organizations that sit between different actors and manage the risk to the market in the event of default on one side. The Depository Trust and Clearing Corporation increased the total margin it needed from the industry on Thursday from $ 26 billion to $ 33.5 billion, noting that outsized trading volumes in stocks like GameStop and AMC “generated substantial risks for the companies that clear these transactions. . . particularly if the clearing member or its clients are predominantly on one side of the market ”.

Robinhood chief executive Vlad Tenev has said he wants to increase the amount of money he has to deposit with clearing houses.

The billion dollar fundraising comes in the form of debt that its investors can convert into equity. Ribbit Capital is leading the investment with Iconiq Capital, the two companies together investing more than $ 500 million, the people said. Other existing investors are expected to pledge the rest of the capital by the end of Friday, they said.

Day traders celebrated the claim of a scalp on Friday after Citron Research said it would stop releasing an analysis of short selling after two decades of highlighting overvalued companies. Andrew Left, founder of Citron, had been one of GameStop’s more outspoken short sellers.

Meanwhile, American Airlines, whose shares were pushed higher by day traders trying to get short sellers out, capitalized on the frenzy. He raised $ 1.1 billion by selling new stocks to help cover losses from the pandemic-induced air travel slowdown.

The SEC said the market infrastructure had been shown to be resilient during this week’s massive trading volumes, but warned that “extreme volatility in stock prices has the potential to expose investors to losses. rapid and serious and undermine market confidence. ”

Tal Cohen, head of North American markets at Nasdaq, said the exchange was in “close dialogue” with the SEC and the Financial Industry Regulatory Authority, the organization that governs US brokers, to bring together recent trade data.

“All investors, whether you are a hedge fund or a retailer, have the right to invest and the right to express your views in the market. But it must be done in a way that it does not be manipulated and does not harm the market, ”Mr. Cohen said. “I think what everyone is trying to do is balance the desire to continue to democratize our markets and protect investors.”

Additional reporting by Philip Stafford, Mamta Badkar and Claire Busheand

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