What happened this week with GameStop (GME), Reddit and Robinhood was shocking, unprecedented and unforeseen. Lost in the flurry though is that the craziness is very much a part of some elephant-in-the-room trends in this country. It’s a fable for our times: Small-time investors band together to take down greedy Wall Street hedge funds using the stock of a troubled video-game store. But the revolt of online stock-traders suggests much more. The internet is shifting society’s balance of power in unanticipated ways.
Shorting hedge funds are unwinding their positions, selling their long positions and ridding themselves of their short positions during the crisis. On the contrary, another player enters the field of investors, trading platform known as Robinhood. Robinhood came under fire from users and lawmakers for restricting the buy-side of some trades in late January. Some accused Robinhood of protecting hedge funds that had shorted stocks such as GameStop. Robinhood said it did not make those decisions based on the interest of market makers or hedge funds, and needed to limit trades to increased capital requirements. Robinhood’s ease of use helped introduce a younger generation to the stock market, but in the past week, it has been under enormous pressure to shoulder a crush of new interest and extreme volume. The app stopped allowing users to buy several hot stocks, including GameStop, AMC, Nokia, and BlackBerry, in a decision that will likely be the subject of long-lasting ramifications and debate. The lawsuits, congressional inquiries, and tweets alleging Robinhood developed into a transparent image of once the “free market”.
Furthermore, it’s not just GameStop stock being manipulated by WallStreetBets at the moment. Bed Bath & Beyond and AMC Theaters, among others, are being bought up and their shares are rocketing “to the moon” as these private investors would claim. These are all routinely shorted stocks, and the Reddit shenanigans and squeezes are crippling big firms that made bets these stocks would go lower (which in the case of say, AMC, seems like an intuitively good bet in the first place).
Now, the question comes up … how is any of this legal or allowed? It all feels absolutely insane and unconventional, further proving that the stock market is purely imaginary numbers that somehow turn into money for people who can manipulate this system. According to a Securities and Exchange Commission document from 2015, it would say otherwise. The guidance reads: “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.” Not a good sign for WallStreetBets. As it would seem, the stock market would become another gray area between the line for massive hedge funds and vulnerable investors.
Feature Image: NORTHFOTO/SHUTTERSTOCK