It’s like a perfect storm on Wall Street. After apps for retail investors restricted stock purchases, US politicians want to investigate.
The events surrounding the shares of Gamestop reached the highest levels in US politics on Thursday. After investor apps like Robinhood had deprived their users of the opportunity to buy securities of certain companies, among others the future chairman of the banking committee in the US Senate, Sherrod Brown, announced a hearing “on the current state of the stock market”. High-ranking representatives of the Democratic Party demanded clarification and in some cases received support from otherwise bitter opponents from the ranks of the Republicans. Meanwhile, Robinhood’s managing director defended the action.
David versus Goliath?
The debate is about the trial of strength between investors and small investors and hedge funds around the shares of Gamestop, which had gained tremendous momentum this week. Users on Reddit had been advertising the shares of the ailing game retailer for weeks. The resulting rise in the share price had put short sellers in a mess, who had bet huge sums of money on falling prices and accumulated huge losses with every price increase. In the meantime, more than 100 percent of the Gamestop shares were shorted and the small investors had deliberately exploited this imbalance. In doing so, they had found more and more imitators. With Melvin Capital, they had finally driven a billion-dollar hedge fund to the brink of ruin.
In the expectation of ever-increasing prices, the new investors had recently acquired more and more shares and refused to sell them again. At the same time, it had become increasingly tight for short-sellers. In the meantime, the responsible Reddit community r / wallstreetbets had already identified further stocks for which the procedure should be promising. But then popular creation apps put a stop to it on Thursday. Robinhood started and made it impossible for users to buy the stocks concerned. Only sales were possible. As a result, prices fell significantly, other apps such as the Trade Republic available in Germany acted similarly. Not only did the users perceive this to be partisanship for the investors on Wall Street, and in addition to loud criticism, there was also a first-class action.
On Twitter, criticism came from the left MP Alexandria Ocasio-Cortez and Senator Elizabeth Warren, among others. But the son of ex-President Donald Trump Jr. also sharply criticized Robinhood. The matter could have repercussions not only in the US Senate, but also the Chair of the House Finance Committee, Maxine Waters, is reportedly planning a hearing. It should be about the recent turbulence in the financial market and the role of hedge funds in it. It is time for the SEC and Congress to make sure that the economy works for everyone, not just Wall Street, US Senator Brown said: “The people on Wall Street only care about the rules if they’re the one who hurts.”
This is bullshit. The Redditors aren’t cheating, they’re joining a party Wall Street insiders have been enjoying for years. Don’t shut them down…maybe sue them for copyright infringement instead!!
We’ve learned nothing from 2008.
— Jon Stewart (@jon_actual) January 28, 2021
Facebook blocks largest group of small investors
But not only the investor apps had apparently taken a position in the power struggle. The Reuters news agency reports that Facebook has blocked a group in which more than 150,000 users exchanged and organized about investment opportunities on Robinhood. According to its founder, it was the largest group of its kind, writes Reuters . Facebook justified the step with the unauthorized distribution of abuse content, but the group administrator never claims to have seen anything like it there.
Robinhood then announced on Thursday evening that it would partially relax the trading restrictions on the securities. As a result, the shares of Gamestop rose again in after-hours trading by over 70 percent, those of AMC by almost 50 percent. The papers of other companies such as the smartphone pioneer Blackberry, for which restrictions also applied, once again increased strongly. Robinhood’s managing director, Vlad Tenev, assured in several interviews on US television that the trade restrictions were adopted to protect his own company and its customers.