Page 39 - Investment Advisor March 2021

THE PLAYING FIELD
Reddit GameStop Squeeze Is a Game Changer
One outcome of the GameStop incident could be the SEC moving to a T+1
settlement date for securities transactions.
While the
investigations ensued,
retail investors also
were filing lawsuits
against Robinhood and
other brokerages like
Charles Schwab and
TD Ameritrade for
“restricting trading”
in GameStop and other
stocks, and lawmakers
planned hearings on
the issue.
By Melanie Waddell
s regulators investigate what’s probe the trading of GME since there
become known as the Reddit could be instances of a ‘pump and dump’
A GameStop squeeze, industry scheme akin to boiler rooms in the late
officials are prognosticating how the ‘90’s. This impacted both large and small
rules that regulate the stock market investors alike. If there were crimes
could change after the collision between committed, folks should be prosecuted.”
social media and finance. In a Jan. 27 note to clients, Balcom
One potential outcome: the Securities explained that GameStop’s stock price
and Exchange Commission could move skyrocketed because “retail investors
to a T+1 settlement date for securities who congregate in chat rooms on web-
transactions from the current T+2. sites, such as Reddit, have mounted a
While the investigations ensued at press concerted effort to hurt hedge funds and
time in early February, retail investors also investors who short stocks.”
were filing lawsuits against Robinhood Balcom told his clients that they do
and other brokerages like Charles Schwab “have a modest exposure to GameStop.
and TD Ameritrade for “restricting trad- GameStop is a component of the Russell
2000 (U.S. Small Cap) Index. Nearly all of
ing” in GameStop and other stocks, and
lawmakers planned hearings on the issue. our clients own one or two market linked
A hearing to be held in mid-February by
the House Financial Services Committee notes tied to the Russell 2000 Index.”
was dubbed: “Game Stopped? Who Wins WHO ARE THE PLAYERS?
and Loses When Short Sellers, Social In an early February interview with
CNBC, Amy Lynch, founder and presi-
Media, and Retail Investors Collide.”
massive collision of the world of finance dent of FrontLine Compliance, said
The events of GameStop and “this
the SEC, FINRA and the Commodity
and social media did unveil and flush out Futures Trading Commission are “very
some inefficiencies that we have in our busy right now trying to determine who
the players are.”
marketplace that I think the [SEC]…” as
well as the Financial Industry Regulatory The SEC, said Lynch, a former SEC
Authority, the Depository Trust Co. and examiner and special investigator at
FINRA, is “coordinating with exchang-
other agencies “are going to have to look
at longer-term,” said Jim Toes, president es to see what is happening with the
of the Security Traders Association, in trading activity in these issuers. FINRA
is taking a look at the broker-dealer
an early February podcast held by STA.
Right now, however, “all the industry
wants … is [for regulators to]: ‘Get in, do platforms and the individuals that own
accounts that are trading on those plat-
your investigations,’” Toes said. “If bad forms.” And the CFTC, she said, has
people did bad things, punish them, and “oversight of the options market.”
then give us a report.” While “we know the targets are the
Thomas Balcom, founder of 1650 hedge funds … we don’t know who the
Wealth Management in Fort Lauderdale, players are on the other side; in other
Florida, told me in an early February words, who are these traders in the cha-
email message that the SEC “should trooms that are pushing out the shorts
MARCH 2021 INVESTMENT ADVISOR 37