Stop Speculation that Manipulatively Uses Social Media
Published in Nihon Keizai Shimbun (Nikkei)
(Japan) on 2 February 2021
by (link to original)
(Japan) on 2 February 2021
by (link to original)
Translated from
by Eric Stimson.
Edited by Olivia Parker.
The collective investment activity of individual Americans using social media has thrown markets into disarray. There are numerous examples of individuals, mobilized on social media, buying up certain stocks and surging their prices. American regulators should investigate the situation and put a stop to speculation that uses social media manipulatively.
The individuals gathered on Reddit, an American social networking service. Although the finances of GameStop, an American video game seller and their main target, are in the red, at one point its stock value was over 20 times where it was at the beginning of the year.
The individuals decided to target stocks being shorted by hedge funds. Due to the hike in prices, the funds were forced into short covering.
Last week, the funds suffering losses compressed their positions and stock quotations plummeted worldwide. It wasn’t just stocks that suffered; the price of silver also jumped. We cannot overlook the role of speculation by individual Americans in destabilizing the global markets.
The fact that individuals cooperating over social media could strike a blow against hedge funds reveals a change in power dynamics among investors.
On one hand, there are market rules that encourage healthy stock values. Actions that artificially raise stock prices through conspiracy or false information amount to illegal market manipulation. America’s Securities and Exchange Commission should investigate whether rules were broken.
Pre-existing laws did not anticipate a situation in which social media determines investment activity. Even if the intention to purchase stock is expressed publicly on social media, the judgment on whether it constitutes market manipulation will likely be split. We must make rules better suited to investment activity in the age of social media.
With the spread of financial services that enable stocks to be easily bought and sold, the range of private investors has expanded. User numbers of the American firm Robinhood have explosively increased because it lets them trade stocks for free on its smartphone stock exchange app.
There are also businesses among America’s fintech startups that do not scrutinize enough when accounts are opened and individuals inexperienced in investing can unexpectedly trade in risky options. American authorities should also strengthen their oversight of exchange firms to protect investors from speculation that goes too far.
The individuals gathered on Reddit, an American social networking service. Although the finances of GameStop, an American video game seller and their main target, are in the red, at one point its stock value was over 20 times where it was at the beginning of the year.
The individuals decided to target stocks being shorted by hedge funds. Due to the hike in prices, the funds were forced into short covering.
Last week, the funds suffering losses compressed their positions and stock quotations plummeted worldwide. It wasn’t just stocks that suffered; the price of silver also jumped. We cannot overlook the role of speculation by individual Americans in destabilizing the global markets.
The fact that individuals cooperating over social media could strike a blow against hedge funds reveals a change in power dynamics among investors.
On one hand, there are market rules that encourage healthy stock values. Actions that artificially raise stock prices through conspiracy or false information amount to illegal market manipulation. America’s Securities and Exchange Commission should investigate whether rules were broken.
Pre-existing laws did not anticipate a situation in which social media determines investment activity. Even if the intention to purchase stock is expressed publicly on social media, the judgment on whether it constitutes market manipulation will likely be split. We must make rules better suited to investment activity in the age of social media.
With the spread of financial services that enable stocks to be easily bought and sold, the range of private investors has expanded. User numbers of the American firm Robinhood have explosively increased because it lets them trade stocks for free on its smartphone stock exchange app.
There are also businesses among America’s fintech startups that do not scrutinize enough when accounts are opened and individuals inexperienced in investing can unexpectedly trade in risky options. American authorities should also strengthen their oversight of exchange firms to protect investors from speculation that goes too far.
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