- Joined Aug 27, 2009
SO much for free markets. One of my kids has been playing around with a few dead-end stocks but I've got nothing in the game other than a good laugh.
Taking it in the 'Shorts'.It's full-on hysteria in some corners of the stock market.
GameStop has so far been pumped up an astounding 1,556% in the past month (as of Wednesday's close) after being touted on message boards like Reddit. (It also has the highest short interest of any stock, per data from financial data firm S3 Partners.)
Now they want to change the rules in the middle of the game calling it manipulation.For once, Main Street is beating Wall Street.
In a matter of weeks, two hedge-fund legends -- Steve Cohen and Dan Sundheim -- have suffered bruising losses as amateur traders banded together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up rushing to the aid of a third, Gabe Plotkin, whose firm was getting beaten down.
Driven by the frenzied trading in GameStop Corp. and other stocks that hedge funds have bet against, the losses suffered over the past few days would rank among the worst in some of these money managers’ storied careers. Cohen’s Point72 Asset Management has declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday.
Is this manipulation of free markets?Does that sound like a coordinated effort to manipulate stock prices? Coffee at Columbia Law School doesn’t necessarily think it’s as sophisticated as that—he likens what is happening to a “mob of uninformed, unsophisticated retail traders” unleashed by trading apps. But even if there is a cynical manipulator pumping up a stock while knowing it will come crashing down later, which could violate Section 9 of the Securities Exchange Act of 1934, he says it would be extremely difficult to make it hold up in court.
“There is no theory of liability under the federal securities laws that is harder to prove than manipulation,” he wrote in an email. “You are looking for the evil needle in the huge haystack of uninformed, deluded fools. As for ‘squeezing the shorts’ (which is also manipulative), that too is possible, but it is easier to make money by just riding the roller coaster up and seeking to sell at the top.”
Retail brokerages restricted trading on Thursday in GameStop and other stocks caught in a frenzy that has captivated Wall Street and caused big losses for hedge funds.
Free-stock trading pioneer Robinhood and Interactive Brokers said that in some cases, investors would be able to sell only their positions and not open new ones. Both brokerages raised margin requirements on certain securities.
Robinhood told clients in a blog post that it would close out some positions automatically if the client was at risk of not having the necessary collateral. The Menlo-Park, CA based said it plans to allow limited buys of these securities on Friday.
After the announcement, shares of GameStop initially reversed their gains, sliding quickly into negative territory. The stock, which traded above $500 at one point in premarket trading, closed down 44% on Thursday.
Robinhood customers took to Twitter to express their outrage surrounding the decision. Robinhood has made a name for itself through its mission to democratize investing for everyone. The Silicon-Valley start-up with more than 13 million users pioneered free trading, forcing the entire brokerage industry to drop commissions in late 2019.
“Either #Robinhood allows people to trade freely in the market or they will lose millions of users
“Robinhood canceled stock orders on #gme #amc #NOK etc.... There should be a class action lawsuit. I thought we had a free market. So Wall Street is OK with me losing hundreds of dollars, so that rich investors can’t be called out on their risks....