After moderators of a stock exchange site that helped drive huge rallies in the shares of GameStop briefly shut its doors, a slugfest between Wall Street and Main Street took an unlikely turn late on Wednesday.
After Wallstreetbets, a chat platform popular with retail traders on the Reddit website, GameStop shares and other businesses tumbled in prolonged trading, momentarily became invitation-only. Around an hour later, as the forum opened back up, they pared those losses.
In the time it takes to get a poor night’s sleep, we have grown to the kind of scale we never dreamed of. “We have so many comments and submissions that we can’t even read them all, let alone act on them as moderators,” read a post from the moderators of the community after the reopening of Wallstreetbets.
GameStop, AMC Entertainment, Koss Corp and BlackBerry shares all fell at least 20 percent moments after the forum was shut down, highlighting the role it played in sparking stock rallies that many say were largely fuelled by institutional investors.
Earlier in the day, when hedge funds suffered heavy losses on short positions in GameStop, inexperienced traders chalked one up against Wall Street and regulators and financial practitioners called for greater oversight in trading fueled by anonymous social media messages.
In the recent skirmish in a week-long battle between Wall Street and Main Street, funds sold long equity holdings to pay for short GameStop losses, leading to a slide of more than 2pc in the main indices of Wall Street.
Technology investor Chamath Palihapitiya told CNBC, “We are moving to a world where ordinary folks have the same access as professionals and can come to the same or perhaps the opposite conclusion.” “More transparency on the institutional side is the solution, not less retail access.”
The White House attracted the attention of the market chaos, with press secretary Jen Psaki saying that the economic team of President Joe Biden, including Treasury Secretary Janet Yellen on her first full day at work, are “monitoring the situation.”
William Galvin, state regulator of Massachusetts, advised NYSE to delay GameStop for 30 days to allow a cooling-off time.
This isn’t an investment, it’s a game of chance,’ he said in an interview. “Obviously, this is contrived.”
Adena Friedman, Nasdaq president, said exchanges and regulators should track whether “pump and dump” schemes could be powered by anonymous social media messages.
On CNBC, Friedman said, “If we see a significant increase in social media chatter […] and we also match that up against unusual trading activity, we will potentially stop that stock to allow ourselves to investigate the situation.”
The Securities and Exchange Commission of the United States reported that it was aware of the uncertainty of the market and that it was collaborating with fellow regulators “to assess the situation and review the activities of regulated entities, financial intermediaries and other participants in the market.”
Long critical of Wall Street, US Senator Elizabeth Warren called for regulators to take action.
The same hedge funds, private equity groups, and rich businessmen, dismayed by the GameStop trades, have viewed the stock market as their own small casino for years, while everybody else pays the bill,” Warren said on Twitter.”
“The time for the SEC and other financial regulators to wake up and do their jobs is long overdue.”
Authorities have not approached Reddit about inventory spikes driven by a message board on the site, a spokesperson said.