US regulator 'monitoring' volatility of certain stocks

A GameStop store in the Jackson Heights neighbourhood of New York City. PHOTO: REUTERS

NEW YORK (AFP) - The US Securities and Exchange Commission (SEC) on Friday (Jan 29) said it was "closely monitoring and evaluating the extreme price volatility of certain stocks," after a social media-fuelled campaign sent shares of Gamestop and AMC soaring.

"We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws," the regulator said, after some platforms this week restricted trades of the surging stocks.

The SEC also said it "will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities."

Investors organised over Reddit and other forums have in recent days targeted shares of companies that had been short-sold by hedge funds, which have bet that the price of the company would fall.

Their tactics have caused massive spikes in share prices, and on Thursday Robinhood, an app popular among retail investors whose stated goal is to "democratise finance for all," decided to limit trades on the most volatile stocks.

The move was decried by lawmakers from across the United States, and on Thursday Robinhood said it would resume "limited buys" of the stocks.

US media reported the company had also raised US$1 billion (S$1.3 billion) from its investors to help it stay afloat and allow its customers to continue trading.

Robinhood needs to maintain a certain amount of liquidity in the financial institutions that facilitate orders made on its platforms, and when it sees increased demand, its liquidity needs to increase as well.

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