SHIELD
GME ARE GAMERS GAMING THE MARKETS?
Are Gamers Gaming the Markets It seemed innocent enough, at least at first. There was a group of traders eager to learn from each other communicating in an online forum, sharing tips, and offering insights. The subreddit thread, r/WallStreetBets, was rapidly gaining popularity and currently boasts nearly 8 million members. Fine, no cause for alarm there. Then Steve Cohen, the billionaire owner of the New York Mets and lead investor behind the hedge fund, Point72, shorted GameStop on January 16, 2021.
Isn’t that illegal? Yes and no. Redditors defend their actions citing how hedge funds “do this all the time;” shorting stocks, buying it en bloc, then the investors collect their profits. The masses on the subreddit thread are arguing that the shorts placed on GameStop by hedge funds were “inflated” and “artificially large.” Posing the question more narrowly, is it illegal to bankrupt a hedge fund? No, it’s not; well, not exactly. However, what it has done is put social media into the crosshairs of regulatory agencies. More on that in a moment. When analysts or hedge funds “short” a stock, it means that they anticipate that the share prices will soon drop. Traders borrow shares from brokers and sell them back into the market at the price listed at the time of the transaction. Once the shares drop, traders buy them back, return the stocks back to the brokers, and pocket the difference.
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What about collusion? That’s where things get more interesting. Social media and the rise of influencers coupled with increased accessibility (where low-dough investors can chip in and buy stocks together to gain entry – even to exclusive markets) have made it possible for communities to rally around a ringleader. Individuals can choose to become part of the collective or pursue investment independently once they get the “scoop” on which path the majority are inclined to take. And that’s the grey zone that has everyone talking. Individuals are making a choice whether or not to follow the cues from an influencer on social media. It’s quite another thing to sift through all those emojis and short-hand cryptic messages to correctly assess if individuals colluded to deliberately manipulate the markets as part of a master plan. The other missing piece is that general traffic of the social media channels is not monitored for market fraud; only the e-Comms of registered brokers and traders are monitored. This could change.
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