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The GameStop saga has taken an unexpected turn, with stocks falling after an investor forum on Reddit was temporarily closed.
Pedestrians pass a GameStop store in lower Manhattan in New York.
Photo: AFP
The public forum wallstreetbets had driven massive gains in several stocks, including GameStop, an American gaming company.
But those companies’ shares fell dramatically after the forum temporarily went invitation-only.
The trade frenzy has spread globally and sparked an alert at the White House.
GameStop has been the main focus of traders’ attention, as its share price soared more than 300 percent last week. Experts say it is the result of a fight between private investors and professionals.
After a frenzy of commercial activity, Reddit moderators closed the wallstreetbets forum to make adjustments after it was blocked from the Discord chat app due to obscene content.
“We block all the bad words with a bot, which should be enough, but apparently if someone can say a bad word with strange Icelandic unicode characters and someone can take a screenshot, you will no longer be able to hang out with your friends”, read a message from the group’s moderators after wallstreetbets reopened.
Discord said its decision to block the forum had nothing to do with its apparent impact on stock prices.
Shares of Gamestop, AMC Entertainment, Koss Corp, and BlackBerry fell at least 20 percent moments after the forum closed, though the companies recouped some of their losses when the forum reopened about an hour later.
Even with the hiatus, GameStop shares were selling for $ 292 (NZ $ 410), compared with less than $ 20 a few weeks earlier.
The slide highlighted the role the forum has played in fueling stock rallies of several hundred percent that experts say have been driven primarily by private investors.
GameStop’s massive stock surge appears to have less to do with the company, which is a losing brick-and-mortar game retailer, and more to do with a fight between Wall Street fund managers and individual investors organizing into line.
Many Wall Street funds had taken short positions in the business, effectively seeking to profit from the falling price of their shares.
Followers of wallstreetbets responded with a “little squeeze,” which involves pouring money into the company in order to drive up the price.
If the price increases dramatically, short sellers incur losses and then must hedge their initial bets to avoid further losses.
Several funds sold stock positions to pay for losses from shorting GameStop, contributing to a more than 2 percent drop in major Wall Street indices.
Several platforms, including TD Ameritrade, Robinhood, and E * Trade, experienced disruptions as the number of retail operations soared amid interest in previously forgotten stocks.
Ameritrade announced that it will impose “various restrictions” on GameStop and a number of other securities “as a precaution amid unprecedented market conditions and other factors.”
The sudden increase in activity has led to unusual activity elsewhere.
The Sydney Morning Herald reported that a small Western Australian mining company saw its share price rise 50 per cent, likely due to its Australian Stock Exchange (ASX) code matching that of the American video game retailer.
Several funds sold stock positions to pay for losses from shorting GameStop, contributing to a more than 2 percent drop in major Wall Street indices.
Photo: Kena Betancur / AFP
Regulators looking
The GameStop issue has also caught the attention of the White House and other officials.
Press secretary Jen Psaki said President Joe Biden’s economic team, including newly appointed Treasury Secretary Janet Yellen, was “monitoring the situation.”
The new US Treasury Secretary, Janet Yellen, is among the members of the Biden administration who monitor GameStop’s performance.
Photo: Brendan Smialowski / AFP
The chief executive of the US stock exchange Nasdaq, Adena Friedman, said exchanges and regulators should keep an eye on whether anonymous postings on social media could be driving “pump and dump” schemes.
“If we see a significant increase in conversation on social media … and we also compare it to unusual business activity, we will potentially stop those actions to allow us to investigate the situation,” Friedman said on CNBC.
-BBC
