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Institutional legal persons on Wall Street have been unsettled recently, because Reddit’s stock discussion forum, WallStreetBets (WSB), brought “villain justice” to the age of social media, and the drama of “retail investors versus institutions”.
Compared to the regular army of institutional legal entities, the guerrillas made up of retail investors are difficult to conquer the city, but they have chosen the stocks that are not too large in market value and have become the key short sale stocks of legal persons.
Many of these stocks seem like dust abandoned by the times, such as the video game maker GameStop (GME-US), the cinema operator AMC Entertainment (AMC-US) and the former king of mobile phones BlackBerry (BB-US), due to to bad prospects. Widely despised, but this is not the logic of retail investors. Retail investors strike back on a grand scale and get results that appear to be staged.
Among them, GameStop is the most representative. This week alone, GameStop’s stock price has more than doubled. The increase in January reached 685%. Retail investors happily accepted the results. The general market analysis believes that after the short side was completely defeated, small investors may not be happy for long, because the bubble will burst eventually.
However, Thursday’s unexpected turn has angered retail investors, believing these institutions “cannot lose” and “do not emphasize military ethics”, and collectively surround and repress retail investors.
Joint siege or cooperation with laws and regulations?
Robinhood, the home base of retail investors, closed GameStop, AMC, Nokia and other stock trading on Thursday (28). Interactive Brokers also opened trade restrictions and increased margin requirements. As a result, stocks were down due to a large number of short positions fell. It was a deliberate murder. Some users jointly filed a class action lawsuit against platforms like Robinhood on Thursday.
While this is a risk control and regulatory requirement from a brokerage firm’s perspective, such claims have failed to quell public ire.
Robinhood argues that the restrictions on trading are intended to meet the SEC’s capital reserve requirements for securities firms, including the net equity and deposit requirements of the United States Securities Depository and Clearing Corporation. (DTCC). In today’s environment, the risks are very high and you must take steps to protect investors and the market.
Previous reports also indicated that Robinhhood has raised $ 1 billion from investors and has also raised hundreds of millions of dollars through bank credit to weather the storm.
Thomas Peterffy, President of Interactive Brokers, said their reason for curbing speculative transactions is to maintain the market and protect DTCC, they are concerned about the safety of the market clearing system and are not under pressure from any institution.
Brokerage Platform Under the Retail Institutions War
This shows that in the battle between retail investors and hedge funds, the risks brokerage platforms face were not noticed or cared about.
Brokerage firms must obtain sufficient margin from clients to ensure sufficient liquidity for transactions and settlements, and to avoid paying large amounts of cash on their own because they cannot pay.
DTCC spokesman Larry Tabb believes that brokers like Robinhood did nothing wrong, because they also do not believe that these brokers have enough cash to deal with future market fluctuations.
But for retail investors, this is not enough to explain this “stark deletion.” Some WSB users said that the financial crisis in 2007-08, the culprit that caused the market crash still had power, continued to manipulate the market and even got richer, with retail investors only getting a share of the reward they deserved .
Another form of “Occupy Wall Street”?
Reddit co-founder Alexis Ohanian believes that GameStop’s trading frenzy represents a turning point in the US investment landscape.This is a groundbreaking moment that has opened a new normal for the market.
He believes that in the last 10 or 15 years, the rise of social media and all these infrastructures has brought an upward revolution to many industries.
He said: “I think this is really the beginning of a new era, including how we will perceive the public market and then interact with consumers.”
Billionaire tech investor Chamath Palihapitiya also appears to champion the efforts of these retail investors, who briefly joined GameStop’s short squeeze process and intends to donate this portion of the proceeds to a small business relief fund.
Palihapitiya said that Wall Street criticized retail investors for joining in and squeezing GameStop on social media as hypocrites, because hedge funds have been trying to boost the stock market. The GameStop boom is not just a deal, but a counterattack against institutions.
WSB user and YouTuber Louis Rossman thinks this is like another form of “Occupy Wall Street.” The SEC should not investigate whether retail investors conspired to raise the share price in this operation, but should instead investigate the short selling institutions that actually control the market and reflect on why they were allowed to short sell in large quantities.
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