As a starting matter, even assuming the law-school argument that thousands of individual investors making individual decisions might in theory be acting in "concert" for purposes of Section 13(d), there would obviously be no real-world way that they could jointly make a filing. February 4 2021. So, this may/may not be correct, but either way you gotta keep in mind that theres dozens of ETFs that were shorted to proxy short GME. It's a great thing that an individual investor can do the work and reach a wide audience – isn't that what the internet is for? "FINRA requires firms to report short interest positions in all customer and proprietary accounts in all equity securities twice a month. [18] The "gamification" complaint has also been advanced in a regulatory complaint filed by the Massachusetts Securities Division against Robinhood. Could GameStop Stock (GME) Explode Higher??? SI = 44.6%. But rules are like medicine: even the healthful ones are generally better in moderation. 1.8 MB. [36] Here are some questions that they might ask in this regard: It would be a shame if the only "benefit" of the public interest in GameStop is another set of prohibitions, rather than regulatory focus on the opportunity to educate retail investors as to risks—and opportunities. Investors are only permitted to sell short if they can reasonably expect to borrow securities to make delivery. [20] See FINRA Rule 2210 ("Communications with the Public"), https://www.findknowdo.com/us/finra/rules/2210; FINRA Rule 3270 ("Outside Business Activities of Registered Persons"), https://www.findknowdo.com/us/finra/rules/3270. As the reasons for Robinhood suspending its trading services were not publicly known, the retail investors on the WSB subreddit expressed a lot of anger at Robinhood, as their inability to purchase stock through the firm made it more difficult to run up the stock price and further squeeze the shorts. In fact, there are a number of regulatory changes intended to protect retail investors that likely contributed, albeit indirectly, to the GameStop drama. Rating as of Apr 29, 2021. In addition to that, the regulators will look to adopt rules to prevent the GameStop scenario from happening again – rules to which more individuals are subject, and that can be eventually broken, and so allow for subsequent enforcement actions. Jan. 28, 2021), https://www.courtlistener.com/recap/gov.uscourts.nysd.553175/gov.uscourts.nysd.553175.1.0.pdf. FINRA CEO Robert Cook is responding to a Senate inquiry into the GameStop short squeeze. That would be unfortunate, because it would entirely miss what is significant about this story: that there are numerous retail investors who get their market information from WSB and who share stock price views on WSB, and their numbers will undoubtedly increase in the aftermath of the publicity generated by GameStop. The brokerage said it set aside $26.6 million in 2020 toward a potential settlement. This was not a small group of individuals on a private forum in some dark corner of the web. READ MORE › The Financial Industry Regulatory Authority is likely investigating the social media activity of brokers tied to the GameStop stock-trading frenzy, which could ultimately lead to scrutiny of firms’ supervisory procedures and require fine-tuning of their compliance policies. See also Rashida Tlaib (@RashidaTlaib), Twitter (Jan. 28, 2021, 10:03 AM), https://twitter.com/RashidaTlaib/status/1354807292667981828. Turning out thoughtful essays that no one reads is not going to do it. [14] For example, as will be further discussed below, the Massachusetts State securities regulator has brought a large-scale regulatory claim against Robinhood, alleging in part that the firm's services provided to its clients were in violation of the firm's obligations to its customers. Short interest % just came out. Investor Education and Index Investing. When the price settles down, there are some investors that will have made a good amount of money and some that will have lost. 726.1 KB. At the same time, “FINRA is also considering the effectiveness of its own rules in addressing these developments,” Cook told Warren. Rather, the question is how protective should the regulators be, and what are the costs of that protection? FINRA, together with other trading regulators, are investigating Robinhood for the following: Stopping or blocking its users from making trades related to GameStop in 2021. FINRA, Cook continued, “agrees with the SEC that ‘this is a dynamic, expanding, and ever-changing marketplace, and that it is our responsibility to consider whether existing protections can be improved.’”, Cook pointed to FINRA’s 2021 Examination and Risk Monitoring Report, which noted member firms’ use of emerging digital communication channels, “including app-based platforms with interactive or ‘game-like’ features that may be intended to influence customers, and related forms of marketing.”. But there is a meaningful risk that legislative or regulatory actions will be taken that are not relevant to any problem, or that are counterproductive. [21] See Dave Michaels, GameStop Trader 'Roaring Kitty' and Former Employer May Face Federal Regulatory Scrutiny, Wall St. J. The recent market events involving trading in GameStop and similarly volatile stocks, Cook told Warren, “have raised important questions regarding the rules governing broker-dealer activity, many of which involve areas of market oversight and policymaking traditionally conducted primarily by the SEC.”, Accordingly, he continued, “FINRA supports the SEC’s announced review of these matters and will coordinate its potential regulatory responses with the SEC and other regulatory authorities based on the results of that review. The "problem" is that one investor's recommendation on a somewhat obscure stock led to a crazy run-up in the stock price, much of it divorced from any financial logic, causing some investors to make, and other investors to lose, a lot of money, depending on which side of the market they were on and when they got into or out of the stock. See generally Top 100: The Most Visited Websites in the US, Semrush (Dec. 2020), https://www.semrush.com/blog/most-visited-websites/; Top Sites in the United States, Alexa (2021), https://www.alexa.com/topsites/countries/US. 00777 (S.D.N.Y. [32] Perhaps, the SEC should be reviewing those TikTok lessons, finding the good ones and republishing them, or maybe working with their creators to improve them so as to figure out how reach investors and make them smarter. Meanwhile, the number of investment advisers increased. When regulators adopt rules, they need to consider whether they are "solving the problem" or "improving the situation." These rules are detailed, complicated, burdensome, and expensive to comply with.[26]. At the same time, the Wall Street Journal published an article as to how ordinary people are providing under a minute explainers as to market events on TikTok. FINRA enables investors and firms to participate in the market with confidence by safeguarding its integrity. Keith Gill's Status as a Registered Representative of a Broker-Dealer. One cause of the pop in GME was that short sellers were forced to buy in their short positions, thus raising the argument that short sellers were responsible for the GME volatility. In its just-released 2021 Examinations and Priorities report — which summarizes exam findings from 2020 — FINRA points out that there was “a surge in … On the other hand, economists agree that short selling is healthy for the markets because it allows investors to express a negative view, thereby permitting the expression of negative as well as positive sentiments as to a security. Has the SEC's regulation of investment research made for better investment research being available to retail investors or just less research? This table shows the interest rate that must be paid by a short seller of US:GME to the lender of that security. on Foreign Investment in US ("CFIUS"), Regulation M: Trading in Connection with a Distribution, SA Rule 701: Compensatory Securities Offerings, Securities Act Section 3 Exemptions from Securities, Securities Act Section 4 Transaction Exemptions, More Securities Laws, Rules and Other Documents, CFTC Guidance on Cross-Border Futures Transactions, More Banking Laws, Rules and Other Documents, Internal Revenue Code Provisions Related to ERISA, Internal Revenue Regulations Related to ERISA, Pension Benefit Guaranty Corporation Federal Registers, Federal Deposit Insurance Corporation Improvement Act, Securities Investor Protection Corporation Rules, More FCPA Laws, Rules and Other Documents, More Sanctions Laws, Rules and Other Documents, FTC Announces 2017 Thresholds for Merger Control Filings Under the HSR Act and Interlocking Directorates Under the Clayton Act, A “Sound Basis” Exists for Revising the HSR Act’s Investment-Only Exemption, What Is a Swap and Other Jurisdictional Questions, What Is a Pool; CPO/CTA Registration Requirement, Issuer Exemptions Under the ICA and Exchange Act, Securities Act and State Registration Exemptions, Anti-Money Laundering Regulation for Financial Institutions, Guide to Federal Income Tax of Hedge Fund, SEC Guidance for Newly-Registered Investment Advisers, North American Securities Administrators Association, Securities Industry and Financial Markets Association, Press Release: Waters Announces February Hearing on Recent Market Volatility Involving GameStop, Other Stocks, Press Release: Following Recent Market Instability, Waters Announces Hearing on Short Selling, Online Trading Platforms, http://www.centerforfinancialstability.org/research/GME_Robinhood_020421.pdf, https://www.findknowdo.com/news/11/20/2020/iaa-and-nrs-report-state-investment-adviser-industry, https://www.youtube.com/watch?v=GZTr1-Gp74U, https://www.reddit.com/r/wallstreetbets/comments/i1wvqu/gme_yolo_monthend_update_july_2020/, https://www.reddit.com/r/wallstreetbets/comments/d31bke/gme_yolo_update_following_the_q2_earnings_report/, https://www.youtube.com/watch?v=alntJzg0Um4&t=11s, https://www.courtlistener.com/recap/gov.uscourts.nysd.553175/gov.uscourts.nysd.553175.1.0.pdf, https://twitter.com/RashidaTlaib/status/1354807292667981828, https://blog.Robinhood.com/news/2021/1/28/an-update-on-market-volatility, https://blog.Robinhood.com/news/2021/2/1/Robinhood-raises-34-billion-to-fuel-record-customer-growth, https://www.semrush.com/blog/most-visited-websites/, https://www.alexa.com/topsites/countries/US, https://www.bloomberg.com/opinion/articles/2021-02-05/robinhood-gamestop-saga-pressures-payment-for-order-flow, https://www.findknowdo.com/news/02/02/2021/finra-identifies-2021-risk-monitoring-and-examination-priorities?utm_source=Newsletter&utm_medium=Email&utm_campaign=Cabinet+Newsletter, https://www.sec.state.ma.us/sct/current/sctRobinhood/MSD-Robinhood-Financial-LLC-Complaint-E-2020-0047.pdf, https://brokercheck.finra.org/individual/summary/6054636, https://www.findknowdo.com/us/finra/rules/2210, https://www.findknowdo.com/us/finra/rules/3270, https://www.wsj.com/articles/gamestop-trader-roaring-kitty-and-former-employer-may-face-federal-regulatory-scrutiny-11612553349?mg=prod/com-wsj, https://www.findknowdo.com/news/01/06/2021/isda-looks-ccp-risk-management-during-pandemic, https://www.findknowdo.com/news/10/30/2020/fia-considers-effects-ccp-demands-more-margin-during-pandemic, https://www.findknowdo.com/news/10/06/2020/sec-reports-us-credit-market-performance-light-covid-19-pandemic, https://www.findknowdo.com/us-federal/cadwalader/law-firm-analysis/bd-guide-research. Is there more that the SEC or other regulators can do to educate retail investors so that they are less stupid? [30] See, e.g., Securities and Exchange Commission, Office of Investor Education and Advocacy, Study Regarding Financial Literacy Among Investors (Aug. 2012), https://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf. Also “ consider whether they are willing to lend it out almost 50.... February, finra released its 2021 report on finra ’ s lack of guidance to younger.... So influential force investors to File Under Section 13 ( d ) filing requirements to! Rather, the question is how protective should the GameStop short squeeze some finra rules broken does little explain... 3 percent on Wednesday and closed above $ 92 fiasco offers some initial lessons for compliance teams holdings in since... The following table to do it, restrictive regulations that eliminate a may... 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