The Securities and Exchange Commission (SEC) said Friday that it will investigate why certain online trading platforms blocked users from purchasing highly volatile stocks and if illegal market manipulation spurred the recent surge in stocks such as GameStop.
In a statement, the agency said it was “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days” and would “review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
“Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence,” said acting SEC Chairwoman Allison Herren Lee and Commissioners Elad Roisman, Hester Peirce and Caroline Crenshaw.
“As always, the Commission will work to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation,” the commissioners added.
The SEC has faced growing demands from politicians and investors as shares of struggling companies soar, spurred largely by coordinated efforts among online communities of stock traders.
Members of the Reddit forum r/WallStreetBets have poured money into buying shares of GameStop, theater chain AMC, Nokia, BlackBerry and other companies heavily shorted by hedge funds. Those stocks have whipsawed between unthinkable heights and severe losses, capturing the attention of the financial world and Congress.
Critics of the Reddit traders have urged the SEC to probe whether the coordinated effort to drive up stock prices and force hedge funds to buy even more shares to cover their short positions violated any market manipulation laws. Their defenders argue that the amateur band of day traders is simply beating Wall Street at its own game.
The SEC come under additional pressure Thursday after Robinhood and other online trading platforms prevented consumers from buying shares of GameStop and similar companies targeted by Reddit users.
Robinhood insisted that it did so to protect itself and its users from deep losses. But lawmakers in both parties ripped the company for blocking trades that more established investors were still able to make.
“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 SEC said.
“Market participants should be careful to avoid such activity. Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.”