The EU might regulate ‘retail’ share trading, as young Europeans playing the markets in lockdown threaten to cause financial turbulence.
“We’re closely monitoring these new developments and are assessing whether any further supervisory actions are needed,” Steven Maijoor, the chairman of the European Securities and Markets Authority (Esma) in Paris, said on Thursday (4 February).
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US regulators held meeting with treasury officials on Thursday (Photo: Dan Nguyen @ New York City)
“There is a risk that much of the new activity is speculative, as retail investors try to profit from market volatility,” he said at a videoconference by Afore Consulting, a Brussels-based firm, according to the Reuters news agency.
Many of the new, amateur, traders were young people, Esma data showed.
“Equally concerning is that they may have turned to day trading to fill their time during lockdowns,” Maijoor said.
Such ‘Retail trading’ made US headlines last week, when lone individuals organised themselves in an online chatroom, on the Reddit.com site, in a vigilante operation against Wall Street banks and hedge funds.
The Reddit group snapped up shares in a cult video-game company called GameStop, whereas Wall Street had bet the shares would go down, losing billions of dollars.
The volatility also saw some individuals lose money, however.
GameStop shares soared above $480 each at their peak.
And one lone trader said on Reddit on Thursday, that he, for instance, had bought Gamestop shares at $370, when they were still climbing, but they were now worth $97.
“The FOMO was too strong. Nothing to do but hold now,” the Reddit user said, Reuters reports.
Robinhood, a US trading platform, unilaterally suspended GameStop-share buying at the height of Wall Street’s panic.
The US treasury secretary is also meeting officials from the Securities and Exchange Commission and Federal Reserve on Thursday to consider new regulation on the other side of the Atlantic.
But Esma’s Maijoor indicated the new phenomenon was bigger and older than GameStop.
Retail-investor buying of shares in top French firms rose fourfold last March, when the first lockdown began, the EU regulator’s data showed, for instance.
Meanwhile, GameStop is also listed on the Frankfurt stock exchange, where its value likewise jumped up and down.
American cinema-operating firm AMC, which was caught up in a smaller version of the GameStop fiasco last week, is listed in Frankfurt as well.
Viral FOMO
And the GameStop tactics – of rescuing firms others have bet will fail, called “long the short” in financial jargon – were replicated by copycats in Europe last week, showing how novel trends can go viral.
Shares in German firms Evotec, Varta, and CD Projekt also spiked last week, before dropping by more than 20 percent this week, as the wave of “long the short” retail trading abated.
Retail buyers have now turned to silver, with shares in mining firms Fresnillo, Polymetal International, and Boliden rising sharply in Europe on Monday.
But regulators were “a lot more comfortable with the rise in a commodity like silver, whose price is a lot harder to influence as opposed to a stock,” David Madden, an analyst from CMC Markets UK, told Reuters.
“It [future regulation] is about making sure that the playing field is level and also making sure that … retail investors are protected and making sure that the types of accounts, the types of trading, and the types of products they use are suitable,” Ben Slaven, a trader at US-based firm BNY Mellon, also said.
