Michael Shaw, 23 March 2021
Two issues emerged from a congressional hearing on the volatile trading of GameStop Corp. shares: Lawmakers and regulators need a greater understanding of how technology helped foster the frenzy, and regulators need systems to understand such events — and possibly to manage them.
House Financial Services members and witnesses spent most of their time at the hearing last week focusing on the role of short-selling in the GameStop trading frenzy in January. They specifically looked at the source of securities used to take short positions, and they looked at how a bunch of retail investors seemingly were able to outmaneuver the professionals.
Both areas raise questions about technology. The securities lending that is part and parcel to short selling may demand more disclosure, as even the chief operating officer of the New York Stock Exchange acknowledged, but systems to do so aren’t currently available. And the retail investors made savvy use of social media platforms that raise questions about market manipulation.
“With GameStop, groups of individual investors acted in concert, at a speed and size unimaginable without social media in its current form,” Alan Grujic, founder and CEO of All of Us Financial, a San Francisco-based online broker that launched last year, said in submitted testimony. “Social media can empower individuals, but also influence them.”
He said market participants need to upgrade risk models to reflect this new reality, in which quick collective action “at scale” can cause risks to spike.