Lawmakers call for hearings as apps halt trading of GameStop
WASHINGTON — Members of Congress on both sides of the aisle are speaking up in support of retail investors who drove up the share price of the video game retailer GameStop, prompting online brokerage apps to pause trading on the stock.
The Securities and Exchange Commission said Friday that it was “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices,” but didn’t name the stocks. It said it is working with other regulators “to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing.”
Lawmakers on Thursday vowed to hold hearings on the market turmoil as Robinhood Markets Inc., TD Ameritrade
and other online brokerage firms halted purchases of GameStop on Thursday, though they said they would allow users to offload their positions.
The retailer’s shares surged nearly 1,000% during the two weeks leading up to the pause, driven in part by retail investors connecting with each other online through the Reddit platform known as WallStreetBets.
GameStop took a hit from the pandemic’s closure of malls and competition from digital game download. Hedge funds that had bet those factors would drive down GameStop’s share price were left in a lurch when prices soared. Some funds tried to capitalize by shorting the stock, a practice in which they sell borrowed shares in the belief they can buy them back after the price falls and return them.
Lawmakers from both parties slammed Robinhood and other apps for halting trades on the stock, which they said unfairly locked out retail investors while allowing their institutional counterparts, including hedge funds, to keep trading. Democrats complained that rules on Wall Street only apply to retail investors, not institutional players.
“People on Wall Street only care about the rules when they’re the ones getting hurt,” Sen. Sherrod Brown said in a statement. The Ohio Democrat is in line to be chairman of the Senate Banking Committee and said he would hold a hearing on the issue.
“American workers have known for years the Wall Street system is broken — they’ve been paying the price,” he said.
Noting that “extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence,” the SEC statement said it would protect retail investors “when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. Market participants should be careful to avoid such activity.”
Sen. Elizabeth Warren, a Massachusetts Democrat who also sits on the banking panel, said in a tweet that the episode illustrates the disconnect between the stock market and the real economy.