GameStop Corp (NYSE:GME) shares were set to hold steady on Thursday as US Treasury Secretary Janet Yellen prepared meet financial regulators later today to talk about the recent Reddit-inspired wave of market volatility.
The Department of Treasury confirmed that talks will take place today between Yellen and chiefs of the US Securities and Exchange Commission (SEC), Federal Reserve Board, Federal Reserve Bank of New York and Commodity Futures Trading Commission.
The SEC, the US trading and securities regulator, is looking at thousands of posts on Reddit and other social media platforms for signs of potential fraud, according to a report on Bloomberg overnight.
Regulators are comparing the posts with trading data to see whether individuals were involved in market manipulation.
Retail investors using the WallStreetBets forum on Reddit have been encouraging each other to buy shares in embattled retailer GameStop and other unfashionable stocks, leading to an extraordinary rally in recent weeks that also boosted the likes of AMC Entertainment (NYSE:AMC), Blackberry (NYSE:BB) and Nokia (NYSE:NOK).
However, many users of the WSB subreddit and financial analysts have pointed out that encouraging other people to buy a stock is not market manipulation, while other have accused the forum of “pump and dump” tactics, with yet others seeing it all as a regulatory grey area.
“In our understanding, the question is likely to invite further consideration of the possible application of US securities law and regulation,” said a spokesperson for the UK’s Financial Markets Law Committee.
The SEC has warned retail investors in recent weeks to be wary of those spreading false or misleading information on social media with the aim of persuading investors into buying or selling stocks.
Meanwhile, RobinHood, the US commission-free trading app that stopped new trades in GameStop at the height of the frenzy, has started to allow investors to buy up to 500 shares in the company, as well as allowing customers to trade fractional shares in GameStop and AMC.
Allowing the trading of fractional shares, which can be as small as one millionth of a share, is meant to make it easier for investors with not much money to spend to buy shares in companies with very expensive shares.
“This gives you the flexibility to invest as much as you want in the companies or ETFs you believe in, or get your toes wet without committing to an entire share,” explained RobinHood.
The app operator is facing multiple lawsuits over its decision to halt trading, which it said was because a clearing house had demanded it hand over US$3bn in collateral, which forced the company to raise US$2.4bn this week, following another US$1bn funding round the week before.
Robinhood’s chief executive, Vlad Tenev, will be taking part in a US parliamentary hearing about the Reddit-driven stock rally, along with representatives from US financial regulators later this month.
The House Financial Services Committee hearing has been set for February 18, according to reports.
GME shares were up slightly at US$94 in pre-market trading, down over 70% since the start of the week, while AMC was poised to start down 1% at US$8.97.