Massachusetts officials are raising concerns about recent trading in GameStop stock, suggesting that financial regulators should step in.
The issue: Video game retailer GameStop’s stock is soaring because a group of investors — inspired by a Reddit forum called WallStreetBets — are trying to squeeze the hedge funds and other professional investment firms that have large short positions in the stock; that is, betting on the company’s downfall. The attack has worked, so far: from less than $10 earlier this year, GameStop’s stock has gone ballistic, increasing 135 percent on Wednesday alone, to close at around $347 a share. At least one hedge fund has closed out its short position to minimize further losses.
The Reddit investors are also buying options to purchase GameStop’s shares, a more exotic and complicated investment that is further adding to the volatility in the shares.
Massachusetts Secretary of State William Galvin, the state’s top securities regulator, said in a statement to the business publication Barron’s that trading in GameStop is “certainly on my radar.”
“I’m concerned, because it suggests that there is something systemically wrong with the options trading on this stock,” he said.
Galvin told CNBC that the surge puts the entire stock market at risk, suggesting the New York Stock Exchange should put a 30-day trading hold on GameStop shares. The trading spree, he said, has “no basis in reality,” and added that it is “not what you want in a capital market.”
Senator Elizabeth Warren chimed in, too, calling on the Securities and Exchange Commission and other financial regulators to “wake up and do their jobs.”
“With stocks soaring while millions are out of work and struggling to pay bills, it’s not news that the stock market doesn’t reflect our actual economy,” she said in a statement. “For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price.”
White House Press Secretary Jen Psaki said Wednesday that US Treasury Secretary Janet Yellen and the Biden administration’s economic team are keeping an eye on GameStop and other volatile stocks. In his remarks at a policy meeting Wednesday, Jerome Powell, chair of the Federal Reserve, was asked about the trading in GameStop but did not directly answer.
Material from Bloomberg was used in this report.