From: RegTech Analyst
The EU’s financial markets regulator has urged retail investors to be cautious following the GameStop chaos.
The European Securities and Markets Authority (ESMA) noted that while trading rules are different in Europe than in the US, “it cannot be ruled out that similar circumstances may occur in the EU as well.”
While no naming GameStop by name, ESMA said that the statement had been motivated by recent “episodes [that] have shown very high volatility in certain US stocks, linked to a significant accumulation of net short positions and concerted action by some retail investors, based on information shared on social media.”
The boom and bust of the GameStop stock famously first begun due to discussions held on the social media platform Reddit.
“An increased participation of retail investors in stock markets is welcome for the development of the capital markets union,” the regulator said.
“Nonetheless, ESMA urges retail investors to be careful when taking investment decisions based exclusively on information from social media and other unregulated online platforms, if they cannot verify the reliability and quality of that information.”
ESMA also warned that the recent chaos highlights the risk of market abuse.
“Discussing the opportunity to buy or sell the shares of an issuer does not constitute market abuse,” the regulator said. “However, organising or executing coordinated strategies to trade or place orders at certain conditions and times to move a share’s price could constitute market manipulation.
“Similarly, special care should be taken when posting information on social media about an issuer or a financial instrument, as disseminating false or misleading information may also be market manipulation.”
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