Abstract
Direct retail trading of securities, now mobilized by emerging technology and social media, has recently experienced new popularity. Trading in certain stocks favored by retail investors using these new technologies can result in extraordinary price volatility. In late January 2021, a spectacular price hike in the GameStop stock took place in the US, resulting in a short squeeze for a number of hedge funds. In the wake of this trading event, questions remain as to whether new patterns in direct retail trading should be subject to regulatory control. In light of the concerns surrounding market manipulation, this Article examines market instability and irrational trading, and whether these concerns have the potential to elicit regulatory reform. We argue that although the EU’s and UK’s market abuse regimes would, when compared to the US regime, pose theoretically greater legal risk to the retail traders who were involved in the GameStop short squeeze episode, it would likely be challenging to establish a clear case of actionable anti-social market behavior against retail traders. Further, the narrow lens of anti-social market behavior obscures whether these new retail trading patterns should be viewed as social challenges to financial markets, allowing new forms of social information to shape and influence price discovery. This article argues that social-based trading should not be overly obstructed, and the gaps in retail investor protection that have been fleshed out in the aftermath of the GameStop short squeeze can be addressed without undue restraints on retail trading. This article also makes proposals regarding the proportionate application of brokers’ gatekeeping duties to retail investors, but does not definitively support the termination of the payment for order flow.
Last Page
40
Recommended Citation
Iris H-Y Chiu,
Social Disruptions in Securities Markets - What Regulatory Response Do We Need?,
28
Rich. J.L. & Tech
1
(2024).
Available at:
https://scholarship.richmond.edu/jolt/vol28/iss1/2