The U.S. Securities and Exchange Commission (SEC) released a statement Friday morning promising to “protect investors” during this week’s “extreme stock price volatility.”
“The Commission is closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days,” the statement said. “Our core market infrastructure has proven resilient under the weight of this week’s extraordinary trading volumes. “Nevertheless, extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.”
Beginning Jan. 11, users on Reddit noticed that investors were heavily shorting Gamestop stocks (GME), meaning they were betting that the price of the stock would go down. Investors on the subreddit WallStreetBets were able to drive up the stock price, costing hedge funds billions of dollars.
Investment app Robinhood prohibited users from buying GME and other stocks Thursday morning, only allowing them to sell it. The company said that the restrictions were in response to “current market volatility.” (RELATED: Robinhood Faces Bipartisan Backlash After Banning Trades On Specific Stocks)
— Robinhood (@RobinhoodApp) January 28, 2021
A class-action lawsuit was filed against Robinhood accusing them of violating their Customer Agreement and putting investors at an unfair disadvantage by limiting the purchase of stocks.
“As always, the Commission will work to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation,” the SEC said. “The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities.”
“In addition, we will act to 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,” the agency added. “Likewise, issuers must ensure compliance with the federal securities laws for any contemplated offers or sales of their own securities.”