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US SEC opens the investigation regarding Robinhood and WSB

on Jan 30, 2021
Updated: Feb 10, 2023
  • US securities regulator, the SEC, recently started its investigation into GameStop short squeeze.
  • The Commission aims to look into certain platforms' decision to remove stocks from their lists.
  • The SEC said it aims to closely review actions taken by regulated entities and pursue potential wrongdoings.

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Following the recent GameStop (GME) stock short squeeze, many trading apps such as Robinhood decided to delist the stock. In doing so, they successfully placed it out of retail investor’s reach. However, the move — and indeed, the entire affair — has been heavily controversial, and as such, it quickly attracted the attention of the US Securities and Exchange Commission (SEC).

The SEC announces its investigation of recent major stock price volatility

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According to the recent announcement by the US SEC, the country’s securities watchdog is “closely monitoring and evaluating the extreme price volatility of certain stocks’ trading prices over the past several days.” The SEC recognized recent events as ‘extraordinary,’ but along the way, it also noted the danger that could expose investors to rapid and severe losses.

In an attempt to prevent that, as well as undermining market confidence, the SEC decided to start an investigation into recent events, protect investors, and maintain “fair, orderly, and efficient markets.”

The announcement further says that the SEC is collaborating with other regulators across the government, as well as with FINRA, stock exchanges, and other entities.

The SEC will particularly focus on ‘regulated entities’

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A more interesting part of the announcement says that the Commission plans to closely review actions taken by regulated entities. According to the SEC, such actions may have put investors at a disadvantage or otherwise put in jeopardy their ability to trade certain securities.

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This is believed to be in reference to the move made by platforms like Robinhood and Interactive Brokers, which decided to delist stocks of companies such as GameStop and others that were recently mass-purchased by retail investors from the Reddit group called Wall Street Bets.

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The group, which maintains a strong presence on the subreddit r/wallstreetbets, started buying stocks of companies endangered by institutional investors which mass-shorted them in order to make a profit. In doing so, they threatened to financially destroy these firms, which Redditors aimed to prevent, causing institutional investorsto lose massive amounts of money along the way.

The SEC will now focus on both groups — the Redditors and trading platforms, which already saw a major backlash due to their decision to delist stocks in question.


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