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News

Day traders make lemonade from short-selling lemons

This article is a preview of The Logic’s Daily Briefing newsletter, sent every weekday. Sign up for a free trial.

While the price of shares in meme stocks like GameStop, AMC, BlackBerry and Nokia continued to bounce around on Friday, they were less volatile than they had been during the midweek chaos. The top U.S. regulator weighed in, and tech platforms remained divided on how to respond to the frenzy. Here’s what you need to know about another weird day:

News

Day traders make lemonade from short-selling lemons

By Catherine McIntyre
Activist investor Andrew Left said Friday his firm Citron Research would stop publishing its popular short reports after its failed attempt to short GameStop contributed to this week’s trading craze. Photo: Citron Research | YouTube
Jan 29, 2021
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This article is a preview of The Logic’s Daily Briefing newsletter, sent every weekday. Sign up for a free trial.

While the price of shares in meme stocks like GameStop, AMC, BlackBerry and Nokia continued to bounce around on Friday, they were less volatile than they had been during the midweek chaos. The top U.S. regulator weighed in, and tech platforms remained divided on how to respond to the frenzy. Here’s what you need to know about another weird day:

SEC shots fired: The U.S. Securities and Exchange Commission made its first official statement on the matter. While not naming any specific tickers, it said, “Extreme stock price volatility has the potential to expose investors to rapid and severe losses and undermine market confidence.” The SEC also gave what many interpreted as a warning to brokerages like Robinhood that restricted trading of hot securities: “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.”

Brokers concede—a little: Popular day-trading platform Robinhood lifted its ban today on buying GameStock and other securities it restricted yesterday, though traders are still limited on how much they can buy and sell. The company initially said it restricted trading to protect its users, but later revealed it lacked funding to cover trade clearances, raising more than US$1 billion from existing funders. Rival platforms, including Webull and M1, also resumed trading on Friday, following intense backlash from retail traders. Meanwhile, U.K.-based trading app Freetrade disabled U.S. stock purchases on Friday. The firm said the decision came from its foreign-exchange provider and their bank to restrict trading volume.

Robinhood’s internal turmoil: Some employees at the company, which has been the main target of retail traders’ ire, have spoken out about the firm’s decision to restrict trading. They argued the move compromised the company’s mission to “democratize finance” and empower small investors. “This sets a horrible precedent,” wrote one employee on discussion site Blind, as reported by The Information. 

“I didn’t expect this”: In an interview with The Wall Street Journal, the investor who kick started the frenzy, Keith Gill (also known as Roaring Kitty or DeepFuckingValue), said he wasn’t out to take on the Wall Street establishment when he began investing in GameStop back in June 2019. The stock was trading for about US$5 at the time; it closed the week at US$325. When markets opened Friday, the former marketing professional had about US$33 million in his E*Trade account.

Facebook wades in: Facebook temporarily removed Robinhood Stock Traders, a popular Wall Street discussion group with more than 157,000 members, for allegedly violating its community standards. The company said the move was unrelated to the stock run. The group’s creator, Allen Tran, said he received a notification saying it was removed for specifically violating policies on “adult sexual exploitation.” Tran told Reuters he’d never seen adult content on the page. Following the report, the group was reinstated.

Teachers’ cashes in: The Ontario Teachers’ Pension Plan sold 24.56 million shares in Macerich, after Reddit users pumped stock in the mall owner, which one Reddit user touted as “GameStop’s landlord.” The pension fund brought in nearly US$500 million from the sale. 

The inevitable crypto angle: Dogecoin, a cryptocurrency that started as a joke, saw its price jump 800 per cent by midday Friday. Like other hot stocks that rocketed past their fundamental values this week, the digital coin’s rise followed hype built up on a Reddit forum. 

A sour taste: Activist investor Andrew Left said Friday his firm Citron Research would stop publishing its popular short reports after its failed attempt to short GameStop contributed to this week’s trading craze. The firm said it will instead focus on “giving long-side multibagger opportunities for individual investors.” Citron has for years been trying to short Ottawa-based Shopify. CEO Tobi Lütke weighed in on the news, while also pledging a $200,000 donation to New York City’s Robin Hood charity.

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Photo: Citron Research | YouTube

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