Gamestop’s market adventure and Robinhood’s dramatic reset spark US, EU regulatory concerns

MLex Market Insight

News

4.9 • 9 Ratings

🗓️ 5 March 2021

⏱️ 22 minutes

🔗️ Recording | iTunes | RSS

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Summary

The rollercoaster ride that shares of GameStop went on earlier this year had little to do with the value of the US videogame and electronics retailer and more to do with a “short squeeze” — a buying frenzy designed to hurt those who had bet on the share value going down. The unusual move was orchestrated by members of a Reddit community and led to the controversial move by the go-to app used by small-time investors, Robinhood, to suspend trading as it built up cash reserves. The controversy has sparked a discussion on both sides of the Atlantic about what regulatory measures are needed to manage these new challenges.

Transcript

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0:00.0	Hi there. It's great to be with you again. This is Mlex's weekly podcast covering the big stories in regulatory affairs from around the globe with the assistance of our team of reporters. My name is James
0:21.7	Panicki. I'm Emlex's Asia Pacific Senior Editor. Now you don't have to know that much about
0:27.2	video games or stock markets or even short selling to have heard about the unusual case of GameStop.
0:34.4	Earlier this year the share price of the US video game retailer skyrocketed only to
0:39.6	fall again sharply. The peaks and troughs had nothing to do with the value of GameStop
0:45.5	and everything to do with a short squeeze which had been engineered or at least encouraged by
0:51.4	a Reddit community. Now whether spite trading is and should be a thing is,
0:57.7	I suppose, still open to debate and there doesn't seem to be a huge amount of sympathy for short
1:02.7	sellers out there. But the unusual and arguably unprecedented circumstances of the short squeeze
1:09.5	prompted a conversation on both sides of the Atlantic
1:12.5	about the regulation that is needed in these circumstances. The controversy also put the operations
1:18.8	of financial services company Robin Hood under the microscope and we'll get to that in just a
1:24.6	moment. There's a lot to unpack here, so let's get cracking. In just over 10 minutes
1:29.7	time, we'll touch base with Jack Schickler, who's standing by in Brussels. First up, though,
1:35.5	Mlex's senior correspondent covering financial regulation from Washington, D.C. His name is Neil
1:41.4	Roland, and he's with me right now. Okay Neil first up just recap again what
1:47.6	GameStop is and how the company ended up in the news recently. GameStop exploded into the news
1:55.2	in mid to late January when its stock the stock of this middling, struggling company zoomed 20-fold in the course
2:08.9	of just two weeks. Now, it's a video game retailer, mostly bricks and mortar, that has been trying to move online with middling success. To remind you
2:21.8	what a struggling company it is, before this trading frenzy began, it had four years in a row of
2:30.4	declining sales, a market value of only $5 billion, and last year it was looking for its
2:38.9	fifth CEO in little over a year. And then the stock zoomed on the basis of this frenetic
	...

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