CNBC: Nasdaq prez comments on social media monitoring as short seller-retail battle heats up

In a story that’s caught the attention of markets, the battle between short sellers and day traders over Gamestop seems to have heated up after the stock surged on what is being attributed to social media chatter from the Reddit platform. An article in the FT noted that: “Several companies have watched their stock prices soar and crash in a matter of days, with the activity openly discussed on sites like Reddit.”

According to Bloomberg, short sellers are facing the risk of significant losses on their bearish bets as retail investors snap up the market’s most-shorted targets. Shares of the 50 companies on the Russell 3000 Index that have been most targeted by short sellers have jumped 33% so far in 2021.

Speaking on CNBC, Nasdaq president Adena Friedman said: “When we evaluate how we would manage through a situation where you see a significant run-up in a stock that is not based on news, that is not based on fundamentals…we do have technology that evaluates social media chatter and if we see a significant rise in the chatter on social media channels and then we also match that up against unusual trading, we will potentially halt that stock to allow ourselves to investigate the situation, to engage with the company and to give investors a chance to recalibrate their positions.”

She added that Nasdaq works with US authorities such as FINRA and the SEC to evaluate and investigate suspicious activities but it’s uncertain whether social media chatter can be considered a technological spin on the traditional pump-and-dump scheme: “Regulators have to consider the latest technology that is being used to spread information about companies…the question is whether or not this social media qualifies in that regard or whether regulators have to catch up with the technology that’s now available.”

It was also noted that Gamestop is not listed on Nasdaq, and that investors should educate themselves on the factors that drive stock prices to avoid being manipulated.

January 28 update: The retail trading app Robinhood and Interactive Brokers restricted trading in stocks associated with the social media group on Reddit. A class-action lawsuit has already been filed by Robinhood customers. This story will likely rumble on for a while.

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