Could the GameStop frenzy be replicated on Australia’s stock market? | GameStop
“This is lunacy!” James Andronis, a senior specialist in the Australian Securities Investment Commission’s market conduct team, wrote in an email to a colleague at the end of January.
He was referring to a mysterious 47% surge in shares of a tiny Australian copper miner in the days after the Australia Day public holiday. The sudden increase forced the company to halt trading.
The cause? The company had the same code on the Australian stock exchange as the US video game store chain GameStop did on Wall Street: GME.
GameStop had become the focal point of a battle between retail traders on Reddit’s r/wallstreetbets forum, who were using retail investor apps such as Robinhood, and Wall Street hedge funds who were betting on stocks falling in value.
At its peak, GameStop shares reached $482, before trading was restricted on the apps and shares plummeted to below $100 last month. A gamma squeeze on GameStop shares in late February and early March has pushed the price back to under $300.
Although many of the market settings that allowed what was dubbed “Gamestonk” to occur cannot happen on the Australian Securities Exchange due to how it is regulated, the controversy was being closely watched in Australia by Asic staff, according to emails and chat logs obtained under freedom of information laws by Guardian Australia.
In Microsoft Teams, staff were tracking the developments from 27 January (after Australia returned to work from a public holiday), following various Reddit threads explaining what was happening with GameStop stock.
“This GameStop activity is unreal,” one staff member posted in Teams the following day. “Lots of retail punters will get hurt by the end but not before a number of hedge funds do first.”
A briefing note was prepared outlining a timeline of what had happened, and how the short squeeze had occurred. Asic blamed GameStop’s high short to float ratio (71.2m shorts against a float of 69.75m shares) and GameStop’s high proportion of insider investors resulting in only a small amount of tradable stock – only 23m shares.
Asic indicated that the posts on Reddit were the match that lit the fuel, causing the share price to explode.
Calissa Aldridge, Asic’s senior executive for market supervision, told Guardian Australia that watching trends on social media was something Asic increasingly needed to incorporate into its regulatory work.
“We use a range of different tools to monitor activity on social media,” she said. “Predominantly the focus is on scams, but we also have a focus at the moment at really looking at the changing dynamics on social media and … working to engage with some of the moderators and be more proactive in that engagement.”
But many of the factors that played into the GameStop saga could not be replicated on Australia’s stock market, she said.
“We do see some stocks that have quite a bit of volatility but we really don’t think we are going to see the same sort of extremes we saw in the US.
“We don’t see short selling anywhere near the extremes seen in the US.”
Asic has set up working groups within its organisation to monitor social trends as retail investing continues to boom during the pandemic. The number of retail investors in the ASX went up during Covid, from 10% of the market to 18% by turnover value.
The regulator is concerned that investors who have jumped into trading during Covid, in markets in Australia and overseas, may not be fully informed about what they have been investing in. One concern is an increase in copy trading, where investors sign up for services that automatically copy investments made by other traders.
“Activity like copy trading has been around for a while but it’s being marketed in a more targeted way and we’re seeing more uptake in copy trading,” Aldridge said.
“They may not understand… what the implications are of the trade potentially going bad, and it is amplified when we look at products that are leveraged. This isn’t limited to trading in shares.”
The regulator was also worried about gamification of trading apps where people are encouraged to trade more, and the apps have game-like rewards.
“It’s really about enticing people to trade more than they would. There’s lots of these developments happening all at once, and you put that together with having a really significant increase in the number of new investors in the market and there’s a range of watch points there for us.”
Despite the concerns, Aldridge said Asic was heartened by the number of new retail investors pouring into the market.
“We see it as a positive thing there are so many new investors … the most important thing is they are really focusing on investing in a way they understand and they’re thinking about the longer term and not just…
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