NEW YORK (Reuters) – The recent trading frenzy surrounding GameStop Corp and other so-called “meme” stocks highlights shortcomings and challenges in US markets as retail investors gain a larger presence, stock market leaders said Tuesday.
“The regulatory structure of the US stock markets is flawed in my opinion,” Jeff Sprecher, CEO of New York Stock Exchange owner Intercontinental Exchange Inc, said during a panel at the Future Industry Association’s virtual FIA Boca conference.
Regulators have focused on competition between market intermediaries, such as brokers and exchanges, rather than between buyers and sellers who want to get the best prices, and the GameStop event revealed problems with that structure, he said.
In January, retail investors coordinated through social media forums in an attempt to punish hedge funds by buying shares of GameStop and other heavily shorted names, driving up their prices and forcing short sellers to close high-loss positions.
At the height of the trading mania, several retail brokers restricted buying GameStop following collateral requirements required to clear the traded trades, angered many traders.
The saga has sparked congressional hearings, regulatory investigations and scrutiny of short selling.
“I hope that in the future, regulators will reverse some of the penalties and allow the market itself to deal with the intermediary structure,” said Sprecher.
The challenge now is to determine what is unacceptable trading behavior while retailers coordinate online, said Loh Boon Chye, Singapore Exchange CEO.
Market manipulation, when it comes to the online activities of retail investors, is undefined, which is “concerning,” said CME Group CEO Terry Duffy.
He pointed to the legalization of gambling and marijuana in most US states as examples of regulators taking a more hands-off approach.
“People want to control their own destiny,” he said.
Reporting by John McCrank; Editing by Richard Chang