The U.S. Securities and Exchange Commission (SEC) needs to apply stronger regulatory practices to massive hedge fund and Wall Street investors to limit market manipulation.
The SEC has a three-pronged mission statement as the crux of their ideology. Protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
That is to say, the SEC’s main objective is to ensure that any and all trading going on should be fair, effective, and most importantly as safe and equal as possible. Tenants that have not been present for some big traders on Wall Street for a while.
Coming out of the Reddit/GameStop stock controversy, both the side of Reddit investors and hedge fund tycoons were accusing each other of market manipulation. The act of trying to spread false information or organizing action to influence prices and shares of businesses on the stock market.
The SEC performed a small investigation into Reddit activities and collected evidence whether market manipulation was coming out of the social media platform.
“There is no indication yet that the Reddit crowd was engaged in coordinated actions or disseminated false and misleading information,” Philip Moustakis, former senior counsel of the SEC’s Division of Enforcement, said. “Those are not the elements of a traditional market manipulation case.”
That decision is surely a win for the average investor, but it does not cover the fact that there has not been the same level of investigation or punishment for hedge funds who were making attempts to manipulate the market.
Taking a look at Moustakis’s explanation, we can find there are similarities between what hedge fund investors were doing and what market manipulation is traditionally.
Specifically, the idea of engaging in coordinated action to influence price and holdings.
These hedge fund investors started a short sell in an attempt to force average investors to panic and sell their shares. All so the big investors could secure more ground and make more money while leaving average investors with less and killing companies in the process.
This goes against every principle stated by the SEC.
Hedge fund investors using massive wealth to influence the market artificially creates a market that is unequal for everybody but them, it creates an ineffective market, and it creates a market designed to harm the average investor.
The coordinated action of short-selling was manipulative in nature and served to benefit only massive Wall Street and hedge fund folks who already own the majority of wealth.
Therefore, I believe it is necessary for the SEC to begin to enforce its current regulations more heavily on bigger financial retailers.
Those who own the majority of wealth on the market are inherently going to be more powerful. Meaning that the rules put forward to create an equal and effective environment need to be applied more heavily to them to ensure they can not use their wealth or power to tip the scales.
The only reason Wall Street and hedge fund groups are crying foul on Reddit, is because this time they lost. This time they got the short end of the stick and now they want to decry the same tactics they use all the time.
There is an argument that instead of more regulations or heavier enforcement, the SEC needs to implement new rules that more closely represent twenty first century trading.
I think that is a good idea and a valid concern, but it does not accurately address the problem at hand. Bigger stock traders can use their overabundance of wealth to try to crush and choke out the average American stock trader.
To those who argue that more regulation would stifle the economy of the market, I challenge back with; a market that is controlled by a minute percentage of Americans who can force prices up and down as they please to harm the majority of Americans and businesses at their leisure is already stifled.
More regulations from a body with the power and oversight to challenge these massive investors is the only way to ensure that we as average Americans who make up the bottom 90% still have a chance to participate in the stock market.
To create a fair and equal market, the SEC needs to step up and regulate Wall Street and hedge fund investors more.
