Dutch watchdog finds “GameStop frenzy” trading restrictions not illegal
The Dutch Authority for the Financial Markets (AFM) has issued a statement regarding the trading restrictions introduced by some online brokers earlier this year during the so-called “GameStop frenzy” period.
The regulator notes that, due to drastic price movements, several Dutch investment firms restricted trading in some financial instruments at the beginning of this year, including GameStop shares. The AFM did not find any illegalities in the actions of these firms during its inspection.
However, the regulator stresses that it is desirable that investment firms inform their clients more transparently and more actively in such situations.
At the end of January, private investors worldwide bought shares of GameStop. This trend was fueled in part by messages on investor forum WallStreetBets. In the Netherlands, approximately 25,000 private investors participated in this wave of investment. GameStop’s share price remains erratic and volatile.
The AFM notes that investment firms are allowed to take restrictive measures. Dutch investment firms reacted differently. A few did not take any measures. For others, the measures ranged from only allowing limited orders for GameStop shares, to adjusting margins. In a number of cases, no new option positions in these shares were allowed.
According to the regulator, these types of restrictive measures allow the investment firm to protect its clients. Own risk management and obligations towards clearing institutions also played a role in taking action. Investment firms have laid down in their terms and conditions that they may take such measures.
Rumors have also circulated that the trade-restricting measures have been introduced under pressure from hedge funds. The AFM has not found any indications showing that this is the case.
The AFM believes that investment firms can do more than just state in their terms and conditions and in general terms that restrictive measures are possible. The regulator urges them to review their communication in this area. This is because it is important that investors are sufficiently able to estimate when restrictive measures can be taken.
In addition, the AFM considers it important that, if brokers actually take measures, they actively communicate this to their investors. The exceptional situation surrounding the GameStop trade showed that this could be improved. The AFM is in contact with the relevant investment firms about this.