The European authorities consider the GameStop case an American anomaly with little probability of repeating itself on Community soil. The president of the European Securities and Markets Authority (ESMA, for its acronym in English), Steven Maijoor, sent that message this Tuesday in an appearance before the European Parliament. He bases his idea on the fact that only 20 European companies – which he did not cite – have short positions of more than 10% of their shares. A very different scenario to those of the video game company GameStop or the chain of cinemas AMC, which had a large presence of bearish investors. This detail is key, given that the repurchases that these funds had to carry out served as gasoline for their prices when small investors started to buy shares in both, which multiplied the effect of their massive entry.
Maijoor assured that the European rules against market abuse “are strong enough”, but was concerned about the lack of capacity to apply those rules once the abuse is identified, because it is not always easy to obtain private data from the phone companies to prove fraud.
“The possibility of something like this happening in the EU is limited,” said Ugo Bassi, director general of Financial Markets at the European Commission, in relation to the GameStop case. Bassi defended that the current rules are sufficient to protect financial stability from swings of this type, since they impose greater transparency obligations on bearish investors, and several EU countries even prohibit broker models such as Robinhood, whose business is it nourishes from the sale the order flows of its clients and does not charge commissions, which has facilitated the so-called “democratization of the Stock Exchanges”, that is, the entry of new investors who had never before decided to entrust their savings to Wall Street.
Both agreed that giving them access to the markets is necessary, but they also warned against the trend, fostered by free brokers, of turning the evolution of stocks into a game, especially when something as serious as the money allocated is involved. to the education of the children or the pension. In addition, they warned that cases like this, in which the price moves away from the real value of the asset, and fluctuates only due to a coordinated action, and not to more objective factors, can damage the confidence of retailers in the Stock Exchanges.
As a solution, they advocated improving the population’s financial education, but they also put some ideas on the table. Bassi opened the door for investors to be obliged to publicly report their short investments from time to time so that there is more transparency, a proposal that Luis Garicano, Citizen MEP, found counterproductive because it can facilitate the work of investors that are grouped to raise a company with a high presence of bears.
Bassi pointed out that the practices in which an action is raised by disseminating false statements are already prohibited by European law, although he clarified that the GameStop case was more complex, since it has not been proven that misleading information was spilled on Reddit to take advantage of the fraud, but rather a concerted action to inflate its value. The European Commission has closely watched what happened on the other side of the Atlantic, although for now it is in a phase of rethinking the rules, and has not decided to make changes. “We are trying to reflect on whether something else is missing in the legal framework. We are constantly questioning the status quo”.
Maijoor, from the European regulator, explained that the power of retail investors to move the price of an asset is limited, given that they do not have enough strength to do so in highly liquid securities, and gave as an example silver, one of the objectives frustrated from the Reddit frontiers. “I am concerned about the protection of retailers, some may have entered because of the increase in the price of shares and when they crashed they lost money they need for their children’s education or retirement,” he said.
