GameStop frenzy encapsulated 'free-for-all market': Ex-NYSE CEO
Dick Grasso argues investor protections are needed
Former New York Stock Exchange CEO Dick Grasso on Monday weighed in on the GameStop frenzy and the retail investor boom arguing that what happened last week "wasn't a free market, it was a free-for-all market."
Grasso made the comments on “Mornings with Maria” on Monday, also arguing that investor protections are needed.
“I think the growth of individual investment in this country is terrific for the markets and great for the country, but at times investors need protections that the markets and the regulators who oversee markets have got to step in and deploy,” Grasso told host Maria Bartiromo.
THE REAL FORCE DRIVING THE GAMESTOP REVOLUTION
On Sunday, Robinhood narrowed its stock trade restrictions from 50 to eight companies, including GameStop, Koss Corporation, AMC Entertainment Holdings, Express Inc., Naked Brands Group, Genius Brands International, BlackBerry Limited, and Nokia Corp.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| GME | GAMESTOP CORP. | 30.87 | +0.54 | +1.76% |
| KOSS | KOSS | 7.29 | +0.07 | +0.97% |
| AMC | AMC ENTERTAINMENT | 4.98 | +0.19 | +3.88% |
| EXPR | NO DATA AVAILABLE | - | - | - |
| NAKD | NO DATA AVAILABLE | - | - | - |
| GNUS | NO DATA AVAILABLE | - | - | - |
| BB | BLACKBERRY LTD. | 2.61 | +0.04 | +1.36% |
| NOK | NOKIA OYJ | 4.18 | +0.01 | +0.12% |
Securities now lifted include Tootsie Roll, American Airlines, Starbucks, General Motors, Beyond Meat, Bed Bath & Beyond and Rolls Royce, among others.
The stock restrictions were put in place as the mobile brokerage app confronted high trading volume last week. The high volatility was spurred by a speculative investing discussion forum on Reddit called WallStreetBets. The group of Reddit users banded together to buy up GameStop's call options, causing the struggling retailer's shares to soar to unprecedented levels and hurting market short-sellers. The group then proceeded to target other heavily-shorted stocks.
“I am a great believer that what happened last week is not David versus Goliath,” Grasso said on Monday.
“I think that there are people, particularly small investors, who are going to get hurt as a result of what happened and it’s time for the overseers, the markets themselves, what I term ‘the working group,’ which came as a governmental initiative out of 1987, chaired by the treasury secretary together with SEC [Securities and Exchange Commission], the CFTC [Commodity Futures Trading Commission], the Comptroller of the Currency to deploy investor protections.”
He went on to say that the big hedge funds don’t need protections, but investors do.
“If I were still at the stock exchange I’d be calling loudly for the imposition of 100% margin on any stock that’s hyper volatile,” Grasso said. “That doesn’t mean you limit the amount of shares a customer can buy, you just force the customer to buy for cash.”
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He went on to explain “the flip side,” saying that he believes for the hedge funds who are shorting stocks, “you employ and closely surveil” a rule that Grasso noted “basically says before you can short a stock you’ve got to be in possession of the security to deliver against that short sale.”
Grasso said taking those two things together, if he was running one of the brokerage firms or e-commerce platforms, he would be advising his clients that they can buy as much as they want, but they must put up 100 cents on the dollar.
He acknowledged that “this may not be suitable” and warned, “if you’re borrowing from your parents or your parents are mortgaging their homes, that’s a terrible mistake.”
Robinhood co-founder Vladimir Tenev said in a Twitter thread on Thursday that as a brokerage firm, the company has many financial requirements, including "SEC net capital obligations and clearinghouse deposits", which fluctuate based on market volatility and exist to "protect investors and the markets."
"It was not because we wanted to stop people from buying these stocks," Robinhood added in a blog post. "We did this because the required amount we had to deposit with the clearinghouse was so large—with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements—that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements."
The move has prompted two separate lawsuits against the investing platform. The first lawsuit filed in the Southern District Court of New York alleges that Robinhood "purposefully, willingly, and knowingly" restricted certain securities transactions, including GameStop. The other filed in the Northern District Court of Illinois alleges that the app manipulated its platform.
The SEC said on Friday that it is monitoring developments and will “act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.” In addition, New York Attorney General Leticia James said she would launch her own review into the market activity.
In addition, Rep. Alexandria Ocasio-Cortez has floated the possibility of an investigation into the matter by the House Financial Services Committee, which has received bipartisan support from other lawmakers like Sen. Ted Cruz, R-Texas, and Congressman Ro Khanna, D-Calif., as well as business leaders like Tesla CEO Elon Musk. Ocasio-Cortez added that the inquiry should "not be solely limited to Robinhood."
Other competitors who previously restricted securities include TD Ameritrade, Charles Schwabb, WeBull, E*TRADE, and Interactive Brokers.
Senate Majority Leader Chuck Schumer, D-NY, said in a tweet Sunday evening that any SEC and Congressional investigations of decisions to restrict access to trade GameStop "must happen ASAP."
"We cannot have a stock market where players are also refs," Schumer said.
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On Monday, Grasso said it is “great” that the government will examine Gamestop stock trading, adding that “you got to protect the markets right now” and “at times you got to protect investors even though they don't understand that they need to be protected.”
Fox Business’ Lucas Manfredi contributed to this report.