By now, you’ve probably heard all about the GameStop saga.
Hedge funds on Wall Street tried shorting the shares of an American video games chain, GameStop.
Unfortunately, it backfired when Redditors from r/wallstreetbets took offence to the attempt and started a short squeeze.
This led to Gamestop’s shares spiking up from USD19 to USD500 at one point in time.
While the hedge funds lost big in this short attempt, the Redditors who took part in the “war” won big, with one turning USD50,000 to USD11 million.
So there you are, thinking, should I buy stocks pumped by Redditors?
Apparently not, according to the Monetary Association Singapore (MAS).
MAS Warns of Risks for Buying Stocks Pumped by RedditorsÂ
On 2 Feb 2021, market regulators in Singapore, MAS and the Singapore Exchange’s regulatory unit warn the public against investing in shares “incited by online chatter”.
In their joint statement, the regulatory bodies say that investors here have shown interest in recent activities in the US stock market, specifically towards GameStop and other companies like Blackberry and AMC Entertainment Holdings.
Discussions in online websites and platforms suggest that the same speculative activities might possibly happen here in Singapore.
Unsavoury Individuals Might Want To Exploit The System
So, why is that a bad thing? Everyone makes money, right? Nope.
According to them, unsavoury individuals in Singapore might take this chance to use the “pump and dump” tactic.
Here’s a simple way to explain what it means:
Imagine that Goody Feed is listed and it’s being sold at S$2 per share.
Ben buys 10,000 shares, then goes around encouraging people to buy Goody Feed shares, similar to how it was done in r/wallstreetbets.
When the share of Goody Feed increases to S$100, Ben sells all of them, making a tidy profit of S$98 per share (~S$980,000) without telling anyone.
Will Be On The Lookout For Market Manipulation
The above is, as expected, against the Securities and Futures Act.
“Any conduct that intentionally, knowingly, or recklessly creates a false or misleading appearance regarding the active trading, market or price of securities is prohibited under the Securities and Futures Act.”
Firm actions will be taken against anyone found guilty of the misconduct, the regulatory bodies promise, including imposing restrictions on suspected trading accounts and relevant shares being suspended or designated by the authorities.
You can read their full statement here.
Featured Image: Jonathan Weiss / Shutterstock.com
Here's a summary of the Chocolate Finance saga, simplified so even a non-finance kid can understand:
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