By now you’ve probably heard about it. A group of ragged tagged traders on the subreddit r/wallstreetbets has taken both Wall Street and main street with a blitz attack. The traders rallied together against established hedge funds to prove that they also could manipulate the markets.
With the digitalisation of trade, small-time independent traders can start to challenge the big cats. But this poses a lot of questions; Is it legal to band together and drive up stock prices? Is it ethical of trading services to block trade in a free market? And what do we feel about platforms selling their users data back to the very hedge funds they fight?
Most of us know GameStop, the place which always undersold the value of your used games. A company which is not that interesting, making their share price not so fabulous either. Because of that, several hedge funds decided to short sell Game Stop, essentially betting on them going the way of Blockbuster. This did not sit well with the people of r/wallstreetbets. The forum on Reddit deemed it was their time to show the hedge funds that they were not the only ones who knew how to exploit the system. They got together to drive up the prices by buying GameStop (or GME) as the stock is called. Costing the hedge funds billions.
The Redditers use RobinHood, a trade platform which takes no commissions, and allows you to trade easily on your phone. Their profit comes from selling the trading data of their users, which in trading can be sensitive. There is a blurry line between well informed and insider trading. How data is gathered and the legality of it is worth calling into question.
Transparency from these companies on how they use the data of their users could be called for here. A service like TRAQ could be valuable in these kinds of situations. TRAQ lets you know what your users have consented to. If the terms and conditions are altered, they are issued a new consent to confirm. This kind of transparency will be important for any technology company handling data.
The technology of platforms like RobinHood are creating a disruption of the traditional trading industry. That helped the people of Reddit beat funds like Citadel, Melvin Capital and others. People ranging from politicians on both sides of the aisle, to well known economists opposed the uprising. All of them saying that in the end, they will doom none but themselves. Jordan Belfort — known as the “wolf of Wall Street” said that this reminded him of the illegal pump and dump schemes. This also showed that regulators are not prepared to, or know how to handle the change. Making new precedence. Which means, now that this upset has happened, what is to stop it from happening again.
The financial system was not ready to handle a meme-rebellion like this. RobinHoods settlement platform became overloaded. It was said they had to restrict the sale of the GME stock, which again led to a fall in momentum for r/wallstreetbets. On Wall Street there is a two day transaction window, where the brokerage fronts the purchase of stocks you have made. RobinHood did not have enough capital to front all the interest in GME. They have now begun to argue for an instant settlement between parties. A complicated systemic update, but one which is necessary for an instant trade platform like theirs.
We are living in exciting times when the status quo might change fast and often, where technological advantage can crush thru organisation, tradition, and culture — and be used as a means to fight for social justice, or for inequality. This situation shows us that there is a lot of thinking to be done as to how we should modernise the infrastructure around the expanding technologies.