The GameStop surge: Financial Conduct Authority issues statement on recent share trading issues

By Christopher Walker

It has been well publicised that certain stock prices have risen exponentially over the last week as retail investors – many within communities such as Reddit’s popular “r/WallStBets” message board – bought shares and placed options against stocks shorted by hedge funds (e.g. NYSE-listed companies such as video game retailer GameStop or cinema chain AMC) en masse in a story that continues to attract widespread interest.

However, on 29 January the UK financial regulator, the Financial Conduct Authority (“FCA”) issued a statement to investors, noting that “buying shares in volatile markets is risky and you may quickly lose money. These losses are unlikely to be covered by the Financial Services Compensation Scheme”. The U.S. Securities and Exchange Commission (the “SEC”) has issued a similar warning to retail investors via its recent update “Thinking About Investing in the Latest Hot Stock?”.

In the U.S., some investors are now seeking to issue class action lawsuits against online brokerage platforms such as Robinhood, which have come under criticism for restricting investors ability to continue to place orders in certain shares. With reference to the UK, the FCA’s statement also notes that brokerage firms are “not obliged to offer trading facilities to clients”, highlighting that firms:

1. “may withdraw their services, in line with customer terms and conditions if, for instance, they consider it necessary or prudent to do so”; and
2. “[are] exposed to greater risk and therefore more likely to need to take such action during periods of abnormally high transaction volumes and price volatility”.

The FCA notes that it will “take appropriate action wherever we see evidence of firms or individuals causing harm to consumers or markets” in line with its operational objectives to:

• secure an appropriate degree of protection for consumers;
• protect and enhance the integrity of the UK financial system; and
•  promote effective competition in the interests of consumers.