Yin Neutral Column丨How does capital market supervision adapt to the era of self-media?

Yin Zhongzhong (Chief Economist of Rongsheng Development, Research Fellow, Institute of Finance, Chinese Academy of Social Sciences)

At the end of January and the beginning of February 2021, Wall Street staged a farce of so-called "retail groups attacking short-selling institutions" (some people jokingly called the "leek uprising"). The stock involved was a U.S.-listed company, GameStop (GME), which rose from $10 in early January to $483 on Jan. 28. During this period, the stock price rose more than 20 times in a few trading days! But there is nothing new under the sun, the surge and the plunge are often linked, the stock soared after the plunge, only three trading days on the 80%, as of February 17, US time, the stock price fell back to forty-five dollars, the stock price basically returned to the starting point.

The reason why the author calls this incident a "farce" is because it seriously impacted the normal stock market operation order, resulting in heavy losses to all participants - not only retail investors acted as cannon fodder, short-selling institutions also suffered heavy losses, and the famous short-selling institution Citron Company was forced to liquidate its positions and suffer huge losses. Huge swings in stock prices in the short term are not good for most participants.

The key figure involved in the whole incident is Keith Gill, who was the initiator and organizer of the matter. He published his bills and opinions on long "game station" stock through a forum website, WallStreetBets (WSB). He believes that the main reason why the stock price has fallen to a lower price is that institutional investors deliberately short-sell, as long as retail investors are united in their will to beat these short-selling investors, and put forward the slogan "YOLO (You Only Live Once)", which translates to Chinese can be "addiction is dead".

Judging from the course and outcome of the incident, Jill's behavior is obviously suspected of manipulating the stock price. But his own amount of money is small (assuming the information he publishes is true) and he can't use his financial advantage to manipulate the stock price, and he uses his influence in the stock forum to push the stock price up. The securities laws of the United States and other countries generally refer to the use of capital advantages or information advantages to control stock prices, and there are no clear provisions on acts similar to Gill's.

Therefore, even if his behavior has achieved the purpose of manipulating the stock price, under the current securities laws or criminal laws in the United States, Gill's behavior should be difficult to constitute the crime of stock price manipulation. This is also a new challenge for regulators around the world.

The current information disclosure rules apply to the traditional information dissemination era, but in the Internet era, the occurrence of information dissemination has changed dramatically from the past, everyone can become an information release channel, and individuals using Internet channels may exert great influence under certain conditions.

The speculation of the "Game Station" stock is estimated to have settled and it is difficult to make waves again, but the debate around the incident is still continuing, and there are still many mysteries to be solved. Why can a retail investor set off such a big storm? Is there a huge amount of money behind it? Is it legal for online traders to stop buying by retail investors without authorization at a critical time when retail investors are besieging short institutions? Wait, that's why this matter caught the attention of the U.S. Congress. On February 18, local time, the Financial Services Committee of the US House of Representatives held an online hearing to discuss the incident. "Leading big brother" Gil said in his testimony that he was only an individual investor, did not manipulate the market, and did not encourage retail investors to make short-selling purchases that raised stock prices in order to seek private interests.

The act of manipulating stock prices through online public opinion not only exists in the United States, but also in the A-share market. Whenever the market sentiment is high, such behavior will prevail. For example, in 2007, the market sentiment of A-shares was high, and someone often posted his own bills on forums about the stock market, and published reasons to buy stocks, driving many investors to follow the hype, and when many people followed up to push up the stock price, he could make a profit and find new speculation targets. The market calls it "Big Brother Taking the Lead". For example, in May 2015, the stock market was boiling, there was an endless stream of comments about the stock market on the Internet, and the author also participated in a conference organized by the Internet regulatory department to combat online stock market rumors. It can be seen that the relevant departments have long been concerned about such incidents.

If the behavior of individual retail investors affecting stock prices through online self-media needs the attention of regulatory authorities, then the behavior of private equity institutions or public fund managers affecting stock prices through online media needs to be more regulated. Because the latter not only has many "fans", but also has a financial advantage. Now fund managers have set up their own public accounts on Internet social media to form their own fan base.

The author believes that measures should be taken to prevent the emergence of information related to stock price fluctuations published by the network big V, take normative measures for well-known securities analysts and network big V, regulate the speech of the managers of large-scale fund management companies, and prohibit the publicity of information directly related to the holding of stocks in the self-media.

For more information, please download the 21 Finance APP