The GameStop saga (GME) “is a roller coaster ride that just won’t stop,” says Jacob S. Frenkel, Dickinson Wright Chair and former senior counsel in the Securities and Exchange Commission’s division of enforcement.
Frenkel told Yahoo Finance Live that “the SEC should have used its trading suspension authority,” even if it was an aggressive approach, several days ago.
“GameStop blew through New York Stock Exchange circuit breakers 10 times over 2 trading days,” he said. “So that meant that the circuit breakers alone were not sufficient.”
On Thursday, Robinhood and other online brokerage firms restricted trading on shares of GameStop, AMC (AMC) and other equities. Following a class action lawsuit and calls for congressional hearings, Robinhood announced it would allow limited buys of these stocks on Friday.
“I’m not here to advocate for longs for shorts for the small investors or for the institutional investors but really try and call it from my objective perspective as possible,” said Frenkel.
“To me it does not matter if we’re talking about shorts or the longs,” he added. “If a participant in the market is putting out materially false information for the purpose of driving the price of a stock, that is stock manipulation.”
On Friday the SEC said in a statement it is monitoring the extreme price volatility. “The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities,” read the statement.
“What you’re going to see is a scrutiny brought to bear on the broader activity here in terms of whether it’s the institutions ... whose obligation fundamentally is to act in the best interest of the customers and the markets,” said Frenkel.
The SEC “does need to figure out, are we moving into an era where corporate fundamentals are becoming less relevant?” he added.
Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre
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