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Investors Getting Advice on Social Media Spooks EU Markets Chief

(Bloomberg) — Europe’s top markets regulator says one of the lessons of the Gamestop Corp. buying mania is that social media exposes individual investors to potential losses and the risk of breaking rules for preventing price manipulation.

© Bloomberg Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), listens during the Euronext NV conference in Paris, France, on Tuesday, Jan. 14, 2020. Euronext would be a “willing buyer” of Borsa Italiana if the London Stock Exchange put it up for sale, Euronext Chief Executive Officer Stephane Boujnah said.

“We have concerns around retail investors basing their buying behavior on inputs from social media, it’s important that you get reliable information,” Steven Maijoor, chairman of the European Securities and Markets Authority said in an interview with Bloomberg Television. “But there are also risks for retail investors that they don’t violate rules on the market abuse requirements.”

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Markets were gripped earlier this year by a buying frenzy of retail investors using new trading platforms, in some cases burning hedge funds and short sellers. Speaking to Bloomberg TV’s Anna Edwards, Maijoor said that the experience calls for the better application of existing rules rather than an update to regulation.

Another point that regulators need to look into following the flurry around Gamestop is the role of online brokers that allow investors to buy securities without paying a commission, said Maijoor.

“We have concerns here around the payments for order flows. The relevant brokers of course can get payments, we know that that is happening for how they raise their order flows, and that raises questions around putting the interest of clients first.”

Maijoor also said:

A reduction in bets that stocks will fall, known as short positions, in Europe may be a “reaction to what we have seen in the U.S.”The European Union needs assurances from the U.K. that its rules for the financial industry will remain aligned if it is to be granted access to the bloc via a system known as equivalence“From a European perspective, there is the real and substantive issue that there will be problems in terms of risk, there will be problems in terms of a level playing field if you give access to the internal market by a system that has different rules and different supervision. That makes it indeed very difficult to progress here.”

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