The European Securities and Markets Authority ("ESMA") has published a supervisory statement warning retail investors of the potential risks of committing market abuse where concerted trading actions are taken based on exchanges of views, informal recommendations and sharing of trading intentions through social networks and unregulated online platforms.
The statement notes that while discussing an opportunity to buy or sell shares does not constitute market abuse in and of itself, organising or executing coordinated strategies to trade or place orders at certain conditions and times in order to move the price of shares could constitute market manipulation.
ESMA has also advised retail investors that special care should be taken when posting information on social media about an issuer or a financial instrument (i.e. listed shares or other securities), as disseminating false or misleading information may also constitute market manipulation. This includes disseminating investment recommendations through any media, including social media and online platforms, which are also subject to a number of regulatory requirements.
The supervisory statement comes in the wake of a period of significant volatility in the share prices of a number of US-listed companies, including GameStop, AMC and others, during January and February 2021 which has been linked to a significant accumulation of net short positions and coordinated actions by some retail investors, based on information shared on social media. While the ESMA statement notes that market rules and structures are different in the EU, it cannot be ruled out that similar circumstances may occur in the EU as well.
US legislators began public hearings into share trading in GameStop last week, receiving testimony from retail traders as well as executives in brokerage firms, settlement internalisers, social media firms and hedge funds. In the EU, the the European Parliament’s Committee on Economic and Monetary Affairs is scheduled to hold a hearing on the GameStop case on 23 February.
While ESMA's statement does not contain any dramatic revisions to the EU market abuse regime, it does indicate that both ESMA and national competent authorities acknowledge the potential that concerted trading activities by retail investors could constitute market abuse in appropriate circumstances and constitutes a reminder to retail shareholders of the potential application of the EU market abuse regime to concerted trading activities as well as the publication and dissemination of recommendations and other information regarding issuers and financial instruments.
The EU's response to the recent extreme volatility in certain US stock prices is still in its early stages. While we expect that regulatory reforms (if any) are likely to be primarily targeted at institutional market participants in the first instance, it is possible that further supervisory statements providing additional detail on the application of the EU market abuse regime to the online co-ordination of trading activities and the dissemination of information on social networks and other online platforms by retail investors could be forthcoming.