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NASDAQ Head Calls on Regulators to ‘Manage the Situation’ after Redditors Drive Up Gamestop Stock

National Review logo National Review 1/27/2021 Zachary Evans
a close up of a sign: The GameStop store in Westminster, Colo., January 14, 2014 © Rick Wilking/Reuters The GameStop store in Westminster, Colo., January 14, 2014

The president of the NASDAQ has called on financial regulators to step in after a group of Reddit users drove up the price of GameStop stock.

The Redditors — members of a forum called WallStreetBets, which has more than 2.5 million members — banded together to buy up GameStop stock after realizing that the hedge fund Melvin Capital had shorted the stock to a massive extent. GameStop’s shares have soared as a result, while Melvin Capital was forced to receive a $2.75 billion cash infusion from fellow hedge funds Citadel and Point72 Capital Management to cover their losses.

Meanwhile, the Redditors have seen massive returns on their investments, with user Roaring Kitty, who first exposed Melvin’s short position, reportedly turning a $50,000 bet on GameStop into more than $30 million as of Wednesday afternoon.

With Melvin Capital reeling from the Redditor short squeeze, NASDAQ president and CEO Adena Friedman suggested that additional regulations may be necessary to prevent retail investors from coordinating on social media

“As we look at these new technologies that are available to anyone, including investors, I think it’s also important for regulators to understand that manipulation is manipulation, whether it’s happening through a new technology medium or it’s happening through traditional mail,” Friedman told CNBC’s Squawk Box on Wednesday. “I think it’s just a matter of making sure we understand what the behavior is, what’s underpinning the behavior, and working appropriately with regulators to manage the situation.”

Friedman also told CNBC that the NASDAQ would be monitoring social media and would “halt stock if we match chatter with unusual activity in stocks.”

Firms already appear to be rethinking strategy as Reddit investors continue to buy up GameStop stock, Bloomberg reported on Wednesday. The firm Citron Capital has closed its own short bet on GameStop with a loss of 100 percent, while another, Muddy Waters Capital, has reduced its short positions in recent days.

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