After Robinhood GameStop Trading Frenzy, SEC May Review Listing Standards
The Securities and Exchange Commission may soon reassess the listing standards of major stock exchanges to an extent that could prevent the Nasdaq and the New York Stock Exchange from listing speculative penny stocks, according to people with knowledge of the matter.
The SEC – also known as the first Wall Street cop – has long classified any stock that trades below $ 5 as penny stocks, and according to the commission, “these companies may have little or no profit” and are “highly speculative”.
But the NYSE and Nasdaq combined list as many as 1,000 companies that would meet the SEC’s penny stock designation and therefore may not be suitable for small investors.
By listing the companies, some regulators believe that the stock exchanges give an imprint of security to these actions, according to people familiar with the matter.
An SEC spokesperson declined to comment, as did NYSE and Nasdaq press officials.
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The penny stock exchange listing policy came to the attention of the committee in the wake of the Robinhood trading frenzy. The trading involved a handful of longtime penny stocks that exploded amid the widespread message board hype that gained traction among hordes of novice investors using the commission-free Robinhood trading app.
Shares of video game retailer GameStop, which had traded below $ 5 for much of the summer, soared to nearly $ 500 in January amid the mania.
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The trading frenzy ultimately caused significant losses for investors, although it does not appear to be over yet, as GameStop shares have started climbing in recent days to over $ 100 a share after falling to around $ 40. The wild swings sparked a hearing in Congress and regulatory reviews from the SEC, among other agencies.
As reported by FOX Business, the law enforcement division of the SEC is investigating whether stock shares have been manipulated by traders making false statements about companies on message boards, prompting investors to buy from inflated prices and then dumped stocks just before their collapse. value.
Meanwhile, the SEC’s Trading and Markets Division may delve into listing standards for the NYSE and Nasdaq after discovering that Robinhood only allows trading in stocks listed on a major exchange, FOX Business has learned. .
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Robinhood does not allow trading in so-called “over-the-counter” penny stocks that do not meet NYSE and Nasdaq standards (other discount brokers such as Charles Schwab allow such trading). Had stocks amid the trading frenzy been delisted this summer, investor losses would have been avoided, according to people familiar with the matter.
Critics of the Nasdaq and NYSE penny stock listing say the major exchanges have justified the inclusion of penny stocks to continue earning listing fees from those companies.
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But people at the stock exchanges say that even companies that trade for less than $ 5 a share can have significant market value and therefore be fit to invest. NYSE listing standards allow penny stocks to be listed if they have a market value of $ 50 million over a 30-day period while meeting other thresholds. The Nasdaq is said to have more lenient market capitalization standards.
The question of captioning could be raised during hearings for the confirmation of President Biden’s new SEC chairman, Gary Gensler, scheduled for next week. Gensler will face a number of pressing issues when it takes control of the SEC, including the regulation of special purpose acquisition companies, cryptocurrency and the recent trading frenzy.