Kim Hyun-suk’s Wall Street Now Game Stop Frenzy Robin Hood gets caught

On the 28th (local time), trading of stocks with a lot of short selling such as’Game Stop’ in the New York Stock Exchange decreased. The stock price also fell sharply by 30-50%. As the madness subsided slightly, the market rebounded from the crash the previous day. The Dow rose 0.99%, the S&P 500 rose 0.98%, and the Nasdaq rose 0.5%.

But this frenzy is not over yet. The market is still noisy, and the noise is expanding to politics and court litigation.

The reason that transactions such as GameStop decreased on this day because securities companies blocked transactions. Following TD Ameritrade and Charles Schwab the day before, Robin Hood and Interactive Brokers on this day are also concentrating on trading by individual investors such as GameStop, AMC Entertainment, Blackberry, Express, and Cos Corporation. I did. In the case of options, we have also taken measures to allow them to only be liquidated or to trade only when there is 100-300% margin.

This is in preparation for the possibility that the liquidation settlement will not be done properly due to a sharp fluctuation in stock prices. In fact, GameStop stock, which closed at $347 the day before, exceeded $500 in after-hours trading before opening, and then opened at $265. During the intraday, it fell to $112 and then soared to $483. The closing price plunged 44.29% to close at $193.60. AMC fell 56% and Bed Bath & Beyond 36%.

This triggered the ants’ enormous anger. The online community Reddit’s stock discussion room,’Wall Streetbets’, complained that “Wall Street is united together to block private transactions, protecting hedge funds in need.” On this day, some ants filed a class lawsuit against securities companies that restricted their transactions.

Congressman Alexandria Okaciocortes (Democratic), a rising leftist politician, tweeted, “Hedge funds are free to trade stocks, but individuals are blocked. We need to learn more about Robin Hood’s decision.” Republican tycoon Senator Ted Cruz added to the tweet, “I totally agree.” Chairman of the House Financial Services Committee, Chairman Maxine Waters, said “we will hold a hearing focused on market instability and the role of hedge funds.”

In addition, Senator Elizabeth Warren (Democratic), who is called’the grim reaper of Wall Street’, issued a statement and said, “Hedge funds, private equity funds, and the rich have been playing with the stock market like casinos and letting others pay for it.” The time has passed for financial authorities such as (SEC) to wake up and do their job. “I will get the Democrat-led parliament and administration to do their job.”

The anger of the ants is focused on Robin Hood, which caused this boom. Robin Hood is a startup that sparked a personal investment boom by eliminating stock trading fees. That’s why individuals are called’Robin Hood’ investors.

The source of money for Robin Hood, who doesn’t charge fees, is actually Wall Street. Robin Hood has obtained more than 70% of its sales in the first quarter of 2020 by selling customer transaction data on Wall Street. In other words, you earn money by selling order information placed by customers to so-called’high frequency traders’ (HFTs).

What is an HFT? These are Wall Street hyenas. By installing state-of-the-art servers and high-speed Internet lines in the building right next to the exchange, you can place orders faster than anyone else and make profits. If there are many buy orders for Tesla stocks, buy them first, buy them cheaply, and sell them high. When there are many sell orders, make a profit by hitting a short sell first.

These are obtained from buying and selling information from Robin Hood, etc., whether there are many buy orders or many sell orders. And they make a profit by placing orders faster than they placed. And handing over a fraction of it to Robin Hood and others.

A representative HFT is the hedge fund Citadel. It is also the place where we gave an emergency fund of $2 billion to Melvin Capital, a hedge fund, who was in bankruptcy by short selling Gamestock this time. In other words, it is a place where ants in Wall Streetbets earn money through their trading information and pay military funds to their enemies.

Already, there is a movement to leave Robin Hood and move to another brokerage company such as Webull. However, on the same day, counterfeiting also tried to restrict transactions for game stops.

This could be the biggest bad news for Robin Hood, which is pursuing an IPO, and Robin Hood was being evaluated for a corporate value of up to 20 billion dollars. Perhaps that’s why Robin Hood announced a policy to allow limited trading from tomorrow after the market close.

It is a field where even politicians have intervened, so it is not known how this situation will unfold. But it will be noisy for a while. Some have made observations that the ants this time will change the topography of Wall Street. Similar things can happen over and over again. A Wall Street official said, “It would be virtually impossible for the US SEC to regulate countless ants as operational forces.”

As the market crashed, Wall Street financiers are all at once advising to buy if the stock price drops due to the correction. In a recent customer note, JPMorgan’s renowned quant strategist Marco Colanovic said in a recent customer memo, “The recent adjustment is an opportunity to buy more volumes at a cheaper price.” “There are some speculative trading behaviors, but the overall outlook remains bright.” .

“As Gamestop and AMC Entertainment became targets of the recent anti-short selling movement, the stock price surged irrationally. “This move has sparked fear of the bubble and the index has fallen.” “The declining number of new coronavirus cases will have a positive impact on the market, and in the next few months, money will be drained from other assets and more into the stock market.” Kolanovic is well known for strongly recommending buyers to buy when the stock market hit a low in March last year.

However, there are also people who care for themselves. A Wall Street official said, “We can’t know what will happen when the valuation is high and unexpected things happen,” and said that some profits are being realized. It seems that this is because of the alertness that the leading index once rose to 2% on this day and then ended at less than 1% as time passed.

As the market became noisy due to the game stop crisis, interest in economic indicators and earnings dulled.

Apple, which unveiled its’blockbuster’ quarterly earnings of $111.4 billion in sales after the market close the day before, fell by 3.5%. The Wall Street Journal (WSJ) evaluated that the stock price-earnings ratio (PER) has already risen to a level of 35 times, so the surprising performance did not increase the stock price. Tesla fell 3.32% in profits and not clearly stated its sales target this year. In addition, Facebook, which revealed disappointing results, fell 2.62%.

The economic indicators were mixed. The fourth quarter of the U.S. gross domestic product (GDP) growth was only 4.0% annually compared to the previous quarter. It was less than the 4.3% Wall Street estimate. The U.S. economy, which fell 31.4% in the second quarter of last year, rebounded sharply to 33.4% in the third quarter, but the rally slowed sharply in the fourth quarter. Last year’s overall growth rate was -3.5%.

The number of claims for unemployment benefits for the week ended on the 23rd decreased by 67,000 from the previous week to 847,000. It was less than the expected 875,000 people, and it decreased for the second consecutive week, showing a stability below the 900,000 level. However, it is still a surprisingly high level compared to the late 100,000 to early 200,000 people before the pandemic.

A Wall Street official said, “The past indicators have not had much effect on the market. Investors’ interest is focused on vaccine distribution and economic resumption.”

Reporter Kim Hyun-seok [email protected]