The stock market is a free market, theoretically right? Highs and lows in the stock market are affected by supply and demand. A lot of retail investors have been questioning for a while whether the possibility of the government interfering with AMC’s short squeeze is possible.
I’ve been doing some digging to provide the community with more value regarding this scary scenario. Lets jump right in.
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What is a free market?
A free market is an economic system based on supply and demand with very little to absolutely no interference from the government.
Free markets are characterized by a spontaneous and decentralized arrangements where individuals make economic and personal financial decisions. A key component of a free market is transactions cannot be ‘forced’ nor can it be controlled by a centralized authority, or single entity such as the government.
One of the most critical features in a free market is the absence of forceful impositions or restrictions regarding economic activities, (source).
I wonder if this is why short sellers have been able to get away with a lot things, community. Which leads me to the next segment on government interference. Isn’t the SEC technically government?
U.S. Securities and Exchange Commission
The SEC is a large independent agency of the United States federal government that was created after the Wall Street crash of 1929. The primary purpose of the SEC is to enforce the law against market manipulation.
It gets you thinking why the SEC hasn’t been fulfilling its obligations right? Both AMC and GME have been heavily manipulated through the illegal malpractice of trading naked shares.
The SEC is that small part of the government that does have the authority to intervene when necessary. The SEC however, cannot stop retail investors from purchasing stock. Their job isn’t even to protect retail investors, it’s simply to bring balance to the market when someone is cheating.
Can the government halt the purchase of a stock?
The government cannot halt the purchase of a stock as it would be in direct violation of a free markets consensus and an individuals freedom of personal economic and financial decisions.
If you’re unfamiliar with the Robinhood incident, they were actually scrutinized by the government for halting buying but not selling of AMC, GameStop, Blackberry, and Bed Bath and Beyond stock. This happened back in February of this year.
But Robinhood wasn’t the only one that was scrutinized, Citadel who’s Robinhood’s clearing house was also trialed in regards to the manipulation that had occurred.
Was the government protecting retail investors? Absolutely not. They’re simply tired of taking care of financial institutions that require bail from the feds when they lose risky bets.
Where was the SEC during this manipulation?
According to Barron’s, the SEC simply filed a securities filing detailing they’re investigating Robinhood’s options practices and it’s decision to restrict trading these specific momentum stocks, as I like to call them.
According to Robinhood’s investing center page, the SEC is responsible for imposing halts on individual stocks.
They should really update this to a ‘circuit breaker’ halt. We’ve experienced two circuit breakers when AMC was running up to the $60 and $70 range. They’re meant to prevent massive selloffs and to give retail investors time to essentially gather their thoughts during a gamma squeeze.
What occurred with Robinhood was not a circuit breaker halt, it was straight up manipulation to prevent retail investors from further creating massive momentum of these heavily shorted stocks.
The SEC begins to impose regulations
So after this entire fiasco, the SEC has finally been imposing regulation surrounding the manipulation that has now been made public through the means of CNBC and FOX Business.
They’ve imposed proposal 002 which is supposed to set off automated margin calls for overleveraged accounts, for example. We cannot fully depend on the SEC to fix our problems. Any and all news related to regulations from the SEC must be taken with a grain of salt.
It’s either neutral or it plays in our favor. Once we squeeze shorts out of their positions we’re going to be scrutinizing the SEC. Because this play wouldn’t be much of a play at all if we weren’t exposing the corruption along the way. They’re reading this, and we see you.
Can the government influence the stock market?
The government can certainly influence the stock market. One way is through incentivizing care packages to the people in order to feed the economy during and economic downturn. Stimulus packages are a great example.
The second way is by loaning banks and institutions money as a form of collateral in order to prevent any sort of market crash.
So the government does have some influence in the stock market but it’s only to help the economy stay sustainable.
Can the government stop AMC from squeezing?
The government itself doesn’t have the power to prevent a natural event such as a short squeeze from taking place. The interference of such play would be a violation of a free market and all of it’s participants.
Stepping out of line would result in global protests.
Can the SEC stop a short squeeze?
The SEC’s primary job is to enforce laws in relations to stock market manipulation. A short squeeze is the natural force by which short sellers cover their short positions. The SEC cannot interfere with or manipulate this natural play in the market.
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