Why a GameStop-Inspired Mania Is Unlikely in China’s Stock Market

Could GameStop-style short-selling speculation show up in China’s stock market? 

Last week’s market frenzy in the U.S. may have inspired China’s crypto community to make more bets ondogecoin (DOGE) and bitcoin (BTC), but even the boldest traders are unlikely to try stirring up that kind of short-selling speculation in Chinese stocks.

“The Chinese financial regulators are closely monitoring who are trading what in the Chinese stock market. Retail investors involved in large-scale malicious shorting could be put in jail,” said Jason Wu, CEO of crypto-learning firm DeFiner. 

“The market cap of the crypto market in China is extremely small compared to the Chinese stock market, so all the authorities’ eyes are on the disruptors of the stock market,” Wu added.     

The China Security Regulatory Commission (CSRC), the top financial watchdog in the country, has been closely monitoring short-selling activities since a massive crash in 2015.    

On the Shanghai exchange, one-third of the value of A shares, which are stock shares of mainland China-based public companies, was wiped out within a month back then, and more than half of the listed companies filed for a trading halt to prevent further losses. 

While the cause of the historic drop remains unclear, some of the most prominent economists blamed short-sellers for the crisis. Short sellers bet a stock they sell will drop in price.

“It is the margin trading and short-selling that killed the bull market before the [2015] market crash,” Shuwei Liu, researcher at the Finance Research Institute of Central University of Finance and Economics, said in a July 7, 2015, op-ed titled, “Chinese Stock Short Shellers Should Be Heavily Punished.”  

“The A shares are still an emerging market. The CSRC does not have the ability to get the leverage tools under control,” Liu wrote then. “Under these conditions, we are giving the illegal A shares short-sellers a weapon by opening up short-selling.” The CSRC allowed the margin trading and short-selling system in March 2010. 

The central bank accused foreign financial institutions of market manipulation by shorting large quantities of Chinese stocks, implying the U.S investment bank Morgan Stanley caused some of the troubles in the Chinese stock market. 

“While Chinese retail investors could technically carry out shorting stocks on a small scale, there is no way the financial regulators would let anything like the GameStop short squeeze happen to the Chinese stock market,” DeFiner’s Wu said. 

It would be logistically challenging for Chinese retail investors to organize a GameStop campaign. A key player in the GameStop story is the social media platform Reddit, where anonymous users can meet and discuss shorting strategies on undervalued stocks. 

The majority of 177 million Chinese retail investors, who hold 28.6% of the total Chinese stock market value, communicate with each other in groups on domestic social media platforms like WeChat, QQ or Weibo, where moderators can censor “illegal content” on the platforms. 

“Unlike many tech-savvy crypto traders, many retail stock investors do not have VPN or any other kind of access to encrypted messaging apps such as Telegram or Signal,” Wu said. “I can’t imagine a large group of people would be allowed to talk about shorting stocks on a public forum such as Zhihu,” the Chinese answer to Reddit.     



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MGM, Winklevoss Twins to Make Movie About Reddit’s GameStop Investors Taking on Wall Street

Metro-Goldwyn-Mayer (MGM) is already set to make a movie telling the week-old story of a group of retail investors from social media platform Reddit who took on the financial might of Wall Street.

According to a report from Deadline on Sunday, MGM acquired the movie rights to a book proposal known as “The Antisocial Network” on Friday from New York Times best-selling author Ben Mezrich.

Winklevoss Pictures, founded by entrepreneurs and bitcoin billionaires Cameron and Tyler Winklevoss, will executive produce the film, according to the report. Aaron Ryder – who produced “Arrival” and “Donnie Darko” among others – has been selected to produce the new movie having signed a first-look film deal with MGM.

The story circles around Reddit group WallStreetBets and their endeavor to bring down large hedge funds by forcing a short squeeze on stocks such as GameStop (GME), Nokia (NOK) and AMC Entertainment (AMC), among others.

Mezrich will once again work with MGM producer Michael DeLuca having collaborated on “The Social Network” – a story about Facebook’s rise to prominence adapted from a previous Mezrich novel.

Meanwhile, publishers are expected to go to auction with the book this month.



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Robinhood CEO: We Weren’t ‘Forced’ to Limit Stock Buying Amid Reddit-Driven Surge

Despite chatter circulating Thursday that Robinhood had been compelled to halt trading of stocks being targeted by a Reddit group, the firm’s CEO said it alone had made the decision in order to safeguard the firm.

In a video interview on Thursday with Bloomberg’s Emily Chang, Vlad Tenev said the rumors were “categorically false” and Robinhood wasn’t “directed by a market maker or any other market participant,” but rather the decision was based on a “technical and operational” one.

“Robinhood, as a brokerage, has financial requirements including … deposits that we have to make to various clearinghouses. Some of these requirements fluctuate based on volatility in the markets,” said Tenev.

In order to “protect the firm” and Robinhood’s customer base, Tenev said his platform disabled purchasing of 13 stocks associated with a Reddit trading group called WallStreetBets (WSB). Tenev added that buy orders for the 13 securities could resume as early as tomorrow.

The current flurry of trader activity has represented an “unprecedented market environment” over the past couple of weeks, according to the CEO. He said Robinhood had not disable selling of the stocks as it would have been “painful” to users of the platform if they weren’t allowed to exit their positions.

Share prices for businesses such as Nokia (NOK), AMC Entertainment (AMC) and GameStop (GME) rose to astronomical highs in recent weeks when WSB sought to “short squeeze” large U.S. institutional hedge funds looking to bet against those companies.

A number of retail traders have since exited their positions amid calls to hold with “diamond hands” – referring to a mindset of maintaining positions in an attempt to drive up stock prices. Despite the calls, AMC, GME and NOK’s share prices have fallen back over the last 24-hours, while lawsuits were filed against Robinhood.

“Concentrated investing” around these types of stocks was in high demand because of an “intersection” of social media and finance, the CEO said.

“I can kind of understand how Clorox and Lysol were feeling at the beginning of the dynamic when there was so much demand,” said Tenev referring to cleaning products indirectly touted by Donald Trump as a potential medical treatment to combat the rise of COVID-19.

When pressed by Chang over whether Tenev would be willing to visit Washington D.C. to testify about its actions, the CEO said he was open to having a conversation and that the current developments presented an “opportunity” to educate the public regarding how the mechanics of financial settlements in the market work.

“Market volatility which increases the deposit requirements at various clearinghouses that we have to deposit cash into … the more cash we have available to deposit at these clearinghouses the more we can allow customers to buy, especially if these stocks are unrestricted,” Tenev said. “We are interested in removing the restrictions as per our operational requirements and increasing the amount of cash available to fund these deposits that will allow us to better do that to the greatest extent possible.”



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Bitcoin Rebounds From Early Losses, Markets Still Distracted by GameStop

Bitcoin’s (BTC) price has recovered from Wednesday’s losses since the U.S. markets opened Thursday morning. However, traders and analysts are not sure whether the rebound is sustainable, with some telling CoinDesk it was likely the result of GameStop’s stock drama.



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Bitcoin (BTC) $ 41,871.22 4.97%
Ethereum (ETH) $ 2,233.37 2.10%
Litecoin (LTC) $ 72.40 0.66%
Bitcoin Cash (BCH) $ 248.95 8.48%