Singapore investors warned about risks of trading in securities incited by online forums and social media

SINGAPORE: Singapore authorities on Tuesday (Feb 2) sounded a note of caution to investors amid interest in recent market activities relating to stocks such as GameStop, AMC Entertainment Holdings and Blackberry.

Investors should be on "heightened alert" to the risks related to trading in securities incited by online discussion forums and social media chat groups, said the Monetary Authority of Singapore (MAS) and the Singapore Exchange Regulation (SGX RegCo) in a joint statement.

"MAS and SGX RegCo have noted investor interest in Singapore in recent activities in US markets relating to stocks such as GameStop, AMC Entertainment Holdings, and BlackBerry," said the authorities. 

"Discussions in online websites and platforms suggest the possibilities for similar speculative activities in the Singapore stock market."

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SOME PEOPLE MAY EXPLOIT THIS INTEREST: AUTHORITIES

The authorities warned that some people may exploit this interest for their own benefit through "pump and dump" activities.

"These perpetrators may do so by setting up positions in certain securities. They then use social media chat groups to incite investors to buy these securities in a manner similar to how individual investors collectively pushed up certain share prices in the US," explained the MAS and SGX RegCo.

"As soon as the prices of these securities have risen to specific levels, such perpetrators may then sell the securities which they had accumulated earlier without alerting other investors."

These "pump and dump" activities can amount to market misconduct under the Securities and Futures Act, the authorities said.

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Under the Act, any conduct that "intentionally, knowingly, or recklessly creates a false or misleading appearance regarding the active trading, market or price of securities" is prohibited.

It is also unlawful to make or disseminate false or misleading statements, fraudulently induce others to deal in securities, and employ manipulative and deceptive devices.

"Investors should make sure they refrain from conduct that could infringe the (Act)," said the authorities, warning that "firm action" will be taken against violators.

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Tuesday's warning comes after SGX RegCo alerted the public in December last year to possible market misconduct activities that exploit "Telegram chat groups and other channels where investment strategy is discussed".

"Such platforms may be useful for investors to share knowledge and information. We are however aware of instances where wrongdoers may misuse these channels," said the regulator.

SGX RegCo and MAS said on Tuesday they are closely monitoring market activities for signs of false trading or other forms of misconduct.

"Restrictions may be placed on the trading accounts of those suspected of such misconduct and the relevant securities may be placed under designation or suspension," the authorities added.

"MAS and SGX RegCo are working closely with SGX member firms to ensure our market remains orderly."

REDDIT VS WALL STREET

Investors organised over Reddit and other forums have recently targeted shares of companies, such as Gamestop, that were short-sold by hedge funds.

Major investors like hedge funds have bet against GameStop, citing the video game chain store's ill financial health as consumers shift towards buying over the Internet.

As the company's stock surged under the Reddit-fuelled onslaught, the big Wall Street firms were forced to buy back shares at higher prices to cover their losses, further driving up the price. 

One of the biggest casualties Melvin Capital liquidated its position in the company and confirmed to US media that it had received a bailout of US$2.75 billion from other investment funds.

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The enthusiasm for companies many analysts expect to collapse has spread elsewhere, with movie theatre chain AMC, furnishings store Bed Bath and Beyond and business software manufacturer Blackberry all seeing volatile rise in their shares.

ALERTS FROM OTHER REGULATORS

Other regulators have issued similar alerts on the stocks' whipsawing prices.

The US Securities and Exchange Commission (SEC) last Friday said its regulators were keeping an eye on the share prices of some Wall Street stocks that had been targeted by a social media driven campaign intended to make wealthy hedge funds suffer.

"The commission is closely monitoring and evaluating the extreme price volatility of certain stocks' trading prices over the past several days," the SEC said in a statement, a day after some platforms restricted trading in GameStop, AMC Entertainment and other stocks caught up in the surge.

"We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws."

Last Friday, UK's Financial Conduct Authority also warned British investors "in certain US listed shares which are being discussed online to use extreme caution".

"Volatile markets are unpredictable and mean you can quickly lose money," it added.