An epic battle takes place on Wall Street as a number of characters argue over the fate of GameStop, a struggling chain of video game retail stores. The conflict has put GameStop on an upset stomach, with amateur investors taking over the financial institution in the mindset of the Occupy Wall Street movement that started a decade ago.

Olivier Douliery | AFP | Getty Images

LONDON – European regulators have warned retail investors to “purely” participate in financial markets based on information they gather from social media.

The GameStop phenomenon, observed in the US earlier this year, brought the impact of coordinated retail investment to the fore as many people used the social media platform Reddit to discuss their intentions on the American game and console seller to bet, and its stock price led to movement. Retail investors used commission-free trading platforms like Robinhood to get involved.

The main problem for regulators is that some of these investors did not fully understand the details of the transactions.

“What we have done as the Securities and Markets Authority is to make investors aware of the risks of investing based purely on information from social media, for example,” Steven Maijoor, chairman of the European Securities and Markets Authority, told Squawk Box from CNBC Europe.

“And you may wonder if investing is the right thing to do if you want to save for the future when you are investing much of your portfolio in just one stock,” he added.

Many retail investors have invested a large portion of their savings in GameStop and some have made good returns. However, others also lost money when stocks fell, and in some cases wondered how they would pay their next rent.

You should not provide misleading information about prices, supply and demand.

Steven Maijoor

Chair of ESMA

This has led market regulators to warn non-professional investors that they may be manipulating the market, which is illegal.

“In addition, we have made investors aware of the risk of being cautious about participating in these social media conversations and being required to be aware of certain requirements related to market abuse and how to avoid market abuse in financial markets, such as avoiding misleading ones Provide information on prices, supply and demand, “said Maijoor.

In a parliamentary hearing last month, Maijoor stated that “coordinated strategies to buy and sell under certain conditions and at a certain point in time with the aim of increasing the share price could constitute market manipulation”. The GameStop saga arguably contained elements of a coordinated effort to prop up the video game seller’s stock price.

The regulator said it is following developments in the retail investment space and will review the business models of the trading platforms used by retail investors.

Although European stocks have not experienced a similar situation, more Europeans are investing in retail, a sharp decrease from previous investment behavior in the region.

For example, recent data showed that the number of Germans who own shares directly or through funds rose by 2.7 million to 12.4 million in 2020. The figures from Deutsches Aktieninstitut, which represents German listed companies, were reported by the Financial Times. also showed that the largest increase among market participants was in the under 30 age group.

“We are generally positive about greater retail participation in capital markets in Europe,” said Maijoor.

“We have had much greater household reluctance on the European side to participate in the capital markets. It is important that they do so (participate in the financial markets) so that they can better save on education, housing, retirement and money that is clearly positive, “he added.