Gensler’s plan would require trading companies to compete directly to execute trades from retail investors, thus increasing competition. 

The SEC plans to scrutinise the controversial payment for order flow practice which sees some brokers paid by wholesale market makers for orders. 

Gensler said the new rules would push market makers to disclose more data on how much these companies receive in fees as well as the timing of trades in favour of investors. 

“I asked staff to take a holistic, cross-market view of how we could update our rules and drive greater efficiencies in our equity markets, particularly for retail investors,” Gensler told an industry audience on Wednesday.

The announcement by the SEC is one of the largest shake-ups of US equity market rules in recent times. It will probably lead to formal proposals in the Autumn, with the public given the opportunity to consider them before a vote by the SEC takes place.

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Back in September, Reuters reported that Reddit, which was founded in 2005 by Steve Huffman and Alexis Ohanian, was hoping to reach a valuation exceeding $15 billion by the time it planned to list its shares. 

The San Francisco-based company’s message boards have been at the heart of a pitched battle between small-time traders and large Wall Street firms that carried forward big gains in highly-shorted shares of companies such as GameStop and helped to grow the popularity of the term “meme stocks”. 

At the peak of the craze in February, Reddit’s value doubled to $6 billion from the previous year and, in August, was valued at $10 billion in a private fundraising round. 

In October 2020, Reddit had approximately 52 million daily active users and over 100,000 communities. In the second quarter of this year, the company reported $100 million in advertising revenue, almost a threefold jump from the same period in 2020.

Maxim Manturov, Head of Investment Research at Freedom Finance Europe, explains what retail investors should know as the “meme stock” movement continues to thrive. 

The key to success is to understand the motivations behind emotional investing and to avoid both euphoric and depressive investment traps that can lead to bad decisions. The investor psyche can overpower rational thinking during times of stress, whether the stress is caused by hype or panic. To capitalise on market euphoria or frightening events, it is critical to take a rational, realistic, and strategic approach to investing.

With this topic in mind, below I explore the rise of the “meme stocks” movement, and whether investors should look to capitalise on this growing trend or steer clear of impulse buys. 

What is the "meme stocks” movement?

“Meme stocks” are stocks of companies that have recently seen a sudden surge in trading activity, usually supported by online social media platforms such as Reddit and Twitter. The hype surrounding a particular stock encourages retail traders to invest, knowing that its share price will likely rise and do so quickly. In addition, the “meme stocks” exchange community often favours stocks with high, short-term gains. By forcing everyone who sold the stock to cover their short position, this leads to further stock growth overall.

The term “meme stock” originated on the Reddit online discussion forum, where a sub-Reddit known as WallStreetBets became heavily popular. Towards the end of January, the users of WallStreetBets criticised large financial institutions and hedge funds for constantly 'shorting' the shares of distressed companies such as GameStop and AMC Entertainment. This led to retail traders buying large quantities of shares in these companies, taking advantage of the ‘buy and hold' approach.

Following this surge, news of the short squeeze spread across various social media platforms, attracting a lot of attention from investors across the globe, even to the point where the phenomenon came to the attention of the SEC. This resulted in certain hedge funds and brokers who worked with them making some pretty hefty losses.

Should investors look to participate in this growing trend? Or is it important that they do not get sucked in by impulse buys?

It is important to remember that “meme stocks” are nothing more than speculation. Essentially, it is not worth allocating large sums to these trades, given the stock's volatile behaviour or unsubstantiated valuations backed only by information noise. In the long term, the company fundamentals will matter a lot, and after a short squeeze rally, the prices can easily go down as fast as they went up, so it is worth acting with caution and being aware of all the risks.

Has the "meme stocks" movement impacted the global stock market as a whole?

The movement of “meme stocks” has more to do with factors brought about by the pandemic. Historically low interest rates and incentives, as well as high levels of liquidity in the markets, combined with increased leisure time and self-isolation, provoked many people to enter the stock market for the first time. In addition, the increasing availability of zero commission accounts and trading apps for millennials contributed immensely to the growing trend. 

Over one million new online brokerage accounts were opened in Q1 2020 alone, with equity trading becoming one of the most popular applications for Covid's incentive cheques in the US. Yet, the retail investment boom is not unique to the US. Almost all major stock markets have seen similar trends, with local trading applications becoming more widespread. 

What does the future hold for meme stocks? Will the movement last?

The future of the “meme stocks” movement will depend on the fundamental reasons for its emergence in the first place, including liquidity levels in the markets, interest rates, and monetary policy. Without these components, the rise of “meme stocks” might have never happened in the first place. As such, while it is likely that this theme will continue to exist, it will not move at such an incredible scale as in January with Gamestop and AMC stocks.

What are the top five “meme stocks” to watch out for in 2021?

While it is clear that investors should avoid impulse buys, with the right level of research and precaution “meme stocks” can result in profits for more experienced buyers. So, what are the top “meme stocks” that investors should watch in 2021?

1. Through its subsidiaries, Alibaba Group Holding Limited (BABA) provides technology infrastructure and marketing opportunities for merchants, brands, retailers, and other businesses to engage with users and customers. It operates in four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives. It is sitting at about 72% upside to the average target price of $246.

2. ContextLogic Inc. (WISH) operates as a mobile e-commerce company in Europe, North America, South America, and other areas across the globe. The company operates Wish, a platform that connects users with merchants. It also provides marketplace and logistics services to sellers. The company was incorporated in 2010, at about 92% upside to its average target price of $9.2.

3. Palantir (PLTR) is a software developer that specialises in big-data analytics. The company recently announced that the US Army's Intelligence Systems and Analytics Program Manager has selected PLTR to provide the data framework and analytical foundation for the Capability Drop 2 (CD-2) program. As a result, the software firm has been selected to advance the next phase of the Army's $823 million indefinite-delivery contract, with an approximate 23% upside to the maximum target price of $31.

4. PubMatic (PUBM) provides a cloud infrastructure platform for digital advertising that enables real-time advertising transactions. The company was founded in 2006 and today operates 14 offices and eight data centres around the world, at about 97% upside to its average target price of $46.

5. NIO Inc. (NIO) designs, develops, manufactures and sells intelligent electric vehicles in China. The company offers five, six, and seven-seat electric SUVs, as well as smart electric sedans. It also provides energy carriers and service packages to its users; marketing, design and technology development activities; production of electronic powertrains, batteries and components; and sales management and after-sales service activities, at about 88% upside to the average target price of $63.8.

GameStop jumped by as much as 36.5% to $225 apiece in heavy trading volume. According to FactSet, over 14 million shares changed hands, a figure that is seven times more than its 30-day average. 

Shares of AMC Entertainment were also up. The US cinema chain saw a 20.3% increase and, according to the broker’s website, was the most active stock on Fidelity’s trading platform as of 2:30pm ET. Domestic merchandise retailer Bed Bath & Beyond rose by 4%, whilst Clover Health jumped almost 10%. Robinhood advanced 9% without any apparent news.

However, with most investors awaiting Thursday and Friday’s key Federal Reserve summit, the rest of the stock market appeared subdued. The S&P 500 closed Tuesday’s session 0.2% higher. 

According to FactSet, overall volume was light on Tuesday with the SPDR S&P ETF trading 30 million shares. 

Bitcoin and Ethereum fell during Tuesday trading, extending a price decline that began last week, while joke cryptocurrency Dogecoin rallied further after a record surge.

Bitcoin was down 4.6% by 9.20 AM in London, while Ethereum was down around 5.3%. The world’s two most highly valued cryptocurrencies were trading at $54,763.19 and $2,134.70 respectively.

Meanwhile, Dogecoin was up 18% at $0.4075, a jump that coincided with social media attention on 20 April. Supporters of the cryptocurrency are celebrating the date – which is also International Weed Day – as “DogeDay” and are urging fans to buy up the token in a bid to raise its price to $1.

The price of Dogecoin has risen by more than 400% in the past week and by more than 5,000% since the beginning of the year, a rally that has given it the fifth-highest market cap among cryptocurrencies. The total value of its tokens in circulation is now over $52 billion.

Dogecoin has also benefited greatly from the light-hearted support of social media celebrities such as Elon Musk and Snoop Dogg, whose joking references to the token on Twitter preceded an 800% price jump in January.

"Dogecoin has become the new GameStop, with frenzied trading potentially going to deliver a bloody nose to novice investors,” said Nigel Green, CEO of deVere Group.

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Green also suggested that the Dogecoin push is being pitched as a battle of a community-backed cryptocurrency versus existing crypto giants like Bitcoin, echoing the GameStop trading frenzy that took on a narrative of underdog retail investors versus established Wall Street insiders.

Morgan Stanley on Friday disclosed a loss of almost $1 billion from the collapse of private fund Archegos Capital Management, undercutting an otherwise upbeat 150% jump in first-quarter profit.

The Wall Street giant was one of six banks that had exposure to Archegos, a family office fund run by controversial former hedge fund manager Bill Hwang. Last month, Archegos defaulted on margin calls and triggered a stock fire sale.

In a call with analysts, Morgan Stanley CEO James Gorman said the bank initially lost $644 million on stocks it held related to Archegos’ positions, which it sold. It then decided to “derisk” its remaining positions, triggering the loss of a further $267 million.

"I regard that decision as necessary and money well spent," Gorman said.

Other firms hit by the collapse of Archegos include Credit Suisse, which estimated its losses from the event to reach $4.7 billion, and Nomura, which flagged a loss of $2 billion. The fund’s implosion is now being probed by a number of US watchdogs, as well as the Senate Banking Committee.

Shares in Morgan Stanley were down more than 1% in premarket trading after news of its losses broke. However, the bank’s overall results easily beat expectations, spurred on by a spike in trading volumes partly led by the Reddit-driven “meme stock” frenzy around companies such as GameStop and AMC Entertainment.

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Morgan Stanley reported a net revenue jump of 61% to $15.72 billion. Net revenue applicable to shareholders rose to $3.98 billion, or $2.19 per share, as of 31 March.