European Union officials said the type of commission-free share trading for retail investors offered by companies such as Robinhood would not be allowed in the EU, Reuters reported on Tuesday (Feb. 23). EU officials have been looking into such brokerage sites after recent controversies.
EU financial services senior official Ugo Bassi said the bloc’s securities law, specifically payment for order flow, would have prevented this. Payment for order flow refers to a broker rewarding an online platform for trading to it.
The issue sprouted from the way the Reddit forum “WallStreetBets” piled on and inflated the value of stock for GameStop, AMC and others, using Robinhood’s platform. The action sent the stock soaring 1,000 percent higher and also disadvantaged large hedge funds which had bet against the stocks.
“The preliminary conclusion that we came to is that the combination of these three sets of rules would prevent a payment for order flow as it was described in GameStop and Robinhood from being legal and authorised in Europe,” Bassi told the European Parliament, Reuters writes.
Holders of short positions in stocks have to report it to the EU regulators. Bassi said there could be some changes recommended, including publishing what stocks have short positions on some regular basis. He said they “could think of rules clarifying the duties of brokers or investment advisors and their firms when they participate in online chat rooms,” per Reuters.
Steven Maijoor, chairman of the European Securities and Markets Authority, which is the EU’s market watchdog, said the online communities of retail investors weren’t as strong in the EU as in the U.S. He also cautioned against going too far on penalizing short-sellers as they could be helpful — such as in the case of Wirecard, when the short-sellers wanted to help the company’s accounting fraud get to the surface.