MONTREAL -- In the wake of the Reddit-driven rise GameStop, Quebec's financial sector regulatory and oversight body has launched a new online guide for independent investment.
The financial world was shocked by the sudden surge in the stock price of the American video game retailer, which soared from less than $20 a share weeks ago to a high of $469.42 on Jan. 28. The rise was at least partially driven by irony-soaked online daytraders who post on the popular message board platform's WallStreetBets subreddit. The skyrocketing stock cost several hedge funds who had taken out short positions on the stock to lose billions.
Concordia University professor Moshe Lander pointed out that there is nothing to stop a similar situation from playing out on Canadian markets. In fact, it already has – a similar campaign by daytraders helped drive up the price of the Toronto Stock Exchange-traded Blackberry Ltd. from just under $9.50 a share on Jan. 13 to a high of $31.49 per share on Jan. 27. (Blackberry closed at $15.31 on Wednesday).
“There's no real reason why it should (have gone up so drastically),” said Daniel Thompson, Vice President – Portfolio Manager for Lorne Steinberg Wealth Management. “It's not like they're doing anything different from what they were doing a year ago or two years ago or five years ago.”
The difference between GameStop and Blackberry is how much damage was done on the other side of those trades. According to reports, unlike GameStop, Blackberry stock was not tied to any notable short positions.
Despite the bad repuation that short selling can often get, Lander defended the practice as “a regular part of trading, it's a necessary part of trading. It's an essential part of any financial market and helps to create efficient markets. It's common (in Canada).”
Much of GameStop's rise was driven by trades made on apps such as Robinhood (the app's maker is facing a number of lawsuits after it prohibited users from buying stock in GameStop and several other companies). Similar apps do exist in Canada, such as Questrade. However, Lander said that despite the mechanisms being in place for hedge funds to take a hit in Canada, the incentive to do so north of the border might not be as great.
“Don't forget the markets in Canada are much, much smaller and the number of available shares and potential gains are much, much smaller, too,” he said.
Still, it's not impossible that the right set of circumstances could arise where a Canadian fund, invested in Canadian markets, could be targetted by a community like WallStreetBets.
“It's a copycat sort of strategy now. It's a bunch of people who thought this would make a point and now it's creating crossover effects elsewhere. GameShop was the first one... now what's happening is people are saying 'Who else can we go after?' If they start targetting Canadian hedge funds or particular Canadian companies, of course it can have an effect. That becomes now the game redditors might be playing now, trying to spook the markets by where are they not looking and where we can we mount an attack?”
While Canada has a reputation for tighter market regulation than what's found in the United States, unlike other countries, Canada does not have a single, centralized regulatory body. Instead, each province is left to regulate their own markets. The Autorite des marche financiers, which oversees Quebec's markets issued a warning on Wednesday about the volatility and unpredictability that comes from daytrading while announcing its new online resource.
Those who kept their money in GameStop even after it hit its peak may be finding out about that volatility firsthand: the stock price closed at $92.41 on Wednesday, less than one fifth of its peak value.
