Hong Kong’s Securities and Futures Commission (SFC) has issued restriction notices against Enlighten Securities and Futu Securities International (Hong Kong), prohibiting them from dealing with or processing certain assets held in three trading accounts.
Those accounts are related to a suspected social media ramp-and-dump scam involving the manipulation of the market in the shares of two listed companies on the Stock Exchange of Hong Kong between March and October last year.
A ramp-and-dump scam is a form of stock market manipulation where fraudsters use different means to “ramp” up the share price of a listed company and then “dump” the shares at an artificially high price.
The regulator warned investors of the practice in September, urging them to be wary when offered investment tips online, particularly when strangers on social media promote small-cap or less liquid stocks.
Ramp-and-dump scams account for around 20% of the market manipulation cases currently under investigation by the Hong Kong watchdog.
“The SFC considers that the issue of the restriction notices is desirable in the interest of the investing public or in the public interest,” the regulator said, noting that its investigation is ongoing.
Social media warning
The regulator’s move just follows after it cautioned investors last week on the risks of trading highly volatile securities, including stocks listed abroad, as investment discussion forums in social media have become increasingly influential.
“The SFC has taken note of the recent extreme price volatility in some stocks and related options in overseas markets,” it said.
The warning came after the stock price of the widely talked-about GameStop plummeted last week after skyrocketing in January.
Its price, along with other speculative stocks, were driven by an army of retail traders on the WallStreetBets forum on social media website Reddit, which in turn have done huge damage on some hedge funds that have shorted those stocks.
The SFC’s warning also comes at a time when more people in Hong Kong are using trading apps.
In Futu Securities’ trading app alone, the number of registered users increased 79.9% year-over-year to 1.2 million as of the end of November, with total client assets rising 177.8% to HK$201bn (£19bn, $25.8bn, €21.2bn), according to Futu’s third-quarter financial results.
Wider approach
Like the SFC, regulators in Singapore and Malaysia have warned investors about heeding investment advice from social media platforms.
“The Monetary Authority of Singapore (MAS) and the Singapore Exchange Regulation (SGX RegCo) advise the investing public to be on heightened alert to the risks related to trading in securities incited by online discussion forums and social media chat groups,” the two watchdogs said in a joint statement.
The regulators have noted investor interest in Singapore in recent activities in the US relating to stocks such as GameStop, AMC Entertainment and Blackberry, adding that discussions in online platforms suggest the possibilities for similar speculative activities in the Lion City.
Meanwhile, the Securities Commission Malaysia (SC) and the country’s local bourse are closely monitoring the local stock market in light of the volatility in certain stocks in the US market.
“Malaysian investors are advised to be cautious of social media chatrooms that try to influence investors to buy or sell certain stocks based on speculation or rumours,” the SC and Bursa Malaysia said in a joint statement.
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