Flawed Roaring Kitty meme exchanges test integrity, says ALEX BRUMMER

A lot has changed since 2020, when meme stocks gained attention, fueled by social media platforms. Raw capitalism went viral to a generation uninitiated in the ways of Wall Street.

I remember a colleague running into my office and telling me how easy it was to make instant profits and urging me to let readers in on the secret.

Reddit, the favorite platform of meme stock enthusiasts, has since been listed on Nasdaq and has received a valuation of £7.4bn.

This is about double the price that Czech sphinx Daniel Kretinsky wants to pay for Royal Mail.

Robin Hood, the broker of choice for meme stock devotees due to its “commission-free” structure, has also gone public and is worth £15 billion, which is three times more than popular British investment platform Hargreaves Lansdown.

What hasn’t changed is the ability of Roaring Kitty, the Reddit account favored by popular meme hero Keith Gill, to move markets.

After Gill posted a screenshot suggesting he had taken a £93m stake in GameStop shares plus a big bet on options, the video games retailer’s shares soared 90 per cent. It ended Monday trading up 21 percent.

All this did not happen suddenly. Market professionals may have been alert to the fact that the number of open options contracts on GameStop had rapidly increased from just 15,000 on May 19 to 145,000 at the end of May.

Number crunching by Refinitiv suggests that a buyer of 120,000 of those options would have made a profit of £43m on Monday night.

All of this may seem like a good game, since regular social networks allow citizens to enjoy the same easy rewards as hedge funds. It’s not as simple as that.

The job of financial regulators is to maintain market hygiene so that no investor or group of traders can manipulate trades at the expense of others.

Roaring Kitty’s antics have not gone unanswered. The E*Trade platform, run by Morgan Stanley, questions whether Gill and others have been boosting hopeless stocks like GameStop for their own benefit. He is considering removing trading privileges from meme stock influencers.

The Securities and Exchange Commission, which enforces the law on Wall Street, is also reported to be reviewing trading patterns before and at the time of Gill’s social media posts.

Despite Gill’s description as simply a talented amateur, he is noted to hold several stock trading licenses and a former employer, MassMutual, agreed to pay a fine in 2021 as a result of Gill’s activities.

As Americans say: “There is no such thing as a free lunch.”

bottom fishing

The idea that the London Stock Exchange is engaged in some sort of race to the bottom by listing Singapore-based fast fashion group Shein is a bit silly.

Yes, allegations of human rights abuses at Shein’s Chinese factories are cause for concern.

But there is more scope to address those charges in the City, where there is a strong tradition of environmental, social and governance (ESG) investing, than if the listing were brought to Hong Kong.

However, London’s ESG rules do not apply in all cases, as can be seen in the case of £54bn heavyweight BAT, which was reportedly diverted overseas years ago.

As tobacco sales decline, BAT has been investing heavily in vaporizers and other smoking alternatives. It’s not always easy.

BAT just cut revenue growth prospects in the huge US market due to a surge in sales of illegal disposable vaporizers. Discerning asset managers have options when it comes to Shein.

Don’t subscribe.

Green Mission

There is a fascinating battle taking place in the lower reaches of the AIM market.

Marketing firm Brave Bison, run by brothers Oli and Theo Green, sons of former media mogul Michael Green, is looking to buy competitor Mission Group, which refuses to open its books and allow due diligence.

The resistance is a bit of a mystery given that the target company has a share value of £25m but has debts on its books estimated at £27m.

It doesn’t seem like a recipe for long-term survival.