Lessons Learned From Broker Involved In GameStop Short Squeeze
The widely publicized GameStop short squeeze incident continues to have a ripple effect throughout the market. In the broader sense, the whole event has become a David and Goliath-style parable. A group of everyday retail investors on Reddit and YouTube taking down powerful institutional investors. But there’s more to the story. When examined more closely, this may have deeper implications for regulated financial organizations.
It’s not a stretch to consider that a financial shakeup like what happened with GameStop could involve financial services employees. In fact, one of the central figures in the incident was a social media influencer with the handle Roaring Kitty, who happened to be a registered financial broker. Roaring Kitty, whose real name is Keith Gill, is no longer a licensed broker after his firm, MML Investors Services LLC filed a termination request due to an ongoing internal review of outside business activities (OBA).
The trading frenzy quickly prompted a regulatory response, elevating the importance of supervision. FINRA’s Risk and Exam Priorities report highlighted the responsibility for firms to monitor employees for outside business activities (OBA) to adhere to FINRA Rule 3210.
The perfect storm for outside business activities
The pandemic may have paved the way for this to happen as financial firms have less visibility into the actions of their employees. Individuals are working from home, where the line between personal and business time has been obliterated, and where the latest chat application, message board or encrypted mobile application is just a simple download away.
In this case, the involved party was a registered broker, but it could just as easily have been an executive team member or someone in the back office. And beyond overt market misconduct, this could have been any form of employee misbehavior, including the violation of another regulatory requirement or a security issue like intellectual property loss.
Remote working has been critical to business continuity and its success has prompted many companies to prioritize it operationally into the future. How can you put adequate oversight procedures and technology in place to monitor communications and proactively avoid employee misconduct?
How to protect your firm from OBA risk
In this video, Robert Cruz explains the many dimensions to the GameStop issue and the implications for regulated organizations of having an employee involved in outside business activities or other misconduct. He discusses:
- The factors that led to the market manipulation
- What could have been done sooner to avoid issues for the firm
- How to strengthen supervisory mechanisms to inspect for OBA and other misconduct
The GameStop market maelstrom is just one example of what can happen when registered employees are not properly supervised. Financial organizations must have a plan to mitigate similar regulatory risks to avoid financial penalties, legal trouble or brand-damaging headlines.
Share this post!
Smarsh
Scalable for organizations of all sizes, the Smarsh platform provides customers with compliance built on confidence. It enables them to strategically future-proof as new communication channels are adopted, and to realize more insight and value from the data in their archive. Customers strengthen their compliance and e-discovery initiatives and benefit from the productive use of email, social media, mobile/text messaging, instant messaging and collaboration, web, and voice channels.
Smarsh serves a global client base that spans the top banks in North America and Europe, along with leading brokerage firms, insurers, and registered investment advisors. Smarsh also enables state and local government agencies to meet their public records and e-discovery requirements. For more information, visit www.smarsh.com.
Latest posts by Smarsh (see all)
- Strategic Partnerships Highlighted at SmarshCONNECT 2024 - April 15, 2024
- What Are Financial Firms Saying About 2023’s Regulatory Squeeze? - January 10, 2024
- Form ADV Amendments: Frequently Asked Questions (FAQ) for RIAs - December 6, 2023
Smarsh Blog
Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. Sign up to benefit from their deep understanding, tips and best practices regarding how your company can manage compliance risk while unlocking the business value of your communications data.
Watch it Work
Contact Us
Chat
Subscribe to the Smarsh Blog Digest
Subscribe to receive a monthly digest of articles exploring regulatory updates, news, trends and best practices in electronic communications capture and archiving.
Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing privacy@smarsh.com.
FOLLOW US