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Nasdaq CEO Friedman says the exchange will halt trading in a stock if
they link unusual activity to social media chatter

Emily Graffeo
Jan. 27, 2021, 06:24 PM







Adena Friedman

Jim Spellman/Getty Images

  * Nasdaq CEO Adena Friedman told CNBC the exchange tracks social
    media chatter. 
  * She said the Nasdaq will halt trading if they link chatter to
    unusual activity in a particular stock.
  * Friedman said it's unclear whether recent Reddit activity would
    be considered illegal by the SEC. 
  * Sign up here our daily newsletter, 10 Things Before the Opening
    Bell.

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Nasdaq CEO Adena Friedman told CNBC Wednesday that the exchange
monitors social media chatter, and will halt trading if they match
the chatter with unusual activity in a stock. 

Her comments come as a flurry of activity on Reddit has sparked
earth-shattering price rises in stocks like GameStop, AMC, and Nokia,
with no fundamental moves behind the stock movements. 

Those stocks are listed on the New York Stock Exchange, not the
Nasdaq, though Friedman's CNBC appearance brings into question what a
market exchange's role is in regulating extreme stock activity. 

Friedman said the Nasdaq's role as a "self-regulatory organization"
is to make sure activity in the market is "legitimate" and to root
out manipulation in the market. She did not detail what kind of
technology the Nasdaq uses to "evaluate social media chatter," but
she said if the Nasdaq can match unusual trading with social media
activity, the exchange will halt the stock and potentially engage
with the SEC to evaluate and investigate. 

Read more: MORGAN STANLEY: Buy these 9 sports-betting stocks ahead of
the industry's expected legalization in 12 states this year and its
growth to $10 billion in 2025

One illegal market manipulation activity that the SEC goes after is a
"pump-and-dump" scheme. 

An investor buys a stock, and then publicly "pumps" it, by spreading
a rumor or another catalyst for the stock go up. Other people see the
rumors and buy the stock, causing the price to rise. The person who
originated the rumor sells the stock to them at a higher price in a
"dump," and takes the profits. 

Friedman said the Nasdaq collaborates with the FINRA and SEC to
identify and investigate pump and dump schemes, but she said it's
unclear whether the current Reddit activity qualifies as a pump and
dump scheme.

"Regulators kind of have to catch up with the technology that's now
available," Friedman said. 

Read more: 'We're very surprised we didn't underperform in the 4th
quarter': Cathie Wood and her analysts break down their
stock-selection process and the top 10 picks that contributed to the
outperformance of ARK ETFs in Q4 2020

Read the original article on Business Insider
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