Newbie retail share-traders collectively lost more than A$6 million per month during the recent hyped-up ASX micro-cap stock craze, a new analysis by the Australian Securities and Investments Commission (ASIC) has found.
The ASIC ‘Pump and dump of micro-cap securities’ study released last week reveals a pattern of “unusual price movements” and social media-influenced trading behaviour from January 2019 to the middle of 2021 that left the majority of investors out-of-pocket.
Retail trading accounts dabbling in smaller and micro-cap ASX stocks more than tripled over the two-and-a-half-year period under review: retail trader interest in larger stocks (with a market cap of A$20 million or more) doubled over the same timeframe.
“Momentum ignition [aggressive day-trading by a small group of individuals], coupled with high volatility, may have led to losses of $6.3 million per month for retail investors over the review period,” the ASIC report says. “We also found that 81% of accounts that participated in organised social media pumps realised a financial loss or zero benefit.”
ASIC found pump-and-dump events in small-time illiquid stocks ramped up in particular post the March 2020 COVID-19 crash, peaking at about six per day early the following year.
“Greater volatility led to a much wider range of financial outcomes. In potentially pumped markets, 16% of all retail investors exiting intraday risk received a financial outcome that was $800 less than the equivalent end-of-day outcome,” the report says. “Across all other trading days the comparable rate was only 5%.”
The study also provides some evidence to back-up anecdotal concerns about social media-based market manipulation.
“Social media commentary of micro-cap securities did not show a balanced or temperate view of investment risks being offered,” the ASIC report says. “Rather, online commentary was overwhelmingly positive and tended to express strong support for the securities discussed.”
However, the surge in suspicious trading activity also pushed the regulator to increase monitoring and enforcement activity across both platforms and social media forums.
Following regulatory moves, some share platforms paused trading while others shut down suspicious accounts. ASIC says it has also butted-in with warnings on social media platforms, clamped-down on unlicensed ‘finfluencers’ and launched legal proceedings “against perpetrators”.
Danielle Press, ASIC commissioner, said in a release: “We quickly intervened, disrupted the misconduct and are taking action to hold these individuals to account.”