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UPDATE 1-French watchdog says EU monitoring market risk from social media

(Adds more detail)

LONDON, Feb 3 (Reuters) - Regulators are monitoring how a surge in retail investors and online brokers during the COVID-19 pandemic risks creating bubbles inflated by social media, France’s AMF markets watchdog said on Wednesday.

Robert Ophele, chair of AMF, said the trading frenzy, fuelled by posts on the Reddit forum and surge in bitcoin prices, has shown how technology and social media can combine to bring irrationality to financial markets.

In a far-reaching evolution, online brokers and chat sites offer new and younger retail investors cheap access to markets, Ophele said.

“Empowering customers with this almost direct access to markets is very welcome but raises many questions,” Ophele told an Afore Consulting webinar.

“It opens new ways to distribute very risky and leveraged products without the proper safeguards, a new way to manipulate markets using the social media dimension of many platforms.”

Few examples of U.S. style online brokers and chat sites have emerged so far in continental Europe, but what happens in U.S. markets comes to Europe eventually, said Ophele, who is also a board member of ESMA, the European Union’s securities watchdog.

He also said EU market abuse rules were “fit for purpose” to cover recommendations and opinions on stocks, but the EU needed to prevent social media leading to market manipulation.

“It’s important to have a close look at it... but it’s a case by case basis. It’s difficult to have a clear view in general, but it’s definitely something we are looking at,” he said.

U.S. Treasury Secretary Janet Yellen has called a meeting of top regulators that could result in tougher rules after mass buying by amateur traders over the last two weeks.

The buying drove price gyrations in companies that U.S. fund managers had bet against, including videogame retailer GameStop and cinema operator AMC Entertainment . (Reporting by Huw Jones; Editing by Elaine Hardcastle and Barbara Lewis)

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