Yellen Meets With Regulators About GameStop Volatility, Pledges To Protect Investors

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Treasury Secretary Janet Yellen called a meeting with the nation’s top regulators Thursday, who continue to review whether the recent volatility in popular stocks, called memes, and broker responses, “are consistent with protection of investors and fair and efficient markets, ”According to a statement from the Treasury Department. Yellen met with the heads of the Securities and Exchange Commission, the Federal Reserve Board, the Federal Reserve Bank of New York, and the Commodity Futures Trading Commission to discuss the functioning of the financial markets and the investor and broker practices in recent weeks.

“Regulators believe that the core infrastructure was resilient during the high volatility and large trading volume, and agree on the importance of the SEC releasing a timely study of events,” the statement said. “Secretary Yellen believes it is imperative to maintain the integrity of these markets and ensure investor protection.” The meeting comes after a month-long social media campaign by retail investors to increase the value of very short stocks such as GameStop Inc. GME, -42.11% and AMC Entertainment Holdings Inc. AMC, -20.96%, and the recent decision by commission-free online brokers like Robinhood to restrict the purchase of shares and options in those firms. Read more: The lawsuits see conspiracy in Robinhood’s GameStop moves, but experts doubt that narrative regulators appear to be approaching the case from various angles, including applying scrutiny to the decisions of Robinhood and other brokers to restrict trading as well. such as the potential for a coordinated market manipulation by evangelists on social media. One approach that the SEC and the Financial Industry Regulatory Authority might take would be to restrict the practice of order flow payment, whereby brokers are paid to direct clients’ trade orders to market makers. , creating possible conflicts of interest. Regulators are likely also interested in how the dynamics of free online margin trading, coupled with a social media ecosystem that has fostered sharp swings in individual security prices, could be interfering with price discovery of financial markets. “Perhaps a concern among major regulators is that the markets for certain stocks are not discovering prices effectively, and that people are trading on credit in these markets,” said Patrick Corrigan, professor at Notre Dame Law School. specialized in securities regulation, in an email. . “Regulators will look at whether margin trading, short selling, the ‘game-like’ features of certain broker-dealer applications, coordinated manipulation or other factors may be interfering with the process of price discovery in the markets. of securities, “he added. Some analysts warn that despite the Robinhood-GameStop saga that gripped Washington in recent days, the most likely scenario is that regulators will make small reforms while major legislation does not pass. “We expect the agency to explore and eventually approve more stringent requirements on brokerage disclosures to clients, including making it clearer that companies can stop trading stocks,” Ian Katz of Capital Alpha Partners wrote in a note to clients at earlier this week. “Congress will talk a lot about the trade frenzy, giving the hedge funds a verbal beating,” he added. “Lawmakers will introduce bills, but we are skeptical that anything important will become law unless extreme volatility escalates and spreads to more stocks.”