Treasury Secretary Janet Yellen on Thursday convened a meeting with the country’s top regulators, who continue to investigate whether recent volatility in popular so-called meme stocks, and the reaction of brokers to it, “is consistent with investor protection and fair and efficient markets ”According to a statement from the Treasury Department.
Yellen met with the heads of the Securities and Exchange Commission, Federal Reserve Board, Federal Reserve Bank of New York and Commodity Futures Trading Commission to discuss the functioning of financial markets and practices of both investors and brokers in recent weeks.
“The regulators believe that the core infrastructure was resilient during high volatility and heavy trading volume, and agree on the importance of the SEC announcing a timely study of the events,” the statement said. “Secretary Yellen believes it is essential to maintain the integrity of these markets and ensure investor protection.”
The meeting comes after a months-long social media campaign by retail investors about the value of stocks like GameStop Inc. GME,
and AMC Entertainment Holdings Inc. AMC,
and the recent decision by commission-free online brokers such as Robinhood to restrict the purchase of shares and options in those businesses.
Read more: Lawsuits See Conspiracy in Robinhood’s GameStop Moves, but Experts Doubt the Story
Regulators seem to approach the matter from a number of angles, including the application of decisions by Robinhood and other brokers to restrict trading, as well as the potential for coordinated market manipulation of evangelists on social media.
One approach that the SEC and the Financial Industry Regulatory Authority can take is to curtail order-flowing payment practices, whereby stockbrokers are paid to direct clients’ trading orders to marketers, potentially creating conflicts of interest.
Regulators are also likely to be interested in how the dynamics of free online margin trading, coupled with a social media ecosystem that has fueled wild swings in individual bond prices, could affect the price tracking of financial markets.
“Perhaps a concern among top regulators is that markets for certain stocks are not currently discovering prices effectively, and that individuals are trading on credit in these markets,” said Patrick Corrigan, a professor at the Notre Dame Law School specializing in securities regulation. said an email. .
“Regulators will analyze whether margin trading, short selling, ‘game-like’ features of certain broker-dealer apps, coordinated manipulation or other factors could affect the price-finding process in stock markets,” he added.
Some analysts warn that despite the Robinhood GameStop saga gripping Washington in recent days, the most likely scenario is that regulators make small reforms while important legislation fails.
“We expect the agency to investigate and approve stricter requirements regarding the disclosure of brokers to clients, including to make it clearer that firms may cease trading in equities,” Ian Katz of Capital Alpha Partners said earlier this week in a statement. note written to customers.
“Congress will talk a lot about the trade madness and hit hedge funds orally,” he added. “Legislators will submit bills, but we are skeptical that anything substantial will become law unless extreme volatility increases and extends to more stocks.”