US Treasury’s Yellen to meet regulators about GameStop volatility

Surge followed by crash in shares of certain US firms has led to calls by some for closer regulatory scrutiny of markets.

GameStop shares closed down 60 percent at $90 on Tuesday on Wall Street. They are now worth less than a fifth of their high of $483 last week [File: Christopher Dilts/Bloomberg]

United States Treasury Secretary Janet Yellen is calling a meeting of top financial regulators this week to discuss market volatility driven by retail trading in GameStop Corp and other stocks, according to media reports.

Yellen will convene the heads of the Securities and Exchange Commission (SEC), the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, a Treasury official told the Reuters news agency on Tuesday.

The Treasury official, who declined to be identified by name, said the meeting would be held this week, possibly as early as Thursday.

“Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets,” Treasury spokeswoman Alexandra LaManna said in a statement to Reuters.

GameStop rollercoaster

GameStop, a video-game retailer, was one of a handful of companies whose shares began soaring in late January, driven by an army of retail investors active on internet forums hosted by Reddit and facilitated by online broker-dealer Robinhood Markets. Some investors openly called on others to bid up the shares of certain companies in order to trigger losses for hedge funds that had bet their prices would fall.

GameStop shares went from $19.95 to a peak of $347.51 on January 27 in just 10 trading days, and with no meaningful change in the company’s profit outlook. It has since swung wildly and fell 60 percent to close at $90 on Tuesday, suggesting the frenzy may be easing.

GameStop share price [Bloomberg]
GameStop share price [Bloomberg]

Retail trading activity has also driven up silver prices in recent days.

The saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts say.

Yellen’s predecessors, including Steven Mnuchin, also organised meetings of financial agencies during times of tumult. They are not necessarily a signal that any policy moves are imminent. The SEC already said on Friday it is seeking to identify potential misconduct and will scrutinise brokerages’ decisions to halt buying that triggered a retail-investor revolt.

Ethics clearance

Yellen sought and received permission from ethics lawyers before calling the meeting, according to a document seen by Reuters, and to engage on wide-ranging issues in the financial services industry.

Yellen’s decision to seek the waiver followed a report by Reuters that, because of speaking fees she was paid by hedge fund Citadel LLC – a key player in the GameStop saga – she may need to seek an ethics waiver in order to deal with matters involving the firm.

US Treasury Secretary Janet Yellen was paid more than $700,000 in speaking fees by hedge fund Citadel LLC, according to Bloomberg [File: Leah Millis/Reuters]

Yellen received more than $700,000 in speaking fees from Citadel, the financial empire run by billionaire Ken Griffin, according to the Bloomberg news agency. Griffin runs a hedge fund and controls Citadel Securities, a giant market-making firm that executes trades for Robinhood’s customers.

Treasury ethics lawyers have given Yellen flexibility to work on any related issues that come up, with no limits on current or future markets, the Treasury official told Reuters.

In the memo granting Yellen permission to call the meeting of regulators, a Treasury ethics official, Brian Sonfield, said it would be “difficult, if not impossible” for Yellen to recuse herself from matters involving market volatility.

“You are the Secretary of the Treasury, the duties of which require you to be involved in a broad array of matters focused on these sectors,” Sonfield wrote.

“Issues relating to these sectors could arise at any time without the opportunity for consultation with the ethics office. These circumstances make it difficult, if not impossible, for you to recuse from matters relating to these sectors and also argue in favor of prior authorization.”

Source: News Agencies