Yellen tries to “perceive deeply” the GameStop frenzy whereas market regulators meet with By Reuters
© Reuters. FILE PHOTO: US President-elect Joe Biden announces members of his policy team in Wilmington, Delaware
By David Lawder
WASHINGTON (Reuters) – US Treasury Secretary Janet Yellen on Thursday promised to protect investors but said financial regulators need to fully understand the recent trading frenzy GameStop Corp. (NYSE 🙂 and other retail stocks before action is taken.
The core financial markets infrastructure has proven resilient during the high volatility and volume of GameStop and other stocks traded, Yellen said after a high-level meeting with other top regulators to discuss the recent market volatility.
However, timely investigation by the Securities and Exchange Commission into the events is important, Treasury said. The SEC and the Commodities Futures Trading Commission examined whether the trading practices were compatible with investor protection and fair and efficient markets.
Yellen told ABC’s Good Morning America Thursday that it was important to ensure that “our financial markets are functioning properly and efficiently and that investors are protected.”
In her first media interview, Yellen said President Joe Biden’s $ 1.9 trillion stimulus plan was needed to alleviate the economic troubles caused by the coronavirus pandemic that left millions of Americans jobless.
“We never had anything this big, even during the Great Recession. We need to make sure that when people don’t have jobs, that they are supported,” Yellen said, referring to the 2007-2009 economic contraction EU United States.
She said Biden still wanted Congress to pass the plan bipartisanly and was “trying to work with Republicans”.
UNDERSTAND WHAT HAPPENED
Yellen convened the heads of the SEC, the CFTC, the Federal Reserve Board and the Federal Reserve Bank of New York to discuss retailing and “whether recent events warrant further action,” she told ABC. “We have to understand exactly what happened before we act, but we definitely look closely at these events.”
It did not specify what potential action regulators could take to respond to the situation.
Many on Wall Street have been aware of the sharp swings in stocks of video game retailer GameStop, headphone maker Koss Corp, cinema chain AMC Entertainment (NYSE :), and other stocks and merchandise on Wall Street’s Reddit social media last week -Site preferred, baffled betting forum.
Traders had bid stocks skyrocketing to penalize shortsellers who profit when stocks fall and forced some hedge funds to close their positions at heavy losses. But the so-called “Reddit Rally” later collapsed and exposed many individual dealers to enormous losses themselves.
GameStop stock closed Thursday down 42% at $ 53.50, far from its high of $ 483 a week ago. AMC Entertainment has lost about two thirds of its value after two weeks of wild fluctuations.
Regulators likely discussed the online forums last week discussing the bulk buying of these two companies’ stocks and the growing role hedge funds are playing in the financial markets.
“Any kind of market distortion by investors willing to cause the distortion is contrary to the smooth and transparent functioning of the markets,” said Andrea Cicione, Head of Strategy at TS Lombard, adding that such activity has been previously approved by regulators have not been checked.
According to Bloomberg News, the SEC is reviewing social media posts for signs of potential fraud.
Prior to calling the meeting, Yellen asked the Treasury Department’s lawyers for permission to do so and ensure she was abiding by her ethics agreement. Reuters reported https://www.reuters.com/article/us-retail-trading-treasury-yellen-analys/analysis-gamestop-saga-may-provide-early-test-of-biden-administration-ethics-pledges- idUSKBN2A125E on Monday that such an ethics waiver may be required due to the over $ 700,000 in speaking fees. Yellen was paid by Citadel LLC, a hedge fund that was at the center of the GameStop trading saga.
Citadel, whose trading line benefits from doing business with the Robinhood app for commission-free trading, favored by many private investors, had Melvin Capital, a hedge fund that suffered significant losses in the GameStop short squeeze, a lifeline of 2, $ 75 billion made available.