Treasury Secretary Janet Yellen convened a meeting on Thursday with the nation’s top regulators, which continues to check whether recent popular volatility, so-called memes and brokers’ responses to it, “are consistent with investor protection and fair markets.” and effective, ”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 financial markets and the practices of both investors and brokers in recent weeks.
“Regulators believe that core infrastructure has been resilient during high volatility and high trading volume and agree with the importance of the ESA launching a timely study of events,” the statement said. “Secretary Yellen considers it imperative to maintain the integrity of these markets and ensure investor protection.”
The meeting follows a social media campaign carried out for months by retail investors to increase the value of sharply shortened shares, such as GameStop Inc. GME,
and AMC Entertainment Holdings Inc. I HAVE C,
and the recent decision by commission-free online brokers such as Robinhood to restrict the purchase of shares and options in those firms.
read more: Trials see conspiracy in Robinhood’s GameStop moves, but experts doubt narrative
Regulators appear to approach the case from several angles, including enforcing control over decisions made by Robinhood and other brokers to restrict trading, as well as the potential for coordinated market manipulation by evangelicals on social media.
One approach that the ESA and the financial industry regulator may take would be to restrict the practice of order flow payment, whereby stockbrokers are paid to direct clients’ business orders to market factors, creating possible conflicts of interest. interest.
Regulators are also interested in how the dynamics of free online margin trading, together with a social media ecosystem that has favored wild fluctuations in individual stock prices, could interfere with the discovery of financial market prices.
“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 those markets,” Patrick Corrigan, a professor, said in an email. at the Notre Dame law school specializing in securities regulation. .
“Regulators will consider whether margin trading, short selling, the ‘game-like’ characteristics of certain broker-dealer applications, coordinated handling or other factors may interfere with the price discovery process in the stock markets,” he added. .
Some analysts warn that, despite the Robinhood-GameStop saga that has engulfed Washington in recent days, the scenario is most likely that regulators are making small reforms, while significant legislation fails to pass.
“We expect the agency to eventually explore and approve tougher requirements for disclosing brokerage information to clients, including clarifying that companies can stop trading shares,” Ian Katz of Capital Alpha Partners wrote in a note to customers earlier this week.
“Congress will talk a lot about the frenzy of trading, giving hedge funds a verbal beating,” he added. “MPs will introduce bills, but we are skeptical that anything significant will become law – unless extreme volatility intensifies and extends to more stocks.”