Treasury Secretary Janet Yellen convened a meeting on Thursday with the country’s top regulators, who continue to investigate whether the recent volatility in popular, so-called meme stocks and brokerage responses to it, is “consistent with investor protection and fair and efficient markets, ”according to a statement from the Treasury Department.
Yellen had 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 over the past few weeks to discuss the workings of the financial markets and the practices of both investors and brokers. to discuss.
“The regulators believe the core infrastructure was resilient during high volatility and volume of trade, and agree that it is important for the SEC to publish a timely study of the 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 private investors to explore the value of highly short-short stocks such as GameStop Inc. GME.
and AMC Entertainment Holdings Inc. AMC,
and the recent decision by commission-free online brokers such as Robinhood to limit the buying of stocks and options in those companies.
read more: Lawsuits see conspiracy in Robinhood’s GameStop moves, but experts question the story
Regulators appear to be approaching the matter from a number of angles, including applying scrutiny to decisions made by Robinhood and other brokers to restrict trading, as well as the potential of coordinated market manipulation by evangelists on social media.
One approach that the SEC and the Financial Industry Regulatory Authority can take is to limit the payment practice for order flows, which involves paying brokers to forward orders to trade from clients to market makers, which can create conflicts of interest.
Regulators are also likely interested in how the dynamics of free online margin trading, along with a social media ecosystem that has fueled wild swings in the prices of individual securities, could disrupt price-setting in financial markets.
“Perhaps a concern among top regulators is that markets for certain stocks are currently not effectively detecting prices and that individuals in these markets are trading on credit,” said Patrick Corrigan, a professor at Notre Dame Law School who specializes in securities regulation. , in an email. .
“Regulators will analyze whether margin trading, short selling, ‘game-like’ features of certain broker-dealer apps, coordinated manipulation or other factors can disrupt the process of price formation in stock markets,” he added.
Some analysts warn that, despite the Robinhood-GameStop saga that has gripped Washington in recent days, the most likely scenario is that regulators will make minor reforms while major legislation is not passed.
“We expect the agency to investigate and eventually approve more stringent brokerage disclosure requirements to clients, including making it clearer that companies can stop trading stocks,” Ian Katz of Capital Alpha Partners wrote in a note to clients earlier this week.
“Congress will be talking a lot about the trading frenzy, which will give hedge funds a verbal thrashing,” he added. “Lawmakers will enact bills, but we are skeptical that anything important will become law unless extreme volatility increases and spreads to more stocks.”