Treasury Secretary Janet Yellen convened a meeting Thursday with the nation’s top regulators, who continue to review whether recent volatility in popular so-called meme stocks, and brokers’ responses, “are consistent with investor protection and with fair and efficient markets, ”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 operation of financial markets and practices. from both investors and brokers in recent weeks.
“Regulators believe the core infrastructure was resilient during the high volatility and high trading volume and agree on the importance of the SEC releasing a timely study of 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 months-long social media campaign by retail investors to increase the value of very short stocks like GameStop Inc. GME,
and AMC Entertainment Holdings Inc. AMC,
and the recent decision by online brokers without commissions like Robinhood to restrict the purchase of shares and options in these companies.
Read more: Lawsuits see conspiracy in Robinhood’s GameStop moves, but experts doubt narrative
Regulators appear to be approaching the case from a variety of angles, including the application of control over Robinhood and other brokers ’decisions to restrict trade, as well as the potential for coordinated market manipulation by evangelicals in the Social Networks.
One of the approaches that could be taken by the SEC and the financial industry regulatory authority would be to reduce the practice of order flow payment, by which stockbrokers are paid to direct clients ’business orders to market makers, creating possible 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 fostered abrupt changes in individual stock prices, could interfere with the discovery of financial market prices.
“Perhaps a concern among major regulators is that certain stock markets are not discovering prices effectively and that people are trading on credit in those markets,” Patrick Corrigan, a law school professor, said in an email. of Notre Dame specializing in securities regulation. .
“Regulators will look at whether margin trading, short selling, game-like functions of certain brokerage applications, coordinated manipulation or other factors may interfere with the process of price discovery in stock markets,” he added.
Some analysts warn that while the Robinhood-GameStop saga took Washington in recent days, the most likely scenario is for regulators to make minor reforms, while no major legislation is passed.
“We expect the agency to explore and ultimately pass tougher requirements for disclosure of brokerage to clients, including clarifying that companies can stop stock trading,” Ian Katz of Capital Alpha Partners wrote in a note to customers earlier this week.
“Congress will talk a lot about the business frenzy, giving a verbal beating to hedge funds,” he added. “Legislators will introduce accounts, but we are skeptical that anything significant will become law unless extreme volatility is intensified and extended to further action.”