(ATF) US Treasury Secretary Janet Yellen plans to meet financial regulators to discuss market volatility driven by retail buying of shares that have been shorted by hedge funds, such as GameStop. Any proposed changes to regulation will have a global impact, including in Asia, where stocks such as Top Glove joined the Reddit buying and a silver rally first developed momentum.
Yellen will convene with heads of the Securities and Exchange Commission, the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission in a meeting that could be held as early as Thursday February 4.
Yellen decided to seek permission from ethics lawyers before calling the meeting to address potential controversy about speaking fees of over $800,000 that she was paid in the past by Citadel.
The role of Citadel Securities, the leading market maker that accounts for much of the payment for orders that sustains online brokerage Robinhood, and Citadel, the hedge fund that joined a $2.75 billion support package for short-selling fund Melvin Capital, has become controversial since last week.
Billionaire Ken Griffin shares ownership of Citadel Securities with hedge fund Citadel, though the two firms are run separately. This is a distinction that is viewed with suspicion by many retail investors, who speculate about the motives behind the periodic limits placed on GameStop trading by Robinhood.
The online trading app has repeatedly said that trading limits were not directed by its market-makers but instead were conducted so that the platform could ensure it was providing enough margin for its own clearing – and to raise fresh funding to finance its big increase in trading volumes.
Citadel Securities also said it had no role in directing policy changes by online brokers.
“Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business. Citadel Securities remains focused on continuously providing liquidity to our clients across all market conditions,” the market maker said in a statement last week.
Regulators at Yellen’s summit are likely to discuss the complex and evolving relations between different market players, including how commission-free apps like Robinhood fuel their own revenue with payment for order flows, and how hedge funds take on short positions.
'Integrity of markets important'
“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,” a Treasury official said in a statement to Reuters.
There will be other examinations of the recent market volatility, including in the US Congress, where the House of Representatives Financial Services Committee will hold a hearing on February 18.
GameStop and other stocks popular with Reddit forum investors edged back up on Wednesday after a sharp sell-off on Tuesday.
GameStop shares closed up 2.68% at around $92, after falling 60% on Tuesday, while shares of AMC rose 14.71%, a day after dropping 41%.
Silver prices also edged up slightly after a 10% fall on Tuesday that reversed a rise to an eight-year high on Monday after the metal became an alternative focus for retail traders. Some Reddit posts urged retail traders to avoid silver on fear that institutional investors were using social media platforms to manipulate prices.