US calls top regulator meeting on GameStop share volatility
Yellen's move comes as concerns grow over market activity driven by Reddit discussions
Sign up now: Get ST's newsletters delivered to your inbox
Stocks of video-game retailer GameStop fell 60 per cent on Tuesday, closing below US$100 for the first time in a week. Several other Reddit favourites - including AMC Entertainment and clothing retailer Express - also tumbled. The saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts say.
PHOTO: NYTIMES
Follow topic:
WASHINGTON • US Treasury Secretary Janet Yellen is calling a meeting of top financial regulators this week to discuss market volatility driven by retail trading in shares of GameStop, silver and other stocks favoured on social media.
Ms Yellen will convene the heads of the Securities and Exchange Commission (SEC), the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, the Treasury said on Tuesday.
A Treasury official said the meeting would be held this week, possibly as early as today.
"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," Treasury spokesman Alexandra LaManna said in a statement to Reuters.
Ms Yellen's action comes after days of gyrations in the shares of video-game retailer GameStop, headphone maker Koss, cinema chain AMC Entertainment and other stocks and commodities favoured on the Reddit social media site's Wall Street Bets forum.
The SEC last week warned that "extreme stock price volatility has the potential to expose investors to rapid and severe losses, and undermine market confidence".
The Treasury official said that Ms Yellen was looking for an update from the top US financial regulators. The meeting signals heightened concern about the volatility just a week after she was sworn in as the first female US Treasury Secretary.
Retail traders last week bid up the shares to force short-sellers, who profit if a stock falls, to close their positions at massive losses, sending GameStop to a dizzying high of US$483.
But GameStop's rally came to a screeching halt this week as the shares had their biggest one-day loss on record, erasing more than US$27 billion (S$36 billion) in market value from their high.
The stock fell 60 per cent on Tuesday, closing below US$100 for the first time in a week. Several other Reddit favourites - including AMC Entertainment and clothing retailer Express - also tumbled.
GameStop has now given up more than 80 per cent of the sharp gains that were fuelled by last month's attack on short-sellers. Even with the latest pullback, however, the video game retailer is still up 377 per cent year to date.
AMC trimmed losses to 41 per cent and at US$7.84 is more than 50 per cent lower than last week's intraday high.
Tuesday's drop came despite a loosening of restrictions on the amount of shares investors can buy using Robinhood Markets. On Monday afternoon, the popular trading app started allowing users to purchase up to 20 shares of GameStop, up from a cap of one before the market opened.
The lower number of shares sold short could also deal a blow to day traders' thesis that a higher stock price would only result in more gains as hedge funds who bet against GameStop would need to cover their shorts.
Tuesday's capitulation spread to cult-like figures, including Barstool Sports founder Dave Portnoy, who has taken to social media to promote his trades since the onset of the Covid-19 pandemic. Mr Portnoy tweeted that he had "officially sold all my meme stocks. I lost 700k ish".
Short-sellers have reduced their interest, having sustained multibillion-dollar losses with just over one million shares covered on Monday, S3 Partners data shows. The short interest in GameStop tumbled to 51 per cent of its free float, according to data from the financial analytics firm.
The saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts say.
One of these is hedge fund Citadel, which extended hedge fund Melvin Capital a US$2.75 billion lifeline last week after the latter firm suffered massive losses in short positions.
Ms Yellen earned more than US$700,000 in speaking fees from Citadel as recently as last autumn. In an ethics agreement, she pledged not to involve herself in specific matters involving the firm - as well as major banks including Citigroup, Barclays and Goldman Sachs - without first seeking authorisation.
REUTERS, BLOOMBERG
