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Yellen seeks to 'understand deeply' GameStop frenzy as market regulators meet

EconomyFeb 04, 2021 09:00PM ET
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© Reuters. FILE PHOTO: U.S. President-elect Joe Biden announces members of his economic policy team in Wilmington, Delaware

By David Lawder

WASHINGTON (Reuters) - U.S. Treasury Secretary Janet Yellen on Thursday vowed to protect investors, but said financial market regulators needed to fully understand the recent trading frenzy involving GameStop Corp (NYSE:GME) and other retail stocks before taking any action.

The core infrastructure of financial markets had proven resilient during the high volatility and heavy trading volume around GameStop and other stocks, Yellen said after a high-level meeting with other top regulators to discuss recent market volatility.

But a timely study of the events by the Securities and Exchange Commission was important, Treasury said, adding the SEC and Commodities Futures Trading Commission were reviewing whether the trading practices were consistent with investor protection and fair and efficient markets.

Yellen told ABC's "Good Morning America" earlier Thursday it was critical to ensure "that our financial markets are functioning properly, efficiently and that investors are protected."

In her first media interview, Yellen said President Joe Biden's $1.9 trillion federal stimulus plan was needed to alleviate the economic pain caused by the coronavirus pandemic, which has left millions of Americans jobless.

"We never had anything so large even during the Great Recession. We need to make sure people have jobs, if they don't have jobs, that they're supported," Yellen said, referring to the 2007-2009 economic contraction in the United States.

She said Biden still wanted Congress to pass the plan on a bipartisan basis and "is looking to cooperate" with Republicans.

UNDERSTANDING WHAT HAPPENED

Yellen convened the heads of the SEC, CFTC, the Federal Reserve Board and the Federal Reserve Bank of New York to discuss retail trading and "whether or not the recent events warrant further action," she told ABC. "We need to understand deeply what happened before we go to action, but certainly we're looking carefully at these events."

She did not specify what potential actions could be taken by regulators to respond to the situation.

Many on Wall Street have been stunned this past week by the sharp gyrations in shares of video-game retailer GameStop, headphone maker Koss Corp, cinema chain AMC Entertainment (NYSE:AMC) and other stocks and commodities favored on the Reddit social media site's Wall Street Bets forum.

Traders had bid the shares to dizzying heights in an effort to punish shortsellers - who profit when shares fall - forcing some hedge funds to close their positions at heavy losses. But the so-called "Reddit Rally" later collapsed, exposing many individual traders to huge losses themselves.

GameStop shares closed Thursday down 42% at $53.50, far from their peak of $483 a week ago. AMC Entertainment has lost about two-thirds of its value after two weeks of wild swings.

Regulators likely discussed the online forums where mass buying of the stocks of those two companies was discussed last week, and the ever-larger role played by hedge funds in financial markets.

"Any kind of market distortion by investors agreeing to cause the distortion goes against the smooth and transparent functioning of markets," said Andrea Cicione, head of strategy at TS Lombard, adding that such activity has not been previously scrutinized by regulators.

The SEC is reviewing social media posts for signs of potential fraud, Bloomberg News reported.

Before calling the meeting, Yellen sought and received permission from Treasury ethics lawyers to do so and ensure that she was in compliance with her ethics agreement. Reuters reported https://www.reuters.com/article/us-retail-trading-treasury-yellen-analys/analysis-gamestop-saga-may-provide-early-test-of-biden-administration-ethics-pledges-idUSKBN2A125E on Monday that such an ethics waiver might be necessary because of the over $700,000 in speaking fees Yellen was paid by Citadel LLC, a hedge fund that has been at the center of the GameStop trading saga.

Citadel, whose trading arm profits from processing trades on the Robinhood commission-free trading app favored by many retail investors, had provided a $2.75 billion lifeline to Melvin Capital, a hedge fund that had suffered major losses in the GameStop short-squeeze.

Yellen seeks to 'understand deeply' GameStop frenzy as market regulators meet
 

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Comments (28)
John Raymond
John Raymond Feb 05, 2021 6:41AM ET
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if she knew her business it wud not take three weeks to call a meeting. Trump and mnuchin wud have resolved in a couple of days
Gabriel Andrew
Gabriel Andrew Feb 05, 2021 12:07AM ET
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jusy why did biden choose this old hag ,🤦
Tony Coll
Tony Coll Feb 04, 2021 9:12PM ET
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Why are all these old politicians not being affected by corona?? We need it to spread in DC.
Joel Schwartz
Joel Schwartz Feb 04, 2021 6:44PM ET
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When the whole market faces an existential crisis due to hedge fund’s overexposure and overleverage betting against meme stocks, maybe it’s time to raise intwrest rates. People are clearly gambling with money they see as “completely free” and it threatens the stability of the global financial system.
Nate Johnson
Nate Johnson Feb 04, 2021 1:25PM ET
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The only thing this former employee of the hedge fund in question is going to limit is retail investors' ability to fight back against these corrupt institutions. Might as well have appointed the hedge fund to run the treasury.
Jimmy Judd
Jimmy Judd Feb 04, 2021 12:28PM ET
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when she says investors are protected does that mean all investors or just institutional investors?
Silver Army
SilverArmy Feb 04, 2021 11:47AM ET
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I don't understand which investors should be protected, rich or poor?
Alan Goldsmith
Alan Goldsmith Feb 04, 2021 11:22AM ET
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as an individual investor I really do think they should get rid of being able to invest on margin. if you want to bet you should have skin in the game.
ben sc
ben sc Feb 04, 2021 11:22AM ET
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"we need to understand"=we need to fix the system so my employers don't get squeezed again.
Alan Goldsmith
Alan Goldsmith Feb 04, 2021 11:22AM ET
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as an individual investor I really do think they should get rid of being able to invest on margin. if you want to bet you should have skin in the game.
Din Joekhannaz
Din Joekhannaz Feb 04, 2021 10:48AM ET
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just let the free market runs, it will keep n check by itself
Sam Ancer
Sam Ancer Feb 04, 2021 10:38AM ET
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Patently false
Sam Ancer
Sam Ancer Feb 04, 2021 10:37AM ET
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No statement could be further from the truth.
Star Boi
Star Boi Feb 04, 2021 9:59AM ET
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Laughable, understand....really. Ummm, sounds like a white wash. Lets make the optics look good, take our time. Mean while the operation to put down the dissenters who challenge the established powers need to to understand, we can't have you empowered. If we allow this, it will upend our markets. Who will we have left to fleece? Nope, we cant have that. We must maintain the status quo. Mainstreet challenge Wall street. In your dreams bucko....first you'll need to get political and start a lobby group pay the right people, for long enough and we MIGHT consider it...not likely, but maybe.
zabee Gor
zabee Gor Feb 04, 2021 9:53AM ET
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We know how that will go... Janet Yellen Got $810,000 to Give Speeches at One of the Firms in the GameStop Mess https://slate.com/news-and-politics/2021/01/janet-yellen-paid-speeches-citadel-gamestop.html
Evan Ault
Evan Ault Feb 04, 2021 9:28AM ET
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warpig
Rig Rigr
Rig Rigr Feb 04, 2021 9:23AM ET
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Make short selling illegal and tax anyone who has over 10 million dollars worth of buying power for every trade. Wall Street has too much ammo from the banks that our market has completely lost price discovery, its all manipulated.
Evan Ault
Evan Ault Feb 04, 2021 9:23AM ET
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she ain't taking action on the banks... it will be on you.
Roger Miller
Roger Miller Feb 04, 2021 9:23AM ET
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Why make short selling illegal? It’s been used regularly by small traders and big, and is important in price discovery. Why taxes? Get rid of central banking.
Mike The Fonz
Mike The Fonz Feb 04, 2021 9:17AM ET
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You are our Treasurer. If you font get it already we should all be worried👍
Jim Kozloski
Jim Kozloski Feb 04, 2021 9:17AM ET
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Well said if anyone would know it would be her 🤷‍♂️
Rick Baier
Rick Baier Feb 04, 2021 9:16AM ET
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Lady due respect but I seriously want to understand something as well why are you not retired yet.
Max OA
7Max7 Feb 04, 2021 9:09AM ET
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shut down robinhood
Mike The Fonz
Mike The Fonz Feb 04, 2021 9:09AM ET
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No- fine their ****and pay the clients. Then judgement against them for a decade. We can own robinhood too
Lucas Me
Lucas Me Feb 04, 2021 9:09AM ET
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Lying..yelled at yellen!
DrFunkenstein hayson
DrFunkenstein hayson Feb 04, 2021 9:06AM ET
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In total, SLV claims to have added a mammoth 3415 tonnes of silver since last Thursday (28 January), which just happened to be lying around in the SLV sub-custodian vault of Brinks in Park Royal, London, which is the vault where the SLV weight list says the silver was added to. This 3415 tonnes is 14% of annual mine supply and 10% of all the silver the LBMA says is in London. But do you believe the custodian JP Morgan?
George Roshtein
George Roshtein Feb 04, 2021 9:05AM ET
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lying.. she knows everything.
James Pattison
James Pattison Feb 04, 2021 9:00AM ET
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Is that code for “i need another 800k in bribe speaking fees” or else i wont bail you greedy hedge funds out?
Kaido pascal
Kaido pascal Feb 04, 2021 8:58AM ET
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the only protection i need is from a corrupt hedge fund and broker robinhood.
Vincenzo Dellboy
Vincenzo Dellboy Feb 04, 2021 8:58AM ET
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Exactly, hedge funds go against protecting the investor. What do these dinosaurs not understand?
 
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