In light of the January trading activity in a number of meme stocks, the Wall Street regulators are looking in detail at the market activity to make sure that investors are protected. Treasury Secretary, Janet Yellen, has stated that regulators are examining whether new policies are needed to address the recent market volatility spurred by retail investors on certain online platforms.

What this means

The trading activity prompted by social media in January, bidding up a number of highly shorted stocks, forced a number of Wall Street’s prominent Hedge Funds to close short positions held in those stocks, and in some cases need further investment to shore up finances and meet their ability to deliver against margin calls. The increased activity and volatility has also prompted scrutiny of no-fee stock trading apps. There is little sympathy among retail investors for Wall Street elites, and there is a certain “David vs Goliath” aspect to the story. The regulators are continuing to look closely at the incident and any potential wrongdoing. The Securities and Exchange Commission (SEC) has stated that it would produce a report that could give a better factual understanding of what happened.

Conclusion

Treasury Secretary Yellen has stated that the regulators need to look in detail to understand what happened in January, but emphasized that “the core infrastructure of the markets, the plumbing, ability to trade, clearing settlement, those infrastructures performed well.” She reiterated that the need for investors to be adequately protected is key. The question to address may be whether there could be increased scrutiny of the behaviour of social media driven retail investors, or an increase in position reporting and capital requirements for Hedge Funds.

References

  1. GameStop Frenzy Leaves Behind a Mess for Wall Street Regulators https://www.washingtonpost.com/business/2021/02/03/gamestop-sec-regulation/
  2. Treasury Secretary Janet Yellen says Regulators “Need to Make Sure” Investors are Protected Following GameStop Frenzyhttps://www.businessinsider.com/yellen-regulators-investors-protected-regulations-gamestop-frenzy-2021-2
  3. How Redditors Played Hedge Funds for Billions https://theconversation.com/gamestop-how-redditors-played-hedge-funds-for-billions-and-what-might-come-next-154076

Newsletter Author:  Michael Cheek; Jonathan Frieder

Newsletter Contact Person: Michael Cheek; Jonathan Frieder

Disclaimer

This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

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Jonathan Frieder

Jonathan Frieder

Principal Director – Strategy & Consulting

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Michael Cheek

Michael Cheek

Managing Director – Capital Markets

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