After the frenzy of trading in various meme stocks in January, regulators face a growing list of questions over the potential use of Social Media to influence stock prices. In early February, Treasury Secretary Janey Yellen met with the Federal Reserve, The Commodity Futures Trading Commission (CFTC), and the Securities and Exchange Commission (SEC) to discuss the trend and any potential wrong doing.

What this means

Regulators posed questions as to whether the social media encouraged retail trading activities involved anything illegal that may interfere with the functioning of a fair and efficient market. The SEC is now examining social media and message boards for any evidence of such behaviour. “The SEC has promised to produce a report that will give us a better factual understanding of exactly what happened. And I think we shouldn’t be drawing policy conclusions until we understand what happened.” Yellen confirmed.

Beyond punishing any potential wrongdoing, the regulators are considering a wide array of issues raised by the emergence of retail traders as a market force. These may include investigating the process by which online brokers sell customer orders to large Wall Street firms.

Conclusion

On February 18th, 2021, the House Financial Services Committee would meet to discuss the issue. Committee Chair Maxine Waters has requested to hear from the social media and trading platforms involved, as well as the traded companies themselves, and a number of the Hedge Funds and Wall Street professionals. She added that a legislative response is not imminent.

The Senate Banking Committee has announced that it would also have a hearing, and the as yet unscheduled confirmation hearing for Gary Gensler to head the SEC, /would focus in part on how he intends to address the issues.

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

Newsletter Author:  Michael Cheek; Mairi Bryan

Newsletter Contact Person: Michael Cheek; Jonathan Frieder

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Mairi Bryan

Mairi Bryan

Principal – Strategy & Consulting

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Michael Cheek

Michael Cheek

Managing Director – Capital Markets

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Jonathan Frieder

Jonathan Frieder

Principal Director – Strategy & Consulting

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Anastasia Barnett

Anastasia Barnett

CFO&EV Analyst

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