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

WASHINGTON: US Treasury Secretary Janet Yellen said on Thursday that she and financial market regulators needed to "understand deeply" what happened in the recent trading frenzy involving GameStop Corp and other retail stocks before taking any action.

Yellen, who is convening a meeting of top market regulators on Thursday, told ABC's Good Morning America: "We really need to make sure that our financial markets are functioning properly, efficiently and that investors are protected."

In her first media interview since she became the first female US Treasury secretary last week, Yellen also argued that a massive federal stimulus plan was needed to overcome 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 added that President Joe Biden still wanted Congress to pass his $1.9 trillion stimulus plan on a bipartisan basis and "is looking to cooperate" with Republicans.

UNDERSTANDING WHAT HAPPENED

To analyze the GameStop-focused trading volatility, Yellen is convening a meeting with the heads of the Securities and Exchange Commission, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission later on Thursday to discuss retail trading.

She told ABC that the regulators would "discuss whether or not the recent events warrant further action," and added: "we need to understand deeply what happened before we go to action, but certainly we're looking carefully at these events."

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

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

Retail traders had bid the shares up to dizzying heights in an effort to punish short sellers - who profit when shares fall - forcing some hedge funds to close their positions at heavy losses. But the so-called "Reddit Rally" has collapsed in recent days, exposing many individual traders to huge losses themselves. Shares of GameStop and AMC were down 4.1% and 5.8%, respectively on Thursday.

One focus of the meeting could be the online forums where mass buying of the stocks of those two companies was discussed last week, and on 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 on Wednesday.

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 on Monday that such an ethics waiver might be necessary because of more than $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.