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DJ Regulators Say Market Infrastructure Was Resilient in GameStop Frenzy--5th Update

· 02/04/2021 20:47
By Kate Davidson and Eliza Collins

Top financial regulators meeting Thursday to discuss recent market volatility related to GameStop Corp. concluded that "the core infrastructure was resilient," the Treasury Department said in a statement following the meeting.

The regulators believed the infrastructure stood up "during high volatility and heavy trading volume" and agreed the Securities and Exchange Commission should release "a timely study of the events," the Treasury Department said.

The SEC and the Commodity Futures Trading Commission "are reviewing whether trading practices are consistent with investor protection and far and efficient markets." Treasury Secretary Janet Yellen "believes it is imperative to uphold the integrity of these markets and ensure investor protection," the statement said.

The Reddit-fueled frenzy in stocks such as GameStop, a videogame retailer, and AMC Entertainment Holdings Inc. has drawn scrutiny from regulators and prompted complaints that the trading, which sent some stock prices soaring, was manipulative. The buying spree later spilled into the silver futures market.

The SEC said last week it planned to closely review the actions of some brokerage firms that restricted investors' ability to trade in GameStop and other volatile stocks, a sign regulators were examining potential misconduct.

"The focus will be on the suspension of trading of certain stocks, why exactly that happened and whether it was really necessary," said Ian Katz of Capital Alpha Partners, a research firm in Washington. "And from there, how can the system be fixed to prevent future trading halts."

Thursday's meeting, convened by Ms. Yellen, also included officials from the Federal Reserve Board and Federal Reserve Bank of New York. It took place at a time when the SEC and CFTC are both headed by acting chiefs. Gary Gensler, President Biden's pick to head the SEC, awaits Senate confirmation.

The meeting wasn't expected to elicit firm conclusions from regulators about whether misconduct occurred, or that the activity posed risks to the broader financial system.

And while the episode has drawn the attention of politicians from both parties seeking to harness a populist backlash against big technology companies and so-called elites, it appears unlikely that they will forge a common response amid partisan bickering.

Texas Sen. Ted Cruz, a conservative Republican, and Rep. Alexandria Ocasio-Cortez, a progressive Democrat, both said that Wall Street was being given an unfair advantage after the trading app run by Robinhood Markets Inc. temporarily restricted access to stocks popular with amateur traders.

Meanwhile, Sen. Elizabeth Warren (D. Mass.), who has long called for more regulation in the financial industry, criticized the chaos of the week as a whole. She said the ability for one group to manipulate the markets was problematic.

"What's happening with GameStop is just a reminder of what's been going on on Wall Street now for years and years and years. It's a rigged game, and it's been a set of players who come in who manipulate the market," she said on CNN on Sunday.

Sen. Sherrod Brown (D., Ohio), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, said he intends to hold a hearing on the stock market following the chaotic week. Rep. Maxine Waters (D., Calif.), the chairwoman of the House Financial Services Committee, also announced a hearing later this month.

Not everyone is on board.

"What bothers me the most is my colleagues who think we have to run out and pass a new law and have more regulation and somehow limit the freedom of people to participate in the stock market," Sen. Pat Toomey, the top Republican on the Banking Committee, said on CNBC's "Squawk Box" on Monday morning.

Andrew Ackerman contributed to this article.

Write to Kate Davidson at kate.davidson@wsj.com and Eliza Collins at eliza.collins@wsj.com.

(END) Dow Jones Newswires

February 04, 2021 20:47 ET (01:47 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.