Treasury Secretary Janet Yellen and other top financial regulators will convene amid GameStop stock craze

“Secretary Yellen believes the integrity of markets is important and has asked for a discussion of recent volatility in financial markets and whether recent activities are consistent with investor protection and fair and efficient markets,” Treasury spokeswoman Alexandra LaManna said in a statement.

In a matter of days, GameStop was transformed from a struggling mall retailer to a stock market marvel that rallied an online horde to take on Wall Street. Novice traders on the Reddit forum WallStreetBets raked in billions of dollars as short-selling hedge funds lost out on their bets that the stock would crater. But that joyride, too, took a nosedive, with GameStop’s stock plunging 60 percent on Tuesday.

Across Washington, the GameStock saga has prompted waves of questions as to whether the financial markets — from hedge funds to the banking sector and beyond — require more oversight, and whether the Biden administration and Democratic Congress would move in that direction.

The treasury secretary is also the chair of the Financial Stability Oversight Council, which means Yellen’s position requires her to understand the recent volatility in the market, said Gregg Gelzinis, associate director for economic policy at the Center for American Progress, a left-leaning think-tank.

Prior treasury secretaries have held similar meetings during periods of market volatility, particularly under the Obama administration. Former President Trump’s treasury secretary, Steven Mnuchin, held these meetings less frequently.

“This is a smart move that shows she’s on top of this issue … She needs to understand the facts on the ground to see if any actions are necessary to promote the stability of the financial system,” Gelzinis said. “They should identify the vulnerabilities here, of which there are probably many.”

White House spokeswoman Jen Psaki dismissed questions over whether Yellen should recuse herself from the matter over speaking fees she received from Citadel. The hedge fund has a financial relationship with Robinhood, a retail broker which was criticized after it recently restricted trading in the shares of GameStock and other companies that were promoted by the Reddit message board.

Bob Hockett, a professor of law and finance at Cornell and former New York Federal Reserve lawyer, said regulators may look at whether the identities of the traders involved in the GameStop stock volatility were transparently disclosed.

He also said regulators are likely to look at whether leading hedge funds were in violation of the rules on short-selling. Hockett also raised the prospect of imposing new oversight over some of the trading platforms, such as Robinhood, under parts of the Dodd-Frank financial reform law passed in 2010.

“I’d be saying to them, ‘You guys ought to be putting a full-court press on examining all of the relevant trading platforms,’” Hockett said.