Regulators To Meet As Brokers Call Time On Reddit-Trader Rollercoaster

Regulators To Meet As Brokers Call Time On Reddit-Trader Rollercoaster

Via Reuters:

Hedge funds, small investors and stockbrokers are bracing for tougher U.S. markets regulation, with officials expected to meet this week to assess the fallout from a social media-driven trading frenzy that has roiled stocks and silver prices.

Mass buying by amateur traders over the past two weeks has driven wild price gyrations in companies that big U.S. fund managers had bet against, including videogame retailer GameStop and cinema operator AMC Entertainment.

But small traders’ darling stocks have tumbled as their brokers imposed buying curbs, with GameStop now down 80% from a peak a week ago and AMC off 60%. GameStop’s Frankfurt-listed shares sank another 28% in early deals, while AMC was down 9.6%.

Their U.S.-listed stocks had scaled as high as 2,300% and 800%, respectively, since mid-January, fuelled by posts on the popular Reddit forum WallStreetBets.

Silver, which briefly surged on Monday as small traders bought up the metal, steadied about 10% below its recent peak.

“The unwind is obvious,” said Oriano Lizza, premium sales trader at brokerage CMC Markets in Singapore. But he added that it would be easy for nimble small investors to regroup and target fresh companies.

“I think from a regulatory standpoint, the concern is that they could continue to do this,” he said.

The head of the U.S. Securities and Exchange Commission, which regulates markets, will meet with Treasury Secretary Janet Yellen and the heads of the Federal Reserve and the Commodity Futures Trading Commission, possibly as soon as Thursday, a Treasury official told Reuters.

Yellen has asked to discuss recent volatility and whether trade has been consistent with fair and efficient markets.

It was not clear if any meeting could result in action, but experts expect focus to also fall on the ever-larger role played by non-bank firms such as hedge funds in financial markets, while small traders are bracing for a showdown.

“Final boss fight. It’s happening tomorrow with Yellen, SEC and Federal Reserve,” read one Wednesday post on Reddit. “They are either going to try and stop the party or they are looking for money to pay us and not crash everything at the same time.”

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