Treasury Secretary Janet Yellen calls meeting with the SEC and Federal Reserve to discuss GameStop frenzy as Elizabeth Warren demands Robinhood explain why they restricted trading as hedge funds lost billions
U.S. Treasury Secretary Janet Yellen is calling a meeting of top financial regulators this week to discuss market volatility driven by retail trading in GameStop Corp and other stocks.
Yellen will convene the heads of the Securities and Exchange Commission, the Federal Reserve, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, a Treasury official said on Tuesday.
The meeting came on the day that Senator Elizabeth Warren wrote to the leaders of Robinhood, the trading app, to ask why they restricted trades in GameStop and other shares last week.
She asked whether the company had been pressured by hedge funds who were losing billions during the feeding frenzy.
'Robinhood has a responsibility to treat its investors honestly and fairly, and provide them with access to the market under a transparent and consistent set of rules,' Warren wrote in her letter to Robinhood CEO Vladimir Tenev.
Janet Yellen, the Treasury Secretary, is expected to hold the GameStop meeting this week
Robinhood CEO Vlad Tenev is likely to be dragged in front of a Congressional committee to explain his company's actions amid a social media-fueled surge in GameStop shares
The brokerage put limits on peoples' trading, leading some people to accuse it of being in cahoots with hedge funds that had bet against GameStop
'It is deeply troubling that the company may not be doing so.'
She continued: 'The public deserves a clear accounting of Robinhood's relationships with large financial firms and the extent to which those relationships may be undermining its obligations to its customers.'
Warren, a member of the Senate Banking Committee, said she was 'troubled by Robinhood's inclusion of forced arbitration clauses in its customer agreement, which suggests that investors will not have sufficient opportunity to pursue their claims and seek relief.'
At least 18 lawsuits have been filed against Robinhood in the past week over its trading restrictions.
Warren wrote that forcing those claims into 'secretive arbitration processes deny customers a fair hearing, undermine public accountability, and hamper efforts to assemble a thorough and complete understanding of events.'
GameStop shares surged last week as part of a campaign promoted on Reddit
'Investors harmed by Robinhood's trading restrictions should be able to argue their case in court, rather than in closed-door proceedings that are too often rigged against claimants,' she wrote.
Robinhood is yet to comment on her letter.
Last week Tenev insisted that the company had acted legally, and took the measures to limit trades to protect the firm and other traders.
Yellen sought and received permission from ethics lawyers before calling the meeting, according to a document seen by Reuters, and to engage on wide-ranging issues in the financial services industry.
Yellen's decision to seek the waiver followed a report by Reuters that because of speaking fees she was paid by a key player in the GameStop saga, hedge fund Citadel LLC, she may need to seek an ethics waiver in order to deal with matters involving the firm.
The Treasury official, who declined to be identified by name, said the meeting would be held this week, possibly as early as Thursday.
'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 to Reuters.
Yellen's action comes after days of gyrations in the shares of video-game retailer GameStop driven by retail investors that have made or lost billions of dollars for hedge funds and other investors in recent weeks.
Retail trading activity has also driven up silver prices in recent days.
GameStop shares more than halved in value on Tuesday and silver prices retreated as the Reddit-driven trading frenzy that roiled stock and commodity markets died down, at least for now.
GameStop shares closed down 60 per cent at $90. They are now worth less than a fifth of their high of $483 last week.
The saga is likely to expedite a regulatory review of the ever-larger role played by non-bank firms in the financial markets, regulatory experts say.
Treasury ethics attorneys have given Yellen flexibility to work on any related issues that come up, with no limits on current or future markets, the Treasury official said.
In the memo granting Yellen permission to call the meeting of regulators, a Treasury ethics official, Brian Sonfield, said it would be 'difficult, if not impossible' for Yellen to recuse herself from matters involving market volatility.
'You are the Secretary of the Treasury, the duties of which require you to be involved in a broad array of matters focused on these sectors,' Sonfield wrote.
'Issues relating to these sectors could arise at any time without the opportunity for consultation with the ethics office.
'These circumstances make it difficult, if not impossible, for you to recuse from matters relating to these sectors and also argue in favor of prior authorization.'
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