Regulators meeting on GameStop frenzy are unlikely to find systemic risk

The meeting called by Treasury Secretary Janet Yellen is viewed as an initial discussion about the trading frenzy.

The meeting called by Treasury Secretary Janet Yellen is viewed as an initial discussion about the trading frenzy. (Photo by Chris DELMAS / AFP)

Top financial regulators set to meet Thursday to discuss the market tumult related to GameStop Corp. and other stocks are unlikely to reach any conclusions on whether the activity points to risks to financial stability or the need for regulatory changes, former officials and analysts said.

Instead, the meeting called by Treasury Secretary Janet Yellen is viewed as an initial discussion about the trading frenzy and a sign that the new administration is dealing with the issue at a time when some top financial positions aren’t yet filled with Senate-confirmed officials.

“It sends a signal that the lights are on, that you’re paying attention, ” said Tony Fratto, a Treasury official in the George W. Bush administration.

Mr. Fratto said it makes sense for Ms. Yellen to lead on an issue that has rocked markets, raised questions about the role of social media in trading and drawn scrutiny from some lawmakers.

Thursday’s gathering will involve officials from the Securities and Exchange Commission, Commodity Futures Trading Commission, Federal Reserve Board and Federal Reserve Bank of New York.

The gathering isn’t a formal meeting of the Financial Stability Oversight Council, which is chaired by the Treasury secretary and includes some of the same members, a Treasury official said. The FSOC was created in the wake of the 2008 financial crisis to monitor systemic risks.

“This is at least in part an attempt to show steady leadership and the convening power, because we don’t have a SEC head,” Isaac Boltansky, an analyst at Compass Point Research and Trading, said of the meeting. “This is not, at least at the moment, a systemic risk issue.” While Mr. Fratto and others said they don’t see the market volatility posing any risks to financial stability, it would be helpful for the administration to say explicitly whether it has ruled out those concerns, as well as any worries about broader economic fallout.

Gary Gensler, the administration’s pick to lead the SEC, is awaiting Senate confirmation. Acting SEC chair Allison Lee said in an interview on NPR on Monday that she hasn’t seen any evidence that the episode posed a systemic risk to the stock market.

A Treasury spokeswoman said late Wednesday that Ms. 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.” People familiar with the matter said the meeting isn’t expected to generate any policy news.

A group of day traders rallied together in recent weeks to buy shares of GameStop, driving up the price more than 10-fold and prompting complaints that the frenetic activity was manipulative.

White House officials have been asked repeatedly over the past week whether the administration is concerned about the trading frenzy, but have generally avoided commenting, other than to say the SEC is reviewing the matter.

The SEC said last week it planned to closely review the actions of some brokerage firms that restricted investors’ ability to trade in GameStop, a videogame retailer, and other volatile stocks, the clearest indication that regulators were examining potential misconduct. An SEC spokesman declined to comment further.

Some lawmakers, including Sen. Elizabeth Warren (D., Mass.), have raised concerns about the trading issues. Mr. Boltansky said he doesn’t expect any legislation, such as calls to ban short-selling, to gain traction, though he said regulators may consider stricter capital requirements for brokers and additional scrutiny of the role of hedge-fund leverage in the current situation.

Paul Kiernan contributed to this article.

Dow Jones Newswires