Though the Securities and Exchange Commission may not want to deal with the trading frenzy surrounding video game retailer GameStop, it likely will have to do so anyway, according to Washington insider Greg Valliere, who is chief U.S. policy strategist for AGF Investments.
The regulator “may have no choice because officials know this could end badly for the financial markets and individual investors,” he wrote in his latest Capitol Insights blog post Thursday.
“After years of overlooking predatory hedge funds that have hammered fragile companies into extinction, the SEC is hearing from hedge funds that now want protection — as the hunter becomes the hunted,” Valliere explained.
The burst in the trading and price of GameStop and AMC shares “has gotten Washington’s attention. Treasury Secretary Janet Yellen has her first crisis, just two days on the job, and even the White House is monitoring this,” he added.
“No one in the new administration wants to see market instability; the focus here is still on COVID-19,” Valliere stated.
Over the past week, a wave of trading fueled by members of the Reddit group WallStreetBets pushed up the stock of GameStop — a wave that has since spread to other stocks heavily shorted by hedge funds, including movie chain AMC and phonemaker BlackBerry.
The volume of GameStop shares surged to over 177 million on Monday and Tuesday, dropping to a still-high 91 million on Wednesday and 42 million on Thursday.
Meanwhile, its stock rose more than 620% from late Friday, when it traded at about $65 per share, to $469 per share in intraday trading Thursday; however, the shares were down nearly 30% for the day on Thursday afternoon, trading at $250.
The SEC said in a statement Wednesday that it is “working with our fellow regulators to assess the situation and review the activities of regulated entities, financial intermediaries, and other market participants.”