By Tom Westbrook and Sagarika Jaisinghani
Wild swings in stock prices of GameStop and other social media darlings subsided on Wednesday, a day after a sharp selloff, as investors turned their focus to the possibility of tighter U.S. trading regulations.
Mass buying over the past two weeks by amateur traders following posts on social media drove wild price moves in companies that big hedge funds had bet against, including videogame retailer GameStop and cinema operator AMC Entertainment.
GameStop shares had soared as high as $483 last week fueled by posts on the popular Reddit forum WallStreetBets, then lost more than half their value and on Tuesday fell briefly below $90.
They were last up 4%, changing direction several times but staying in a narrower range, while shares of AMC rose 7%, following a drop of 41% a day earlier.
Volume in GameStop approached 23 million near midday, more than 40% of its 25-day average volume of 56.4 million. Its volume had surged in recent sessions, with a 10-day average of 96.3 million.
Prices for silver, which surged to an eight-year high on Monday after it became an alternate focus for retail traders, stabilized following an 8% fall in the previous session. Analysts expected more volatility in the metal even though Reddit WallStreetBets posts urged traders to avoid silver.
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 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.
Yellen’s meeting will probably include “some disguised reference to GameStop somewhere on the fringes, but it probably won’t be called out specifically in order to keep the government at bay and let the regulators do their thing,” said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York.
Experts expect focus to 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.
Online brokerage app Robinhood will allow investors to buy parts of shares in GameStop and AMC, a move that could encourage participation from smaller investors.
Any pullback in GameStop shares could expose investors to losses, especially if they bought the stock at recent highs, or on margin, or using options trading strategies. Regulators may want to quell such risks.
Regulators have not yet signaled what form any official actions could take. Potential targets range from retail brokers’ capital requirements to questioning the fee-free brokerage model that has encouraged much of the trade.
The benchmark S&P 500 has ground higher this week and the CBOE volatility index has fallen for three straight sessions as analysts said the Reddit action appeared to be constrained to a handful of stocks rather than spilling over to the broader U.S. stock market.
“There isn’t much of a worry that this is a signal that could destabilize the whole system,” said Simona Gambarini, markets economist at Capital Economics.
Other so-called “meme stocks” caught up in the Reddit rally rose on Wednesday, with headphone maker Koss Corp and home furnishing retailer Bed Bath & Beyond rising 27% and 2.2%, respectively. BlackBerry Ltd’s U.S.-listed shares were down 3.2% following a 21% slide a day earlier.
GameStop, AMC, BlackBerry and Koss did not respond to Reuters requests for comment. Bed Bath & Beyond declined to comment.