Reddit trading frenzy fades as Yellen summons agencies

GameStop's shares scaled as high as $483 last week, fueled by posts on the popular Reddit forum WallStreetBets. They deflated this week to $90 as fee-free broker apps including Robinhood imposed buying curbs.

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

A social media-driven trading frenzy cooled further on Wednesday as US Treasury Secretary Janet Yellen called a meeting of top officials that could result in tougher markets regulation for hedge funds, small investors and stockbrokers.

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

GameStop's US-listed shares, which scaled as high as $483 last week, fueled by posts on the popular Reddit forum WallStreetBets, deflated this week to $90 as fee-free broker apps including Robinhood imposed buying curbs.

They fell another 5% on Wednesday, while shares of AMC were up 3.8% following a drop of 41% a day earlier. GameStop's Frankfurt-listed shares continued to decline, falling 36% by 1510 GMT.

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, adding 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 US Securities and Exchange Commission, which regulates markets, will meet with 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.

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It was not clear if a 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."

Robinhood said on Wednesday it was allowing buying of fractional shares in GameStop and AMC, five days after restricting the practice that has encouraged smaller traders by reducing the size of the amount they need to invest.