WASHINGTON: With hedge funds at the centre of market drama for the second time in less than 12 months, the GameStop saga is likely to expedite a regulatory review of the ever-larger role non-bank firms play in the financial markets, regulatory experts said.
It has shone a spotlight on the huge footprint of non-bank equity trading firms, particularly that of Citadel Securities, which accounts for over 20 per cent of all US equities volumes and roughly 39 per cent of all US-listed retail volume, according to its website. Its heft has raised questions over the company's market power.
In response, the Treasury's Financial Stability Oversight Council began a review of the asset management sector, and in 2016 warned that leveraged hedge funds could cause instability during market stress if they became forced sellers. The Managed Funds Association, which represents the sector, did not provide comment on recent industry gyrations, but has said that hedge fund investments help pension funds and other institutional investors manage risk and deliver returns.
The Treasury did not respond to a request for comment, but Yellen has been a strong advocate of FSOC's work and has previously said March's treasury market turmoil showed that the risks FSOC had identified were"real and serious".