The SEC says it's monitoring GameStop-fueled market volatility for possible wrongdoing

• The Securities & Exchange Commission is keeping an eye on the recent market volatility fueled by a short squeeze in GameStop, according to a statement on Friday.
• "Extreme stock price volatility has the potential to exposure investors to rapid and severe losses and undermine market confidence," the statement said.
• The SEC said it is working with regulatory partners to "identify and pursue potential wrongdoing," according to the statement.
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The massive short-squeeze rally in shares of GameStop this week has caught the attention of the Securities & Exchange Commission.

In a statement on Friday, the SEC said it is monitoring the recent stock market volatility that has been sparked by the trading activities of a Reddit forum called WallStreetBets. The forum has more than six million members that often employ a highly aggressive trading strategy of piling into stocks via out of the money call options.

Shares of GameStop are up more than 2,000% year-to-date due to the squeeze, and a number of hedge funds caught on the wrong side of the trades have lost billions of dollars.

With the S&P 500 down nearly 3% for the week as of Friday afternoon, speculation has rising that hedge funds have been selling their large cap portfolio holdings to make up for the losses incurred in the recent short-squeeze rallies.

"The Commission is working closely with our regulatory partners...to ensure that regulated entities uphold their obligations to protect investors and to identify and pursue potential wrongdoing," the statement said.

The SEC stressed that core market infrastructure "has proven resilient" during this week's sky-high trading volumes, and warned that extreme stock price volatility has potential to expose investors to severe losses and undermine market confidence.

Read more: GameStop has surged more than 600% in the past week. 3 experts break down where the stock could go from here as Reddit's army of traders take profits and search for their next targets.