SEC Considering New Trading Rules

“Many of these features encourage investors to trade more,” Gensler said. “We need to ensure investors using apps with these types of features continue to be appropriately protected.”

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key takeaways

  • Gensler says SEC considering new trading rules in response to January’s GameStop short squeeze and Archegos Capital Management’s collapse
  • Gensler said that he hopes to implement new policies, including increased disclosure requirements on short selling and greater transparency for securities lending, which supports short selling

New Securities and Exchange Commissioner Gary Gensler appeared before lawmakers Thursday to testify for the U.S. House Committee on Financial Services’ third hearing on GameStop. 

Gensler revealed that the SEC will be considering new trading rules in response to January’s GamesStop short squeeze and Archegos Capital Management’s collapse. 

GameStop shares skyrocketed in late January after retail investors coordinated buys using Reddit group WallStreetBets and low-cost trading app Robinhood. Shares rose from $4 to $483 in four months in what was referred to as a “pump and dump” scheme. 

The Archegos meltdown came shortly after in March when the family office offloaded billions in block trades through Goldman Sachs Group Inc., Morgan Stanley and Credit Suisse, among others. 

“Whenever there are major market events, it’s a good idea to consider what risks they might have placed on the entire financial system,” Gensler said in his prepared testimony.

The new commissioner began his testimony by addressing the ‘gamification of trading,’ saying that features like leaderboards, rewards, bonuses and competitions that are designed to promote engagement can be harmful. 

“Many of these features encourage investors to trade more,” Gensler said. “We need to ensure investors using apps with these types of features continue to be appropriately protected.”

Gensler said that he hopes to implement new policies, including increased disclosure requirements on short selling and greater transparency for securities lending, which supports short selling. The SEC will also be seeking public input into how trading apps manipulate trading with “gamification” features, per Gensler’s request. 

“Investors do want to bring some consistency and comparability to climate disclosure,” he told lawmakers.

Gensler has faced pressure from Democrats, who want to see tougher Wall Street regulations. 

“It is critical for our cops on the block at the SEC to protect investors and ensure our markets are transparent and fair,” said Maxine Waters, the committee’s Democratic chair.

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