Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. SEC chair says reviewing short-selling, swap rules after GameStop, Archegos sagas

Stock MarketsMay 05, 2021 04:51PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
2/2 © Reuters. FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed GameStop logo in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration 2/2

By Katanga Johnson

WASHINGTON (Reuters) -The U.S. securities regulator is considering measures to require big investors to disclose more about short positions, or bets that stocks will fall, use of derivatives to bet on other stock moves and to protect small investors from trading apps that use features common to video games in order to boost risky trading activity.

The review of rules by the Securities and Exchange Commission (SEC) was prompted by January's GameStop (NYSE:GME) saga and the meltdown of Archegos Capital, its new chair plans to tell lawmakers. Gary Gensler, sworn in last month as chair of the top markets watchdog, will testify before the House of Representatives Financial Services Committee on Thursday. Democrats are pressuring him to take a tough stance on Wall Street after Gamestop's fierce rally in January, fed by bullish posts on Reddit, and the March implosion of New York investment fund Archegos. "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 will tell lawmakers, according to prepared testimony published by the committee on Wednesday. SEC staff are working on potential measures, Gensler will say, including greater disclosure of "short-selling," a strategy hedge funds and other big investors use to bet a stock will fall; increasing transparency around securities lending, which underpins short-selling; and new reporting rules for the "total return" equity swaps that felled Archegos, a family office. In addition, Gensler has asked staff to draft a request for public input into how trading apps entice retail customers using game-like features such as points, rewards, bonuses, and competitions, according to his testimony.

"We need to ensure investors using apps with these types of features continue to be appropriately protected," he will say.

Gensler did not elaborate on the timing for any potential regulatory proposals, which typically must go through a lengthy rule-making process including public feedback.

Shares of GameStop soared in January after retail investors congregating on Reddit and trading on low-cost brokerage platforms bought shares in the video game retailer, causing big losses for hedge funds that had shorted the stock.

That episode was followed in March by the collapse of Archegos, whose soured media stock bets left the fund and banks that financed its trades nursing roughly $10 billion in losses.

"The professional investor community on Wall Street and Reddit rebellion of retail investors at home will be carefully listening to what the SEC chairman has to say about his thinking on how these financial activities are regulated," said Dennis Kelleher, chief executive of Washington-based Better Markets.

As volatility soared in January, retail broker Robinhood curbed buying in GameStop and other stocks because it could not provide the cash its clearinghouse, the Depository Trust & Clearing Corp (DTCC), required to guarantee those trades during the two days it takes them to settle.

Gensler has directed SEC staff to draft a proposal on expediting the settlement process to reduce system risks, according to his testimony.

The heads of the DTCC and the Financial Industry Regulatory Authority, which oversees brokers, will testify alongside Gensler.

Gensler's promises to Congress spell disruption for Wall Street. The SEC is also cracking down on special purpose acquisition company or "SPAC" mergers, and drafting new climate change risk disclosure rules, issues Gensler is also likely to be grilled on.

"We wouldn't be surprised to see members use the opportunity to press their interest for and against climate change regulatory changes, for revisions to family office rules, and more," said Ty Gellasch, head of Washington-based Healthy Markets.

"They could fill seven hearings with Chair Gensler's to-do list."

U.S. SEC chair says reviewing short-selling, swap rules after GameStop, Archegos sagas
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email