Gary Gensler puts market transparency and the need to understand the impact of new technology high on his priority list as the new chairman of the Securities and Exchange Commission.
“I think transparency is at the heart of efficient markets,” said Gensler on his first Capitol Hill testimonial as the country’s top securities cop.
Speaking from his living room, Mr. Gensler video appeared before the House Committee on Financial Services to discuss the SEC’s response to the tumultuous trading of GameStop stock in January. The massive surge in the video game company’s stock price was fueled by retail investors who bought their stocks through Robinhood and other commission-free trading apps, and banded together on social media to inflict huge losses on a hedge fund that had bet on GameStop stocks would fall. Some investors who bought GameStop stock at peak times later lost money.
Mr Gensler said SEC officials were working on a report addressing the issues raised by the episode, which will be released this summer. He also said new rules might be needed for brokerage apps that turn stock trading into a game or competition, a method called gamification.
“Through gamification, you are using psychological props to get people to act more,” Gensler said. Apps that encourage easy trading are part of a wider financial transformation where new technologies have opened markets to ordinary investors, but they also bring new risks, he said.
Mr. Gensler used his appearance to speak on other issues facing the markets and Wall Street. He said the SEC needs to “lean in” to ensure that traders, corporations and others are not using social media to manipulate the markets. Mr Gensler said he plans to work with Congress to develop a strategy to regulate the exchanges on which cryptocurrencies are bought and sold.
Legislators took the opportunity to invite Mr. Genslers’ views on a number of other issues, including whether companies should be required to disclose the environmental impact of their business and whether new regulations are needed for business development companies.
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May 6, 2021, 11:23 a.m. ET
Mr Gensler, 63, reminded lawmakers that he was only his third week on the field and that while he had many things on his to-do list, he had some catching up to do on topics the SEC had already been working on.
In his prepared testimony, Mr Gensler said the staff who prepared the report on GameStop were also looking into whether professional investors who bet that stocks will fall – meaning keeping them short – should be required to disclose .
Mr Gensler said the collapse of Archegos Capital Management, which caused Wall Street banks to lose more than $ 10 billion, has led regulators to consider whether traders should be required to disclose derivatives – the financial trading instruments which allowed Archegos to take massive positions in stocks without attracting any attention. Much of Archegos’ losses was attributed to the company’s heavy investment in total return swaps, a type of heavily leveraged derivative that can allow a trader to get exposure to a stock without actual ownership.
Mr Gensler’s tenure got off to a rocky start after Alex Oh, his enforcement director election, was forced to step down just days after his appointment because Paul, Weiss, the major law firm she had worked for, faced potential sanctions in a case in which she was heavily involved.
The hearing with Mr. Gensler was the third and last to deal with GameStop and the frantic trading in the House Financial Services Committee’s markets. The first hearing was held on February 18, when GameStop’s shares were trading around $ 40 per share after falling from a high of $ 347 per share. Since then, the stock has risen again, rising nearly 300 percent to $ 160 per share.
