The actions and frenzy of social media, fueled by the exchanges that pit certain populations against Wall Street.
Other than evidence that people have tried to manipulate the market, regulators may not have much to go on. One of the basic principles of market regulation in the United States is transparency – providing information to investors and allowing them to make decisions. The drama at GameStop was anything but transparent.
You can sell garbage to the public as long as you say, “It’s garbage.
– Former Securities and Exchange Commission Chairman Harvey Pitt
“You can sell junk if you say to the public, ‘It’s junk, and you’d be crazy to buy it, but would you want to buy it? – Harvey Pitt, former chairman of the SEC, said
What seems to have happened in recent weeks is that a massive wave of retail investors have answered “yes” to this question, current and former politicians say. Thanks to social media platforms like Reddit and smartphone brokerage apps like Robinhood, traders pushed GameStop’s stock price from less than $18 a share to $483 three weeks earlier. The video game retailer closed Friday at $63.77, 87 percent lower than its daily record of January 28.
“I think there are a lot of people who take a lot of risks but don’t fully understand that,” he said.
Journalist Jim Hymes
(D., Conn.), a former Goldman Sachs banker who sits on the House Financial Services Committee. “Unfortunately, the most effective remedy for a situation like this is to touch a hot plate.”
One reason regulators may filibuster is the lack of political will to curb transactions by retail investors. When Robinhood temporarily banned its customers from trading GameStop shares during the furor, there was an outraged demand for access to the market. The big losses these little guys were inflicting on some hedge funds by trading shares were seen as democratizing the market. Any attempt to derail that could be criticized as defending Wall Street.
“Most people think that middle-class workers should be able to take risks in the stock market.”
Representative Maxine Waters.
(D., Calif.), who chairs the House Financial Services Committee, said in an interview.
California Democrat Maxine Waters, who chairs the House Financial Services Committee, plans to use the February 18 hearing to raise the issue of contractual payments.
Bill O’Leary/The Washington Post via AP.
So far, regulators agree that the episode did not reveal any serious water supply problems in the market. The Treasury Department said Thursday that regulators believe “the underlying market infrastructure was resilient.” The department said the SEC is investigating “whether business practices are consistent with investor protection and fair and efficient markets” and is expected to issue a report on the factors affecting them.
The Securities and Exchange Commission has already intervened where it has identified vulnerabilities. After the “sudden collapse” of 2010, when some stocks ceased trading, the regulator worked with the exchanges to introduce new shock absorbers for the market, including circuit breakers for individual stocks that expose trading to extreme volatility at turning points.
Regulators also know that while the stock market has an impact on the economy, it does not have the same impact as the debt markets that caused the financial crisis. According to the Federal Reserve, the end of the “Internet boom” in the late 1990s wiped out $6.5 trillion in equities held by U.S. households between the first quarter of 2000 and the third quarter of 2002. The risk associated with stocks caused a recession, but it was relatively moderate.
Regulators and lawmakers are likely to focus on two areas: a system that allows investors to trade stocks for free, and rubber-stamping applications and social media sites that encourage people to trade.
“The fact that our financial markets are infected with this casino contagion is something that can be treated,” he said.
Journalist Brad Sherman
(D., Calif.), who chairs the House Subcommittee on Investor Protection and Capital Markets. He wants to put regulatory hurdles in the way of the “psychic rewards” the Robinhood application offers, such as a graphic of confetti celebrating certain deals.
The Financial Industry Regulatory Authority, the industry’s self-regulatory body overseen by the SEC, said it plans to scrutinize brokers offering “close to gambling” investment experiences this year. In a letter to brokerage firms about the review plans, Finra said it will examine how brokers using such tools disclose investment risks to customers and how they allow those customers to trade options believed to have exacerbated GameStop’s hesitation.
Waters said she would use the February 18 hearing to address the issue of pay-as-you-go, a mechanism by which market makers such as Citadel Securities pay Robinhood to manage their clients’ trades. Critics of this practice say it distorts brokers’ incentives and encourages them to maximize their profits at the expense of clients. Brokers say this results in better prices for investors.
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President Biden has decided to head the Securities and Exchange Commission,
could try to establish itself in the market by examining the activity of Robinhold and its ordering and payment services. Gensler recently gave a talk at the Massachusetts Institute of Technology on innovative financial technologies, which may be crucial to his thinking on the emergence of low-cost, easy-to-use brokerage applications.
The Securities and Exchange Commission (SEC) has repeatedly called for its resignation, as have investors. Congress has also looked into the practice, but few checks have come to light.
Citadel Securities, one of the main beneficiaries of this business model, has also become a major force in politics. Its owner, the billionaire
was the third-largest contributor to Republican political campaigns in the 2020 election cycle, according to data collected by the Center for Responsive Politics.
Senator Pat Toomey
(R., Pa.), the leading Republican on the Senate Banking Committee, praised the system that allows free trade and called it “great” for small investors.
“If someone has a better model of how we can get better execution at lower cost and keep cash, I’m all ears,” Toomey said in an interview. “But, boy, that would be tough given the current market situation.”
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