Sen. Elizabeth Warren, D-Mass.
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Senator Elizabeth Warren criticized the Securities and Exchange Commission on Thursday, blaming the regulator and its failure to act for a chaotic day-long market speculation blitz.
“We need a SEC that has clear rules on market manipulation and then has the backbone to get in and enforce those rules,” said Warren. “To have a healthy stock market, you need to have a police officer on the streets.”
“It must be the SEC,” she added. “They need to work hard and do their job.”
The SEC did not immediately respond to CNBC’s request for comment.
The Massachusetts senator joined CNBC after violent swings in a handful of stocks forced the popular trading app Robinhood to restrict access to rising stocks at the heart of the controversy.
Warren, a longtime critic of Wall Street, spoke to CNBC’s “Closing Bell” as individual traders accessed Reddit, Twitter and other social media platforms to protest Robinhood’s decision to contain the negotiations. But she made it clear that she is not a big fan of Robinhood either.
“Clothes like Robinhood that say, ‘We are going to give you prizes to join us'”, but force your customers to sign arbitration clauses “[don’t] create a healthy market, she said.
These arbitration clauses, she said, protect Robinhood “if it turns out that [it] I really tricked you. It will never be made public, there will be very little you can do. “
Public outrage over Robinhood came after the California-based brokerage announced on Thursday that it would stop customers from buying additional shares in companies like GameStop and movie operator AMC Entertainment. It even allows customers to sell these shares from their current portfolio.
Investors in the irreverent WallStreetBets Reddit led an effort to “tighten” short sellers to cover their bets on these stocks and, as a result, sparked a volatile trading frenzy in recent sessions. Many of these retail investors have squeezed Robinhood’s popular trading app.
Video game retailer GameStop is up 250% so far this week, AMC is up 145% and headphone maker Koss, another “squeezed” target, is up 1100%.
Robinhood’s decision, which he claims was motivated by “extraordinary market volatility”, has drawn criticism from both sides of the political corridor.
For his part, Warren said he is skeptical of a narrative that links current trade to a classic “David against Goliath” story that pits a group of small investors against a colossal hedge fund empire.
“That’s the problem: how do you know who’s manipulating the stock right now?” she asked. “Are you absolutely sure that there are no rich people on both sides? That hedge funds have not moved to the side of the people who raised the price of GameStop?”
Representative Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for “more regulation and equality” and questioned the justice of preventing individuals from buying.
“Although retail trade in some cases, like Robinhood, blocked the purchase of GameStop, hedge funds were still able to trade the shares,” said Khanna.
By buying shares or call options from GameStop or AMC, retail investors forced investors to bet against the shares, known as short sellers and, often, hedge funds, to cover their positions by repurchasing shares in a effort to avoid future losses.
When this occurs en masse, it can lead to a feedback loop and an increase in the price of a share.
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