WASHINGTON (AP) – The drama surrounding the stock trading of GameStop, AMC Entertainment, Blackberry and other defeated companies has suddenly put Wall Street near the top of a crowded list of issues that President Joe Biden’s regulatory team needs to address early on. of your term.
Several wealthy institutions on Wall Street have bet that the shares of these companies would fall, only to be thwarted by small investors who have joined on social media and driven prices up. Many of the small investors trade on online platforms like Robinhood, who has suddenly restricted the purchase of shares in GameStop and other companies, generating outrage in the social media crowd and also in politicians.
Biden’s financial regulators – especially at the Securities and Exchange Commission – are likely to have to answer questions about a range of Wall Street practices, such as short selling and whether the business model of online trading platforms is as investor-friendly as the companies claim. is. Disclosure of complex issues will go beyond efforts envisaged by regulators at the SEC, the Consumer Financial Protection Bureau and other agencies to overturn Trump-era rules deemed more favorable to the financial sector than to consumers or retail investors.
The SEC will examine the role that short selling may have played in GameStop’s extreme stock movements and whether regulators are getting enough data on that, said Allison Herren Lee, the agency’s acting president, on Monday. Also being considered, she said, is the possible manipulation of shares and whether the companies that issue them are properly disclosing the risks to investors and whether the company’s insiders are trading them.
“Our focus is on making sure that we protect investors,” Lee said in an interview with National Public Radio, asking investors to beware of risks. At this point, “We saw nothing to indicate … that it would bring down the (broader) market,” she said, “but we know that there is a chance, if not a certainty, that people will be harmed. “
Biden is naming Gary Gensler as the new SEC president. Gensler established himself as a strict regulator at the head of the Commodity Futures Trading Commission during the financial crisis. The SEC took a deregulating stance under the presidency of Jay Clayton, a former Wall Street lawyer appointed by President Donald Trump.
The GameStop saga drew expressions of outrage over Wall Street’s treatment of the “boy” of lawmakers from both parties. The populist trend is reminiscent of the rage that fuels the Occupy Wall Street movement over bailouts to the big banks that Congress brought in response to the financial crisis.
The uproar comes at a time when the small investor seems to be winning. Some prominent hedge funds are suffering losses due to the collective efforts of the online community. At least two of them closed January deals with losses of more than 40%, according to reports by The Wall Street Journal and Bloomberg News.
Still, when Robinhood took the step to stop investors from buying shares in GameStop and a dozen other companies last week, some in Washington immediately called for action by regulators. Robinhood said he acted to meet regulatory capital requirements. Politicians and critics said Robinhood changed the rules of the road halfway, in favor of Wall Street companies that could still trade those shares.
Both the Senate Banking Committee and the Chamber’s Financial Services Committee plan to hold hearings on the GameStop controversy. House panel chairman Rep. Maxine Waters, D-Calif., Said on Monday that the February 18 hearing will examine the collision in the GameStop nexus of short sellers, social media and retail investors.
Congressman Brad Sherman, D-Calif., Who heads the Financial Services subcommittee for investor protection, entrepreneurship and capital markets, said lawmakers will examine, for example, whether Robinhood may have prevented customers from buying the shares on demand other market participants with competing interests – who are also Robinhood’s customers.
Another issue to be raised is the short sale, in which companies bet that a company’s stock price will fall. Lawmakers could see the need for more complete disclosure requirements for short sellers, as they now prevail in Europe and Britain, Sherman suggested.
“There is a casino. As long as there is a casino, it must be fair, ”he said in a telephone interview. “The capital market needs to be less of a casino and more of a place where people … can invest in companies that are leading the new economy.”
Also under the Washington microscope will be the business model for companies like Robinhood. At issue is the common practice in order-flow payment securities markets, where Wall Street brokers pay companies like Robinhood to send their clients’ orders to those companies for execution.
In addition, just as Facebook and other technology giants provide personal data of users to online advertisers, platforms like Robinhood provide trading companies with data about the stocks their users are buying and selling.
Last year, Robinhood agreed to pay $ 65 million to settle the SEC’s charges of providing misleading or incomplete information about its order-flow payments, its biggest source of revenue.
The practice of firms like Robinhood lending money to clients to do business, which can fuel commercial frenzy by small investors, will also be examined. Questions will also be raised as to whether the existing SEC rules on market manipulation are sufficient.
Wall Street brokers, big banks and other financial companies had already expected the Biden government to be tougher on them than the Trump regime.
Regulators have largely taken an indirect approach to the financial sector under the Trump administration, with a few exceptions, like Wells Fargo. Fines have become a fraction of what they used to be, and rules and regulations designed to restrict abusive practices like payday loans or loan discrimination have been repealed or significantly reversed, to the dismay of consumer advocates.
There were already signs that Biden was planning to do more to take care of consumers. He sacked Trump’s head of the Consumer Financial Protection Department, Kathy Kraninger, and appointed consumer advocate Rohit Chopra to replace her.
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Sweet reported from Charlotte, North Carolina.