US Market Regulator To Formulate New Short-Selling Rules In Wake Of GameStop Saga - Chair

WASHINGTON (Pakistan Point News / Sputnik - 06th May, 2021) The US Securities and Exchange Commission (SEC) is coming up with new rules to boost transparency on the US stock market in the area of short-selling to prevent trading upheavals like those triggered by the GameStop saga, Chairman Gary Gensler said Thursday.

"I've asked SEC staff to prepare recommendations on transparency, and short selling of stock," Gensler, who came to the helm of the regulatory agency in mid-April, told a hearing held by Congress.

Shares of GameStop suddenly surged in January, from as low as $17 to over $480 at one point, after retail stock buyers on social media site Reddit pushed the video-gaming retailer's shares higher in an apparent organized bid to frustrate hedge funds "shorting" those shares in a move to drive their price down.

Shorting is essentially selling shares one does not already own at a higher price and buying them back lower to pocket a profit. It's a strategy that can make huge profits when done well. But in the case of GameStop, some of the hedge funds on the other side of the retail investors on Redditors lost billions of Dollars as the shares rose heavily in price after they were shorted.

Gensler is also under pressure to act tough against Wall Street after the implosion in March of a New York-based fund called Archego that exposed gaps in the SEC's rules.

Gensler told Thursday's hearing that the new trading rules being considered by the SEC included greater disclosure of short-selling, an increase in transparency around securities lending and new reporting rules for "total return" equity swaps such as the kind that ruined Archegos.

"Generally speaking, we are reviewing order, routing practices and the circumstances under which trading restrictions were imposed, any potential manipulative conduct and compliance with short sale requirements among other matters," he said. "I can assure the committee that we will take all appropriate, disciplinary or other remedial action, as warranted as the facts indicate a violation of SEC or Federal rules."

Gensler also said he has asked SEC staff to draft a request for public input into how trading apps attract retail customers with game-like features such as points, rewards and competitions a strategy known as "gamification." Besides this, he said he has asked for a proposal on expediting the two-day trade settlement procedure for stocks to reduce systemic risks.