ANALYSIS: Beyond GameStop—10 Takeaways From Gensler’s Testimony
Preston Brewer, 10 May 2021
In testimony Thursday before the House Financial Services Committee, newly appointed SEC Chairman Gary Gensler signaled that he is prepared to change existing rules to better adapt to the challenges of today’s market environment, and to ask Congress for more authority where needed.
Gensler was there ostensibly to speak about the speculative trading in GameStop shares that occurred in late January. But the hearing went beyond GameStop and Robinhood to include a discussion of the Securities and Exchange Commission’s regulatory response about a wide range of topics.
In unprecedented fashion, retail investors quickly bid up GameStop shares from $20 to $480 to punish hedge funds shorting the stock. That effort was led by a trader calling himself “Roaring Kitty” and their trading was coordinated in one of social news website Reddit’s subforums (subreddit). The extraordinary trading in GameStop led app-based brokerage Robinhood, a favorite of retail traders for its no-fee trades, and others, to halt trading in GameStop and some other securities.
Despite the notoriety of the GameStop episode, as Gensler stated at the hearing, the larger story is about the intersection of finance and technology. Technology innovates and brings greater access to the capital markets, he said, and regulators need to refresh their rules—but not necessarily their core policy goals— to keep up.
This analysis identifies many of the issues raised during the hearing and, based on Gensler’s oral and written testimony as well as the statements and actions of former acting SEC Chair Allison Lee, anticipates the Commission’s next steps and the ultimate regulatory response to each one.
