In a significant development, the new chairman of the U.S. securities regulator told U.S. lawmakers that the agency was weighing options which include the creation of new trading rules to address issues raised by this year’s GameStop Corp trading saga and the meltdown of private fund Archegos Capital.
Three weeks after being sworn in as the chairman of the SEC, Gary Gensler told the House of Representatives Financial Services Committee that he is likely to propose new rules on corporate climate risk disclosures in the second half of 2021.
The development comes in the wake of the March implosion of New York-based family office Archegos, and GameStop’s rally in January which was fueled by bullish online posts on Reddit, with both developments exposing gaps in the SEC’s rules.
Democrats also want the SEC to implement President Joe Biden’s agenda to incorporate physical and business risks posed by climate change into financial rules
“It is critical for our cops on the block at the SEC to protect investors and ensure our markets are transparent and fair,” said Maxine Waters, the committee’s Democratic chairman.
In a prepared testimony Gensler said, the new rules being considered included: greater disclosure on short selling, a strategy used to bet a stock will fall; more transparency for securities lending, which underpins short-selling; and new reporting rules for the complex equity swaps that felled Archegos.
He went on to add, he had asked SEC staff to draft a request for public input on potential new rules to rein-in so-called “gamification,” whereby trading apps entice retail customers with game-like features such as points and competitions.
Gensler, who developed a reputation for being tough on Wall Street when he ran the derivatives regulator from 2009 to 2014, said the agency would review whether there was sufficient competition in the retail market, while SEC staff were also working on a proposal to expedite the two-day settlement process to reduce system risks.
Republicans warned against over-reacting to the incident by restricting Americans’ access to the market.
“We should not punish everyday American investors with…fewer investment options,” said Patrick McHenry, the panel’s top Republican.
Gensler also mentioned that the SEC is gathering feedback from investors on the proposed new rules for corporate climate risk disclosures, while adding that any regulatory changes would likely require a lengthy rule-making process.
A formal climate risk disclosure proposal would likely be published later in the year, said Gensler.
“Investors do want to bring some consistency and comparability to climate disclosure,” said Gensler to lawmakers.