Market volatility exemplified by the GameStop trading frenzy and similar meme stocks "are part of a larger story about the intersection of finance and technology" and may require more regulation, SEC Chairman Gary Gensler told the House Financial Services Committee on Thursday.
At the panel's third hearing on market volatility triggered by the GameStop saga, Mr. Gensler said a report from Securities and Exchange Commission staff looking at what happened and what regulators should address is expected this summer, after receiving public input.
In the meantime, he said that SEC enforcement staff "are vigorously reviewing these events for any violations" and considering expanded enforcement mechanisms.
Mr. Gensler addressed seven factors that came to light during those events: gamification; payment for order flow; short selling transparency; social media; market "plumbing" related to clearing and settling trades; equity market structure; and systemwide risks. Those risks, highlighted by the GameStop and the Archegos situations, show "where losses at individual firms can have wider impacts on the banking system," Mr. Gensler said.
"Issues of concentration, whether among market makers or brokers at the clearinghouse, may increase potential systemwide risks, should any single incumbent with significant size or market share fail," he said.
While he acknowledged the "alphabet soup" of regulators trying address these market issues in other countries, "there is an advantage to enhanced disclosure," Mr. Gensler said.
House Financial Services Committee Chairwoman Maxine Waters, D-Calif., said the panel is "putting Wall Street on notice that we are watching closely," and considering six legislative proposals to address some of the issues highlighted by GameStop and Archegos.
