SEC commissioner hints at post-GameStop regulatory landscape
24 February 2021 US
Image: sec.gov
A US Securities and Exchange Commission (SEC) commissioner has given a speech calling for a hands-off approach to market regulation in the wake of GameStop volatility while sounding the alarm over calls for more decentralised finance.
Hester Peirce spoke at George Washington University Law School in the nation鈥檚 capital on Monday, as part of the university鈥檚 Regulating the Digital Economy Conference.
One of four current SEC commissioners, Peirce was appointed by former-president Donald Trump in January 2018.
The speech 鈥� which paraphrased Marshall McLuhan, emphasised the importance of civil liberties and aligned access to markets with the American Dream 鈥� was light on policy but did offer some insight into the minds of market overseers currently mulling how to react to the recent retail surge and short squeeze.
As the the 鈥渕omentous market events鈥� of January, the commissioner would not be drawn on the 鈥渟ignificant regulatory changes or enforcement actions鈥� that may occur as a result of the GameStop saga, but said it was time the agency 鈥渟tepp[ed] up our game as a regulator of the digital economy鈥�.
The commissioner noted that despite the changing times, the regulator鈥檚 role has remained largely the same; policing fraud, protecting investors, upholding the rules. 鈥淭he medium may change, but the message is the same,鈥� Peirce mused.
But, while new digital tools have made it easier to uncover bad actors and provide unparalleled insight into trading activity, Peirce said those same tools 鈥� massive datasets, enhanced computing power and sophisticated software 鈥� make it easier to 鈥渢rample over individual rights鈥�.
The commissioner鈥檚 reluctance to come down hard on retail investor involvement after the GameStop short squeeze rattled Wall Street will come as a relief to many in government and the public alike. During the on GameStop and 鈥減redatory鈥� short selling last week 鈥� the first of three 鈥� many House representatives singled out short selling, retail investing platforms and hedge funds.
Committee chair Maxine Waters鈥� indicated that the third hearing will focus on the regulatory response. No date is set for the hearing.
A House memorandum made clear the committee wants to dust off a half-forgotten section of 2010鈥檚 Dodd-Frank Act which would oblige firms to disclose their short selling data.
Peirce also addressed the anti-Wall Street sentiment 鈥渃oursing through鈥� the GameStop saga, noting that many still feel antipathy towards the sector after the bailouts of 2008鈥檚 financial crisis.
鈥淪ome participants seem to have viewed these price rallies and attendant short and gamma squeezes as a way to serve Wall Street a poisonous meal of its own making,鈥� Peirce quipped.
But she warned against moving to decentralised finance (DeFi), a 鈥渞apidly growing corner of the crypto world with significant money involved鈥�, in response to the anti-Wall Street sentiment.
Despite DeFi鈥檚 鈥渁lluring鈥� promises of democratisation, open access, transparency, predictability and systemic resilience, Peirce highlighted a report published by the Federal Reserve Bank of St. Louis, a regional reserve bank, which detailed the pitfalls of DeFi including security vulnerabilities, scaling problems, and faux decentralisation.
Rather than 鈥渢hrowing the legacy financial system out entirely鈥� and ushering in a new DeFI world, Peirce concluded, the agency should focus on enhancing transparency, modernising the post-trade settlement process and ensuring 鈥渢hat the markets are working for everyone鈥�.
Hester Peirce spoke at George Washington University Law School in the nation鈥檚 capital on Monday, as part of the university鈥檚 Regulating the Digital Economy Conference.
One of four current SEC commissioners, Peirce was appointed by former-president Donald Trump in January 2018.
The speech 鈥� which paraphrased Marshall McLuhan, emphasised the importance of civil liberties and aligned access to markets with the American Dream 鈥� was light on policy but did offer some insight into the minds of market overseers currently mulling how to react to the recent retail surge and short squeeze.
As the the 鈥渕omentous market events鈥� of January, the commissioner would not be drawn on the 鈥渟ignificant regulatory changes or enforcement actions鈥� that may occur as a result of the GameStop saga, but said it was time the agency 鈥渟tepp[ed] up our game as a regulator of the digital economy鈥�.
The commissioner noted that despite the changing times, the regulator鈥檚 role has remained largely the same; policing fraud, protecting investors, upholding the rules. 鈥淭he medium may change, but the message is the same,鈥� Peirce mused.
But, while new digital tools have made it easier to uncover bad actors and provide unparalleled insight into trading activity, Peirce said those same tools 鈥� massive datasets, enhanced computing power and sophisticated software 鈥� make it easier to 鈥渢rample over individual rights鈥�.
The commissioner鈥檚 reluctance to come down hard on retail investor involvement after the GameStop short squeeze rattled Wall Street will come as a relief to many in government and the public alike. During the on GameStop and 鈥減redatory鈥� short selling last week 鈥� the first of three 鈥� many House representatives singled out short selling, retail investing platforms and hedge funds.
Committee chair Maxine Waters鈥� indicated that the third hearing will focus on the regulatory response. No date is set for the hearing.
A House memorandum made clear the committee wants to dust off a half-forgotten section of 2010鈥檚 Dodd-Frank Act which would oblige firms to disclose their short selling data.
Peirce also addressed the anti-Wall Street sentiment 鈥渃oursing through鈥� the GameStop saga, noting that many still feel antipathy towards the sector after the bailouts of 2008鈥檚 financial crisis.
鈥淪ome participants seem to have viewed these price rallies and attendant short and gamma squeezes as a way to serve Wall Street a poisonous meal of its own making,鈥� Peirce quipped.
But she warned against moving to decentralised finance (DeFi), a 鈥渞apidly growing corner of the crypto world with significant money involved鈥�, in response to the anti-Wall Street sentiment.
Despite DeFi鈥檚 鈥渁lluring鈥� promises of democratisation, open access, transparency, predictability and systemic resilience, Peirce highlighted a report published by the Federal Reserve Bank of St. Louis, a regional reserve bank, which detailed the pitfalls of DeFi including security vulnerabilities, scaling problems, and faux decentralisation.
Rather than 鈥渢hrowing the legacy financial system out entirely鈥� and ushering in a new DeFI world, Peirce concluded, the agency should focus on enhancing transparency, modernising the post-trade settlement process and ensuring 鈥渢hat the markets are working for everyone鈥�.
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