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Photo: Gary Gensler, then head of the Commodity Futures Trading Commission, in 2013. (Photo: Andrew Harrer/Bloomberg via Getty Images)

SEC chairman Gary Gensler alluded that tougher rules could be coming for players involved in the Reddit trading saga earlier this year, according to remarks released ahead of a congressional hearing scheduled for Thursday.

Why it matters: They're his "most revealing comments so far" on the issue since being confirmed to head the regulatory agency, Bloomberg notes.

Catch up quick: Gensler will testify in the upcoming congressional hearing related to the trading frenzy earlier this year.

  • The heads of clearinghouse DTCC and the Financial Industry Regulatory Authority will also testify — both speaking out publicly on the issue for the first time.

What they're saying: "Many of our regulations were largely written before these recent technologies and communication practices became prevalent ... we may find that we need to freshen up our rule set," Gensler plans to tell the House Financial Services Committee on Thursday.

  • He was referring to trading apps like Robinhood's game-like features that may entice investors to trade more.

Details: Gensler plans to address a number of practices thrust into the limelight on the back of the GameStop mania.

  • On payment for order flow — i.e. when market-makers like Citadel Securities pay companies like Robinhood to fulfill stock trades sent their way: "Many Robinhood customers shouldered the costs of inferior executions; these costs might have exceeded any savings they might have thought they’d gotten from a zero commission."
  • On trade settlement — or the time it takes for trades to clear after they are made (currently two days after the trade happens): "We now have the technology to further shorten the settlement cycles ... even to same-day settlement ... I believe shortening the standard settlement cycle could reduce costs and risks in our markets."
    • He added the SEC is putting together a draft proposal for review.
  • On social media and trading: "I’m not concerned about regular investors exercising their free speech online. I am more concerned about bad actors potentially taking advantage of influential platforms."
  • Gensler plans to say SEC staff is examining whether Robinhood is "adequately disclosing their policies and procedures around potential trading restrictions" and whether "margin requirements and other payment requirements are sufficient."

Worth noting: Gensler's prepared remarks mention Archegos, the family office that blew up after using an instrument called swaps to place huge bets on stocks with little upfront cash.

  • Gensler notes SEC staff is possibly considering more reporting rules for swaps, as well as greater disclosure of short-selling.

The other side: "We look forward to engaging with the SEC as they consider potential rules in these areas," Robinhood's head of public policy communications Jacqueline Ortiz Ramsay tells Axios.

The bottom line: The Reddit hype may have died down (see: poster meme stock GameStop, down 54% from its peak in January) — but regulators want to figure out what, if anything, should change as a result.

Go deeper

Felix Salmon, author of Capital
Aug 4, 2021 - Economy & Business

The downside of Robinhood's upside

Expand chart
Data: YCharts; Chart: Axios Visuals

One definition of a meme stock: Any publicly listed company whose stock becomes a speculative vehicle beloved of retail investors armed with small-dollar Robinhood accounts. To no surprise, Robinhood itself has now become one of those stocks, just a few days after going public last week.

Why it matters: Robinhood is one of the most high-profile disruptive fintechs to have gone public. There's irony and symbolism to its stock price ceasing to be a reflection of corporate fundamentals and instead becoming a short-term gambling mechanism. But that transformation effectively removes an important valuation signal that investors might otherwise have found very helpful.

Updated 18 mins ago - World

North Korea claims latest missile test new weapon launched from submarine

North Korean state media claims the country's military fired this missile on Tuesday. Photo: Korean Central News Agency

North Korean state media announced that a detected ballistic missile launch off its east coast on Tuesday was a newly developed weapon test-fired from a submarine.

Why it matters: Pyongyang's latest in a series of recent missile launches into the sea happened hours after U.S. officials emphasized their commitment to restart negotiations on North Korea's nuclear weapons program, which have stalled since talks broke down during the Trump administration, AP notes.

3 hours ago - Politics & Policy

Manchin's massive means test

Illustration: Aïda Amer/Axios

Sen. Joe Manchin (D-W.Va.) is offering progressives a trade: He'll vote for their cherished social programs if they accept strict income caps for the recipients, people familiar with the matter tell Axios.

Why it matters: Manchin’s plan to use so-called means-testing for everything from paid family medical leave to elder and disabled care would drastically shrink the size and scope of the programs. It also would bring a key moderate vote to the progressive cause.