The U.S. House Financial Services Committee considered reform recommendations from capital market experts on regulatory questions arising from the GameStop trading event.

At the hearing titled "Game Stopped? Who Wins and Loses when Short Sellers, Social Media and Retail Investors Collide, Pt. II", the legislators heard testimony on possible areas for reform. (See Memorandum prepared by Majority staff.) Witnesses addressed conflicts of interest between payment for order flow and best execution, short sale disclosures, the acceleration of settlement times, market dominance and the gamification of online trading by retail investors.

New York Stock Exchange Chief Operating Officer Michael Blaugrund testified that regulatory reform should concentrate on (i) shareholder disclosure, (ii) transparency for securities lending, (iii) the elimination of competitive barriers for public investors and (iv) moving to a one-day ("T+1") settlement cycle. On these four topics, Mr. Blaugrund recommended, respectively, that the SEC should consider:

  • shortening the delay for Form 13F reporting and complementing the public Form 13F filing with "mechanisms" that would directly disclose to corporate issuers an established or fully divested reportable position;
  • establishing an analogous Consolidated Tape for securities lending, such a system being described as a publication of "the quantity, fees and/or rebates, duration and other material terms for each stock loan without attribution";
  • harmonizing on- and off-exchange price increment regimes, specifically expanding sub-penny trading to public lit exchanges; and
  • accelerating industry settlement cycles from two days ("T+2") to T+1 after the trade. Mr. Blaugrund stated that the capital efficiency of the T+1 cycle would outweigh the cost of potential operational errors.

Former SEC Commissioner Michael S. Piwowar, currently Executive Director of the Milken Institute Center for Financial Markets, recommended that:

  • the SEC should revisit (abolish or greatly expand) the accredited investor definition to achieve more equitable access to investment opportunities in private companies across all income levels;
  • the Treasury Secretary should initiate a securities settlement work stream to coordinate how the SEC and the banking agencies could shorten the settlement cycle;
  • the SEC should consider amending Rule 605 ("Disclosure of Order Execution Information") and Rule 606 ("Disclosure of Order Routing Information") under Regulation NMS; and
  • as to trade reporting, the SEC should distinguish between "regulatory reporting" and "public transparency" before determining whether to increase regulatory reporting and, separately, whether new information should be provided to the public.

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