Acting SEC Chair Responds to Lawmaker Volatility Concerns

SEC Acting Chair Allison Herren Lee proposed several actions the agency might take to address concerns raised by Senator Elizabeth Warren regarding the recent volatility in the market, particularly with regard to retail trading in shares of GameStop Corp. and how regulators may better protect investors. “I believe we should seriously consider additional regulations in a few areas,” Herren wrote and pointed specifically to:

  • Regulations that require firms providing options trading to retail customers to disclose more information to those customers and more closely examine whether retail customers understand such products.
  • Regulations requiring increased disclosure of short-selling to regulators and the general public as well as completion of the Dodd-Frank mandate for a rule under Section 929X of Dodd-Frank.
  • Examination of the effects of certain firms receiving payment for access to their order flow to determine, among other things, whether these practices are properly and thoroughly disclosed and fully consistent with best execution obligations.

The Wall Street Journal in a report discussed the controversy over payments for order flow, a practice which the SEC has long supported. According to the report, critics of payments for order flow say it encourages brokerages to send customer orders to the market centers that pay the biggest rebates. However, supporters of payments for order flow say the practice is misunderstood and can benefit investors in terms of trading and price efficiencies.