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Sen. Elizabeth Warren, D-Mass.
Tom Williams | CQ-Roll Appeal, Inc. | Getty Images
Senator Elizabeth Warren blasted the Securities and Exchange Commission on Thursday, accusing the regulator and its failure to act for a chaotic blitz of speculation in the markets.
“We need an SEC that has clear rules on market manipulation and then has the backbone to come in and enforce those rules,” Warren said. “To have a healthy stock market you have to have a cop on the beat.”
“It should be the SEC,” she added. “They have to come together and do their job.”
The SEC did not immediately respond to CNBC’s request for comment.
The Massachusetts senator joined CNBC after wild swings forced popular trading app Robinhood to restrict access to high-profile stocks at the center of the controversy.
Warren, a longtime Wall Street critic, spoke to CNBC’s “Closing Bell” as individual traders took to Reddit, Twitter and other social media platforms to protest Robinhood’s decision to curb trading. But she made it clear that she wasn’t a huge Robinhood fan either.
Robinhood and similar companies, which offer listing incentives while forcing clients to sign arbitration clauses, are not helping to create healthy market conditions, she said.
These arbitration clauses, she said, protect Robinhood “if it turns out that [it] really cheated on you. It will never be made public, there is not much you can do. “
Public outrage over Robinhood came after the California-based brokerage firm announced earlier Thursday that it would ban clients from buying additional shares in companies such as GameStop and moving theater operator AMC Entertainment. . It still allows clients to sell those stocks from their current portfolio.
Investors on the irreverent WallStreetBets Reddit have led an effort to “squeeze” short sellers to hedge their bets on such stocks and, as a result, have sparked a volatile trading frenzy in recent sessions. Many of these retail investors have triggered the short push on Robinhood’s popular trading app.
Video game retailer GameStop is up 250% so far this week, AMC is up 145% and headset maker Koss, another “squeeze” target, is up 1,100%.
Robinhood’s move, which she said was prompted by “the extraordinary volatility of the markets”, drew criticism from both sides of the political aisle.
For her part, Warren said she was skeptical of any narrative that would link current trading to a classic “David vs. Goliath” story that pits a rambling group of retail investors against a colossal hedge fund empire.
“That’s the problem: how do you know who is handling the stock at this point?” she asked. “Are you quite sure there aren’t rich people on both sides? That the hedge funds haven’t moved to the side of the people who made GameStop go up?”
Representative Ro Khanna, D-Calif., A progressive who represents Silicon Valley, called for “more regulation and equality” and questioned the fairness of preventing individuals from buying.
“While retail in some cases, like on Robinhood, blocked the purchase of GameStop, hedge funds were still allowed to trade in the stock,” Khanna said.
By purchasing GameStop or AMC stocks or call options, retail investors forced investors to bet against the stock, known as short sellers and often hedge funds, to hedge their positions by buying back stocks. in order to avoid further losses.
When this happens en masse, it can lead to a feedback cycle and a stock price spike.
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