Sen. Elizabeth Warren, D-Mass.
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Senator Elizabeth Warren on Thursday denounced the Securities and Exchange Commission, blaming the regulator and its negligence for a chaotic day-long blitz of market speculation.
“We need an SEC that has clear rules about 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 an agent on the beat.”
“That should be the SEC,” she added. “They have to come forward and do their job.”
The SEC did not immediately respond to CNBC’s request for comment.
The Massachusetts senator joined CNBC after wild fluctuations forced the popular trading app Robinhood to restrict access to the high-flying stocks at the center of the controversy.
Warren, a longtime Wall Street critic, spoke to CNBC’s “Closing Bell” when individual traders took to Reddit, Twitter and other social media platforms to protest Robinhood’s move to curb trading. But she made it clear that she’s not a huge fan of Robinhood either.
Robinhood and similar companies, which provide sign-up incentives while forcing clients to sign arbitrage clauses, are not helping create healthy market conditions, she said.
Those arbitration clauses, she said, protect Robinhood “ when it turns out [it] have you really cheated. It will never be made public, there will be very little you can do about it. “
Public outcry towards Robinhood came after the California-based brokerage announced earlier on Thursday that it would prevent customers from buying additional stock from companies including GameStop and theater operator AMC Entertainment. It still allows clients to sell those stocks from their current portfolio.
Investors on the irreverent WallStreetBets Reddit led an attempt to “squeeze” short sellers to hedge their bets on such stocks and, as a result, have sparked a frenzy of volatile trading in recent sessions. Many of those retail investors triggered the short squeeze in Robinhood’s popular trading app.
Video game retailer GameStop is up 250% so far this week, AMC is up 145% and headphone maker Koss, another “squeeze” target, is up a whopping 1,100%.
Robinhood’s decision, which it says was motivated by “extraordinary market volatility,” sparked criticism from both sides of the political aisle.
For her part, Warren said she is skeptical of a story that would link current trading to a classic “David versus Goliath” story that pits a scrappy group of retail investors against a colossal hedge fund empire.
“That’s the problem: how do you know who is manipulating the stock right now?” she asked. ‘Are you absolutely sure there are no rich people on either side? That hedge funds haven’t joined the people who raised GameStop’s price? ‘
Rep. Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for “more regulation and equality” and questioned the fairness of preventing individuals from buying.
“While retailers blocked the purchase of GameStop in some cases, such as on Robinhood, hedge funds were still allowed to trade the stock,” Khanna said.
By buying GameStop or AMC shares or call options, private investors have forced investors betting against the stock, also known as short sellers and often hedge funds, to hedge their positions by buying back shares in an attempt to avoid further losses. appearance.
When this happens en masse, it can lead to a feedback cycle and a spike in a stock’s price.