SEC nominee Gensler vows GameStop review as Rocket shares soar

Gensler tells confirmation hearing he'll review the GameStop retail trading frenzy and the role of market makers who pay for order flow from online brokers, as Rocket shares soar; wants company disclosure on climate risks, political spending, regulatory clarity on crypto

SEC nominee Gensler vows GameStop review as Rocket shares soar
SEC chairman nominee Gary Gensler says he will look into the retail trading frenzy and the role of payment for order flow by market markers. File photo: Reuters

(ATF) Gary Gensler, Biden’s nominee to lead the Securities and Exchange Commission (SEC), said at his Senate confirmation hearing on Tuesday March 2 that he would look into whether retail investors get the best prices when brokers are paid for their order flow.

Gensler also said the SEC would explore issues that are raised when a handful of market makers, such as Citadel Securities, dominate the processing of orders for retail traders.

“What if a company… concentrates and dominates a field? One firm now has 40% to 50% of the retail flow and so what does that do to pricing of capital in this country?” he said during his confirmation hearing before the Senate banking committee.

GameStop shares continue to see big price swings after retail traders on social media site Reddit bought the stock to counter trades by short-selling hedge funds.

The coordinated retail buying of GameStop seemed to have subsided after its peak in late January, but volumes have since revived and another heavily-shorted stock – mortgage provider Rocket – saw its shares surge on Tuesday.

Rocket sees volatile trading

Shares of Rocket, the parent company of Quicken Loans, closed up 71% at $41.60 after being halted several times for volatility. More than 367 million shares changed hands in the stock’s busiest trading day ever.

The outsized move puts Rocket among the stocks that have experienced wild gyrations after becoming a focus of investors on sites such as Reddit’s WallStreetBets, where mentions of the company have multiplied in recent days. The company’s market cap rose by more than $34 billion to $82.6 billion.

Shares of Rocket were so heavily shorted that they were vulnerable to a short squeeze, where investors betting against a company’s shares are forced to unwind their positions after a rally in the stock price.

The value of Rocket shares shorted stood at $1.2 billion as of Monday’s close, accounting for nearly 46% of the float, compared with 35.5% at the beginning of February, according to S3 Partners.

The position made Rocket the fifth largest short in the banking sector, behind JPMorgan and Citigroup, S3 data showed.

The firm issued a report titled “Rocket Shorts are Crashing and Burning” and referred to the trading activity as “GameStop-esque.”

While Rocket has been growing quickly, some experts have warned that the housing market could experience a slowdown later in 2021, even as low interest rates fuel refinancings.

As a result, some investors have snubbed the initial public offerings of mortgage lenders. Rocket had to slash the size of its offering by about a third due to weak demand when it debuted in August.

Rocket CEO Jay Farner is due to participate in a Morgan Stanley conference on Wednesday morning.

Mentions of Rocket on WallstreetBets have shot higher in recent days, according to website SwaggyStocks.com, which tracks comments on the forum.

Shares in another mortgage company, UWM Holdings, closed up 19.7% at $9.13 with trading volume exceeding five times the 10-day moving average.

Other stocks followed closely by retail investors were lower Tuesday, with shares of GameStop closing down 1.8%.

Climate risks disclosure, political spending

SEC chairman nominee Gensler also suggested he would pursue disclosure for public companies when it comes to the risks posed by climate change at his hearing on Tuesday.

He said companies should not be able to hide those risks and investors rather than companies should determine what information gets disclosed.

He also said the SEC should study whether companies should disclose any political spending.

Gensler indicated he could pursue new regulatory clarity around cryptocurrencies, which he said can be a “catalyst for change” but pose investor protection concerns.

“It’s important for the SEC to provide guidance and clarity ... sometimes that’s a clarity that will be a thumbs up, but even if it’s thumbs down, it’s important to provide that,” Gensler said.

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Markets United States SEC nominee Gary Gensler confirmation hearing GameStop frenzy Retail trading Reddit online brokers Rocket company disclosure climate risks political spending crypto regulations