U.S. SEC chair says reviewing short-selling, swap rules after GameStop, Archegos sagas

FILE PHOTO: U.S. one dollar banknotes are seen in front of displayed GameStop logo in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration

WASHINGTON (Reuters) -The U.S. securities regulator is considering measures to require big investors to disclose more about short positions, or bets that stocks will fall, use of derivatives to bet on other stock moves and to protect small investors from trading apps that use features common to video games in order to boost risky trading activity.

The review of rules by the Securities and Exchange Commission (SEC) was prompted by January's GameStop saga and the meltdown of Archegos Capital, its new chair plans to tell lawmakers. Gary Gensler, sworn in last month as chair of the top markets watchdog, will testify before the House of Representatives Financial Services Committee on Thursday. Democrats are pressuring him to take a tough stance on Wall Street after Gamestop's fierce rally in January, fed by bullish posts on Reddit, and the March implosion of New York investment fund Archegos. "Whenever there are major market events, it's a good idea to consider what risks they might have placed on the entire financial system," Gensler will tell lawmakers, according to prepared testimony published by the committee on Wednesday. SEC staff are working on potential measures, Gensler will say, including greater disclosure of "short-selling," a strategy hedge funds and other big investors use to bet a stock will fall; increasing transparency around securities lending, which underpins short-selling; and new reporting rules for the "total return" equity swaps that felled Archegos, a family office. In addition, Gensler has asked staff to draft a request for public input into how trading apps entice retail customers using game-like features such as points, rewards, bonuses, and competitions, according to his testimony.