• Market Crumbs

SEC Chairman Is Worried About Retail Investors

Image via Jonathan Petersson on Unsplash

Just yesterday we wrote about the recent slew of earnings reports from brokers that confirmed the unprecedented rise in retail trading since the coronavirus outbreak began.

"Zero commissions and sustained volatility drove new and existing client engagement, leading to record trading levels," TD Ameritrade interim president and CEO Steven Boyle said.

It appears Jay Clayton, the Chairman of the U.S. Securities and Exchange Commission, is taking notice as well. Appearing on CNBC yesterday, Clayton said he's worried about retail investors increasingly turning to short-term trading as opposed to long-term investing.

"Here at the SEC, when we think about that investor, we think about someone who’s investing for the long term: investing over time, doing it on a monthly basis," Clayton said. "What we are seeing is significant inflows from retail investors, and they have the hallmarks of short-term inflows. And does that concern me? Sure."

"Because that’s more trading than investing," Clayton continued. "Short-term trading is much more risky than long-term investing, and so I do worry."

Clayton said the SEC has provided guidance to brokers and advisors on how to give investors warnings about the risks associated with trading in certain types of equities. "I hope people are heeding that," Clayton said.

While Clayton can give the appearance he is concerned about retail investors, not everyone is convinced that's actually true.

The SEC proposed last month changing the reporting requirement for Form 13F, which funds file quarterly to show investment activity and holdings, from a threshold of $100 million in assets under management to a threshold of $3.5 billion.

Clayton said the proposal "will update, for the first time in over 40 years, the 13F reporting threshold to a level that furthers the statutory goal of enabling the SEC to monitor holdings of larger investment managers while reducing unnecessary burdens on smaller managers."

"Hardly anyone’s talking about this, but the Securities and Exchange Commission is getting ready to push through what I regard as an outrageous rule change that would make the market a lot less transparent," Jim Cramer said of the proposal. "Who the heck defends opaque behavior these days? ... The SEC used to fight for transparency. Now is not the time to rule against it."

Cramer called the proposal an "almost textbook example of regulatory capture where government agencies end up doing the bidding of the industries they’re supposed to supervise and regulate."

Along with consistently turning its head to comments from Tesla CEO Elon Musk as well as countless other examples, it's hard to be convinced that Clayton and the SEC are actually worried about retail investors.

Leftover Crumbs

  • Jobless claims jump. Initial jobless claims jumped last week for the first time since mid-March as 1.416 million Americans filed for unemployment benefits, according to the U.S. Department of Labor. Last week marked the 18th-consecutive week in which initial jobless claims exceeded one million. Continuing claims dropped by 1.107 million to 16.197 million for the week ending July 11 and sit well below the peak of just under 25 million from early May.

  • Apple faces probe. Apple is being probed by a number of states over potential violations of a consumer protection law, according to a document obtained by the Tech Transparency Project. The document states that the Consumer Protection Division of Texas' attorney general office "is involved in a multistate investigation into Apple for potential violations of the Texas Deceptive Trade Practices Act." The document also states that the office "anticipates litigation in this matter." A spokesperson for Texas' attorney general office said "we cannot comment on, confirm or deny any potential or ongoing investigations."

  • Tesla chooses Austin. As widely expected, Tesla confirmed it will build its next Gigafactory near Austin, Texas. The factory will be on about 2,000 acres and will be located about 15 minutes from downtown Austin. The Texas Gigafactory will produce the Cybertruck, Semi and the Model 3 and Model Y for the eastern half of North America. "We’re going to make it a factory that is going to be stunning it’s right on the Colorado River. So we’re actually going to have to have a boardwalk over you, hiking, biking trail. It’s going to basically be an ecological paradise," Tesla CEO Elon Musk said.

  • Amazon begins offering auto insurance. Amazon has partnered with Acko General Insurance, which it is an investor in, to offer insurance for two and four-wheel vehicles in India. Amazon said the insurance can be purchased through Amazon pay in less than two minutes. "Our vision is to make Amazon Pay the most, trusted, convenient and rewarding way to pay for our customers. Delighted by this experience, there has been a growing demand for more services. In line with this need, we are excited to launch an auto insurance product that is affordable, convenient, and provides a seamless claims experience," director and head of financial services at Amazon Pay in India Vikas Bansal said.

  • SpaceX eyes big valuation. SpaceX is reportedly in discussions with investors to raise about $1 billion at a valuation of $44 billion. The funding round, which would value the privately held SpaceX at $270 per share, is unlikely to be completed within the next month and deal terms could still change. SpaceX previously raised $346.2 million in May at a valuation of $36 billion. SpaceX declined to comment on the report.