• 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.


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