Ajit Karn
In a bid to reduce the danger shown in the GameStop incident of 2021, in which ordinary investors incurred significant losses, Wall Street’s top regulator on Wednesday announced guidelines restricting the time-frame for stock trading.
In a step that would probably preclude cryptocurrency platforms from playing a crucial marketplace role, the US Securities and Exchange Commission (SEC) recently recommended modifying the regulations governing client assets held by investment managers.
The SEC decided to reduce the amount of “systemic risk” that was highlighted in early 2021 when the share price of consumer electronics retailer GameStop Corp. fell precipitously amid high market volatility, by shortening the period between when a securities order is placed and when a trade concludes. This decision was made on a 3-2 vote.
Six years after a previous SEC regulation decreased the time from three days to one business day, trade organisations have generally praised the commission’s plan to do the same.
In a comment submitted to the SEC, Cornell University Law Professor Birgitta Siegel stated that market participants’ eagerness to switch to the shorter settlement cycle “will help expedite the transition and overcome any obstacles,” such as pricey system updates and industry-wide changes to processes.
However, industry participants have complained that the SEC is moving too swiftly to compel compliance. The revised regulation becomes effective on May 28, 2024, which is later than the previously intended implementation date of March 31, 2024 but sooner than they would want.
Hester Peirce and Mark Uyeda, both Republican commissioners, voted against the change due to the short transition time.
The SEC staff said in a report on the circumstances surrounding the early 2021 GameStop deals that the chance of a buyer or seller defaulting—by refusing to make a payment or turn over shares sold—increased the longer a sale remained unresolved.
Trading platforms are often required by clearing houses to make large margin deposits to mitigate such risks, which may result in costs that soar during times of market stress and volatility.
GameStop’s stock price plummeted after its prior volatility prompted trading platform providers like Robinhood Markets Inc. to issue multibillion-dollar margin calls. In response, Robinhood and other companies prohibited consumers from purchasing the stock.
According to the SEC, a shorter settlement cycle should result in fewer defaults, which will assist reduce margin deposit costs and lessen the likelihood that such an event would occur again.
SEC TARGETS ‘CUSTODIANS’ OF CRYPTO
The commission suggested new guidelines for investment advisors, who may only keep custody of client money or securities provided they adhere to safety standards. The proposal was approved 4-1.
The SEC’s proposed draught would apply these guidelines to all client assets, including digital currency.
Assets belonging to investors must be kept by advisers with a company recognised to be a “qualified custodian.” Reuters has previously reported that SEC enforcement personnel have begun questioning registered investment advisers about whether they are adhering to the current standards when it comes to customers’ digital assets.
By establishing independent audits and guaranteeing that client assets are maintained in accounts to safeguard them in the case of bankruptcy, the plan would stop many cryptocurrency platforms from acting as these custodians.
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Working with crypto businesses would become more challenging for hedge funds and private equity companies investing in digital assets on behalf of customers.
“Don’t be misled. Investment advisors cannot depend on crypto platforms as competent custodians given how they often operate, “In a statement, SEC head Gary Gensler discussed the idea.
