There is no one above the fray: Navigating the post GameStop regulatory environment
By Federico Baradello, Finalis
No matter how far back you go, the stock market crash in 1929 or the global financial crises of 2000s, there’s a continuum that market regulators are trying to catch up. One year after the GameStop stock trading drama, this process is again manifesting itself.
The recent meme-stock phenomenon is directly due to cost-free trading connected to social media-driven interactions about trading activities. Retail traders can trade stocks with ease thanks to retail trading apps. Simultaneously social media networks have made it easy for retail investors to trade stocks. Anyone can suggest and back investment ideas. It has created the perfect storm that will make stock trading a GameStop-like experience.
The imbalance between institutional and novice investors was exposed by the meme-stock phenomenon. Institutional investors were able take advantage of the meme-stock phenomenon in order to get short-term ROI. Some retail investors made small profits and suffered minor losses, but others were able make large returns. suffered deeplysome losing all their savings.
These challenges can present regulatory opportunities. GameStopand, a retail trading phenomenon that operates outside the same market sphere of professional traders, has an effect on all economic sectors. It has raised concerns and led to stricter regulatory requirements. Retail investors may be able to trade in their own trading universes, but regulators are making market-wide changes.
Last November, the U.S. Securities and Exchange Commission(SEC) Proposed Exchange Act Rule 10c-1, expanding investment position reporting requirements. The Rule requires securities lenders to provide details within 15 minutes after a transaction to a regulatory agency. This would allow some transaction details to be made public. The SEC is likely to also issue a rule amendment in the coming months. Limitations gamification and digital engagement prompts on investing apps.
FinTechs, which allow open access for this type of trading environment, need to be proactive and implement tech-savvy practices to stay ahead of the game.
It is important that financial services areas have not had the same tech-driven automation and ease to use that has made trading easier for retail traders. What the post-GameStop regulatory climate has done is create an urgency for underserved markets and allow them to take advantage.
Private markets, however, operate in a different regulatory climate. The barrier has been high-set and is being lowered gradually without compromising the appropriate safeguards. One of the most productive steps in recent years was to lower the standards for accredited investor and nonaccredited investor, making it easier private market investors can make private market investments. We have an unique opportunity to ensure market-entry barriers are reduced, but robust regulatory plumbing is maintained to protect accredited investors and retail-grade buyers in the private markets.
Financial institutions should now examine how their compliance infrastructure works and how it will function in the future to meet stricter regulatory requirements.
Technology has helped us get to this point. However, technology will also be a key tool for private sector participants to navigate a more strict regulatory environment. Tech-enabled compliance solutions can enhance risk management, boost time and cost efficiencies, improve accountability and accuracy, and reduce human error.
When combined with the right compliance approach, today’s technology advances allow us to challenge the notion that more regulation should be at the expense or market innovation.
It is long past time for the financial technology revolution in the compliance space. The financial services industry can be innovative and pro-compliance by focusing on technology that balances business growth and protection.
Federico Fed Baradello serves as the CEO and Founder of Finalis.
