Meme Stocks Game Could Stop With Gensler

It could be game over for meme stocks with the nomination of Gary Gensler to lead the U.S. Securities and Exchange Commission. He said on Tuesday that if confirmed, he would take a closer look at trading gamification, inadequately funded platforms, and payments for order flow by market participants in light of the roller-coaster ride in GameStop’s share price earlier this year. But the agency has other, perhaps tastier, fish to fry, like special-purpose acquisition companies, or SPACs.

Online brokerage firm Robinhood’s handling of GameStop (GME) was a popular topic at Gensler’s Senate confirmation hearing. Retail investors pushed up GameStop’s stock from $20 a share in mid-January to a high of $483 just two weeks later.

Gensler said he wants to ensure retail investors are getting the best execution of their trades. It’s not clear how that fits with brokerages like Robinhood collecting payments from market makers like Citadel for their business. He also questioned the virtual balloons and confetti that come with a Robinhood trade.

Blank-check companies, another hot market topic, didn’t come up in the hearing. Arguably SPACs should be a bigger focus for Gensler if confirmed. After all, last year SPAC initial public offerings raised $83 billion, according to SPAC Research, and this year the total is already running at $65 billion.

One possible SEC focus is that firms bought by SPACs have been able to publicize lofty projections, something initial public offering candidates have to be much more guarded about for legal reasons. For example, electric vehicle startup Nikola, which combined with a SPAC last year, projected it would have more than $3 billion in revenue by 2024 though it has barely had any money coming in so far.

Clearer disclosure about how extra shares and warrants handed to early SPAC investors dilute other shareholders could be helpful, too.

Gensler would need to ensure the SEC can multitask effectively, including enforcement efforts as well as keeping up with market developments. His 20 years at Goldman Sachs and stint at the Commodity Futures Trading Commission, during which the regulator punched above its weight, are in his favor.

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