Politics

"It’s a must to have a cop on the beat": Elizabeth Warren slams SEC over GameStop chaos

Senator Elizabeth Warren, D-Mass.

Tom Williams | CQ Roll Call, Inc. | Getty Images

Senator Elizabeth Warren on Thursday berated the Securities and Exchange Commission, blaming the regulator and its failure to act for a chaotic, days-long flash of market speculation.

"We need an SEC that has clear rules on how to manipulate the market and then has the backbone to enforce those rules," Warren said. "To have a healthy stock market, you have to have a cop on tact."

"That should be the SEC," she added. "You have to step up and do your job."

The SEC did not respond to CNBC's request for comment.

The Massachusetts senator joined CNBC after wild stock trading forced the popular trading app Robinhood to restrict access to the soaring stocks at the center of the controversy.

Warren, a longtime Wall Street critic, spoke to CNBC's "Closing Bell" when individual traders visited Reddit, Twitter and other social media platforms to protest Robinhood's drive to curb trading in stocks like GameStop and AMC Entertainment.

But she made it clear that she's not a huge Robinhood fan either.

Robinhood and similar companies that incentivize enrollment and force customers to sign arbitration clauses are not helping create healthy market conditions, she said.

These arbitration clauses, she said, protect Robinhood, "if it turns out [it] has really betrayed you. It will never be published, there will be very little you can do."

Public outrage over Robinhood came after the California-based broker announced Thursday that it would prevent customers from buying additional shares in companies like GameStop and moving theater operator AMC Entertainment. Customers can continue to sell these stocks from their current portfolio.

Investors in the disrespectful WallStreetBets Reddit have been trying to "squeeze" short sellers to cover their bets on such stocks and have sparked a wave of volatile trading in recent sessions as a result. Many of these retail investors triggered the brief press from Robinhood's popular trading app.

Video game retailer GameStop is up 250% this week, AMC is up 145% and headphone maker Koss, another "squeeze" target, is up a whopping 1,100%.

Robinhood's decision, allegedly motivated by "extraordinary volatility in the markets", sparked criticism on both sides of the political corridor.

For his part, Warren said she was skeptical of any narrative that would link current trading to a classic "David versus Goliath" story in which a group of retail investors battle a colossal hedge fund empire.

"That's the problem: how do you know who is manipulating the stock at this point?" She asked. "Are you absolutely sure there aren't wealthy people on either side? That hedge funds didn't move in on the side of the people who raised the price of GameStop?"

Rep. Ro Khanna, D-Calif., A progressive representing Silicon Valley, called for "more regulation and equality" and challenged the fairness of preventing individuals from buying.

"While retailers blocked the purchase of GameStop in some cases, like Robinhood, hedge funds were allowed to continue trading the stocks," said Khanna.

By buying GameStop or AMC stock or calling options, retail investors have forced investors to bet against the stock, known as shortsellers and often hedge funds, to cover their positions by buying back stocks to avoid further losses .

If this happens en masse, it can create a feedback cycle and an increase in the stock price.

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