GameStop Meme Stock Frenzy Drives Market Pipeline Transformation Says SEC Chairman Gensler

Coin World News Report:
GameStop’s short-selling in 2021 has taught the U.S. Securities and Exchange Commission (SEC) several key lessons. SEC Chairman Gary Gensler emphasized the necessity of modernizing the stock market in his speech on Monday, partly due to the shortened settlement time.
Nearly four years ago, during the “meme stock” frenzy, a retail-led movement against Wall Street short-sellers led to a surge in GameStop’s stock price. Restrictions imposed by several brokerage firms, forcing them to hold or sell stocks with soaring prices, weakened the subsequent rebound, which has been documented in books and movies and has become part of stock market history.
Gensler, a staunch critic of the digital asset industry, attributes some of the restrictions to a lack of market efficiency. Ultimately, the shift to shorter settlement times – which experts say benefit from blockchain technology – improves the mechanics that strangled some GameStop investors.
Gensler stated, “Many everyday investors missed out on opportunities to enter the market.” “The longer it takes to settle a trade – the slower the pipes – the greater the risk our market bears.”
There is a delay between the completion of a trade on exchanges like the New York Stock Exchange and the full processing by a series of intermediaries, including broker-dealers, clearinghouses, and exchanges.
It is noteworthy that the SEC has accused cryptocurrency exchanges such as Binance and Coinbase of simultaneously performing multiple roles without proper registration while facilitating securities transactions. Both companies have denied the allegations by regulatory agencies in ongoing federal lawsuits.
The settlement window for securities contracts, once conducted with paper checks and physical certificates, has been shortened with changes in SEC rules. Known as T+2, the settlement window was shortened by two days in May, making it “truly different” for everyday investors, as Gensler mentioned.
Meanwhile, the shift to T+1 affects the relationship between brokers of matched trades and clearinghouses that facilitate securities trading and payments.
The additional margin requirements of clearinghouses led some brokerages to restrict the purchase of GameStop stock during the famous short-selling period in 2021. However, Gensler stated that with the adoption of T+1, “the amount of margin or collateral that must be deposited with a clearinghouse has been greatly reduced.”
Gensler’s reflection on GameStop came after Federal Reserve Board Governor Christopher Waller made remarks last week focusing on cryptocurrencies.
In discussing the advantages of decentralized finance (DeFi), he described how intermediaries have historically provided value but now face competition.
As reflected in the popularity of centralized cryptocurrency exchanges, Waller believes that DeFi can complement existing financial markets rather than replace traditional systems. Along these lines, he said that distributed ledger technology (DLT) such as blockchain could be an “efficient, fast way of recordkeeping,” while smart contracts flatten transaction structures.
Waller said, “Smart contracts can effectively combine multiple steps of a transaction into a unified action.” “This can provide value because it can reduce risks associated with settlement.”
Companies like tZERO are establishing blockchain-based markets for private securities. The Utah-based company has been approved to act as a custodian for digital assets sold as securities last month, obtaining authorization from the SEC and the Financial Industry Regulatory Authority (FINRA).
By early 2025, the company plans to “fully digitize” its series A preferred stock. But the vision for cryptocurrency-based markets goes far beyond this scope, according to Larry Fink, CEO of BlackRock.
Fink applauded that tokenization will become the “next generation of securities” by 2022. He said that trading assets represented digitally on the blockchain will offer market participants “instant settlement” and “reduced costs.”
With the rise of cryptocurrencies, financial firms are also exploring other inherent features of blockchain, such as its operation on a 24/7 schedule in the trading environment. The cryptocurrency market does not close, which provides both opportunities and risks.
In April, the Financial Times reported that the New York Stock Exchange is exploring 24/7 trading. This development would significantly disrupt the exchange’s conventional six-and-a-half-hour trading window, which has been in place since 1985.
Editor: Andrew Hayward