AILSA CHANG, HOST:
The stratospheric gains in shares of GameStop have turned our understanding of what's possible in the stock market upside down and inside out. This appears to be led from the ground-up communities on Reddit and by the use of apps like Robinhood. And while investors try to unpack what happened, so will the U.S. government. That effort will be led by the Securities and Exchange Commission. And the acting SEC chair is Allison Herren Lee, who joins us now.
Welcome.
ALLISON HERREN LEE: Thank you, Ailsa. It's a pleasure to be here.
CHANG: Pleasure to have you. So do you think what's happened this past week was a market failure or overall kind of a good thing in some ways?
HERREN LEE: Well, let me just start with our markets are the best and the strongest in the world. So, you know, in general, getting more information into the markets is a good thing and something that we all strive for. Now, this idea that, potentially, valuations are being disconnected from stock prices - that's not a good thing. And that's something that - I think you're going to see it change. You're going to see it come back to fundamental valuations. And we - our focus is on making sure that we protect investors when that happens.
CHANG: OK. Well, on that point, the SEC has said that it is looking to identify potential wrongdoing in the recent run-up in stocks such as GameStop. Tell me; what have you found so far?
HERREN LEE: I could tell you the angles. We're looking at this from a number of different angles, and they're very significant. So in the first place, of course, we need to look closely at the conduct of certain - of the broker-dealers, those financial intermediaries through which retail investors access the markets. We need to make sure that the decisions that they make when they look to restrict or limit trading are compliant with regulations, that they're transparent to their customers and that they're consistently and fairly applied. So that is sort of job one that we are working on.
Secondly, with respect to potential manipulation in the markets, that's another area where - this is our bread and butter at the SEC. We know how to do this. Now, this one has a little bit of a different spin to it. It's going to be a little bit more challenging because of the nature of it, but our enforcement division will rise to that challenge. And they are working, you know, around the clock right now to figure that out.
And then let me just mention one third area that we're looking at very closely, and that is these issuers. Now, for the most part, there's no new information in the market from these issuers. But we are going to make sure as we - you know, as we look to what they're doing, whether or not they are trying to raise money in the middle of this. And if so, can they adequately disclose the risks associated with that? And are insiders in these companies trading? So we're looking at this from a number of different angles...
CHANG: Yeah.
HERREN LEE: ...All focused on investor protection.
CHANG: Well, on the point of market manipulation, I am curious how you feel in general about short selling. This is when you bet against a company the way hedge funds did with GameStop. How concerned is the SEC about this kind of activity, about shorting stocks?
HERREN LEE: So that's a complicated area. I mean, we all know that shorting can serve some very important purposes in terms of hedging and, you know, even just taking a view on the value of a company. But it can also jeopardize market integrity. So we are examining what role that may have played in the recent events, and we're looking at all the implications there. For example, how well are the existing regulations and transparency requirements being enforced? And do we have sufficient data on short positions that are held by significant market participants? And do we have sufficient guardrails around those to address market risks that we may identify?
CHANG: Now, I have to ask you - the SEC was formed at the height of the Great Depression to protect investors, but obviously, a lot has changed since the 1930s. How well do you think SEC rules reflect this new reality we live in today with social media and trading apps like Robinhood?
HERREN LEE: Well, you know, the more things change, the more they stay the same, Ailsa. I will say that I have watched the tried and true principles upon which the SEC is founded - I have watched them work well for decades. We adapt. We understand how to adapt. We have an extremely expert staff who has seen decades of different types of misconduct taking different forms, but they fit into some pretty predictable buckets. So, you know, I think we have the tools, and we are using them.
CHANG: And just in the minute or so we have left, how concerned is the SEC that all of this upheaval could bring down the broader market somehow, where millions of people have their retirement savings?
HERREN LEE: We have seen nothing to indicate that that might - that - you know, these are a few different names. We're looking closely at those names. I haven't seen anything that suggests that it would bring down the market. I will say, though, that, of course, we have to be focused on anything - when we see stock prices depart so widely from fundamental valuations, we know there is a chance that people are going to get hurt, if not almost a certainty. So we want people to know that there are risks involved here. We want to educate them on those risks. And we don't want people to be making decisions - investment decisions based solely...
CHANG: Right.
HERREN LEE: ...On what they see on social media.
CHANG: Acting chair of the SEC Allison Herren Lee, thank you very much for your time today.
HERREN LEE: Thank you, Ailsa. It's a pleasure.
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