US regulators consider rule changes for options trading and short-selling after GameStop frenzy

Elizabeth Warren
Massachusetts Senator Elizabeth Warren Drew Angerer/Getty Images
  • The GameStop short-squeeze earlier this year is prompting US regulators to consider potential rule changes for options trading and short-selling.
  • Senator Elizabeth Warren shared responses to her letters from the SEC and FINRA on Tuesday.
  • Both regulators said they are evaluating potential changes to a number of areas impacting investors.
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The epic short-squeeze in shares of GameStop earlier this year is prompting US regulators to evaluate potential rule changes that could impact Wall Street.

GameStop posted year-to-date gains of 2,463% at its peak in late January, as Reddit’s WallStreetBets forum piled into the name in the hopes of squeezing out short-sellers.

Now, Congress and US regulators are reviewing what happened to see if there are any vulnerabilities in the stock market that need to be addressed. Regulators are considering rule changes on everything from options trading, to short-selling and gamification practices by investing apps like Robinhood.

On Tuesday, Senator Elizabeth Warren shared the responses to her previous letters that asked the SEC and FINRA how they planned to respond to the volatility in GameStop. The responses revealed a list of issues the regulators are now examining.

The SEC said it is evaluating if there are any gaps in its market manipulation rules. The agency also said it will “seriously consider” increasing the requirements for brokers that offer options trading, and increasing disclosure requirements for brokers that deal with payment for order flow and for hedge funds and investors that engage in short-selling.

FINRA, meanwhile, said its looking into the gamification of the stock market by investing apps like Robinhood, and whether its current rules adequately address the risks presented by these practices. Both FINRA and the SEC said they are still investigating if there was any wrongdoing related to the meteoric rise of GameStop earlier this year.

“The GameStop controversy revealed how the Wall Street game is rigged in favor of big hedge funds and giant corporations – and how this hurts individual investors and the economy. I’m going to keep fighting for answers, a level set of rules, and a transparent and open market for everyone,” Warren said.