U.S. SEC chief 'worries' about retail investors trying to get rich quick

"I encourage people to educate themselves, but short-term trading is more risky than long-term investing and I do worry about this risk investors take," Clayton told CNBC. He also defended a recent agency proposal to significantly raise the reporting threshold for large institutional investment managers after critics said it would reduce market transparency.

The head of the U.S. Securities and Exchange Commission (SEC) on Thursday said he is worried about the risks to retail investors who are increasingly making short-term bets via low-cost trading platforms rather than sticking to long-term investments.

"We're seeing significant inflows from retail investors who conduct more trading than investing," Jay Clayton said in a Thursday interview on CNBC's "Squawk Box." The rise of new, low-cost, easy-to-use trading apps combined with ultra-low interest rates has unleashed a flood of retail money into stocks from investors looking to cash in on the market rally. That money has often flowed into highly risky trades, including stocks that have filed for bankruptcy.

Robinhood Markets Inc came under https://uk.reuters.com/article/us-robinhood-options/robinhood-details-possible-changes-to-options-offering-after-suicide-by-customer-idUKKBN23Q38Q criticism in June when a 20-year-old customer took his own life after believing he incurred a large loss using the free trading app. The firm has since expanded its educational content for options trading. "I encourage people to educate themselves, but short-term trading is more risky than long-term investing and I do worry about this risk investors take," Clayton told CNBC.

He also defended a recent agency proposal to significantly raise the reporting threshold for large institutional investment managers after critics said it would reduce market transparency. Last month, the SEC proposed adjusting Form 13F, a quarterly report hedge funds submit about their investment activities and holdings. The measure would capture activity of hedge funds that hold $3.5 billion in assets, up from the current $100 million threshold drawn up four decades ago.

"The purpose of the form is for regulators to manage large positions in the marketplace and the current threshold is clearly not the right number," said Clayton.

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