SEC Chair Gensler’s 49 Proposed Regulations Draw Ire of Hedge Fund Managers, Brokers and More

United States Senate Committee on Banking, Housing, and Urban Affairs Hearing "Oversight of the US Securities and Exchange Commission", Washington, District of Columbia, USA - 14 Sep 2021

Securities and Exchange Commission (SEC) Chair Gary Gensler — nominated in February 2021 by President Joe Biden and sworn in by April — didn’t lose one minute to address a slew of issues and propose sweeping Wall Street regulations.

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From a review of rules underpinning equity trading to proposed crypto regulations, and from short sale disclosures to climate change disclosures, Gensler laid out what Bloomberg called “one of the most ambitious agendas in the SEC’s 87-year history,” with 49 proposals, many already drawing opposition from hedge funds, stock exchanges, online brokers and public companies.

Ron Geffner, a former SEC enforcement lawyer himself, who now oversees the Financial Services Department at Sadis & Goldberg, told GOBankingRates that with 49 proposals in the works, Gensler “is in a difficult position in that the SEC is playing catch up to the “real world” with regard to digital currencies and the meme stock tulip bulb buying behavior.”

“As a former SEC enforcement attorney, first handedly I can confirm that the SEC will always have to play catch up in certain areas as we live in a dynamic world,” Geffner added. “Fraud takes all forms and with new developments in technology and fraud evolves equally quickly. While Gensler and his colleagues at the SEC will make mistakes from time to time by possible overreaching or failing to understand the implications, I expect that net net they will make a difference for the better.”

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To work on these, Gensler has set up 50 teams involving about 200 people to write rule proposals, Bloomberg reported.

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Some of the most vexing issues to market participants include gamification. In June, Gensler said he was calling for a review of rules underpinning equity trading “to maintain fair, orderly and efficient markets, while ensuring we protect investors and facilitate capital formation.”

Referencing the past months’ market frenzy around meme stocks, including AMC and GameStop, and trading apps such as Robinhood, Gensler said at the time that “the question is whether our equity markets are as efficient as they could be, in light of the technological changes and recent developments.”

But this issue itself is complex and has a domino effect, triggering additional problems, as Gensler explained in May in his testimony before the House Committee on Financial Services. “Our central question is this: When new technologies come along and change the face of finance, how do we continue to achieve our core public policy goals and ensure that markets work for everyday investors? As we work to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, I’d like to highlight seven factors that were at play in these volatile events: Gamification and User Experience; payment for order flow; equity market structure; short selling and market transparency; social media; market “plumbing”: clearance and settlement; and system-wide risks.

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Other vexing issues for stakeholders such as Wall Street and Silicon Valley entrepreneurs include regulations around special purpose acquisition companies (SPACs), as the agency is likely to require more disclosure, particularly into how lucrative deals can be for SPAC sponsors, Bloomberg reported, adding that the SEC has signaled plans to propose a rule by April.

Regulations around cryptos represent another thorny issue, which has brought the ire of some lawmakers. Gensler infamously addressed these in August, saying that “right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West.”

Last week for example, the House Financial Services Committee held a hearing with Gensler, during which House Representative Patrick McHenry, the Ranking Republican on the House Financial Services Committee, scolded him on his stance on digital assets.

“You have made a number of concerning and contradictory public statements regarding crypto assets and other innovative technology. When you were here in May, you stated that there was a need for additional legislation to appropriately regulate digital asset exchanges. Then, just a few weeks ago, when you testified before the Senate Banking Committee, you stated that there was a ‘great deal’ of clarity in the law,” McHenry said, according to the transcript of the hearing.

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“You implied that many digital asset exchanges are unregistered securities exchanges, and even threatened one digital asset exchange by name. So, which is it? Does the SEC want more legislative authority, or is it about to unleash a regulatory tsunami under existing laws?,” he added. Following the hearing, McHenry sent Gensler a letter, reiterating comments he made during the hearing.

Last updated: October 11, 2021

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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