WASHINGTON – Gary Gensler, President Biden’s choice to head the Securities and Exchange Commission, received calls from senators Tuesday to address issues ranging from climate change to the GameStop Corp.
commercial frenzy.
Progressives, who backed Mr. Gensler’s appointment, are hopeful that the veteran regulator will use the SEC’s oversight of Wall Street and public companies as leverage to advance broad domestic policy goals.
However, Republicans have criticized his aggressive stance on banks and other powerful interests, while he chaired the Commodity Futures Trading Commission from 2009 to 2014.
He testified at a nomination hearing before the Senate Banking Commission alongside Rohit Chopra, Mr. Biden’s choice to lead the Consumer Financial Protection Bureau.
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The SEC is investigating the GameStop episode and is considering whether more transparency is needed about the practice of short selling, a common way to bet that a stock’s price will fall. Mr. Gensler did not address the situation in a testimony prepared for delivery to the Banking Commission.
He will also likely be faced with questions about a proposal pending with Nasdaq’s SEC Inc.
to require the thousands of publicly traded companies to include women, racial minorities and LGBT individuals on their boards.
Republicans on the Banking Committee urged the SEC to deny the proposal because it disrupts the duty of board members to run companies in the best interest of their shareholders.
For their part, Democrats say the SEC should require public companies to include more information about diversity and employee compensation. They also call for more comprehensive reporting on the risks they face as a result of climate change or the government’s efforts to curb it. And Mr. Gensler is facing calls to further tighten a 2019 rule that will no longer require brokers to put the interests of their clients above their own.
Following the departure of Chairman Jay Clayton in late 2020, the SEC has been split evenly between two Republican and two Democratic Commissioners. That limits his ability to adopt the kind of rules that progressives would like to abide by.
The GameStop episode was the subject of a hearing before the House Financial Services Committee last month. It has raised concerns about the integrity of the US stock market and the rules that govern it. The SEC and other authorities are investigating whether the saga calls for policy changes or has been fueled by criminal misconduct such as market manipulation.
House lawmakers took different positions on the implications of the trade frenzy. Democrats focused on whether the simplified trading apps and commission-free business models of companies such as Robinhood Markets Inc. help or harm individual investors. Several Republicans praised the model to help lower transaction costs for small merchants and called for less regulation of Wall Street.
Lawmakers from both parties converged on whether short selling should be subject to stricter regulation. During the frenzy, small investors used social media to encourage each other to inflict losses on hedge funds that bet prices would fall.
Critics of the SEC have said in recent years that it has focused too much on helping companies raise capital and not enough on investing protection. Some have also called on the Commission to refocus enforcement efforts on large banks and hedge funds.
Under Mr. Clayton, enforcement highlighted misconduct that harms less sophisticated investors, including cryptocurrency scams and Ponzi schemes.
Democrats can also target private equity firms and hedge funds, which are lightly regulated investment firms that are inaccessible to retail investors. The companies captured 69% of the raised capital in 2019, while the regulated public markets accounted for 31%, according to SEC estimates.
A former Goldman Sachs executive, Mr. Gensler is known in Washington as an aggressive regulator who assumed powerful financial interests while serving as head of the Commodity Futures Trading Commission.
At the CFTC, he overcame the opposition to regulate the markets for hundreds of trillions of dollars in derivatives. Some of these complex financial instruments were blamed for the 2008-2009 financial crisis.
“If the SEC does its job – if there are clear road rules and a cop is out there to enforce them – our economy will grow and our nation will prosper,” Mr Gensler said on Tuesday.
“But if we take our eyes off the ball – if we fail to eradicate misconduct, or adapt to new technologies, or really understand new financial instruments – things can go very wrong. And when that happens, people get hurt. “
Write to Paul Kiernan at [email protected]
The recent trading volatility of GameStop and other stocks has prompted scrutiny from key players in the saga. Investigations of possible misconduct focus on actions taken by both brokers and users on social media forums. WSJ explains what regulators are looking at and why this situation is so unique. Illustration: Jacob Reynolds (originally published Feb. 18, 2021)
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