Three weeks in, give him a break

New Securities and Exchange Commission (SEC) head Gary Gensler has faced his most gruelling round of questioning yet giving an insight into how he may operate in his new role, but Virginie O’Shea, founder of Firebrand Research, believes it’s too early to truly understand his approach going forward.

Yesterday’s third and final Gamestop hearing with the US House Financial Services Committee was less of a hearing and more of a grilling.

New Securities and Exchange Commission (SEC) head Gary Gensler faced a barrage of questions ranging well beyond the issues associated with the GameStop incident and its related regulatory investigations. Three weeks into the job, he faced questions from politicians on topics ranging from the gig economy to climate change and diversity. A common refrain (and a good point) from Gensler in replying to all these questions was that as he’s only just started in the role, he’s had little time to get his feet under the table and start rulemaking or even reviewing the year’s agenda fully.

He did manage to highlight areas that he will be directing his staff’s focus and attention over the next few years, including but not limited to:

  • A report on the full implications of the GameStop incident: This one is due by the summer and will examine things like the gamification of trading and the use of data analytics and artificial intelligence to influence retail trading behaviour. It will also cover market concentration within the market maker and brokerage realm, payment for order flow and short selling disclosures.
  • Strengthening Regulation Best Interest (Reg BI): As part of the post-GameStop agenda, Gensler indicated that rather than rewriting these broker conflicts of interest rules entirely, the SEC is likely to “strengthen” them. This is sufficiently vague to mean anything from producing a report on the topic to a complete crackdown on broker practices.
  • New reporting rules for total return swaps: The Archegos Capital incident in April was another big talking point for the politicians and Gensler indicated that the SEC will be examining how to foster greater transparency in this particular corner of the market.
  • Securities lending transparency: The whole public focus on short selling has also caused the SEC to examine the transparency of the securities finance space, which could signal that the US will be following in the footsteps of the European Union with SFTR. New reporting requirements may be incoming in the near future.
  • Cryptocurrency regulation: Not much detail on this one, unsurprisingly, but it was a very popular topic for the politicians’ questions. Gensler indicated that his team is examining the regulation of crypto exchanges for investor protection purposes. The SEC is currently considering cooperating with the Commodity Futures and Trading Commission (CFTC) as part of a dedicated digital asset working group to assess compliance requirements for the sector.
  • Climate change disclosure rules and environmental, social and governance (ESG): This was another leftfield topic outside of the scope of the GameStop incident that kept cropping up throughout the hearing and seemed to be a continuation from Gensler’s confirmation hearing. He stressed the need for public engagement in the request for comment that the SEC currently has out until June and noted that the SEC currently has a taskforce working on the topic. As part of the “S” in ESG, Gensler noted that another topic being explored is diversity reporting for corporate boards.

A favourite moment for me was when DTCC CEO Mike Bodson was posed with a random question about the impact of a Financial Transaction Tax (FTT) and managed to turn it into a discussion about the benefits of shortening the settlement cycle. Why it has taken three such hearings for the committee to call an expert on the settlement cycle to discuss why the move to T+1 is a better option than T+0 is beyond me, however. He managed to get his points across well and Gensler appeared fully in support of the move – so fingers crossed for progress on the industry side over the coming months.

All in all, the final GameStop hearing really gave the industry and politicians a good overview of the long list of things the SEC is working on the moment. How all of these get prioritised will be interesting to see.