SEC Chairman Gary Gensler toasted by Senators

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Gary Gensler, former chairman of the Commodity Futures Trading Commission, testifies during a hearing of the US Senate Banking Committee on Systemic Risk and Market Surveillance on Capitol Hill on May 22, 2012 in Washington.

Jonathan Ernst | Reuters

WASHINGTON – Securities and Exchange Commission Chairman Gary Gensler assured lawmakers on Tuesday that major Wall Street regulators are working overtime to create a set of rules to monitor volatile cryptocurrency markets while balancing the interests of American innovators. .

Gensler told the Senate Banking Committee that he and his team are trying to protect investors through better regulation of thousands of new digital assets and coins, as well as monitoring the more familiar bitcoin and ether markets.

The SEC chief noted the enormity of the task, telling Senator Catherine Cortez Masto, D-Nev, that the regulator could use “too many people” to assess 6,000 new digital “projects” and determine if they are all qualified as titles. under US law.

“Currently, we do not have adequate investor protection in crypto finance, issuance, trading or lending,” Gensler said in prepared remarks. “Frankly, right now it’s more like the Wild West or the old world ‘buyer beware’ that existed before the securities laws came into effect.”

Nonetheless, some lawmakers have pressured Gensler to step up, arguing that opaque definitions and an uncertain market not only lead to runaway speculation, but also stifle innovation.

Pat Tommy, a Republican from Pennsylvania and a prominent member of the committee, pointed out to Gensler at the hearing whether stablecoins meet the definition of a security because investors don’t necessarily expect to profit from it. these assets.

Stablecoins are a type of cryptocurrency that is pegged one by one to the dollar or other traditional currencies and as such are less volatile than their peers in the asset class.

“My whole point, I think we need some clarity on that,” Tommy said. “I think you should disclose it publicly. … And we certainly shouldn’t take any enforcement action against anyone without first providing clarification. “

But as Toomi and his Republican allies worried about the SEC’s ability to stifle innovation without a set of public guidelines, Democrats attempted to point out the largely speculative risk in the cryptocurrency market.

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Senator Mark Warner, D-VA, jokingly criticized Gensler for putting only a “savage” in his description of the cryptocurrency industry as the “Wild West” of financial regulation.

“As someone who shares some of your concerns about crypto, I will admit that you only put ‘wild’ in front of ‘west’ as opposed to two,” he joked. “As someone who has managed to make good financial results through innovation, I am totally in it. But we need some advice. We need direction.

“I would pick two ‘savages’ in terms of the details of this area, as well as some innovation,” he said.

Controversial practice under investigation

Lawmakers responded to Gensler’s questions about the SEC’s ongoing analysis of Order Flow Payment, a controversial practice that online brokerage houses like Robinhood Markets use to make money.

Companies like Robinhood sell their clients’ trades to market makers like Citadel Securities who execute buy and sell orders. Market makers make a profit by pocketing the difference between the price of buying shares in the open market and selling them to Robinhood customers.

This means that market makers are incentivized to increase the price they offer Robinhood customers. And given Citadel’s dominant market share, some regulators are concerned that investors may not get the best deals, as online brokers have an incentive to have good relationships with the companies that buy their trading volume.

“UK, Canada and Australia are banned,” Gensler told reporters after the hearing. “We are looking at the whole structure of the market.

What the retail public pays, Gensler said, “doesn’t necessarily have order-by-order competition,” meaning that trading orders are only bought by certain market makers known as “wholesalers.” . and to fight with them is not done. Lowest price promise.

Robinhood’s general counsel on Monday said he believed the SEC would end up “concluding that paying for order flow is undoubtedly a surprisingly good thing for retail investors and they’re not going to restrict it.” . “

diversity and climate

Democrats and Republicans respectively praised Gensler on the SEC’s decision to approve the Nasdaq rule requiring diversity on the boards of directors of companies listed with the stock exchange operator and the increased efforts to demand disclosure of the business climate. pass.

The new Nasdaq rule, which is set to face legal challenges, requires boards of directors to meet gender and racial diversity requirements or to explain in writing why they haven’t.

John Kennedy, a Republican senator from Louisiana.

Andrew Harrer | Bloomberg | Getty Images

The Nasdaq’s goal for most American businesses is to have at least one female director in addition to another board member who identifies as a racial minority or a member of the LGBTQ community.

Senator John Kennedy, R-La. offered perhaps the most direct criticism of the SEC’s decision to endorse the Nasdaq’s move.

“Do you see yourself as the father of the people and businesses you regulate? Kennedy asked Gensler. “Why do you impose your personal preferences in terms of culture and society on companies, and therefore on their customers and employees? Like climate change and the Second Amendment.

“I’m sure you have personal feelings about abortion,” Kennedy continued. “Do you have a plan to impose these values ​​on businesses? “

“I guess I don’t do that,” Gensler replied. “I think what I’m trying to do is say, if investors want information on climate risk… that’s what he’s saying.”

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