DJ Gary Gensler Focuses on Crypto Trading Platforms in Senate Hearing -- Update
2021 Dow Jones & Company, Inc.
By Paul Kiernan
WASHINGTON -- Securities and Exchange Commission Chairman Gary Gensler said he was taking a hard look at cryptocurrency-trading platforms in a hearing Tuesday in which he called for more funding for the regulatory agency.
Mr. Gensler also reiterated his openness to potentially banning payment for order flow, a practice in which stockbrokers sell customers' trades to high-speed trading platforms.
The official appeared before the Senate Banking Committee to outline a far-reaching policy agenda that would shake up some Wall Street firms' business models and require heftier disclosures from public companies. He emphasized the SEC's mission of protecting investors while pointing to challenges stemming from emergent technologies like cryptocurrency and sophisticated data analytics used by financial firms.
"More retail investors than ever are accessing our markets," Mr. Gensler told the committee. Noting that the SEC's staff has declined 4% since fiscal 2016, he repeatedly called for Congress to provide more resources for the agency to police capital markets that have grown in size and complexity. "Funding-wise, we could use a lot more people."
Since being confirmed by the Senate in April, Mr. Gensler has laid out a regulatory agenda that some experts say would amount to the most significant revamp of U.S. securities law in decades.
Among the major fights looming with industry groups are potential rule changes for brokers that sell customers' orders to high-speed trading firms, the SEC's plans to increase public companies' disclosure requirements about their workforces and risks stemming from climate change, and efforts to police the fast-growing cryptocurrency market.
Republicans have argued that the SEC's agenda under Mr. Gensler is partisan and risks limiting investors' opportunities in the effort to protect them. They also warned him to tread lightly in his effort to police cryptocurrency markets, citing industry arguments that greater regulation could force financial innovation overseas.
"As to the people and the companies that you regulate as chairman of the SEC, do you consider yourself to be their daddy?" said Sen. John Kennedy (R., La.). "Why do you impose your personal preferences about cultural issues and social issues on companies and therefore their customers and their workers?"
Mr. Gensler replied that investors are seeking more information about issues such as the risks to companies posed by climate change.
"If investors want information about climate risk -- and it looks like tens of trillions of dollars of assets under management are asking -- then we at the SEC have a role to put something out to notice and comment, do the economic analysis, and really see what investors are saying."
In his testimony, Mr. Gensler discussed efforts to improve the resilience of the market for U.S. Treasury debt, which seized up in March 2020 as the coronavirus pandemic struck.
He also mentioned plans to enhance disclosures from private funds -- a category that includes venture capital, hedge funds and private equity -- to their investors and to enhance competition.
Mr. Gensler renewed calls for cryptocurrency-trading platforms to "come in and talk to us," given the SEC's view that many of the assets they offer to investors meet the agency's definition of a security. In an unusual move for an SEC official, he publicly singled out one firm, Coinbase Global Inc., after Sen. Elizabeth Warren asked him about a possible outage at the exchange last week.
"They haven't yet registered with us, even though they have dozens of tokens that may be securities," Mr. Gensler said.
Coinbase Global didn't immediately respond to a request for comment. Last week, the firm said the SEC was investigating its plans to launch a crypto-lending platform.
He also repeatedly referred to the fact that another firm, Citadel Securities, executes nearly half of all retail trading volume, in explaining the SEC's wide-ranging review of payment for order flow. The practice involves brokerages such as Robinhood Markets Inc. selling clients' stock and option orders to Citadel and other high-speed traders for execution.
A spokesman for Citadel Securities declined to comment.
"Are the orders competing with other orders?" Mr. Gensler said. "If one party is buying literally half the retail flow in America of these market orders, that could actually diminish competition in the marketplace."
While payment for order flow has allowed many brokers to offer commission-free trading in recent years, Mr. Gensler said it can create a conflict between a broker's incentive to maximize revenue and its duty to act in the best interest of clients. He noted that the practice is banned in the U.K., Canada and Australia.
--Alexander Osipovich and Paul Vigna contributed to this article.
Write to Paul Kiernan at [email protected]
(END) Dow Jones Newswires
September 14, 2021 16:19 ET (20:19 GMT)