SEC Chairman Gary Gensler rushes to unveil big changes amid FTX scandal

SEC Chairman Gary Gensler rushes to unveil big changes amid FTX scandal

You would think that with the FTX scandal still unfolding and investors missing billions of dollars from their supposedly secure crypto accounts, Securities and Exchange Commission Chairman Gary Gensler would have so much to do that he wouldn’t. wouldn’t have time to have fun in our capital. markets, which work very well.

But sources tell me Gensler is doing just that — preparing to unveil plans for the biggest changes in about two decades to how stocks are flowing from buyers to sellers. If Gensler’s timing holds, he will announce (possibly this week) an open meeting in mid-December that will detail his plan to remake the nation’s $46 trillion stock market, as I first reported. times on Fox Business.

The idea is to block his proposed changes – and they are quite significant – before the end of the year.

Why the rush? The word inside the SEC is that Gensler wants to do a lot of the work on it before the new GOP Congress takes over on Jan. 3. knows he also has a target on his back for his ambitious — some would say zealous — progressive agenda at an agency whose primary mission is to protect investors from scams.

The Gensler SEC has gone so far beyond this mission that it seeks to score left-handed points and join the bandwagon of environmental social governance by forcing companies to disclose non-financial metrics such as how they reduce their carbon footprint.

The House Financial Services Committee, meanwhile, intends to grill Gensler over what he knew of the shenanigans of Sam Bankman-Fried, the Democratic megadonor under criminal investigation into the implosion. from the FTX crypto exchange. The company is now bankrupt, while SBF, as it is known, remains in the Bahamas.

Securities and Exchange Commission Chairman Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on
If Gensler’s timing holds, he will announce (possibly this week) an open meeting in mid-December that will detail his plan to remake the $46 trillion national stock market.
Bill Clark/Pool via AP

Billions missing

As this column goes to press, countless billions of customer dollars are still missing, likely bet in the parallel Bankman-Fried hustle of a props trading fund.

Here’s where things get interesting: Gensler met with SBF months before the explosion. The SEC had additional meetings with the people and business partners of the fallen crypto sibling who were looking to start a commission-approved exchange. The GOPers want to know how it all happened under the nose of Wall Street’s so-called top cop.

Market structure, meanwhile, hasn’t really gotten the full attention of the incoming 118th Congress and its new GOP majority yet, but it should. The way we buy and sell stocks, the so-called market plumbing, is often taken for granted for the simple reason that it works quite transparently even though the process is quite complex.

It’s more complicated than a bunch of guys on the New York Stock Exchange shouting offers to match buyers and sellers.

For starters, most of those guys are gone, replaced by computers that can match commands in nanoseconds. The major public stock exchanges, the NYSE and Nasdaq, aren’t the only game in town and compete to match buyers and sellers with private exchanges and market makers, companies like Citadel Securities and Virtu Financial. . They are armed with highly efficient trading machines that can match orders cheaply while skimming a little and making a profit. That’s why we have low-cost and, in the case of Robinhood, no-fee trading platforms.

The system isn’t perfect, of course (see what happened at the start of the so-called meme stock craze of 2020-21). There are breakdowns and price discrepancies due to computer errors. But it’s working quite well, and by most measures retail investors benefit greatly from better execution and lower trading costs — just as the SEC predicted the last time it instituted changes.

FTX Founder Sam Bankman-Fried
Sam Bankman-Fried is under criminal investigation into the implosion of crypto exchange FTX.
FTX/Handout via REUTERS/File Photo

Everything can be improved, but should it?

The thrust of Gensler’s proposal, according to people briefed on it, could cost retail investors billions of dollars. I don’t have all the details, but basically he wants trades made by retail investors to be funneled separately to various public auctions, presumably run by the NYSE or Nasdaq – a change that would significantly reduce the competition foreseen by the DRY. His hypothesis is that bad things are happening in these private places where scams could take place.

What are these scams? Gensler didn’t really say. Do we have evidence that cheap or no-fee discount brokers cover the hidden costs of execution by market makers? No.

Looking for titles

So why does Gensler seek to fix what isn’t broken? Some people in the markets say he’s just looking to grab headlines and curry favor with progressive, Wall Street-hating Senator Elizabeth Warren, who has a big say in President Biden’s nominations for economic roles in the administration. Gensler is eyeing the Treasury Secretary when Janet Yellen steps down next year as expected.

Others say he really thinks Wall Street is a sewer of corruption. Maybe we’ll find out more at the next SEC public meeting, or maybe Gensler will let go of his fixation on fixing something that isn’t broken and realize it’s better to spend his time find those countless billions that are still missing from those FTX client accounts.

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