(Bloomberg) — U.S. Securities and Exchange Commission Chair Gary Gensler’s ambitious plans to rein in everything from cryptocurrencies to the meme-stock frenzy are drawing fire from Republicans.
During a Tuesday appearance before the Senate Banking Committee, GOP lawmakers denounced Gensler’s agenda for stifling innovation, increasing costs for investors and veering into social issues like climate change and workforce diversity that have nothing to do with the SEC’s core mission.
The rebukes — some of the loudest Gensler has faced since taking over the agency in April — resembled criticisms that financial-industry lobbyists have made privately about President Joe Biden’s SEC chief. He has rankled brokers, crypto exchanges and other companies with his pledges to approve dozens of new rules.
John Kennedy, a Louisiana Republican, had the most direct attack: “As to the people and the companies that you regulate as chairman of the SEC, do you consider yourself to be their daddy?” he asked Gensler. “Why do you impose your personal preferences about cultural issues and social issues on companies, and therefore their customers and their workers?”
For now, Gensler is on safe ground because Democrats control the White House and Congress — though by the slimmest of margins in the Senate. Progressives have lauded his efforts to boost environmental disclosures by public companies and his criticisms of how online brokerages like Robinhood Markets Inc. make money by selling retail investors’ stock orders to Citadel Securities, Virtu Financial Inc. and other powerful trading firms.
Limited Time?
But Tuesday’s hearing offered a preview of the pushback Gensler will face if Congress flips next year. That means he may have limited time to complete one of the most active to-do lists of any SEC chair in recent memory.
One of Gensler’s top priorities is crypto, a market he has labeled the “wild west” of finance. The industry simmered last week after Coinbase Global Inc. disclosed that the SEC had threatened to sue if the exchange launched a product that would let clients earn interest by lending their coins to other traders.
Without mentioning Coinbase by name, Senator Pat Toomey made clear Tuesday that he disapproved of the SEC’s approach. The Pennsylvania Republican said the agency was trying to regulate digital tokens through “enforcement.” He added that the SEC hadn’t been transparent with market participants about how it determines whether digital assets are securities subject to tough investor-protection rules.
Gensler said he thought there were only a “small number” of cryptocurrencies that don’t need to be registered with the SEC. He added that stablecoins, a fast growing corner of the market, may well also be securities. His overriding concern about the entire market, Gensler said, is ensuring that investors don’t get fleeced.
Meanwhile, Gensler said that the SEC was “pretty close” to releasing a highly anticipated report analyzing January’s wild trading of GameStop Corp. and other companies. The volatile price moves, fueled by an army of retail investors, have sparked congressional hearings and SEC scrutiny of practices that are ingrained into the plumbing of stock trading, including payment for order flow.
Free Trades
While critics say payment for order flow is rife with conflicts, it has been embraced by everyone from Robinhood to Charles Schwab Corp. It has also led to an era of commission-free trading for mom and pop shareholders.
Gensler rattled Wall Street last month when he told Barron’s that banning payment for order flow was “on the table” at the SEC. Those comments prompted sharp questions from several Republicans at Tuesday’s hearing.
Toomey said a prohibition could eliminate free trades. “The SEC has not demonstrated any failure or harm associated with payment for order flow,” he said.
Gensler said he’s worried about the lack of competition between market-making firms that buy the orders, a small group that’s dominated by the likes of Citadel Securities and Virtu. He said investors might not be getting the best deal, and disputed that customers are actually trading for free.
“It might be zero commission but you’re still paying,” Gensler said. “The payment for order flow is under the hood and it’s still there.’”
Gensler has previously said he’s directed the agency’s staff to study the issue and consider possible changes.
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