SEC President Gary Gensler grilled by senators

WASHINGTON – Securities and Exchange Commission Chairman Gary Gensler assured lawmakers Tuesday that top Wall Street regulator is working overtime to create a set of rules to oversee 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 by better regulating thousands of new digital assets and currencies, as well as overseeing the best-known bitcoin and ether markets.

The SEC chief noted the enormity of the task, and told Sen. Catherine Cortez Masto, D-Nev., That the regulator could use “many more people” to evaluate the 6,000 new digital “projects” and determine if they all qualify as securities under U.S. law.

“Currently, we don’t have enough protection for investors in financing, issuance, trading or cryptocurrency lending,” Gensler said in prepared comments. “Frankly, at this point, it looks more like the wild west or the old world of the ‘buyer’s account’ that existed before enacting securities laws.”

Still, some lawmakers pressured Gensler to pick up the pace, arguing opaque definitions and an uncertain market would not only lead to uncontrolled speculation, but could also stifle innovation.

Sen. Pat Toomey, a Republican from Pennsylvania and a member of the committee’s ranking, pressured Gensler at the beginning of the hearing on whether the stables met the title definition, as investors do not necessarily expect these assets to be profitable.

Stablecoins are a type of cryptocurrency linked one by one to dollars or other traditional currencies and, as such, are usually less volatile than their peers in the asset class.

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

But where Toomey and his Republican counterparts expressed concern about the SEC’s potential to stifle innovation without a public set of guidelines, Democrats tended to highlight the speculative risk they see as rampant in the cryptocurrency market. .

Senator Mark Warner, D-Va., Jokingly criticized Gensler for putting only a “savage” in his description of the cryptocurrency industry as the “savage west” of financial regulation.

“As someone who shares some of your concerns about cryptography, I’ll acknowledge that you’ve only put one‘ savage ’in front of‘ West ’instead of two,” he quipped. “As someone who managed to do it financially pretty well because of innovation, I’m all in it. But we need a little bit of guidance. We need some direction.”

“I would go to the two‘ Wilds ’in terms of describing this area, as good as the innovation is,” he added.

Lawmakers also filled Gensler with questions about the SEC’s ongoing analysis of order flow payment, a controversial practice that online brokers like Robinhood Markets use to make money.

Companies like Robinhood sell their customers ’operations to manufacturers in markets like Citadel Securities that execute buy and sell orders. Market makers generate profits by pocketing the difference between the price at which they buy shares on the open market and the price they receive by selling them to Robinhood customers.

This means there is an incentive for market makers to inflate the price they quote Robinhood customers. And given Citadel’s dominant market share, some regulators are concerned that investors won’t get the best deal, as the online brokers themselves have an incentive to maintain color relationships with companies that buy their volume. of negotiation.

“The UK, Canada and Australia have bans,” Gensler told reporters after the hearing. “We’re taking a look at the whole structure of the market.”

The retail public pays because “they don’t necessarily have order-to-order competition,” Gensler said, meaning that trade orders are bought only by a few market makers known as “wholesalers” and don’t fight over price promises anymore. low.

Robinhood’s legal director said Monday that he believes the SEC will finally “come to the conclusion that paying the flow of orders is certainly an incredibly good thing for retail investors and that they will not ban it.”

Democrats and Republicans, respectively, praised and criticized Gensler for the SEC’s decision to pass the Nasdaq rule to require diversity on boards of listed exchange traders and stepped up efforts to demand corporate climate disclosures. .

The new Nasdaq rule, which is expected to address legal challenges, requires company boards to meet racial or gender diversity requirements or to explain in writing why they have not done so.

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

Sen. John Kennedy, R-La., Offered perhaps the most direct criticism of the SEC’s decision to approve the Nasdaq government.

“As for the people and companies you regulate, do you consider yourself your father?” Kennedy asked Gensler. “Why do you impose your personal preferences on cultural and social issues on companies and therefore their customers and workers? Like climate change and the Second Amendment.”

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

“I don’t think I’m doing that,” Gensler replied. “I think what I’ve tried to do is say, if investors want information on climate risk … in the SEC we have the role of publishing something to notice and comment on, do the economic analysis and really see what investors are. saying “.