SEC Chair Goes to the Hill: A Laundry List of Projects

Chair Gensler testified on Capitol Hill earlier this week, outlining key initiatives he is exploring. The list of projects that Mr. Gensler is implementing is long and daunting. The day after his testimony the Chair appeared on CNBC where he reiterated a number of the projects mentioned in his testimony (here). He also suggested that the Commission needs a budget increase and more staff.

The projects identified by Chair Gensler included:

Market structure: The staff has been requested to look at five market structure projects. For the treasury market the staff has been asked to work with colleagues at the Department of the Treasury and the Federal Reserve on how to enhance resiliency and competition. He also requested that the staff reconsider some initiatives on Treasury trading platforms and to evaluate leveling the playing field by making sure that firms who are significant traders in the market are registered as dealers with the SEC.

Non-treasury fixed income market: Staff has been requested to consider how to improve efficiency and transparency in the fixed income markets – corporate bonds and municipal bonds.

Equity markets: Three projects are on tap here: 1) greater competition and efficiency; 2) how to address conflicts; and 3) ensure a level playing field.

Security-based swaps: Most of the projects here are in progress. The agency is currently implementing new rules here. Shortly, new post-trade transparency rules will go into effect. The Commission also has to finish the rules for registration and regulation of security-based swaps execution facilities. Finally, the staff has been asked to consider the implementation of new Exchange Act Section 10B which is concerned with disclosure of positions in the area.

Crypto: In this area the agency has several projects underway that may need Congressional assistance: the offer and sale of tokens; crypto trading and lending platforms; stable value coins; investment vehicles providing exposure to crypto assets or crypto derivatives; and custody of crypto assets. The Commission is also working with the CFTC in areas where the two overlap. In addition, the agency is reaching out to to the Federal Reserve, Department of Treasury and Office of the Comptroller. He is also encouraging platforms to come in and meet with the agency.

Predictive data analytics: Analytics are a key part of the transformative time in which we live, notes Chair Gensler. Advances here could inadvertently reflect historical biases from various data sets. The Commission just published a request for comment on digital engagement practices.

Issuer disclosure: The staff has been asked to develop proposals keyed to disclosure around climate risk, human capital, and cybersecurity.

SPACs, China and 10b-51 plans: Initially, the staff is developing recommendations to enhance disclosure around SPACs. Second, while Congress passed legislation last year regarding foreign entity disclosure, the agency is working to enhance disclosures regarding Chinese firms. There was no mention of requiring that Chinese firms comply with the SOX requirements regarding inspection of audit work papers. Finally, the agency is examining how to tighten the rules around the use of 10b-5-1 plans.

Funds and investment management: One project focuses on accountability for funds which, for example, label themselves as green or sustainable or with similar phrases. A second centers on private funds and conflicts of interest where enhanced disclosure may be key. Finally, Chair Gensler believes that the agency needs to build greater resiliency for money market funds and open-ended funds.

Enforcement and examinations. Despite all the projects, Enforcement continues to be the cop on the beat. At the same time Examinations is the ‘eyes and ears of the Commission.”

The list of projects underway is clearly long and ambitious. It is also incomplete, not mentioning topics like gamification and payment for order flow. Nevertheless, Chair Gensler is clearly engaging in a very ambitious list of projects.

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