You would think that with the FTX scandal still brewing and investors losing billions of dollars from their supposedly insured crypto accounts, SEC Chairman Gary Gensler would have a lot on his plate, and not have time to tour our well-functioning capital markets.
But sources tell me Gensler is doing just that — preparing to unveil plans for the biggest changes in nearly two decades in the way stocks are funneled from buyers to sellers. If Gensler’s timing holds up, he will announce (possibly this week) a town hall meeting in mid-December that will detail his plan to reshape the country’s $46 trillion stock market, as first reported on Fox Business.
The idea is to jam through the proposed changes – and they’re very important – before the year is out.
Why rush? The word inside the SEC is that Gensler wants a lot of work done before the new Republican Congress takes office on Jan. 3. He knows he also has a target on his back for an ambitious – some would say enthusiastic – progressive agenda at an agency that has the primary mission of protecting investors from being ripped off by scammers.
The Gensler SEC has gone far beyond the task, as it looks to score left-handed and join the bandwagon of environmental social governance by forcing companies to disclose non-financial metrics such as how they reduce their carbon footprint.
Meanwhile, the House Financial Services Committee intends to question Gensler on what he knows about the shenanigans of Sam Bankman-Fred, the massive Democratic philanthropist under criminal investigation over the collapse of cryptocurrency exchange FTX. The company is now in bankruptcy, while SBF, as it is known, is still in the Bahamas.
As this column runs, untold billions in customer funds are still missing, and you’ve likely gambled far into the Bankman-Fried hustle for the support trading fund.
Here’s where things get interesting: Gensler met the SBF months before the explosion. The Securities and Exchange Commission (SEC) held additional meetings with people who have fallen into cryptocurrency and business partners who were looking to start a commission-based exchange. GOPers want to hear how it all happened under the watchful eye of the so-called top cop on Wall Street.
Market structure, meanwhile, hasn’t caught the full attention of the incoming 118th Congress and new GOP majority just yet, but it should. The way we buy and sell stocks, the so-called plumbing of the market, is often taken for granted for the simple reason that it works smoothly even if the process is quite complex.
It’s more complicated than just a bunch of players on the NYSE shouting bids to match buyers and sellers.
For starters, most of those guys are gone, replaced by computers that can match orders in nanoseconds. The major public stock markets, the New York Stock Exchange and Nasdaq, aren’t the only game in town and buyers and sellers compete 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 and still cut a bit and make a profit. This is why we have low cost trading platforms and, in the case of Robinhood, no fees.
The system isn’t perfect, of course (see what happened during the early stages of the so-called stock meme craze of 2020-21). There are outages and price discrepancies due to computer errors. But it works well, and by most measures, small investors benefit greatly from better execution and lower trading costs — just the way the SEC intended the last time it made changes.
Anything could be improved – but should it?
The headline 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 broadly speaking, he wants trades made by small investors to be routed separately to different public auctions, presumably run by the NYSE or Nasdaq – a change that would greatly reduce competition that the SEC intended. . His hypothesis is that there are nefarious things happening in those special places where thefts might decrease.
What are those thefts? Gensler didn’t really say that. Do we have evidence that cheap or no-fee discount brokers hide the hidden costs of execution by market makers? number.
I’m looking for addresses
So why is Gensler looking to fix what isn’t broken? Some people in the markets say he’s just looking for headlines and catching the plaudits of Wall Street-hating progressive Sen. Elizabeth Warren, who has a big say in President Biden’s appointments to economic roles in the administration. Gensler is eyeing Treasury Secretary when Janet Yellen steps down next year, as expected.
Others say he really believes Wall Street is a sewer for corruption. Maybe we’ll find out more at the next SEC open meeting, or maybe Gensler gives up his fixate on fixing something that isn’t broken and realizes his time is better spent finding those countless billions still missing from FTX clients’ accounts.