Gensler Testimony Indicates Early Focus on Market Risks
In recent testimony before lawmakers, SEC Chairman Gary Gensler pointed to several policy areas triggered by volatile trading of meme stocks in January. Gensler suggested that new technologies that have the ability to change the face of finance raise questions on achieving core public policy goals and ensuring that markets work for everyday investors. He highlighted several areas that the SEC would be paying attention to, including social media, clearing and settlement, short selling, market transparency, and other systemwide risks. With respect to trading applications that encourage investors to trade more, Gensler said he has asked the staff to prepare a request for public input for consideration on these issues. “We need to ensure investors using apps with these types of features continue to be appropriately protected and consider how all of our rules apply in these situations, including Regulation Best Interest.” Gensler added that since many of the regulations were largely written before these recent technologies and communication practices became prevalent, the rules may need to be evaluated and refreshed. Gensler also highlighted the controversy around payment for order flow, delineating between payments from wholesalers to brokers and payments from exchanges to market makers and brokers. Gensler raised several questions including whether broker-dealers are incentivized to encourage customers to trade more frequently than is in the customers’ best interest; whether broker-dealers have inherent conflicts of interest and, if so, are customers getting best execution in the context of that conflict? The Wall Street Journal reported that while Gensler is looking at payments for order flow critically, it is unclear whether the SEC would ban the longstanding practice.