New SEC Chairman to Address Key Market Concerns in a Speech

06 May 2021 · 3rd Party Analysis

New SEC Chairman to Address Key Market Concerns in a Speech


In Summary

  • New SEC chief Gary Gensler to express concerns over the current market environment
  • In his testimony, Mr. Gensler will suggest the implementation of new market rules

The new Securities and Exchange Commission Chairman, Gary Gensler, is set to testify before the House Financial Services Committee later today. Mr. Gensler has already prepared his testimony, which was released ahead of his appearance.

In his testimony, Wall Street’s top regulator explores potential new rules that will govern the market environment and will offer protection to investors. The new take on market dynamics is inspired by the latest episodes of market turbulence, including the GameStop trading frenzy and the implosion of Archegos Capital Management, which led to billions of dollars lost by banks.

The new SEC chair has expressed concerns about the significant involvement of single institutions and trading firms in the US stock market. “One firm, Citadel Securities, has publicly stated that it executes about 47 percent of all retail volume. In January, two firms executed more volume than all but one exchange, Nasdaq,” Mr. Gensler says in the document, referring to Citadel’s prominent role in the GameStop bonanza.

“History and economics tell us that when markets are concentrated, those firms with the greatest market share tend to have the ability to profit from that concentration,” he also mentions. “Market concentration can also lead to fragility, deter healthy competition, and limit innovation.”

Stock Market: Implementing Regulatory Changes

In his comments before lawmakers later today, Mr. Gensler will also address the importance of implementing regulatory changes to prevent situations like the blowup of Archegos from happening again. In March, Archegos, an unregulated family office, managing its own money, rattled the stock market and led to a $10bn loss for banks. The loss was triggered by a $30bn worth of stocks sale. Bill Hwang, the owner of the family investment vehicle, had placed highly levered bets on stocks that had to be liquidated due to default to meet margin calls – instructions to add more collateral to the account. Later it became clear that banks had offered as much as $50bn of leverage to Arches.

“Many of our regulations were largely written before these recent technologies and communication practices became prevalent,” Mr. Gensler is expected to say. “I think we need to evaluate our rules, and we may find that we need to freshen up our rule set.”

Gary Gensler is a former Goldman Sachs executive who spent 18 years in an investment firm. He was also the head of the Commodity Futures and Trading Commission during the Obama administration. A rather unknown fact is that Mr. Gensler is also an expert in blockchain technology and has led lectures at MIT on blockchain and bitcoin.

Although he does not mention anything about bitcoin or cryptocurrencies in his prepared testimony, he had made remarks on the crypto space before. Before his confirmation as the new SEC Chairman, Mr. Gensler assured him he will be working to “promote innovation in blockchain technology”. As the head of a prime regulator, Gary Gensler has cryptocurrencies high on his agenda and is expected to introduce certain regulations over the crypto industry that will offer crypto investors protection.

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