Biden SEC faces Senate panel over GameStop Frenzy approach calls

Republicans, however, criticized his aggressive stance against banks and other strong interests while serving as chairman of the 2009 Commodity Trading Commission from 2009 to 2014.

He testified at a nomination hearing before the Senate Banking Committee along with Rohit Chopra, Mr Biden’s choice to head the Office of Consumer Financial Protection.

The SEC is reviewing the GameStop episode and considering whether more transparency is needed regarding the practice of short selling, a common way to bet that the price of a stock will fall. Mr Gensler did not address the situation in the testimony prepared for delivery to the Banking Committee.

He is also likely to face questions about a pending proposal before the Nasdaq SEC. Inc.

to ask thousands of listed companies to include women, racial minorities and LGBT people on their boards.

Republicans on the banking committee have called on the SEC to reject the proposal, saying it interferes with the board members’ obligation to govern companies in the interests of their shareholders.

Democrats, meanwhile, say the SEC should ask for public disclosures of publicly listed companies to include more information about diversity and workers’ wages. They also call for more comprehensive reporting on the risks they face due to climate change or government efforts to reduce them. And Mr Gensler is facing calls to further tighten a 2019 rule that no longer requires brokers to put the interests of their clients before them.

Following the departure of President Jay Clayton in late 2020, the SEC was split equally between two Republican commissioners and two Democratic commissioners. This limits his ability to adopt the kinds of rules that progressives would like to follow.

The GameStop episode was the subject of a hearing before the House Financial Services Committee last month. He expressed concern about the integrity of the US stock market and the rules that govern it. The SEC and other authorities are investigating whether the saga calls for policy changes or has been fueled by criminal conduct, such as market manipulation.

Parliamentarians have taken different positions on the implications of the trade frenzy. Democrats have focused on whether simplified trading applications and commission-free business models of companies like Robinhood Markets Inc. helps or affects individual investors. Several Republicans praised the model for helping lower transaction costs for small traders and calling for less Wall Street regulation.

Lawmakers from both sides met on the question of whether short selling should be regulated. During the frenzy, small investors used social networks to encourage each other to cause losses of hedge funds, betting that prices would fall.

Critics of the SEC in recent years have said they have focused too much on helping companies raise capital and not enough to protect investors. Some also called for the commission to refocus enforcement efforts on large banks and hedge funds.

Under Mr Clayton, the implementation highlighted the wrongdoing that harms less sophisticated investors, including cryptocurrency scams and Ponzi schemes.

Democrats could also target private equity firms and hedge funds, lightly regulated investment firms that are banned from small investors. Firms captured 69% of the capital raised in 2019, while regulated public markets accounted for 31%, according to SEC estimates.

Mr. Gensler, a former Goldman Sachs executive, is known in Washington as an aggressive regulator who took on strong financial interests while serving as head of the future commodity trading commission.

At the CFTC, he overcame opposition to writing rules governing markets for hundreds of billions of dollars. Some of these complex financial instruments have been blamed for the 2008-2009 financial crisis.

“When the SEC does its job – when there are clear rules of the road and a policeman in a hurry to enforce them – our economy grows and our nation thrives,” Gensler said Tuesday.

“But when we take our eyes off the ball – when we fail to eliminate the wrong actions, or adapt to new technologies or really understand new financial instruments – things can go very wrong. And when that happens, people get hurt. “

Write to Paul Kiernan at [email protected]