WASHINGTON— Gary Gensler, chosen by President Biden to head the Securities and Exchange Commission, faced calls from senators Tuesday to address issues ranging from climate change to GameStop. Corp.
Progressives, who supported Gensler’s nomination, are hopeful the veteran regulator will use the SEC’s oversight of Wall Street and public companies as leverage to advance broad national policy goals.
Republicans, however, have criticized his aggressive stance against banks and other powerful interests while he served as chairman of the Commodity Futures Trading Commission from 2009 to 2014.
He testified at a nomination hearing before the Senate Banking Committee along with Rohit Chopra, the choice of Biden to head the Office of Consumer Financial Protection.
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The SEC is investigating the GameStop episode and considering whether more transparency is required around the practice of short selling, a common way to bet that a stock’s price will fall. Mr. Gensler did not address the situation in a testimony prepared to deliver to the Banking Committee.
You are also likely to face questions about a proposal pending with the Nasdaq SEC. Inc.
demand that the thousands of companies listed on its stock market include women, racial minorities and LGBT individuals on their boards of directors.
Republicans on the Banking Committee urged the SEC to deny the proposal, saying it interferes with the duty of board members to govern companies in the best interest of their shareholders.
For their part, Democrats say the SEC should require financial disclosures from publicly traded companies to include more information about diversity and worker compensation. They also ask for more comprehensive reports on the risks they face due to climate change or government efforts to curb it. And Gensler faces calls to further toughen a 2019 rule that fell short of requiring brokers to put their clients’ interests before their own.
Following the departure of President Jay Clayton in late 2020, the SEC has been split evenly between two Republican commissioners and two Democrats. That limits his ability to pass the kinds of rules progressives would like him to follow.
The GameStop episode was the subject of a hearing before the House Financial Services Committee last month. You have 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 whether it was fueled by criminal conduct such as market manipulation.
Lawmakers in the House of Representatives took different positions on the implications of the business frenzy. Democrats focused on whether streamlined business apps and fee-free business models from companies like Robinhood Markets Inc. help or hurt individual investors. Several Republicans praised the model for helping reduce transaction costs for small businesses and called for less regulation from Wall Street.
Lawmakers from both parties came together on the question of whether short selling should be subject to more regulation. During the frenzy, small investors used social media to encourage each other to inflict losses on hedge funds by betting that prices would drop.
Critics of the SEC in recent years have said it focused too much on helping companies raise capital and not enough on protecting investors. Some have also called for the commission to redirect enforcement efforts at large banks and hedge funds.
With Clayton, law enforcement emphasized wrongdoing that hurt 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 off limits to small investors. Firms captured 69% of the capital raised in 2019, while public regulated markets accounted for 31%, according to SEC estimates.
Gensler, a former Goldman Sachs executive, is known in Washington as an aggressive regulator who took on powerful financial interests while serving as director of the Commodity Futures Trading Commission.
At the CFTC, he overcame opposition to write rules governing the markets for hundreds of trillions of dollars in derivatives. Some of these complex financial instruments were to blame for the 2008-09 financial crisis.
“When the SEC does its job, when there are clear rules on the road and a policeman on the lookout to enforce them, our economy grows and our nation prospers,” Gensler said Tuesday.
“But when we look away from the ball, when we fail to eradicate irregularities, or adapt to new technologies, or do not really understand novel financial instruments, things can go very wrong. And when that happens, people get hurt. “
Write to Paul Kiernan at [email protected]
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