FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura Company.
With Joe Biden inaugurated and Gary Gensler waiting in the wings to head up the U.S. Securities and Exchange Commission, market participants have stepped up their hand-wringing regarding how much stricter the new boss will be.
The worry factor wasn’t helped when Senator Elizabeth Warren, a frequent critic of big banks and what she sees as too-loose rules for Wall Street, gave her blessing to the nomination, calling Gensler “a tenacious regulator who stood up to the industry titans to rein in their risky behavior.”
But is Gensler someone to worry about? That’s a tricky question, without a definitive answer.
It’s true that as Chairman of the Commodity Futures Trading Commission, Gensler was closely involved in the much-loathed Dodd-Frank Wall Street Reform and Consumer Protection Act in the early 2010s. That seems to be what worriers most readily point to when projecting that Gensler will be a nightmare for institutional stock and bond traders, and by extension the brokers who handle their trades and the technology providers that sell them software. (Well, presumably RegTech providers would do well.)
But the Dodd-Frank Act was a response to the global financial crisis of 2008-2009, which saw unthinkable things happen, like Lehman Brothers going under and Bear, Stearns and Merrill Lynch sold in fire sales. The GFC was so cataclysmic that presumably even the most anti-regulation financial folks would acknowledge something needed to be changed so it history wouldn’t repeat itself.
Was Dodd-Frank perfect? No. Did it overreach? Probably. But Wall Street needed to take post-GFC medicine, and that was the medicine. Rather than being the Frankenstein monster created by the eeeevil Gary Gensler, the history that some seem to buy into, Dodd-Frank was actually spawned by the GFC.
At industry conferences a decade ago, market participants were, overall, mildly constructive on Gary Gensler as CFTC Chair. People didn’t love him, but there was a grudging respect based on the premise that he was a smart guy and his decisions were more data- and evidence-based compared with his predecessors.
Gensler will assume the SEC at a time the markets have been functioning well. There have been no big technology breakdowns or egregious scandals in the headlines. Mom-and-Pop investors, who can be considered the SEC’s end clients, are doing well, trading for “free” in their brokerage accounts and riding high in their 401(k)s.
There’s always room for improvement, and it can be reasonably expected that Gensler will work to address gaps in transparency, reliability, conflicts of interest, etc.
But will he realize Wall Street’s worst fears and regulate for the sake of regulating and seek to fix what ain’t broken? Unlikely.