Outgoing SEC Chair Says Capital Market Rules Reflect Common Sense
Commentary by Steven Lofchie
In his final "Office Hours" video, SEC Chair Gary Gensler highlighted how the capital markets touch nearly every part of the economy, and the importance of common-sense rules to lower risk and build trust.
Mr. Gensler celebrated the SEC's engagement with the public over the past four years noting "the many tens of thousands of comments that you've submitted on our rulemakings, through investor education, or, yes, through the tens of thousands of tips, complaints, and referrals you've sent us to help us do our jobs to protect you."
He praised the SEC's 4,800 staff members for their dedication to public service and, in a separate statement, said they were "amongst some of the most professional and productive that [he has] worked with in [his] life." He commended SEC staff for "just how clearly [they] know, understand, and are truly dedicated to the agency's mission."
Commentary
During his tenure, SEC Chair Gensler attempted to market his program to the public by plain-spoken slogans ("like must be regulated as like"), or by assertions that the rules that the SEC proposed and adopted were simply based on "common sense," no more questionable than installing traffic lights or imposing speed limits.
Mr. Gensler's ongoing failure to acknowledge the complexities of financial markets resulted in repeated failures, including rules that were impossible to implement, rules that were significantly ambiguous, and rules rejected by the courts as being either outside of the agency's authority or arbitrary and capricious. One need only look at Mr. Gensler's very first major issuance of guidance—expanding the scope of Rule 15c2-11 from equity securities to debt; that botch had to be largely withdrawn, because he wrongly assumed that the equities and debt market were essentially the same.
A good example of Chair Gensler's tendencies on "common sense" rules is his reference to the mandate for the clearing of US Government Securities as just "plumbing," as if there was nothing more obvious than the need to connect the hot water heater to the shower. The clearing mandate will almost certainly raise the cost to the US Government of financing its debt because it raises the operational costs to financial institutions that enter into repos based on Government Securities. Maybe the mandate will be a net positive, notwithstanding the increase in costs, but there is nothing in the SEC's proposing or adopting releases that is persuasive in this regard, and there is certainly nothing in these SEC releases that suggests that the SEC's cost-benefit analysis was remotely fulsome.
Common sense is a good thing. Simplicity is, in general, a good thing. But they are not the same things. Acting on the basis that complicated systems are simple or that all market products are essentially alike is not only not common sense. It is wishful thinking.
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The SEC reported that Chair Gary Gensler will step down from the Commission effective at 12:00 pm on January 20, 2025.