SEC Chair Touts "Wise Restraints" in Strengthening Capital Markets
Commentary by Steven Lofchie
In a speech at the 9th Annual Conference on Financial Market Regulation, SEC Chair Gary Gensler said that in order to facilitate growth of U.S. capital markets, the SEC is focused on improving efficiency, updating disclosures and maintaining market resiliency.
In his remarks, Mr. Gensler touted "wise restraints" in the role the SEC plays in developing capital markets. Mr. Gensler described wise restraints, in the context of the SEC, as a "law or regulation that promotes economic growth, competition, efficiency, and access" and helps facilitate innovation.
Mr. Gensler stated that U.S. capital markets are the connection between those who want to mitigate risk, such as issuers seeking to raise capital, and those who want to bear risk, such as investors seeking to grow their personal wealth. He explained the SEC's role is not only to protect investors, but to do so efficiently, emphasizing "it [has become] ever more important to promote efficiency in the middle, using the tools of competition, access, and transparency."
One way Mr. Gensler said the SEC facilitates efficiency is through updating disclosures and maintaining transparency, saying "[d]isclosure and transparency reduce the advantages of asymmetric information." He highlighted several recently proposed rules to improve transparency, including "mandat[ing] climate-related and cybersecurity-related disclosures by public companies" and implementing "transparency projects related to short selling, stock buybacks, the stock loan market, and security-based swaps."
Additionally, Mr. Gensler explained the crucial role financial stability plays in promoting successful capital markets by providing firms with the resources to manage stress in order to help mitigate industry-wide impacts during market disruptions. He praised Congress' willingness to help the SEC facilitate financial stability by granting agency oversight over broker-dealers and other market infrastructure, such as clearinghouses and exchanges.
Mr. Gensler expressed confidence the markets will remain competitive even during times of geopolitical uncertainty due to the rules put in place by the SEC, and urged market participants to continue providing useful feedback.
Commentary
There may be less of a direct correlation between increasing government regulation and economic growth than SEC Chair Genslser suggests. At a minimum, one would hope that the government would be somewhat more modest, or less confident, in viewing itself as the source of growth. There are other viewpoints.
Perhaps the SEC is right, but it is certainly reasonable to question whether some of the "wise restraints" might be just well-meaning impediments.