Biden’s SEC chooses Senate panel amid calls to resolve GameStop frenzy

Republicans, however, criticized his aggressive stance against banks and other powerful interests while he served as president of the Commodity Futures Trading Commission from 2009 to 2014.

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

The SEC is investigating the GameStop episode and is considering whether to demand more transparency around the short selling practice, a common way of betting that the price of a share will fall. Mr. Gensler did not address the situation in a deposition prepared for submission to the Banking Committee.

He must also face questions about a pending proposal from the Nasdaq SEC. Inc.

require the thousands of companies listed on its stock exchange to include women, racial minorities and LGBT individuals on their boards.

Republicans on the Banking Committee urged the SEC to deny the proposal, saying it interferes with the board members’ duty to govern companies in the best interests of their shareholders.

In turn, Democrats say the SEC should require that financial disclosures by publicly traded companies include more information on diversity and worker compensation. They are also calling for more comprehensive reports on the risks they face from climate change or the government’s efforts to contain them. And Gensler is facing calls to further tighten the 2019 rule that barely required brokers to put their clients’ interests above their own.

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

The GameStop episode was the subject of a hearing before the House’s Financial Services Committee last month. It raised concerns about the integrity of the US stock market and the rules that govern it. The SEC and other officials are investigating whether the saga calls for policy changes or was fueled by criminal misconduct, such as market manipulation.

House legislators took different positions on the implications of the commercial frenzy. Democrats focused on whether simplified trading apps and commission-free business models from companies like Robinhood Markets Inc. help or hurt individual investors. Several Republicans praised the model for helping to reduce transaction costs for small traders and called for less Wall Street regulation.

Lawmakers from both sides met to discuss whether short selling should be subject to greater regulation. During the frenzy, retail investors used social media to encourage each other to inflict losses on hedge funds by betting that prices would fall.

Critics of the SEC in recent years said it was too focused on helping companies raise capital and not enough on protecting investors. Some also asked the commission to redirect enforcement efforts at large banks and hedge funds.

Under Clayton, enforcement has emphasized illicit acts that harm less sophisticated investors, including cryptocurrency fraud and Ponzi schemes.

Democrats may also target private equity firms and hedge funds, investment firms that are poorly regulated and banned for small investors. Companies 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 powerful financial interests while serving as head of the Commodity Futures Trading Commission.

At the CFTC, he overcame the opposition to draft rules that would govern the markets for hundreds of trillions of dollars in derivatives. Some of these complex financial instruments were blamed for the 2008-09 financial crisis.

“When the SEC does its job – when there are clear traffic rules and a police officer in the round to enforce them – our economy grows and our nation thrives,” said Gensler on Tuesday.

“But when we take our eyes off the ball – when we stop eradicating, or adapting to new technologies, or really understanding new financial instruments – things can go very wrong. And when that happens, people get hurt. “

Write to Paul Kiernan at [email protected]