House committee probes SEC overreach

Bonds

The Securities and Exchange Commission to is under fire from lawmakers and the financial industry regarding the volume and scope of regulations raining down from the regulator under the leadership of Chairman Gary Gensler.

“Chair Gensler’s frenetic partisan rulemaking agenda at the SEC has threatened the health of U.S. capital markets and highlights the need for targeted institutional reform,” said Rep. Ann Wagner R- Mo. 

“Today’s hearing will explore the negative consequences of rulemaking based on theoretical assumptions rather than real world impacts and the alarming absence of stakeholder input and meaningful cost benefit analysis during the rulemaking process.” 

Ken Bentsen, president and chief executive officer of the Securities Industry and Financial Markets Association (SIFMA), speaks during a Bloomberg Television interview in New York, U.S., on Tuesday, Dec. 12, 2017. Bentsen discussed banking regulation and what he calls recalibration for financial institutions. Photographer: Christopher Goodney/Bloomberg

Bloomberg News

Wagner, who chairs Capital Markets subcommittee of the House Financial Services Committee made the comments during a subcommittee hearing on Wednesday.    

In addition to concerns from Congress, the current version of the SEC has become notorious in the securities industry for wielding a heavy regulatory hand.  

According to the Securities Industry and Financial Markets Association, during the first thirty months of Gensler’s reign, which began in 2021 and expires in 2026, “the SEC finalized 21 recently proposed rules, which is 110% more than the volume of new finalized rules by the previous two chairs over the same timeframe.” 

“SIFMA remains deeply concerned the high volume and speed of regulatory change proposed by the Securities and Exchange Commission could result in negative consequences for the real economy,” said SIFMA president and CEO Kenneth E. Bentsen, Jr., via a statement. “These concerns cover every sector of our financial markets, including municipal securities.”  

The subcommittee split down party lines on opinions regarding whether the agency is overstepping its bounds or trying to catch up with a rapidly changing market that now includes crypto currency and the rise of artificial intelligence. 

Debates over ESG, the implementation of the Financial Data Transparency Act and a recent ruling on disclosure regarding climate risks are keeping the agency in the hot seat. 

The hearing aired opinions about disclosure discrepancies between public and private markets and came equipped with a list of legislation percolating in the House including the Protecting Private Job Creators Act. The proposed legislation exempts fixed income securities from SEC Rule 15c2-11 which requires broker-dealers to maintain current records regarding the issuer and the security that’s publicly available before they can begin quoting terms.   

“This legislation will continue to safeguard the fixed income market from the unintended consequences of a rule that was never tailored for our market nor adequately communicated to the public,” said Jessica Giroux, general counsel, American Securities Association.   

The muni community is keeping a close eye on the SEC as it moves forward with FDTA implementation with a special emphasis on the public comment period. The preferred length of public comment periods was also a topic covered in the hearing.  

 ”Something that’s a simple rule, easy to grasp, could be 60 days,” said David Burton, senior fellow in economic policy, Thomas A. Roe Institute for Economic Policy Studies, The Heritage Foundation.  ”For some of these with hundreds of pages of text to absorb. I really think 120 days is appropriate.” 

The Federal Data Transparency Act that was signed into law at the end of 2022 requires that municipal securities disclosures be converted into a machine-readable format.  One of the main bones of contention with the FDTA remains who is going to pay for the new software, training, and manpower needed to make it happen. 

“The current SEC administration has been aggressive in pursuing new regulatory initiatives which impose significant costs and risks on the industry,” said Michael Decker, SVP for research and public policy, Bond Dealers of America.  ”Proposals in play for a third best execution rule and to shorten trade reporting times, which originated at the SEC, are two examples. Ever growing compliance costs, a particularly onerous burden for small and mid-size firms, will ultimately be borne by customers.”

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