Wall Street executives are scrambling to figure out if Securities and Exchange Commission Chair Gary Gensler is serious about imposing new “woke” disclosure mandates on companies. And the answer they’re getting is a resounding “yes.”
FOX Business has learned that top c-suite officials from the big banks have been setting up meetings with the relatively new chairman of the SEC in recent weeks to get a better idea of his agenda as head of Wall Street’s top cop.
Gensler was nominated by Democratic President Biden for the post and was confirmed by the Senate in April. People who have met with him say he hasn’t yet fully moved into his office at the commission’s Washington, DC headquarters. They say he is still largely working from his home in nearby Baltimore.
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From his home office, however, Gensler is plotting to be a “transformational” SEC chair, according to Wall Street executives who know him. His top priority, he has signaled to these people: significant changes in what corporations must disclose to the public that reflect certain political, environmental and social goals an increasing number of investors are demanding.
Gensler is also telling executives that he will not ignore the traditional parts of his job and will be looking to enhance protections for small investors who have flooded the market in recent years, embracing risky financial products on a scale not seen since the dot-com bubble of the late 1990s.
“He’s worried about small investors getting ripped off, but the highest priority will be the new disclosure rules that appeal to the environment and issues like that,” said one c-suite executive who asked not to be named.
An SEC spokesman had no comment.
Gensler, well-known and mostly well regarded among the Wall Street elite given his long years as a banker at the prestigious investment house Goldman Sachs and later while serving in various government finance-related roles including chairman of the Commodity Futures Trading Commission under former President Obama.
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His politics have transformed over the years from a left-of-center liberal on financial issues to someone who now embraces progressive edicts from the likes of Democratic Massachusetts Senator Elizabeth Warren, a fierce critic of corporate America. Wall Street executives say Gensler is so close to Warren he often confers with her on policy issues. A spokesman for Warren didn’t return a call for comment.
Gensler’s political beliefs are said to be at the center of his new – and according to some observers radical agenda – as SEC chair. He wants to impose new disclosure rules sometime before the end of the year that will force companies to go beyond alerting investors about financial issues that can materially impact their holdings. That will mean corporations will have to disclose issues about their carbon footprint, board-room diversity and other non-financial issues. It’s unclear what exactly Gensler will be asking in terms of these new disclosures, but Wall Street executives say he is telling people he and his staff will provide details by the fall.
The disclosures will certainly draw criticism from some corporate executives and GOP politicians who believe Gensler is overstepping his role as a regulator of markets by embracing progressive political issues.
But Gensler appears undeterred. “He is really serious about this stuff that probably comes right from Elizabeth Warren’s office,” said one attorney who deals with major corporations on their dealings with the SEC. The attorney said Gensler will pass the rules through a party-line vote since Democrats outnumber Republican commissioners 3-to-2.
Other issues Gensler will focus on are those he believes involve more typical Wall Street abuse of small investors. He’s said to be worried that there’s not enough disclosure when retail investors buy shares of Special Purpose Acquisition Companies or SPACs. This is a new way a company can go public by being acquired by a shell company that buys several different ventures. Gensler is worried that small investors who buy shares at initial public offering are getting crushed with fees that aren’t levied on big investors who sponsored the product.
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One particular concern in the SPAC space for Gensler is the so-called celebrity SPAC where movie stars and professional athletes lend their names to the SPAC even though they have no investment expertise, these people add.
Also on his list, as previously reported by FOX Business, the issues of payment for order flow and the gamification of trading. Payment for order flow is the system that allows small investors to trade for free or at a low cost through discount brokerages. Brokers sell their order flow, or buy and sell orders, to other financial firms to match the orders. The financial firms make money on the bid-and-ask spread and by handling so many trades even fractions of a penny could add up to enormous profits.
The SEC chairman is worried the system gives financial firms matching the orders–like Citadel Securities and Virtu Financial–an unfair information advantage in the markets. One option he has discussed: Forcing discount brokers to send more of their trades to public exchanges where there is more transparency.
Gensler appears to be still grappling with how to regulate the so-called gamification of trading, where discount brokers appear to lure unsophisticated investors to their platform through gimmicks and incentives without properly disclosing the risks involved in trading. Wall Street executives say clues to how Gensler will regulate gamification might be found in the upcoming IPO documents for trading app Robinhood, which has been in negotiations with the SEC about becoming a public company via its private filing.
Robinhood, which offers trading with no fees, is planning to come public later this summer; its IPO document known as an S-1 will be publicly released imminently.
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