U.S. SEC Chairman's testimony: Bond market regulation will be strengthened and cryptocurrency platforms must register with the Commission

According to testimony published on the U.S. Senate website, U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler will tell a Senate hearing on Tuesday (September 14) that he has asked the regulator’s staff to review “five market structure-based projects” in the $110 trillion capital market: Treasury bonds, non-Treasury fixed income markets, equities, security-based swaps and crypto assets.

Image | U.S. Senate website

Treasury bonds: The SEC hopes to increase the resilience of the U.S. Treasury bond market and may require those U.S. Treasury bond platforms to register with the SEC.

Non-Treasury fixed-income market: “This market is so critical to issuers. It is nearly 2.5 times larger than the approximately $10.5 trillion of commercial bank loans in our economy,” he said of non-Treasury fixed-income bonds. He will ask staff to come up with recommendations to “bring greater efficiency and transparency” to a range of products from corporate bonds to municipal bonds to mortgage-backed securities, the documents show.

Stock market: He wants to increase the competitiveness of stock trading orders, and the SEC is preparing a draft plan to speed up stock clearing. He also discussed the hope to update the SEC's market structure regulations to include robot financial advisors and investment applications such as Robinhood. Gensler also emphasized the review of the impact of revenue models such as payment for order flow.

The SEC also sought recommendations to strengthen disclosures about investments in special purpose acquisition companies (SPACs), a structure that Gensler said is inherently expensive and has many potential conflicts. “Investors should be provided with clear information so they can better understand the costs and risks,” he said.

Swap business: Regarding the security-based swaps that led to Archegos’s meltdown, Gensler said he has asked SEC staff to study whether the company should disclose the total positions to the SEC and the public.

Cryptocurrency market: Gensler said he has advised staff to strengthen investor protection in multiple areas and seek help from Congress if necessary. These areas include: the offer and sale of cryptocurrencies, crypto trading and lending platforms, stablecoins, investment tools that provide exposure to crypto assets or crypto derivatives, crypto asset custody, etc. Gensler said the SEC is working with the Commodity Futures Trading Commission because the two regulators have areas of regulatory overlap.

Gensler once again pointed out that cryptocurrency exchanges are vehicles that need strict regulatory scrutiny, asking the platforms to "come in and talk to us." He said: "As long as there are assets on these trading platforms, under our laws, they must register with the Commission unless they qualify for an exemption."

The hearing is scheduled to begin at 10:00 a.m. Eastern Time (22:00 Tuesday Beijing Time).