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SEC chair Gary Gensler to unveil big changes amid FTX scandal

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You’d think that with the FTX scandal still brewing and investors missing billions of dollars from their supposedly secured crypto accounts, Securities and Exchange Commission chair Gary Gensler would have a lot on his plate, he wouldn’t have time to muck around in our capital markets, that are working just positive.

But sources tell me Gensler is doing just that — preparing to unveil plans for the largest changes in about twenty years to the best way stocks are routed from buyers to sellers. If Gensler’s timing holds, he’ll announce (possibly this week) an open meeting for mid-December that may detail his plan to remake the nation’s $46 trillion stock market, as I first reported on Fox Business.

The thought is to jam out his proposed changes — and so they’re pretty significant — before yr’s end.

Why the push? The word contained in the SEC is that Gensler desires to get much of the work on it done before the brand new GOP Congress takes over Jan. 3. While a probe of Hunter Biden’s swampy business dealings is high on the list of the incoming committee chairs, Gensler knows he also has a goal on his back for his ambitious — some would say zealous — progressive agenda at an agency that has a core mission of protecting investors from being ripped off by scammers.

The Gensler SEC has moved thus far beyond this mission that he’s trying to rating lefty points and join the Environmental Social Governance bandwagon by forcing firms to reveal non-financial metrics similar to how they’re reducing their carbon footprint.

The House Financial Services Committee, meanwhile, is intent on grilling Gensler on what he knew concerning the shenanigans of Sam Bankman-Fried, the Democratic megadonor under criminal investigation over the implosion of the crypto exchange FTX. The corporate is now in bankruptcy, while SBF, as he’s known, stays within the Bahamas.

Securities and Exchange Commission, Chairman Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee hearing on If Gensler’s timing holds, he’ll announce (possibly this week) an open meeting for mid-December that may detail his plan to remake the nation’s $46 trillion stock marketBill Clark/Pool via AP

Billions missing

As this column goes to press, countless billions in customer money remain missing, likely gambled away in Bankman-Fried’s side hustle of a prop-trading fund.

Here’s where things get interesting: Gensler met with SBF months before the blowup. The SEC had additional meetings with the fallen crypto bro’s people and business partners who were trying to start a commission-approved exchange. GOPers need to hear how all this occurred ­under the nose of Wall Street’s ­so-called top cop.

Market structure, meanwhile, hasn’t really caught the total attention of the incoming 118th Congress and its recent GOP majority yet, but it surely should. The way in which we buy and sell stocks, the so-called plumbing of the market, is usually taken with no consideration for the easy reason that it really works pretty seamlessly even when the method is pretty complex.

It’s more complicated than simply a bunch of men on the Latest York Stock Exchange screaming out bids to match buyers and sellers.

For starters, most of those guys are gone, replaced by computers that may match orders in nanoseconds. The most important public stock markets, the NYSE and the Nasdaq, aren’t the one game on the town and are in competition to match buyers and sellers with private exchanges and market makers, firms like Citadel Securities and Virtu Financial. They’re armed with highly efficient trading machines that may match orders cheaply and still skim a bit and make a profit. It’s why we’ve got low-cost and, within the case of Robinhood, no-fee trading platforms.

The system isn’t perfect, after all (see what happened through the early stages of the so-called meme-stock craze of 2020-21). There are outages and price discrepancies because of computer errors. But it surely works pretty much, and by most measures small investors profit greatly from higher execution and lower trading costs — just the best way the SEC intended the last time it instituted changes.

FTX founder Sam Bankman-FriedSam Bankman-Fried is under criminal investigation over the implosion of the crypto exchange FTX.FTX/Handout via REUTERS/File Photo

Anything might be improved — but should it?

The most important thrust of Gensler’s proposal, based on people briefed on it, could cost retail investors billions of dollars. I don’t have all the small print, but broadly he wants trades made by small investors to be routed individually into various public auctions, presumably run by the NYSE or Nasdaq — a change that will significantly reduce competition that the SEC intended. His hypothesis is that there’s nefarious stuff occurring in those private venues where ­rip-offs is likely to be taking place.

What are those rip-offs? Gensler hasn’t really said. Do we’ve got evidence that low-cost or no-fee discount brokers are covering up hidden costs on execution performed by market makers? No.

On the lookout for headlines

So why is Gensler trying to fix what isn’t broken? Some people within the markets say he’s merely in search of headlines and to curry ­favor with the Wall Street-hating progressive Sen. Elizabeth Warren, who has a giant say in President Biden appointments for economic roles within the administration. Gensler is eyeing treasury secretary when Janet Yellen steps down next yr as expected.

Others say he really does think Wall Street is a sewer of corruption. Perhaps we are going to discover more on the SEC’s next open meeting, or perhaps Gensler will drop his fixation with fixing something that’s not broken and realize his time is best spent finding those countless billions still missing from those FTX customer accounts.

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