Author: Gary Gensler
Compiled by: Nicky, Foresight News
Two years ago, when I was here talking to you, I quoted the words of President Franklin D. Roosevelt when he signed the first major securities law in 1933: "This law and its effective enforcement are a step in the restoration of some old-fashioned decency."
This year, I will talk about effective enforcement. As usual, I want to point out that the following views represent my personal views as the Chairman of the Securities and Exchange Commission, and do not represent the views of other Commissioners or staff.
I believe that over the past 90 years, our securities laws have made a significant contribution to the tremendous economic success of our country. After the enactment of the securities laws, they benefited both investors and issuers, and helped us build trust in the capital markets. These laws also helped to reduce costs and reduce risks.
The results are reflected in the size, scope and depth of our capital markets. Today, our capital markets are over $120 trillion in size, a comparative advantage for the nation, supporting the dominance of the dollar and our global role. We are the preferred capital market for global issuers and investors, accounting for over 40% of the global capital market, despite accounting for only 24% of the world's economic output, a remarkable achievement given our relatively small size.
This is no accident.
President Roosevelt and Congress in the 1930s understood that well-regulated markets can build trust and create the conditions for economic success.
Later, presidents Richard Nixon, Gerald Ford, Ronald Reagan, Bill Clinton, George W. Bush, and Obama, as well as Congress, have repeatedly recognized this in updating securities laws to best promote the success of our capital markets and our economy.
One way I think about this is by analogy to common sense rules in driving or football.
Over the years, whenever any of my three daughters has borrowed the car keys, I've been able to sleep soundly knowing that common sense traffic rules are protecting them. These rules include stop signs, traffic lights, speed limits, and laws against drunk driving. The police patrolling the streets ensure these rules are enforced, allowing my daughters to drive safely and giving me peace of mind.
These traffic rules not only help reduce driving risks, but also promote economic prosperity. Imagine if, a hundred years ago, there were no traffic lights or speed limits - the U.S. auto industry might not have achieved such remarkable success, because those rules allowed American consumers to trust this new product.
Similarly, as we enjoy the thrill of football games this fall, imagine if the National Football League (NFL) had not established any rules of the game. Without referees on the field to maintain order, the field would descend into chaos and the players would be injured.
These common sense rules in football not only provide safety for the players, but also establish fans' confidence in the fairness of the game. So the existence of rules and referees is an important factor in driving the continued development of the game.
It's the same in finance - common sense rules can reduce risks and build trust among market participants.
When President Roosevelt and Congress enacted securities laws in the 1930s, they had experienced the 1920s, when swindlers, fraudsters, con artists and Ponzi schemers exploited investors for their own gain. They learned the lesson of unregulated markets running wild. In the decades that followed, as technology and business models changed, subsequent presidents have seen similar benefits from strengthening market regulation.
They also knew that "traffic rules" should not be limited to just preventing fraud. Congress recognized the importance of securities information to the public interest, and enacted a series of key provisions on disclosure. They also established important corporate governance provisions to ensure the proper functioning of companies. For intermediaries, Congress also paid close attention, enacting important provisions on managing conflicts of interest, transparency of information disclosure, and standards of business conduct. These provisions are intended to protect investor interests and maintain fairness and integrity in the markets. In addition, they paid special attention to gatekeepers such as investment banks and auditors, establishing provisions to ensure they play a positive role in the capital markets and maintain market stability and security.
Cryptocurrency Market
When I joined the SEC in 2021, Chairman Jay Clayton had already initiated about 80 lawsuits against participants in the cryptocurrency market who were not following basic rules, including the Ripple case.
Chairman Clayton and his Commission frequently discussed these emerging markets, and within just three months of his appointment, the Commission issued the DAO Report. The SEC has always been vigilant in ensuring that entities issuing or selling securities comply with our well-tested securities laws. Since 2018, this enforcement work has typically accounted for 5% to 7% of our overall work.
Multiple courts have supported our actions to protect investors, rejecting all arguments that the SEC lacks the authority to enforce different forms of securities issuance.
It is worth noting that not all assets are considered securities. Former Chairman Clayton and I have both clearly stated that Bitcoin is not a security, and the Commission has never treated it as such. Our focus has been on a portion of the roughly 10,000 other digital assets, many of which have been ruled by courts to be securities. Considering this, the rest of the cryptocurrency market, excluding Bitcoin, Ethereum and stablecoins, is about $600 billion in size, less than 20% of the entire cryptocurrency market, and only about 0.25% of the global capital market.
Here I want to emphasize two points:
First, parties issuing or selling securities to the public must register and provide full disclosure to the public. Second, intermediaries - including broker-dealers, exchanges, and clearing agencies - must register and be subject to appropriate regulation of conflicts of interest, information disclosure, and business conduct.
Before I joined the Commission, at the request of SEC staff, many applications for Bitcoin ETFs and ETPs had been denied or withdrawn. However, shortly after I joined in 2021, the first Bitcoin futures ETF was allowed to go effective after consultation with Commission staff. While we initially followed the previous path on physically-backed Bitcoin ETPs, the Commission approved physically-backed Bitcoin and Ethereum ETPs earlier this year. Compared to the non-compliant cryptocurrency market, these products offer investors the benefits of transparency of disclosure, rigor of regulation, lower fees, and greater market competition.
Over the years, this area has caused significant harm to investors. Additionally, aside from speculative investments and potential involvement in illicit activities, the vast majority of crypto assets have yet to demonstrate sustainable utility value.
Everything we do is to ensure compliance with the law. Since the 1930s, we have always believed that compliance is critical. It protects investor interests, builds trust in our capital markets, and helps issuers access the markets. 90 years of history have shown that strong securities regulation can both build market trust and drive innovation.
Reflections
My parents, Sam and Jane Gensler, never worked in the financial industry and didn't even complete college. Yet, when they invested their hard-earned savings in the securities markets, our whole family benefited from those common sense market rules.
The U.S. Securities and Exchange Commission, through effective management and regulation of a well-functioning securities market, has fostered the establishment of trust. This is the reason why investors and issuers enthusiastically flock to the market, just like fans watching a football match. This also constitutes the foundation for the robust development of the world's largest capital market. It is for this reason that our country has achieved tremendous economic success over the past 90 years.
I am immensely proud to stand shoulder-to-shoulder with my colleagues at the U.S. Securities and Exchange Commission. They steadfastly guard the financial superhighway day in and day out, safeguarding the property security of every American household.
