The following is the content of Gary Gensler's speech on 11/14,2024, translated by Block Tempo.
Thank you to the Practicing Law Institute for hosting the 56th Annual Securities Regulation Forum and inviting me to participate in this event.
Two years ago, I quoted a statement made by 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 standards of morality in business."
This year, I would like to talk about "effective enforcement".
Let me start by stating that the views I express today are my own as the Chair of the U.S. Securities and Exchange Commission (SEC), and do not represent the work of other Commissioners or SEC staff.
I believe that over the past 90 years, our securities laws have made a significant contribution to the economic success of our nation.
The existence of securities laws - for both investors and issuers - has helped build trust in our capital markets. These regulations have lowered costs and reduced risks.
The size and depth of our capital markets are the best evidence of these achievements. Today, the over $120 trillion U.S. capital markets are part of our national competitive advantage, supporting the global dominance of the U.S. dollar and our international role. Our capital markets are the destination of choice for issuers and investors globally, accounting for over 40% of the world's capital markets, while our economy is only 24% of the global economy.
This did not happen by accident.
In the 1930s, President Roosevelt and Congress recognized that well-regulated markets can build trust and create an environment for economic success.
Since then, multiple presidents - including Richard Nixon, Gerald Ford, Ronald Reagan, Bill Clinton, George W. Bush, and Barack Obama - as well as Congress, have upheld this principle when amending securities laws to promote the development of capital markets and economic prosperity.
In my view, these rules are like the common-sense "road rules" in driving or football.
Over the years, whenever one of my three daughters borrows the car keys to go out, I sleep better knowing that there are common-sense road rules in place. There are stop signs, traffic lights, speed limits, and prohibitions on drunk driving. I also take comfort in the fact that there are police officers enforcing these rules to keep them safe.
The common-sense rules of the road not only reduce risks, but also facilitate economic activity. A hundred years ago, the U.S. automobile industry may not have been as successful if there were no traffic lights and speed limits to build consumer trust in this new product.
And think about American football this time of year. Imagine if the National Football League (NFL) had no rules and no referees - it would be chaos, and players could get hurt.
The common-sense rules of the game not only protect the players, but also give fans confidence in the fairness of the competition. Thus, the existence of rules and referees has driven the commercialization of the sport.
The financial world is no different. Common-sense rules reduce risks and build trust among market participants.
When President Roosevelt and Congress enacted the securities laws in the 1930s, they had witnessed the era of the 1920s, with all its speculators, fraudsters, Ponzi schemers, and con artists running rampant in an unregulated market. Subsequent presidents, facing technological and business model changes, have repeatedly strengthened market oversight and witnessed the same positive effects.
They also knew that these "road rules" were not just about fraud. Congress enacted important provisions around disclosure, because securities information is a public good. They also established key norms around corporate governance, conflicts of interest for intermediaries, disclosure, and business conduct. And they set standards for "gatekeepers" like investment banks and auditors.
Road Rules
As students of history and economics, we all understand that the world is never static. Technology and business models are constantly evolving, and other countries are challenging our position as the leader in capital markets.
Therefore, for those of us fortunate to have this mission, our job is to continuously update the "road rules." This is what we have been doing - working to lower the costs and risks in our capital markets, what economists call promoting efficiency, resilience, and integrity.
Treasury Market
Let's start with the bedrock of our capital markets - the $28 trillion U.S. Treasury market. It is not only critical to the well-being of your clients and yourselves, but also the foundation of our nation's self-financing, the tool for the Federal Reserve to conduct monetary policy, and key to the U.S. dollar maintaining its global dominance. However, the Treasury market has experienced bouts of volatility.
Here is the English translation:To reduce the costs and risks of these markets, we have implemented a number of reforms, such as promoting the centralized clearing of government bonds. As these clearing rules are gradually implemented over the next year and a half, your clients may seek your advice on how to participate in this new government bond market that promotes trading and competition across the entire market.
Stock Market
Next, let's talk about the US stock market, which is close to $60 trillion in size. While this is the deepest and most liquid stock market in the world, we haven't had a comprehensive update to the "road rules" in nearly 20 years. Therefore, I am proud of the achievements we have made for our institutions. Retail investors now benefit from the new rule that shortens the settlement cycle to one day. This means that if an investor sells a stock on Monday, they can receive the cash on Tuesday, without having to wait until Wednesday.
Additionally, we unanimously passed updates to the National Market System rules this past fall. Your clients, as well as retail investors, will benefit from a more efficient stock market, with stock quotes able to be narrowed to half-penny increments. They will also benefit from another unanimously passed rule, which updates the information disclosure on broker-dealer execution quality.
Further Reading: U.S. stocks continue to rise, with global market share reaching a 75-year high, but European stocks have fallen for five consecutive weeks...
Corporate Governance
President Roosevelt and Congress also gave the SEC a role in corporate governance when they enacted the securities laws. Subsequent presidents and Congresses have supplemented these laws multiple times.
To further promote trust in the capital markets, we have adopted a series of rules on corporate governance, including:
- Regulations on when corporate insiders can sell their stock;
- Requirements for executives to return compensation received due to financial data errors;
- Disclosure requirements on the relationship between executive compensation and company performance;
- More timely disclosure requirements for those seeking to acquire control of more than 5% of a company's shares.
The implementation of these rules is to ensure the transparency and trustworthiness of the capital markets, further strengthening the leadership position of the US markets.
Disclosure
Many of your clients will seek your advice on one of the core principles of our securities laws - disclosure.
When I took this position, investors demanded more detailed disclosures, particularly on issuers' cybersecurity risks and climate risks. At the same time, the boom in special purpose acquisition companies (SPACs) has also led investors to expect further improvements in disclosure and integrity in this market.
Based on public comments, we have proposed and adopted rules in these three areas. These rules are based on the materiality principle, which is a key pillar of the disclosure requirements under federal securities laws.
Additionally, securities laws require broker-dealers and investment advisers to disclose material information to clients. Specifically, Congress gave us the authority to address investor privacy notices 25 years ago. Given the significant technological changes, we unanimously passed a rule requiring relevant companies to notify clients of data breaches that could jeopardize personal information.
We have also enhanced overall market transparency by publishing aggregated and anonymized data covering registered investment funds, private funds, and investment advisers.
Resiliency
To promote the world's best capital markets and protect the public, we have always focused on financial stability, monitoring risks that could spill over and harm ordinary Americans. This is why we have undertaken government bond market reforms, as well as money market fund reforms and updates to private fund data collection rules. Although the SEC has already implemented rules in these areas since the financial crisis, the COVID-19 outbreak has shown that the market environment has changed significantly, and we need to make further adjustments.
Accounting and Auditing
When I first arrived at the SEC, I found that there were still unfinished matters related to a law passed nearly 20 years ago - the Sarbanes-Oxley Act.
First, for nearly 20 years, the Chinese government has not allowed the Public Company Accounting Oversight Board (PCAOB) to inspect or investigate the audit firms of Chinese companies listed in the US. However, thanks to recently passed legislation, we have engaged in serious negotiations with the PCAOB, and in August 2022, we signed a "Statement of Protocol". Over the past two years, the PCAOB has been able to fulfill its responsibility to inspect and enforce on audit firms in China and Hong Kong for the first time.
Second, the Sarbanes-Oxley Act, for practical considerations, allowed the PCAOB to temporarily continue using the old standards of the American Institute of CPAs. But until I took office, 42 out of 49 "interim standards" had not been updated. I am now pleased to see that the PCAOB has updated half of the standards within three years.
Crypto
When I took office in 2021, the Securities and Exchange Commission (SEC) led by former Chair Jay Clayton had already taken about 80 enforcement actions against participants in the cryptocurrency market who were not following "common sense road rules".
Chair Clayton and his Commission began frequently discussing the crypto market in the third month of his tenure, with the publication of the DAO Report. The SEC has remained vigilant to ensure that participants offering or selling securities comply with our well-established securities laws. Since 2018, crypto-related enforcement actions have accounted for 5% to 7% of the SEC's total enforcement work.
Major courts have affirmed our actions to protect investors, rejecting all claims that the SEC lacks the authority to enforce securities laws, regardless of the form of the securities.
Not every asset is a security. Both Chair Clayton and I have stated that Bitcoin is not a security, and the SEC has never considered Bitcoin to be a security.
However, our focus is on the other approximately 10,000 digital assets, many of which have been ruled by courts to be offered or sold in the form of securities. Specifically, excluding Bitcoin, Ether, and stablecoins, the total market value of the rest of the market is around $600 billion, less than 20% of the entire crypto market, and less than one-quarter of one percent of the global capital markets.
I want to emphasize two points: 'Block' must be translated into 'Block'. 'TRON' must be translated into 'TRON'. 'HT' must be translated into 'HT'. 'ENS' must be translated into 'ENS'. 'AR' must be translated into 'AR'. 'ONT' must be translated into 'ONT'. 'RON' must be translated into 'RON'. 'ONG' must be translated into 'ONG'.
- First, participants who offer or sell securities to the public must register and provide appropriate disclosure to the public.
- Second, intermediaries such as brokers, exchanges, and clearing houses must register and be subject to appropriate regulation regarding conflicts of interest, information disclosure, and business conduct.
Before I took office, SEC staff had rejected or requested the withdrawal of multiple applications for Bitcoin exchange-traded funds (ETFs) and products (ETPs). Shortly after I took office in 2021, the first Bitcoin futures ETF became effective after negotiation with SEC staff. While we initially continued the previous administration's approach, taking a conservative stance on ETPs holding physical Bitcoin, earlier this year the Commission approved ETPs for physical Bitcoin and Ether. Compared to the non-compliant crypto asset market, these products offer investors higher transparency, stricter regulation, lower fees, and greater competition.
This space has seen significant investor losses over the years. Beyond speculative investment and potential illicit uses, most crypto assets have yet to demonstrate sustainable use cases.
Everything we do is focused on ensuring compliance with the law. We have found compliance to be critical since the 1930s. It protects investors, builds trust in capital markets, and helps issuers access the markets. The 90-year history has shown that sound securities regulation not only builds market trust, but also fosters innovation.
SEC's Excellent Team
Finally, I want to mention the SEC and its team. This is an extraordinary institution. Experts in law, accounting, economics, policy, and more, choosing to serve the public rather than earn more elsewhere.
It is my great honor to work alongside these outstanding colleagues to ensure the U.S. capital markets remain the world's leader.
Conclusion
My parents, Sam and Jean Gensler, never worked in finance and did not attend college. But when they invested their savings, our family benefited from the common-sense rules of the securities markets.
Effective SEC enforcement promotes market trust, attracting investors and issuers like fans to a game. This is the foundation supporting the world's largest capital market, and one of the reasons for the U.S. economy's success over the past 90 years.
I am honored to work with my SEC colleagues every day to protect the financial security of American households.
