House Hearing Challenges SEC’s New Equity Rules, Here’s Why
The House Financial Services Subcommittee on Capital Markets, chaired by Ann Wagner (MO-02), held a hearing titled “Solutions in Search of Problems: Chairman Gensler’s Equity Market Structure Reforms.”
The session focused on stock market structure reforms proposed by SEC Chairman Gary Gensler, which aim to overhaul the current structure of U.S. stock markets.
House Hearing Challenges SEC’s New Equity Rules
Commission president Wagner said there was no clear understanding of the market problems the proposed reforms address and how they would help market participants.
Wagner noted that US capital markets are already very liquid and competitive, with 12 billion shares traded daily on American exchanges. He noted that retail trading has increased since zero-commission trading was implemented in 2019 and is estimated to account for 10-20% of trading volume in the US.
Wagner later took issue with the SEC for supporting these reforms without sufficient economic analysis and justification. He argued that the SEC’s own economic analysis recognized that the effects of the proposals were “immeasurable.” In addition, he expressed concerns about the use of outdated and unreliable data, including data from Rule 605 reports that SEC staff acknowledged were not very useful.
The hearing focused on five key stock market structure proposals that the SEC has submitted in less than a year. In March 2024, the SEC approved a proposal regarding changes to Rule 605 regarding improving order execution data.
According to Wagner, this enriched information needed to be analyzed to see if there was a need to initiate further reforms before presenting the remaining proposals.
Calls for Prudent Regulatory Action
Wagner suggested that the SEC should slow down and focus more on implementing effective rules, for which there is ample evidence to suggest they are necessary, and conducting proper cost-benefit analysis.
He said millions of Americans rely on U.S. stock markets for their financial concerns and that such a system should not be changed in a way that would jeopardize the stability of the market.
The testimony at the hearing echoed Wagner’s concerns that the proposed changes could harm retail investors, stressing that conditions that encourage competition and efficiency must be preserved with minimal interference.
Supreme Court Decision on SEC’s Enforcement Powers
Simultaneously, the Supreme Court recently ruled that defendants in SEC fraud cases have the right to a jury trial in federal court, meaning the SEC cannot prosecute some complaints internally. This decision impacts the SEC’s enforcement strategy because civil fraud cases must be heard in federal court, which could change how the SEC handles such cases.
The Supreme Court’s decision could impact other regulatory agencies and be a sign of a continuing trend to curtail the authority of federal regulators.
The decision comes after a series of court decisions that have limited the authority of federal agencies, including those related to the environment. The SEC had already begun to reduce internal litigation before the decision, and the latest ruling will dictate future enforcement strategies.
Also read: ripple CLO Highlights SEC’s Rollback on Proxy Advisory Firms Rule
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