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Gary Gensler plans to step down as chair of the US Securities and Exchange Commission when Donald Trump takes office as president on January 20, bringing to an end a bold rulemaking term that encountered resistance from the industry and courts.
Officially, Gensler’s five-year term on the commission will not run out until 2026, but it has become customary for SEC chairs to move on when the White House changes hands.
Under Gensler, the SEC pushed through rules seeking to bring more transparency to the markets and improve corporate disclosures but also suffered bruising legal defeats. Hours before his announcement, a federal court in Texas tossed out the SEC’s new rules for the $27tn Treasury market, finding that the watchdog had exceeded its authority.
“The SEC has met our mission and enforced the law without fear or favour,” Gensler said in a statement on Thursday.
His ambitious rulemaking agenda included new standards for climate disclosures and cyber security, as well as a series of market reforms. He also took a tougher enforcement stance, clamping down on both traditional Wall Street players, such as banks using “off-channel communications”, and cryptocurrency businesses.
The new SEC chair is widely expected to kick off a deregulation drive, with legal experts arguing that rules proposed by Gensler, but not yet finalised, will be discarded.
Perhaps the sharpest U-turn may involve crypto, which Gensler branded as a “wild west” rife with unlawfulness and investor risk. He has refused to craft rules catered to digital assets, arguing that many tokens are securities and that existing securities law is sufficient guidance.
Trump, who will nominate Gensler’s successor, has pledged to be far more crypto friendly and to set up an advisory council aimed at writing rules for the sector.
The sweep of the SEC’s rulemaking has drawn complaints from Wall Street. “Over the last four years, there were a number of rule changes proposed where, to be blunt, it’s like ‘what problem are we trying to solve?’” Ken Griffin, founder of hedge fund Citadel, said during remarks at the Economic Club of New York on Thursday, just moments before Gensler’s announcement.
The billionaire’s opposition to SEC rulemaking has included funding several lawsuits against the watchdog. “Much of Gensler’s agenda will ultimately not survive, in my opinion, the next four years. Between the courts and a new SEC, we’re going to see a rollback of the regulatory onslaught,” Griffin added.
Several key pillars of Gensler’s rulemaking agenda have already been thwarted by US courts in legal challenges mounted by market participants.
A US appeals court threw out far-reaching rules that would have forced private equity and hedge funds to increase transparency, while the SEC halted a measure that for the first time would have required companies to disclose their climate risks, following a series of lawsuits.
The latest legal defeat came earlier on Thursday regarding the “dealer rule”. The measure was part of broader efforts by US agencies to gain greater oversight of the $27tn US Treasuries market, whose prices are used as a reference in other markets and help set borrowing costs in the US economy.
Hedge fund industry groups had challenged the rule, which was passed in February, which would have increased their capital requirements and required them to have reported more trades to the market.
“We are very pleased by the court’s ruling, a result that rightfully sets aside the SEC’s attempt to dramatically expand its authority by adopting a sweeping, unprecedented new interpretation of a 90-year-old statutory definition,” said Jack Inglis, chief executive of the Alternative Investment Management Association, one of the plaintiffs.
The SEC said it was reviewing the decision.
Officials have grown increasingly concerned following several bouts of instability in the Treasury market, most recently in September 2019 and March 2020, that required intervention by the Federal Reserve. Other initiatives, such as forcing far more trading through a clearing house to be centrally cleared, are still on course.