US SEC Chair: "We Will Lower Economic Rents in Capital Markets"... Regulatory Measures Announced

▲Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC) [Image source=Reuters News]

[Asia Economy Reporter Kwon Jae-hee] Gary Gensler, Chairman of the U.S. Securities and Exchange Commission (SEC), has put a brake on the financial industry's excessive profit-seeking behavior, saying he hopes to "lower the economic rents in the capital markets."

According to the Wall Street Journal (WSJ) on the 5th (local time), Chairman Gensler said, "I want to reduce the costs of capital markets not only for ordinary individuals saving for retirement but also for companies raising capital."

The economic rents he referred to mean profits above the level obtainable in a perfectly competitive market.

The WSJ evaluated that within less than six months since Gensler took office, he has outlined an aggressive regulatory agenda that could pressure profits in the financial industry, and reported that about 50 regulatory drafts are being prepared with policy experts, lawyers, and economists to legislate these agendas.

First, Chairman Gensler's main target is the so-called Payment for Order Flow (PFOF) practice.

This refers to small brokerage firms sending their clients' order information not to official securities exchanges but to securities trading firms such as Citadel Securities or Virtu Financial, which engage in high-frequency trading (HFT), and receiving compensation in return.

For example, Robinhood, a stock trading app popular among U.S. retail investors, offers commission-free trading but earns revenue through such Payment for Order Flow.

Official exchanges disclose both bid and ask prices and aggregate multiple orders to announce optimal prices, but unofficial exchanges like Citadel Securities do not disclose quotes before trade execution.

This is why Chairman Gensler views Payment for Order Flow as reducing market transparency and raising concerns about conflicts of interest for brokerage firms.

In August, he mentioned that he is considering banning this practice, which caused the stock prices of Robinhood and Virtu Financial to plummet.

Chairman Gensler also plans to require asset management firms to disclose more information related to so-called Environmental, Social, and Governance (ESG) investments.

As public interest in climate change and racial conflicts rises, ESG investing is emerging as a new source of revenue, but there are criticisms about the lack of consistent metrics to measure whether ESG performance is truly achieved.

Gensler has pointed out that due to the absence of such measurement indicators, investors find it difficult to compare ESG investments mutually.

The Journal noted that some Republicans criticize Gensler's aggressive regulatory moves as exceeding limits, and the industry expects Gensler's agenda to face opposition.

However, since the SEC has not yet presented formal regulatory proposals, there are few industry groups publicly criticizing the SEC, the report added.

This content was produced with the assistance of AI translation services.