President Joe Biden has the opportunity to force profound changes on the American corporate sector, and efforts in this direction will take a big step forward on Tuesday morning, when his picks to lead the Securities and Exchange Commission and the Consumer Financial Protection Bureau will participate in confirmation hearings before the Senate Banking, Housing and Urban Affairs Committee.
Gary Gensler, Biden’s choice to lead the SEC and Rohit Chopra, his pick for the CFPB, are darlings of the progressive wing of the Democratic Party, lauded for their willingness to impose tough regulations on financial services firms.
Gensler made his name early in President Barack Obama’s administration, when he helped craft the Dodd-Frank financial reform bill and showed his willingness to implement sweeping new regulations in the face of fierce industry opposition.
In his prepared testimony , Gensler promised, if confirmed to the post, that he would “strengthen transparency and accountability in our markets,” while “promoting efficiency and competition.” He also plans to “make sure companies — incumbents and entrepreneurial startups alike — can raise needed capital to innovate, expand their operations and contribute to economic growth.”
Meanwhile, Chopra’s history as an Elizabeth Warren ally at the CFPB and the Federal Trade Commission reflects his enthusiasm for aggressive government oversight of business. In his prepared remarks, Chopra compared the current economy to that which existed in the wake of the 2008 financial crisis, “when we saw how unlawful and avoidable foreclosures proved to be catastrophic,” adding that “we once again face and important test to ensure that troubles in the housing market do not sabotage the recovery of our local economies.”
Here’s what to watch for at Tuesday’s hearing, scheduled to begin at 10 a.m. Eastern Time:
The ongoing volatility in so-called meme stocks, including GameStop Inc. /zigman2/quotes/203755179/composite GME -0.78% , AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC -2.34% and Express Inc. /zigman2/quotes/202291990/composite EXPE -1.46% continues to capture the public’s and regulators’ attention.
The House Financial Services committee has already grilled the major actors in the drama, including executives from online broker Robinhood and Reddit, where investors have congregated to promote these stocks, but senators have yet to wade into the issue in a public forum.
Expect Gensler to field questions on the topic of payment for order flow, or the practice by which market makers pay retail brokers to route customer orders their way, in a system critics say creates a conflict of interest.
Analysts at Beacon Advisors wrote in a Monday note to clients that there could be special attention paid to how social media has enabled the runup in prices of many of these stocks, seemingly well beyond what a fundamental analysis of the companies’ performance would justify, pointing to a recent Reuters report that computer bots used social media to promote those stocks in recent weeks.
“Attention from the SEC seems to have moved away from looking to address payment for order flow and instead is now focusing on the way that social media can be used to hype stocks to create a sort of public pump and dump,” they wrote.
Cryptocurrencies like bitcoin /zigman2/quotes/31322028/realtime BTCUSD +0.29% and ethereum /zigman2/quotes/108573964/realtime ETHUSD +0.20% have also ridden growing retail interest to new heights in recent months, and senators will likely be eager to learn how Gensler believes the SEC should be regulating the promotion and sales of these assets.
“Gensler taught a course on blockchain at MIT, so he probably brings more knowledge of the technology that backs crytocurrencies than ay other public official,” according to Brian Gardner, chief Washington policy strategist at Stifel. “We think he will be generally supportive of the sector, but will still look for ways to increase regulation of the asset, including the consideration of additional anti-money laundering rules.