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Schwab Expects 'Activist' SEC Under Gensler; Senate Sets Confirmation Vote Date

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What You Need to Know

  • Gensler and his two fellow Democratic SEC commissioners can form a 3-2 majority.
  • Payment for order flow is a likely SEC target, Schwab's general counsel Christopher Gilkerson predicts.
  • Gilkerson lays out how he thinks Gensler will address the GameStop frenzy.

Gary Gensler’s Senate confirmation vote to be chairman of the Securities and Exchange Commission is set for the week of April 12. He is widely expected to be confirmed.

Gensler “will receive some bipartisan support,” Christopher Gilkerson, Charles Schwab’s senior vice president and general counsel, said Tuesday during a call with reporters.

On balance, Gensler’s “very well-rounded” experience “will be great in serving RIAs,” Gilkerson opined.

“Gensler’s going to be part of an activist regulatory agenda generally in the financial service sector,” according to Gilkerson. On the commission, he “has two fellow Democrats,” Acting SEC Chair Allison Herren Lee and Caroline Crenshaw, “to form a 3-2 majority.”

While Gensler’s background as a professor of blockchain, digital currency, financial technology and public policy at the Massachusetts Institute of Technology will help inform his agenda in areas like cryptocurrency, he’s also expressed some concerns that “ordinary investors can pay too much for actively managed funds compared to indexing, so that might be something that helps drive his focus” at the SEC, Gilkerson said.

During his nomination hearing on March 2 before the committee, Gensler laid out the steps he’d consider to address the recent market volatility related to the GameStop trading frenzy, as well as his approach to regulating cryptocurrencies.

The “fallout from the GameStop trading situation will also be pretty high on his agenda,” Gilkerson said. “That was pretty apparent during his confirmation hearing” before the Senate Banking Committee.

The SEC’s Regulation Best Interest, however, was not discussed during the hearing.

However, Gilkerson noted that “enhancing the standard of care for investors, especially broker-dealers,” was top of mind during Gensler’s time as chairman of the Maryland Financial Consumer Protection Commission.

As to the GameStop Reddit short squeeze, any reform initiated by Gensler “would focus on rapidly moving to T+1 settlement, better surveillance on potential market manipulation through social media and better disclosure for short sellers. And probably a focus on gamification of investing,” Gilkerson opined.

“From the perspective of RIAs, I think all of those things would be positive for both them and their clients.”

Payment for Order Flow

Gensler’s focus may also likely turn to “the common practice of payment for order flow broker-dealers receive, and an implication that eliminating online commissions for retail investors has been bad, because broker-dealers collect payment for order flow allegedly at the expense of best execution for client orders.”

At Schwab and TD Ameritrade, “we can say that execution quality is a top priority with or without payment for order flow. Zero-dollar commissions have been good for investors,” Gilkerson said.

As a result of GameStop and the questioning of Gensler at the Senate Banking hearing, “I would expect that Gensler, as chair of the SEC, will undertake and oversee the study of the [payment for order flow] issue, and that could lead to a roundtable, request for comments, proposed rulemaking. That could be a process through the next year or so and Schwab will be very active throughout the process advocating what’s best for advisors and their clients.”