Hi Friend,
Wall Street’s biggest banks and their Washington allies spend an enormous amount of money every year to influence policy and the rulemaking process to boost their profits and bonuses while protecting their businesses from sensible regulation and competition. Despite that army of lobbyists and lawyers, there are opportunities for the public, investors, and institutions to stand together to support Main Street families, workers, businesses, and community banks.
We saw one of these recently when SEC Chair Gary Gensler made common-sense proposals to lower costs, increase access, and promote the best interests of retail investors.
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Listen to Dennis Kelleher provide an overview of the SEC’s trading proposals.
This isn’t just an investor protection issue. Our equity markets are key for capital formation and allocation, which directly relates to funding for businesses that create jobs and economic growth.
Too many in the financial industry get rich from anti-competitive and predatory practices in highly fragmented markets that result in retail investors being mistreated if not ripped off. This was starkly illustrated by the SEC’s enforcement action against Robinhood. The Chair’s proposals targeted those wealth extraction activities and seek to ensure that all investors get the transparency and best execution required by law. That will not only increase investor confidence and trust, but also lower the costs of capital which benefits everyone.
Of course, the financial firms that benefit most from today’s rigged markets are complaining about the Chair’s actions. But seriously, who are you going to believe? The financial firms whose leaders became billionaires from extracting wealth from retail investors and rigging the markets in the first place, or a regulator with nothing to gain from taking action to protect investors and their best interests.
While the SEC rose above the influence of the financial industry, it remains hard at work to influence the policymaking process everywhere in DC. For example, a recently introduced bill, misleadingly labeled the Responsible Financial Innovation Act is the product of heavy lobbying by the crypto industry. Granting virtually every part of the crypto industry’s wish list, the bill would make the CFTC the primary regulator of cryptocurrency, even though it exists to regulate commodities markets like corn, natural gas, oil, and hogs that are critical to every household in the U.S.
Why would the industry want the CFTC as its regulator? Because, as we pointed out, it is the smallest and least funded regulator. That is not an accident: the financial industry and its allies in Congress have made sure that the CFTC has been chronically underfunded for decades. Crypto-kingpin FTX’s pending application before the CFTC highlights some of our concerns, as we pointed out in our comment letter and in a more recent letter to the CFTC Chair about the ongoing process of review.
Meanwhile, Wall Street and corporate America are fighting the SEC’s proposals to enhance the disclosure of the climate-related risks facing companies. Given the significant investor demand for climate-risk disclosures and the commonsense notion that virtually every company’s financial performance will be impacted in some way by climate change, mandating climate-risk disclosures is well within the SEC’s broad mandate. That’s why we wrote in support of the SEC’s climate proposal.
Finally, while we are mostly focused on what’s happening in the U.S. (and that’s due to limited resources), there are also lots of important regulatory action in the global arena, which often impacts the U.S. For example, the Basel Committee on Banking Supervision in Switzerland recently took sensible action on climate, which followed our comment letter and meeting with the staff. However, the Basel Committee also recently reduced capital for Europe’s biggest banks without even stating the basis for such action and did so in violation of their own principles requiring public input. Given that the Federal Reserve is a key member of the Basel Committee, we wrote to Fed Chair Powell and Director Gibson asking for an explanation of the Fed’s role in these misguided and damaging decisions.
The events of the last month show that policymakers and regulators can do enormous good by standing up for Main Street, but they are under enormous pressure from the financial industry to protect their profits and bonuses not investors, small businesses, or the economy more broadly. At Better Markets, we will continue to stand against these special interests and fight for policies that benefit all Americans.
Best, Dennis
Dennis Kelleher Co-founder, President, and CEO, Better Markets
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Better Markets in the News
JUNE 2022 Better Markets’ viewpoints on our regulatory work and accountability at the Federal Reserve have been sought after and featured in several major news outlets. Here are our top hits from June. Please note some of the articles highlighted below may require a paid subscription in order to read the full article. MEDIA HITS
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The Basel Committee on Banking Supervision (the Committee) is responsible for setting international standards for banking institutions, and we welcomed the opportunity to comment on proposed principles regarding the management of climate-related financial risks. The finalized principles, released on June 15, are largely similar to the proposed version, but two key additions that we advocated for were included to enhance supervisory expectations for climate risk management.
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We support the FDIC’s proposed principles that will fully incorporate climate risks into their supervisory assessment process. Climate risks can have serious effects on the safety and soundness of banks as well as overall financial stability.
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Security-based swaps (“SBS”), especially credit default swaps, were among the prime culprits of the financial crisis. We generally support the SEC’s proposed rules on requirements for security-based swap execution facilities, which will bring much needed transparency and accountability to the SBS market. Our letter also points out areas for improvement in the proposed rules.
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The sordid story of SPACs since 2020 includes jazzy celebrity endorsements, high-profile sponsors, promises of exorbitant returns, and retail investors left holding the bag. We support the SEC’s proposed rule to enhance investor protections when it comes to SPACs.
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Climate change will impact all companies, which is why investors have recently begun demanding better disclosure of climate-related risk from the companies they own. The SEC’s job is to protect investors and the public interest; it has clear authority to mandate these disclosures and should go even further.
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The CFTC Should Proceed Carefully with FTX's Auto-Liquidation Proposal
FTX has filed an application to offer 24/7/365 margining for futures contracts. The CFTC should ensure robust transparency on this application.
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Each month our legal team outlines some of the top cases we’re keeping an eye on, the Amicus “Friend of the Court” Briefs we have filed, and why everyone with a bank account, credit card, mortgage loan, or retirement loan should be interested in those cases. Read the latest updates from our team of legal experts.
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Important financial regulator nominations advance in Senate In June, the Senate Banking Committee moved forward with the nominations of Michael Barr to be Vice Chairman for Supervision at the Federal Reserve, and for Jaime Lizárraga and Mark Uyeda to be Commissioners at the Securities and Exchange Commission. Both Lizárraga and Uyeda were later confirmed by a vote of the full Senate, and they will be sworn in shortly, bringing the SEC back to full strength with a full slate of five Commissioners. Better Markets applauded their appointments and looks forward to working with the new commissioners at the SEC to help ensure that our securities markets are stable, safe, and free from manipulation.
Regrettably, the Senate left for a two-week recess without confirming Michael Barr to the Fed. Given the state of the economy, fragile financial system, skyrocketing inflation, and so much more, Better Markets hopes Senators will vote to confirm Barr as quickly as possible upon their return.
Senate Crypto bill has troubling provisions After the introduction in the Senate of a bipartisan crypto bill with the rather Orwellian name of the ‘Responsible Financial Innovation Act,’ Better Markets issued a press release warning that the legislation had troubling provisions and will likely result in crypto being largely unregulated, posing serious risks to investor, markets, and our economy.
The crypto bill would put the Commodities Futures Trading Commission (CFTC) in charge of regulating crypto assets, even though the CFTC's primary job is to oversee markets of physical commodities like corn, wheat, oil, and natural gas. Crypto currencies are, of course, intangible financial products that exist only in the cloud and are nothing like corn or hogs or oil. But, the industry wants the CFTC in charge because as the smallest financial regulator with the smallest budget and, therefore, has the least capability to properly and fully regulate and police the crypto industry.
Better Markets warns that this approach–effectively non-regulation–the fast-growing crypto market is akin to the mistakes made by Congress when it repealed the Glass-Steagall Act in 1998 and the Commodities Futures Modernization Act in 2000, which effectively prohibited regulation of derivatives, both of which significantly contributed to the 2008 Global Financial Crisis.
Federal Reserve Chairman testifies before Congress Jerome Powell, Chair of the Federal Reserve, testified before the House Financial Services Committee and the Senate Banking Committee on the state of the economy, and fielded questions from lawmakers about subjects ranging from inflation to unemployment to the role of the Federal Reserve in addressing climate change.
Powell told the Members of Congress that he doesn't expect gas or grocery prices to go down in the near future as a result of the Fed's recent interest rate hikes, which can't help fix supply chain problems and disruptions to the global oil markets due to Russia's invasion of Ukraine.
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Check out these news articles that provide relevant and informative information on topics of interest to Better Markets and its staff. Please note you may need a paid subscription to view certain articles below.
SEC Takes First Substantive Reg BI Enforcement Action Investment News, June 16, 2022
The Securities and Exchange Commission on Thursday took its first substantive enforcement action involving Regulation Best Interest when it charged a brokerage and five of its registered representatives with inappropriate sales of an unrated, risky debt security to retail customers.
The SPAC Era Comes to a Whimpering End Bloomberg, June 24, 2022
SPACs were one of Wall Street’s hottest trades during the pandemic bull market that finally came to a crashing close in June. Special purpose acquisition companies, also known as blank-check firms, go public without having a business yet. Instead, they’re formed to raise money so that they can buy another, still-private company to be chosen later.
The CFPB is turning to Dodd-Frank’s unfinished business American Banker, June 24, 2022
The Consumer Financial Protection Bureau’s rulemaking agenda will be dominated in the year ahead by unfinished rules that Congress mandated more than a decade ago by the Dodd-Frank Act. The CFPB laid out the timeline for five rules in its spring agenda that the bureau expects to complete by May 31, 2023. Two of the rules are considered the most consequential including consumer access to financial records and a small-business data collection rule.
Wall Street Gets Ready to Rumble Over Stock-Trading Rules Bloomberg, June 23, 2022
A battle is brewing in Washington and on Wall Street over how stocks get traded. At issue is whether retail investors get the best bang for their buck. The controversy may be puzzling to anyone outside the industry, given that commissions have fallen to zero on trading apps and discount brokerage services. But US Securities and Exchange Commission Chair Gary Gensler is asking whether those trades come with hidden costs, or if it’s even possible to tell under the current system whether retail investors are getting the best prices when they buy and sell stocks.
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