House Hearing Challenges SEC’s New Equity Rules, Here’s Why

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As a crypto investor with a background in finance and market analysis, I closely follow regulatory developments that could impact the equities markets and potential spillover effects on the crypto space. The recent House Financial Services Subcommittee hearing on the SEC’s proposed equity market structure reforms raised some concerns for me.

The Capital Markets Subcommittee of the House Financial Services Committee, chaired by Representative Ann Wagner from Missouri’s 2nd district, convened for a hearing named “Solving Nonexistent Issues: Chairman Gensler’s Proposed Equity Market Structure Reforms.”

During the discussion, we delved into the proposed reforms to the equity market framework put forth by SEC Chairman Gary Gensler, with the objective of significantly revamping the existing infrastructure of American equity markets.

House Hearing Challenges SEC’s New Equity Rules

Wagner, who chairs the commission, expressed his concern that it’s unclear to what market problems the suggested reforms are meant to be a solution and how they would benefit market players.

Wagner highlighted the fact that American stock markets handle a significant trade volume, with approximately 12 billion shares exchanged daily. She also drew attention to the surge in retail trading activity following the introduction of zero-commission trades in 2019, accounting for an estimated 10-20% of the total trading volume in the United States.

This afternoon, I received direct insights from market players regarding the Securities and Exchange Commission (SEC)’s forthcoming equity market structure rules. These regulations may bring disruptions to our financial markets, potentially harming individual investors in the process. It is crucial that the SEC gathers up-to-date market data before making any decisions on this matter, a message I received clearly today.

— Congressman Dan Meuser (@RepMeuser) June 27, 2024

Later on, Wagner voiced her objection to the SEC’s advocacy for these reforms, asserting that they lacked adequate economic rationale and evidence. She pointed out that the SEC’s economic assessments acknowledged the proposals’ uncertain consequences. Moreover, she expressed apprehensions over the utilization of outdated and questionable data, such as Rule 605 reports, which the SEC staff conceded were not particularly valuable.

As an analyst, I’ve been closely following the SEC’s recent equity market structure initiatives, and during the hearing, we zeroed in on five significant proposals that have emerged within the past year. Among these, the SEC approved a proposal in March 2024, which impacts Rule 605 modifications and aims to improve the quality and accessibility of order execution data.

Based on Wagner’s perspective, it would be beneficial to assess if further reforms were necessary before unveiling the remaining proposals, in light of the heightened information available.

Calls for Prudent Regulatory Actions

Wagner recommended that the SEC take a more deliberate approach, devoting greater resources to developing well-supported regulations backed by solid evidence and carrying out thorough cost-benefit assessments.

I’ve come across the information that millions of Americans depend on the U.S. equities markets to address their financial needs. It’s crucial that any changes made to this system don’t compromise its stability.

As a researcher studying the implications of the proposed changes, I’ve noticed that the testimonies presented at the hearing echoed Wagner’s concerns regarding potential harm to retail investors. These individuals emphasized the importance of maintaining the existing conditions that have fostered competition and efficiency in the market, with minimal disruption.

Supreme Court Decision on SEC’s Enforcement Powers

In parallel development, the Supreme Court has more recently ruled that defendants involved in securities fraud cases are entitled to a jury trial in federal courts. This judgment restricts the Securities and Exchange Commission (SEC) from handling some complaints internally. The consequence of this verdict is that civil fraud cases will now be tried in federal courts, potentially altering the SEC’s approach to dealing with such matters.

The judgment handed down by the Supreme Court could set a precedent for other regulatory bodies and reflects the current trend towards limiting the power of federal regulatory agencies.

After several court judgments curbing the power of federal agencies, including those dealing with the environment, a new ruling has emerged. The Securities and Exchange Commission (SEC) was already in the process of decreasing the number of cases it handled internally before this decision. This judgment will shape the SEC’s future approach to enforcement.

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2024-06-28 02:56