Bureaucratic FX industry stifler Gary Gensler tipped as Joe Biden’s new SEC chair
During his term, the CFTC created 68 new rules, orders and guidance’s and extended its regulatory reach to encompass not only exchange-traded derivatives but also the far larger OTC markets as well. Will he cosy up to ESMA?
In two days Joe Biden will be sworn in as the 46th President of the US and the Democrats will formally take control of the White House after four years in opposition. The partisan nature of US politics means that the incoming administration will remove those that served in key roles under Donald Trump and replace them with its own appointments.
Among those key appointments will be the role of Chair at the Securities and Exchange Commission, one of America’s principal financial services regulators. Speculation has been rife about who would fill this prestigious role but a consensus seems to be forming that Gary Gensler is in pole position for the job.
So just who is Gary Gensler? What makes him such a likely candidate for the job, and what can the markets expect from him should he be appointed?
Gary Gensler is 63 years old and a former investment banker turned academic. He is currently a professor at the MIT Sloan School of Management and he has led the Federal Reserve, banking and securities regulators review team, within the incoming Biden administration.
In his previous career, Gary Gensler was co-head of finance at Goldman Sachs, where he spent 18 years working in the banks M&A department. He made partner at the age of just 30 and later moved away from corporate finance to specialise in trading and finance within fixed income and foreign exchange.
Mr Gensler left Goldman Sachs to take up the first of several political roles when he was appointed Assistant Secretary to the Treasury under President Bill Clinton. A role he served in for two years between 1997 and 1999 before becoming Under Secretary for domestic finance between 1999 and 2001. Where he worked with Larry Summers and Robert Rubin on the regulation of financial institutions and capital markets.
Gensler then went to work on the staff of Senator Paul Sarbanes, then Chair of the highly influential Senate Banking Committee. Where he helped to draft the Sarbanes-Oxley law that tightened US accounting standards in the wake of several large scale US corporate frauds and failures.
In 2008 President-elect Barrack Obama nominated Mr Gensler to serve as the 11th Chair at the CFTC, America’s principal derivatives regulator a role Mr Gensler took up in May 2009.
Whilst at the CFTC he helped to transform the regulation of the OTC Swaps Market which had been at the epicentre of 2008s global financial crisis. Though interestingly under the Clinton administration Mr Gensler had helped to promote legislation that exempted OTC derivatives from regulation.
Mr Gensler was very much seen as a reformer whilst at the CFTC and is credited with dragging the regulator into the modern world.
During his term, the CFTC created 68 new rules, orders and guidance’s and extended its regulatory reach to encompass not only exchange-traded derivatives but also the far larger OTC markets as well.
Mr Gensler has left-leaning views, and has previously sidled up to the European Union with regard to rulings on OTC derivatives trading.
Seven years ago, he was instrumental in bringing discussions between European officials and American officials in the form of procedural talks with European Union governmental officials with regard to the proposed rulings relating to cross-border derivatives.
Back then, senior representatives on both sides of the Atlantic reached a point where they were able to announce a path forward regarding their joint understandings on a package of measures for how to approach cross-border derivatives.
Mr Gensler is said to have kick-started the reinvigoration of the CTFCs enforcement division and was instrumental in the pursuit of those believed to be responsible for the manipulation of Libor.
In terms of what the markets can expect, back in 2013, at the height of Mr Gensler’s career, European Commissioner Barnier stated on behalf of the European Commission that “our discussions have been long and sometimes difficult, but they have always been close, continuous and collaborative talks between partners and friends.”
Mr Gensler , on behalf of the CFTC said “With these joint understandings, together, we’ve taken another significant step in our mutual journey to bring transparency and lower risk to the swaps market worldwide. I want to thank Commissioner Barnier and all his colleagues for their constructive collaboration throughout this reform process.”
Earlier in 2013, Mr. Gensler addressed the US Senate panel subsequent to which Elisse Walker who at the time was Chairman of the Securities and Exchange Commission measured the progress made until that meeting as “tremendous” in terms of understanding how the market as a whole can work toward applying a “significant effort to increase transparency, mitigate risk, protect against market abuse in security-based swap markets, improve the oversight of credit rating agencies and hedge fund and other private fund advisers, and develop a better understanding of the systemic risk presented by large private funds.”
Whilst the CFTC had been deliberating over the finer detail with relation to how trade reporting should be carried out, and although a number of firms responsible for this, such as Traiana, were as informed as they can be, there are some points yet to be finalized.
Perhaps Mr Gensler’s most drastic activity came later that year when he convinced regulators to insert new language into the Volcker rule restricting foreign banks from evading it.
That particular language, which clarified the Volcker rule’s definition of trading solely outside the United States, ensured that banking giants such as Deutsche Bank AG and Barclays wer not an exception to the regulation’s ban on proprietary trading, according to the report, which cited sources briefed on the change.
Prior to this, the CFTC was sued by three Wall Street trade groups to fight the tough overseas trading guidelines and accused it of making changes to the guidelines without seeking public input during Mr Gensler’s tenure.
The Volcker rule is a particular section of the Dodd-Frank Wall Street Reform and Consumer Protection Act, designed to ban U.S. banks from making proprietary investments by separating their business practices.
Mr Gensler had been concerned that the foreign provisions in the Volcker rule need to be tightened to avoid another “London Whale,” which was a debacle that involved JPMorgan Chase & Co losing $6.2 billion because of risky bets in derivatives by employees of its London office.
Three U.S. regulators, those being U.S. Federal Reserve and two other finance watchdogs – have called for meetings to vote on the Volcker rule. A total of five agencies need to approve the rule.
So, given that Mr Gensler was quite a maverick during his time at the CFTC, he may well continue on that path, and at the same time be more aligned with mainland Europe’s anti-FX regulators within ESMA.