SEC Chief Puts Corporate Bonds in Crosshairs for Scrutiny

(Bloomberg) -- U.S. Securities and Exchange Commission Chair Gary Gensler signaled corporate bonds are in his crosshairs, showing his focus extends beyond frothy markets like crypto and meme stocks to a key pillar of Wall Street.

The SEC chief, set to testify Tuesday in the Senate, said in prepared remarks that he’s asked the regulator’s staff to recommend ways to “bring greater efficiency and transparency” to everything from corporate debt to municipal bonds and mortgage securities. 

“This market is so critical to issuers,” Gensler said of non-Treasury fixed income. “It is nearly 2.5 times larger than the commercial bank lending of about $10.5 trillion in our economy.”

Gensler is making his first appearance this week before the Senate Banking Committee since being confirmed in April to lead the SEC. As he has done in earlier speeches and testimony, Gensler laid out a broad policy agenda that includes updating the agency’s rules for stock trading, cryptocurrency oversight and the derivatives that were behind the collapse of Bill Hwang’s Archegos Capital Management. 

In his prepared testimony, released by the banking panel Monday, Gensler reserved some of his sharpest words for the crypto explosion, noting “this asset class is rife with fraud, scams and abuse.”

Noting that the SEC has been looking at trading platforms for digital coins, Gensler said it seems most are offering tokens that are securities -- which should subject them to more government scrutiny. “Make no mistake: To the extent that there are securities on these trading platforms, under our laws they have to register with the commission unless they qualify for an exemption,” he said.

On the security-based swaps that fueled Archegos’s meltdown, Gensler said he has asked the SEC staff to examine whether firms should disclose aggregate positions to the SEC and the public.

As he has previously, Gensler also discussed his desire to update the SEC’s market structure regulations, last revised in 2005, to take into account robo-advisers and investing apps like Robinhood Markets Inc.  “Rules mostly adopted 16 years ago do not fully reflect today’s technology,” he said.

Along with the SEC, other financial watchdogs have identified the potential dangers of corporate bonds, especially after the freeze-up in the market at the start of the Covid-19 pandemic. In March, Treasury Secretary Janet Yellen highlighted the risks posed by open-end mutual funds in her first meeting of the Financial Stability Oversight Council.

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