Gensler's SEC and the "Unused Authority" relating to security based swaps.

It’s been one year since Gary Gensler was nominated to his post as SEC chairman. In that relatively short time, the agency has released a steady rhythm of statements calling for broader regulation, specifically with regard to security based swaps, disclosure, trade reporting and risk and compliance oversight. 

Shortly after that nomination was confirmed, Chairman Gensler gave prepared remarks at the American Bar Associations Derivatives and Futures Law Committee. In those remarks made just months after the spectacular collapse of Archegos Capital and subsequent losses to dealing firms, Chairman Gensler stated:

“[t]he limited transparency in [security based swap] market, combined with potential shortcomings in market participants’ risk management, contributed to firms’ taking overly large positions and to subsequent system-wide tremors when firms started to unwind those positions.

I believe additional public disclosure of that fund’s positions, as well as public dissemination of individual transactions in total return swaps, may have helped.

Various market events over the decades — from Long-Term Capital Management in 1998 to AIG in 2008 to Archegos in 2021 — remind us that we need to consider using all of our authority if we are to meet our obligations under the Dodd-Frank Act.

Thus, I’ve asked staff to consider ways we can continue to increase transparency and reduce risk through our unused authorities.”

And indeed, since making these statements we have seen numerous indications of the regulatory direction of this SEC with regard to security based swaps, disclosure, reporting and the need for greater risk and compliance oversight.  On December 15th of last year, the SEC released proposed new rules relating to security based swaps fraud, manipulation, and necessity of independent compliance oversight. 

Again, last month we saw indications of the SEC’s intention for further regulatory oversight and desire to shine a light into the opaque private markets. It was reported by The Wall Street Journal reported in early January that the SEC is weighing rules to require more private funds to disclose information related to their finances and operations. Then, on Jan. 26, the agency proposed a series of rule changes that call for more information disclosures, faster, from a larger pool of private funds. The rules would require next-day disclosures of significant trades and events.

Clearly Chairman Gensler is taking action on what he calls the commission’s “unused authority” relating to SBS and the beat goes on.  

Stay tuned!