Everything’s coming up Gensler

Oct 12, 2022

By Sam Sutton, Declan Harty and Kate Davidson

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SEC Chair Gary Gensler is vying to answer the thorniest questions that have hounded the U.S. stock market and crypto marketplaces for years.

It's riled up everyone from Silicon Valley's Sand Hill Road to Wall Street. And they're all in Washington this week to gripe about it.

In one corner, executives from leading U.S. brokerages and trading firms — plus some Democrats on the Hill — are blasting the regulator's work to revamp the fundamental piping of the stock market. The concerns are bound to take center stage Wednesday when industry leaders gather at the Security Traders Association's annual market structure conference in Washington. Don't be surprised if you hear talk about suing the SEC, which is threatening to crack down on lucrative business models that Wall Street intermediaries have enjoyed for years but critics say are unfair to individual investors.

Virtu Financial CEO Doug Cifu, who will speak at the conference and leads one of the firms that stands to lose under the new regulations, described to MM a potential "conga line to the D.C. court." (Read more from Cifu in Declan's deep dive on the market structure fight.)

Meanwhile, Gensler is still public enemy No. 1 for many in the crypto policy set. Dozens of the industry's executives, lobbyists and attorneys crammed into a dimly-lit event space in downtown Washington for D.C. Fintech Week on Tuesday to talk through a landscape that's been dominated by Gensler's contention that most crypto businesses can be regulated under existing law. Ripple CEO Brad Garlinghouse, who is fighting the SEC in court over allegations that his company had sold unregistered securities, told the group, "it's maddening."

But Gensler has powerful allies, including fellow regulators who are beginning to share more of the crypto world's ire.

CFTC Chair Rostin Behnam appeared at the fintech conference Tuesday and dismissed criticism of his agency's case against Ooki DAO, a purportedly decentralized investment platform that was busted for hosting illegal commodities trading. Acting Comptroller of the Currency Michael Hsu issued his own warning that crypto platforms are hiding behind marketing slogans and terminology that evoke traditional finance, but lack safeguards that typically protect consumers. Behnam, Hsu and Gensler recently signed off on a Financial Stability Oversight Council report that called for regulators to flex their authority in crypto.

Gensler's next move? Look for details when he speaks Friday at the Georgetown Financial Market Quality conference.

IT'S WEDNESDAY — Sam and Declan are in Washington for conferences and meetings. Got tips, story ideas or feedback to power us through the week? Send them our way: kdavidson@politico.com and ssutton@politico.com.

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Driving The Day

Producer price index data releases at 8:30 a.m. … Council of Economic Advisers Chair Cecilia Rouse speaks at the OECD at 9:30 a.m. … Federal Reserve Vice Chair for Supervision Michael Barr speaks at 1:45 p.m. … Treasury Secretary Janet Yellen participates in a ministerial roundtable discussion for support for Ukraine at 1:45 p.m. … Minutes from the Fed's policy meeting are released at 2 p.m. … Fed Governor Michelle Bowman speaks at 6:30 p.m.

HEALTH CARE INFLATION — From Sam: "Rising health care costs are poised to become the next big battle in President Joe Biden's war against inflation. It's unlikely he'll be able to declare victory in time for a 2024 reelection bid.

Economists, business leaders and health care industry experts are warning that the wage, revenue and supply chain pressures that hammered the margins of hospitals and clinics during the pandemic are about to send health coverage and out-of-pocket medical bills through the roof."

QUICKLY EVOLVING — Our Adam Behsudi: "A financial crisis in the United States, Europe or other major economies appears unlikely under current conditions — a situation that could change under worsening global economic factors, the International Monetary Fund said Tuesday. "Our baseline scenario has financial stability continuing," IMF financial counsellor Tobias Adrian said in an interview."

DA BEARS — WSJ's Corrie Driebusch and Will Horner: "The Nasdaq Composite slipped into a bear market, its second of the year. The S&P 500 and the Dow are already in bear markets, defined in Wall Street parlance as a decline of 20% or more from a recent peak. Stocks had opened lower, with investors weighing how higher interest rates and soaring inflation will affect the upcoming earnings season."

YELLEN PLANS INDIA TRIP — Janet Yellen, in a meeting at Treasury Tuesday with Indian Finance Minister Nirmala Sitharaman, said she will make her first trip to India as Treasury secretary in November ahead of the G-20 gathering in Bali. Yellen will attend the ninth U.S.-India Economic and Financial Partnership meeting, she said. India will assume the G-20 presidency in December.

Yellen also met Tuesday with Ukraine Finance Minister Sergii Marchenko. She called on allies to join the U.S. in swiftly distributing economic aid they have already committed to help the war-ravaged country. She also urged other countries to step up their financial support to Ukraine to help the country finance essential government services and begin to rebuild.

Regulatory Corner

GIG ECONOMY — Our Nick Niedzwiadek: "The Labor Department on Tuesday unveiled an overhaul of its guidelines for distinguishing employees from independent contractors that is likely to make it tougher for businesses to classify workers as contractors."

CONFLICTS OF INTEREST — WSJ's Rebecca Ballhaus, Brody Mullins, Chad Day, John West, Joe Palazzolo and James V. Grimaldi: "More than 2,600 officials at agencies from the Commerce Department to the Treasury Department, during both Republican and Democratic administrations, disclosed stock investments in companies while those same companies were lobbying their agencies for favorable policies. That amounts to more than one in five senior federal employees across 50 federal agencies reviewed by the Journal."

Economy

TOO MUCH DIP ON THAT FLIP — Bloomberg's Prashant Gopal: "After an abrupt end to the US housing boom, home flippers who were winning big just months ago are now racing to stem losses. The doubling of mortgage rates since January has crushed buyer demand and depressed values in investors' most favored locations , from Phoenix and Las Vegas to Jacksonville, Florida."

Crypto

BNY ON THE BLOCKCHAIN — WSJ's Justin Baer: "Bank of New York Mellon Corp. is now open for crypto business. The nation's oldest bank said it would begin receiving clients' cryptocurrencies on Tuesday, becoming the first large U.S. bank to safeguard digital assets alongside traditional investments on the same platform. BNY Mellon won the approval of New York's financial regulator earlier this fall to begin receiving select customers' bitcoin and ether starting this week."

SANCTIONS EVASION — From Sam: "The crypto exchange Bittrex will pay more than $29 million to settle Treasury Department charges that it violated U.S. sanctions programs and anti-money laundering rules between 2014 and 2018 — marking Treasury's largest crackdown against a digital asset platform."

ALARMED APES – Bloomberg's Matt Robinson: "The US Securities and Exchange Commission is investigating Yuga Labs Inc., the creator of the popular Bored Ape Yacht Club collection of NFTs, over whether sales of its digital assets violate federal law."

Jobs Report

Kyle Murphy is now senior adviser for industry and analysis in the International Trade Administration at the Department of Commerce. He most recently was senior adviser to the CEO of the U.S. International Development Finance Corporation. — Daniel Lippmann

Brian Argrett and Erica Bovenzi have joined the board of IntraFi. Argrett is the CEO of both City First Bank, the largest Black-led minority depository institution in the U.S., and its parent company, Broadway Financial Corp. Bovenzi is a former deputy counsel at the FDIC and former chief administrative officer at Promontory Financial Group.

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Fly Around

Biden is reevaluating the relationship with Saudi Arabia after it teamed up with Russia to cut oil production in a move that bolstered President Vladimir V. Putin's government and could raise American gasoline prices just before midterm elections. — NYT's Peter Baker

NATO defense ministers are gathering in Brussels this week, and sending air defense systems to Ukraine will be at the top of everyone's agenda, the U.S. ambassador to the alliance told reporters Tuesday. — Our Lara Seligman and Alexander Ward

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