The SEC is an independent agency of the United States federal government that is responsible for protecting investors, maintaining fair, orderly, and efficient securities markets, and facilitating capital formation. In order words, the role of the SEC has been that of a referee, to ensure that security rules are being followed and that investors are protected; meaning to enforce the existing rules designed to regulate financial markets. However, Since Gary Gansler became the boss of the CEO, he aggressively expanded the authority of the SEC over financial markets.
Under Gansler’s leadership, the SEC no longer limits itself to enforcing existing rules. It engaged in creating new laws that would govern financial markets. In fact, the rules that Gansler created would change the way financial markets operate. For example, he has proposed new rules that would require companies to disclose more information about their climate risks. This has been criticized by some businesses as being too burdensome and unnecessary. Privately-held companies that operate in the private market are under no obligation to disclose any information to the SEC. This rule is a clear violation of privacy.
Another example of Gansler’s dictatorial tendencies is that he has proposed new rules that would make it more difficult for companies to raise money through initial public offerings (IPOs). This has been criticized by some startups and venture capitalists as being harmful to innovation. Why should the SEC be involved in the way companies raise capital through IPOs? How the involvement of the SEC in this process will help the company raise capital? The truth is it would not help a bit. On the contrary, it would be extremely cumbersome for companies to raise capital if they knew that they would constantly have the SEC on their backs.
Gansler’s quest to completely control U.S. financial markets does not stop at these mere proposals. He went as far as seeking to create new rules to regulate the hedge fund industry.
Hedge funds are known to be alternative private investment funds that commonly use risky investment strategies to generate high returns for their investors. Hedge funds have been an attractive investment vehicle for many money managers due to the low regulations they are subject to. Hedge funds are not regulated unlike mutual funds, and they are free to engage in whatever investment strategy they see fit. Hence, hedge funds are under no obligation to share with the SEC their investment activities, or to even register.
Gansler has proposed a number of new rules to regulate the hedge fund industry. These rules include requiring hedge funds to register with the SEC and to disclose more information about their holdings and trading activities; banning hedge funds from engaging in certain risky trading practices, such as naked short selling and excessive leverage; and requiring hedge funds to submit to regular audits by independent auditors.
Gensler has also been criticized for his aggressive enforcement actions against the cryptocurrency industry. He has warned that cryptocurrencies are a threat to investors and that he is prepared to take a tough stance against them.
The measures proposed by Gansler clearly demonstrate the SEC's desire to expand its authority over financial markets. If Gansler successfully implements these measures, they will make financial markets much more ineffective as government bureaucracy would distort the natural evolution of markets.