Gary Gensler

the enormous new technologies affecting our markets. Your main principle though the SEC, as I understand it, is fairness and disclosure and equity. Everybody is treated the same. Everything is fair, everything is disclosed, and do not rate the relative merits

of investments. That's the principle, right, yeah, I mean we we talk about it as a three part mission investor protection, which embodies much of what you just said, facilitating capital formation companies that are raising money entrepreneurs, but also those of us who are homeowners and take out a mortgage. We are issuers as well. We're raising money. And then that which is in the middle fair, orderly and efficient markets investors, capital formation, and then the markets in the middle.

So since the Great market recession, the Great Recession of two thousand and eight and two thousand nine, at which time you were then the head of the CFTC, which regulates commodities and futures. Since that time, the markets have changed dramatically because of technology developments. Are you thinking that the SEC and other regulators have been able to keep

up with all these technological changes. It's it's a real challenge, David, for across our government to stay up with the remarkable innovations. The last time we updated our rules for the stock markets, the equity markets was in a significant way, was in two thousand and five, and sixteen years later. Those rules that may have been fit for purpose, then are they

really ready for the twenties? And nearly half of our stock market does not trade in the transparent what's called lit exchanges like the New York Stock Exchange or NASTAC, but they're in dark polls or their host salers. So I've asked staff, well, what can we do to update these markets for thees given the rapid change of technology. So let's talk about that particular change. You have said, and others have said that the markets are supposed to be equitable and fair to everybody, but so much on

the markets are now controlled. Some people say by limited number of market makers who may not give everybody the fairest price. That's the argument that some people make. How are you going to deal with that? And is it a big concern or is it a modest concern? Well, um, it's it's important I think an agency like ours to constantly bring up today our rule set, So I would say it is a central concern if I can use a different word than you did about our regular investors.

And we've seen an increase of retail UH participation, but are regular investors as well? Is the big institutions having efficient markets? And are they getting what's called best execution? We wrote a rule years ago about that you're supposed to get best execution out of your broker. And is that happening when, as you said, a few wholesalers are buying the order flow and and a lot of that's getting concentrated around a few host salers. Let's talk about

some other technology changes since you were lasting government. One of them is something called us spack um uspac is a new device to enable somebody to go public without going through the normal I P O process. Does that offend you that people are going around the I P O process you have at the SEC or do you

say okay as long as some disclosure occurs. But I think that uh we we at the SEC are committed to be technology neutral and innovations uh like special purpose acquisition companies, which actually have been around for quite some time. It's just they took off in the last two years and and there's been hundreds of them, as you know, and well over a hundred billion dollars raised through these

fundamentally blank check companies. UM, what we're looking at is how do we guard the public not just in disclosure, but also there's very significant fees the sponsors generally take about as a promote. They have two years to invest the money. Uh. They're encouraged to invest the money because they want to get that uh. And then what sort of conflicts does that set up? What due diligence are

they doing when they're buying those target companies. Having said that, we're looking at how we can bring some greater disclosure transparency and deal with some of those inherent conflicts. Now, there's another issue that has arisen, which is called gamification, which is to say people are making a game out of trying to buy stocks, and very young people are caught up in it. You have very very on day traders.

Are you worried about this phenomenon? So, if I could take just a step back, we live in the ties in a new digital age where where applications on our phones can use massifcial amount of data and then predict our behavior. And this is true outside of finance and inside of finance. Outside of finance, the streaming apps figured out a while ago that I'm kind of a romcomp

type of guy. Okay, that's figured out now in this space, whether it's a robo advisor or a brokerage app, if they figure out by giving you David Rubinstein a certain signal, a certain color, a certain prompt of behavioral prompt that you might trade more or you might buy a higher revenue product for them, there in lies and potential conflict. What do we do when the digital algorithms are maximizing for the company's revenues rather than our return earns. And

so we're trying to think that through. It's not just gamification, it's a little bit more than that. It's whether there's a conflict between the app and our investment returns. CEOs today are more outspoken than they used to be about public policy issues. Is that something that the SEC thinks is a good thing? Or should CEO is just worry about the share price and earnings and things like that, or should they comment on voting rights or climate change things?

What do you think CEO should do? We hear from market participants. That helps us be better at what we do. We hear from advocates all across the market and all across the political spectrum. That helps the five of us in a commission to hear from the public. So, whether it's a chief executive officer or it's somebody who's buying the first fifty shares of stock in a company, do we benefit from hearing from folks? And and my my call list are made public on a monthly basis, you'll

see that some CEO is getting get in touch. They want to They want to say something about Maybe it's about equity market structure, maybe it's about climate risk disclosure. Maybe it's about what we talked about earlier about spacks or crypto. And we don't have to necessarily agree. We try to when we disagree, to disagree agreeably. As my uncle Norman used to say, UM, but but it's helpful

to hear from UH people in the markets. So today, what would you like Most people who are not knowledgeable about the SEC but are watching this interview, they want to learn a little bit. What would you like them the most know about the SEC? Markets work best when we have rules of the road. I think that those of us at the SEC are entrusted UH to ensure that the markets is the best they can are, free of fraud, free of manipulation, that you as investors get

to decide what risk you take. Now, many companies that are based in China are now traded I think in the New York Stock Exchange or NASDAC, but they are not subject, as it turns out, to accounting oversight in the same way that American companies are. Are you worried about that? Is there anything you think you can do

about that? Was? You and I are both Baltomore boys, so we both remember fondly Paul Sarbans, who was our senator here in Maryland for well I think thirty years and and Paul and Republican Mike Ox that came together in two thousand and two. President UH George W. Bush worked with them when something called the Sarbanes ox The Act,

and there was another basic bargain. That basic bargain was, if you wanted to raise money from the public, not only did you have to provide financials that were audited, but your auditor had to be subject to inspection. Basic bargain. So to your story is, nearly twenty years later, companies from fifty plus jurisdictions have allowed their books and records to be looked at, inspected in essence the auditors to be audited. Two jurisdictions have not, China and Hong Kong.

And so Congress last year said, all right, enough is enough, and they set a three year clock in place, a three year clock year one that if we can't work this out, if the auditing firms of these China related companies don't open up their their work papers, then what Congress said, then we have to suspend trading. That these companies should not be able to access US markets through our stock exchanges in the like. So you're too modest to point this out, But Senator starbins principal staff person

drafting this Starbins Oxley was Gary Gensler. So you know this all pretty well, right, Yeah, there were there were other involved as well, and I learned working for a senator. I mean it was all there. If it went well, it was theirs. But if it went pear shaped, of course it was maybe the staffs um but yes, I do know it. It was. It was after Enron and world Com failed, and so Congress stepped in and said they had to change this and up up the game,

up the rigor with regard to auditing in the United States. So, as you pointed out, both both of us were from Baltimore, though we didn't know each other growing up. I'm a you know, ten years plus older than you. So you I grew up in Baltimore. Were you in a very wealthy family or was it a blue collar family? What kind of family was it? Well, neither of my parents went to college. In fact, my grand folks didn't. Three

of them didn't even go to high school. But my dad started a small business out of UH with his mustering out pay after World War Two. And while I never had more than I think three dozen employees, it was a ven in business in the bars of Bottomore and so forth. It sent all of us UH kids to college. It helped pay down the mortgage over the years. Uh, and um, we we lived a good life around this small business and through the community of Pikesville that I

grew up in. So you were four other siblings, one of whom is your twin brothers that right? Yeah, I have an identical twin brother. Watch out if he goes on TV. So who's smarter? Are you or your twin brother? How Rob is? So you went to uh, Pikesville High School, a very well known high school in that area. I assume you're near the top of your class. And you went to University of Pennsylvania undergrad Is that right? Yeah? Yeah, Rob went there as well. We both went to Wharton,

had a faithful decision. He had gotten in a little earlier than I and I was. I was accepted. We were both kind of math kids, and I was accepted to M I T and Uh, my twin brother had gone to Wharton already accepted, and then on a faithful day decided to go the same place. It's worked out for me and I ended up at m I team many years later. So, so you graduated after working and then you went right to Goldman Sachs. Yes, I joined

a group called the Merger and acquisition area. It was about a dozen people headed by Steve Friedman and Jeff Blasi at the time, who you might have later known, uh. And then it grew. It was throughout thees grew rapidly, and you became one of the earliest or youngest partners at Goldman. Is that right? I was honored to uh make it into the partnership while I was in the merger and acquisition area. That's right. So you're a partner at Goldman. You're making a great deal of money by

any normal human standards. Why did you leave Goldman? Sachs. I my time there was I spent eighteen years there. I did a number of things, not just this merger and acquisition area, but I went to the trading side. I went and helped run part of the back office. It was really just a remarkable experience and opportunity. But I felt I felt some connection to public service, maybe as a as a kid that was a class treasurer

and lost for senior class president. UM. I always had this connection and I thought public service was uh something if I had the opportunity, I wanted to be part of. Well. One of my mentors, uh, one of my bosses at Goldman Sachs. Bob Rubin had been chosen by President Clinton first to be as National Economic Advisor and later as Treasury Secretary and UH Secretary. Reuben knew I'd be a soft touch for service, and when President Clinton won a

second term, UH, an opportunity arose. I I guess I competed for it, but an opportunity arose, and I went down to the Clinton Treasury as an Assistant Secretary for Financial Markets. And I haven't looked back. It has been It's been a terrific twenty four years. So after you left the Clint administration when it ended, UH, did you decide to go back in the investment world or what did you do? Now? The first The first thing I did, along with a colleague from the Treasury Department, is we

wrote a book. UH. We We thought of it as a common sense book on investing, which really was promoting the use of low cost index funds for people that have UH just their their retirement savings and saving for their futures. So that was the first thing. And then I started working with Plus Sarbanes on that what you said became this accounting law called Sarbanes Oxley and then ultimately President Obama is elected and he asked you to be the head of the CFTC. Is that right? Yeah?

I had been working on UH then's UM Senator Clinton's campaign, the two thousand and eight campaign as a senior advisor. So I was particularly honored that he that he reached out and his you know, gave me the opportunity to serve once again. So when you head of the CFTC, as I mentioned earlier, we were going through a recession, so you had to pick up a lot of pieces of failed investments and so forth. Was that a more challenging position than the one you have now? Um? At

the SEC They're they're they're both remarkable organizations. The CFTC is of course smaller, and the CFTC is interesting. It was set up to oversee commodity futures or derivatives for corn and wheat, and then in the nineties seventies it was expanded to energy products and yes, interest rate products and and even the S and P five hundred stock future. So so these these these derivative products, but an innovation had come up called swaps and swaps which are very

similar to UH futures. Another form of derivative had not been regulated, and in the middle of that crisis, that two thousand and eight crisis, credit to fought swaps and swaps lead to some of the the instability in our markets. So working with Tim Guitner, working with Mary Shapiro at the SEC, working with all the members of Congress actually across the aisle, we cobbled together reforms for this swap market. Now, you had a very impressive career, and it's still very impressive,

but at one point you had a tragedy. Your wife passed away and you had to raise your three daughters essentially by yourself. So how did you do all that while you were doing all these other things. Well, I'm not sure I did it all that well, but I was actually off the grid. So we lost Francesca in two thousand and six. She had first had cancer when we were Uh, I guess you'd said kids. I mean, she wasn't but thirty when she first had cancer and we were dating. We were blessed to go on and

get married have three wonderful daughters. But we did lose Francesca to cancer in two thousand and six, and I was kind of off the grid, and uh, for three or four years, pretty much stay at home dad or your daughters, any of them now influence to go in the financial services world. No one's a remarkable uh artist, a political cartoonist and artist, ones a PhD and culture anthropology, and one's working in immigration law. So President Biden, he asked you to head up the SEC. Were you interested

in doing that? At the time you were teaching m I t UM. You finally got your taste of m I t So why did you decide to leave m I t and coming and run the SEC? One when a president asked you to do something, It's really hard to say no. Let me let me just say that. But it's also just an incredible privilege and an honor. I've been around capital markets my whole adult life, uh, starting as I said, as a twenty one year old at Coleman Sachs, and here some four decades later, I've

asked once again to serve. It's a hard thing to say no to. I will say this though, being a professor UH at m I is an incredible experience, the vibrancy of that student body, the faculty, the stayff so. But even there, I was studying the intersection of finance

and technology. I was spending a fair amount of time on that intersection and the new innovations around fintech and then more precisely around artificial intelligence and also cryptocurrency sort of that it's started with the Setosian Nakamoto white paper thirteen years ago. Well, let's talk about that. You did teach an M I t about things that you don't like to use this word cryptocurrency, I guess, but essentially cryptocurrencies.

What is the SEC doing about that? Is? Is it is are cryptocurrencies are security or are they not a security? Is it a currency or is it? What is it? It's clear if if you're using this new technology to raise money from others and those other people that the public are anticipating profits based on the efforts that that brings it into this what's called an investment contract. Congress back to back to nineteen thirty three and nineteen thirty four,

Congress painted with a very broad brush, David. They painted with a broad brush to protect the public from fraud when people were raising money from the public, and the public is in anticipating a profit based on those individuals raising the money. So it look it depends on the

facts and circumstances. It depends obviously on each individual uh token, But many of these, uh, maybe even the majority of them are tokens raising money from the public, where the public is anticipating profits based on the efforts of the others that promoters. So should we anticipate that you will have regulations clarifying what the sec is going to do on cryptocurrencies and related kinds of things in the near future.

I actually think it's it's it's pretty clear. Uh. My predecessor, Jake Clayton uh said this more than once that he thought it was pretty clear that many of these tokens maybe actually his words where he hadn't really seen many that weren't securities. What what we've asked the trading platforms, the lending platforms, the other various venues to come in to work with us to get registered under the securities laws.

Because of a platform has fifty or some of them five hundred tokens on their platform, probabilities are they're not all uh, non securities. How do you get ideas from the White House? I mean, you were appointed by the president, you're the head of an independent agency, but of the White House, House policies, do they call you up or you basically once the president the point of view, you

don't see him. Again. We work very closely with the U. S. Department at Treasury, with the other financial regulators, of course they're sibling market regulator, the CFTC and the back regulators in the Federal Reserve. And I'm I'm a member of something called the Financial Stability Oversight Councils again, something Congress set up after the o A crisis. And yet we're an independent agency where if we write a role and certainly if we do enforcement actions, we we don't. We

don't check in with the White House. And that's by Congress's will. Congress wrote the law that way. And um, so there's a certain independence from that. Uh, that daily back and forth with President Biden. Isn't calling you saying good job, Gary, You're really doing a good job there right, Well, you know, I wouldn't, I wouldn't probably uh want to disclose any of that. But that's a that's a would

be a pretty unusual president sec uh Chair. I mean, I know my predecessor may have played golf or something, but that's not happening here. Speaking of golf, how do you stay in shape? You look like you're pretty fit. I mean, well, how do you percise or stay in shape when you're chamber of the SEC. Well, you're kind, You're kind to say that. I've been a lifelong uh runner, and I learned a little bit of athleticism that decision, that faithful decision to go to University of Pennsylvania because

my twin brother was there. Because also I ended up being at cocks In for crew, and I learned from coach Ted Nash this incredible sense of he was an Olympic horseman and Olympic gold medalist, this incredible sense of of of that it's important to think about our body as well. So I try. I even to this day, I try to still get out and run. I'm not as good a runner as I once was. Um, I've done a fair amount of biking in my life, and mountain climbing and trekking. My eldest daughter and my youngest

daughter and I have all sort of trek together. My middle daughter, the anthropologist doesn't like that bit, but these are some of the things I try to do. So the pleasure of being the Chairman of the SEC is what you've obviously been trained for it. Why do you enjoy doing this? Because it's a twenty four hour day kind of job, you're always gonna have critics. Why do you enjoy this job? I assume you do enjoy it. You know, I do enjoy it, David. I think, Look,

everybody's gonna find their passion. I was intrigued and interested in finance. I was my twin brother, and I guess got you know, gift of math and numbers, and but I was also always like felt like that what we can do to leave our world a better place? You know, when when when when we get to the end of our lives and look back, it's our family, it's our loved ones, it's our friends, And to me, can we leave the world a little bit better off? And that's

that's what motivates me in this job. Can we can we do something that's better for working families or people starting out in their life, saving and investing for their future and tip the scales a little bit in their favor away from the folks in the middle. So does your twin brother ever say you did a better job and I did, or then he did and your career. Does a twin brother say you've got a little lucky Or does he ever say I was really smarter than you.

I just didn't want to be the chair of the SEC. What does he say about this? Um? Rob's a terrific friend and a terrific brother, and he says usually just gare go get him. Thanks for listening to hear more of my interviews. You can subscribe and download my podcast on Spotify, Apple, or wherever you listen.