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FT editor Roula Khalaf will select your favorite stories in this weekly newsletter.
The author is the CEO of GTS, a market production and proprietary trading company.
With the arrival of a new chair at the Securities and Exchange Commission, the Trump administration has the opportunity to bring US market regulations back to a more predictable path.
President Donald Trump’s choice of Paul Atkins is a good start. He fills his hands by unraveling Gary Gensler’s activist campaign, former SEC chairman Gary Gensler, while dealing with many consequential challenges. These include competition from overseas rivals, the need to revive the initial public flow and create a regulatory framework for crypto assets.
Under acting committee chair Mark Ueda, the SEC is already running with the creation of a new cryptographic task force led by Commissioner Hester Perth. As stated in a January task force announcement, “To date, the SEC has relied primarily on enforcement measures to regulate cryptography retroactively and reactively, often newly tested along the way. It doesn’t adopt a legal interpretation.’ In other words, regulators created it when they went ahead.
Under Gensler, the SEC pursued what is known as “enforcement regulation.” Essentially, the SEC sued someone and then used the results as a new standard that applied them to other industries. Genzler was shy about unleashing a new snowstorm of regulations, according to the Capital Markets Regulation Authority. With a final substantial rule of 34, it averages over 36% that of its latest three predecessors. However, the code lacked clarity.
Therefore, one real opportunity for the SEC now is to advance the dynamic crypto industry by creating a sensible regulatory framework for that. The lack of certainty in regulatory authorities has made it even more difficult to drive many cryptocurrency exchange businesses overseas, steal the country from potentially large markets and share enforcement costs.
There are plenty of open regulatory questions to keep the SEC’s cryptographic task force busy, but one obvious revision relates to a massively grown financial product. A cryptographic ETF that tracks the price of digital currency. These ETFs have proven to be popular with investors as they were ultimately approved by the SEC after a long delay last year. Currently, Bitcoin ETF assets alone amount to over $100 million. However, current regulatory constraints have hampered the efficiency of this market.
One of the core components of the ETF market is the creation and redemption process for investments driven by broker dealers like my company. When implementing this activity for traditional ETFs, the underlying securities are used to hedge exposure and provide efficient pricing. However, as they are currently prevented from trading in the digital currencies underlying crypto ETFs, they must rely on inefficient hedges.
It’s like a restaurant trying to cook a meal with no ingredients. They need to spend extra time and effort, which could increase the cost of the customer, and ultimately the final product is not the same as the original. The SEC can solve this problem by providing clear guidance on how broker-dealers can gain exposure to the spot crypto market.
Another area the SEC should address is funding for crypto monitoring. One of the bravest aspects of the SEC’s rampage against Crypto is paid by participants in the traditional securities market in the form of a “section 31” fee, named after the section of the Stock Exchange Act of 1934. That’s what it was. It is paid to the SEC to offset government costs to oversee and regulate the securities industry. In today’s environment, even if investors don’t want anything to do with crypto, they’re still paying for it. The more formal Crypto is regulated, the faster the cost of monitoring can be shared.
There are countless other important issues with new SEC leadership to address both crypto and traditional securities markets, but what we should support financial market participants and individual investors is the one that is crypto. As highlighted by the formation of the task force, it seems to be intentional – the SEC’s historical deliberative and thoughtful rulemaking, including industry expertise and data-driven. Returning to this approach.
As I testified before a House Committee on US Financial Services last year, the US stock market is the global gold standard. However, this position cannot be taken as a given. The new administration has the opportunity to correct the regulated ships, and all signs point to them moving forward in that direction.
