WHEN: Today, Wednesday, June 9th
WHERE: CNBC’s “The Exchange”
Following is the unofficial transcript of a CNBC exclusive interview with SEC Chairman Gary Gensler on CNBC’s “The Exchange” (M-F, 1PM-2PM ET) today, Wednesday, June 9th. Following are links to video on CNBC.com:
All references must be sourced to CNBC.
BOB PISANI: Thanks very much Kelly. Important thing here Gary Gensler, thanks very much for joining us. Making a few headlines here Mr. Gensler. You’re saying that the SEC is undertaking a broad review of stock market structure now I know you’ve said in the past that you are somewhat unhappy with the payment for order flow regime. You’ve implied there’s too much concentration and you’ve also implied that investors may not necessarily be getting best execution. Can you demonstrate or do you think you can demonstrate that investors may not be getting best execution and if so, what are you proposing to do about that?
GARY GENSLER: Well, first Bob good to be with you and technology changes our markets on an ever increasing basis so what I’ve really said to staff and my fellow Commissioners is we should ensure that our rule sets are updated for 2020’s technology. And what do we find in the 2020’s is there’s a provision that you and me all of us are to get best execution when we enter a trade into a trading platform and the broker gets his best execution. And it doesn’t mean better execution, best execution within the rule and there’s this thing called payment for order flow and we’ve had some cases as recently as the end of last year where there’s this inherent conflict where somebody paying for our trading, our order flow, is saying well I can give you a little better execution or a lot better execution depending how much I pay you for that order flow. So, I think we need to take a close look at that. Not every country allows this payment for order flow, many major markets around the globe don’t.
PISANI: I think the key point you have been making is you’d like to see more trading in the lit markets on exchanges like here at the New York Stock Exchange. Is that the thrust of what you’re trying to get at here?
GENSLER: I think the thrust is a little broader than that. It’s about ensuring that through transparency and competition that we as investors, the individuals, working families, get the best execution and the best out of their investment platforms and their brokers so I think transparency and competition helps that. And it is, you know, most of what we do is retail. If we put an order in, it’s not going to the, what you call the lit markets, New York Stock Exchange, NASDAQ, it’s going to some wholesaler buying that order.
PISANI: Let me move on to the meme stocks we’ve been talking about them for the last several days, they’ve been making headlines you said in your recent congressional testimony that you’ve asked your staff for more information on exactly what happened with Reddit and GameStop and Robinhood a few months ago, and what if any regulatory or rule changes need to be changed at this point. Can you share with us your thoughts at this point I know you said you’ve asked your staff, but what’s your thoughts at this point? Have you come to any conclusions about what, if any, regulatory changes need to be made?
GENSLER: Look, I’m only in the second month and I know a few months from now you’ll ask me again, be back and you’ll say well Gary, you’re in your fifth month. I think that technology has led to greater access and better user experiences. It’s easier to trade within the market but at the same time, we have to watch out for investors. And so, these behavioral prompts that are being put on our mobile apps, apps to trade, is that really the best thing? So, we’re going to take a close look at what’s called gamification all these little prompts and these, these encouragements to trade and how do we protect investors in this new regime.
PISANI: You know, Jim Cramer this morning, my colleague, was talking about the need for more education perhaps from the SEC. Obviously, we’re concerned that all of this could blow up in people’s faces and people are going to start to wonder, what did people do or what should we have been told to warn us about it. Does the SEC have any role in educating people about the problems that can happen when you get involved with stocks that are way, way beyond or in price areas that are way, way beyond their fundamentals? What role does the SEC play in mitigating this or, or helping people to understand what’s going on?
GENSLER: So, Bob, we do have an investor education and investor focus, we’ve had that, it’s at the core of our mission. We also have a vibrant examination enforcement regime and, and we look out for investors in terms of making sure and looking for where people are trying to do fraud schemes or trying to do, pumping up a stock in ways that are on the wrong side of the line and that’s easier to do when it’s a very low price stock, sometimes it’s called penny stocks and the like and, and through, through bad actors doing bad things. So, we’re going to do investor education, rigorous enforcement but also look to see whether we should freshen up our rule set in this area.
KELLY EVANS: Chair Gensler, it’s Kelly here. And I just want to get two quick questions in before handing this back to Bob, this is fascinating all throughout. So my first quick question is more of an observation that the business model of a lot of trading platforms is pay for order flow. If you take that away, it could mean there’s no more free trading which is currently underpinning the entire kind of Reddit, Robinhood phenomenon if you want to call it that at a time when Robinhood is about to IPO. Do you have any response to that in terms of will that actually be in the best interest of the public?
GENSLER: First, I would say this Kelly, don’t, don’t. I think that’s a misperception, it’s not free trading. Somebody is paying for yours, my order flow. Secondly, they’re getting our data, the data is very valuable. So, it is zero commission but not necessarily free. Number two, not every broker does it in the United States and number three, the United Kingdom, Canada, Australia, it’s banned, most of Europe, you don’t have it. So, there are different business models but it’s not, it’s not free.
EVANS: Understood. The other question that we’re getting a lot from people these days is about naked short selling. It’s illegal but there’s insistence that it’s happening. Some would acknowledge maybe at a very small-scale, others insist it’s a much larger scale. What can you tell us about its commonality in today’s trading environment?
GENSLER: Well, I think that we can bring greater transparency to short selling and this is one that Bob is going to say well you’re only in your second month I’m going to say, I’ve asked the staff to actually serve up recommendations that we can look at. We have authorities to bring greater transparency in the short selling and related stock borrow area and I look forward to putting something out to public comment.
PISANI: Mr. Gensler, let me move on to bitcoin and crypto. There seems to be an awful lot of confusion about who is regulating what here. We know bitcoin is a commodity regulated by the CFTC, it doesn’t seem to be clear to a lot of people who is going to regulate all these other coins that are out there, nor is it clear who is going to regulate bitcoin, exchanges bitcoin wallets for example, you seem to be unsure of it yourself, can you tell us what your conclusion is? Who should be regulating this particular area and do we need congressional authorization for you as the head of the FCC to say we’re the people who are regulating this we need some decisions here on this and I’m just wondering what your thoughts are.
GENSLER: And here’s, here’s what I’m pretty confident about investors don’t have full protections that they have in the equity markets or in the, in the commodity futures market so our sister agency, the CFTC, and our agency, the SEC. Bitcoin and these other cryptocurrencies do not have those full protections. It’s a speculative asset class, technology neutral but what I’ve said to Congress is I think that one of our agencies should have authority to write rules and help protect investors on crypto exchanges. Now as it relates to those tokens, many of those tokens, many of those tokens, do come under the securities law. The SEC has brought I think six to seven dozen enforcement actions over the last few years, but of course, there’s hundreds of other tokens. I think there’s 1,600 tokens that reportedly have a market value of over a million and 70 or 80 over a billion so we’re going to keep trying to protect investors as best we can under the authorities but I do think crypto exchanges, there’s some work to be done there.
PISANI: Yeah, let me ask about climate change. The SEC is conducting a public comment period on climate change on expanded corporate climate disclosures. You’ve also launched the Climate and ESG Enforcement Task Force. I know the House Republicans have really pushed back on you about this warning that the SEC doesn’t really have a mandate to do this and that this is not really material at this point. What is your response, those at the SEC have the authority to move ahead and ask for more information on, on, on climate and climate disclosure.
GENSLER: So this is at the heart of our disclosure regime that Franklin Roosevelt and Congress did in the 1930s and it’s still very much the authority of the SEC. Investors get to decide but it’s based on disclosure from the companies and each decade, technologies change just this technology changed in the markets and investors, trillions of dollars of assets under management, are asking for more information related to climate risk disclosure. So, I think we, we not only have the authority but we have a role to play to help bring clear, consistent and reliable information so that investors can decide to buy, sell a stock or vote on a proxy.
PISANI: I want to just return for a moment to the bitcoin market and the eternal question of a bitcoin ETF which is of course a big interest to bitcoin investors. You said recently, SEC said recently and warned about the potential for fraud or manipulation in the underlying bitcoin market. Now, these are very similar to words that the SEC used in the past to deny bitcoin ETFs. I think the question that everyone is wondering about is fraud and manipulation, in your opinion, still sufficiently high enough for the SEC to essentially pass on a bitcoin ETF this year.
GENSLER: Bob, I’m not going to get into any one filing but let me say, investors should be aware, I’m saying this in my own voice, that the underlying bitcoin cash markets, there’s not, there’s not a robust oversight that you have in the stock markets or in the derivatives markets. Our sister agency oversees bitcoin futures but those underlying cash markets do not have those investor protections.
PISANI: Just before we let you go, I just want to ask about executive stock trading plans. You made a comment this week about it. You want to overhaul the rules to reduce improper insider trading or what you think is improper insider trading. Is there any evidence that executives are abusing the safe harbor laws and abusing those executive stock plans?
GENSLER: We’ll build the record, we’ll build the economic record and put this out to public comment but this affirmative defense was put in place 21 years ago. I, I deeply believe that we need to freshen it up. Insiders right now can enter into multiple plans and insiders cancel those plans even when they have material nonpublic information. I think we could lift the confidence in corporations around this and this is, this is, this is diminishing the confidence that good faith actors want to do and so we’ve either, either we have to, frankly, repeal the year 2000 set of affirmative defenses or freshen them up but how they’re working right now, I think there are real gaps.
PISANI: Mr. Gensler, thanks very much for joining us, very much appreciate it. Gary Gensler is the chairman of the SEC. Kelly, back to you.
