The Problem With Jon Stewart - SEC Chair Gary Gensler Answers Your Questions

Episode Date: October 12, 2022

SEC Chair Gary Gensler is back! Jon throws him some of the thousands of audience questions we got, and they dive into the issue of whether the SEC is doing enough to ensure market transparency, why there’s not more accountability for the market’s biggest players, and what the limits on SEC power mean in a practical sense. Plus, we set a record for most acronyms in a single episode–PFOF, DRS, PSA, UBS! You name it, we got it. Below are definitions for some of the terminology used in this episode. Our website has a more in-depth explanation, and you can watch Jon’s first interview with Gary Gensler on our Apple TV+ “Stock Market” episode. http://apple.co/JonStewartEpisode5theproblem.link/StocksEpisodeDisgorgement: An SEC penalty that compels the return of any “ill-gotten gains,” meaning they were made in violation of U.S. securities laws.Dark pools: Private exchanges for trading securities that are not accessible by the investing public. And, yes, they are actually called dark pools. Market makers: Also known as “wholesalers,” these are firms who help investors buy and sell securities using the pool of shares they own. They’re basically a middleman with access to highly important information, who is seeing the game one thousand times faster than you. Payment for order flow (PFOF): When brokerages route the buy and sell orders of retail investors to big market makers instead of sending it directly to the stock market. This deal helps brokerages make hundreds of millions of dollars every year. Short-selling: Short-selling is when an investor borrows securities (usually from a broker who either has the security in their inventory or is also borrowing the security from elsewhere) and sells it on the open market with the plan to buy the security back later at a lower price. After buying back the shares, the investor returns the borrowed shares (plus interest) to the original broker and profits off of the difference. The Securities and Exchange Commission: Commonly known as the SEC, this is the government agency that oversees securities exchanges, brokers, investment advisors, and mutual funds. They’re in charge of creating fair dealings, ensuring the disclosure of important market information, and preventing fraud. CREDITSHosted by: Jon Stewart Featuring, in order of appearance: Gary Gensler Executive Produced by Jon Stewart, Brinda Adhikari, James Dixon, Chris McShane, and Richard Plepler.Lead Producer: Sophie EricksonProducers: Zach Goldbaum, Caity Gray Assoc. Producer: Andrea BetanzosSound Engineer & Editor: Miguel CarrascalSenior Digital Producer: Freddie MorganDigital Coordinator: Norma HernandezSupervising Producer: Lorrie BaranekHead Writer: Kris AcimovicElements: Kenneth Hull, Daniella PhilipsonTalent: Brittany Mehmedovic, Lukas ThimmResearch: Susan Helvenston, Andy Crystal, Cassie Murdoch, Deniz Çam, Harjyot Ron Singh Theme Music by: Gary Clark Jr.The Problem with Jon Stewart podcast is an Apple TV+ podcast, produced by Busboy Productions. https://apple.co/-JonStewart

All right, everybody, welcome once again to the podcast, The Problem with me, John Stewart. The TV show is back on Apple TV Plus. Season two, last week's episode, I guess, gender, it's on there for free, for God's sakes. What a gracious and lovely group of people we are. Today, we're excited. We're checking in with one of our season one guests,

Securities and Exchange Emission Chair, Gary Gensler. He was on when we were discussing the stock market, and that was season one. And by the way, we did put out an inquiry to our online community, and they sent back just thousands of really interesting, really well thought out questions. And I will do my best to bring the gist of those questions

to the head of the Securities and Exchange Commission. I won't do justice, I'm sure, to how thoughtful and specific they are, but I will do my best to bring those larger points to him. Sir, Commissioner, welcome back. It's good to be with you, John. Are you, do you go by commissioner? Most people call me Gary,

but if you want to use an honorific, it's usually chair. Well, thank you. I'm going to go with the commission. I'll go with chair. All right, chair is good. Gary, last time we talked, you had discussed, you know, how important it was to bring fairness and transparency. We talked a lot about retail, so we can talk about that in a little bit, but can you give us an update from the SEC's perspective

on where we stand now? So what you got? So I thank you, John, for inviting me back. Over the course of, it's been about a year since we were together, our agency put out an agenda. It had 50 or 55 items on it. Our total capital markets, most people think of the stock market,

but our total capital markets are about $100 trillion in size. Our stock markets about 40 or 45% of that. But across that whole capital markets, we put out this agenda and we have made proposals in about two thirds of the areas. And critically for some of your listeners in terms of the stock market, we put out proposals with regard to more transparency

about short selling, more transparency about where one borrows stock and that's called securities borrowing. We put out proposals about insiders of big companies selling their stock. But what we have not yet put out and we're getting close to is putting out some proposals about the core of the stock market,

which I'm gathering you'll probably ask me more about so I won't get ahead. But again, I feel really good. We've got a great team in place. Their challenge is absolutely, I wish we were a bigger agency. I wish we hadn't shrunk during the prior administration. We've had a robust enforcement agenda as well.

And I think we can get into that when we're talking a little bit more. Right, you've put out some proposals. Give us a little sense of what's the difference between proposals and rulemaking. It's not a level playing field in the market. So it's not a level playing field. Let me step back a little bit.

So Congress writes the laws. What? Wait a minute. And how does a bill become a law? We, the Securities and Exchange Commission, we were set up about nine decades ago in the 1930s. And we do our rulemaking based upon what authorities Congress has given us, and then through something called

the Administrative Procedures Act. No, don't not off. I know you probably never studied this in high school civics, but it's really an important thing that the only way we can do rulewriting is we put together a proposal within our authority from Congress. We have to do a bunch of economic analysis

around efficiency and competition and capital formation, put that all together, put it out to public comment, and then hear back from the public before we can actually then go forward to finalize a rule. And as I said, in terms of those listening, it's really helpful to hear from you. And especially...

I got questions, man. We put it out on Reddit, YouTube, and Twitter. We got questions, baby. When we put proposals out to hear from the public, and particularly as we're getting closer to putting proposals out about finding a level in the public phase. The playing field to hear from the public.

Right. Or what we've already put out on short selling and stock borrowing and insiders trading in their own stock, senior executives, to hear from the public. And then we take all that in to try to finalize a rule. Right. In your mind is the idea

that you go through the proposal phase, then there's the public phase, and then it goes to possible rulemaking. And the idea is all that takes long enough that a new administration comes in and then they don't have to deal with it anymore. Is that the general... Well, the real idea is to promote our three-part mission.

Capital formation, investor confidence. What else you got? What's the third pillar? Actually, I think of it as protecting investors first. That's what Congress put in place first. Protecting investors. Yes, you're right about facilitating capital formation. That's people raising money.

And that can even be you who takes out an auto loan or takes out a mortgage. You're raising money in that regard. But then it's that which is in the middle. That which is in the middle is we have part of our mission to promote fair, orderly, and efficient markets. Well, if we promote something in the middle to be lower cost, that's better for investors.

And it's actually better for issuers. It's usually the middle of those says, wait a minute, I'm earning less. But most of what we're trying to do, and I'm a market guy, and yes, John, I worked at Wall Street for 18 years early in my career, is trying to ensure that the middle is more efficient. That means lower cost if you're an investor.

You want to invest in the stock market if you have lower cost in the middle. That's good for you. So you're talking about a balance between, let's say, the cost of entering the stock market versus what the best execution would be, all the grease that keeps the stock market moving. The middle of the market is almost

like the neck of an hourglass. Just visualize this for a minute. Think of an hourglass and all the- Are you saying the stock market is zoftig? Is that what I'm hearing? No, no, I'm saying that if you think about the financial market, it's like billions or even trillions of grains of sand

flow through every single day. Every day trillions of dollars of transactions and Wall Street and finance and the city of London and so forth sit at the neck of the hourglass. If an agency like ours can make that neck of the hourglass more transparent, more competitive, less costly, that's good for the people on each end of the hourglass.

All right, so let's get to that. The sand is money and risk. What you've done so far is create a beautiful, that's a beautiful metaphor. And I think many people right now are imagining the hourglass in their minds, but let's get to that. And our job is to try to lower the cost in the middle.

Yes. One of our jobs and make it fair to the folks at each end of the market. Overwhelmingly, questions that we got related to transparency, sort of these backroom financial instruments, lit market versus not lit market and keeping it transparent. Naked shorting was one of the biggest

in terms of the commentary that we got. And this will go along with the framing of most of the questions. All right, so here's one. What's the difference between counter-fitting money and market maker exempted naked shorts coupled with FTDs? The point of it being, if you don't have the transparency

and you can just be overselling the shorts and people don't understand or can't see, let's say you've got five banks doing 50% of the market shorts and they don't even hold those shares in and of themselves, how do you bring transparency to that? And what's the difference between that and just having a printing press of money?

So let me say, I agree with your listeners and folks that wrote in, we need more transparency and better transparency about a really core part of the market is when somebody sells securities they don't own that's called shorting, you might say, well, how do they do that? We have to borrow somebody's securities to sell it,

what's called short. That's right. And by the way, Congress 12 years ago said we should have more transparency in this arena as well. I came on board last year and we still had not done one of the rules that Congress mandated that we do after the financial crisis.

There were eight rules we hadn't yet done. I don't know why, John, but we're getting those done. And one of them is greater transparency in this short selling, but also greater transparency when you have to borrow the securities. We put those out late last year. So what's the rule now for transparency

that's going to be implemented? So, well, I can't prejudge it cause we didn't finalize it but what we basically are saying is that on the borrowings, borrowing those securities that that market would be much more transparent and you would get on a regular basis, we actually propose something that would be happening throughout the day.

A lot of commenters said that's too... Cause now there's what, a two week lag? There's a two week lag right now on short selling. There's actually not public disclosure yet on the stock borrowing. So we wanted to address both sides of it. No public disclosure. There are some private data feeds

where you can pay for it, but we... There you go. That sounds fair and transparent. We are proposing a role or did propose a role where that transparency would happen on a regular basis throughout the day on that stock borrowing. Mm-hmm.

And then on the short selling, additional disclosure there as well. So these proposals to bring that in there, that's obviously a much slower process. Can't you use enforcement to bring consequences to companies that have already, like for instance, let's say UBS, right? So UBS, I guess, was selling stock they didn't have

and not delivering the stock. And I guess there's a two day period where you have to deliver the stock within there and you guys have proposed to take it down to one day. But so for nine years, they've been doing that. They were caught, you know, and obviously it's a step in the right direction, but they were fined, I think, $3 million.

Was that it for that nine year period? So I don't have the exact figure in front of me, but let me step away from one case. It's $3 million, I have it in front of me. It's $3 million. Well, I trust that you have. Nine years, $3 million. So we're a cop on the beat.

Our agency is about 4,500 people strong, about half were in examinations or enforcement. But even the folks, that's about 2,400 of the folks in examining financial actors to ensure that they're complying with the rules and then an enforcement division that brings seven plus hundred cases a year during the year. And the short selling rules on the books

are really important, but I don't think they go far enough. I'm saying we have proposed things to go further. No, I know. In terms of our current enforcement authorities, if somebody is not complying with the law or the rules that our predecessors put in place, then we are a cop on the beat, but I'd also say to your listeners, bring that in.

You asked me the last time we were together about crowdsourcing, I know you didn't really, you didn't probably embrace with a warm hug my answer, but I think it really is important that you call it crowdsourcing and I call it tips, complaints and referrals. I call it whistleblowers, bringing things into us. We get about 45,000 tips, complaints or referral per year.

Right. Let's say I bring you a tip that UBS for nine years hasn't been delivering the stocks and the only penalty they face, you can imagine UBS probably made billions of dollars of this type of practice. And if the penalty is only $3 million, that's not even a slap on the wrist.

I mean, if I knew that crime paid that well, I would, you know, well, I'm a comedian. So I guess crime does pay well. That is basically stealing. I don't, I'm not gonna dive into those specifics of that case, but in general, what we're allowed to do as an agency is seek what's called discouragement.

So if a firm, any firm or any individual has to discourage their profits. So if you made $100 million after expenses, you know, you've got a net of 100 million, then we can go after that to what's called discouragement. You give it up. And then in addition, penalties. Now, it is the case that often we have disputes

with defendants about what their profits were and are. And our economists go in and try to chase that down and really get the facts and build a case. And often it can take two and three years to build that case. Again, it's why I think we're under-resourced. But I'm addressing that larger point. That's what we do, we do, we look at, and so again, you're hypothetical.

If somebody was making a billion dollars in your hypothetical, then we would say you've got to discourage that. And we've had cases in this past year where we have held people accountable, companies as big as the Allianz Insurance Company is an example. That was significant.

In fact, this past fiscal year, we in the federal government have a year that ends September 30th. Don't ask me, I don't know why, but you know, it's a fiscal year ending September 30th. And our discouragements and penalties added up to in excess of $6 billion, which was up, the prior year was about $4.5 billion.

So the last 12 months, we have seen that go up in some really important cases, whether it's holding a bunch of large banks accountable for using off-channel communications, using WhatsApp in their books and records area, having folks, as I say, in the sort of complex products area like Allianz in a big way,

or whether it was companies, companies who were issuers that misled their public in their filings, belling, I mean, it was tragic as to what happened with the airplane, the faulty technology, but that they misled the public. Oh, everything's all right. Do you have confidence that Congress has any interest

in this given their own history with insider trading to a large extent? I mean, if you're a sitting representative or senator and you're in committee meetings discussing what's gonna happen with COVID and then you walk out of that meeting and you unload any of your stocks that may have to do with the pandemic

or you buy up things that you know is happening, 75 federal lawmakers, I think, bought and sold in the early weeks of the pandemics, when you're bringing this idea of fairness to the markets and people are seeing no accountability for lawmakers, some accountability in terms of fines and disgorgements for the bigger players, but I think they're not seeing movement

on those that they think control the markets and are the bigger players in the markets. And so how do you prioritize that? And also shouldn't Congress, I mean, how the hell are they allowed to hold stocks and trade in countries? So let me say something unambiguous here. I mean, you have the authority to clarify those laws, yes?

So let me say something unambiguous. Insider trading laws, meaning trading on material non-public information, that applies to everybody. Whether you're working at a company, whether you're not working, whether you're in government, whether you're in Congress, and we the Securities and Exchange Commission

have been and will be and will continue to be a cop on the beat on that, on trading on material non-public information, which is not allowed under the law. That's called insider trading. And so that's- But if you look at, there's a whole feed on Paul Pelosi's stock trades.

They say, if you follow his stock trades, you'll kill the market. You know, Kelly Loeffler, I don't know, she unloaded millions in stocks after a briefing on COVID-19 and then downplayed the severity of the virus and nothing happened to her. Nothing happens to Congress people where it's very clear that they're profiting

from the knowledge that they have inside the government. Well, again, I can't speak to any one matter. The SEC is a law enforcement agency that's called civil law enforcement rather than criminal law. That's what the Department of Justice does. Though we team up. We team up quite often with the Department of Justice.

But it's really to instill greater trust in the SEC that we don't talk about individual cases that may be under investigation or may not be under investigation until they are actually finalized and if we actually bring the action. And that's really to be fair to the whole market and the market participants.

But on your core issue, on your core issue, if somebody is trading on material, non-public information, information that comes from those companies or occasionally comes from inside the government, and that's against the law and we will chase that. But we have held members of Congress accountable. We have brought cases.

If the facts and the law take us there in the future, we will unfortunately do it again. But it's how you instill trust. It's how you have trust in the capital markets. It's the same reason why we have this proposal outstanding about insiders at companies. Do you think that the penalties for the types of shenanigans that we're talking about,

whether it be naked short selling or insider information being used by people in power to gain profit or any of those things, do you think that the consequences that they faced and the speed at which they faced them does bring confidence to people in the markets? Look, I understand the public's frustration here and I share that frustration, John.

We have certain tools as an agency. Penalties are one of them. Discouragement, I distinguish. Discouragement is giving back the ill-gotten gain. Penalties is what you add on top of it. But I think it's also about individual accountability, holding individuals accountable, not just their firm. I mean, you can bring a case against

a big multi-billion dollar bank and sometimes they'll say, let's just settle for the penalty, even a hundred million dollar penalty and move on. And so actually holding individuals accountable. And I would also say two other things. Often we put out these orders, they're called, but the orders tell the narrative,

tell the background and the facts. And I did this in the Obama administration when I was honored to chair another federal agency, the Commodity Futures Trading Commission. Often even the telling of those facts are really important so that the public understands what is happening. And then lastly, sometimes also what's called undertakings, that they commit for X number of years

to change certain key behavior. And then sometimes working with the Department of Justice and the criminal authorities to send people to jail. Give me an example when that happened to your satisfaction, because like I'll look at these situations and yeah, you're right, it's frustrating to look at these actors that continue to look for loopholes

and they certainly have the finances. I mean, a lot of their lawyers are former SEC employees, but so let's say for instance, Arkegos. I mean, that was a small company that over leveraged, right? And nearly blew up the major media company, yes? So let me say two things. One is lawyers, accountants, investment bankers that are listening to this podcast at 6 a.m.

or whenever you put it out. These gatekeepers have a role and a responsibility under the law. And I would say this, if your client is asking you something right up against the line and you're sort of saying, you know, you can structure it this way or that way. My advice to you is tell them, no, step back from the line.

Don't try to find a loophole or what's called arbitrage. I think of it the duck test. I'm just sorry to speak of it this way, but if it waddles like a duck and it quacks like a duck, it's probably a duck. But don't you think they know that it's a duck? I mean, that's the whole point. But that's, it's very, I think it's troubling

to hear the SEC chairman say, our goal is to have Wall Street people appeal to their better angels. No, no, because what I'm saying, John, is gatekeepers have a role as well. And we've held gatekeepers, including big accounting firms, Ernst & Young, and Deloitte this year.

I mean, my God, one of them was actually cheating on their own internal ethics exams. And so, yes, it's true. But that's, I mean, that's the story of this. I'm saying the gatekeepers have a role. I know, but without accountability, they're not going to play that role. So this is just a bit of a message

to the gatekeepers through your podcast. It's all I'm saying. On Arkegos. Are you saying you're coming for them? We already have, and we will continue to. They have responsibilities. You asked about a case called Arkegos. I can speak about that because we brought charges,

but it's in litigation right now. Family office that grew quite large through a use of a complex product called securities-based swaps, or sometimes called total return swaps. Right, that are not transparent as to the size of them, correct? They are not transparent as to the size.

And that's again why we made one of these proposals. One of those 36 proposals is in this area around transparency of large trader positions and securities-based swaps. You can imagine there has been some pushback as there's been pushback on others of our proposals. I think that it's in the right direction. What is the pushback against that?

Why would anyone suggest that someone should be able to take large positions in that without revealing them? Some of the commenters say we put the thresholds too low and should they be a bit higher? And some of the pushback is that we said that it had to be reported the very next day and whether it should be a handful of days later or even at the end of the month.

A handful of days though is that's such a glacial pace. On Kegos, we also brought charges with the criminal authorities about the leadership there that they had been defrauding and misleading their counterparties, the big banks. I know your listeners might think, ah, that's fine, but it was between this family office that was measured in the tens of billions of dollars

that was misleading their counterparties, the big banks, through these total return swaps and we have alleged also manipulating the market. At this point, do you believe that the litigation will be successful against the rules or that these people will go to jail or that some accountability will be brought to this in a timely fashion?

I'm a chair of a five member commission. I voted on that action. I definitely believe in that action. I can't speak further about the ongoing litigation, but if I can go more broadly, more broadly, I do believe that our mission about protecting those investors first of, yes, capital formation and the fairness and orderliness of that middle,

the efficiency of the middle, the markets, that this has been part of our economic success over the last 90 years. It is not perfect. Is the SEC underfunded? Yes. Could we deal with more people? Doesn't it play a role in kind of the boom and bust? Are these markets nuanced and textured

and are there teams of lawyers outside? For every lawyer we have, there's multiple lawyers outside that are thinking, all right, maybe I can advise my client to do it this way or that way. And that's why I also focus on the gatekeepers. I'm gonna go back to our folks that we got the questions from. Let's talk a little bit about,

here's one that I think people were really curious about. And this was another one of the large kind of tranche of questions that we got. I'm not even gonna tell you what the name of the person is, whose account this is because it's filthy. But Jackie Lehm said, for the love of God, ask about GameStop, dark pools, failure to delivers, and swaps.

And then Pat Aroken on Reddit, this is concerning dark pools. How can anyone know the value of anything if shares are never actually bought and sold on the market, just endless IOUs that don't affect the price? And I thought that was a really critical question that gets to kind of the heart of everything that happens off the exchanges. I mean, this is a relatively new phenomenon

within the stock market, but there's the lit exchange and there's the non-lit exchange. And there's so much that goes on that people can't see. So look too, I'm sorry, it was at Jackie and I can't remember the other. Pat, I think Pat. To Jackie and Pat, I think you're right. That right now, transactions happen

on what's called the lit market. And then the dark market, if you wish, or dark pools. And that's two areas. There's these alternative trading systems, but then also brokers that we call wholesalers or internalizers and the like. And John did a piece on this last year that you can go watch and has great charts on it.

And... Great graphics department. Good, really good graphics department. That's right. And so I've asked staff, and I gave a speech earlier this year, and this speech earlier this year at this Piper conference, Piper Sandler, I think it was, I gave this speech really to say,

look, everybody should be put on notice that the staff is going to be forming recommendations up to our commission around these items. And it's about how do we level the playing field across the markets? How do we make sure that off market in the dark pools that you have some of the same rules with regard to minimum price increment?

It might sound wonky and technical, but... You're talking about best execution and things like that within the dark pools. Well, yes. Well, I even asked the question when I got to the SEC last year. I said, can I see our best execution rule? And they said, well, it's actually not ours.

It's a self-regulatory organization called FINRA. And I said, wait, wait, let me just understand. We, the Securities and Exchange Commission, often talk about best execution. And we actually don't have one on the books. It's the self-regulatory organization, the industry group called FINRA. So I've asked staff, I would like to put out a proposal,

an SEC best execution rule, an SEC update on our disclosure rules about price improvement. Because they're always saying and marketing and bragging that they have price improvement. How about having a little bit better disclosure on that? Potentially a rule with regard to leveling the playing field across the markets that the dark pools

have to have the same minimum increments as the lit markets. Oh, and by the way, maybe we can shrink or tighten the minimum increment. There's a penny increment. Well, maybe some stocks to trade at a half a penny or even a tenth of a penny, a tighter increment. That we should also address what's called the access fees and the rebates.

And then lastly, one thing we're looking about is when you put an order in right now on your brokerage app, if you do it on your phone or something like that. And it's called a market order. That market order, 90 plus percent of those market orders do not go to the lit exchange directly. They go through something called payment forwarder flow to these wholesalers.

And so we're looking at, the staff's looking at, whether those market retail orders ought to be put in order by order competition. Right. But you had said last time payment forwarder flow was something that you thought you were looking into changing, getting rid of. And yet I don't think that's what occurred.

And it's a very controversial. I'll tell you what, here was a crazy one. We got a question from Doug Sifu, who is the CEO of Virtu. He came into the conversation and he said, I want to be on with Gary. Disgusting Peef off. And he has some experience in data he would happily share. He just wants to talk with you about it.

Well, actually, if anybody looks at, we publish my call list on a monthly basis and Doug has talked to me, it's on my call list from a month or two ago. But more specifically, any data that Doug has or anybody on your following, your social media, that's helpful for us to get that data. I would say this though, that right now the system,

right now the system is tilted towards the dark market where the internalizers, the wholesalers are not playing by the same rules as the lit exchange. And we're trying to level that. Secondly, they're measuring a price improvement, so to speak, against a faulty measuring rod. This national best bid best offer doesn't have all of the trades in it.

It also has to stay a penny wide. So let me clarify that real quick. Just that one moment. I think we've got to really look at, I think we have got to look, rather than on any one thing, is are we getting the best price for those retail market orders

that are coming into that brokerage app? And how do we get the best competition for those? And at the same time try to level the field so that we shrink some of the cost in the middle. In the layman's terms, you're saying the data that's been provided, the argument that payment for order flow in the unlit markets

is delivering better price improvement than the general exchanges is not necessarily the correct data. That that data... It's not the whole story. It's part of the whole story is is that there are different rules off exchange versus on exchange.

Part of it is also they're measuring against what's called the national best bid, best offer, but that so-called NBBO doesn't have all the trades in it. And it's limited. It's forced to be a penny wide. And so there's a lot else that's going on.

So I've asked staff that say, let's look past all that and say, get the best economist around, get the best advice, including advice from your followers and the Reddit filers and so forth, and say, how do we instill greater competition? It's like an American thing.

How do we use transparency, better disclosure? How about the SEC actually writing its best execution rule rather than relying on this self-regulatory organization? So why don't you then? Everything that you're saying, I think people at home would agree with. I think their frustration is what they view as passivity.

They view that it's too slow moving and that by the time you catch up to them. I share that frustration. Yeah. Things move faster at times in the private sector than they do in government. And that's our system. It's not just our constitutional system,

but we at the Securities and Exchange Commission are paid to be very careful because we don't write the laws, Congress writes laws. We have to do things through what's called notice and comment rulemaking, but also we generally and often, after we finalize a rule,

that's not the end. That's basically a moment where the market participants often then take us to court. Take the SEC into court and said, did we follow all of those procedural guidelines? Did we do our economic analysis appropriately? And did we consider everything? And so it is maybe slower,

but we're being thoughtful. We're being methodical. We're staying within the law and we're following the economic analysis. And when we put out proposals, as we did on short selling, as we did on stock borrow, as we did on these insiders,

corporate leaders trading, very thoughtful. We're going to do the same on these equity market proposals. And I don't think people don't think it's thoughtful, but this is not a fast-moving process. No, but so what they see is this, and this is if I can translate some of the frustration

that we see from the questions that we got here, it's this, the process that you go through for the parts of the market that are far more consequential, whether they be dark pools, whether they be swaps, and in terms of naked selling, why not just register all that we had a lot of questions?

Why not just why? Why not just register each stock purchase so to go through registration? So the idea being that if you had to go through a registration process in terms of naked shorting or those kinds of short sales, you wouldn't get into the situation

where you would have places doing 140% of a short sell or things like that because the shares themselves would be registered. You know, that was kind of a way that could eliminate some of the shenanigans. I share the view and the frustration that government moves more slowly than you wish. In terms of your question about registration,

the companies, whether it be GameStop, whether it be other public companies, we have seven or 8,000 registered public companies that are registered. I think what the nature of the question is, is... The shares. What can we do more to police the market? What can we do more to make the market fair

for the investing public? And part of it is this suite of rules that I hope that we propose in the near term. Did you propose direct registration of shares? Is that in the suite of rules? You know, because, you know, obviously going through the broker and the shares being held in the broker's name

or things like that. I mean, I think that direct registration was trying to find a way to address maybe these larger naked shorting or, you know, what they perceive as the lack of transparency. Wouldn't that bring some order and transparency? Because, and isn't that how it used to work? Sometimes when I'm in a congressional hearing,

I say, I think can we have my staff and your staff talk about this? But I think that in more seriousness, I think that the companies are already registered. The game stops and the others are already registered. So the nature of your question, I'd have to better understand, or the nature of it might be somebody,

one of your followers question. I'd really like to better understand their thoughts. I think what they're saying is it's a movement, and it is a question that came from the Reddit community, that the movement is to directly register shares that are bought under the name of the person who buys them, the individual, not the broker. All right, so I know, look, I think this is an issue.

We're trying to get at it in a little bit different way, but one of the things is that most shares in the U.S., the majority of shares in the U.S. are held in what's called street name. That's right, like the broker's name. A Goldman Sachs or Robin Hood or somebody is owning, or a fidelity, is owning on behalf of their millions of customers,

and it's just one name. I don't know if that would help, and your follower on Reddit might have a good point, and I'm going to ask staff about this, whether it would help with regard to short selling, but we are looking at this issue of street name and how to look through the street name when counting up the number of shareholders,

and this is particularly important because you need to have 2,000 shareholders before you go public, and whether, again, this is an observation that could somebody say, I only have 1,900 shareholders because each of those 1,900 have tens of thousands of shareholders behind them in street name, and that's certainly something that we're taking a look at

and trying to address. It's interesting because I think we're agreeing on the frustration. I think you're more of a believer in the system we have in place, and I guess I'm wondering if maybe we need to readdress the system in general because of how outmanned you guys are,

and how agile these large financial companies are in terms of sneaking around. I share your frustration, and I wish our agency had more resources unambiguously. I wish that in our system of democracy that we'd get a little bit more trust. You did a number of podcasts on the judicial system too, and so whether we bring an enforcement action

and we're then taken into court, and you get a court that overturns our enforcement action, and we win more than we lose. We have the industry trade groups or the New York Stock Exchange then sue us. We tend to win more than we lose, but there's always that balance. So why not go at it?

If you believe payment for order flow is a conflict of interest within the markets, then why not just ban it and take your chances in court? It's because I think what people see is this. When the SEC pays a half a million dollars to put out a public service announcement that basically says the problem with the markets is meme investors not doing their research,

or they see you go after Kim Kardashian and get a fine on her crypto business. The frustration there isn't necessarily what you're doing. It's what you're not doing. It's not putting out a $500,000 PSA warning people that are practicing the PFOP, or warning the people that are not being transparent, or warning why aren't we using those resources

to apply pressure and leverage. We're always warning individual retail people about, hey man, the market's dangerous and you don't want to get involved in this, rather than saying let's make the market less dangerous so we don't have to warn people. I believe that we're trying to do both. This agenda with regard to this stock market,

with regard to parts of the market we haven't talked about the treasury market, or even private funds in America. The reform agenda is really critical. Our private funds market, by the way, is almost as big as our entire commercial banking sector. It's a $21 trillion. We're doing that, but at the same time,

yes, we're holding people like Ms. Kardashian accountable, and that does send a message through the markets. We had earlier kept others accountable in the same way. I mean, Floyd Mayweather and DJ Khaled and Steve Segal. But those are anomalies, and maybe it's important, but it's certainly not important as holding UBS accountable and Goldman and all the larger players. We're doing both, or all of the above,

but within limited resources and within a judicial system that people have rights and they're going to challenge us. So in terms of the big firms in this past year, we had fines for Barclays and other big banks in terms of violations of the securities laws as well. We held Allianz, which is one of the largest insurance companies and asset managers accountable.

And at the same time, holding companies like Belling accountable for misleading the public with regard to their airplane safety. And so it is the case, and I'm honored to be the 33rd chair of this agency. I talked to my nine predecessors as I was getting into this job, and I talked about the jobs. I learned from them ranging the spectrum, and there were some that were more aligned with the investors, and there were some that were more aligned maybe with industry

across nine chairs from the last 30 plus years. But all of them said, you're never going to have enough time, you're never going to have enough resources. And one of the things that's changed over those 35 years is that over the decades, we the SEC get challenged in court by the big banks, the big stock exchanges, the big fund companies and their trade associations. More often in the 2020s than we did in the prior decades.

And so we're very deliberate, we're very thoughtful, we do things within the law, and we're resource constrained. But none of this makes you think we need a different system, because if nine predecessors have come to you and said, you will always be outmanned. I definitely think it would be good if we had more resources, and resources would help. I think that it is appropriate to do things thoughtfully

and carefully, and certainly there's changes in law from Congress that would help as well. Right. Can I ask one broader economy question before I let you go? Sure. The larger economic question is this. Inflation is a very complex issue, one that we're facing down, and that threatens to unravel any progress that we made in terms of wages and in terms of employment.

And it's an incredibly complicated interplay between supply chain, and price index, and pandemics, and world events. And in the United States, to battle inflation, we have, it seems, only one hammer, one dial, and that's the Fed. And it strikes me as odd that an issue as complex as inflation really boils down to one unaccountable organization, the Fed, turning a dial this way or this way. And when inflation hits, the first thing we say is,

hey, man, we got to kick unemployment up and slow everybody down. The profits are privatized, and the pain is socialized. And how can that be in a capitalist system that is supposedly free market? I'm going to try my best to stick to my job and not to Jay's and other people's jobs. No, no, no, no, no, no. This is a broader, this is not, this is of a man who has all the experience. Let me say broader issue. I think we are living in a time right now of economic and market uncertainty.

You just went through a list. Of course, there's even more. I look even in the last week and a half to two weeks and see uncertainty in what's called the government bond market in the UK, the gilt market. It's a G7 country. And the treasuries here in the United States, they can't. And treasuries here, not quite as choppy as what we've seen in the UK market in the last two weeks. And this is part of the reason why, and it's this broad agenda,

that we've included a number of projects to enhance the resiliency of our capital market. So we have five of those 50 plus projects are around the US treasury markets. And we've worked collaboratively with the US Department of Treasury and the Federal Reserve, and we put out proposals around trying to have the high-frequency traders in those markets, what's called principal trading firms register. You talked about registration earlier. Some of those firms that are trading high-frequency trading in the treasury market are not currently registered as dealers.

I think they ought to be. We put out a proposal on that to register the trading venues, the inter-dealer brokers to have more clearing in those markets. Clearing is that central plumbing that we talked about earlier, that only about 13% of the treasury market is in, the cash market. That's just the nature of some of the resiliency projects. We also have projects around hedge funds and what they report to the government through various quarterly filings and current filings.

What I'm stepping back to say is the uncertainty in the market is a reminder to an agency like the SEC that one of the jobs that we have is to try to make the markets more resilient when uncertain times come. I see this coming out of the United Kingdom when I go, it's a reminder about what we're doing not only in the treasury market, but in money market funds. So it's a really important reminder, your question about inflation and economic uncertainty. We at the SEC are merit neutral.

And I say this often. What does that mean? It means that investors get to decide what risks they want to take. Investors, your Reddit followers or the biggest players in the market get to choose whether they want to go and buy something or sell something. But part of that is also to do our best to have a market that doesn't spill out like the 08 crisis did to all of Americans. And I'll close on this.

My dad had a small business. Neither of my parents went to college and their parents were immigrants. And he started a small business with his mustering out pay. You never have more than 35 employees. If he couldn't make payroll on a Friday, the city of Baltimore wasn't going to bail him out. You'd have to close up shop. And I think that every small business in America,

every investor in America gets that. I would also say for investors, and maybe it's a little plug of investor education, beware of the risk. I think people appreciate that. But I think they see that they do bear the brunt of the risk. And there is no one there to bail them out, even though- No, there was no one to bail Sammy Gensler out either. Exactly.

But there's always someone there to bail out the big banks and the big brokers. And all those folks, and they see the unfairness within the structure of the market. And I think that's the troubling part is we have a system that talks about resilience. And yet, only one side of that equation pays the full price for uncertainty. And that's Main Street. And I think that's the unfortunate part. I'm driven by how can we make the markets more competitive, transparent, efficient for working families of this country?

And how can we make it more resilient for regular folks that is trying to make the ends meet and save for a better future? But I also understand the frustrations people have as to why can't you do things faster? Why can't you do things more novel? And we're here sort of sticking to our law, our economics, but we're doing that so everything survives court challenge, which is inevitable on the other end as well. But I thank you, John, for doing this interview. Who knows?

Maybe we'll do another one in 2023. No, thank you. And I want to thank the people who sent in so many of those questions. All right. Thank you. You be well. Thank you, sir. All right, everybody.

Well, that was our interview with Gary Gensler, who is the chairman of the Securities and Exchange Commission. I'm sure that you are not satisfied. I am not. By the way, very gracious of him to spend the time with us. I think it's clear. The frustration, I want to thank everybody who sent in questions. God knows when we asked you if you had questions for Mr. Gensler, you rose to the challenge

and sent us the ones without curse words. I think we had at least 3,000 without curse words. With curse words, I have no idea how many, but there was a lot of curse words. You're a very colorful audience. But we're going to continue to talk about the issues that were brought up. And by the by, the next episode of the Apple TV Plus version of the problem is on taxes. And how everybody fucking hates them. And perhaps the reasons why.

So I hope you'll tune in for that. And that's it, the problem. With me, John Stewart, we'll join you next time. Bye-bye. The problem with John Stewart podcast is an Apple TV Plus podcast and a joint bus boy production.