“Capital Markets, Competition, And The SEC” Speech By Chair Gary Gensler, American Bar Association’s Federal Regulation Of Securities Winter Meeting, Washington D.C., Dec. 5, 2024

Thank you, Michael (Arnold, Chair of ABA Business Law Section’s Federal Regulation of Securities Committee) for the kind introduction and for inviting me to speak for what may be my last public speaking gig while Chair of the Securities and Exchange Commission.

Before getting into the meat of today’s remarks, I want to say what a remarkable privilege it is to serve in this role. We live in a big, diverse country of 335 million people, all of whom benefit from the SEC. The agency, with authority over the $120 trillion capital markets, touches every part of our economy.

In such a big country, it goes without saying that others could do this job well, but I’ve had the privilege of serving alongside nearly 5,000 dedicated SEC staff since April 2021. They are so deeply committed to the American public and making sure that markets work for investors and issuers.

As is customary, I’d note my views are my own as Chair of the SEC, and I am not speaking on behalf of my fellow Commissioners or the staff.

Now I want to turn to the meat: the importance of capital markets, competition, and the SEC.

Capital Markets

First, the U.S. economy and, importantly, the public—both investors and issuers—benefit from our large, vibrant $120 trillion capital markets. They are part of our comparative advantage as a nation, undergirding the dollar’s dominance[1] and our role in the world.

We are the capital markets of choice for issuers and investors around the globe. At more than 40 percent of the world’s capital markets, we punch above our weight class of just 24 percent of the world economy.[2]

Our capital markets are nearly five times larger than our combined $26 trillion banking[3] and credit union sector.[4] Compared to other major economies, this ratio, and our significant reliance on the capital markets, is a distinguishing element of the United States. I believe this is a feature, not a bug.

Finance, at its core, is about the pricing and allocation of money and risk. The nonbank sector plays a critical role in that price discovery. Further, transparency and liquidity in the public capital markets provide a public good, leading to more efficient allocation and pricing of capital. Academic research has long documented that strong capital markets promote economic growth and may even provide greater resilience in crises.

A distinguishing and critical part of our economy is that debt capital markets facilitate 75 percent of debt financing of non-financial corporations. These markets are varied and deep, which benefits investors and borrowers. Compare this to Europe, the U.K., and Asia, where only 12-24 percent is raised in capital markets.[5]

Americans looking to purchase a home, a car, or have a credit card, also have long benefitted from the development of the nearly $14 trillion mortgage and asset securitization markets.[6]

Money market funds at nearly $7 trillion[7] today generate higher returns on average and are more secure for savers and investors than bank deposits.

Further, well-regulated collective investment vehicles are among the great financial innovations of the last 90 years. At more than $30 trillion,[8] they provide everyday investors diversification and lower costs than buying individual stocks or bonds. As Jack Bogle aptly said: “Don’t look for the needle in the haystack. Just buy the haystack.”[9]

That’s not to say that the capital markets are not without risk. We shouldn’t, though, paint with a broad brush. Not every risk is the same. In fact, the financial sector is about allocating and pricing risk, not eliminating it. It’s important to focus on the activities that are more likely to contribute to fragility in the system.

On balance, our entire economy benefits from the breadth, depth, and liquidity of our capital markets.

Competition

My second main point is that robust competition is critical to the effective functioning of capital markets and maintaining America’s leadership. The American public, whether sitting at kitchen or boardroom tables, benefit from competition in the capital markets, which lowers the cost of borrowing and raises returns on investments.

In essence, if we lower what economists call economic rents in the markets, that’s good for folks borrowing and investing money. Investors get better returns. Issuers can raise money more efficiently. When market participants know that they can get a competitive price, they are more likely to invest in the primary market in the first place. Moreover, competition and efficiency allow prices to come closest to fundamental value, aiding price discovery and capital formation.

Efficiency and competition also promote greater depth of liquidity in the markets. As they say, liquidity begets liquidity.

The nonbank sector provides important alternatives and competition to the banking sector. The capital markets provide robust competition for those looking to borrow in both the commercial and consumer credit markets. Further, the nearly $30 trillion private funds market provides competition to the registered funds market and the public markets. This competition benefits investors, savers, borrowers, and issuers, as well as banks themselves.[10]

Since antiquity, though, finance has tended toward centralization and concentration—whether the Medici family back in the 15th century or J.P. Morgan a century ago. Thus, we must remain vigilant to areas where concentration and potential economic rents have built up or may do so in the future.

The SEC

Third, Congress understood these two main tenets: the importance of both capital markets and competition. They also understood the need for common-sense rules of the road that would lower risk and build trust.

When President Franklin Roosevelt and Congress enacted the securities laws in the 1930s, they had lived through the 1920s when hucksters, fraudsters, scam artists, and Ponzi-like schemers took advantage of investors. They learned what happens when unregulated markets were left on their own. Further, they understood the importance of competition to the functioning of capital markets.

One of the ways I think about this is through analogies to common-sense rules of the road for driving or a football game.

Over the years, I’ve slept better knowing that when one of my three daughters borrows the car keys, that there are common-sense rules of the road to protect them. There are stop signs, traffic lights, and speed limits. There are prohibitions against drunk driving. I sleep better knowing there are also cops on the streets to enforce these rules and keep my daughters safe.

Common-sense rules of the road for driving help protect against risk but also promote economic activity.

Now, imagine what it would be like if the National Football League didn’t have any rules of the road. Imagine if it didn’t have referees. There would be mayhem on the field and injuries to players.

Common-sense rules for football not only protect the players, but also build confidence in the integrity of the game for fans. Thus, rules and refs help promote the business of the game.

This is just as true for the world of finance. Common-sense rules lower risk and build trust among the participants in the markets.

Congress has understood that technology and business models are forever changing. That’s why over the last 90 years, Congress and multiple Presidents repeatedly enhanced regulation of the markets.[11] That’s also why the SEC was set up with authority to update our rules for everchanging capital markets.

We at the SEC have a duty to investors and issuers alike to regularly update our rules to drive greater efficiency and resiliency in the markets—to continue to look for ways to lower cost and lower risk. As I’m sure the athletes who competed in Paris would agree, even a gold medalist must keep training.

Updating the Rules of the Road

That’s why these last four years we’ve been working to drive greater efficiency, which lowers cost. That’s why we’ve worked to drive greater resiliency, which lowers risk. That’s why we’ve worked to drive greater integrity, which builds trust.

We’ve done so in multiple areas, including market structure, disclosure, resiliency, corporate governance, and accounting and auditing.

I’m going say a few words about our market structure work in two of the most consequential markets, the Treasury and equity markets. We’ve focused on the $28 trillion Treasury markets[12] because not only they are the base of our capital markets, but there have been repeated jitters over the years.[13] We’ve focused on the $60 trillion equity markets because they are the largest of our markets, more than half of U.S. households are invested in stocks directly or indirectly,[14] and there hadn’t been an update in nearly 20 years.

Treasury Markets

The Treasury markets are integral to how the Federal Reserve conducts monetary policy. They are how we, as a government and taxpayers, raise money. We are the issuer.

These markets have three relevant characteristics: deep participation of both bank and nonbank intermediaries, use of leverage, and repeated jitters.

We’ve seen those jitters in the 1980s, the 2008 crisis, the 2020 dash-for-cash, and the regional bank crisis in March 2023.

Given the importance, leverage, interconnectedness, and repeated jitters of the Treasury markets, we embarked on key reforms with Secretary Janet Yellen’s guidance and working with the Federal Reserve, Federal Reserve Bank of New York, and Commodity Futures Trading Commission.

We’ve broadened the scope of transactions required for central clearing.[15] Further, by March 2025, Treasury clearinghouses must separate proprietary margin from customer margin and further facilitate access to central clearing.[16] These reforms help promote anonymized all-to-all trading, improving competition and resiliency.

As part of implementing these reforms, last month the Commission and staff took important actions regarding various proposals of the Fixed Income Clearing Corporation in furtherance of the goal to bring more competition and resiliency to the U.S. Treasury markets.[17]

Equity Markets

Though the U.S. equity markets are the deepest, most liquid in the world, we can’t take that leadership for granted. Comprehensive rules of the road for the national market system hadn’t been updated in nearly two decades. That’s why I’m proud that this fall we unanimously voted to update national market system rules.[18]Your clients as well as everyday investors will benefit from more efficient equity markets where stocks can be quoted in narrower increments down to a half of a penny. They also will benefit from a separate rule we adopted unanimously to update information regarding brokers’ execution quality.[19]

Further, everyday investors now benefit from the shortening of the settlement cycle to one day.[20]This ensures that investors who sell their stock on a Monday get their cash on a Tuesday. You don’t have to wait until Wednesday.[21]

Markets though are forever evolving. Just this past month, the Commission approved an application for expanding trading hours to facilitate overnight trading on a national securities exchange.[22] Such a development is just another reminder of the importance of our capital markets. It’s a reminder of how competition fosters innovation in our capital markets. It’s also a reminder, though, of how important it is to have common-sense rules of the road to promote markets. That’s why I was glad that overnight trading on the exchange would only start after expanding transparency and providing additional investor protections.

Conclusion

My remarks today might seem to be an ode to the capital markets, competition, and the SEC. Well, that’s because it is.

I think every American benefits from our unique combination of regulation, robust competition, and large, deep capital markets. As I’ve said, though, the benefits of our capital markets are highly dependent on robust competition and regulation.

We need competition to lower costs, lower risks, promote innovation, and enhance access for issuers and investors.

We need well-regulated securities markets to promote trust. It’s what brings investors and issuers to the market like fans to a football game. It’s what underpins the world’s largest capital markets. It’s what has contributed to our nation’s great economic success these last 90 years.

That’s why I have felt so privileged to lead this mission-driven agency these four years and do my part on behalf of the American public.