[Editor's note: This article has been updated with specifc comments and questions from House members regarding open-end fund liquidity risk management, swing pricing and a hard close.]
Gary Gensler testified before the House Financial Services Committee on Tuesday, with Democrat members defending the SEC Chairman from Republican criticism over his handling of cryptocurrency regulation, requiring companies to disclose their climate risk exposure and swing pricing.
“The SEC is the cop on the beat watching out for your constituents,” Gensler said in prepared remarks. “In the last two years, we’ve filed nearly 1,500 enforcement actions and conducted more than 6,000 examinations of registrants. We engage with more than 40,000 registrants—asset managers, brokers, dealers, exchanges, fund complexes, public companies, and many more.”
Adding that the commission benefits from public input, he noted that the length of comment periods average more than 70 days from when the proposal is posted on the SEC website.
Republicans raised open-end fund liquidity risk management and swing pricing—as well as requirements of a 4:00 eastern “hard close”—in their questioning.
"What would you say to investors who worry that a hard 4pm close would lead to a bifurcated market?" Rep. Steven Horsford (D-NV), asked. "Do you see ways to mitigate this disadvantage for West Coast investors while still implementing swing pricing proposal?"
"We have a system right now that open end funds and money market funds work really well during normal times," Gensler responded. "But in times of stress, we have had to rely on the Fed to support them from time to time. We are trying to find a way that those funds are less reliant on extraordinary measures by our central bank. It is infrastructure behind the scenes."
Rep. Dan Meuser (R-PA) argued swing pricing and a hard close would raise 401(k), 403(b) and 457 costs. He asked Gensler if he had consulted the DOL on the matter.
"I know we have discussed other rules but I would have to get back to you," Gensler said.
Rep. Young Kim (R-CA) echoed Horsford’s concerns about the hard close rule.
"Do you believe that creating second class citizens of investors is fair for my constituents?" she asked.
"It is actually trying to help them and level the playing field to protect them," Gensler answered. "It is the biggest institutions that are at times anticipating that the Fed will come to their aid. That is what we are trying to address."
Laslty, Rep. Zach Nunn (R-IA) noted that mandating a hard close is not a new idea, and asked Gensler if it's true that no funds have utilized swing pricing since the SEC’s authorization in 2016.
Gensler noted It has had limited use at most.
"If no funds have found it worthy, why would the SEC mandate it?" Nunn asked
"It is to address the systemic risk issues," Gensler argued.
