On July 26, the United States Securities and Exchange Commission (SEC) committee voted to approve comprehensive changes to the rules that govern brokers’ use of “optimization functions”.
In an internal meeting broadcasted on the SEC’s website, Chairman Gary Gensler, while arguing for the changes aimed at forbidding brokers from utilizing data analytics tools to their benefit, expressed his views on topics ranging from his dislike of the color green to his thoughts on romantic comedies.
According to a fact sheet released on July 26, as noted on the SEC website, the term “covered technology” encompasses a firm’s utilization of analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes.
As per the fact sheet, the use of covered technologies could potentially result in a conflict of interest in any investor interaction or communication. This includes but is not limited to, exercising discretion relating to an investor’s account, providing information to an investor, or seeking investors.
While discussing, Commissioner Mark Uyeda highlighted the fact that several laws already deal with the numerous potential conflicts of interest that can occur between brokers and the investors they represent. Therefore, Uyeda ultimately decided not to endorse the proposed changes to the rules.
While recognizing the presence of current regulations, Gensler acknowledged the need for an update due to the evolving technological environment. To justify the necessity of change, Gensler shared a personal anecdote from his childhood. He recounted how his mother used to dress his identical twin brother in red and him in green, resulting in the phrase “Rob Red, Gary Green.” Gensler humorously remarked that he might not respond as favorably to green prompts due to this childhood experience. He also expressed his love for his mother but mentioned that he might have had excessive exposure to the color green.
Gensler openly admitted his love of romantic comedies and discussed his personal dislike of the color green during the panel discussion, referring to himself as a “rom-com guy.” Gensler seemed to be equating the practice of brokers utilizing data to directly target and entice potential investors with his own personal preferences, which may be discovered through predictive data analytics.
The plan was approved on a party-line vote of 3-2, with Commissioner Hester Peirce and fellow Republican Uyeda voting against it. The rule revisions would currently cover only bitcoin and digital asset transactions conducted through broker-dealers registered with the SEC.
As per the SEC, none of the crypto asset entities are currently registered with the SEC as a national securities exchange. Notably, none of the existing national securities exchanges trade crypto asset securities either, for instance, the New York Stock Exchange or the Nasdaq Stock Market. The next step would be to publish the revisions in the Federal Register. Citizens will have a time frame of 60 days from the document’s publication to submit their comments before the committee holds a final vote.
