The dominant feeling among those tracking the Gary Gensler-era of the Securities and Exchange Commission is one of confusion. It’s been difficult to keep track of all the regulatory proposals pouring out of the commission since 2021, and there are months when it seems like the hyper-energized chairman is opining at yet another conference about another area of the capital markets he feels the SEC is not covering enough.

Regulatory experts (and journalists covering the beat, frankly) have had enough work to do keeping track of individual proposals, which can be the better part of 700 pages long—what they say, who they affect, what the commission meant exactly by x provision or why y was included in z footnote. But with time, market participants have been able to take a bit of a longer view, stepping back to look at how some of the SEC’s issuances overlap, interrelate, and what they say about the commission’s worries.

Not that Gensler has been cagey about his concerns. And he has been especially forthright about his focus on fixed-income markets, especially those bits of it that are very liquid and important.

Automation is slowly and unevenly transforming the $55 trillion US bond markets. While email and voice still predominate as execution methods, more parts of trader workflows are being automated, cloud is transforming pricing data, and better analytics are becoming available. With better pre- and post-trade transparency possible, investment firms are seeing a rise in fixed-income ETFs, which is changing the ownership of the market.

The SEC’s raison d’être, of course, is retail investor protection, so naturally Gensler is concerning himself with this trend.

“A greater share of bond ownership has shifted to registered investment companies like mutual funds, money market funds, ETFs, and closed-end funds,” the chairman said during a speech in April. “This shift raises challenges for financial resiliency.”

The actual regs

The SEC’s focus on fixed income has emerged in a variety of different proposals and communications. In that same speech, for instance, Gensler asked why reporting to Trace isn’t faster. Broker-dealers must report Trace-eligible securities to the tape as soon as they can, but no later than within 15 minutes of execution. This is 2022: Why, the chair pondered, could that outer bound on reporting not be shortened to one minute?

By the summer, Trace operator Finra had put out a proposal—which included some data-driven analysis—to reduce reporting time to one minute. The comment period closed in October, and the industry feedback is overwhelmingly against reducing the timeframe for reporting, with firms large and small saying it would be technologically and logistically impossible to meet that deadline. Smaller brokers, especially, said the financial burden of improving their systems to the point where they could manage this speed for all their transactions was impossible to bear.

The figures included in Finra’s proposal found that reporting firms are doing a pretty good job and reporting quickly anyway, which means, say some, that perhaps this is an area Gensler should leave well alone. Finra found that 82% of securities subject to the 15-minute outer limit reporting timeframe were reported within one minute of execution anyway. Interestingly, the slower reporters to Trace appear to be large brokers, as they are more likely to report through Finra’s web interface, rather than a computer connection.

As well as faster reporting to Trace, the commission’s Treasuries “package” also includes the registration of non-bank market-makers in Treasuries, new rules for money market funds, broadening central clearing in cash and repos markets for these instruments, and a proposal of key reforms to better facilitate customer clearing in this arena. One of Gensler’s key words around these releases has been transparency—pre- and post-trade—and it goes without saying that not all his efforts in this direction have been welcomed.

One of the more controversial has been the commission’s decision to extend Rule 15c2-11 to over-the-counter (OTC) bonds. This rule requires that broker-dealers in OTC markets report information about issuers before publicly quoting their securities. Rule 15c2-11 technically could apply to bonds, but the commission only interpreted it as pertaining to OTC equities and derivatives—that is, until about a year ago, when Gensler’s commission said it would be widening the application to fixed income.

But it is almost certainly a monster proposal from January that has riled up the widest swath of players in capital markets technology. The proposed amendments to Regulation Alternative Trading System (Reg ATS) would impose heavier compliance and disclosure obligations on platforms that trade Treasuries. More to the point, it would also expand the definition of what it means to be a platform that trades Treasuries: most alarmingly to businesses that provide all manner of solutions around fixed-income trading, the proposal contemplates sweeping them into the definition of an exchange.

Virtually any third party supporting a transaction in a security, even tangentially, could have to register with the SEC as a trading venue if this proposal is finalized in its current form.

After all, Gensler said during a speech in late October, “Why should other firms have to register [as ATSs] while some firms currently don’t?”

The commission initially gave the industry 30 days to respond to the proposal, which was over 600 pages long and came with 220 questions for respondents. Amid the ensuing uproar, the commission extended the Reg ATS comment deadline, along with those of two other proposals, a further 30 days.

With all that Gensler has accomplished in his tenure, you can imagine that there are those among the fixed-income vendor community who were hoping that if the Republicans swept the House and Senate in the US midterm elections, as they were expected to, Gensler would face more pushback from Congress. At time of writing, that anticipated “red wave” did not materialize.

But even if it had, I’m not sure that more Republican pushback would have put a crimp in Gensler’s enthusiasm for rolling out his ambitious agenda. The chairman has proven resilient in the face of headwinds that have been blowing strong against him since late 2021.

Gensler has attracted opprobrium from industry players, senators and House representatives (across the aisle, to be fair) for pushing out regulation too fast, not pushing out regulation fast enough, failing to regulate, regulating too hard, and, most recently, being a hypocrite.

The deadlines on the proposals mentioned above all come to fruition in 2023 (though, of course, the commission could always re-propose those that prove especially contentious). With politics unlikely to break Gensler’s kinetic focus, I think next year is going to be a pivotal one for US Treasuries, and for fixed-income markets, more generally.