Gary Gensler, a Wall Street guy who turned Wall Street fighter, ended his tenure as Chairman of the Commodity Futures Trading Commission (CFTC) on Friday.
Gary Gensler took center stage in the efforts to reform the country’s systems in the wake of the financial crisis. He assumed control of a low-profile, almost obscure CFTC, and as its chair, soon spearheaded the regulatory and supervisory movement to rein in the disruptive risks that could emerge from the hitherto mostly unregulated derivatives and swap markets that traded in trillions of dollars. The landmark Dodd-Frank Act, so loathed by big Wall Street players, owes much to Gensler’s stewardship and relentless lobbying in Washington for its passage.
Gary Gensler sat both sides of the table
Ironically, Gary Gensler started his career in the financial markets on the other side of the fence. Educated at Wharton, he became a partner at Goldman Sachs at the unheard-of young age of 30. Later in his career, when employed at the US Treasury, he helped shield Wall Street from regulatory oversight on derivatives trading. But this probably came around full circle after the financial meltdown – this time Obama chose him to head the CFTC as one of his regulatory appointments.
Transparency his motto and goal
Gary Gensler will be remembered for his emphasis on removing the derivatives and swap markets from the stranglehold of the large financial institutions and banks, and their closed-club opacity. Instead he ushered in transparency and easier access.
“Just start with Adam Smith in the Wealth of Nations where he wrote about the benefits of lowering the price of information and the price of access. In essence, if you make information free, the economy benefits. Similarly, if access to the market is free, everybody gets to compete,” he said in an address to Harvard University.
Described variously as a polarizing regulator, Wall Street’s arch enemy, or its bête-noire, he once said, “No longer will a hedge fund with a P.O. Box in the Cayman Islands for its legal address be able to skirt the important reforms Congress put in place.”
How he transformed the swaps market
Under his initiatives, the huge swaps market has begun to trade on Swap Execution Facilities (SEFs) - transparent platforms that also serve as repositories for the massive trading data. Furthermore, swap transactions between financial institutions are being centrally cleared and a clearing house mechanism provides a shield from counterparty risk. Most important, swaps players are now overseen – already 88 swap dealers and two major swap players are registered.
“In 2008 the highways of finance were not properly overseen or policed,” Gary Gensler said in a recent radio interview. Well, he certainly leaves them better lit and a safer place.