Rep. Maloney Questions SEC Chair Gensler on Forced Arbitration, Transparency in First Appearance Before the House Financial Services Committee

May 6, 2021
Press Release

WASHINGTON, DC – At today’s House Financial Services Committee Hearing with SEC Chair Gary Gensler, his first appearance before the Committee as Chair, Congresswoman Carolyn B. Maloney (D-NY), senior member of the committee and past chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, asked Chair Gensler for his thoughts on forced arbitration and the need for transparency in our capital markets.


In March 2018, Congresswoman Maloney led a letter to then-SEC Chairman Clayton, signed by every Democrat on the Financial Services Committee, strongly opposing a push for public companies to include forced arbitration provisions in their corporate governance documents. The Congresswoman and her colleagues argued that such actions would reverse the Commission’s longstanding position that such forced arbitration provisions violate Federal securities law and would prevent shareholders from pursing justice and holding companies accountable for securities fraud in Federal court.


The Congresswoman today asked Chair Gensler, “Do you believe it would violate Federal securities law if a public company inserted a forced arbitration provision into its bylaws and governance documents?”


Chair Gensler responded, “The SEC has said consistently to issuers, as I understand it, that it would be best not to put this into these corporate charters. And I think that the American public needs to be able to have redress to their courts. That’s a sort of a fundamental piece to be able to go straight to the courts. And that’s been true in terms of issuers for decades. And I think that’s worked well.”


The Congresswoman then discussed with Chair Gensler the importance of ensuring that capital markets work for all, and not just some, investors and therefore the need to have rules that are consistent, predictable, and enforceable, especially in light of Robinhood’s behavior regarding the GameStop frenzy and the seemingly arbitrary nature of its trading halts and the lack of transparency on the front and back ends of how and why Robinhood and other broker-dealers imposed those restrictions.


She asked Chair Gensler, “Not speaking specifically to Robinhood’s situation, but broadly speaking, do you believe broker-dealers should improve their transparency with their customers about how and when they impose trading halts? And what role do you believe the SEC should play in improving these disclosures and ensuring trading halts are integrated into firms’ risk management plans?


Chair Gensler replied, “I think that probably what we can all agree on, access to markets, whether you’re an individual investor trading one share or big institution, access to markets as they’re moving up and down is a really critical piece of our capital markets. And what happened on January 27 and 28 was not good for millions of investors. So, the transparency you mentioned is important – between broker-dealers and their customers – and we’ve asked, and I think [FINRA President and CEO] Robert Cook has said already that maybe they’re looking at this too, is what’s that transparency between [them]? And under what circumstances? And secondly, do they have, each of the broker-dealers, have enough liquidity to meet their requirements with the clearing house?”


You can watch the full exchange between Congresswoman Maloney and Chair Gensler here.