Gensler Is Getting SEC Staff Back to The Office -- But Not That Often

Also, 'SEC Speaks' canceled; bank regulators warn about liquidity risks from crypto companies; Gensler answers retail investors' questions

Feb 23, 2023

Many Wall Street workers have been back in the office for at least a year. Now, the industry’s main regulator is (finally) following suit. The SEC’s rank and file workers are due back on March 27. But don’t expect a full house at the Washington headquarters, or any of the agency’s 11 regional offices either. Under a new collective bargaining agreement imposed by a federal labor panel this week, the staff only has to be in two days per pay period. They can telework the other eight.

The mandatory in-office time was a win for SEC Chair Gary Gensler in drawn-out and bitter negotiations with the National Treasury Employees Union chapter that represents the agency’s workers. It had been pushing for what was essentially full-time remote work. Gensler instituted the two-day requirement for managers in January, but had been reluctant to pull the rest of the staff back in before the Federal Service Impasses Panel issued its non-appealable ruling on the bargaining agreement. (There are a couple of procedural steps before the deal is in place, but it is not expected to change.)

SEC union boss Greg Gilman told his troops in a note yesterday that the agreement’s “provisions will substantially improve our existing, pre-pandemic contract at the SEC.” Still, he took a few whacks at Gensler for not working constructively with the labor group and dragging out the talks. “Gensler’s inflexibility set the tone for what ultimately proved to be an extremely contentious and difficult process,” Gilman wrote.

The impasses panel did side with workers on some issues. It said that employees who currently are remote full time or only go to the office once a pay period can keep those schedules. And those who telework more than 200 miles away from their location will still be able to do so, as long as they can be in person when it’s required. A $375 annual stipend that was put in place during Covid to defray work-at-home costs will continue.

Workers also got their way on the issue of “community days,” where bosses can bring in the entire team at once. Gensler wanted them once every two weeks, but the panel agreed with the union’s suggestion that they be done quarterly. (Gilman was strongly opposed to the plan, referring to it as “community spread days.”)

Other details of the collective bargaining agreement, laid out in the union note, show some of the top-notch perks that the SEC workers receive. Here are a few of the new and improved benefits:

Student loans: the deal doubles, from $60,000 to $120,000, the lifetime cap the agency offers for federal student loan reimbursement. Under the SEC program workers can be repaid $10,000 a year; it includes some loans that parents can take out on behalf of their children’s education.
Credit hours: When staff members work additional time, they earn credit hours that can be used in lieu of vacation. The agreement increases the number of hours that can be carried over from 24 to 48. In addition, employees can earn up to 40 credit hours a pay period, up from 24.
New “wellness” accounts: Workers can be reimbursed up to $1,000 annually for gym memberships, yoga classes or the purchase of exercise equipment (including running shoes).
Annual leave: Employees will be able to carry over 400 hours of annual leave from one year to the next; it is currently 360. In addition, the time period for accruing leave speeds up. New hires will accrue six hours, rather than four, per pay period for their first three years. At their tenth anniversary of federal service, workers will get eight hours. That now kicks in at 15 years of service.
Professional dues: Reimbursement for dues (such as bar association fees) increases to $700, from $400 a year.
Journals: A new program allows employees to receive up to $1,000 per year for expenses related to submitting articles to peer-reviewed publications, if they are “encouraged, expected, or required to publish original research in such journals which is related to the mission of the SEC.”
New furniture: Employees have the option of getting a sit-stand desk “whenever a major office relocation occurs.”

Stepping back: The impasses panel held two days of mediation hearings over the telework issue and its opinion lays out some new – and notable – information on how the SEC handled the Covid crisis. Several agency managers, including from the enforcement and examinations divisions, testified that their operations suffered under full telework. Having nobody in the office “negatively affected the SEC’s culture, productivity, and fulfillment of the SEC’s mission,” the panel’s decision noted. “While the agency successfully maintained its operations during the emergency, it has determined that many tasks, which could be done virtually, are in fact more effectively performed in-person.”

One enforcement supervisor recounted that taking witness statements was especially problematic because it was tough to make “credibility determinations.” The manager also was worried that remote depositions “would jeopardize confidential materials and allow opposing counsel to engage in undetected witness coaching,” the decision noted. The exams supervisor said his workers were less productive during telework and added that the quality of the reviews also went down, largely because firms being examined had time to craft responses to the SEC inquiries.

Gilman, in his note to union members, took great umbrage at the managers’ contentions, writing that their remarks were “disappointingly different from the messages we have all been receiving from senior management throughout the pandemic.”

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SEC Speaks Gagged: In a “news” item that few (except many of our readers) will care about, the regulator has pulled out of the premier annual securities law conference known as SEC Speaks. The event, held at the Ronald Reagan Building in downtown Washington, attracts attorneys and SEC alumni from across the country. Often as many as 100 of the agency’s staff participate in the event, which also features individual speeches from the commissioners.

This year’s conference was already scheduled for sometime in April, an SEC official told us. But some, including Commissioners Caroline Crenshaw and Hester Peirce, had already balked at going. Gensler also had concerns. One big issue was that the Practicing Law Institute, the non-profit organization that runs SEC Speaks, charges attendees more than $1,000 – a hefty price tag that some worried could be seen as paying for access to agency officials. Preparing for the two-day meeting also took up a lot of staff time.

An SEC spokesperson declined to comment. In a statement, PLI said it “and the SEC have agreed that SEC Speaks will not be held in 2023. We are disappointed that the program did not come together this year.” The group added that it will “continue to feature SEC staff as faculty on other PLI programs.”

Crypto Liquidity Warning: Banking regulators are out with their latest crypto warning that seems to respond to some of the issues raised by the big push that Silvergate Capital and a few other lenders made to get into the digital assets business. The statement, issued today by the Fed, FDIC and OCC, also serves as yet another reminder that the agencies aren’t too keen on virtual currencies.

The announcement warned banks about the liquidity risks posed by crypto firms and reminded them to exert rigorous risk management when taking on such clients. The regulators also noted that token markets can be extremely volatile, making the companies’ deposits susceptible to rapid withdrawals. The agencies further pointed out that accepting money from stablecoin issuers poses similar business risks.

The Fed, FDIC and OCC made clear that the statement doesn’t create new compliance obligations. Still, the regulators have been in a bit of a frenzy, issuing a number of cautionary advisories in the wake of the FTX implosion. The defunct trading platform had accounts with Silvergate, which has been hit hard by its collapse. The La Jolla, California-based bank lost $1 billion in last year’s fourth quarter and has laid off 40 percent of its staff.

Gensler Talks to Little Guys, Part II: After our deadline yesterday, Gensler took questions from retail traders on Twitter for an event hosted by We The Investors. It was the second time since the agency released its plan to revamp trading rules late last year that the SEC chair has participated in one of the advocacy group’s forums.

There wasn’t much news, though Gensler conceded that the agency has received the most pushback over the plan’s requirement that retail stock orders be routed to auctions. And he again got questions about why the SEC hasn’t banned payment for order flow. (It’s very clear at this point that a segment of retail traders will never be happy with the agency unless it gets rid of PFOF).

Here’s part of Gensler’s response when he was asked about the auctions:

“[W]e are hearing a bunch from some of the biggest market participants that they don’t really see the path for these auctions, so I want to address this not just to your listeners but to the off-exchange market makers that might be saying, `we don’t want these auctions.’ We’ve proposed them. We need your feedback. We need your input. But the reason we did this was to instill greater competition. When over 90 percent of your marketable orders are going off exchange to a small handful of wholesalers that are not necessarily competing order by order, wouldn't it be good to get greater competition?”

Gensler also came under criticism for a somewhat infamous educational video that the SEC put out last year. In it, two actors portray retail investors and appear on a game show called “Investomania.” The trader who invests in meme stocks loses his money and ends up with a pie in his face. The other, who does “research” before investing, is praised by the host. (The video has been widely derided on Reddit and Twitter.)

Alex Cohen of We The Investors told Gensler that the video made small investors look stupid and implied that no one would buy a meme stock if they actually studied the market. Cohen then asked Gensler whether he believed the video portrayed retail traders accurately, especially after spending so much time interacting with them in recent months via Cohen’s group. Gensler sidestepped the question:

“I think we’ve benefitted from the engagement. I know I have…In terms of the investor education video, what our office of investor education does is it tries to put things out and encourage a public discussion, a dialogue. I would say the video that you’re referencing certainly has done that.”

One more thing: More than half of the roughly hour-long event was spent on topics that have nothing to do with the SEC’s recent rule proposals, prompting frustration among some in the finance industry about how the chair is spending his time. (Though, note that more than a few of the professionals tuned in.) One top complaint: Gensler seems to be appeasing the wild conspiracy theory crowd instead of publicly meeting with the actual companies that would be massively impacted by the biggest regulatory overhaul of the stock market in almost two decades.

Case in point, yesterday’s first question came from a woman who goes by Platinum Sparkles. She asked Gensler why “fails to deliver” are allowed to exist. (These are situations when shares aren’t provided to a buyer on the settlement date. They are known to happen with so-called naked short sales, where an investor bets against a company without first borrowing stock. Many in the Reddit army are convinced that naked short selling is one way that Wall Street rigs the game against small investors.) The SEC chief said that he understood her concerns, but some wondered why he didn’t take the opportunity to point out that these are a rarity in the generally well functioning U.S. equity markets.