Gary Gensler Eyes Rules for Robots

The SEC chair who shook up crypto is asking how algorithms might influence investors

- Ben Bain

You don’t have to look far to see how algorithms and machine learning can influence a market: Ask your kitchen smart speaker to play some Taylor Swift, and before long a computer formula will likely rack up songs by another artist her fans tend to like. What if a similar bit of black-box code could nudge you into buying a popular stock? U.S. Securities and Exchange Commission Chair Gary Gensler says that question might not be hypothetical for long. The pandemic hastened the already rapid rise of cryptocurrencies, robo-advisers, and apps that make it easier to trade and invest. In a recent speech—where he made the comparison to music streaming algos—Gensler said the changes “could be every bit as big as the internet was in the 1990s.”

It’s no exaggeration to say that the future of multibillion-dollar companies depends on how Gensler seeks to apply decades-old legal tests over what constitutes a security, investment advice, and stock recommendations.

Crypto companies got a warning last year when Gensler said that many digital tokens popular with traders are unregistered securities that must comply with SEC rules. The SEC also brushed back Coinbase Global Inc. on an interest-paying crypto product it planned to offer. (On the other hand, the SEC allowed the first Bitcoin futures exchange-traded fund in 2021.)