Blog /Carta Policy Weekly 12 09 22
Carta Policy: Warnock wins, Sinema defects, and House still organizing

Carta Policy: Warnock wins, Sinema defects, and House still organizing

Author: The Carta Policy Team
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Read time:  7 minutes
Published date:  December 10, 2022
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Updated date:  September 5, 2023
Government funding fluid as lame duck circles final spending package.
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The Topline

  • Clock runs down on the 117th as Congress prepares for the 118th

  • SEC to consider sweeping equity market structure reforms; finalize 10b5-1 insider trading rules

  • FTX to testify and Gensler maintains he has crypto jurisdiction

  • Senate Banking Chair Brown previews 118th priorities


State of play: Clock runs down on the 117thas Congress prepares for the 118th


Negotiations continue on lame duck to-do list 

Government funding expires December 16, and Congress has made little progress extending it. Lawmakers are likely to pass a continuing resolution (CR) to extend funding for a week to provide more time to negotiate either a longer-term funding omnibus funding package or another CR that extends funding into 2023, after Republicans take control of the House.

A broader omnibus funding package provides more opportunities for additional policy initiatives to be included, and the bipartisan SECURE 2.0 retirement package remains a top candidate. The bill may include a provision, which Carta supports, to make the IRA prohibited transaction penalty rules clearer and less punitive on investing through retirement accounts. In addition, there is a chance—albeit small—that cannabis banking legislation is attached to an omnibus package after it failed to make it into the other must-pass bill, the National Defense Authorization Act. 

The new Congress: Warnock wins, Sinema defects, & House Republicans still organizing

Sen. Raphael Warnock’s victory in Georgia delivered Democrats a 51-49 working majority in the next Senate, providing Democrats subpoena power and a majority of seats on each Senate committee. But the Democrat’s 51-seat majority is not as clean as originally anticipated: Sen. Kyrsten Sinema—a champion of our industry— announced she is leaving the Democratic party to become an independent. This move is not anticipated to change Senate structure, but it provides more leverage to moderate senators like Joe Manchin.

In the House, Republicans settled uncontested committee leadership posts this week, including Rep. Patrick McHenry’s transition to the top of the Financial Services Committee. Contested committee leadership chairs, including the tax-focused House Ways & Means Committee, will not be decided until after a Speaker is formally elected in January. This delay is primarily to help prospective Speaker McCarthy avoid alienating any Republicans in advance of securing the necessary votes for Speaker, which remains tight. Democrats have also begun selecting their fleet of ranking members and making committee assignments for next session, a process that is expected to wrap up next week.

Why it matters:Organizing a Congress is hard, especially with razor-thin margins and uncertainty around the speakership. It is possible that the new Congress will still be contending with old business (government funding) and getting a late start (due to delayed committee elections). This delay and divided government and a closely divided Congress will make legislating harder and require more concerted bipartisan coalition-building around our capital formation, investor access, and innovation agenda priorities.

SEC to consider sweeping equity market structure reforms; finalize 10b5-1 insider trading rules

The SEC will hold an open meeting next week to consider bold reforms to equity market structure—one of SEC Chair Gary Gensler’s top priorities. These reforms, aimed at promoting competition and increasing transparency for retail investors, are the first substantive policy changes proposed by the Commission in response to the“meme stock” trading volatility from 2021. The most sweeping (and controversial) reform would implement an auction process for retail market orders: Brokerages would route individual buy or sell orders to an auction instead of to a wholesale market maker, where many brokers currently route orders for a fee (known as payment for order flow). Gensler asserts this order-by-order auction concept could help price improvement for retail customers and reduce conflicts of interest. The Commission is also expected to propose a number of other potential equity market reforms, including:

  • lowering the maximum fees exchanges can charge for access to protected quotes

  • improving disclosures around order execution quality

  • harmonizing the tick size regardless of whether a quote or trade takes place on- or off-exchange. 

Policymakers have pushed back against the proposals, joining industry stakeholders who argue the market is functioning well and retail investors benefit from fast execution, tight spreads, and zero-commission trading. Market participants have already signaled they will pursue legal challenges to the more significant and controversial changes, meaning wholesale equity market changes are likely to be unsettled for some time.

The SEC is also expected to adopt amendments to Rule 10b5-1 designed to strengthen insider trading protections by requiring enhanced disclosures around an issuer’s insider trading policies and implementing a 120-day cooling-off period before trading could be executed pursuant to a new or modified 10b5-1 plan. The SEC (and DOJ) have recently focused more attention on investigating and pursuing enforcement action around potential insider trading violations. We expect more activity in this space. 

Other SEC news

  • The SEC reopened the comment period for its stock buyback disclosure proposal to allow for consideration of the potential economic effects of the 1% excise tax on share repurchases imposed pursuant to the Inflation Reduction Act.

FTX to testify and Gensler maintains he has crypto jurisdiction

Next week, the House Financial Services and Senate Banking Committees are each planning FTX-focused hearings. Both former CEO and FTX founder Sam Bankman-Fried (SBF) and current FTX CEO John Ray are expected to testify. 

While Congress is trying to decide how to best oversee the crypto industry, SEC Chair Gensler has indicated his agency does not need any legislative authority to effectively police the markets. Republicans have criticized the SEC for failing to provide regulatory clarity and Gensler is facing criticism from the left for failing to act to prevent malfeasance that led to the collapse of FTX and other industry players. Gensler has consistently opined that most digital assets are securities and raised concerns about the commingling of services, though the SEC has not taken action against any major crypto platform. Given the pressure Gensler is facing, this is likely to change. The SEC also advised public companies to consider whether potential impacts or risks stemming from recent crypto market events and conditions should be disclosed to investors, suggesting this is also an area SEC staff will be closely monitoring. 

Other crypto news:

  • Banking exposure: Sen. Warren sent a letter to banking regulators asking about banking systems exposure to crypto. And senators ask Silvergate Capital Corp (Silvergate Bank) about its relationship with FTX and SBF-backed entities.

  • Celebrity crypto promoters in the crosshairs: The Federal Trade Commission (FTC) is investigating claims that advertisements, potentially including those featuring celebrity promoters, made by several crypto firms were deceptive or misleading. 

Senate Banking Chair Brown previews 118th priorities

Sen. Sherrod Brown, Chair of the Senate Banking Committee, announced his priorities for the 118th Congress: affordable housing, consumer and worker protection, and climate risk, in addition to the Committee’s recent focus on crypto. Brown’s agenda starkly contrasts his soon-to-be House counterpart, where a primary focus is promoting capital formation. Sen. Brown typically approaches issues through the lens of worker and consumer protection, and he is often critical of the private equity industry and the private markets more broadly and has urged Chair Gensler to increase transparency in these markets. Brown’s skepticism of private markets will make it harder for any capital formation proposals to advance next Congress, even those that enjoy bipartisan support.

Fintechs will also face scrutiny under Chairman Brown. Revisiting legislation he first proposed in 2007 that would expand oversight of “shadow banks,” Brown reintroduced the Close the Shadow Banking Loophole Act. The bill would subject companies that own industrial loan companies (ILC), state-regulated banking institutions, to Federal Reserve supervision. Other bank holding companies are already subject to Fed oversight, and Sen. Brown has advocated for bringing ILCs under the Fed’s regulatory regime for over a decade. ILCs are supervised by the FDIC, and in September a bipartisan group of senators cited their benefit to consumers in underserved markets and asked acting FDIC Chair Marty Gruenberg to support ILC charters and approve the granting of ILC charters when necessary requirements are met—an action that has not always been taken. This legislation will not become law, but it does serve as another Democratic shot across the bow of fintechs. The Banking Committee is notorious for its lack of markups, but related legislation proposed by Rep. Chuy Garcia was advanced out of the House Financial Services Committee over the summer despite unified Republican opposition.

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The Carta Policy Team
Author: The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.