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:

10 December 2022

Government funding fluid as lame duck circles final spending package.

The Topline

State of play: Clock runs down on the 117th as 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 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.

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 will not be decided until after a Speaker is formally elected in January.

Why it matters: Organizing a Congress is hard, especially with razor-thin margins and uncertainty around the speakership.

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:

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.

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.

Other SEC news

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.

Other crypto news:

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.

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.

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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.