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All right, everybody. Welcome to the All-In Interview program. Today, we are delighted to have two of the most
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important individuals shaping capital markets over the next couple of years. SEC Chair Paul Atkins is with us as well
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as CFTC Chair Michael Celig. Welcome to the All-In Interview Show, gentlemen. >> Glad to be here.
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>> Thank you very much. Great to be here. Yeah. Also with me my bestie Shamath
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Polyhapatia who is known to participate in capital markets. I think there's a
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great structure here for us to talk many opportunities and then guard rails and things that we
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should be concerned about in such a dynamic time. Chairman Atkins, this is your third tour of duty since the '9s.
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Things have changed dramatically. So maybe just to start us off here and I know Chimat's got a lot of great
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questions ready to go. I'm just curious in your time, let's say, the last 40
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years or so, what has uh what have you noted here about capital markets and how they've changed and what's important for
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us looking forward? >> Well, thanks. It's great to be here and see both of you all uh today. Well, so I
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started out as a young lawyer uh in New York City doing uh corporation finance work, you know, new offerings and that
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sort of thing in the mid80s and uh and it's and there you know to to be a startup company and to to build your
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products and do R&D and all that uh you had to go public uh in order to so Apple
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and Microsoft advanced micro devices all of those companies started off as um as
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uh you know IP POS uh and so Andre and Horowitz has a really I think a really good uh bar chart where they compare the
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companies of the uh early and mid to late 80s to uh today where I mean it just basically demonstrates through the
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ROI that uh insiders versus the buyers of uh the public stock uh you know enjoyed from those early companies. The
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insiders meaning, you know, there's not much private equity or venture capital
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back then, but the insiders meaning the officers, directors, and whatnot, they had a relatively thin slice of the
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entire pie. I mean, everyone made out well obviously, but the public uh purchasers of in the IPO, you know, made
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out very well over the years and and had the lion share of that. You look at today the current uh situation where you
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know we have robust private capital markets and uh we have fully today half the number of public companies as we had
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30 years ago and it's completely reversed. The return on investment is um you know mainly to the insiders, private
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equity, venture capital and the corporate officers and employees versus the the public because they're they're
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mature companies when they actually go public. So that's a huge change. the private markets are, you know, very
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robust and and strong, but uh but uh anyway, but the American capital markets are are very healthy. I think
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>> when you look at that back then, there was a real requirement for everybody to
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do an enormous amount of work because to your point, these companies were quite young. You'd be a four or 5year-old
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company and you'd go public because the going public was not about monetizing
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anything. It was actually a fundraising moment. it was like a series C or or a series D. I guess the answer is the
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reason it changed was probably because to your point there's all these returns
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and so investors said well let's go capture these in the private markets for
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us and our LPs but what it also does is then change the nature of how these markets behave. Can you just comment on
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the amount of time companies are staying private, the dir of the IPO because it has become a liquidity
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defining moment and is much more so than the financing moment and whether things
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should change and if so how do you want to change that and why? Yeah. Well, it's
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a free market obviously, so you know, investors, we should allow the market to develop as it will, but uh you're
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exactly right. So now it's more of a liquidity event um for insiders and um and so what we are seeing now is uh in
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the private markets, you know, there's a lot of capital that's uh where people
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are willing to deploy it uh to companies at early stages and then to to stay on.
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But at the same time there is there are inhibitions for uh for private companies
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to go public and one of them is the the um the uh cost of our rules to comply with our rules and the disclosure ones
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especially where we have all the annual report requirements proxy statements and
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all of that and so uh and then quarterly reporting and and so forth. So that is one big inhibition where things are not
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necessarily focused on materiality anymore. >> Are you allowed to convene a group of
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people and start to line item these rules out or change them or does it have to go through some much more robust
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process where there's a lot of competing reasons why some people some lobbies
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maybe may want these rules? >> Oh, sure. I mean, they're vested interests in everything, but that is
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part of my program uh for this year and going into next is to go through our rule rule book. We need a spring
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cleaning. We need cleaning out the attic, the basement, and the garage and to really look at things unlike the
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agency has ever done before with a real focus on materiality. So, that's one.
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The second to make IPOs great again is to focus on litigation and uh and so that is another thing that is a key uh
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inhibition I think for people to go from the private markets to public the threats of uh class action lawsuits and
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vexacious uh litigation with every dip in the um in the stocks. You have uh issues like mandatory arbitration, fee
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shifting, you know, loser pays, that sort of thing. Both of which Delaware has recently um outlawed for public
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companies. But there are other states out there. And then the third is the weaponization of corporate governance
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around shareholder proposals, that sort of thing. So it becomes a pain to deal with the annual general shareholder
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meeting and that sort of thing. So those three are maybe not the only inhibitions, but there are three key
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ones that I've heard over and over and over again over the last 30ome years from venture capitalists, private equity
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folks, investment bankers, lawyers, and etc. So, >> Mike, what are your top priorities for
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2026 in the CFTC? >> Well, like Paul, I started off uh working in private practice at a law
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firm. And right around 2021, 2022, every week my clients would get a subpoena from Gary Gendler or from the CFTC uh
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and were faced with this onslaught of regulation by enforcement. They were faced with regulations that did not work
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for their business models. And these were crypto firms, prediction markets, artificial intelligence firms, as well
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as our traditional financial market participants. They were just relentlessly attacked by the the federal
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government under the prior administration. So I really came into government to help write the ship to
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help make sure that we have purpose fit rules and regulations for new innovative
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technologies and financial products. And so a big piece of my agenda has been crypto uh our crypto asset markets as as
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you all I'm sure are tracking. There's some legislation that we're really
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hopefully uh working with David Sachs to get across the finish line and the president. Um but but that's going to be
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a key piece. So the CFTC would uh have a broad amount of authority over the spot
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markets and we're getting ready to to implement those rules should the legislation get across the finish line.
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Another key piece of our agenda has also been modernizing and upgrading our rules
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and regulations for onchain software systems, blockchain networks, and other types of digital asset products
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regardless of legislation. It's really important that we have futureproof rules
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and regulations that are ready for the innovations of both today and tomorrow. And that's blockchain, but that's also
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artificial intelligence and and other uh areas of technology innovations. So there's a lot of things we need to
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change uh within our regulatory framework to make sure that we're ready to accommodate that.
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>> Let me ask both of you guys a question. So this sits at the intersection of
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tokenization, crypto and what I would call systemic risk. So if all if everything becomes
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tokenized and digitized and 24 by7, what do you think needs to happen to make sure that the systemic risks to the
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system are managed? And here's what I mean. If you go on X, I've gone down the
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automated trading rabbit hole. So, I don't know if you guys know, but there are these incredible young vibrant
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projects that are basically replacing a Citadel, replacing a Millennium, and they're building these automated
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agent-based hedge funds that are transacting across all kinds of markets all the time. And on the one hand, I'm
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completely attracted to it. I think it's totally democratic. It's the free
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market. It's like let's figure out what's going on there. And on the other
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hand, I ask myself the question, where's the kill switch or where's the circuit
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breaker, if you will. And I just want to give you both a chance to talk about how
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you see these markets converge and both the positives and the negatives of it. >> Absolutely. we need to be considering
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these risks as we're developing rules and and this to me is is the whole reason we need to have a purposefitit
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regulatory framework for these products and and autonomous agents and all of that. Uh up until now I think the
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approach has always been let's apply the old rules and regulations and and that's
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going to work out and make sure that uh nobody can actually innovate and create something new. So we are embracing these
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opportunities in the markets. we need to study them and make sure that we understand the risks. Uh but we can
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develop rules that accommodate that. So having a regime in place that says go build don't ask us for permission but we
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need to study that work with the market participants understand the risks and on
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our end we need to set up guard rails. So I do think there are unique uh risks when you have the ability for an agent
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to go out and deploy capital on on basically an autonomous basis. uh and and that's going to be something that
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our markets we've really really never seen before as regulators. But that doesn't mean we have to stand in the way
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and block it. I I think we need to really understand the risks, make sure that we have the right guard rails,
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whether that is us operating nodes on blockchains or or really having technologists that are studying the
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contracts and the code. Uh but I don't think there's any reason we can't have
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these technologies built here in America. >> I agree with that. And from uh from my
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point of view, there's so many benefits to come from distributed ledger ledger
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technology for the financial services industry where we're right at the cusp
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of achieving uh T0 basically you know immediate delivery versus payment, receipt versus payment onchain by uh you
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know digital assets and uh so that's pretty exciting. uh what we may even have to build in speed bumps uh you know
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to prevent fraud and and things like that but for many and for some instruments it might not be possible but
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your discussion there 24/7 and all that I think is is really an exciting uh prospect but there are challenges from
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uh you know the liquidity perspective uh you know having a you know the whole concept of best bid and offer what does
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that mean uh so uh you know that's one that uh we we will be wrestling with But
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ultimately, at least our approaches and and uh what uh Mike and I are striving to do in harmonizing the approach of our
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two agencies is to and hopefully we'll get a a statute out of the whole Clarity
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Act uh um uh discussions going on in the Hill right now. That's really necessary
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to future proof what we're doing so there is no backsliding in the future. But we knew to focus on you know if it's
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a security underneath and it's tokenized it still is a security and it still the
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securities laws still apply but it's up to us to make sure that uh our rules are
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fit for purpose and as the whole purpose changes and as the the delivery mechanism changes we need to accommodate
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that. Unfortunately, in the previous administration, you know, was said, "Oh,
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come in and talk to us. You know, we have a simple form for you to fill out. It's on our website." Well, haha. It's
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called an S1. And it takes lots of lawyers and accountants to try to figure figure out how to do it for an existing
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company, much less for a new digital asset, a crypto sort of asset that uh you know, where the form is completely
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opposite. There's no board of directors. there are no offices around the country
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around the world or whatever. It's uh you know just the thing needs to be adjusted uh so that it is fit for
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purpose. So that's what we're striving to do going through our rule book to
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make sure it it can accommodate the new technologies. >> So let's build on Chimath's conversation
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here and his points. One of the key uh dangers and innovations opportunities in the market is leverage and we see it
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obviously hedge funds have been doing this for a long time. We're starting to
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see it in prediction markets, Mike, and we're seeing it in crypto. What is the proper amount of leverage
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and who should set those rules? Obviously, you have Congress making laws. You're responsible for executing
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them, chairman, in order to make sure the markets are orderly uh and that you protect investors. So just walk us
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through what you think is the proper amount of leverage and your framework and and you've been at this for a while
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as we mentioned. How has that changed over time? Educate us a bit on how we got to a world in which Bitcoin
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investors might be 100x or 50x and people might be leveraging their prediction market and seems like it has
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a function but it also seems like almost every story starts and ends with leverage.
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>> Right. Well, so I think it depends on the marketplace and and on the type
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because obviously you have banks and they're all about fractional uh deposits
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and and all of that and and lending. Um so uh you know so we we've gone through
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that back in 2008 and 2009 and the financial crisis and going all the way back to 1929 and then even in the 1800s
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obviously all the repeated problems with um you know financial disruption and financial markets. So we have to be
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careful about that. There are all sorts of rules for broker dealers, for banks, for in the futures markets for margin
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and all of that to um like put a lid on some of this and to have some controls around it and and transparency, you
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know, in the futures markets the the uh the the exchanges have a lot of power, you know, over their members and over
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margin and, you know, closing things down. We saw that even in the COVID time and and whatnot when the markets got
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hairy there. So um you know those things are constantly looked at. The Fed plays
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a role as well um you know with margining and the securities market. So all that uh has to be adjusted and now
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we need to look carefully at these new markets and then see what's analogous
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and see what authority we have and uh and then make sure that you know we're
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not killing uh trading. But we also have to keep an eye out for the future to make sure that we're not allowing things
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to then blow up in our face. >> Here's a question that may sound dumb,
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so I apologize if it does, and this is to both of you. I think a lot of people don't understand, or at least I don't,
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where the SEC and the CFDC cooperate most effectively, but then as with all things, where does coordination maybe
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break down? Could you just explain that to people so that we understand and level set about what the expectations of
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each organization are and how you guys actually work together day-to-day when you have to?
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>> Having been around the two agencies now for 30ome years um I can really say that
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unfortunately the two um and not necessarily at the commissioner level but uh certainly at the staff there was
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a lot of sniping uh you know back and forth. So, I compare it to two uh fortresses with no man's land in
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between. And so, the no man's land is littered with the bodies of wouldbe products that people were unsure like is
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it CFTC, is it SEC? And the crossfire between the two just killed the products. They never went to market.
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Single stock futures, portfolio margining, which has so much uh potential benefits for um making the
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financial market safer and more efficient. But Mike and I are setting out to change that and I'll let you uh
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go forth on that one, Mike. >> Absolutely. The the two agencies have unfortunately rarely worked well
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together and what we're really uh moving uh forward in a new direction with our
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harmonization efforts. We have a memorandum of understanding that the two agencies are working on hammering out
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and getting in place that will allow us to share information, coordinate on specific issues, and make sure that we
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don't have this turf battle between the two agencies going forward. And part of
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that starts, of course, at the top. Chairman Hackkins and I work very closely together to make sure that we're
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coordinated on policy, but also at the staff level. So when exchanges and brokers and market participants are
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coming in to register or to offer new product, we need to make sure that there's not this fighting over where
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they're supposed to be registered and what they're able to offer. Some of
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these products across jurisdictions. A great example are some of the prediction markets products. Some of them involve
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public companies and securities and others are related to things like sports and politics and that crosses
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jurisdictions. So we need to make sure that we have clear lines and that our market participants aren't subject to
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duplicative regulatory frameworks. and Chairman Atkins and I have talked about substituted compliance regimes where you
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have a primary regulator at the SEC or the CFTC, but we work together to figure out the cross jurisdictional products so
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that you don't get stuck with duplicative regulation registration. Another area is crypto where we've got
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blockchain networks, we've got smart contracts, we've got protocols that have
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both securities and non-securities trading on them crossjurisdictionally and and we need to make sure that the
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standards are consistent because it won't work if we've got one blockchain
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for securities and another blockchain for commodities and nothing in between. So I think this is really critical that
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the agencies bury the hatchet and move forward with a harmonized and coordinated approach
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>> as we look towards the future. I mean to build on yeah there are two separate
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regimes and and there are differences in approaches uh based on the statutes that
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govern us but uh we also and speaking for the SEC we have a lot of uh uh flexibility with respect to exemptive
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authority and whatnot. So my dream is one day that and I hope we can achieve that here in the next couple years to
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have like a super approach where you know there is okay blurred lines between the two but we've coordinated our
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approach we've coordinated uh you know to reduce the friction between dually
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registered companies and and to make everything work very efficiently. >> I want to ask a question around
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prediction markets. Let me try to set this up the way that I think about it. So I think that there is this
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inexurable tension that's always existed and will always exist between the investor protection that has to happen
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when you have publicly traded securities or commodities or derivatives but then the capital formation process that on
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behalf of the company or whatever that wants to get access to this and there's
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always been this kind of back and forth tension. The best example of this is REGG FD where we said at some point,
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hey, let's hold the trains. If one person knows something, every person needs to know that thing. Makes a ton of
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sense. When you get into prediction markets, I think that this is going to stress test this assumption to the nth
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degree. And the reason is that there are just certain things that some people know, and we see it now. Every other day
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there's an article about some prediction market that turned out to be right or a
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bunch of other markets that were almost manipulated. It seems like it's ripe for
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this question to come up all over again. The correlary to this is Brian Armstrong
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tweeted something which I thought was quite an interesting comment about prediction markets which is that certain
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prediction markets only thrive on insider information which is to say that they know a secret and so that's how the
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market can exist and actually conform to an outcome and that creates these two sides. I just want to get your thoughts
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on prediction markets. What role do they play? How do we balance the capital formation that the market creates versus
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the investor protection, the insider trading that may be happening? It's a very complicated space. I'm not going to
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hold you to any of it. I just want to think out loud. >> Well, these markets aren't new. We've
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had them since the '9s. They started off with the electronic market in Iowa where
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folks were predicting the political outcomes on elections. We've been surveilling and monitoring and and
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policing fraud and manipulation in these markets for a very long time. And to the
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extent that there are contracts in certain markets, for example, what color Gatorade's going to be, you know, dunked
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on the the coach at the Super Bowl, some of this stuff is potentially at risk of
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being manipulated. And there's a risk that somebody on the team is able to go
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trade because they have special information about the Gatorade they put in the cooler. We have standards to make
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sure that those contracts should not be listed and and it's on the exchanges as
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the first line of defense as self-regulatory organizations to evaluate each contract and certify to us
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the regulator the CFTC that those contracts are not readily susceptible to insider trading manipulation fraud and
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the like. And we saw actually recently uh KHI one of the the prediction markets brought two enforcement actions against
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participants. One involved a contract uh related to Mr. Beast's YouTube channel
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where one of his employees insider traded based on information of when a video was going to launch or what was in
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the video and the same sort of authority that you have at the SEC around a duty of of uh you know care to your uh
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employer is prevalent in our markets. So to the extent somebody insider trades on
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information, we police that and and it's really important for folks to know it's
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it's not just securities insider trading, we've got it in the commodities
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world as well. And the exchanges are policing that, we're policing that. And
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to the extent folks are listing contracts that are susceptible to manipulation, there's consequences to
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that. We can reject those contracts or we can police fraud on the back end. But there is a cop on the beat there. And I
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I do want to caution that insider trading is is uh is not something that's necessarily allowed in our markets, but
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we do believe that markets are truth machines that they do create a really powerful source of information. We've
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seen the hoaxes, the fake news, and the manipulation of the polls. The prior administration tried to ban these
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markets ahead of the 2024 election, and they really increased turnout. It showed
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that they were correct when a bunch of the fake polls were put out right ahead of the election. So, we really have to
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foster these markets here in the United States and make sure that they don't uh
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flourish in Russia or somewhere else where they really will turn out to be a source of disinformation. So, we do
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believe it's valuable to have that uh trading and information flowing through
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the markets, but insider trading is is still uh still illegal here in the US. >> Take us through some examples there,
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Mike. Like it's very obvious and clear to people who work at Microsoft. If some
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new version of software is coming out or the sales are dynamic and the numbers haven't been released, obviously you
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can't trade on that. You're going to jail. It's insider trading. If I am a
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reseller of Microsoft software or a friend of mine works at Microsoft and says, "Hey, things are going great with
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this new product we have." And I make a thoughtful, you know, uh, wager on a
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prediction market. or if I intentionally do something like I'm a streaker at the
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Super Bowl was one that came up recently and I actually am the streaker. Not that
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I'm planning any of this to make the bet. >> Where are those rules? Where do they
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live? And who's responsible? Is it the prediction market? Is it you? Or is it
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TBD? Because it does seem that there's a bit of gray area as Chimath was sort of
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alluding to here. And and does this need to be codified and does need to be a bit
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more education for the public on it? A lot of the gray started off with the prior administration really trying to
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ban these markets and not facilitating proper rulemaking and guidance in the markets. Over the past year, you know,
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I've been in the the office for a couple months now. For the past year, under the
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acting chairman's leadership, a lot of these products have really exploded in
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popularity. And so now is the time to put out guidance and make sure that we're not regulating by enforcement as
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the prior administration did. But we are setting standards. We are making clear what our statute says and that is that
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these contracts cannot be listed if they're susceptible to manipulation and we take that very seriously.
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>> Standard. >> Yeah. Yeah. So the exchanges are responsible for policing that and
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reviewing the contracts and they certify to us the regulator that they are free of the risk of manipulation and if
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there's manipulation the markets we're policing that the exchanges are policing
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that. So there are controls in place, but a lot of these questions as to what's susceptible to manipulation are
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are up for debate. And I think there's some risk. There's uh possibility, you
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know, your example with the streaker if somebody can just jump out of the stands
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and go streak across and uh collect on the contract. I mean, that's something
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that does seem potentially at risk of manipulation and and fraud. And so we need to be careful about that. The
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exchanges need to be on the lookout for that. And if they're not, you know, there's consequences with us as a
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regulator. >> The markets should take the first step and make sure they're thoughtful about
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which ones to fire up to begin with. And we have seen that they are not saying, "Hey, this dictator is uh executed."
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They're saying, "This dictator is deposed or is no longer in power." That
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seems to be a very uh tricky one as well. Yes, Mike. >> Well, there's got to be integrity in the
00:26:17
contracts. Our rules require that the contracts have, for example, certain fungeability and standardization.
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They're derivatives contracts. This isn't simply just betting at a, you know, with a bookie in a casino. And so
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each contract, that's that's correct. You would look for is it tied to an
00:26:33
election or is it tied to a very specific event? Uh, is there a risk that that event can be manipulated or insider
00:26:39
traded? And the and the exchanges are evaluating that. And there are instances where something is insider traded and it
00:26:45
wasn't something they could have foreseen. it wasn't readily susceptible
00:26:48
to manipulation and so they police that they bring uh actions against the traders and Khi did just this with some
00:26:54
of its fines and in the past few weeks. Let me ask a question about quarterly reporting because maybe where there was
00:27:01
the most manipulation in the past was around that, right? People would try to frontr run these quarterly reports. They
00:27:06
would try to make guesses. Invariably, you would find some people that crossed the bright red line. But recently, Paul,
00:27:13
President Trump said, "Maybe we should move to six month reporting or one-year
00:27:18
reporting." And it was really wellreceived by a lot of people. Do you think that quarterly reporting has sort
00:27:25
of also killed the IPO? Meaning when we think about making an IPO great again, just the complexity and the burden of
00:27:33
such short termism, has it made the markets better or worse, do you think? >> Yeah. Well, that's a great point and I
00:27:38
just wanted to add one uh kind of a little uh note to the previous discussion there that you know if if
00:27:46
something is a tokenized security you know the uh federal securities laws apply and so that goes for insider
00:27:53
trading you know with respect to uh trading securities uh where wherever they may be you know on the online or or
00:28:01
on an exchange floor or wherever. So any but then to your point about uh the cadence of uh reporting I think that's
00:28:08
an important one and we are going to come out with a a proposed rule and and seek comment on it and I frankly am a
00:28:16
bit agnostic myself personally because if you look at things uh we haven't always had quarterly reporting. In fact,
00:28:24
when the SEC was uh you know formed back in 1934, it basically codified the New York Stock Exchange rule book, which at
00:28:32
the time called for annual reports. So annual reports prevailed until 1955 and the SEC went to semianual reporting. And
00:28:41
by the way, the UK did the same thing around the same time. And then in 1970 only did things go to quarterly. And
00:28:49
then the UK parted way they did quarterly as well. But then in 2014 or so, they uh they changed to go back to
00:28:58
semiannual, but if you wanted to still report quarterly, you know, God bless you and go ahead and and do that. So,
00:29:04
we're still at quarterly and and so the president did send out a you know, electronic message about that. And so,
00:29:12
uh but our staff was looking at we're looking at what we call filer status. There are all sorts of different
00:29:18
categories of filers with different rules like large accelerated filers, accelerated filers, emerging growth
00:29:25
companies, and so forth. So, we're looking to kind of simplify all of this. And part of that also is perhaps smaller
00:29:33
companies uh could benefit from, you know, reduced uh you know, uh cadence of reporting, but maybe not. They they have
00:29:41
trouble finding analysts to follow their stock. That's another thing that might
00:29:46
be an inhibition to go um public for small companies and maybe analysts want quarterly. Maybe they don't. Maybe they
00:29:52
would prefer semiannual too. So I think this is a great debate to have right now. And you did have Barry Diller even
00:29:58
taking the other side of it where he's like I'm just tired of giving predictions. I'm tired of playing this
00:30:02
gamesmanship quarterly. I'm just going to release our accounting numbers every
00:30:07
month and you all can have fun with numbers as much as you like. >> But that's amazing because you can do
00:30:12
that now, right? You can have software that's so vibrant that it can just Jason
00:30:17
release a stream and there'll be people that have, you know, developed agents
00:30:22
and developed these AIs that will just process all of that and they will then publish out a dashboard and the whole
00:30:27
thing will be almost real time. It could be real time. >> Yeah. And and there are services that do
00:30:33
semi-interesting things already that you can buy that maybe people with budgets for data streams can do. Let's talk a
00:30:40
little bit, Chairman Atkins, about the history of accreditation in this country. I think when you brought up
00:30:46
Microsoft and the early part of your career, watching these companies go public, I did a little research while we
00:30:51
were here and you were speaking. Microsoft and Apple went out with 1,200 employees each and about $400 million in
00:31:00
revenue in today's dollars. 120 million in those dollars. So obviously there was
00:31:04
this incredible opportunity for you to create and place a bet on these companies as an individual with a stock
00:31:10
trading account and maybe move from you know one tier in societal wealth to another. And that's a big part of the
00:31:17
American dream. But as we talk about private markets the SEC has ancient rules now going on close to a century
00:31:25
old to protect investors called accreditation laws. They apply to 95% of the of the country apparently and about
00:31:33
5% of us get to trade in some way in private companies where the value is created. The SEC has been challenged and
00:31:41
charged with changing these evolving these and it never seems to happen. My perception is which SEC chair is ever
00:31:48
going to take this on because hey, it's just easier to keep the status quo. But
00:31:53
is there not an argument and I know there's some legislation now to create a
00:31:56
sophisticated investor test. So instead of you inherited a million dollars, you're qualified to buy stock in Uber
00:32:03
when it's a private company, why not a sophisticated Tesla, a driver's license,
00:32:08
and you learn uh how to trade in private companies, and you get to participate in
00:32:13
that market instead of just saying to people, well, you can only participate in sports betting or blackjack in Vegas,
00:32:19
but you can't. If you were an Uber driver or an Airbnb host or an HR person using LinkedIn as a private company, buy
00:32:27
those stocks. Well, you have an insight and you have an instinct into maybe purchasing. So, so talk about the
00:32:33
accreditation test and sophisticated investor tests and and your personal view on it.
00:32:38
>> Yeah. Well, great point. And so, well, here's one chairman who is going to
00:32:41
tackle that issue. And so, we intend to do that, the accredited investor definition. And so interestingly, I mean
00:32:48
to your point in the statute uh in the investment advisors act of 1940 I believe or investment companies act of
00:32:56
1940 um it there's a definition of that and it includes knowledge not just uh
00:33:02
you know wherewithal or sort of assets that you have but include it has the word knowledge in it. So to your point,
00:33:09
why can't we have and people have suggested this over time uh equivalent of a driver's test or something like
00:33:15
that or recognize somebody who has a CPA or you know a CFA or or whatever but uh
00:33:22
you know maybe a type of series 7 but uh you know not so complicated as that that
00:33:29
FINRA um administers. So part of the thing is like who's going to make the test, who's going to administer it, and
00:33:35
how do you um get there? But anyway, but we can those are issues that we want to
00:33:40
tackle. Um, and I remember uh when this uh uh issue came up when I was a commissioner back in the as uh there was
00:33:47
one uh comment letter that came in that really struck me and it said, "Today I
00:33:54
am able to um this is the comment letter uh commenter speaking. Today I um am able to buy a hedge fund, a private uh
00:34:03
asset or whatnot. um but tomorrow once you raise the standard of you know I have to have x amount of money of assets
00:34:12
or income or whatever I won't be able to. So what's changed? Why why are you
00:34:17
going to take that away from me? So, why does a finance professor who makes $100,000 and lives in an apartment and
00:34:25
doesn't have any other assets, why is he not able to your point to invest in uh
00:34:30
some of these uh types of securities, whereas an aerys who just came into $10 million or something like that suddenly
00:34:39
is. Now, she can hire people to advise her, but they could be dummies, too. I mean who knows what they are but so
00:34:45
anyway so I think we have to take a fresh look at all this and we are going to do that uh here this year and uh um
00:34:53
with a with a proposed rule to address that. >> I have a question around the derivatives
00:34:58
markets. Well actually before I ask the question about I want to ask about the futures markets which is you have an
00:35:04
enormous number of highfrequency trading firms that really dominate futures volume. Can you just tell us
00:35:12
both the value that these folks are providing? Is it truly liquidity or is it and there's been some speculation
00:35:20
about this very sophisticated market ARB? And if it's the latter, where do you think we need to do
00:35:29
necessarily a better job? I think the best example is if you look at just the volume of futures activities and spot
00:35:33
prices of certain commodities, the basis is starting to kind of get out of whack.
00:35:38
So just Tell me about the market participants part of these derivatives and futures markets and what you think
00:35:45
about what's going on. >> Our markets have three core types of participants. We've got the hedggers,
00:35:49
we've got uh speculators, and we've got market makers. And the liquidity is
00:35:54
really the the result of all three. So, there's going to be market participants
00:35:58
that really rely on whether it's a cattle contract or a credit default swap product. they need to to enter into
00:36:05
these agreements to hedge key risks in their business. And then you've got folks that are willing to provide
00:36:10
liquidity, whether they're speculating and taking another position on that for
00:36:14
for their proprietary basis or they're doing so to make markets and earn a spread. And that's right. I mean, we're
00:36:21
regulating these markets. We're making sure that the trades that are going through have integrity and that folks
00:36:26
aren't uh, you know, wash trading and trying to manipulate markets. There are
00:36:30
some strategies that raise particular risk of manipulation or fraud and we police that. We've taken actions in the
00:36:37
past to to make sure that uh the the exchanges are not uh subject to uh illicit behavior and and and trading.
00:36:44
And the exchanges similar to my point earlier related to prediction markets are first line of defense here as well.
00:36:50
They surveil their markets and we're in constant communication with them as well
00:36:54
as the traders. were often times sending information requests to traders about their activity. So I I do believe that
00:37:01
the these all three participants are very important to make sure that our markets are are liquid.
00:37:05
>> So on that last point that you just made which I think is a very good one post
00:37:10
GFC there was like these central clearing functions right to make sure that derivatives contracts were getting
00:37:15
not getting out of control and we had a good sense of systemic risk. But it turns out that one blind spot everybody
00:37:21
has is to these bilateral swaps. I mean, I've done certain bilateral swaps with
00:37:25
certain counterparties. It's not clear to me that you know that on the back end
00:37:29
of it. Can you talk about that and how you think that that should stay the same, change, what that is, whether that
00:37:35
keeps you up at night, whether it should keep us up at night. >> Sure. Well, I'm not a huge fan of
00:37:39
DoddFrank, but in the wake of DoddFrank, we got swap data reporting. And these bilateral over-the-counter swaps are now
00:37:47
generally all there are some exceptions but sent to swap data repositories where
00:37:51
we're getting information on a daily basis as well as these third party swap
00:37:56
data repositories that compile that information. So the markets are much less opaque. We have transparency today.
00:38:03
But my concern about the swap data reporting regulations is that they have really been a tool for our enforcement
00:38:09
divisions in the past where you've got so many different fields. It's really
00:38:14
difficult to characterize each different type of swap. I'll tell you when I was
00:38:18
in private practice and uh folks started entering into Bitcoin swaps and and crypto swaps characterizing that as a
00:38:24
type of uh derivative relative to cattle and wheat and other commodities really was a whole lot of legal advising and a
00:38:32
lot of wasted money frankly. So we need to simplify. We need to make sure that our swap data reporting regime is
00:38:37
rational and coherent and makes sense for the everyday participant in the market. you shouldn't have to go hire a
00:38:43
high price law firm just to enter into a risk management tool. But these markets,
00:38:48
the these uh these developments post DoddFrank, some of them make sense, some of them don't. A big priority of mine is
00:38:54
going through uh rule by rule to make sure that all of our regulations are really the minimum effective dose. I
00:39:00
have a question for both of you. Is there something that if you could borrow from the other person's regulatory
00:39:07
toolbox? >> H >> something that they can do that you cannot that you would love to also be
00:39:13
able to do. >> From my perspective, one thing for new products that the CFTC has is called
00:39:19
self-certification. So for um repetitive products that uh you know once you go ahead and approve
00:39:25
the general type of uh uh framework for it uh then it's self-certification by
00:39:32
the markets uh and by the people who are of course coming forward with the products. We don't necessarily have that
00:39:39
kind of uh thing. We do for some things like for ETFs and whatnot where we've
00:39:44
come up with rules that then uh you know then it's up to the market participants
00:39:49
to abide by the rules and have their product conform. But on so many other products we have a a much more complex
00:39:57
uh you know labor inensive let's just say approach uh to it that requires approval by the staff and the commission
00:40:05
and and that sort of thing whereas it's much more streamlined on the CFTC side.
00:40:10
Well, on our side, there's uh there's one regulation that I think's been
00:40:13
really effective on the SEC's uh jurisdiction, and that's the alternative
00:40:18
trading system. So, on both sides of the house, we have fullborn uh you know, very very intensive exchange
00:40:24
registrations. Uh the SEC went ahead with a rulemaking that allows broker dealers to then set up a an alternative
00:40:31
trading system and it's really an exchange light framework and I'd love to
00:40:34
see that on the CFTC side as well. Chairman Atkins, I want to talk about fund formation and the the power of
00:40:40
venture capital in the US economy. 20% of the GDP of this country comes from ventureback companies. 40% of the S&P
00:40:47
obviously with the Max 7 contributing heavily uh comes from ventureback companies that we all know and love
00:40:53
their products. But fund formation for venture capital is ancient and there are massive limitations on it. There's two
00:41:01
ways obviously to address this. One is the path to accreditation for people to become sophisticated. We just spoke
00:41:06
about that. But the other is how many people are allowed to participate in a fund. As but one example, when I raised
00:41:13
my last fund, I had well over $und00 million in accredited investors who wanted to have a small bite of the apple
00:41:20
and get into venture capital. But I can only accept a hundred. I can only accept
00:41:24
10 million. And doesn't make any logical sense because in fact it would be better
00:41:30
if more people could put in smaller amounts. Many hands makes for light work. and more people could participate
00:41:36
in this. This would have a dual impact on the economy. One, more startups would get funded and two, more individual
00:41:43
investors would get to participate in this very closed ecosystem known as venture capital. So, I was wondering
00:41:49
your thoughts on venture capital specifically and formation of what is the driver of the US economy. you raised
00:41:56
a great point, but a lot of that that you're talking about with funds is statutoily
00:42:02
uh mandated. And so there are two big exemptions in the uh investor company act of 1940 uh that are, you know,
00:42:12
pertinent here. And so those were adopted by Congress with a lot of uh debate and and whatnot. Um and so um so
00:42:20
that is more difficult to change and there's certain ways that we can change
00:42:25
them and so we are going to look at this and there you have a lot of different uh
00:42:30
types of accredited investors you have qualified purchasers you have you know also qualified institutional purchasers
00:42:37
and and and whatnot or buyers rather and so uh so all of these things need to be
00:42:42
uh you know I think looked at a new and where we have the authority through um our exemptive power uh under the various
00:42:51
statutes, we'll be able to use that. But I do think that especially now as we
00:42:56
talk about um opening up private uh funds or or private types of products to a broader range of people, including to
00:43:07
uh you know, 401k plans and whatnot. We're we're working with the Department
00:43:11
of Labor and the Treasury Department uh to address this and we all feel very strongly that here you have to have good
00:43:18
guard rails. You just can't open up the barn door wide open. That we have to
00:43:24
have standards for what can go into these sorts of uh you know plans, 401k plans, pension plans, but retail
00:43:31
investors are already exposed to the private markets through their pension funds, insurance companies and all that.
00:43:38
So all of this needs to have a you know fresh look and you know come up with uh good uh new ideas uh to basically
00:43:47
provide de democratize it. >> And just as a quick followup there one that I think would be super easy is just
00:43:53
hey 10% of whatever your last two years average >> income was or you know no more than five
00:43:59
or 10% of your net worth Michael there there are some common sense ideas here that would would increase the amount of
00:44:05
participation. Can you think of Michael any reason that we should restrict Americans from being able to participate
00:44:12
in venture capital? Is there any argument here if there were some basic level controls as I've outlined here?
00:44:18
Sophistication taking a test or a cap. You can only put 5K in. You make 150K a year, you can put in 15K per year. What
00:44:26
are your thoughts, Michael? >> I'm a believer in free markets and I really think that allowing more access
00:44:31
to our capital markets is is really a powerful thing for everyday Americans. We saw the ICOs, you know, the initial
00:44:38
coin offerings where things just kind of moved into crypto and you had all sorts
00:44:43
of investments in different projects and they were attempting to to get under the
00:44:48
radar of the securities laws even though there are capital raises with with different tokens and I think the markets
00:44:54
always find a way. So allowing for more access, decreasing some of the requirements around accreditation, I
00:45:00
think that's a really great thing for the American people and and really will
00:45:03
just allow for people to to have some skin in the game and maybe they lose sometimes, but other times they really
00:45:08
hit it big and it's a great thing for for everyone. >> So nature finds a way, right? Like they
00:45:13
don't allow people to participate. They start doing ICOs. And when I looked at
00:45:16
them, I looked at a hundred Shimoth I said, "Wow, 99% of these are white papers with spelling errors in them.
00:45:21
These are not the real companies that you and I look at in our daily lives in venture capital. So it's reminds me of
00:45:27
what happened with crypto which is hey it went offshore. It went to another stream. I want to talk about just the
00:45:32
capital markets globally. We're in this very unique moment where there just seems to be this separation where the
00:45:38
American capital markets and you two are tips of the spear have enormous credibility. And then when you look at
00:45:44
some of these other capital markets Paul you mentioned the UK but I hate to say it so bluntly but the UK is a disaster.
00:45:50
It is impossible to raise money there. It's impossible to raise money or innovate in a European exchange. It's a
00:45:57
little bit easier in Asia, but it's complicated. But then you do see some of
00:46:01
these upstart exchanges that are trying to push and innovate in Abu Dhabi and KSA, etc. If you just take a step back
00:46:07
for a second, I just love your perspective on what's going to happen to capital formation and specifically
00:46:14
what does America need to do to get this next couple of trillion dollars to be brought on short? Well, first of all, I
00:46:22
think you know our our capital markets are the envy of the world. I mean, it really is amazing. uh when I travel
00:46:28
through Europe or uh Japan and uh and the UK and and and Middle East and whatnot, people really envy our huge
00:46:37
capital markets and how robust they are uh how fair they are. And it goes back to our rule of law and enforcability of
00:46:44
contract. And that's the essence of what is the foundation uh of uh you know our
00:46:51
freedom and our ability to uh you know do innovate and and have all these new products. So they would love to have
00:46:58
that plus the um uh you know the I guess what they also really um envy is our uh
00:47:06
risk appetite here in the United States where people uh are have an equity investment culture and that is really
00:47:14
largely uh absent in Japan uh and in Europe and in a lot of ways they can't get out of their way because out of
00:47:22
their own way because through their uh regulatory system and whatnot I mean ours is bad enough, but they um in many
00:47:29
ways take it to a different extreme with a very narrowly constructed code that uh
00:47:35
really hamstrings them and is is not very flexible in the future. So that's what as far as if we can uh open up our
00:47:43
markets as far as you know some of the things that we've been talking about here as far as new products allow
00:47:49
innovation to take place here on on shore and then also to fix some of the things like the accredited investor
00:47:57
investor standard and that sort of thing. I think we you know can then to your point uh you know uh turbocharge it
00:48:04
to continue our growth. Crypto's been a bit of the wild west and we have things
00:48:09
NFTTS, ICOs, meme coins. They feel they look like stocks to people, whether it's dollar sign Trump or dollar sign
00:48:18
Doge, whatever it is, but they have a ticker symbol. They have a chart. They trade like a stock. What do we need to
00:48:25
do in regards to crypto? What What should and where is the line between launching a a crypto token and the
00:48:33
public being protected there? Chairman Atkins versus, hey, it's a publicly traded stock because for a lot of them,
00:48:39
they get into it and they're the suckers at the table. It feels, it looks, it
00:48:43
quacks like a duck. It looks like a duck and so they buy it like it's a duck, but
00:48:47
it's not a duck, obviously. So, what do And then this was Gensler's, I think,
00:48:52
you know, maybe a logical point, although his execution was poor, there was a logical point to, hey, we have
00:48:59
rules. we can't let you break these rules for your dollar sign whatever if everybody else is doing their company
00:49:06
properly you know and following this set of rules so so how do we evolve that to
00:49:11
protect which is the top mandate the consumer >> well that's a great question I think the
00:49:16
real problem has been uh definitionially and so the the kind of the very vague lines and so people weren't sure they
00:49:24
were and as Mike was talking about you know people play paid lawyers a lot of money to try to do it. Some lawyers just
00:49:31
gave happy talk and then people got in trouble uh with the SEC and other lawyers just said forget it. Go
00:49:37
offshore. You know, you there's no use to even trying here in the United States. So, that's part of what uh you
00:49:44
know, Mike and I are trying to do as far as harmonize. So, where if it's a tokenized security, then that's one
00:49:50
thing under the SEC's uh rule book. But if it's things like uh tokenized uh oh
00:49:56
so digital coin a digital token sorry or digital tools or digital collectibles then those sorts of things uh fall under
00:50:05
the CFTC's um oversight and their uh rule book is is really more opposite for
00:50:11
these sorts of things than ours is. But you have to have a logical oversight over things like that to prevent fraud
00:50:21
because the one thing that really uh you know uh attracts people to our markets from overseas is that they uh perceive
00:50:28
that there is you know that fraudsters do get caught and you know we have protections around as we've been talking
00:50:35
about inside trading and then things like that trading on material non-public information by insiders that is you know
00:50:42
so we have a robust So >> thing for that >> Mike unpack that for us and maybe you
00:50:47
could add to it the role of uh sometimes we see celebrities promoting these things and it just feels like it's a bit
00:50:55
of uh it was a bit out of control there for a bit and and your job is to make it
00:50:59
controlled. So so what should the crypto community that wants to release utility
00:51:03
tokens and participate here what do they need to know going forward? We have to separate the capital raising activity
00:51:10
and selling something for the purpose of uh raising capital to form a business when you're going out there and giving
00:51:17
folks the white papers and the business plans and making promises to them from the actual thing that people are buying.
00:51:24
The tokens themselves in many of these cases are just goods. As chairman Atkins said, they could be a digital commodity,
00:51:31
something that's an input for a network like Ethereum or Salana or anything else
00:51:36
where you're using it for a function within the network. But the capital raise is something separate. And they
00:51:41
could be collectibles like an NFT or a tool that you're using to run a a command on a network. That sort of
00:51:49
stuff. I mean, they're they're they're commodities or they're goods or or
00:51:52
things that potentially neither of us regulate. uh we don't go out and regulate widgets that are sold as part
00:51:59
of a capital raising. The the SEC's brought many cases over the years related to fundraising with chinchillaas
00:52:06
and whiskey barrels and all sorts of things, but we've not had those uh trading as securities in our markets and
00:52:12
and we don't want that for the digital world either. As we start to wrap here,
00:52:15
I have a final question which is both of you sit on top again as I said the most in my opinion important capital
00:52:25
market in the world. You guys are responsible for the well functioning and the pass through of literally tens
00:52:32
and tens of trillions of dollars. You are responsible for enabling and not slowing down just the great vibrancy of
00:52:40
the American economy as reflected in these markets. That's the upside. The downside is that
00:52:46
that also comes with a lot of pressure when you're in the bowels of the job.
00:52:49
And I obviously I don't know what that's like every day. But what are the couple
00:52:52
of things that the two of you think about at night? What are the critical risks to this experiment that you just
00:52:59
know you have to get right or the critical issues that in the next year or two you must get right for all of this
00:53:06
to continue? Maybe Mike, we'll start with you and then Paul. >> Two big things concern me. The first has
00:53:10
been this push of innovation offshore. We've got to get it back here in the United States. That's really what's
00:53:17
built this country over the years. Thomas Ederson didn't have to go ask for permission to go innovate. We need to
00:53:23
make sure that our builders, our visionaries, our entrepreneurs have the courage and and the confidence to come
00:53:30
and and develop new things and build here in our financial markets. And that means blockchain, that means artificial
00:53:36
intelligence, that means prediction markets. We'll set the rules for it. make sure that it's possible to do it,
00:53:41
but we don't want everyone fleeing to the Cayman Islands and the Bahamas and
00:53:45
and Russia to go do this stuff. So, so that's really concerning to me. I want
00:53:49
to make sure that that folks are back here in the US. The second piece, of course, is the the risk to our system if
00:53:55
we've got too much manipulation in trading fraud. I mean, why not trade uh you know, elsewhere and and there's real
00:54:02
risk to our investors. And so making sure that we have the right controls, customer protections, uh we can't have
00:54:08
another FTX in the United States where funds are lost and and there's uh an absolute fraud on on our American
00:54:16
people. So So that's a really critical concern balancing innovation with our
00:54:21
financial system, the integrity of our markets, and we're going to do it, but
00:54:25
it's it's definitely hard work ahead of us. And for me um so I mean I I agree
00:54:29
completely with the innovation point that uh you know we need to uh make sure that uh we are allowing people to
00:54:36
innovate here on shore and FTX1 is a great point where uh there was one part of FTX that was didn't implode with the
00:54:44
rest of it and that was their investment in uh swap's trading platform called
00:54:48
Ledger X was which was supervised by the CFTC and examined and they had um uh they they had their uh accounts
00:54:58
segregated and all that. So no customers uh uh lost any money through that and and it still lives on uh you know today.
00:55:07
So um so my worry is that we're fighting always the last battle. You know the
00:55:13
French built the Majino line and that didn't work very well and then uh so we
00:55:17
had the same thing coming out of the financial crisis. So we have to think ahead. We're confronting a lot of new
00:55:23
challenges. So artificial intelligence of course you know is uh you know developing very quickly and um but we're
00:55:31
also seeing it on the fraud side. I mean, this horrible stories I hear about uh people whose uh um who've lost their
00:55:40
entire retirement uh um nest egg through fraud where they're confidence people
00:55:46
who uh you know through all sorts of manipulative types of communications then uh draw people in and get them to
00:55:54
uh you know send off their their money elsewhere or even their uh their Coinbase account or things like that
00:56:00
where they give passwords away with the you know these confidence artists out there. So we have to be attuned to that.
00:56:07
We have to be the cop on the beat because that's the real threat uh that will uh lead people not to uh
00:56:14
necessarily um you know invest their money here. But but I think you know we are a cop on the beat. We're um you know
00:56:21
out to make sure that we can find the bad guys, but we can't then put too much
00:56:26
overwhelming uh you know restrictions on the good guys so that they can't innovate and can't come out with new
00:56:32
products. >> Those are great answers. I think both opportunity and policing. I just want to
00:56:37
end with a final thought. As these markets open up, wagering stocks, crypto, we do have an issue, a second
00:56:45
order effect that's happening. young men 18 to 30, 45% report that they've had a
00:56:51
problem with wagering gambling and 10% meet the addiction criteria. A third have placed a bet. The upside to this in
00:56:58
my mind is we have a generation generation bet that understands capital formation markets and how to participate
00:57:05
in them. But we do have a downside. >> Outcomes. Yeah. >> Outcomes. Yes. and to really think about
00:57:10
that. There's obviously a downside here, which is a very young developing brain
00:57:15
might not be ready for that. So, so Mike and then and then Chairman Atkins, what
00:57:19
are your thoughts on how to protect these young men who, you know, they're they're excited about participating in
00:57:25
these markets, but maybe their brains aren't fully formed and ready to take on
00:57:28
that responsibility? >> I think education's critical here. We need to make sure that our market
00:57:34
participants are providing information to participants and we don't regulate
00:57:39
the casinos and the gambling and all of that and and I but I do believe that that is a a key piece of their
00:57:45
initiative as well to make sure that folks are informed when they're coming into to the casinos. We should do the
00:57:50
same at the federal level. make sure that our participants voluntarily of course this isn't necessarily something
00:57:54
that that we mandate on our derivatives exchanges but I do think it's an important thing to be informing the
00:58:00
public and of course we've got really robust standards on brokers and on our
00:58:05
exchanges and they're making sure that there's uh the the persons that are
00:58:09
participating in the markets have the ability to participate that they're suitable to invest and and participate
00:58:13
in our markets and I think those controls combined with some education are really going to be important here
00:58:19
>> I agree with that And but it's not just education of the um in many cases
00:58:24
children or and uh you know adult young men and and women too but it's also their parents uh you know especially for
00:58:32
the children where I think there is a large ignorance on uh the parents' part
00:58:38
as to you know what their kids are doing and with their phones or elsewhere and you know getting involved in these
00:58:44
things. So uh you know I hear that from a lot of my friends. So just uh you know
00:58:48
apocryphily there but uh so that's we we shouldn't forget that the schools are
00:58:53
important as well but the signs of you know that sort of uh addiction you know are really uh you know important to to
00:59:01
recognize uh that and then take action. But we have the same thing with other sorts of gambling lotto or lotteryies
00:59:08
and that sort of thing. So, it's not just in the securities markets or crypto
00:59:13
markets or elsewhere. Um, but it's uh also on everyday things that we have to
00:59:17
really watch out for. >> I love your suggestion, Mike, because uh I I noticed Robin Hood now if you want
00:59:22
to go trade something complex, puts, calls, you know, spreads, everything, it forces you to go through a little wizard
00:59:29
to make sure you understand it and and to teach you what exactly you're doing.
00:59:32
So, I think education so critical and it can exist at the platform level. This has been an incredible hour plus. Uh, I
00:59:41
want to thank you two gentlemen for joining us here on the All-In interview and we'll see you all next time.
00:59:46
Bye-bye. >> Thanks, gentlemen. >> I'm going all in.