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