WEBVTT - Robinhood's Gallagher, BI's Tabb on Gensler's SEC 0:00:12.280 --> 0:00:15.640 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:15.680 --> 0:00:19.439 by the litigation and policy team at Bloomberg Intelligence, the 0:00:19.520 --> 0:00:24.080 investment research platform of Bloomberg LP. Just a quick word 0:00:24.120 --> 0:00:26.760 about Bloomberg Intelligence for those who don't know. We are 0:00:26.880 --> 0:00:30.160 the investment research platform on the Bloomberg terminal, with five 0:00:30.240 --> 0:00:34.239 hundred analysts and strategists working across the globe and focused 0:00:34.280 --> 0:00:38.040 on all major markets. Our coverage includes over two thousand 0:00:38.040 --> 0:00:40.760 equities and credits, and we have outlooks on more than 0:00:40.840 --> 0:00:45.040 ninety industries and one hundred market industries, currencies and commodities. 0:00:45.600 --> 0:00:50.040 This podcast series examines the intersection of business policy and law. 0:00:50.479 --> 0:00:55.440 I'm Elliott Stein and analysts with Bloomberg Intelligence covering financials litigation, and. 0:00:55.440 --> 0:00:57.560 My name is Nathan Dean. I mean, I'm an analyst 0:00:57.600 --> 0:01:00.400 with Bloomberg Intelligence covering financials policy. 0:01:00.840 --> 0:01:04.160 So we are delighted today to have not one, but 0:01:04.400 --> 0:01:09.000 two very esteemed guests. First, we have Dan Gallagher, Chief 0:01:09.120 --> 0:01:13.120 Legal Compliance and Corporate Affairs Officer of robin Hood Markets. 0:01:13.680 --> 0:01:17.600 Prior to joining Robinhood, Dan was a partner and deputy 0:01:17.640 --> 0:01:20.280 chair of the securities department at the law firm of 0:01:20.360 --> 0:01:23.959 Wilma Hale, and before that, he served as a Commissioner 0:01:23.959 --> 0:01:27.520 of the US Securities and Exchange Commission from twenty eleven 0:01:27.560 --> 0:01:30.600 to twenty fifteen and held several other positions on the 0:01:30.680 --> 0:01:35.920 SEC staff prior to being appointed commissioner. Dan's previous experience 0:01:35.959 --> 0:01:40.040 also includes serving as the chief legal officer at my Land, 0:01:40.600 --> 0:01:44.120 a leading global pharmaceutical company, and as a president of 0:01:44.160 --> 0:01:49.000 a financial services consulting firm. Our second guest today is 0:01:49.160 --> 0:01:51.360 not just a guest, but also a colleague of ours, 0:01:51.520 --> 0:01:55.640 Larry Tabb. Larry is head of Market Structure Research at 0:01:55.640 --> 0:01:59.680 Bloomberg Intelligence, and prior to BI, Larry was founder and 0:01:59.720 --> 0:02:04.120 rest search chairman of TAB Group, the research and strategic 0:02:04.160 --> 0:02:09.560 advisory firm focused exclusively on capital markets. Before founding TAB, 0:02:10.080 --> 0:02:14.359 Larry was vice president of Tower Groups Securities and Investments Practice, 0:02:14.600 --> 0:02:18.800 and prior to Tower Group, Larry managed business analysis for 0:02:18.880 --> 0:02:23.639 Lehman Brothers Trading Services division. Larry's markets experience also includes 0:02:24.040 --> 0:02:28.000 managing operations for the North American Investment Bank of City Bank. 0:02:28.639 --> 0:02:32.240 So with all that, Dan Gallagher and Larry tab welcome 0:02:32.280 --> 0:02:34.160 to the Votes and Verdicts podcasts. 0:02:34.200 --> 0:02:36.760 Great to be here, Happy to be here, Eli. 0:02:36.840 --> 0:02:39.280 Yeah, great to have you both, so, Dan, the first 0:02:39.440 --> 0:02:41.960 question is to you, and it's something that we ask 0:02:42.080 --> 0:02:44.680 all of our guests, and it's about their work history. 0:02:44.880 --> 0:02:48.480 You know, I read the highlights of your official bio 0:02:48.680 --> 0:02:51.560 and it's obviously very impressive, but we'd love to know 0:02:51.600 --> 0:02:53.320 how you got to where you are, what took you 0:02:53.360 --> 0:02:56.880 into government service, and more recently, what brought you to Robinhood. 0:02:57.200 --> 0:03:00.280 Again, thanks for having me long story. You know, if 0:03:00.520 --> 0:03:02.960 you look at my resume, there's a bunch of twists 0:03:03.000 --> 0:03:07.200 and turns, and as I tell young folks when I 0:03:07.240 --> 0:03:09.280 try to mentor them, if you know, I'd be lying 0:03:09.320 --> 0:03:11.520 if I claimed that I plotted this all out. One 0:03:12.160 --> 0:03:15.200 strange opportunity after another and led to another, led to another. 0:03:15.320 --> 0:03:18.120 So ultimately at robin Hood, I knew I was going 0:03:18.200 --> 0:03:20.640 to go to law school. I as an English major undergrad. 0:03:20.840 --> 0:03:22.720 Not too many other choices if you needed to make 0:03:22.720 --> 0:03:26.280 a buck, which I did. Got very interested in investing 0:03:26.280 --> 0:03:29.760 in the late eighties after the crash, and we started 0:03:29.760 --> 0:03:32.320 a stock market club in high school in Philadelphia where 0:03:32.320 --> 0:03:34.360 I grew up, and you know, always just had that 0:03:34.400 --> 0:03:37.840 little that passion for the markets, and so brought the 0:03:37.920 --> 0:03:41.640 law and the markets together. By you know, studying securities law, 0:03:42.320 --> 0:03:44.480 interning at the SEC when I was in law school, 0:03:44.520 --> 0:03:48.320 and then ultimately getting to Wilmer, Cutler and Pickering, which 0:03:48.400 --> 0:03:51.560 is one of the predecessor firms to Wilmer Hale, which, 0:03:51.800 --> 0:03:55.000 as I think you know, was very steeped in SEC regulation. 0:03:55.160 --> 0:03:57.720 We had all the former directors of all the divisions 0:03:57.720 --> 0:03:59.760 of the SEC back then in the late nineties, and 0:04:00.120 --> 0:04:03.480 it was just an awesome place to grow. And as 0:04:03.520 --> 0:04:06.760 a young SEC lawyer so had some opportunities to go 0:04:06.800 --> 0:04:09.000 in house. I went in house real young to fight 0:04:09.120 --> 0:04:11.760 Serve Securities, which was a clearing firm up in Philly. 0:04:12.880 --> 0:04:15.440 So I took over a GC there and was there 0:04:15.480 --> 0:04:17.120 for about a year and a half and oversaw the 0:04:17.160 --> 0:04:21.159 sale to Fidelity of the firm, and then kind of 0:04:21.200 --> 0:04:23.400 came back to Wilmer ended up at the SEC working 0:04:23.440 --> 0:04:26.160 for Commissioner Paul Atkins back in two thousand and six, 0:04:26.240 --> 0:04:29.960 and that really opened my eyes. I interned there years before, 0:04:29.960 --> 0:04:32.000 but being up on the tenth floor working for a 0:04:32.000 --> 0:04:34.680 commissioner really opened my eyes to you know, all the 0:04:34.680 --> 0:04:37.960 inner workings, the sausage making of the SEC. So I got, 0:04:38.080 --> 0:04:40.480 you know, very excited about it, especially at the policy level, 0:04:41.240 --> 0:04:44.120 worked for Chris Cox, worked in the division of Trading Markets, 0:04:44.160 --> 0:04:48.480 and then when I was happily ensconced back in private practice, 0:04:48.600 --> 0:04:50.880 they lured me back to be a commissioner. You know. 0:04:50.960 --> 0:04:54.039 I took a ninety percent pay cut, you know, worked 0:04:54.200 --> 0:04:56.200 just as hard, if not harder, and lost a lot 0:04:56.200 --> 0:04:58.880 of votes, you know. And along the way though, I 0:04:58.920 --> 0:05:01.760 made a lot of good connections. One of them was 0:05:01.839 --> 0:05:05.000 a dear friend of mine, Joe Grunfest, another former SEC 0:05:05.000 --> 0:05:08.760 commissioner Stanford law professor, who was very close with the 0:05:08.760 --> 0:05:13.960 founders of Robinhood. And in early nineteen Joe was very 0:05:14.040 --> 0:05:15.920 adamant that I needed to meet the founders, that it 0:05:15.960 --> 0:05:19.680 would be a you know, a mutually beneficial relationship if 0:05:19.680 --> 0:05:22.120 I met them, and I did. I really liked them. 0:05:23.360 --> 0:05:26.280 I found them to be very different than how Robinhood 0:05:26.320 --> 0:05:28.440 and they were being portrayed in the media at the time, 0:05:28.520 --> 0:05:32.880 especially in Washington. They're just you know, intellectually curious, very smart, 0:05:33.000 --> 0:05:35.600 very earnest, and ethical. And we hit it off and 0:05:35.600 --> 0:05:38.400 they asked me to join the board in twenty nineteen, 0:05:38.440 --> 0:05:41.719 which I did. And then when the chief leagual officer 0:05:41.839 --> 0:05:45.480 left in twenty twenty, when COVID came on, it was 0:05:45.480 --> 0:05:47.840 a natural for me to join in this capacity. So 0:05:47.880 --> 0:05:49.400 it's been a little over four years. Been a hell 0:05:49.440 --> 0:05:52.080 of a ride, tons of fun. Love the firm, love 0:05:52.120 --> 0:05:56.600 what it does. It's mission, you know, for democratizing finance. 0:05:56.920 --> 0:05:58.719 It's never a dull moment. I can tell you that much. 0:05:58.920 --> 0:06:01.600 Yeah, we know that from from covering the company as 0:06:01.600 --> 0:06:05.240 well for the last several years. All right, Larry, same 0:06:05.320 --> 0:06:06.880 question for you. How did how did you get to 0:06:06.880 --> 0:06:08.479 become the you know what we like to call the 0:06:08.520 --> 0:06:09.799 market structure guru. 0:06:10.480 --> 0:06:15.440 Good question, last man standing. I don't know. I, like Dan, 0:06:15.800 --> 0:06:19.919 grew up in Philly or outside of Philly and also 0:06:19.960 --> 0:06:23.360 had a securit this route. I started in City working 0:06:23.440 --> 0:06:28.000 various operations, eventually wound up running their back office government dealer. 0:06:28.640 --> 0:06:33.159 From there, we had a pretty horrible systems implementation. I 0:06:33.160 --> 0:06:35.640 think we blew out, you know, we screwed up money 0:06:35.640 --> 0:06:38.280 supply and got calls by the Fed like what the 0:06:38.360 --> 0:06:41.040 hell are you guys doing over there? And that's when 0:06:41.040 --> 0:06:43.320 I kind of decided that technology was a lot more 0:06:43.320 --> 0:06:47.560 fun than operations, so I moved over to Lehman. Lehman 0:06:47.839 --> 0:06:51.080 was at that time owned by American Express and Shearson, 0:06:51.160 --> 0:06:54.120 and they were wanted to kind of have their own 0:06:54.160 --> 0:07:00.280 infrastructure in the acquisition. Shearson wanted them to use We 0:07:00.279 --> 0:07:02.200 were a fixed income shop, and they wanted us to 0:07:02.279 --> 0:07:05.279 use their equity infrastructure. And the time that really didn't 0:07:05.320 --> 0:07:08.240 suit us. So I was assigned to kind of look 0:07:08.279 --> 0:07:10.720 at different systems and then try to help them with 0:07:10.760 --> 0:07:12.920 some of the decisions. And we wound up actually building 0:07:12.960 --> 0:07:16.160 our own and come back office system. And after that 0:07:16.240 --> 0:07:20.240 I wound up running their business analysis business. Then during 0:07:20.280 --> 0:07:22.680 the meantime, got married, took a couple of years off, 0:07:23.520 --> 0:07:25.320 you know, out of the industry when my father in 0:07:25.400 --> 0:07:27.280 law took Ala, and I wound up at the garment center. 0:07:27.760 --> 0:07:29.960 When I realized that business, it was around the time 0:07:30.000 --> 0:07:32.720 and AFT I realized that business really didn't have any future. 0:07:32.760 --> 0:07:35.560 I figured out, I'll go back to Wall Street. But 0:07:35.720 --> 0:07:37.840 after working a small business, I found it really hard 0:07:37.840 --> 0:07:39.600 to go back and work in a big cube farm. 0:07:39.760 --> 0:07:44.000 So I decided I would go to become a consultant. 0:07:44.040 --> 0:07:46.560 What does anybody else do you know, they become a consultant. 0:07:46.560 --> 0:07:49.720 So I wound up actually finding a research firm in 0:07:49.800 --> 0:07:53.320 Massachusetts that was doing banking technology research. And they needed 0:07:53.320 --> 0:07:55.280 to move into capital markets, and I said, oh, I 0:07:55.600 --> 0:07:58.280 could do that. So I uppeer to Boston worked for 0:07:58.280 --> 0:08:02.080 those guys for seven years to build out the capital 0:08:02.080 --> 0:08:05.760 markets and securities investment research business, which was really writing 0:08:05.760 --> 0:08:09.200 about fintech before fintech was fintech, And so I started 0:08:09.240 --> 0:08:13.040 covering a lot of the ecns and the online BROKERASCA. 0:08:13.160 --> 0:08:15.120 This was kind of the mid nineties or early two 0:08:15.200 --> 0:08:18.680 thousands when all that was you know, building up. Those 0:08:18.720 --> 0:08:21.520 guys eventually got acquired by Reuters, who then sold it 0:08:21.560 --> 0:08:25.240 to my master Card who eventually now it's all part 0:08:25.280 --> 0:08:28.160 of Gartner Group. And I realized that I could do 0:08:28.360 --> 0:08:31.240 some of the stuff better myself. So I founded a 0:08:31.280 --> 0:08:34.520 TAB Group in two thousand and three that had a 0:08:34.520 --> 0:08:38.720 good seventeen year run, and eventually, you know, selling research, 0:08:39.280 --> 0:08:41.320 the business model was basically, go talk to the buy 0:08:41.440 --> 0:08:44.200 side and then sell that information to the cell side. 0:08:44.200 --> 0:08:46.199 But the sell side was getting harder and harder to 0:08:47.000 --> 0:08:49.559 you know, they had harder and harder to pay for research, 0:08:50.200 --> 0:08:52.760 and eventually, you know, TAB Group restructured. 0:08:52.800 --> 0:08:54.760 I sold and. 0:08:56.120 --> 0:08:59.440 Bloomberg picked me up, and it's been great. I think 0:08:59.679 --> 0:09:01.599 the way we write research and putting it on the 0:09:01.679 --> 0:09:05.080 terminal and distribution a second to none to put in 0:09:05.320 --> 0:09:08.520 a plug for, you know, be I at Bloomberg. So 0:09:09.480 --> 0:09:12.360 how I got into the market structure? You know, I 0:09:12.440 --> 0:09:15.719 was writing more on technology back at Towerburg, and when 0:09:15.720 --> 0:09:18.600 I started up TAB, all these new ecns and market 0:09:18.640 --> 0:09:21.200 structures now go trading. All the stuff was cropping up 0:09:21.200 --> 0:09:24.040 and nobody was really covering it, and nobody really understood it, 0:09:24.880 --> 0:09:28.120 and so it just became a niche and I've been 0:09:28.200 --> 0:09:30.440 running there for it ever since. It's been been a 0:09:30.440 --> 0:09:35.000 great you know, twenty five year you know, thirty year trip. 0:09:35.200 --> 0:09:38.040 Oh that's great. And you know, now that I realized 0:09:38.040 --> 0:09:40.720 that we have two Philadelphians on the call, I'm actually 0:09:40.760 --> 0:09:43.080 taking my son to his first Eagles game next month, 0:09:43.600 --> 0:09:45.480 So I am going to come back and hit you 0:09:45.559 --> 0:09:47.160 up on which are the best cheese steaks? 0:09:47.240 --> 0:09:48.599 But you got it? 0:09:48.920 --> 0:09:52.360 Yeah, But Dan, I want to ask you a question 0:09:52.440 --> 0:09:55.240 about the SEC, and specifically the rulemaking agenda that we're 0:09:55.240 --> 0:09:58.360 seeing at the SEC. There's been a lot of proposals 0:09:58.440 --> 0:10:01.040 out there over the last few years from Chairman Gensler. 0:10:01.360 --> 0:10:04.960 The Predictive Analytics Rule, which governs how financial advisors and 0:10:04.960 --> 0:10:07.920 brokers use AI you know, that's one of the first 0:10:07.920 --> 0:10:11.240 I think instances of AI coming into a rulemaking sounds 0:10:11.280 --> 0:10:14.080 like it's going to be reproposed. But also this idea 0:10:14.160 --> 0:10:18.080 of the SEC market structure proposals, I mean, Chairman Gensler 0:10:18.080 --> 0:10:22.680 comes out and essentially pursues a very aggressive agenda in 0:10:22.760 --> 0:10:26.400 terms of altering the US markets. And so what I'd 0:10:26.400 --> 0:10:29.880 love to understand is what are your views on just 0:10:29.960 --> 0:10:32.360 the general SEC rules and the proposals that you're seeing 0:10:32.400 --> 0:10:35.319 out there. Do you anticipate Chairman Gensler is going to 0:10:35.360 --> 0:10:39.840 finalize any before the election? And you know what improvements 0:10:39.880 --> 0:10:42.480 because I think I've read so many of robinhood comment letters. 0:10:42.800 --> 0:10:45.480 What improvements do you think the SEC can do going forward? 0:10:46.520 --> 0:10:48.920 It's a great question. Look, one thing to keep in 0:10:48.920 --> 0:10:52.400 mind as you talk about both the predictive analytics proposal 0:10:52.400 --> 0:10:55.560 as well as the market structure proposals, they both emanate 0:10:55.920 --> 0:10:59.280 from the same event, which was gme believe it or not? Right. 0:10:59.360 --> 0:11:05.160 So here comes the leading capital markets regulator in the 0:11:05.240 --> 0:11:09.000 US looks at a meme stock rally led on social 0:11:09.080 --> 0:11:11.920 media and says, my god, we need to reform equity 0:11:11.920 --> 0:11:16.800 market structure and eliminate what was really at the time 0:11:16.880 --> 0:11:20.640 called gamification. It's now being called AI. I think that's 0:11:20.640 --> 0:11:23.040 a marketing's been quite frankly between you and me. But 0:11:23.120 --> 0:11:26.360 everything is related to gm ME. That's the genesis. So 0:11:27.280 --> 0:11:29.280 I have a hard time with all of these rules 0:11:29.320 --> 0:11:33.520 because I deeply, having lived through gm ME in a 0:11:33.600 --> 0:11:37.480 very real and serious way, believe that the predicate for 0:11:37.520 --> 0:11:40.600 these rules is based on a false narrative, right that 0:11:41.080 --> 0:11:46.240 payment for orderflow, that gamification caused GME, and therefore these 0:11:46.320 --> 0:11:49.920 rules are going to fix what happened in January of 0:11:49.960 --> 0:11:53.520 twenty twenty one. That's garbage. What happened in twenty twenty one. 0:11:54.000 --> 0:11:57.120 A bunch of folks got together on social media agreed 0:11:57.160 --> 0:12:00.360 to do something directionally in the markets. They did it, 0:12:00.400 --> 0:12:02.240 and it had a major impact, right. It wiped out 0:12:02.240 --> 0:12:04.520 a hedge fund, It did all these other things. But 0:12:04.520 --> 0:12:07.720 it's as old as time, right since the first Yahoo 0:12:07.840 --> 0:12:10.640 chat room came out in the nineties. I actually worked 0:12:10.679 --> 0:12:13.000 on one of the first Internet enforcement cases when I 0:12:13.000 --> 0:12:15.400 was an intern at the SEC Systems of Excellence. Go 0:12:16.000 --> 0:12:18.880 look it up. It was being pumped on Yahoo Finance 0:12:18.960 --> 0:12:21.480 and I laughed thinking about that because we had one 0:12:21.520 --> 0:12:24.840 computer terminal in our whole floor at the SEC linked 0:12:24.880 --> 0:12:26.839 to the Internet, and I went to one of the 0:12:26.880 --> 0:12:28.640 supervisors and said, if I go on there, they're going 0:12:28.679 --> 0:12:30.679 to know the SEC's looking. He said, I don't know, 0:12:30.800 --> 0:12:33.320 give a shot, who cares. Yeah, that's where the SEC 0:12:33.480 --> 0:12:36.599 was then. But it was the same activity, right. It's 0:12:36.640 --> 0:12:39.720 a kind of classic pump and dump type activity. Get 0:12:39.760 --> 0:12:42.320 lots of people together trying to get them to do 0:12:42.360 --> 0:12:45.960 the same thing directionally, and then you make money off that. 0:12:45.960 --> 0:12:48.840 That's what happened. Those are hard cases to bring. So 0:12:48.880 --> 0:12:51.000 what did the agency do in debt? Instead? It went 0:12:51.000 --> 0:12:54.400 out and spent not enough time but a lot of 0:12:54.440 --> 0:12:57.880 resource proposing rules. So in December twenty two you had 0:12:57.920 --> 0:13:01.920 the four market structure proposals come out. Right now we 0:13:02.000 --> 0:13:04.560 have one implemented, the six oh five amendments. Those are 0:13:04.679 --> 0:13:08.080 largely fine. Larry will have more detailed commentary on that. 0:13:08.160 --> 0:13:12.480 I'm sure. We hear that tick size is coming here 0:13:12.520 --> 0:13:15.000 in the next couple months, as well as the best 0:13:15.160 --> 0:13:18.840 X rule, and we also hear that the the retail 0:13:18.880 --> 0:13:21.880 auction proposal, which was the most egregious of them all. 0:13:21.920 --> 0:13:24.559 They're all egregious in their own way. Again, given their 0:13:25.600 --> 0:13:31.280 pretext to them the retail auction proposal we hear is 0:13:31.720 --> 0:13:34.960 hitting the scrap heap, which is where it belongs. You know, 0:13:35.000 --> 0:13:39.200 the notion that Robinhood and other retail brokers would you 0:13:39.320 --> 0:13:41.720 have to send all retail orders to an exchange. I 0:13:41.760 --> 0:13:44.040 think you know it was pure folly to begin with. 0:13:44.160 --> 0:13:47.000 The comment file destroyed it in a in a very 0:13:47.400 --> 0:13:50.440 real way, exposed it as not a very unserious proposal. 0:13:51.480 --> 0:13:53.480 And so it's good that that's off to the side. 0:13:54.280 --> 0:13:56.280 But we are still waiting to see what tick size 0:13:56.280 --> 0:13:58.360 looks like and what the impacts are there. I mean, 0:13:58.480 --> 0:14:00.800 I lived through the tick size when I was an 0:14:00.880 --> 0:14:05.040 SEC commissioner. Even these little things that sound mundane and unimportant, 0:14:05.840 --> 0:14:09.320 they have huge consequences, right, I mean the issuer community. 0:14:09.360 --> 0:14:11.880 This is the one thing we never think about when 0:14:11.880 --> 0:14:15.560 we talk about equity market structures. These are companies trading 0:14:15.600 --> 0:14:18.560 on these exchanges, right, and if you impact the liquidity 0:14:19.640 --> 0:14:21.800 in their stock, you impact the trading in their stock. 0:14:22.000 --> 0:14:25.880 They go crazy, right. The CEOs of all these mid 0:14:25.920 --> 0:14:28.200 cap small cap companies that all of a sudden didn't 0:14:28.200 --> 0:14:30.000 have liquidity. If you don't have a secondary market, you 0:14:30.040 --> 0:14:32.800 can't do secondary offerings and things like that. It really 0:14:32.800 --> 0:14:35.800 impacts capital information. So we'll see the impact of that 0:14:36.480 --> 0:14:39.880 best execution. As I told Shair Gensler directly to his face, 0:14:39.960 --> 0:14:43.000 I thought was just ridiculous. FINRA has had a very 0:14:43.000 --> 0:14:46.160 well functioning best X rule in place for years. It 0:14:46.240 --> 0:14:50.000 has a ton of interpretations underneath it, which has helped 0:14:50.000 --> 0:14:54.360 the rule function for decades. Rights As markets changed, FINERRA 0:14:54.440 --> 0:14:57.040 has changed along with it and adopted and you know, 0:14:57.080 --> 0:15:01.080 new interpretations to allow the rule to work. And it's 0:15:01.080 --> 0:15:04.000 a rule with teeth. And I think the notion that 0:15:04.760 --> 0:15:08.160 you know, the SEC needs its own rule, that the 0:15:09.240 --> 0:15:14.360 official markets regulator, the government, the real governmental market regulator, 0:15:14.400 --> 0:15:16.200 the SEC needs one, and that finer is just a 0:15:16.200 --> 0:15:20.400 membership organization is just ridiculous. So we'll see where those 0:15:20.480 --> 0:15:23.880 market structure rules play out. I think if best X 0:15:23.960 --> 0:15:26.560 comes out even close to where it was proposed, I'm 0:15:26.600 --> 0:15:30.440 positive someone's suing them, and I'm nearly positive they're going 0:15:30.480 --> 0:15:33.480 to win. So I try not to lose sleep on 0:15:33.520 --> 0:15:37.080 that one. Predictive analytics, as you said, the chair has 0:15:37.160 --> 0:15:39.520 come out publicly now and said they're going to repropose. 0:15:40.000 --> 0:15:43.600 Good for him, you know, I applaud him and to 0:15:43.680 --> 0:15:47.360 have the humility to recognize how awful that proposal was. 0:15:47.680 --> 0:15:51.560 I mean, I gotta tell you I've read and written rules, 0:15:52.160 --> 0:15:54.920 you know, hundreds, if not thousands of them the SEC. 0:15:55.000 --> 0:15:57.640 It was the worst written rule I've ever seen. It 0:15:57.720 --> 0:15:59.680 was like a joke. It was like my seventeen year 0:15:59.680 --> 0:16:02.880 old did homework assignment and I was looking at it form. 0:16:03.280 --> 0:16:07.560 It was embarrassing to the agency. The definition of covered technology, 0:16:08.080 --> 0:16:10.840 which Commissionery way To pointed out in his dissent would 0:16:10.880 --> 0:16:16.000 include an abacus, was just completely silly. And by the way, 0:16:16.040 --> 0:16:19.200 the more macro point the point we drove home in 0:16:19.240 --> 0:16:22.240 our Robinhood comment letter. If you're at it, technology is 0:16:22.240 --> 0:16:24.960 the way that we're bringing people into the markets. And 0:16:25.000 --> 0:16:30.320 there is a national policy of wanting inclusive markets, right, 0:16:30.360 --> 0:16:33.320 we want retail in our capital markets. It distinguishes us 0:16:33.400 --> 0:16:38.040 from other countries where they're very wholesale markets and disintermediated. 0:16:38.040 --> 0:16:42.320 We want high retail participation. It's good as a national policy, 0:16:43.080 --> 0:16:46.200 and technology is the way to do that to bring 0:16:46.240 --> 0:16:49.200 in more people. It makes the provision of retail financial 0:16:49.200 --> 0:16:53.480 services cheaper. Robinhood was created, you know with that in mind. 0:16:53.800 --> 0:16:57.120 It's been successful. Right. We have all these customers now 0:16:57.160 --> 0:17:01.040 because the use of technology is allowed us to provide 0:17:01.440 --> 0:17:05.240 low price financial services to folks. And the idea that 0:17:05.320 --> 0:17:08.320 the SEC is going to say, well, we're worried that 0:17:08.359 --> 0:17:11.200 the folks being brought in are too stupid to understand 0:17:11.720 --> 0:17:14.840 what they're doing when they buy half a Tesla share, right, 0:17:15.880 --> 0:17:18.479 We're going to actually regulate them out of the markets 0:17:18.520 --> 0:17:21.840 because we're worried that they're too dumb. I find it offensive, 0:17:22.440 --> 0:17:26.760 I find it counter to national policy, and I'm again 0:17:26.840 --> 0:17:28.800 I applaud them for saying they got to repropose it. 0:17:28.960 --> 0:17:31.439 I don't think they should be doing anything in this space. 0:17:32.080 --> 0:17:33.639 And I think the fact that they've been calling it 0:17:33.680 --> 0:17:36.120 an AI rule is just a marketing scheme to make 0:17:36.160 --> 0:17:39.720 it sound more important after we had the AI takeoff, 0:17:40.040 --> 0:17:43.080 you know, in the last nine to twelve months. Because 0:17:43.160 --> 0:17:46.760 really this thing started as a so called gamification rule, 0:17:46.800 --> 0:17:48.840 and we all have to keep that in mind when 0:17:48.960 --> 0:17:51.600 and it helps explain why it's so such a bad idea. 0:17:51.960 --> 0:17:55.080 Yeah, when I cover this rule, I can I can 0:17:55.080 --> 0:17:58.840 remember my headlines originally going from gamification to you know, 0:17:58.880 --> 0:18:02.680 covery technologies AI, and it was just a very uh, 0:18:02.720 --> 0:18:05.440 you know, long path to get to that proposal. 0:18:05.720 --> 0:18:08.359 Let me let me let me put a little color 0:18:08.400 --> 0:18:12.679 around this, is that under the proposed rule that you 0:18:12.720 --> 0:18:14.640 could have a chart of a stock let's just call 0:18:14.720 --> 0:18:17.800 it an IBM or whatever. And that would be okay 0:18:17.840 --> 0:18:20.600 because that's kind of history because it shows you what happened. 0:18:20.640 --> 0:18:22.679 But if you put a trend line on it, you know, 0:18:22.800 --> 0:18:26.640 that becomes something that may prompt someone into action. Then 0:18:26.680 --> 0:18:31.879 that becomes you know, possibly conflicted technology. And and so 0:18:31.960 --> 0:18:34.719 I you know, list of top names that are trading, 0:18:34.960 --> 0:18:41.600 list of advanced declines, news items research. Virtually anything that 0:18:41.600 --> 0:18:45.440 that you know, robinhood puts on their website could possibly 0:18:45.480 --> 0:18:49.440 be conflicted. And unlike other things, you can't just disclose 0:18:49.480 --> 0:18:53.520 a way that we possibly be conflicted. That they must 0:18:53.600 --> 0:18:57.560 either be mitigated or or or eliminated. The whole thing 0:18:58.359 --> 0:19:02.800 basically would pretty much leave robin Hood as just a 0:19:02.960 --> 0:19:05.760 place to view your positions and a buy style ticket 0:19:05.840 --> 0:19:10.600 and that's basically all that robin could and maybe a quote. 0:19:11.440 --> 0:19:17.240 It would virtually shut down all all modern you know, 0:19:17.359 --> 0:19:19.880 brokerage technology, and you. 0:19:19.840 --> 0:19:21.760 Know, I mean, I think that goes to the point 0:19:21.800 --> 0:19:24.280 that this has been a very aggressive sec in terms 0:19:24.280 --> 0:19:26.200 of rule making, not just in terms of the number 0:19:26.200 --> 0:19:28.920 of rules that they've been promulgating, but in how they're 0:19:28.960 --> 0:19:33.200 interpreting the statutes, you know, uh, to sort of go 0:19:33.720 --> 0:19:37.480 far beyond you know what many what many think that 0:19:37.560 --> 0:19:41.200 the you know, Congress intended when when they passed these laws. 0:19:41.600 --> 0:19:44.239 I want to sort of ask you a question about that, 0:19:44.280 --> 0:19:48.560 because we spoke out the AI rule, we spoke about 0:19:48.600 --> 0:19:51.440 the market structure rules. You know, we've also seen rules 0:19:51.440 --> 0:19:54.080 from the SEC on climate change, on you know, the 0:19:54.119 --> 0:19:57.040 definition of a dealer on you know, the definition of 0:19:57.080 --> 0:20:01.040 an exchange, on private funds. And we're sort of in 0:20:01.080 --> 0:20:03.600 this you know, what we like to call a perfect 0:20:03.640 --> 0:20:06.520 storm where you have a very aggressive regulator sort of 0:20:06.560 --> 0:20:11.320 running smack into you know, a federal judiciary in particular 0:20:11.440 --> 0:20:15.320 that is very concerned with administrative overreach. You know, we 0:20:15.760 --> 0:20:19.480 recently saw the private funds rule get struck down in 0:20:19.520 --> 0:20:22.959 the Fifth Circuit. You've obviously been on the inside as 0:20:23.000 --> 0:20:26.240 an SEC commissioner. You're now on the industry side of things. 0:20:26.359 --> 0:20:28.600 You know, what do you think the SEC is getting 0:20:28.720 --> 0:20:30.760 wrong in its approach? What do you think it's getting 0:20:30.920 --> 0:20:34.239 right in its approach? And what do you think this 0:20:34.280 --> 0:20:37.639 all means for cher Gensler's legacy at the end of 0:20:37.680 --> 0:20:37.960 the day. 0:20:38.359 --> 0:20:41.800 Yeah. I mean, look, as the Fifth Circuit pointed out 0:20:42.240 --> 0:20:45.320 last week or the week before, and you know, the 0:20:45.359 --> 0:20:51.200 proxy you a rebuke to the SEC. They're getting a 0:20:51.240 --> 0:20:53.440 lot more wrong than they're getting right when it comes 0:20:53.440 --> 0:20:56.119 to these rulemakings. And I don't say that with joy. 0:20:56.320 --> 0:20:59.960 I'm a problem of the SEC. I believe in the knee, 0:21:01.080 --> 0:21:05.600 you know, for a strong and respected SEC. But you know, 0:21:05.720 --> 0:21:08.639 you got to call a spadeus bade, and they've gotten 0:21:08.800 --> 0:21:12.760 both the economic analysis critically wrong and they've gotten the 0:21:12.840 --> 0:21:17.800 legal analysis critically wrong in a way that's not, you know, 0:21:17.960 --> 0:21:20.800 typical of the agency. I mean, some of the best 0:21:20.880 --> 0:21:23.840 lawyers in the country have come out of that agency. 0:21:23.880 --> 0:21:27.840 It's not some sort of backwater regulatory agency where you 0:21:27.880 --> 0:21:30.160 go for a cushy job. It's where you get the 0:21:30.200 --> 0:21:33.760 brightest minds, and they're very intense. I mean I saw 0:21:33.840 --> 0:21:36.560 no drop off leaving Wilmer, Cutler and Pickering and going 0:21:36.600 --> 0:21:40.639 into the SEC. The level of intellect and attention was great, 0:21:40.840 --> 0:21:44.359 and I believe it still exists. But I believe some 0:21:44.440 --> 0:21:47.679 of the controls internally are being run over roughshot. I 0:21:47.720 --> 0:21:51.679 think things are being ignored on the cost benefit side. 0:21:52.040 --> 0:21:55.480 From the memo that Mary Shapiro when I was on 0:21:55.520 --> 0:21:59.280 the Commission, made public in twenty twelve demanding a rigorous 0:21:59.680 --> 0:22:02.600 you can analysis. None of these rules satisfy that memo. 0:22:02.920 --> 0:22:05.520 And on the legal analysis side, it's like, you know, 0:22:05.640 --> 0:22:08.960 clutching it straw some of the stuff Eliott you mentioned, 0:22:09.800 --> 0:22:13.959 you know, tenuous statutory authority. Look at the predictive analytics rule. 0:22:14.000 --> 0:22:17.080 What do they cite a statutory authority? A section in 0:22:17.160 --> 0:22:21.560 nine thirteen of Dodd Frank called other matters, Like literally, 0:22:21.560 --> 0:22:23.840 you have a whole section, pages and pages and pages 0:22:23.880 --> 0:22:28.159