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Speaker 1: Welcome to trillions. I'm Joel Webber and I'm Eric bell Tunis. Eric,

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Speaker 1: you're back from the beach. I survived. I can see

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Speaker 1: you via our zoom and you look like you've got

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Speaker 1: some sun on your face. Congratulations. I'm still white and pasty.

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Speaker 1: I needed that. Um, but the planes were half empty.

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Speaker 1: Everybody was wearing masks. They apparently scrub them down. And uh,

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Speaker 1: it was great. We had a good time. I feel

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Speaker 1: great and my dad was happy to see us. So Eric,

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Speaker 1: we've been doing this podcast for two and a half

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Speaker 1: years together. I think we've had a lot of great guests,

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Speaker 1: but I think today's guests might be the best guests

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Speaker 1: we've had. Yeah, definitely up there. This is really exciting

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Speaker 1: for me because a lot of the issues we talked

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Speaker 1: about over the past two and a half years are

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Speaker 1: typically stuff that become media stories. You know, are et

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Speaker 1: f s trading at discounts? Um, what about the x

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Speaker 1: I V story? You know who owned that. All of

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Speaker 1: these issues are issues that make it to the forefront,

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Speaker 1: tend to be issues that the SEC has to look at,

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Speaker 1: which is me foreshadowing who the guest is. But there's

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Speaker 1: a lot of times we'll say we wonder what the

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Speaker 1: SEC thinks about this, and so now we have an

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Speaker 1: opportunity to get that perspective. Well, I miss spoke slightly

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Speaker 1: because we actually have two guests. In addition to someone

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Speaker 1: from the SEC who will introduce him just a second,

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Speaker 1: we also have a Bloomberg Intelligence analyst who covers regulation

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Speaker 1: joining us. Nathan Dean. Hi, Nathan, how you doing? Thanks

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Speaker 1: for having me. I'm gonna give you that. I'm gonna

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Speaker 1: give you the drum roll because you are actually the

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Speaker 1: person who helped make this happen. So, Nathan, who's our

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Speaker 1: guest today? Our guest today is uh SEC Commissioner Hester Purse,

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Speaker 1: also known as crypto Mom to many people in the

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Speaker 1: bitcoin community. And it's just an absolute honor to have her.

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Speaker 1: And thank you for allowing me to come on and

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Speaker 1: ask a few questions myself. Uh, this is going to

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Speaker 1: be a wonderful discussion. Nate and I work in Bloomberg

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Speaker 1: Intelligence and we cross paths. I don't know once every

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Speaker 1: two months he'll write about something with the SEC that

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Speaker 1: deals with the t f S and UM. So we've

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Speaker 1: gotten to know each other pretty well. And I think

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Speaker 1: also when you said crypto Mom, that's how I got

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Speaker 1: introduced to Commissioner because when the Bitcoin ETF wasn't approved,

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Speaker 1: she was on the side of dissenting from that, and

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Speaker 1: that's how I got to know it. But then I've

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Speaker 1: read a lot of her speeches and I find myself

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Speaker 1: very in tune with her takes. So I'm really excited

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Speaker 1: about this best time on trillions. SEC Commissioner, hester person, Commissioner,

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Speaker 1: Welcome to Trillions. I'm delighted to be here. I do

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Speaker 1: have to start with two disclaimers. One, I'm sure I

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Speaker 1: will not be the best guest you've ever had. And

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Speaker 1: to um, the views that I represent are my own

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Speaker 1: views and not necessarily those of the SEC or my

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Speaker 1: fellow commissioners. Okay, what are your views on banana bread

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Speaker 1: versus sour dough during the pandemic. Banana bread is good,

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Speaker 1: but it has to have chocolate chips in it, and

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Speaker 1: then it's better than sour dough. That's a pro tip

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Speaker 1: right there. Um. Okay, So down to business. You noted

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Speaker 1: in a recent speech that e t f s were

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Speaker 1: in the portfolio of seven point eight million Americans, and

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Speaker 1: that number even comes from a couple of years ago. Um,

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Speaker 1: And that they're gaining even more share. How big do

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Speaker 1: you see them getting and what do you guys at

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Speaker 1: the SEC watch out for. Well, it's hard for me

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Speaker 1: to anticipate how big they'll get. I think they'll be

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Speaker 1: more and more a fixture of more and more Americans portfolios,

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Speaker 1: and I can't see them declining in in in importance.

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Speaker 1: I think they'll grow an importance UM in terms of

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Speaker 1: what we watch for. You know, I think now that

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Speaker 1: there's such an important fixture, that also means that there

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Speaker 1: there's something that we have to pay attention to. From

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Speaker 1: an investor protection um and in market stability perspective, I

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Speaker 1: think we look we look at them from both of

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Speaker 1: those perspectives. One of the things before we get into

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Speaker 1: market stability and some of the exotic products UM when

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Speaker 1: we talk about the rise of e t f s

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Speaker 1: and Passive. I tracked Vanguard and black Rock a lot,

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Speaker 1: and I'm just amazed that how much they take in.

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Speaker 1: They almost taken like all the money and almost all

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Speaker 1: the money is going to Passive. And so there's some

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Speaker 1: people who get concerned that, you know, black Rock and Vanguard,

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Speaker 1: as Passive gets bigger and that money is concentrated, are

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Speaker 1: going to own too much of America's companies. I mean,

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Speaker 1: I think right now the rule is a fund can't

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Speaker 1: own more than ten and I think Vanguard's biggest fund

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Speaker 1: has maybe two and a half percent of Apple, so

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Speaker 1: they have a lot of room to grow. But that

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Speaker 1: would mean Vanguard could of a stock. Do you guys

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Speaker 1: look at that? Is it possible that there might be

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Speaker 1: a regulation to sort of limit how much a company

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Speaker 1: can own of a stock because right now I think

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Speaker 1: between black Rock and Vanguard they own about of most companies. Well,

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Speaker 1: I think it is important to distinguish each queen Vanguard

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Speaker 1: for black Rock asset managers and the particular funds that

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Speaker 1: they advise, because it's actually the fund that's the owner,

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Speaker 1: and the funds are managed separately, so they're not Each

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Speaker 1: fund has its own objective, so it's they're not all

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Speaker 1: managed um in lock steps. And and that means that

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Speaker 1: you can't really say, okay, let's just look at everything

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Speaker 1: that one large asset manager has and just attribute that

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Speaker 1: to the large asset manager itself. Um, you have to

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Speaker 1: look more at a at a more granular level to

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Speaker 1: see which fund owns what. Now that said, as you

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Speaker 1: pointed out, some funds do have quite a big percentage,

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Speaker 1: and that is something that's that's a new phenomenon. I'm

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Speaker 1: not entirely new, but it's a it's a growing phenomenon,

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Speaker 1: and so I think it's something that that everyone watched.

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Speaker 1: Is that said, there's a lot of concern about passive investing,

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Speaker 1: and my theory is that if passive investing it grows,

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Speaker 1: then there is definitely going to be room for active

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Speaker 1: investors to make a lot of money. If everyone is passive,

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Speaker 1: the few people who aren't will be able to to

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Speaker 1: do quite well. So I don't think that this means

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Speaker 1: the end of active and I don't think it means

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Speaker 1: that UM markets can't function. So, Commissioner, I'd like to

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Speaker 1: ask a question from the regulatory point of view. You know,

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Speaker 1: last September, the SEC finalized it's et F Modernization Framework

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Speaker 1: Rule UM, you know, which in part aims to facilitate

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Speaker 1: greater competition and innovation. You know to our audience and

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Speaker 1: our audience are generalists. What are the main takeaways for

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Speaker 1: investors to know? And do you think more work needs

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Speaker 1: to be done in terms of this just the overall

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Speaker 1: et F framework. I think the main takeaway from that

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Speaker 1: rule is that we finally sat down, put pen to

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Speaker 1: paper and said, all right, let's take the collective experience

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Speaker 1: that we've had over the past nearly three decades UM,

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Speaker 1: and let's let's put that into a formal rule. Up

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Speaker 1: until that point, the way e T F got approved

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Speaker 1: was through an exemptive application process, which is a lengthy

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Speaker 1: UM process and an expensive process and means that UM,

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Speaker 1: we were basically doing one off approval and that just

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Speaker 1: doesn't make sense for something as established as ETS. So

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Speaker 1: there had been attempts before UM. In in I think

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Speaker 1: two thousand and eight, there was an attempt to do

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Speaker 1: a rule in this space, but obviously got overtaken by events.

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Speaker 1: So the fact that we were able to get a

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Speaker 1: rule out I think is is just good for predictability

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Speaker 1: rule of law reasons. You want to have a general

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Speaker 1: framework that everyone relies on. You want everyone's can additions

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Speaker 1: to be the same UM, and so so it provided

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Speaker 1: some regularity, and I think that's a great start. What

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Speaker 1: it means is that it frees up our staff resources

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Speaker 1: to spend time on more UM unusual e T s,

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Speaker 1: the ones that you would want us to spend a

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Speaker 1: little bit more time thinking about UH. And so that

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Speaker 1: was That was a side benefit of the rule, just

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Speaker 1: having having more staff time to think about some of

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Speaker 1: these unusual products that are more unusual products that people

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Speaker 1: have come to us UM and asked if they could

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Speaker 1: bring to market. Do I think that we could do

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Speaker 1: more on the on the rule? Could we extend it? Yes,

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Speaker 1: I think we could have included leveraged and inverse ets

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Speaker 1: and the rule we we chose not to, So I

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Speaker 1: think there will be room for us to to add

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Speaker 1: some more regularity to the E T F market in

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Speaker 1: the future, once we've had more experience with different kinds

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Speaker 1: of E T F UM. That's a great segue the

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Speaker 1: unusual part, because I wanted to get into some of

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Speaker 1: the some of the more juicy topics here, namely, uh

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Speaker 1: the exotic products like you mentioned, we just saw USO

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Speaker 1: was the latest, you know, teachable moment I called them

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Speaker 1: where people might not have understood what was happening or

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Speaker 1: how futures get rolled before that. It was x I

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Speaker 1: V leverage GTF was like five years ago. These kind

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Speaker 1: of exotic products crop up now and then, and then

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Speaker 1: black Rock will propose these acronyms that they'll be able

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Speaker 1: to make like E T I or e t P

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Speaker 1: like a labeling system to keep playing vanilla away from

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Speaker 1: the exotic stuff. We've proposed that what we call traffic light,

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Speaker 1: which is like movie ratings, and you know, if it

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Speaker 1: has leverage or rolls futures, it would get a red

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Speaker 1: light and we would just show you quickly why it

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Speaker 1: got the red light. But this is a real tough

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Speaker 1: nut to crack because not all E t F s

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Speaker 1: are boy scouts and not all E t N s

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Speaker 1: or e t P s are that bad. And I

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Speaker 1: think there's a lot of moving part it's here. What's

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Speaker 1: your take on how to allow for innovation in the

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Speaker 1: exotic areas while protecting the innocent. Well, I think it's

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Speaker 1: a good question and something that we think about all

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Speaker 1: the time. But we do think about it from the

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Speaker 1: perspective of not being a merit regulator. We're not, so

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Speaker 1: we're not looking at products as they come through and saying, yeah,

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Speaker 1: this one will be good for investors, this one not good. Um,

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Speaker 1: So we allow the one that that we think will

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Speaker 1: be good, and we disallow the one that that we

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Speaker 1: just just disapprove the one that will not be good. Instead,

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Speaker 1: what we do, as we say, is the disclosure that

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Speaker 1: the fund is going to use going to tell investors

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Speaker 1: what they need to know in order to understand whether

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Speaker 1: this product will work in their portfolios or will work

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Speaker 1: as a tool in their investment strategy. And so that

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Speaker 1: is really where our focus needs to be, and from

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Speaker 1: my perspective, UM we have had some success in this

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Speaker 1: area in making sure that the disclosure is quite clear. Uh,

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Speaker 1: And I think sometimes people do have the teachable moments,

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Speaker 1: as he said, and you know, they can be really

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Speaker 1: bad events, and so I'm not trying to I'm not

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Speaker 1: trying to downplay them, but I do think it's it's

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Speaker 1: good for people to read the disclosure and then think

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Speaker 1: about how how they'll things will play out and not

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Speaker 1: assume just because things have been going one way for

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Speaker 1: a very long time that they're going to keep going

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Speaker 1: that way. We've seen in recent months some really some

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Speaker 1: really big changes in our markets, obviously, and that means

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Speaker 1: that products that worked one way for a long time

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Speaker 1: may work in a very different way during that change time.

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Speaker 1: And so UM even very sophisticated investors who were using

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Speaker 1: strategies UM that they thought worked really well found themselves

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Speaker 1: in a bit of a difficult situation in recent months

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Speaker 1: when things changed dramatically, and so it's a good lesson

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Speaker 1: for all of us. You have to think not only

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Speaker 1: of what the markets look like today, but of how

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Speaker 1: things might change in the future. And you have to

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Speaker 1: protect yourself, um and and and think think ahead and

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Speaker 1: protect yourself for circumstances that might look very different than

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Speaker 1: what you're experiencing now. Um So we all learn in

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Speaker 1: market events like like the ones that we've had in

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Speaker 1: recent months. That makes total sense. I guess the only

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Speaker 1: thing that I've found in there that I would feel

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Speaker 1: would might get a little pushback is reading the disclosures.

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Speaker 1: I think there's just an unfortunate reality that people just

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Speaker 1: don't read the documents that much. Um So, the hence,

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Speaker 1: you know, my take is a need for maybe some

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Speaker 1: kind of outside third party objective rating system like movies

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Speaker 1: or something that gives you the information quickly so that

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Speaker 1: you don't have to go and through the prospectives or

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Speaker 1: or do you think just maybe trying to just urge

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Speaker 1: people to read the prospectives or put the information higher

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Speaker 1: up in the documents. Um what's your take on that,

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Speaker 1: like apathy of reading the documents, Well, that's certainly is

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Speaker 1: a phenomenon that we see, and and it's an understandable one.

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Speaker 1: I mean, the disclosures that we have, frankly for for

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Speaker 1: all investment products are ones that are really difficult to read. UM.

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Speaker 1: We are working on that in in various ways. We've recently,

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Speaker 1: in connection with with a new regulation for broker dealers

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Speaker 1: and investment advisors, we put out a requirement that there

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Speaker 1: be a short form disclosure, which we hope will be effective.

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Speaker 1: I've been pushing specifically for for allowing firms to use

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Speaker 1: technology to better communicate with investors, because I think lots

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Speaker 1: of investors who might not be inclined to read a

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Speaker 1: disclosure statement might well listen to it on a podcast,

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Speaker 1: watch it on a video, work with it through an

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Speaker 1: interactive app on their phone. And so a lot of

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Speaker 1: firms really are interested in offering these kinds of things

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Speaker 1: to to investors, but the rules, the way they're written

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Speaker 1: now make that really hard to do. UM. What can

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Speaker 1: we do to allow um populations that speak different languages

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Speaker 1: than English to get disclosures in a language that works

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Speaker 1: for them, So we can be more creative on that front.

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Speaker 1: But even if we we do a better job in

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Speaker 1: that area. I think you're right that they're going to

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Speaker 1: be a lot of people who still are looking to

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Speaker 1: third parties for guidance about what they should what they

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Speaker 1: should buy, and what they should avoid. And I don't

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Speaker 1: think a rating system is a bad idea, especially if

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Speaker 1: it's something that's done designed by the private sector. I mean,

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Speaker 1: if I'm going to buy a refrigerator, I don't know

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Speaker 1: a lot about refrigerators. I don't purchase them very often,

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Speaker 1: and so I'm going to look up some sort of

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Speaker 1: third party advice on which ones are good and which

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Speaker 1: ones aren't, and I'm going to run that search based

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Speaker 1: on what my particular needs are. And so I think

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Speaker 1: those kinds of third party rating systems can be very valuable. Commissioner,

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Speaker 1: I have to ask if you've ever heard of Eric's

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Speaker 1: traffic light system prior to him pitching it to you

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Speaker 1: during this podcast. Well, I'm sorry that I haven't, but

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Speaker 1: I think it's an interesting idea, UM. Commission I want

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Speaker 1: to ask you about another area of interest right now,

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Speaker 1: which is E, S, G, E T F S UM.

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Speaker 1: Eric is sort of a hater in that world, UM,

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Speaker 1: and you know he thinks thinks that, Well, we've we've

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Speaker 1: covered that before, but you've spoken out UM I believe,

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Speaker 1: on on how the labels of E s G, E

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Speaker 1: T F S can also be misleading. What are your

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Speaker 1: specific concerns there, Well, I think I'm not the only

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Speaker 1: one to raise concerns about greenwashing UM, which essentially means

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Speaker 1: that you say, oh, well, everyone wants to wants E

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Speaker 1: s G now in their in their portfolio, so we'll

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Speaker 1: just flap the E s G label on and we'll

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Speaker 1: just keep doing whatever it is we were doing before.

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Speaker 1: And that may be fine. I mean, maybe what you

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Speaker 1: were doing before was E s G. E s G

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Speaker 1: is such a broad set of UM characteristics. So again

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Speaker 1: going back to what I said before, what people need

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Speaker 1: to do, what what companies need to do when they

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Speaker 1: offer these products is they need to explain what they

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Speaker 1: mean by E s G for that particular product and

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Speaker 1: and be very clear about that and then allow investors

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Speaker 1: who care about those things to to pick the E

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Speaker 1: s G products that works for them for whatever purpose

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Speaker 1: they're trying to achieve. I mean, I think they're There

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Speaker 1: is a lot of attention on whether or not E

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Speaker 1: s G is good for returns or not. And and

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Speaker 1: again because we don't really have a consistent view of

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Speaker 1: what E s G means. You can't really say across

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Speaker 1: the board, yes, it's good to have an E s

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Speaker 1: G portfolio. It's going to increase your return UM, and

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Speaker 1: and some people are willing to sacrifice returns in order

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Speaker 1: to achieve some other objectives. So again, I think it's

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Speaker 1: really important that UM that the company's offering these products

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Speaker 1: are very clear on whether you will be sacrificed in

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Speaker 1: return or whether they believe that that the E s

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Speaker 1: G characteristics are consistent with with achieving the highest return

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Speaker 1: consistent with that strategy. Let's shift because I don't want

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Speaker 1: to lose some of these other topics here. Um. Obviously Bitcoin,

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Speaker 1: this is uh how I got to hear of you

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Speaker 1: when you wrote that descent. Um, I was just sort

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Speaker 1: of note about bitcoin. E t f s in the

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Speaker 1: world or the e t P s in the world.

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Speaker 1: There's now different funds across the world. The one in

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Speaker 1: Sweden that's an e t N has been around for

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Speaker 1: five years now, and the premiums on the ones that

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Speaker 1: are e t p s are very small. You can

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Speaker 1: tell the creation redemption process is working fine. Then you

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Speaker 1: go to the US and you have g BTC, which

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Speaker 1: is a private trust that trades over the counter, so

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Speaker 1: that can trade up to at premiums up to and

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Speaker 1: that's got a couple of billion at this point. So

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Speaker 1: I made the case that they should approve it a

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Speaker 1: to give GBTC people a better shot at a fair price,

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Speaker 1: and be because Europe has shown that the creation redemption

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Speaker 1: process works. Great. What's your latest on where we are

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Speaker 1: with this? Well, recently I issued a second descent, saying

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Speaker 1: to me, it appears that the current commission is not

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Speaker 1: interested in approving any exchange traded product that's available to

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Speaker 1: to a retail audience that has crypto underlying um, so

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Speaker 1: I'm not I tend to be fairly optimistic about lots

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Speaker 1: of things, so I hope that that this point of

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Speaker 1: view will change. But the analysis that we've applied in

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Speaker 1: in preventing these products from trading in the United States

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Speaker 1: is a uniquely tailored analysis that we only seem to

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Speaker 1: use for these kinds of products, which suggests to me

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Speaker 1: that we have one standard for crypto products and another

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Speaker 1: standard for other types of products. And I don't think

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Speaker 1: that's right. And when you talk about this and they

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Speaker 1: say they don't want to have an exchange listed product,

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Speaker 1: Do they consider the GBTC situation, Because it's it's big.

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Speaker 1: I mean, and let's say you bought it at a

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Speaker 1: premium and the premium just happens to drop, but bitcoin

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Speaker 1: went up. You actually lost money even though the underlying

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Speaker 1: went up. No, I think that's a great point, and

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Speaker 1: I think it's it's I mean, I don't want to

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Speaker 1: speak about any product and I haven't tracked that product

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Speaker 1: the way that you have. But I think that in general,

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Speaker 1: the reason that products that trade on exchanges are attractive

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Speaker 1: is because they do offer this this really good price

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Speaker 1: discovery process and they work really really well, and so

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Speaker 1: that's why people um like to trade products on exchanges,

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Speaker 1: and there's value there. So so I think it's it's

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Speaker 1: something that, um that we should consider. But what what

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Speaker 1: I've seen among folks at the SEC is that there's

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Speaker 1: a real concern to allow any kind of products that

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Speaker 1: will be easily accessible to retail investors. And I do

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Speaker 1: think it's a bit of a of a merit regulation perspective. UM.

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Speaker 1: I think it's it's the conclusion that they don't think

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Speaker 1: it's it's something that that retail folks should be should

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Speaker 1: be engaged with. And my response to that as well,

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Speaker 1: there's retail and institutional interest in crypto. Whether that's good

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Speaker 1: or bad, that's not really our place to decide. But

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Speaker 1: if we don't allow people to get access through our

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Speaker 1: regulated securities, markets still get access in other ways. And

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Speaker 1: that's that's fine, um, of course. But but I think

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Speaker 1: what my colleagues would say as well, all right, then

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Speaker 1: if they're problem and again I shouldn't as I started

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Speaker 1: out the podcast, I'm not speaking for my colleagues, but

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Speaker 1: to me that that suggests that if their problems, then

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Speaker 1: we don't have to take responsibility for them. And that

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Speaker 1: isn't a really good rationale for a regulator to deny

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Speaker 1: a product um to trade in our market. Yeah, just

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Speaker 1: just among those lines. Commissioner, you know crypto dad. Former

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Speaker 1: CFTC chairman Christopher John Carlo has left. Your term is

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Speaker 1: up in June, and you know, obviously I think everybody's

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Speaker 1: where commissioners can serve beyond their term dates. But when

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Speaker 1: you eventually leave the commission, should the bitcoin bitcoin community

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Speaker 1: be concerned that there's not somebody on the regulatory side

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Speaker 1: that would be pushing or a champion for cryptocurrency, you know,

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Speaker 1: is there is there going to be avoid there. So

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Speaker 1: I don't view myself as a champion for cryptocurrency. What

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Speaker 1: I do view my role as saying, look, innovation brings

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Speaker 1: good things to society. It doesn't mean that every innovation

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Speaker 1: is a good thing. It just means that the job

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Speaker 1: of a regulator is not to stand in the way

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Speaker 1: of innovation. It's to set up a regulatory framework that

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Speaker 1: is flexible enough to accommodate innovation. And I think there

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Speaker 1: there are many people both at the SEC and at

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Speaker 1: the cfcc UM, which is which is our fellow capital

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Speaker 1: markets regulator, who are very interested in seeing innovation move

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Speaker 1: forward and figuring out framework that will work well for innovation.

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Speaker 1: And I've always said it, you know, whether or not

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Speaker 1: any particular commissioner is at the Commission is sort of irrelevant.

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Speaker 1: What you're trying to do is you're trying to build

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Speaker 1: institutions that that succeed Apart from whether any particular person

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Speaker 1: is there or not. I think that that it is

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Speaker 1: good to push the SEC to rethink its approach to innovation,

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Speaker 1: and I will continue to do that as long as

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Speaker 1: I'm there. But there are others at the SEC who

397
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Speaker 1: feel the same way as I do, both on the

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Speaker 1: Commission and on the staff Commissioner. I'd like to ask

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Speaker 1: you about bond ETFs, which have been a concern of

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Speaker 1: late because some have traded a discounts to their navs

401
00:23:45,200 --> 00:23:49,120
Speaker 1: and this always kind of raises concerns. How much does

402
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Speaker 1: the SEC see that NAV issue being stale versus being

403
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Speaker 1: more of a plumbing problem with E t F. Well,

404
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Speaker 1: I think that there are gonna be a lot of

405
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Speaker 1: things that we look at coming out of this period

406
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Speaker 1: because it's been such a unique, Uh, it's been a

407
00:24:07,480 --> 00:24:11,480
Speaker 1: unique period in the markets, and it's it's offered us

408
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Speaker 1: a lot of interesting things that we can look at,

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Speaker 1: and among those are going to be how e t

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Speaker 1: s functioned during this period. Um. You know. One suggestion

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Speaker 1: is that the E t F pricing actually allowed us

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Speaker 1: to see more quickly where the bond prices would go ultimately,

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Speaker 1: and so, um, it's may not be that the discount

414
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Speaker 1: was inappropriate, right, That's one theory that I've heard. So

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Speaker 1: I think we we have to wait until we have

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Speaker 1: the calmness that we need to be able to go

417
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Speaker 1: back and look at these things. But but certainly on

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Speaker 1: the whole. I think ets function quite well during the

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Speaker 1: past several months, and um, I think probably we were

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Speaker 1: on the whole helpful to the functioning of markets. And

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Speaker 1: just to follow up on that, UM, you know, one

422
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Speaker 1: thing I saw the SEC put forth. I don't know

423
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Speaker 1: if it was in your neck of the woods or not,

424
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Speaker 1: but we as e t F analysts are constantly having

425
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Speaker 1: to defend e t F s from like myths and

426
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Speaker 1: accusations and attacks. One of the ones everybody saw the

427
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Speaker 1: bond e TF trading way below the n a V.

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Speaker 1: And then there was this other case that mutual fund

429
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Speaker 1: n a V s We're being put out that we're

430
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Speaker 1: arguably stale and fake, and it made the mutual fund

431
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Speaker 1: look like it was better than, so to speak, the

432
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Speaker 1: e t F which was quote broken. But the mutual

433
00:25:44,480 --> 00:25:48,240
Speaker 1: fund Wasn't it really operating in that in that sort

434
00:25:48,280 --> 00:25:51,960
Speaker 1: of liquidity hell as I call it quite yet? But

435
00:25:52,000 --> 00:25:55,120
Speaker 1: then outflow started and we think they were probably GONNAT

436
00:25:55,119 --> 00:25:56,959
Speaker 1: they FED stepped in just in time. We didn't get

437
00:25:56,960 --> 00:25:59,439
Speaker 1: to see the experiment playoff. But largely I think the

438
00:25:59,520 --> 00:26:03,160
Speaker 1: SEC notice what we notice, which is navs for bonds

439
00:26:03,200 --> 00:26:05,800
Speaker 1: in a crisis tend to be just a little off

440
00:26:05,840 --> 00:26:09,760
Speaker 1: because they're using old pricing. Do you think that mutual

441
00:26:09,800 --> 00:26:13,080
Speaker 1: funds and the and the pricing services should look for

442
00:26:13,200 --> 00:26:17,240
Speaker 1: ways to, I don't know, triangulate or update the pricing

443
00:26:17,359 --> 00:26:19,960
Speaker 1: of the n A v s so that is a

444
00:26:20,000 --> 00:26:22,280
Speaker 1: little more reflective of where the E t F is

445
00:26:22,960 --> 00:26:27,840
Speaker 1: and the reality of that liquidity movement. Well, I think

446
00:26:28,000 --> 00:26:32,000
Speaker 1: valuation during a time like this is extremely difficult, and

447
00:26:32,040 --> 00:26:35,119
Speaker 1: I think we could do a better job as an agency,

448
00:26:35,600 --> 00:26:39,560
Speaker 1: um which we're trying to work on, of providing guidance

449
00:26:39,600 --> 00:26:43,680
Speaker 1: about how to how to do valuation and how to

450
00:26:43,760 --> 00:26:47,280
Speaker 1: think about it at times when it's really difficult to

451
00:26:47,320 --> 00:26:51,840
Speaker 1: figure out what the what what the underlying bonds are

452
00:26:51,960 --> 00:26:56,720
Speaker 1: are trading at because there's there's so much dislocation in

453
00:26:56,760 --> 00:27:01,320
Speaker 1: the underlying market. Um. So that's that's never going to

454
00:27:01,400 --> 00:27:04,960
Speaker 1: be an easy thing, and so I don't I don't

455
00:27:04,960 --> 00:27:08,439
Speaker 1: know that we're gonna have a silver bullet um to

456
00:27:08,560 --> 00:27:11,040
Speaker 1: solve it, but I think we're trying to trying to

457
00:27:11,119 --> 00:27:16,200
Speaker 1: give give funds a better sense of how to approach

458
00:27:16,280 --> 00:27:20,119
Speaker 1: the problem. I want to shift to marketing a little bit, Commissioner,

459
00:27:20,119 --> 00:27:21,840
Speaker 1: because marketing is a big part of the E t

460
00:27:22,000 --> 00:27:24,359
Speaker 1: F industry and one of the e t f s

461
00:27:24,440 --> 00:27:27,040
Speaker 1: that never got out, and I was just curious. You

462
00:27:27,080 --> 00:27:28,919
Speaker 1: can tell from the names of e t f s,

463
00:27:29,000 --> 00:27:31,359
Speaker 1: like the Trade War e t F, there's a work

464
00:27:31,359 --> 00:27:34,200
Speaker 1: from Home et F coming out there was They keep

465
00:27:34,280 --> 00:27:37,560
Speaker 1: getting closer and closer to straight out celebrity endorsements, I think,

466
00:27:37,840 --> 00:27:39,960
Speaker 1: And there was one filed a couple of years ago

467
00:27:40,000 --> 00:27:43,639
Speaker 1: called the Quincy Jones Music Streaming e t F. Was

468
00:27:43,640 --> 00:27:46,600
Speaker 1: pretty plain vanilla held, like you know stocks that were

469
00:27:46,680 --> 00:27:49,879
Speaker 1: in the music streaming economy playing vanilla the ETF, but

470
00:27:49,920 --> 00:27:52,879
Speaker 1: the name Quincy Jones I think had some caution. Then

471
00:27:52,880 --> 00:27:54,879
Speaker 1: the prospectus was refiled and you could see that they

472
00:27:55,000 --> 00:27:57,720
Speaker 1: changed some things based on comments, but it's still never

473
00:27:57,760 --> 00:28:00,520
Speaker 1: made it to market. Before you answer, I, Nate wants

474
00:28:00,520 --> 00:28:02,119
Speaker 1: to provide a little more color and then we'll get

475
00:28:02,160 --> 00:28:04,000
Speaker 1: your take. Yeah, it was just I mean, the same

476
00:28:04,000 --> 00:28:06,520
Speaker 1: thing was happening in the initial coin offering space, you know,

477
00:28:06,560 --> 00:28:10,080
Speaker 1: with Floyd Mayweather and DJ co League uh and with

478
00:28:10,160 --> 00:28:14,080
Speaker 1: their their interactions with the SEC. So I think our

479
00:28:14,160 --> 00:28:18,040
Speaker 1: question is that you know, is is the SEC looks

480
00:28:18,240 --> 00:28:21,320
Speaker 1: at these products that are coming out with celebrity endorsements.

481
00:28:22,240 --> 00:28:24,639
Speaker 1: You know, is there a higher standard or even in

482
00:28:24,680 --> 00:28:29,040
Speaker 1: this era of COVID where uh, you know, where people

483
00:28:29,080 --> 00:28:32,879
Speaker 1: aren't as you know, in tune with their day to

484
00:28:32,960 --> 00:28:35,560
Speaker 1: day activities. I guess to say, you know, is the

485
00:28:35,680 --> 00:28:38,320
Speaker 1: SEC taking a different approach or is it the same approach?

486
00:28:38,360 --> 00:28:41,000
Speaker 1: I mean, could you just provide some more color on that. Well,

487
00:28:41,040 --> 00:28:46,200
Speaker 1: I think we always worry about people being taken in

488
00:28:46,320 --> 00:28:50,480
Speaker 1: by by marketing that may not be um in, that

489
00:28:50,600 --> 00:28:53,000
Speaker 1: may not be consistent with the underlying products. So that's

490
00:28:53,000 --> 00:28:57,200
Speaker 1: something that we're always looking at. Uh, during this COVID time,

491
00:28:57,960 --> 00:29:02,640
Speaker 1: we are paying attention to any thing that COVID related

492
00:29:02,840 --> 00:29:07,480
Speaker 1: because frankly, just you know, it's like that now it's

493
00:29:07,520 --> 00:29:11,400
Speaker 1: the three c's, it's cannabis, crypto, and COVID where people

494
00:29:11,400 --> 00:29:16,040
Speaker 1: are using those terms to rip people off. That doesn't

495
00:29:16,040 --> 00:29:19,640
Speaker 1: mean that every product that involves those things is a fraud,

496
00:29:19,720 --> 00:29:23,280
Speaker 1: but we certainly pay attention because people are opportunistic and

497
00:29:23,320 --> 00:29:27,280
Speaker 1: they will use whatever whatever mechanisms they can to try

498
00:29:27,320 --> 00:29:30,000
Speaker 1: to take advantage of people. And we do hold people

499
00:29:30,040 --> 00:29:35,280
Speaker 1: responsible who tout a product. Um if if they're they're

500
00:29:35,480 --> 00:29:38,920
Speaker 1: touting it and they're they're making money from touting the product,

501
00:29:38,960 --> 00:29:43,280
Speaker 1: and saying things that aren't accurate. Again, I'm not speaking

502
00:29:43,280 --> 00:29:47,160
Speaker 1: to any particular celebrity endorsement, but we do hold people

503
00:29:47,200 --> 00:29:49,960
Speaker 1: responsible and I think we've made it very clear that

504
00:29:50,080 --> 00:29:53,960
Speaker 1: we do that, and people in the industry realize that

505
00:29:54,000 --> 00:29:59,320
Speaker 1: we have fairly tight guidelines on how people market things.

506
00:29:59,320 --> 00:30:04,600
Speaker 1: So there there's not a lot of room, I think,

507
00:30:04,680 --> 00:30:10,200
Speaker 1: for legitimate players to use illegitimate means and get away

508
00:30:10,200 --> 00:30:13,400
Speaker 1: with it. For marketing things. Again, I'm not speaking about

509
00:30:13,400 --> 00:30:16,920
Speaker 1: any of the products, the specific products you mentioned, but

510
00:30:17,000 --> 00:30:20,240
Speaker 1: at the same time, I don't think there's anything wrong

511
00:30:20,280 --> 00:30:23,680
Speaker 1: with coming up with a marketing plan for your for

512
00:30:23,760 --> 00:30:28,240
Speaker 1: your products to reach an audience that will will find

513
00:30:28,240 --> 00:30:31,400
Speaker 1: that product to be useful or interesting or something that

514
00:30:31,440 --> 00:30:35,080
Speaker 1: they want to buy. So, you know, one of the

515
00:30:35,080 --> 00:30:38,120
Speaker 1: things I wanted to ask you about, Commissioner, was E

516
00:30:38,320 --> 00:30:42,400
Speaker 1: t F debut back in I read one of your speeches.

517
00:30:42,800 --> 00:30:45,960
Speaker 1: You had a niece, I think that was born then,

518
00:30:46,040 --> 00:30:49,040
Speaker 1: so you watched your niece basically grow up at the

519
00:30:49,080 --> 00:30:51,880
Speaker 1: same kind of time frame that the E t fs

520
00:30:51,880 --> 00:30:55,520
Speaker 1: have sort of grown and developed. Um And you know,

521
00:30:55,600 --> 00:30:57,480
Speaker 1: I don't know if you knew this, but Eric and

522
00:30:57,520 --> 00:30:59,320
Speaker 1: I have done a little bit of a history history

523
00:30:59,360 --> 00:31:01,479
Speaker 1: lesson on e t f s and written about them

524
00:31:01,480 --> 00:31:04,040
Speaker 1: and did a whole podcast about it. But one of

525
00:31:04,040 --> 00:31:05,720
Speaker 1: the things that we've learned about that is that the

526
00:31:05,760 --> 00:31:09,200
Speaker 1: initial idea for the e t F actually came out

527
00:31:09,240 --> 00:31:14,360
Speaker 1: of the SEC, which looked at Black Monday of and said, Wow,

528
00:31:14,400 --> 00:31:16,800
Speaker 1: it'd be great if there was a back a market

529
00:31:16,840 --> 00:31:21,120
Speaker 1: basket like instrument that could help buffer liquidity UM, which

530
00:31:21,160 --> 00:31:23,240
Speaker 1: we always thought was sort of amazing that the SEC

531
00:31:23,400 --> 00:31:27,360
Speaker 1: basically helped spawn the e t F industry. When you

532
00:31:27,440 --> 00:31:30,440
Speaker 1: kind of think about all of this and how e

533
00:31:30,560 --> 00:31:33,480
Speaker 1: t f s have evolved, what is it about e

534
00:31:33,600 --> 00:31:35,560
Speaker 1: t f s, Like, where does the magic come from?

535
00:31:35,600 --> 00:31:38,360
Speaker 1: Do you think? I think it comes from the fact

536
00:31:38,440 --> 00:31:43,280
Speaker 1: that it really recognizes the way that markets work and

537
00:31:43,320 --> 00:31:49,800
Speaker 1: the UM it allows us to take advantage of the

538
00:31:49,840 --> 00:31:53,760
Speaker 1: way the arbitrage mechanism works in a way that's really

539
00:31:53,800 --> 00:31:57,320
Speaker 1: beneficial for UM. And again I'm not speaking about any

540
00:31:57,320 --> 00:32:00,960
Speaker 1: particular product, but I think retail investors have really benefited

541
00:32:01,000 --> 00:32:05,120
Speaker 1: from these products because it just puts the market mechanisms

542
00:32:05,160 --> 00:32:09,160
Speaker 1: to work for them. And I think it's a good

543
00:32:09,320 --> 00:32:11,640
Speaker 1: It's a good lesson for us at the SEC to

544
00:32:11,720 --> 00:32:17,320
Speaker 1: remember that While innovation can seem scary, UM, ultimately it

545
00:32:17,360 --> 00:32:21,680
Speaker 1: can end up, you know, really benefiting a lot of people.

546
00:32:21,840 --> 00:32:24,400
Speaker 1: And and now that we have all of this new

547
00:32:24,440 --> 00:32:28,600
Speaker 1: technology that allows us to do things that were unimaginable

548
00:32:28,640 --> 00:32:31,720
Speaker 1: in the past and allows us to do better data analysis.

549
00:32:32,080 --> 00:32:37,320
Speaker 1: Not us as sec but us as as humans. Everyone

550
00:32:37,440 --> 00:32:41,000
Speaker 1: has something to contribute to the market UM, whether it's

551
00:32:41,040 --> 00:32:46,120
Speaker 1: that person's knowledge, experience, preferences, all of those things feed

552
00:32:46,160 --> 00:32:50,560
Speaker 1: into the market mechanism and produce UM prices, and those

553
00:32:50,600 --> 00:32:55,080
Speaker 1: prices are information. And so it's exciting to let markets

554
00:32:55,160 --> 00:32:58,320
Speaker 1: work and do their thing because that ends up meaning

555
00:32:58,360 --> 00:33:00,960
Speaker 1: we have better resource allocation, and it means that people

556
00:33:00,960 --> 00:33:03,200
Speaker 1: are better able to get the things that they need

557
00:33:03,600 --> 00:33:07,479
Speaker 1: and appreciate UM. So even some of these recent supply

558
00:33:07,560 --> 00:33:13,920
Speaker 1: chain disruptions that we're seeing, we're seeing prices really changing

559
00:33:14,000 --> 00:33:17,160
Speaker 1: from what they normally were UM to reflect the fact

560
00:33:17,240 --> 00:33:21,800
Speaker 1: that there's a shortage of this UM. So letting these

561
00:33:21,840 --> 00:33:25,760
Speaker 1: mechanisms work is something that that E T S I

562
00:33:25,800 --> 00:33:30,760
Speaker 1: think really really exemplify. So the question for me is

563
00:33:31,120 --> 00:33:33,520
Speaker 1: and this is can be just expanded to even just

564
00:33:33,720 --> 00:33:36,400
Speaker 1: broader than just E T S. But you know what

565
00:33:36,480 --> 00:33:39,920
Speaker 1: other accomplishments. Do you hope to achieve while you're still

566
00:33:39,960 --> 00:33:42,800
Speaker 1: at the SEC Are there any rulemakings that we'd like

567
00:33:42,840 --> 00:33:46,840
Speaker 1: to get out or anything to that nature. I guess

568
00:33:46,840 --> 00:33:49,160
Speaker 1: what my question is just what are your fear of

569
00:33:49,160 --> 00:33:53,200
Speaker 1: their goals? Sure, I would like to continue to push

570
00:33:53,360 --> 00:33:59,000
Speaker 1: on UM making the agency more welcoming to innovation, whether

571
00:33:59,080 --> 00:34:02,000
Speaker 1: that's through the creation of an Office of Innovation or

572
00:34:02,400 --> 00:34:06,600
Speaker 1: just through better mechanisms for allowing innovative products to get

573
00:34:06,640 --> 00:34:09,440
Speaker 1: through UM. I think we do need to spend some

574
00:34:09,520 --> 00:34:14,960
Speaker 1: time on some issues that have languished for a long time,

575
00:34:15,080 --> 00:34:21,000
Speaker 1: for for years UM. That includes a rule for modernized

576
00:34:21,080 --> 00:34:26,400
Speaker 1: rule for transfer agents. That includes regime for finders who

577
00:34:26,600 --> 00:34:32,040
Speaker 1: helped to match investors with with companies that need capital.

578
00:34:32,560 --> 00:34:34,839
Speaker 1: So those are some of the things that that I

579
00:34:34,880 --> 00:34:38,560
Speaker 1: hope to achieve. I think we will also have just

580
00:34:38,640 --> 00:34:41,040
Speaker 1: a lot of work coming out of this crisis, and

581
00:34:41,320 --> 00:34:45,120
Speaker 1: as I've mentioned already and analyzing what's happened, So I

582
00:34:45,160 --> 00:34:49,279
Speaker 1: think that will will UM affect some of what we're doing.

583
00:34:49,320 --> 00:34:52,719
Speaker 1: And then we have we have a number of ongoing

584
00:34:52,880 --> 00:34:57,320
Speaker 1: rulemaking projects. I've been involved in standing up the regime

585
00:34:57,360 --> 00:35:00,800
Speaker 1: for security based swaps and so I've like to see

586
00:35:01,520 --> 00:35:05,880
Speaker 1: progress on on getting the rules are in place, but

587
00:35:05,880 --> 00:35:09,480
Speaker 1: but the the implementation process is ongoing now, so that's

588
00:35:09,520 --> 00:35:13,279
Speaker 1: another area in which I'd like to be involved. UM

589
00:35:14,000 --> 00:35:17,840
Speaker 1: record keeping rules for broker dealers are really outdated, so

590
00:35:17,880 --> 00:35:21,000
Speaker 1: I'd like to see those get updated. So a lot

591
00:35:21,040 --> 00:35:25,160
Speaker 1: of UM, A lot of just kind of routine thing

592
00:35:25,320 --> 00:35:28,479
Speaker 1: but important things, and then some some more interesting ones,

593
00:35:28,560 --> 00:35:31,160
Speaker 1: like trying to finish up a new draft of my

594
00:35:31,280 --> 00:35:37,880
Speaker 1: safe Harbor idea for UM for crypto, which is something

595
00:35:37,920 --> 00:35:41,879
Speaker 1: that UM that I put out a few months ago,

596
00:35:41,920 --> 00:35:44,120
Speaker 1: and i'd like to I've gotten a lot of feedback

597
00:35:44,160 --> 00:35:46,880
Speaker 1: and i'd like to to think about putting out a

598
00:35:46,920 --> 00:35:50,920
Speaker 1: second version of that. Okay, Commissioner, I have a final

599
00:35:51,000 --> 00:35:53,200
Speaker 1: question for you, and it's one that we we ask

600
00:35:53,400 --> 00:35:56,080
Speaker 1: many people who get to come on trillions, which is

601
00:35:56,640 --> 00:35:59,319
Speaker 1: and you're actually unique because you get to see the

602
00:35:59,320 --> 00:36:01,160
Speaker 1: things that are in the market but also a number

603
00:36:01,160 --> 00:36:03,640
Speaker 1: of things that don't make it to market. What is

604
00:36:03,680 --> 00:36:07,799
Speaker 1: your favorite E t F ticker? I am not going

605
00:36:07,840 --> 00:36:11,200
Speaker 1: to answer that question. As a regulator, I couldnot answer

606
00:36:11,320 --> 00:36:15,759
Speaker 1: that question, but if I were, you know, if if

607
00:36:15,800 --> 00:36:19,560
Speaker 1: I were making an E t F picker now I

608
00:36:19,600 --> 00:36:22,080
Speaker 1: guess it would have to be something related to toilet

609
00:36:22,080 --> 00:36:27,680
Speaker 1: paper so PP or something like that. Right, Yeah, there's

610
00:36:27,719 --> 00:36:30,319
Speaker 1: a few two letter tickers. Well, you gave me an

611
00:36:30,360 --> 00:36:37,600
Speaker 1: idea which was c c c uh covid. That thing

612
00:36:37,600 --> 00:36:39,520
Speaker 1: would that's not a bad idea, but that would fly

613
00:36:39,560 --> 00:36:42,960
Speaker 1: off the shelves. Commissioner I just went on behalf of

614
00:36:43,160 --> 00:36:45,799
Speaker 1: Eric and Nathan and myself. Um, thank you so much

615
00:36:45,840 --> 00:36:47,839
Speaker 1: for being on Trillions Day. Well, it's been a lot

616
00:36:47,880 --> 00:36:53,160
Speaker 1: of fun and I appreciate all your time. Thanks for

617
00:36:53,200 --> 00:36:56,000
Speaker 1: listening to Trillions until next time. You can find us

618
00:36:56,000 --> 00:37:00,000
Speaker 1: on the Bloomberg terminal, Bloomberg dot com, Apple podcast spot,

619
00:37:00,000 --> 00:37:02,719
Speaker 1: if I, and wherever else you like to listen. We'd

620
00:37:02,719 --> 00:37:05,080
Speaker 1: love to hear from you. We're on Twitter, I'm at

621
00:37:05,200 --> 00:37:08,600
Speaker 1: Joel Webber Show, He's at Eric Faltunas. You can find

622
00:37:08,760 --> 00:37:12,239
Speaker 1: Nathan at Nathan Dean d C. And you can find

623
00:37:12,280 --> 00:37:17,200
Speaker 1: Commissioner Hester Purse at Hester Purse p E I R

624
00:37:17,360 --> 00:37:21,240
Speaker 1: C E. This episode of Trillions was produced by Magnus

625
00:37:21,320 --> 00:37:21,840
Speaker 1: Hendrickson