1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,800 --> 00:00:11,360 Speaker 2: The crypto exchange Kraken is allowing non US customers to 3 00:00:11,360 --> 00:00:15,440 Speaker 2: trade Apple, Tesla, Nvidia, and other popular stocks as tokens 4 00:00:15,520 --> 00:00:18,400 Speaker 2: over a digital ledger. We asked the co CEO of 5 00:00:18,440 --> 00:00:21,000 Speaker 2: Kracken yesterday how soon we could see this coming to 6 00:00:21,040 --> 00:00:21,599 Speaker 2: the US. 7 00:00:22,640 --> 00:00:26,639 Speaker 1: The folks at the SEC have been extremely promotive of 8 00:00:26,640 --> 00:00:28,800 Speaker 1: these types of ideas around how do we bring this 9 00:00:28,840 --> 00:00:31,960 Speaker 1: to everyday consumers, how do we bring this to everyday investors? 10 00:00:32,280 --> 00:00:34,720 Speaker 1: And so I'm pretty positive that like we'll get to 11 00:00:34,760 --> 00:00:36,240 Speaker 1: a place where we can start thinking about how to 12 00:00:36,280 --> 00:00:39,760 Speaker 1: launch this again, not just with one company or one customer, 13 00:00:39,760 --> 00:00:40,640 Speaker 1: but across the board. 14 00:00:41,720 --> 00:00:44,040 Speaker 3: I'm pleased to say that joining us now is SEC 15 00:00:44,040 --> 00:00:46,760 Speaker 3: Commissioner Mark You Wadam, Commissioner, thank you so much for 16 00:00:46,840 --> 00:00:49,280 Speaker 3: joining this morning. Now, I understand you just held a 17 00:00:49,320 --> 00:00:52,640 Speaker 3: round table about this very issue. What are your thoughts 18 00:00:52,680 --> 00:00:56,000 Speaker 3: on tokenization and the ability to do this to trade 19 00:00:56,000 --> 00:00:58,600 Speaker 3: equities twenty four to seven and have this new mechanism 20 00:00:58,640 --> 00:00:58,920 Speaker 3: for it. 21 00:00:59,160 --> 00:01:02,880 Speaker 4: Yeah, well, certainly we've gone through numerous technological chams of 22 00:01:02,960 --> 00:01:04,880 Speaker 4: the history of the top markets. Remember we were in paper, 23 00:01:04,920 --> 00:01:07,800 Speaker 4: then we went to uncertificated securities, and then we went 24 00:01:07,840 --> 00:01:11,080 Speaker 4: to what we have roughly today book untries on various 25 00:01:11,080 --> 00:01:16,520 Speaker 4: financial institutions. Now tokenization is possibly another step forward in 26 00:01:16,560 --> 00:01:19,080 Speaker 4: how we do the markets. You know, one thing that 27 00:01:19,120 --> 00:01:21,920 Speaker 4: a lot of investors don't realize is the significant amount 28 00:01:21,959 --> 00:01:23,720 Speaker 4: of resources that go into what they call the back 29 00:01:23,760 --> 00:01:27,040 Speaker 4: office operations. That means a lot of reconciling between positions 30 00:01:27,040 --> 00:01:32,120 Speaker 4: among financial institutions, DTC and sec. So again, those are 31 00:01:32,240 --> 00:01:35,039 Speaker 4: acroums that hopefully most people don't know about because they 32 00:01:35,080 --> 00:01:38,679 Speaker 4: do their job without anyone ever noticing that they're doing 33 00:01:38,720 --> 00:01:44,200 Speaker 4: it right. So we've always been open decks experimentation on this. 34 00:01:44,640 --> 00:01:47,160 Speaker 2: How would this work? I mean, is there a framework 35 00:01:47,240 --> 00:01:52,760 Speaker 2: in place for approving or denying which tokens would be created? 36 00:01:52,840 --> 00:01:55,480 Speaker 2: Or are you in the process of putting that together? 37 00:01:56,280 --> 00:01:58,280 Speaker 2: Who would be able to issue the tokens? I have 38 00:01:58,320 --> 00:01:59,440 Speaker 2: so many questions about it. 39 00:02:00,000 --> 00:02:00,160 Speaker 3: All. 40 00:02:00,160 --> 00:02:03,160 Speaker 4: These are things that we want to engage with market participants. 41 00:02:03,160 --> 00:02:06,560 Speaker 4: Exactly what do you propose to do when it comes 42 00:02:06,560 --> 00:02:09,960 Speaker 4: to toganization of security's positions and more importantly, what type 43 00:02:10,000 --> 00:02:12,440 Speaker 4: of safeguards are you going to have in place to 44 00:02:12,480 --> 00:02:15,720 Speaker 4: protect investors and to guard against conflicts of interest? 45 00:02:16,240 --> 00:02:19,480 Speaker 2: Do we know, sorry, do we know how long it 46 00:02:19,520 --> 00:02:23,079 Speaker 2: would be? We were talking with Mike Novograts of Galaxy 47 00:02:23,120 --> 00:02:25,440 Speaker 2: Digital a couple of days ago, and he was saying, 48 00:02:25,880 --> 00:02:28,200 Speaker 2: in one or two months, he thinks we could see it. Now, 49 00:02:28,200 --> 00:02:29,960 Speaker 2: I don't know if he meant, you know, foreign investors 50 00:02:29,960 --> 00:02:32,440 Speaker 2: would be able to participate. Do you know how long 51 00:02:32,440 --> 00:02:34,079 Speaker 2: it would be till US investors are going to be 52 00:02:34,080 --> 00:02:37,360 Speaker 2: able to, you know, pick up their phones and you know, 53 00:02:37,440 --> 00:02:41,040 Speaker 2: buy a piece of an Apple stock or Nvidia stock 54 00:02:41,080 --> 00:02:41,639 Speaker 2: with a token. 55 00:02:42,160 --> 00:02:44,320 Speaker 4: Well, there are a number of things that we could do. 56 00:02:44,600 --> 00:02:47,680 Speaker 4: It could take if we need to do, actual rules 57 00:02:48,320 --> 00:02:51,000 Speaker 4: that have to go through noticing the comment and then 58 00:02:51,320 --> 00:02:54,040 Speaker 4: are subject to potential review by the court, tecting a 59 00:02:54,080 --> 00:02:57,120 Speaker 4: lot of lengthier process, and what we do what we 60 00:02:57,200 --> 00:02:59,679 Speaker 4: call either subregulatory guidance, which basically means a no action 61 00:02:59,760 --> 00:03:03,200 Speaker 4: letter or an exemptive order, or there's some other things 62 00:03:03,200 --> 00:03:06,960 Speaker 4: that we can do. But again it depends on whether 63 00:03:07,040 --> 00:03:10,560 Speaker 4: or not with the proposals that they intend to seek 64 00:03:11,320 --> 00:03:14,520 Speaker 4: are consistent with our mission of maintaining investor protection, fair 65 00:03:14,560 --> 00:03:15,560 Speaker 4: orderly efficient markets. 66 00:03:15,760 --> 00:03:18,040 Speaker 3: Now elsewhere in this world, there also is a big 67 00:03:18,080 --> 00:03:20,000 Speaker 3: push for stable coins I know there's a piece of 68 00:03:20,080 --> 00:03:22,959 Speaker 3: legislature making its way through Congress at the moment. There's 69 00:03:23,000 --> 00:03:25,120 Speaker 3: also some journal reporting that some of the big banks 70 00:03:25,120 --> 00:03:28,440 Speaker 3: are possibly considering doing their own. Part of the thing 71 00:03:28,440 --> 00:03:30,720 Speaker 3: that the big banks have been worried about is stable 72 00:03:30,760 --> 00:03:33,680 Speaker 3: coins moving to other players and other players that are 73 00:03:34,160 --> 00:03:36,680 Speaker 3: less regulated. Is that a concern for you if this 74 00:03:36,720 --> 00:03:39,160 Speaker 3: is where stable coins emerge from, not from the banking industry, 75 00:03:39,200 --> 00:03:41,400 Speaker 3: which again already has some onerous regulation. 76 00:03:41,680 --> 00:03:44,680 Speaker 4: Yeah, well, it depends on whether that particular stable coin 77 00:03:44,720 --> 00:03:47,240 Speaker 4: even falls in our SEC jurisdiction. We put out some 78 00:03:47,320 --> 00:03:50,440 Speaker 4: guidance earlier this year which said a stable coin that 79 00:03:50,480 --> 00:03:54,200 Speaker 4: does not pay interests, is not yield dividends or otherwise 80 00:03:54,200 --> 00:03:57,280 Speaker 4: have a profit, it's not a security because that is 81 00:03:57,320 --> 00:04:00,440 Speaker 4: a fundamental part of what a security is. You have 82 00:04:00,440 --> 00:04:04,480 Speaker 4: to anticipate making profits. Otherwise a gift card could easily 83 00:04:04,520 --> 00:04:07,480 Speaker 4: be a security. So stable coins that don't have that 84 00:04:07,480 --> 00:04:10,680 Speaker 4: profit motive not part of the SEC jurisdiction. Now, there 85 00:04:11,240 --> 00:04:13,160 Speaker 4: is I think some interesting ideas out there. Can you 86 00:04:13,200 --> 00:04:15,680 Speaker 4: create essentially a tokenized money market fund that one might 87 00:04:15,720 --> 00:04:17,840 Speaker 4: be able to exchange. We do have rules on that, 88 00:04:17,920 --> 00:04:20,240 Speaker 4: but that would be something that we would say, all right, 89 00:04:21,400 --> 00:04:23,719 Speaker 4: what sort of safeguards do we need on here? Is 90 00:04:23,760 --> 00:04:27,600 Speaker 4: this reliable? Do we know that it's going to protect 91 00:04:28,000 --> 00:04:30,120 Speaker 4: or at least they're going to appropriately safeguard and custody 92 00:04:30,160 --> 00:04:33,960 Speaker 4: the assets underlying the fund. So that's a little bit different. 93 00:04:33,960 --> 00:04:35,760 Speaker 4: But you know, the whole banks versus money market funds 94 00:04:35,800 --> 00:04:37,560 Speaker 4: has been something that's going on for at this point, 95 00:04:37,560 --> 00:04:38,599 Speaker 4: I think almost four decades. 96 00:04:38,760 --> 00:04:41,360 Speaker 2: By the way, I'm sure you read Matt Levine's Money 97 00:04:41,400 --> 00:04:45,680 Speaker 2: Stuff and he posits everything as a security, right, I mean, 98 00:04:46,080 --> 00:04:48,480 Speaker 2: you can make everything a security if you want, if 99 00:04:48,480 --> 00:04:49,720 Speaker 2: you want to go down that route. 100 00:04:49,760 --> 00:04:53,400 Speaker 4: Well, I thought his theme was more everything's security is fraud. 101 00:04:53,640 --> 00:04:55,919 Speaker 2: Yes, that's a good voto. That's a good point. Everything 102 00:04:55,960 --> 00:04:58,920 Speaker 2: security is fraud. I got that wrong. Let me ask 103 00:04:58,960 --> 00:05:03,560 Speaker 2: about the Trump coin ETF that right now is in registration. 104 00:05:05,120 --> 00:05:08,120 Speaker 2: Is there any way that you would not approve that? 105 00:05:08,240 --> 00:05:10,960 Speaker 2: Don't you have to? He's kind of like your boss's boss. 106 00:05:11,560 --> 00:05:15,279 Speaker 4: Well, we don't approve based on who is the boss's boss. 107 00:05:15,680 --> 00:05:18,560 Speaker 4: What we do look at is we apply the same 108 00:05:18,720 --> 00:05:22,679 Speaker 4: rule book that we apply any other type of security 109 00:05:22,680 --> 00:05:25,040 Speaker 4: that's been registered for offering on us. We are what 110 00:05:25,080 --> 00:05:29,440 Speaker 4: we call merit neutral. We are disclosure agency, so as 111 00:05:29,440 --> 00:05:32,960 Speaker 4: long as we are comfortable that the appropriate disclosures have 112 00:05:33,000 --> 00:05:35,280 Speaker 4: been made, there is no real legal basis for us 113 00:05:35,279 --> 00:05:38,000 Speaker 4: to hold up a registration Stamen and meme coins. 114 00:05:38,120 --> 00:05:41,279 Speaker 2: Is that something you could see, uh trading in ETFs? 115 00:05:42,480 --> 00:05:45,719 Speaker 4: Well, that's, you know, a very interesting question. We have 116 00:05:46,000 --> 00:05:48,640 Speaker 4: had a number of types of financial products that are 117 00:05:49,040 --> 00:05:52,920 Speaker 4: that have other types of non securities assets. We put 118 00:05:52,960 --> 00:05:55,679 Speaker 4: out again some guidance earlier this year that name coins 119 00:05:55,680 --> 00:05:59,280 Speaker 4: and NFTs are not securities. But if you put it 120 00:05:59,560 --> 00:06:02,880 Speaker 4: into a package like some sort of collective investment vehicle 121 00:06:02,920 --> 00:06:05,360 Speaker 4: and then you sell interests in that, than that the 122 00:06:05,360 --> 00:06:08,160 Speaker 4: interest in that vehicle very well may be a security. 123 00:06:08,480 --> 00:06:10,280 Speaker 3: Can I just ask, Commissioner, because you're doing a lot 124 00:06:10,279 --> 00:06:11,960 Speaker 3: of work on this, you're heading up a new crypto 125 00:06:12,000 --> 00:06:14,440 Speaker 3: task force too. We've mentioned just literally the tip of 126 00:06:14,480 --> 00:06:16,479 Speaker 3: the iceberg of work that is being done in crypto. 127 00:06:16,800 --> 00:06:19,240 Speaker 3: There's been reporting that SEC staff is shrunk by something 128 00:06:19,279 --> 00:06:21,720 Speaker 3: like fifteen percent so far this year. Has that made 129 00:06:21,720 --> 00:06:22,719 Speaker 3: it more difficult for you? 130 00:06:23,080 --> 00:06:25,880 Speaker 4: Yeah? Well, first off, it's actually one of my colleagues, 131 00:06:25,920 --> 00:06:28,360 Speaker 4: Commissioner Hester Purse, who is leading the Crypto task course 132 00:06:28,400 --> 00:06:29,560 Speaker 4: and that was one of the first things that I 133 00:06:29,560 --> 00:06:32,360 Speaker 4: did when President Trump designated me as the acting chairman, 134 00:06:32,520 --> 00:06:34,159 Speaker 4: was in fact a day one issue was to put 135 00:06:34,160 --> 00:06:37,000 Speaker 4: her in charge. You know, I think she's got a 136 00:06:37,040 --> 00:06:40,760 Speaker 4: fun little moniker as crypto mom. To put her because 137 00:06:41,400 --> 00:06:44,800 Speaker 4: the issues of crypto are across all aspects of what 138 00:06:44,839 --> 00:06:48,120 Speaker 4: we do at the SEC. So we've got a number 139 00:06:48,160 --> 00:06:52,760 Speaker 4: of workstreams going on that and we've had already four 140 00:06:52,839 --> 00:06:56,440 Speaker 4: round tables with respect to crypto. This is something that 141 00:06:56,440 --> 00:06:58,200 Speaker 4: we should have been doing years ago. And the reason 142 00:06:58,200 --> 00:07:00,280 Speaker 4: why we do these roundtables and we sow us from 143 00:07:00,320 --> 00:07:02,480 Speaker 4: the public is we want to make sure that we 144 00:07:02,520 --> 00:07:06,640 Speaker 4: make informed decisions and we just don't come down through 145 00:07:07,000 --> 00:07:09,680 Speaker 4: what I believe happened the last four years is what 146 00:07:09,680 --> 00:07:13,000 Speaker 4: we call regulation my enforcement. I don't like something, we 147 00:07:13,360 --> 00:07:15,720 Speaker 4: might not have a positive view of crypto, so therefore 148 00:07:15,840 --> 00:07:18,680 Speaker 4: we're going to take an enforcement action against that. That's 149 00:07:18,760 --> 00:07:20,280 Speaker 4: what we do. We're supposed to be merit neutral. 150 00:07:20,920 --> 00:07:23,200 Speaker 2: I want to ask about something other than crypto. We're 151 00:07:23,240 --> 00:07:26,040 Speaker 2: so focused on that just because of the newsflow lately, 152 00:07:26,120 --> 00:07:29,680 Speaker 2: but really private markets have been at the heart of 153 00:07:29,720 --> 00:07:32,120 Speaker 2: the discussion we have on this segment Wall Street Beat, 154 00:07:32,200 --> 00:07:36,920 Speaker 2: and it looks increasingly like retail investors want to get involved, 155 00:07:38,000 --> 00:07:42,720 Speaker 2: and certainly firms want to sell retail investors these products. 156 00:07:42,800 --> 00:07:47,040 Speaker 2: So what kind of guardrails do you think the SEC 157 00:07:47,120 --> 00:07:51,320 Speaker 2: needs to put in place as private markets become more prolific. 158 00:07:51,680 --> 00:07:53,760 Speaker 4: Well, our Trump and Paul act insessified on the Hillary 159 00:07:53,760 --> 00:07:56,560 Speaker 4: this year. He's very interested in getting more exposure of 160 00:07:56,920 --> 00:07:59,360 Speaker 4: retail investors private assets. But and there was a very 161 00:07:59,360 --> 00:08:01,520 Speaker 4: big cavin it needs to make so that there needs 162 00:08:01,520 --> 00:08:03,560 Speaker 4: to be the appropriate disclosures. There needs to be the 163 00:08:03,680 --> 00:08:07,280 Speaker 4: other safeguards in terms of financial professionals who recommend these 164 00:08:07,280 --> 00:08:10,360 Speaker 4: and how they satisfy their fiduciary duties and their duties 165 00:08:10,440 --> 00:08:13,040 Speaker 4: of care before they recommend them. Now, when I look 166 00:08:13,080 --> 00:08:17,400 Speaker 4: at private assets, my perspective is this, before I joined 167 00:08:17,400 --> 00:08:19,040 Speaker 4: the SEC for two and a half years, I was 168 00:08:19,080 --> 00:08:22,200 Speaker 4: a state regulator for California. When I look at the 169 00:08:22,360 --> 00:08:26,320 Speaker 4: asset mix that underlies my retirement in the California Public 170 00:08:26,320 --> 00:08:30,720 Speaker 4: Employees retirement system with small slices allocated venture capital, private credit, 171 00:08:30,920 --> 00:08:33,960 Speaker 4: private equity, and then I think of myself, if I 172 00:08:34,000 --> 00:08:36,520 Speaker 4: go now onto the marketplace and say, can I find 173 00:08:36,559 --> 00:08:40,199 Speaker 4: a diversified fund that would provide exposures not only to 174 00:08:40,240 --> 00:08:43,560 Speaker 4: public equities and public bonds, but also small slices of 175 00:08:43,600 --> 00:08:46,600 Speaker 4: these other types of assets. You can't find it, so 176 00:08:46,920 --> 00:08:49,560 Speaker 4: I think it's very important that we at least explore 177 00:08:49,679 --> 00:08:52,680 Speaker 4: how we can make it possible. So as former chairman 178 00:08:52,760 --> 00:08:54,240 Speaker 4: Jay Clayton would call it, mister and missus four OL 179 00:08:54,280 --> 00:08:56,280 Speaker 4: one K can have the same exposure that many of 180 00:08:56,320 --> 00:08:59,240 Speaker 4: our local and state government employees have through their retirement 181 00:08:59,280 --> 00:09:00,520 Speaker 4: defined benefit REGs harmon plans. 182 00:09:00,559 --> 00:09:02,680 Speaker 3: Are you not concerned about the liquidity mismatch? This has 183 00:09:02,720 --> 00:09:04,679 Speaker 3: been a real problem for when it comes to retail, 184 00:09:04,800 --> 00:09:06,760 Speaker 3: not just the educational but should you want to pull 185 00:09:06,800 --> 00:09:09,319 Speaker 3: it out, should you need access to which retail investors 186 00:09:09,320 --> 00:09:11,840 Speaker 3: often do, that you could have something that looks like 187 00:09:11,840 --> 00:09:14,000 Speaker 3: a run on these assets. Is that a real concern. 188 00:09:14,160 --> 00:09:16,480 Speaker 4: I think there's a big difference between the retirement market 189 00:09:16,520 --> 00:09:18,960 Speaker 4: and the non retirement market. What we've seen is the 190 00:09:19,000 --> 00:09:20,960 Speaker 4: retirement market tends the assets tend to be what they 191 00:09:21,000 --> 00:09:24,800 Speaker 4: call sticky. Is much rare for people to pull them 192 00:09:24,800 --> 00:09:28,120 Speaker 4: out early because there is also a tax penalty if 193 00:09:28,120 --> 00:09:31,640 Speaker 4: you would draw those assets early, and many times, especially 194 00:09:31,640 --> 00:09:34,440 Speaker 4: for younger workers, if they have a thirty or forty 195 00:09:34,520 --> 00:09:37,199 Speaker 4: year investment horizon. Some of these less liquid assets are 196 00:09:37,400 --> 00:09:40,679 Speaker 4: much more appropriate than say, somebody who is amassed quite 197 00:09:40,679 --> 00:09:44,400 Speaker 4: a bit over a lifetime of savings and therefore one 198 00:09:44,480 --> 00:09:47,520 Speaker 4: K and now they're seventy years old. Their investment horizon 199 00:09:47,600 --> 00:09:50,080 Speaker 4: may be much shorter and less appropriate for these types 200 00:09:50,120 --> 00:09:51,200 Speaker 4: of private assets. 201 00:09:51,920 --> 00:09:54,440 Speaker 2: Very cool, Commissioner. Great to get to spend some time 202 00:09:54,440 --> 00:09:56,120 Speaker 2: with you. I hope we can have you back on 203 00:09:56,160 --> 00:09:56,520 Speaker 2: the show.