Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The crypto exchange Kraken is allowing non US customers to
Speaker 2: trade Apple, Tesla, Nvidia, and other popular stocks as tokens
Speaker 2: over a digital ledger. We asked the co CEO of
Speaker 2: Kracken yesterday how soon we could see this coming to
Speaker 2: the US.
Speaker 1: The folks at the SEC have been extremely promotive of
Speaker 1: these types of ideas around how do we bring this
Speaker 1: to everyday consumers, how do we bring this to everyday investors?
Speaker 1: And so I'm pretty positive that like we'll get to
Speaker 1: a place where we can start thinking about how to
Speaker 1: launch this again, not just with one company or one customer,
Speaker 1: but across the board.
Speaker 3: I'm pleased to say that joining us now is SEC
Speaker 3: Commissioner Mark You Wadam, Commissioner, thank you so much for
Speaker 3: joining this morning. Now, I understand you just held a
Speaker 3: round table about this very issue. What are your thoughts
Speaker 3: on tokenization and the ability to do this to trade
Speaker 3: equities twenty four to seven and have this new mechanism
Speaker 3: for it.
Speaker 4: Yeah, well, certainly we've gone through numerous technological chams of
Speaker 4: the history of the top markets. Remember we were in paper,
Speaker 4: then we went to uncertificated securities, and then we went
Speaker 4: to what we have roughly today book untries on various
Speaker 4: financial institutions. Now tokenization is possibly another step forward in
Speaker 4: how we do the markets. You know, one thing that
Speaker 4: a lot of investors don't realize is the significant amount
Speaker 4: of resources that go into what they call the back
Speaker 4: office operations. That means a lot of reconciling between positions
Speaker 4: among financial institutions, DTC and sec. So again, those are
Speaker 4: acroums that hopefully most people don't know about because they
Speaker 4: do their job without anyone ever noticing that they're doing
Speaker 4: it right. So we've always been open decks experimentation on this.
Speaker 2: How would this work? I mean, is there a framework
Speaker 2: in place for approving or denying which tokens would be created?
Speaker 2: Or are you in the process of putting that together?
Speaker 2: Who would be able to issue the tokens? I have
Speaker 2: so many questions about it.
Speaker 3: All.
Speaker 4: These are things that we want to engage with market participants.
Speaker 4: Exactly what do you propose to do when it comes
Speaker 4: to toganization of security's positions and more importantly, what type
Speaker 4: of safeguards are you going to have in place to
Speaker 4: protect investors and to guard against conflicts of interest?
Speaker 2: Do we know, sorry, do we know how long it
Speaker 2: would be? We were talking with Mike Novograts of Galaxy
Speaker 2: Digital a couple of days ago, and he was saying,
Speaker 2: in one or two months, he thinks we could see it. Now,
Speaker 2: I don't know if he meant, you know, foreign investors
Speaker 2: would be able to participate. Do you know how long
Speaker 2: it would be till US investors are going to be
Speaker 2: able to, you know, pick up their phones and you know,
Speaker 2: buy a piece of an Apple stock or Nvidia stock
Speaker 2: with a token.
Speaker 4: Well, there are a number of things that we could do.
Speaker 4: It could take if we need to do, actual rules
Speaker 4: that have to go through noticing the comment and then
Speaker 4: are subject to potential review by the court, tecting a
Speaker 4: lot of lengthier process, and what we do what we
Speaker 4: call either subregulatory guidance, which basically means a no action
Speaker 4: letter or an exemptive order, or there's some other things
Speaker 4: that we can do. But again it depends on whether
Speaker 4: or not with the proposals that they intend to seek
Speaker 4: are consistent with our mission of maintaining investor protection, fair
Speaker 4: orderly efficient markets.
Speaker 3: Now elsewhere in this world, there also is a big
Speaker 3: push for stable coins I know there's a piece of
Speaker 3: legislature making its way through Congress at the moment. There's
Speaker 3: also some journal reporting that some of the big banks
Speaker 3: are possibly considering doing their own. Part of the thing
Speaker 3: that the big banks have been worried about is stable
Speaker 3: coins moving to other players and other players that are
Speaker 3: less regulated. Is that a concern for you if this
Speaker 3: is where stable coins emerge from, not from the banking industry,
Speaker 3: which again already has some onerous regulation.
Speaker 4: Yeah, well, it depends on whether that particular stable coin
Speaker 4: even falls in our SEC jurisdiction. We put out some
Speaker 4: guidance earlier this year which said a stable coin that
Speaker 4: does not pay interests, is not yield dividends or otherwise
Speaker 4: have a profit, it's not a security because that is
Speaker 4: a fundamental part of what a security is. You have
Speaker 4: to anticipate making profits. Otherwise a gift card could easily
Speaker 4: be a security. So stable coins that don't have that
Speaker 4: profit motive not part of the SEC jurisdiction. Now, there
Speaker 4: is I think some interesting ideas out there. Can you
Speaker 4: create essentially a tokenized money market fund that one might
Speaker 4: be able to exchange. We do have rules on that,
Speaker 4: but that would be something that we would say, all right,
Speaker 4: what sort of safeguards do we need on here? Is
Speaker 4: this reliable? Do we know that it's going to protect
Speaker 4: or at least they're going to appropriately safeguard and custody
Speaker 4: the assets underlying the fund. So that's a little bit different.
Speaker 4: But you know, the whole banks versus money market funds
Speaker 4: has been something that's going on for at this point,
Speaker 4: I think almost four decades.
Speaker 2: By the way, I'm sure you read Matt Levine's Money
Speaker 2: Stuff and he posits everything as a security, right, I mean,
Speaker 2: you can make everything a security if you want, if
Speaker 2: you want to go down that route.
Speaker 4: Well, I thought his theme was more everything's security is fraud.
Speaker 2: Yes, that's a good voto. That's a good point. Everything
Speaker 2: security is fraud. I got that wrong. Let me ask
Speaker 2: about the Trump coin ETF that right now is in registration.
Speaker 2: Is there any way that you would not approve that?
Speaker 2: Don't you have to? He's kind of like your boss's boss.
Speaker 4: Well, we don't approve based on who is the boss's boss.
Speaker 4: What we do look at is we apply the same
Speaker 4: rule book that we apply any other type of security
Speaker 4: that's been registered for offering on us. We are what
Speaker 4: we call merit neutral. We are disclosure agency, so as
Speaker 4: long as we are comfortable that the appropriate disclosures have
Speaker 4: been made, there is no real legal basis for us
Speaker 4: to hold up a registration Stamen and meme coins.
Speaker 2: Is that something you could see, uh trading in ETFs?
Speaker 4: Well, that's, you know, a very interesting question. We have
Speaker 4: had a number of types of financial products that are
Speaker 4: that have other types of non securities assets. We put
Speaker 4: out again some guidance earlier this year that name coins
Speaker 4: and NFTs are not securities. But if you put it
Speaker 4: into a package like some sort of collective investment vehicle
Speaker 4: and then you sell interests in that, than that the
Speaker 4: interest in that vehicle very well may be a security.
Speaker 3: Can I just ask, Commissioner, because you're doing a lot
Speaker 3: of work on this, you're heading up a new crypto
Speaker 3: task force too. We've mentioned just literally the tip of
Speaker 3: the iceberg of work that is being done in crypto.
Speaker 3: There's been reporting that SEC staff is shrunk by something
Speaker 3: like fifteen percent so far this year. Has that made
Speaker 3: it more difficult for you?
Speaker 4: Yeah? Well, first off, it's actually one of my colleagues,
Speaker 4: Commissioner Hester Purse, who is leading the Crypto task course
Speaker 4: and that was one of the first things that I
Speaker 4: did when President Trump designated me as the acting chairman,
Speaker 4: was in fact a day one issue was to put
Speaker 4: her in charge. You know, I think she's got a
Speaker 4: fun little moniker as crypto mom. To put her because
Speaker 4: the issues of crypto are across all aspects of what
Speaker 4: we do at the SEC. So we've got a number
Speaker 4: of workstreams going on that and we've had already four
Speaker 4: round tables with respect to crypto. This is something that
Speaker 4: we should have been doing years ago. And the reason
Speaker 4: why we do these roundtables and we sow us from
Speaker 4: the public is we want to make sure that we
Speaker 4: make informed decisions and we just don't come down through
Speaker 4: what I believe happened the last four years is what
Speaker 4: we call regulation my enforcement. I don't like something, we
Speaker 4: might not have a positive view of crypto, so therefore
Speaker 4: we're going to take an enforcement action against that. That's
Speaker 4: what we do. We're supposed to be merit neutral.
Speaker 2: I want to ask about something other than crypto. We're
Speaker 2: so focused on that just because of the newsflow lately,
Speaker 2: but really private markets have been at the heart of
Speaker 2: the discussion we have on this segment Wall Street Beat,
Speaker 2: and it looks increasingly like retail investors want to get involved,
Speaker 2: and certainly firms want to sell retail investors these products.
Speaker 2: So what kind of guardrails do you think the SEC
Speaker 2: needs to put in place as private markets become more prolific.
Speaker 4: Well, our Trump and Paul act insessified on the Hillary
Speaker 4: this year. He's very interested in getting more exposure of
Speaker 4: retail investors private assets. But and there was a very
Speaker 4: big cavin it needs to make so that there needs
Speaker 4: to be the appropriate disclosures. There needs to be the
Speaker 4: other safeguards in terms of financial professionals who recommend these
Speaker 4: and how they satisfy their fiduciary duties and their duties
Speaker 4: of care before they recommend them. Now, when I look
Speaker 4: at private assets, my perspective is this, before I joined
Speaker 4: the SEC for two and a half years, I was
Speaker 4: a state regulator for California. When I look at the
Speaker 4: asset mix that underlies my retirement in the California Public
Speaker 4: Employees retirement system with small slices allocated venture capital, private credit,
Speaker 4: private equity, and then I think of myself, if I
Speaker 4: go now onto the marketplace and say, can I find
Speaker 4: a diversified fund that would provide exposures not only to
Speaker 4: public equities and public bonds, but also small slices of
Speaker 4: these other types of assets. You can't find it, so
Speaker 4: I think it's very important that we at least explore
Speaker 4: how we can make it possible. So as former chairman
Speaker 4: Jay Clayton would call it, mister and missus four OL
Speaker 4: one K can have the same exposure that many of
Speaker 4: our local and state government employees have through their retirement
Speaker 4: defined benefit REGs harmon plans.
Speaker 3: Are you not concerned about the liquidity mismatch? This has
Speaker 3: been a real problem for when it comes to retail,
Speaker 3: not just the educational but should you want to pull
Speaker 3: it out, should you need access to which retail investors
Speaker 3: often do, that you could have something that looks like
Speaker 3: a run on these assets. Is that a real concern.
Speaker 4: I think there's a big difference between the retirement market
Speaker 4: and the non retirement market. What we've seen is the
Speaker 4: retirement market tends the assets tend to be what they
Speaker 4: call sticky. Is much rare for people to pull them
Speaker 4: out early because there is also a tax penalty if
Speaker 4: you would draw those assets early, and many times, especially
Speaker 4: for younger workers, if they have a thirty or forty
Speaker 4: year investment horizon. Some of these less liquid assets are
Speaker 4: much more appropriate than say, somebody who is amassed quite
Speaker 4: a bit over a lifetime of savings and therefore one
Speaker 4: K and now they're seventy years old. Their investment horizon
Speaker 4: may be much shorter and less appropriate for these types
Speaker 4: of private assets.
Speaker 2: Very cool, Commissioner. Great to get to spend some time
Speaker 2: with you. I hope we can have you back on
Speaker 2: the show.