WEBVTT - SEC Commissioner Mark Uyeda Talks Tokenization 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.800 --> 0:00:11.360 The crypto exchange Kraken is allowing non US customers to 0:00:11.360 --> 0:00:15.440 trade Apple, Tesla, Nvidia, and other popular stocks as tokens 0:00:15.520 --> 0:00:18.400 over a digital ledger. We asked the co CEO of 0:00:18.440 --> 0:00:21.000 Kracken yesterday how soon we could see this coming to 0:00:21.040 --> 0:00:21.599 the US. 0:00:22.640 --> 0:00:26.639 The folks at the SEC have been extremely promotive of 0:00:26.640 --> 0:00:28.800 these types of ideas around how do we bring this 0:00:28.840 --> 0:00:31.960 to everyday consumers, how do we bring this to everyday investors? 0:00:32.280 --> 0:00:34.720 And so I'm pretty positive that like we'll get to 0:00:34.760 --> 0:00:36.240 a place where we can start thinking about how to 0:00:36.280 --> 0:00:39.760 launch this again, not just with one company or one customer, 0:00:39.760 --> 0:00:40.640 but across the board. 0:00:41.720 --> 0:00:44.040 I'm pleased to say that joining us now is SEC 0:00:44.040 --> 0:00:46.760 Commissioner Mark You Wadam, Commissioner, thank you so much for 0:00:46.840 --> 0:00:49.280 joining this morning. Now, I understand you just held a 0:00:49.320 --> 0:00:52.640 round table about this very issue. What are your thoughts 0:00:52.680 --> 0:00:56.000 on tokenization and the ability to do this to trade 0:00:56.000 --> 0:00:58.600 equities twenty four to seven and have this new mechanism 0:00:58.640 --> 0:00:58.920 for it. 0:00:59.160 --> 0:01:02.880 Yeah, well, certainly we've gone through numerous technological chams of 0:01:02.960 --> 0:01:04.880 the history of the top markets. Remember we were in paper, 0:01:04.920 --> 0:01:07.800 then we went to uncertificated securities, and then we went 0:01:07.840 --> 0:01:11.080 to what we have roughly today book untries on various 0:01:11.080 --> 0:01:16.520 financial institutions. Now tokenization is possibly another step forward in 0:01:16.560 --> 0:01:19.080 how we do the markets. You know, one thing that 0:01:19.120 --> 0:01:21.920 a lot of investors don't realize is the significant amount 0:01:21.959 --> 0:01:23.720 of resources that go into what they call the back 0:01:23.760 --> 0:01:27.040 office operations. That means a lot of reconciling between positions 0:01:27.040 --> 0:01:32.120 among financial institutions, DTC and sec. So again, those are 0:01:32.240 --> 0:01:35.039 acroums that hopefully most people don't know about because they 0:01:35.080 --> 0:01:38.679 do their job without anyone ever noticing that they're doing 0:01:38.720 --> 0:01:44.200 it right. So we've always been open decks experimentation on this. 0:01:44.640 --> 0:01:47.160 How would this work? I mean, is there a framework 0:01:47.240 --> 0:01:52.760 in place for approving or denying which tokens would be created? 0:01:52.840 --> 0:01:55.480 Or are you in the process of putting that together? 0:01:56.280 --> 0:01:58.280 Who would be able to issue the tokens? I have 0:01:58.320 --> 0:01:59.440 so many questions about it. 0:02:00.000 --> 0:02:00.160 All. 0:02:00.160 --> 0:02:03.160 These are things that we want to engage with market participants. 0:02:03.160 --> 0:02:06.560 Exactly what do you propose to do when it comes 0:02:06.560 --> 0:02:09.960 to toganization of security's positions and more importantly, what type 0:02:10.000 --> 0:02:12.440 of safeguards are you going to have in place to 0:02:12.480 --> 0:02:15.720 protect investors and to guard against conflicts of interest? 0:02:16.240 --> 0:02:19.480 Do we know, sorry, do we know how long it 0:02:19.520 --> 0:02:23.079 would be? We were talking with Mike Novograts of Galaxy 0:02:23.120 --> 0:02:25.440 Digital a couple of days ago, and he was saying, 0:02:25.880 --> 0:02:28.200 in one or two months, he thinks we could see it. Now, 0:02:28.200 --> 0:02:29.960 I don't know if he meant, you know, foreign investors 0:02:29.960 --> 0:02:32.440 would be able to participate. Do you know how long 0:02:32.440 --> 0:02:34.079 it would be till US investors are going to be 0:02:34.080 --> 0:02:37.360 able to, you know, pick up their phones and you know, 0:02:37.440 --> 0:02:41.040 buy a piece of an Apple stock or Nvidia stock 0:02:41.080 --> 0:02:41.639 with a token. 0:02:42.160 --> 0:02:44.320 Well, there are a number of things that we could do. 0:02:44.600 --> 0:02:47.680 It could take if we need to do, actual rules 0:02:48.320 --> 0:02:51.000 that have to go through noticing the comment and then 0:02:51.320 --> 0:02:54.040 are subject to potential review by the court, tecting a 0:02:54.080 --> 0:02:57.120 lot of lengthier process, and what we do what we 0:02:57.200 --> 0:02:59.679 call either subregulatory guidance, which basically means a no action 0:02:59.760 --> 0:03:03.200 letter or an exemptive order, or there's some other things 0:03:03.200 --> 0:03:06.960 that we can do. But again it depends on whether 0:03:07.040 --> 0:03:10.560 or not with the proposals that they intend to seek 0:03:11.320 --> 0:03:14.520 are consistent with our mission of maintaining investor protection, fair 0:03:14.560 --> 0:03:15.560 orderly efficient markets. 0:03:15.760 --> 0:03:18.040 Now elsewhere in this world, there also is a big 0:03:18.080 --> 0:03:20.000 push for stable coins I know there's a piece of 0:03:20.080 --> 0:03:22.959 legislature making its way through Congress at the moment. There's 0:03:23.000 --> 0:03:25.120 also some journal reporting that some of the big banks 0:03:25.120 --> 0:03:28.440 are possibly considering doing their own. Part of the thing 0:03:28.440 --> 0:03:30.720 that the big banks have been worried about is stable 0:03:30.760 --> 0:03:33.680 coins moving to other players and other players that are 0:03:34.160 --> 0:03:36.680 less regulated. Is that a concern for you if this 0:03:36.720 --> 0:03:39.160 is where stable coins emerge from, not from the banking industry, 0:03:39.200 --> 0:03:41.400 which again already has some onerous regulation. 0:03:41.680 --> 0:03:44.680 Yeah, well, it depends on whether that particular stable coin 0:03:44.720 --> 0:03:47.240 even falls in our SEC jurisdiction. We put out some 0:03:47.320 --> 0:03:50.440 guidance earlier this year which said a stable coin that 0:03:50.480 --> 0:03:54.200 does not pay interests, is not yield dividends or otherwise 0:03:54.200 --> 0:03:57.280 have a profit, it's not a security because that is 0:03:57.320 --> 0:04:00.440 a fundamental part of what a security is. You have 0:04:00.440 --> 0:04:04.480 to anticipate making profits. Otherwise a gift card could easily 0:04:04.520 --> 0:04:07.480 be a security. So stable coins that don't have that 0:04:07.480 --> 0:04:10.680 profit motive not part of the SEC jurisdiction. Now, there 0:04:11.240 --> 0:04:13.160 is I think some interesting ideas out there. Can you 0:04:13.200 --> 0:04:15.680 create essentially a tokenized money market fund that one might 0:04:15.720 --> 0:04:17.840 be able to exchange. We do have rules on that, 0:04:17.920 --> 0:04:20.240 but that would be something that we would say, all right, 0:04:21.400 --> 0:04:23.719 what sort of safeguards do we need on here? Is 0:04:23.760 --> 0:04:27.600 this reliable? Do we know that it's going to protect 0:04:28.000 --> 0:04:30.120 or at least they're going to appropriately safeguard and custody 0:04:30.160 --> 0:04:33.960 the assets underlying the fund. So that's a little bit different. 0:04:33.960 --> 0:04:35.760 But you know, the whole banks versus money market funds 0:04:35.800 --> 0:04:37.560 has been something that's going on for at this point, 0:04:37.560 --> 0:04:38.599 I think almost four decades. 0:04:38.760 --> 0:04:41.360 By the way, I'm sure you read Matt Levine's Money 0:04:41.400 --> 0:04:45.680 Stuff and he posits everything as a security, right, I mean, 0:04:46.080 --> 0:04:48.480 you can make everything a security if you want, if 0:04:48.480 --> 0:04:49.720 you want to go down that route. 0:04:49.760 --> 0:04:53.400 Well, I thought his theme was more everything's security is fraud. 0:04:53.640 --> 0:04:55.919 Yes, that's a good voto. That's a good point. Everything 0:04:55.960 --> 0:04:58.920 security is fraud. I got that wrong. Let me ask 0:04:58.960 --> 0:05:03.560 about the Trump coin ETF that right now is in registration. 0:05:05.120 --> 0:05:08.120 Is there any way that you would not approve that? 0:05:08.240 --> 0:05:10.960 Don't you have to? He's kind of like your boss's boss. 0:05:11.560 --> 0:05:15.279 Well, we don't approve based on who is the boss's boss. 0:05:15.680 --> 0:05:18.560 What we do look at is we apply the same 0:05:18.720 --> 0:05:22.679 rule book that we apply any other type of security 0:05:22.680 --> 0:05:25.040 that's been registered for offering on us. We are what 0:05:25.080 --> 0:05:29.440 we call merit neutral. We are disclosure agency, so as 0:05:29.440 --> 0:05:32.960 long as we are comfortable that the appropriate disclosures have 0:05:33.000 --> 0:05:35.280 been made, there is no real legal basis for us 0:05:35.279 --> 0:05:38.000 to hold up a registration Stamen and meme coins. 0:05:38.120 --> 0:05:41.279 Is that something you could see, uh trading in ETFs? 0:05:42.480 --> 0:05:45.719 Well, that's, you know, a very interesting question. We have 0:05:46.000 --> 0:05:48.640 had a number of types of financial products that are 0:05:49.040 --> 0:05:52.920 that have other types of non securities assets. We put 0:05:52.960 --> 0:05:55.679 out again some guidance earlier this year that name coins 0:05:55.680 --> 0:05:59.280 and NFTs are not securities. But if you put it 0:05:59.560 --> 0:06:02.880 into a package like some sort of collective investment vehicle 0:06:02.920 --> 0:06:05.360 and then you sell interests in that, than that the 0:06:05.360 --> 0:06:08.160 interest in that vehicle very well may be a security. 0:06:08.480 --> 0:06:10.280 Can I just ask, Commissioner, because you're doing a lot 0:06:10.279 --> 0:06:11.960 of work on this, you're heading up a new crypto 0:06:12.000 --> 0:06:14.440 task force too. We've mentioned just literally the tip of 0:06:14.480 --> 0:06:16.479 the iceberg of work that is being done in crypto. 0:06:16.800 --> 0:06:19.240 There's been reporting that SEC staff is shrunk by something 0:06:19.279 --> 0:06:21.720 like fifteen percent so far this year. Has that made 0:06:21.720 --> 0:06:22.719 it more difficult for you? 0:06:23.080 --> 0:06:25.880 Yeah? Well, first off, it's actually one of my colleagues, 0:06:25.920 --> 0:06:28.360 Commissioner Hester Purse, who is leading the Crypto task course 0:06:28.400 --> 0:06:29.560 and that was one of the first things that I 0:06:29.560 --> 0:06:32.360 did when President Trump designated me as the acting chairman, 0:06:32.520 --> 0:06:34.159 was in fact a day one issue was to put 0:06:34.160 --> 0:06:37.000 her in charge. You know, I think she's got a 0:06:37.040 --> 0:06:40.760 fun little moniker as crypto mom. To put her because 0:06:41.400 --> 0:06:44.800 the issues of crypto are across all aspects of what 0:06:44.839 --> 0:06:48.120 we do at the SEC. So we've got a number 0:06:48.160 --> 0:06:52.760 of workstreams going on that and we've had already four 0:06:52.839 --> 0:06:56.440 round tables with respect to crypto. This is something that 0:06:56.440 --> 0:06:58.200 we should have been doing years ago. And the reason 0:06:58.200 --> 0:07:00.280 why we do these roundtables and we sow us from 0:07:00.320 --> 0:07:02.480 the public is we want to make sure that we 0:07:02.520 --> 0:07:06.640 make informed decisions and we just don't come down through 0:07:07.000 --> 0:07:09.680 what I believe happened the last four years is what 0:07:09.680 --> 0:07:13.000 we call regulation my enforcement. I don't like something, we 0:07:13.360 --> 0:07:15.720 might not have a positive view of crypto, so therefore 0:07:15.840 --> 0:07:18.680 we're going to take an enforcement action against that. That's 0:07:18.760 --> 0:07:20.280 what we do. We're supposed to be merit neutral. 0:07:20.920 --> 0:07:23.200 I want to ask about something other than crypto. We're 0:07:23.240 --> 0:07:26.040 so focused on that just because of the newsflow lately, 0:07:26.120 --> 0:07:29.680 but really private markets have been at the heart of 0:07:29.720 --> 0:07:32.120 the discussion we have on this segment Wall Street Beat, 0:07:32.200 --> 0:07:36.920 and it looks increasingly like retail investors want to get involved, 0:07:38.000 --> 0:07:42.720 and certainly firms want to sell retail investors these products. 0:07:42.800 --> 0:07:47.040 So what kind of guardrails do you think the SEC 0:07:47.120 --> 0:07:51.320 needs to put in place as private markets become more prolific. 0:07:51.680 --> 0:07:53.760 Well, our Trump and Paul act insessified on the Hillary 0:07:53.760 --> 0:07:56.560 this year. He's very interested in getting more exposure of 0:07:56.920 --> 0:07:59.360 retail investors private assets. But and there was a very 0:07:59.360 --> 0:08:01.520 big cavin it needs to make so that there needs 0:08:01.520 --> 0:08:03.560 to be the appropriate disclosures. There needs to be the 0:08:03.680 --> 0:08:07.280 other safeguards in terms of financial professionals who recommend these 0:08:07.280 --> 0:08:10.360 and how they satisfy their fiduciary duties and their duties 0:08:10.440 --> 0:08:13.040 of care before they recommend them. Now, when I look 0:08:13.080 --> 0:08:17.400 at private assets, my perspective is this, before I joined 0:08:17.400 --> 0:08:19.040 the SEC for two and a half years, I was 0:08:19.080 --> 0:08:22.200 a state regulator for California. When I look at the 0:08:22.360 --> 0:08:26.320 asset mix that underlies my retirement in the California Public 0:08:26.320 --> 0:08:30.720 Employees retirement system with small slices allocated venture capital, private credit, 0:08:30.920 --> 0:08:33.960 private equity, and then I think of myself, if I 0:08:34.000 --> 0:08:36.520 go now onto the marketplace and say, can I find 0:08:36.559 --> 0:08:40.199 a diversified fund that would provide exposures not only to 0:08:40.240 --> 0:08:43.560 public equities and public bonds, but also small slices of 0:08:43.600 --> 0:08:46.600 these other types of assets. You can't find it, so 0:08:46.920 --> 0:08:49.560 I think it's very important that we at least explore 0:08:49.679 --> 0:08:52.680 how we can make it possible. So as former chairman 0:08:52.760 --> 0:08:54.240 Jay Clayton would call it, mister and missus four OL 0:08:54.280 --> 0:08:56.280 one K can have the same exposure that many of 0:08:56.320 --> 0:08:59.240 our local and state government employees have through their retirement 0:08:59.280 --> 0:09:00.520 defined benefit REGs harmon plans. 0:09:00.559 --> 0:09:02.680 Are you not concerned about the liquidity mismatch? This has 0:09:02.720 --> 0:09:04.679 been a real problem for when it comes to retail, 0:09:04.800 --> 0:09:06.760 not just the educational but should you want to pull 0:09:06.800 --> 0:09:09.319 it out, should you need access to which retail investors 0:09:09.320 --> 0:09:11.840 often do, that you could have something that looks like 0:09:11.840 --> 0:09:14.000 a run on these assets. Is that a real concern. 0:09:14.160 --> 0:09:16.480 I think there's a big difference between the retirement market 0:09:16.520 --> 0:09:18.960 and the non retirement market. What we've seen is the 0:09:19.000 --> 0:09:20.960 retirement market tends the assets tend to be what they 0:09:21.000 --> 0:09:24.800 call sticky. Is much rare for people to pull them 0:09:24.800 --> 0:09:28.120 out early because there is also a tax penalty if 0:09:28.120 --> 0:09:31.640 you would draw those assets early, and many times, especially 0:09:31.640 --> 0:09:34.440 for younger workers, if they have a thirty or forty 0:09:34.520 --> 0:09:37.199 year investment horizon. Some of these less liquid assets are 0:09:37.400 --> 0:09:40.679 much more appropriate than say, somebody who is amassed quite 0:09:40.679 --> 0:09:44.400 a bit over a lifetime of savings and therefore one 0:09:44.480 --> 0:09:47.520 K and now they're seventy years old. Their investment horizon 0:09:47.600 --> 0:09:50.080 may be much shorter and less appropriate for these types 0:09:50.120 --> 0:09:51.200 of private assets. 0:09:51.920 --> 0:09:54.440 Very cool, Commissioner. Great to get to spend some time 0:09:54.440 --> 0:09:56.120 with you. I hope we can have you back on 0:09:56.160 --> 0:09:56.520 the show.