Speaker 1: I should make clear though, that you can have a
Speaker 1: crypto asset that is itself a security. So I think
Speaker 1: that someday we could see a world in which traditional
Speaker 1: stocks are tokenized. Well, if you tokenize a traditional stock,
Speaker 1: it is definitely still a security. You could tokenize a
Speaker 1: bond similarly, and so people do need to pay attention
Speaker 1: when they're creating crypto assets.
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Speaker 2: Welcome into the Thinking Crypto Podcast. I'm your host, Tony
Speaker 2: Edward and with me today's SEC Commissioner Hester Purse. Commissioner
Speaker 2: Purse is great to see.
Speaker 1: You, hey, Tony, it's good to be back. Of course,
Speaker 1: as you know, have to give my disclaimer, which is
Speaker 1: that my views are my own views as a commissioner,
Speaker 1: not necessarily those the SEC or my fellow commissioners.
Speaker 2: Yeah, Commissioner, first great hearing this week. We were talking
Speaker 2: a bit about it before the recording very long, but
Speaker 2: you and the other four commissioners appeared before the House
Speaker 2: Financial Services Committee. That was really refreshing to get everyone
Speaker 2: from the agency as far as commissioners to give their
Speaker 2: different point of views. How do you feel that hearing
Speaker 2: went and what were some takeaways for you?
Speaker 1: Well, I think you're right, it was about showing different
Speaker 1: approaches to the job. And I think that's the beauty
Speaker 1: of a commission. There are five of us, we all
Speaker 1: have different backgrounds and we bring something different to the job.
Speaker 1: And I think you saw that earlier this week at
Speaker 1: the hearing. You know, I think the big takeaways from
Speaker 1: the perspective of you know from my perspective, or that
Speaker 1: there's a lot of interest in issues that those issues
Speaker 1: did come up a lot. And then I think it's
Speaker 1: just really healthy to have a dialogue among people who
Speaker 1: all care about the capital markets, but who approached them differently.
Speaker 1: I think another theme that ran through the hearing was
Speaker 1: a real interest in capital formation, which is one part
Speaker 1: of our mission as an agency. It's a part that
Speaker 1: hasn't gotten a lot of attention during this past several years,
Speaker 1: and so I think there was understandably interest from Congress
Speaker 1: in what we're planning to do in that space.
Speaker 2: And now there was a second hearing no as schedule
Speaker 2: for Wednesday with the Senate folks, but that got rescheduled.
Speaker 2: If I'm not mistaken, are you anticipating a similar type
Speaker 2: of hearing with the Senate side?
Speaker 1: That hearing, as far as I know, was just with Chagensler,
Speaker 1: and I don't know why it was rescheduled or when
Speaker 1: it will be had, when it will be held, So
Speaker 1: I don't know anything about that one.
Speaker 2: Oh okay, so I had my ad the mistaken the
Speaker 2: information there. I thought all five of the commissioners we're
Speaker 2: going to appear again.
Speaker 1: But it's say, you know more than I do, Commissioner person.
Speaker 2: I would love to get your take on what we're
Speaker 2: seeing kind of a along the lines of what you
Speaker 2: were mentioning this shift, and I like to call it
Speaker 2: the Overton Windows shifting for crypto politically, where we're seeing
Speaker 2: democrats or working with their colleagues on the Republican side
Speaker 2: to help get crypto legislation through, and you have these
Speaker 2: hearings where it's now both Democrat and Republican voices. Do
Speaker 2: you feel we were hitting the tipping point of mass awareness,
Speaker 2: so to speak, mass adoption and everyone needs to pay
Speaker 2: attention now to this industry.
Speaker 1: I mean, I've been thinking about these issues for a
Speaker 1: long time, and it definitely seems that they're much more
Speaker 1: top of mind for more people now, and so I
Speaker 1: think that's positive. Although I think one of the reasons
Speaker 1: at their top of mind for so many people is
Speaker 1: that this really is an example of how a regulator
Speaker 1: has mishandled the situation, and so I think that is
Speaker 1: what has has pushed this to the top. And I
Speaker 1: should say, I mean, you know, I focus a lot
Speaker 1: on the SEC there are a lot of other non
Speaker 1: SEC crypto issues that have gotten attention as well, But
Speaker 1: I think if we had sort of done this in
Speaker 1: a more methodical way, there'd be less attention being paid
Speaker 1: to crypto right now.
Speaker 2: Oh sure, yeah, to your point, it has become sort
Speaker 2: of political where you have one side now is using
Speaker 2: it as a campaign item. Right, So it's interesting this
Speaker 2: election cycle. It's very interesting. If you told me a
Speaker 2: year ago that crypto would be one of the main themes,
Speaker 2: or that the crypto industry would be spending the amount
Speaker 2: of money it is from a campaign donations standpoint, I
Speaker 2: would not have believed you. It's pretty fascinating what's happening.
Speaker 1: The politics out of it, which is not really my expertise,
Speaker 1: and focusing more on just the regulatory approach. We're spending
Speaker 1: a lot of time at the SEC thinking about crypto,
Speaker 1: and a lot of our resources are going toward these
Speaker 1: crypto enforcement actions. And one of the themes that I
Speaker 1: think it's really important for us to think about is
Speaker 1: kind of what could an alternate reality look like if
Speaker 1: we were to take a more workmanlike approach to crypto
Speaker 1: and just say, okay, let's think about areas where we
Speaker 1: need to be involved, and then think about what does
Speaker 1: rational involvement look like, what would a rational set of
Speaker 1: rules look like, and then where could we concentrate our
Speaker 1: enforcement resources to do the most good those kinds of things.
Speaker 1: I think that's really what we should be thinking about.
Speaker 1: That's not really a political question. That's something that people
Speaker 1: on all sides of the aisle can get together and
Speaker 1: think about and think about together and try to figure
Speaker 1: that out. You might have differences in terms of the
Speaker 1: role that government should play in those things, but those
Speaker 1: are the kinds of discussions that you can then have.
Speaker 2: Yeah, agreed, So I notice what you mentioned that because
Speaker 2: the agency did not act sooner or in the right way,
Speaker 2: it has kind of forced the industry to become a
Speaker 2: political item where it shouldn't have been. Right. It's just
Speaker 2: a technology like the Internet.
Speaker 1: Yeah, it's a technology, and you know, I think this
Speaker 1: is another point that I like us to think about,
Speaker 1: not because you know, we should sit around and say, well,
Speaker 1: you know, let's imagine what it would would have been
Speaker 1: like for the sake of imagining what it would have
Speaker 1: been like, but to think about how can we handle
Speaker 1: other new technologies that come down the pist. We're seeing
Speaker 1: artificial intelligence. It's not new, but we're seeing new uses
Speaker 1: for it and new iterations of it. And so let's
Speaker 1: make sure that we don't repeat the same problems when
Speaker 1: we are confronted with a different technology, and let's try
Speaker 1: to do a reset in how we think about crypto.
Speaker 1: But I think one of the problems of us not
Speaker 1: having done this is that there's been a lot of emphasis.
Speaker 1: You know, there's been a lot of retail interest, and
Speaker 1: I think we have not helped by not having clear
Speaker 1: lines because it's made it harder for retail folks to
Speaker 1: sort of distinguish what where there might be there there
Speaker 1: and where there isn't where it's just a fraud. And
Speaker 1: so I think better rules will also just be helpful
Speaker 1: for retail folks, be helpful for us as we think
Speaker 1: about using our scarce enforcement resources.
Speaker 2: Yeah. Absolutely, And I can give some anecdotal evidence on
Speaker 2: my end as a podcaster. I obviously have a lot
Speaker 2: of retail folks who watch and listen and again tell
Speaker 2: you that amount of stories of folks getting into situations
Speaker 2: where I thought this was legit, but it's actually a
Speaker 2: scam or you know, how come the sec is not
Speaker 2: stopping these guys. It's clearly something fishy is happening here.
Speaker 2: And then on the building side, I want to launch
Speaker 2: a dow and have NFTs, but I'm scared, yes, you see,
Speaker 2: might go after me, even though I'm not trying to
Speaker 2: launch any type of trading, just have utility NFTs where
Speaker 2: people can unlock features, get special perks and benefits. But
Speaker 2: I don't want to be in any legal issues. I'm
Speaker 2: a small time business owner, right.
Speaker 3: So there are a lot of stories like that of
Speaker 3: people who have an interesting idea for how they might
Speaker 3: use the technology and they're just kind of holding back.
Speaker 1: Because there's this sphere of getting on the wrong side
Speaker 1: of the securities laws. And I think with respect to
Speaker 1: you know, it always makes me sad to hear of
Speaker 1: people who have been taken advantage of by someone a
Speaker 1: fraudster using crypto to lure people in, and there are
Speaker 1: a lot of people out there who are trying to
Speaker 1: do that, so people have to be very careful. But
Speaker 1: I think part of the the goal of getting a
Speaker 1: clearer framework is also so that you know what falls
Speaker 1: within the SEC's jurisdiction and what might fall within another
Speaker 1: regulator's jurisdiction. Sometimes, when one of these really bad things
Speaker 1: happens in the crypto space, unfortunately we can't we can't
Speaker 1: get involved because it's not within our jurisdiction. But there
Speaker 1: may be another federal or state regulator who can get involved,
Speaker 1: and if the lines are clear, we can then make
Speaker 1: a referral over to that other regulator. And so again
Speaker 1: I think the space would be I mean, there are
Speaker 1: always going to be people trying to take advantage of
Speaker 1: other people, and they're going to use whatever the latest
Speaker 1: thing is, but I think it would be harder for
Speaker 1: those people to do their bad deeds if we were
Speaker 1: to have these clear jurisdictional lines.
Speaker 2: Absolutely. What are your thoughts on along the lines what
Speaker 2: we were talking about before we Democrats and Republicans working together,
Speaker 2: thoughts on the crypto bills, the fit twenty one bill
Speaker 2: that made it out of the House. There's one in
Speaker 2: the Senate, the Lumbus Jillibrand Bill. There's talks of trying
Speaker 2: to get a bill pushed through the Senate by the
Speaker 2: end of the year, maybe in the lame duck session.
Speaker 2: I've seen Republicans and Democrats talk about this. Do you
Speaker 2: think those legislation would help in putting these lines in place?
Speaker 1: Well, as I said at the hearing, I always welcome
Speaker 1: the input of Congress, and so getting a sense from
Speaker 1: them where they want those jurisdictional lines to lie would
Speaker 1: be very helpful for us then to think about how
Speaker 1: to spend our resources. So I do welcome it. In
Speaker 1: terms of the detail tells of those bills, you know,
Speaker 1: I leave that to people in Congress, though, I think
Speaker 1: that the SEC should be assisting them with We provide
Speaker 1: something called technical assistance to Congress when they're working on things,
Speaker 1: and so we should be stepping up to help them
Speaker 1: with that.
Speaker 2: I want to talk about the term crypto asset securities
Speaker 2: or digital asset securities. I've heard s againcer and it's
Speaker 2: been mentioned in different legal documents as well. Recently, there
Speaker 2: was some folks who are the sec who apologized about
Speaker 2: this in a finance legal document footnote. Yet it's being
Speaker 2: used in different places. Where did this term originate from?
Speaker 2: And it seems to be causing a lot of confusion.
Speaker 1: Yeah, well, I don't know where it came from. But Tony,
Speaker 1: you and I have talked about this topic in the
Speaker 1: past that there is some legal imprecision and how we've
Speaker 1: approached this issue. And you know, we've talked about the
Speaker 1: fact that the Howie test from a case about orange groves,
Speaker 1: and the orange growths themselves were not the securities. It
Speaker 1: was the orange groves when paired with this contract to
Speaker 1: do work related to the orange groves, that turned it
Speaker 1: into a securities offering. And so I think in this
Speaker 1: connection and you have Howie has generated this whole series
Speaker 1: of cases about casks of whiskey, about different kinds of
Speaker 1: animals that could be the subject of an investment contract,
Speaker 1: but it doesn't turn the chinchilla into the actual security.
Speaker 1: And so I think some of the linguistic problems are
Speaker 1: sort of stemming from this wrestling with how does this
Speaker 1: investment contract idea really manifest itself in the crypto space,
Speaker 1: And we haven't been precise about that and so I
Speaker 1: think this is the one symptom of that.
Speaker 2: I remember years ago you and I talking about that,
Speaker 2: and you mentioned you've been speaking to the folks here
Speaker 2: the agency about viewing this differently, the crypto assets that
Speaker 2: intrinsically they're not securities. Have you do you feel, you know,
Speaker 2: there's been some progress made and I know sometimes these
Speaker 2: things take time and idea and you know, collectively we agree, okay,
Speaker 2: this is how it should be viewed. Do you feel
Speaker 2: the agencies making some level of progress.
Speaker 1: Well, I do think we're having to be more precise.
Speaker 1: I should make clear though, that you can have a
Speaker 1: crypto asset that is itself a security. So I think
Speaker 1: that someday we could see a world in which traditional
Speaker 1: stocks are tokenized. Well, if you tokenize a traditional stock,
Speaker 1: it is definitely still a security. You could tokenize a
Speaker 1: bond similarly. And so people do need to pay attention
Speaker 1: when they're creating crypto assets to whether or not they're
Speaker 1: doing something. Are they fractionalizing thing, are they creating a
Speaker 1: token that will kick off a stream of payments to people?
Speaker 1: I mean they need to be thinking in those kind
Speaker 1: of context about whether something might be a security. So
Speaker 1: you can't make a blanket statement. No, crypto asset is
Speaker 1: a security. But I think when we're thinking about crypto
Speaker 1: assets as the object of an investment contract, just you know,
Speaker 1: because of statements made around how it was sold those
Speaker 1: kinds of things, then we the sec need to be
Speaker 1: more precise in those instances. And I think you're seeing
Speaker 1: that sort of developing now.
Speaker 2: Yeah, that's a great point to delineate between Yeah, tokenized
Speaker 2: assets versus the one the tokens that exist on blockchains
Speaker 2: which help the utility function. But I definitely agree with
Speaker 2: you that token ied stocks, token ice come and all need.
Speaker 1: To be careful. They can't. You know, blanket rules don't
Speaker 1: work with the securities laws. It's always facts and circumstance.
Speaker 1: But that's why some of these statements that have been
Speaker 1: made around crypto coming from the SEC. In other places,
Speaker 1: we need to be careful too. We can't make blanket statements. Either.
Speaker 2: Let's move ahead to sab one two one, or solve
Speaker 2: one two one as some would call it. I know
Speaker 2: you and I touch about this on this in the past,
Speaker 2: and there's been moves to have it repealed in the
Speaker 2: House and Senate. Ultimately, President Joe Biden vetoed it. However,
Speaker 2: we got news that certain banks and institutions may be
Speaker 2: able to bypass this, such as bny mellon what can
Speaker 2: you tell us there, what's happening with this?
Speaker 1: Well, first of all, I think it's amazing that a
Speaker 1: staff accounting bulletin got enough attention that it became the
Speaker 1: subject of so much Congressional attention, and it actually, you know,
Speaker 1: ended up the Congress wanted to get rid of it.
Speaker 1: It didn't end up making it past a veto, a
Speaker 1: presidential veto. But the point is that there's a lot
Speaker 1: of concern around the staff accounting bulletin. So why is
Speaker 1: that a staff accounting bulletin is, as its name suggests,
Speaker 1: a staff document. It comes out without the traditional, the
Speaker 1: typical process that would go with a rule. You don't
Speaker 1: have any time for people to comment on it. It
Speaker 1: just it's out there, and people technically don't have to
Speaker 1: comply with it because it's a staff document, but they
Speaker 1: feel that they have to comply with it because it
Speaker 1: reflects how the staff is thinking about things, and thus
Speaker 1: could if you don't comply, could result in a very
Speaker 1: uncomfortable situation for you. And so it came out. It
Speaker 1: looked to me like a rule in the way it
Speaker 1: was written, and then it was applied at first to
Speaker 1: you know, just public companies that are that are filing
Speaker 1: with us, right, But then it sort of it started
Speaker 1: being applied more broadly to broker dealer. It seemed to
Speaker 1: apply to everyone ultimately, and so the result of that
Speaker 1: was that you saw, and for people who haven't followed
Speaker 1: the debate as closely as you have, Tony sab one
Speaker 1: is basically about what does a company need to do
Speaker 1: from an accounting perspective when it's custodying crypto for customers.
Speaker 1: And so the result of it has been, because of
Speaker 1: its onerous effects, it has effectively led to most custodians
Speaker 1: not being able to play in this space. And so
Speaker 1: there's been just a tremendous amount of pushback from traditional
Speaker 1: banks but also from people within the crypto space to say, hey,
Speaker 1: is this really does this even make sense from an
Speaker 1: accounting perspective, And so it's been out there for a
Speaker 1: long time. People have been complaining about it for a
Speaker 1: long time. Then last month, I think it was the
Speaker 1: chief accountant at the SEC, who's on the staff at
Speaker 1: the SEC, put out a speech and said, hey, we're
Speaker 1: making some exceptions here for people from SAB one twenty one,
Speaker 1: and so people can go look at that speech to
Speaker 1: see kind of the conditions that might get you out
Speaker 1: of SAB one twenty one. But that also strikes a
Speaker 1: lot of people as a little strange. Right, you've got
Speaker 1: the staff bulletin and then you've got a speech interpreting
Speaker 1: it and it's a staff speech and you've got to go.
Speaker 1: That doesn't seem like a great way to do rule making.
Speaker 1: So why not instead just say, Okay, if we're making
Speaker 1: exceptions for people, let's codify that so that everyone can
Speaker 1: comply with that, with those conditions and get the exception.
Speaker 1: And so whatever we do in this space, we need
Speaker 1: to make sure that we have rules that people have
Speaker 1: been able to weigh in on that those rules then
Speaker 1: apply equally to everyone.
Speaker 2: Yeah. Absolutely, because it just seems it muddies the water.
Speaker 2: I don't know what's happening, and a lot of people
Speaker 2: are complaining about it, But it would be great to
Speaker 2: have these trusted custodians and banks which have been established
Speaker 2: have insurance, have the proper security checks to be able
Speaker 2: to custody some of the underlying assets for ETFs like
Speaker 2: the bigcoin ETF and ethere and METF and so forth.
Speaker 2: That would be I think very good for the market.
Speaker 1: When it Yeah, I mean, I think, yeah, that point
Speaker 1: is great. Right. We need to have competition. We don't
Speaker 1: want to pick winners and losers in this space. We
Speaker 1: want everyone to be able to compete on equal footing.
Speaker 1: And having a world in which you have multiple custodians
Speaker 1: tends to be a more uh you know, resilient world. Right,
Speaker 1: It's it's better to have more people playing in the
Speaker 1: in the space. Playing may not be the right word,
Speaker 1: but offering custodial services.
Speaker 2: Yeah, for sure. Now, on the topic of ETFs, I
Speaker 2: would love to get your thoughts on the success of
Speaker 2: the Bitcoin ETFs. I mean, black Rock has over twenty
Speaker 2: billion in its respective ETF and then obviously the other
Speaker 2: issues are doing well. This seems to be a hit
Speaker 2: with the market, the fastest growing ETFs and the history
Speaker 2: of ETFs, But it had to go over the legal
Speaker 2: hurdle and for the SEC to lose an appeal. In hindsight,
Speaker 2: I know you voted to have this approved, but in
Speaker 2: hindsight does the agency how are they looking at the
Speaker 2: success of the ETFs.
Speaker 1: Well, we're not a merit regulator at the end of
Speaker 1: the day, so it's not really our goal to say, well,
Speaker 1: you know, this product is successful or not. But certainly
Speaker 1: the inflows into those products have been, as you said, notable,
Speaker 1: and I you know, this feeds into my point all
Speaker 1: along on these which is, let's just let the market
Speaker 1: make their decision. We might not want these products. You know,
Speaker 1: if someone at a regulatory agency doesn't want to have
Speaker 1: those products, that's fine, but you have to have a
Speaker 1: reason for saying the market can't have it, and we
Speaker 1: didn't have a good reason for saying the market couldn't
Speaker 1: have it. And then once we did say that the
Speaker 1: market could have it, it turned out that a lot
Speaker 1: of people actually wanted it. And so it does make
Speaker 1: me question which I had had questions before. But you know,
Speaker 1: by not allowing these products out much sooner than we did,
Speaker 1: what other products were people getting into and were those
Speaker 1: products inferior to the products that they ended up choosing.
Speaker 1: I mean, again, we're not a merit regulator, so I'm
Speaker 1: not making any comment on whether people should or shouldn't
Speaker 1: have this product in their portfolio. But the market tells
Speaker 1: us that there were certainly people who were interested in
Speaker 1: having it.
Speaker 2: No, there's a big question. Well I shouldn't say question.
Speaker 2: Let me frame this. Obviously, the etherem media's got approved
Speaker 2: as well. But there's people in the market saying, okay,
Speaker 2: Etherreum is an all coin, second largest behind bitcoin. Bitcoin
Speaker 2: was established as a commodity for a very long time,
Speaker 2: going back years since Jay Clayton was chair and so forth.
Speaker 2: So folks are wondering, well, if Etheroreum as a smart
Speaker 2: contract proof of steak network got an ETF, what about Slona,
Speaker 2: what about Cardono and so forth? Is the agency talking
Speaker 2: about these things? And I know there's lawsuits going on
Speaker 2: with some of these other tokens mentioned, but I guess
Speaker 2: what's the methodology here that have Etheroreum got the approval?
Speaker 2: But what about the other proof of steak networks?
Speaker 1: Well, first of all, people need to come in and ask, right,
Speaker 1: So that's the first thing. And there was at least
Speaker 1: one applicant for a Salona product that I think got withdrawn,
Speaker 1: So again people have to come in and ask. That's
Speaker 1: the first step. The second step is, you know, we
Speaker 1: we would look at it honest facts and circumstances as
Speaker 1: we do other product filings. Now that said, people the SEC,
Speaker 1: as people know, the SEC has not been necessarily easy
Speaker 1: to follow in this space. So it's it can be
Speaker 1: a difficult space. And I can't make any predictions on
Speaker 1: how on how any particular application would come out.
Speaker 2: Gotcha? And but do you think that theoretically, if Congress
Speaker 2: is able to get Bill Thuddha Senate and eventually a
Speaker 2: president signs it, that that could help give the clarity
Speaker 2: and maybe next year Commissioner Purse.
Speaker 1: To look at you know, bitcoin, both bitcoin and E
Speaker 1: futures markets and some other some others don't that could
Speaker 1: be something that you know that makes a market work
Speaker 1: in a particular way. Again, I'm not going to make
Speaker 1: predictions about what will happen with respect to any particular
Speaker 1: other all coin, ETP. But you know, I'm always happy
Speaker 1: for people to come tell me why they think we
Speaker 1: should have.
Speaker 2: Them question about the futures market, because I've spoken to
Speaker 2: quite a few ETF experts and he said, you don't
Speaker 2: necessarily need to have a futures market to have a
Speaker 2: spot ETF approved. But the SEC has done it. That
Speaker 2: that's been the process, right, Why is it? Uh? It
Speaker 2: adds some balance to the market or what are some
Speaker 2: of the thought processes behind that?
Speaker 1: Well, I mean I think it depends, of course on
Speaker 1: the particular product that you're looking at, the particular underlying
Speaker 1: that you're looking at. But I mean, having the futures
Speaker 1: markets for bitcoin enabled us to make some you know,
Speaker 1: to understand something about the underlying market for example. But again,
Speaker 1: as as you say, you can you can have spot
Speaker 1: markets without futures markets, so so that doesn't necessarily need
Speaker 1: to be a condition. But that makes ether and bitcoin
Speaker 1: look more alike because they both have a futures market.
Speaker 2: Do you think that will be the standard moving forward
Speaker 2: or that might change?
Speaker 1: I really don't know. I mean, again, it doesn't make
Speaker 1: a lot of sense to to try to read the
Speaker 1: tea leaves here, because the facts and circumstances really do matter.
Speaker 1: And so when you talk about all coins, you're talking
Speaker 1: about one of many, you know, many thousands of possibilities,
Speaker 1: and so you really have to look at each one
Speaker 1: on its own.
Speaker 2: Now, recently I saw Blackrock the SEC approved black Rocks
Speaker 2: spot etf options. Tell us a bit about that, and
Speaker 2: and uh, you know, are you getting a lot more demand?
Speaker 2: These agency getting a lot more demand? For additional financial
Speaker 2: products around these et s.
Speaker 1: I mean, I think that wasn't a surprise to people
Speaker 1: to see that sort of happen. That's that's a pretty
Speaker 1: pretty natural kind of follow on product in terms of
Speaker 1: what the interest is for others, I don't actually know
Speaker 1: those those come into the staff, and so there may
Speaker 1: be others that are out there that I'm not that
Speaker 1: that I'm not aware of, m hm, and so a
Speaker 1: lot of you know, I think it's important for people
Speaker 1: to know that a lot of decisions that the staff
Speaker 1: that the Commission makes. I mean, ultimately everything rolls up
Speaker 1: to the Commission, but there are a lot of just
Speaker 1: routine tasks that are delegated to the staff, and so
Speaker 1: you'll see a lot of these kinds of things they
Speaker 1: just go through through delegated authority, we call it. You
Speaker 1: saw that with the early bitcoin exchange traded product disapprovals
Speaker 1: were staff and then ultimately they got raised up and
Speaker 1: started being commission level decisions. But it's a little bit
Speaker 1: of administrative law, kind of in the weeds stuff.
Speaker 2: I don't know if you can answer this because this
Speaker 2: gets a bit bigger into the macro of investing, but
Speaker 2: I'm certainly I'm sure it's a topic that may come
Speaker 2: up with the SEC the modern day investors changing with
Speaker 2: social media, people can crowdsource on Reddit or on Twitter
Speaker 2: or whatever it may be. And then you throw AI
Speaker 2: into mix and AI bots and whatever it is. Is
Speaker 2: the agency looking to use artificial intelligence to help police,
Speaker 2: if that's the right word, police this, or keep a
Speaker 2: track of all these things AI to police AI and
Speaker 2: even so many investors and changing dynamic.
Speaker 1: Yeah, I mean it's a really great question, and I
Speaker 1: think we need to be looking at technology that way
Speaker 1: as a tool that we can use. Obviously, if the
Speaker 1: Commission is considering using something like AI, we have to
Speaker 1: think about all of the implications of doing that. You know,
Speaker 1: you don't want to build a surveillance state without really
Speaker 1: you know, that can happen sort of inadvertently that you
Speaker 1: can turn around and realize, oh, we've created a surveillance state.
Speaker 1: We're watching everything that everyone does in the markets all
Speaker 1: the time. That's one of the reasons that I've been
Speaker 1: very concerned about this consolidated audit trail tool that we're building. So, yes,
Speaker 1: we should be using AI. It's a tool that we
Speaker 1: can be using to make our jobs as regulators to
Speaker 1: make us more efficient as regulators. We have a lot
Speaker 1: of people, for example, who are who are reviewing filing
Speaker 1: by investment companies, mutual funds and exchange traded funds and
Speaker 1: public companies. And that's something where if we can use
Speaker 1: AI to take away some of the more routine tasks,
Speaker 1: then we can focus our staff on the more complex tasks.
Speaker 1: And same with monitoring market trends and and monitoring the
Speaker 1: use of AI by people in the market. So yes,
Speaker 1: we should be doing that where we develop tools at
Speaker 1: the SEC, we use these kinds of things, but we
Speaker 1: always have to do it with this care and mind
Speaker 1: not to turn our country into something that we don't
Speaker 1: want our country to be. We do want people to
Speaker 1: have the freedom to transact and to interact with each
Speaker 1: other without being monitored all the time. That's really important,
Speaker 1: I think is a core American value.
Speaker 2: Yeah, absolutely, great, great point. I don't know if you've
Speaker 2: seen this, but Congressman Warren Davidson had put out a
Speaker 2: bill called the SEC Stabilization Act where it would essentially
Speaker 2: change the structure of the SEC in his term words,
Speaker 2: to make it less political and have more balance, so
Speaker 2: to speak. Have you seen that how any thoughts about that.
Speaker 1: Yeah, again, I mean I don't comment on legislation. I
Speaker 1: think it's always nice when we see people focused on
Speaker 1: our agency and interested in thinking about how it operates.
Speaker 1: So one of the things that a lot of people
Speaker 1: don't know about the SEC is that although we are
Speaker 1: a commission with five of US commissioners, the chairman has
Speaker 1: authority over the staff, the budget, and the agenda. Those
Speaker 1: are pretty three pretty big things. And so as a result,
Speaker 1: I can suggest that items be added to the agenda
Speaker 1: or taken off the agenda. But ultimately, at the end
Speaker 1: of the day, staff is to him and he's setting
Speaker 1: the agenda. So that's how things run. And so I
Speaker 1: think sometimes people think about other ways of well, you know,
Speaker 1: if three commissioners think that we should put crypto rulemaking
Speaker 1: on the agenda, then should it be on the agenda
Speaker 1: for example? So it would be interesting to you know,
Speaker 1: to have that a bill. I certainly would like that
Speaker 1: if I could convince two of my colleagues, hey, we
Speaker 1: ought to put something on the agenda here to put
Speaker 1: some definition around when a crypto asset is a security
Speaker 1: or is being offered and sold as a security. Then
Speaker 1: you know, if we could do that, that'd be great.
Speaker 2: Mure. First, I know I asked you this months ago,
Speaker 2: but I'm curious if you change your mind, if you
Speaker 2: were nominated to be chair of the SEC, would you
Speaker 2: take that job.
Speaker 1: You know, I'm really a lot more interested in trying
Speaker 1: to get the agency back on track then thinking about
Speaker 1: we can't have the discussion always be about personalities, right,
Speaker 1: It needs to really be about.
Speaker 3: What is this.
Speaker 1: Institution intended to do and what is it doing, and
Speaker 1: let's get the let's get those two things lined up again.
Speaker 1: And I think we have moved a bit away from
Speaker 1: where we're intended to be, and we need to have
Speaker 1: a realignment. That doesn't require a new chairman. That requires
Speaker 1: just a new commitment to protecting investors, facilitating capital formation,
Speaker 1: and fostering fair, orderly and efficient markets, which is our job,
Speaker 1: and not trying to grab stuff that's outside of our jurisdiction, right,
Speaker 1: just really focusing on those things and working with the
Speaker 1: public and keeping ourselves open to hearing input. Right, those
Speaker 1: are the kinds of things that it doesn't require a
Speaker 1: change in personnel. It requires a change in attitude, a
Speaker 1: change in culture, and that's what I'm more interested in
Speaker 1: focusing on.
Speaker 2: On that note in a change of culture, and I
Speaker 2: maybe getting into left field here, but you know, one
Speaker 2: of the things I was thinking about and looking back
Speaker 2: in the past in the late eighteen hundreds at early
Speaker 2: nineteen hundreds, there was the Industrial Revolution, and the handle
Speaker 2: and lamp makers got disrupted by electricity and light bulb.
Speaker 2: The horse and buggy folks got disrupted by the automobile
Speaker 2: and so on and so forth, And then I see
Speaker 2: some of the political cartoons and the things that came
Speaker 2: out there. There was fear was people trying to tarnish
Speaker 2: this new technology, and obviously, looking back in hindsight, it
Speaker 2: took us into a whole new world and made our
Speaker 2: lives better and so forth, you think some of that
Speaker 2: is happening here. Change is harder for humans. They fear
Speaker 2: the technology, this disruption happening, and going back to the
Speaker 2: collective mindset, it's a process. It may take years and
Speaker 2: legislation and getting people in Congress understand it, and they
Speaker 2: pass legislation and get people and get the agency to
Speaker 2: understand it better. Do you think there's a bit of
Speaker 2: that happening here?
Speaker 1: Well, that's something that I worry about, which is that
Speaker 1: regulatory agencies like other people. You know, the regulatory agencies
Speaker 1: are made up of people, and so like other people,
Speaker 1: we get used to things the way they are, and
Speaker 1: you get used to dealing with the same types of
Speaker 1: entities that you've dealt with for many years. The SEC
Speaker 1: just celebrated its ninetieth birthday this year, so we've been
Speaker 1: around for a long time. A lot of players have
Speaker 1: been around for a long time, and we've been you know,
Speaker 1: the system has changed. Our markets have gotten very electronic
Speaker 1: and fast, and that was something they weren't before. Commissions
Speaker 1: are very low. Now people are using technology to provide
Speaker 1: investment advice, whereas before it was all, you know, very
Speaker 1: human driven, and so there are a lot of there
Speaker 1: have been a lot of changes. But I think what
Speaker 1: you're seeing with something like the crypto world, as you're
Speaker 1: seeing people coming in from the technology world and they're saying, hey,
Speaker 1: we have some new ideas about how to do things
Speaker 1: that may affect the financial industry as well as other industries.
Speaker 1: It's not just the financial industry, and so we want
Speaker 1: to try those things. And we're saying when we see that,
Speaker 1: we the Commission see that. It does scare us a
Speaker 1: little bit right. It scares us because it's a change
Speaker 1: in our world. It's a change in the people we're
Speaker 1: used to dealing with, it's a change in the way
Speaker 1: things are done. And you see this a lot when
Speaker 1: people talk about decentralization, specifically because we're so used to
Speaker 1: a world in which we have these centralized intermediaries that's
Speaker 1: who we regulate. And so you see a lot of
Speaker 1: discussion coming out of my agency where people will say
Speaker 1: it's purportedly decentralized. It's always purportedly right, and often that's true.
Speaker 1: Often someone says it's decentralized and they're really sitting running
Speaker 1: it all on their server and they're in control of it.
Speaker 1: But if something truly were decentralized, it can be a
Speaker 1: real challenge to the existing way of doing things. And
Speaker 1: that is it does harken back to some of those
Speaker 1: earlier trends that you were talking about. We could be
Speaker 1: in a better world if some of the things in
Speaker 1: our lives were operated in this decentralized fashion, because it
Speaker 1: would mean that we would have more control that we
Speaker 1: would have. There wouldn't be someone who could say, no,
Speaker 1: you can't get access to that financial product, because it
Speaker 1: would be out there and anyone who wanted it could
Speaker 1: access it. On the same terms, it would take away
Speaker 1: points of failure in the system. We've seen in the
Speaker 1: past that a poorly managed centralized entity can have massively
Speaker 1: negative content sequences, and so doing something to allow us
Speaker 1: to eliminate those centralized points of failure could be really valuable.
Speaker 1: It's not to say that everything is going to be replaced, right,
Speaker 1: of course not. But we should be open to having
Speaker 1: change happen, and to having people come in and bring
Speaker 1: those changes who are new people, people were not used
Speaker 1: to dealing with. And that is a very difficult thing
Speaker 1: for a regulator, and that's why we need to make
Speaker 1: sure that we keep talking with the public, that we
Speaker 1: keep people coming into the agency to work here who
Speaker 1: maybe bring fresh perspectives. And so yeah, it's a challenge
Speaker 1: and it's one that we should all be on guard for.
Speaker 2: Final question, herefore, I let you go and all politics
Speaker 2: aside on this. I just want to get your thoughts
Speaker 2: on the idea. There was proposals about bitcoin being used
Speaker 2: as a reserve asset to help alleviate some the debt
Speaker 2: proms that we face with the current fiat currency system,
Speaker 2: and this is a global problem, and other countries are
Speaker 2: starting to make bitcoin a legal tender and using it
Speaker 2: as a reserve. What do you think about that? And
Speaker 2: do you think something on that level, if it was
Speaker 2: to happen, would be a major catalyst for the agency
Speaker 2: and even government as a whole to be like, whoa
Speaker 2: wait a minute, Okay, we have to look at this differently.
Speaker 1: As a securities regulator, my view on on what we're
Speaker 1: using as reserves or what we're you know, holding as
Speaker 1: reserves as a nation really are irrelevant. I think for me,
Speaker 1: the more exciting thing is to see people making decisions
Speaker 1: about what they want to use to you know, we're
Speaker 1: in a world where there's there's a new possibility to
Speaker 1: have people interact directly with each other, as I was
Speaker 1: just discussing, without these intermediaries and kind of take more
Speaker 1: control over their own data, their own their own financial transactions.
Speaker 1: And that's interesting to me. And and so I'm looking
Speaker 1: at that from my seat at the SEC and saying
Speaker 1: what can I do to make sure that we don't
Speaker 1: stand in the way of that or you know, on
Speaker 1: the NFT front, right people thinking about how can I
Speaker 1: use an NFT to monetize my talent. Those are interesting
Speaker 1: things to me, and those are areas where I want
Speaker 1: to make sure the SEC isn't blocking people from trying things.
Speaker 1: The questions around what the what the national government is
Speaker 1: going to do are with respect to bitcoin are outside
Speaker 1: my purview.
Speaker 2: Mentioneder Purse, always a pleasure. Thank you, and I hope
Speaker 2: to have you back on soon. And you know, maybe
Speaker 2: Congress will get some legislation through and our next conversation
Speaker 2: will be a very different one. But thank you so
Speaker 2: much for joining well.
Speaker 1: Thanks for having me Tony. It's always fun to take
Speaker 1: care