Hester Peirce: The Positive Future of Digital Asset Regulation (Huge Catalysts Coming)

Transcript

got to start with my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners. I think we really do need to to switch the framing um to say that it is natural, as you said, it is we should expect people to want to protect their privacy. When I just look across the landscape of assets, I come to a very different conclusion than some others at the SEC in the past have come to. Tokenization is one of those areas that since the administration changed and since the attitude toward crypto and blockchain changed, people have come to us and they've said, "We really think tokenization has potential here."

>> Good morning, ladies and gentlemen. We are back at the rollup and today we've got Commissioner Pur of the SEC joining us today amidst the innovation exemption happening in the digital assets world. We're going to be getting into all of this as well as what is going on with project crypto and the crypto task force at the SEC. Commissioner Pur, thank you so much for joining. >> Thanks, Robbie. It's great to be with you. I of course have to give you my disclaimer, which is that my views are my own views as a commissioner, not necessarily those at the SEC or my fellow commissioners.

>> I can tell you've practiced that once or twice. Uh so, thank you for sharing that. Um it feels like it's been a whirlwind. I mean, things are happening day in and day out. We're not going to be talking about prices. People like to, you know, talk about those quite a bit, so we don't need to cover anything about that. There's so much happening underneath the surface that I I want to get into. And I want to I want to chat about with you. Uh because you have such a unique perspective as commissioner of the SEC. Um maybe you can just before we get into some of the nuts and bolts, you can just talk us through what has been the recent weeks and months. What is what are you most excited about? We hear, you know, all these things about tokenized equities. We hear tokenized

deposits, you know, the SpaceX, we're we're recording this during the SpaceX IPO. So, there's tons happening uh both onchain and offchain. Maybe you can just give us a little bit of insight into, you know, what what have been the recent happenings at the SEC in the last couple of months. >> Well, we've been busy and I think one of the most exciting projects we're working on is is thinking about how uh we can make it more likely that more companies will go public earlier in their lives. And so that's um that's a project that has many different pieces to it, but um that's something we're working on. Just yesterday, we proposed a rule that would eliminate the uh the the the rule 611, which is the trade-through rule in in equity markets. And and that

is a 20-year-old rule that I I think um was really ripe for reconsideration. So I'm excited about that. There's obviously a lot going on on the crypto side. um some of it within the SEC, some of it outside. I mean, I'm excited to see clarity move forward and I think that will um give us a lot of work to do. I won't be here to do it, so maybe that's why I'm excited about it. Um but I think it will be quite helpful for the industry to have this this uh legislative framework within which we and the CFTC are writing rules.

>> Yep. And and I think that that is a great place to start with the recent uh 611 proposal uh to remove that piece of regulation. Um I I was reading a thread about this just a little while ago and it turns out that uh I guess Chairman Atkins, this has kind of been 20 years in the making. Um in 2005, uh Chairman Atkins and Commissioner Cynthia Glman issued a 44page written descent um on this vote that put 611 into place. And so why don't we start here? Um there's ways in which you know this is protecting the national best bid and offer uh as it pertains to trading. Um some of these are fundamentally uh

essentially impossible with some of the AMM technical structures that are available with exchanges on chain. And so it feels like this piece of regulation is a bit antiquated. Uh but before we draw that conclusion, could you describe to us what rule 611 is? And then we can get into, you know, whether it makes sense or doesn't make sense in the digital onchain age. >> Yeah. I mean, the the rule came from the concern that there were different marketplaces that were not being united and so you you might not be getting the price that you should that you could get if you were trading at some other venue.

And so the idea is that um in order for a trade to go through, it has to either be at the national national bed best bidder offer offer. So that's like the best price that's out there or you have to improve on it. Um so otherwise it has to you know it can't it can't that trade can't go through. Um so you won't it's called the trade-through rule because it doesn't allow you to trade through a better price. So my view is that markets don't need a rule to bind them together. That's what arbitrageers do. That's what that's that's what markets are all about. If you see a good deal in one place and it's it's it's a worse deal in another,

you'll take you'll you'll market participants will figure out a way to to even that out. And so that was my concern at the time that the rule was initially adopted. In any event, even if you thought that it was necessary at that time, that was a time where a lot of um the New York Stock Exchange, for example, wasn't using the most modern technology. And so, since then, everyone has upgraded to extremely modern technology. And so, um there a lot of in interconnections between markets now.

They're they're all hooked together. And so I think people even people who might have thought it was a good idea then are questioning whether it whether it still is. We just put it out for proposal so we'll be getting good comments and I'm excited about that. Um, but I think we've seen some things happen like a the fragmentation of the marketplace, lots of different exchanges, um, and lots of different complex order types and some of that, um, we believe to be tied to the fact that this rule exists. So yes, I think it could be helpful as we move toward tokenization not to have this kind of rule in place,

but that isn't really what was driving the uh proposal. >> Got it. Okay. And you know I I I read a little bit of commentary even in the last 24 hours that talks about you know how the current structure of some of the onchain exchanges aren't necessarily prepared uh to support national best bid and offer but as you're saying you make the case that even in um off-chain exchanges you mentioned you know the New York Stock Exchange NASDAQ these sorts of things are also innovating they're using up upgraded technology and even in that case you the the markets support maybe a more uh a more sophisticated approach that

doesn't regulate that national best bid and offer. Uh and that helps these markets ultimately find their fair market price uh and create an efficient market. And so, um, as we're thinking through, you know, some of the the market structure upgrades, I think, you know, people are looking at, uh, the tokenized equities market structure and they're and they're thinking that this could fundamentally reshape how these things are are traded and and transacted between. And so, you know, there's there's several things happening at the SEC. And it feels like tokenization is inevitable at this point. You know, maybe you agree or disagree with that. I think generally we're all in support of tokenization. There's some market

structure changes that are coming and and tokenized equities and and the innovation exemption is one of these that is ultimately going to put some of these changes in place. At a high level, what is the tokenization exemption? What is it not? Let's get into some of the nuts and bolts because this was a point of pretty pretty extreme contention when it came out that this was moving forward. Maybe you could just kind of dispel some of the misconceptions around the tokenization exemption. >> The innovation exemption.

>> So, first the innovation exemption is has not yet been been released. So, um you know, I I know there have been people writing news stories and things like that, but it's not um it's not actually out there yet. So, that's that's one myth that should be dispelled. The second is some people have talked about it as if it's going to be used to support the the trading of synthetic um securities. So securities and we put out a tokenization um frame not framework but sort of a the staff put out a taxonomy. So you can there are three categories and one of those is synthetic um uh uh securities where you're getting exposure to a

security but you don't actually hold the security. Those would not be in my mind um were were not ever something that we were thinking about including in the in the uh innovation exemption. Now someone could come and register those kinds of securities in the United States if they wanted to. Um but that wasn't sort of as I had been thinking about the innovation exemption wasn't something I had been thinking about. Um so so what the idea is is to allow tokens to trade in onch onchain basically. So it's onchain finance. It's not decentralized finance. It's onchain finance. There's still uh permissioning

involved. They're they're you know it's it's basically what we're trying to do is allow people to do controlled experiments using onchain finance to help us to help obviously the market think through whether tokenization makes sense. see what it looks like to try to do this not fully at scale, but at least to to to be able to try it in the real world, but also allow us as the regulator an opportunity to see how this works and to think about where the proper points of regulation are. There are going to be some differences with the way traditional the traditional financial world works. Um, and we want to make sure that we're applying

regulation as at at the right points. Um, so I think people should look at it as an opportunity for everyone to to really explore trading of tokenized securities. We don't see a lot of tokenized securities yet and I expect that we will. I think there are some advantages to being able to um have things trading on chain. I think there's there are advantages to being able to put a smart contract with an asset. It's very powerful in a lot of ways and I think could be helpful to meeting regulatory requirements could be helpful to um uh you know figuring out I I think having having uh securities on

chain could be helpful for people who want to use them as collateral there are a lot of potential reasons um that it could be useful but until we allow people to do some experimentation with trading I don't see that people are going to move to tokenization. So, this really I view as as a step toward allowing um folks to to to imagine what the future will look like. >> Yeah, you you make a great point that in the early stages of this, it looks like onchain finance, but not necessarily decentralized finance. I think there are some DeFi purists that may take issue with that, but ultimately I'm I'm very

optimistic that this is uh a stepping stone, if you will, into a more uh innovative environment where we're using the best technology. you you bring up some great use cases of smart contracts, using these things for collateral, using them for compliance or regulatory purposes that smart contracts enable us to do, but not necessarily a decentralized environment, still a permissioned environment. I I think there are some people that would argue with us, but I would tend to agree with you that there are there is a value proposition there. Maybe there's another value proposition of extending this even further into a decentralized environment. But there that is when we start breaching into even further unknowns and and it remains to be seen

how we best get there. And I think it's a very pragmatic approach to take this one step at a time. First tokenize these assets, move them onchain before moving them into a more decentralized environment. Um and that's a whole maybe another conversation that we can have about >> Yeah. I mean, and and I I certainly hear the people who are who are um purists, as you put it. Um I understand, you know, I I've been watching this technology for a long time and and I think it's really interesting that people are figuring out ways that they can do a lot of things without having an intermediary where you had to have one before.

Um, but that that really, you know, we're we're operating in a very regulatory world and so we have to think about that and I and I agree with you that we we need to see what it looks like to have things on chain and then we'll see what the appetite of folks is um to take some of those securities and and put them into decentralized environments. But that's really not where we are right now. I mean, it just isn't. Yeah. Yeah. And and it it it makes me particularly excited because it reminds me how early this all is and and you know how we are still at the precipice of this tokenization journey.

Um so we've got the through lines of of course tokenization onchain finance as well as uh really the two uh kind of elephants in the room the innovation exemption and the the rule 611 that just you know the proposal just went uh you know was announced over the last couple of days. Um, and so I want to use those as as the through lines for the rest of our conversation. Uh, because I'm curious as far as you know, in your in your tenure, you've had a a number of tremendous contributions uh in in the SEC. Um, you know, your term uh, you know, is on the horizon. So, I want to I want to get a sense of what your priorities are for the remainder of the year. You know, of course, these two

pieces, innovation exemption and 611 are are tremendous and I think certainly move us further in the right direction. Um, but but what are your main priorities uh when it comes to the the crypto task force and ultimately delivering greater regulatory clarity for digital assets? Well, so one one thing that I think will affect where the commission goes is whether clarity passes because as I said, clarity does give us quite a few regulatory obligation, rule writing obligations. And so that's something that we're watching and we're trying to prepare for um what that will look like if that if that passes, how we'll go about um coordinating that

work because that will be a big coordination job. So, that's one piece. The the next thing is we've talked um about the innovation exemption. That is one thing I'd like to see get done. But another thing that that I have talked about for a long time is the ability to use tokens in in fundraising and in raising capital. And so, what does that look like? And we we uh we have been doing some work on that. So, so that's also a priority. Um and and then we are dealing with the nuts and bolts issues around transfer agents interaction between transfer agents and and blockchain. Um custody of crypto assets both on the investment advisor side and

on the broker dealer side clearing agencies. Um what does that look like? We had we we the staff um greenlighted the DTCC to do um to do some experimentation here. Got a new action letter. So there are a lot of things like that. Um and then we're we're thinking longer term about definitions of things like brokers. We put the staff put out um a statement around user interfaces. That's a temporary statement with the idea that the staff needed some time to think about how the broker dealer regulation interacts with this with this area. So, I think that's

something else that we're spending time thinking about. Um, vaults are another issue that I think uh deserves some some attention from the from the agency and we're thinking about as well. um and you know urging people to come in and talk to us because there are some potential areas there where um activities could implicate the securities laws and people need to be careful there. Um so those are some of the the the thoughts. Now I should say that my term ended last June. I can stay until the end of the year unless someone get else gets put into this spot, but I will be leaving before that um time. And so my time here is short and I I um am very enthusiastic

that the commission will continue to do good work in this area and and so I will not be here for for most of that work. Now, I should say too, it's not just the SEC, it's the CFTC. We're doing a lot of joint work with them. The CFTC has been very busy on many fronts. Um, but one of the areas that we've been working with them on is is coordinating around where do products sit, where should they be regulated, um, what does it look like for an entity to trade or to make available to its customers products that may fit within the SEC's jurisdiction and the COTC's jurisdiction. So,

thinking about those kinds of issues will also be a big focus. Certainly. And and this is part of the foundation that you lay for the following commissioners that that that come after um as well as the definitions, the taxonomy that you talk about leaves not only a legacy but also clear rules of the road that will will serve as the interpretation for the the following uh regulators. And so, you know, we we talked about the Clarity Act and how um th this is going to be sort of this, you know, lasting piece. It's going to affect things. Uh there's also um you know, the innovation exemption.

And so in addition to the rules um that we've talked about today, I'm curious, you know, are there criteria or processes that you've seen companies or or you know, entities take now that you think are are you know the this is the way things should be done. You know, what what in general can uh uh these entities take into account that will serve as the building blocks going into the future? For instance, you know, you mentioned the DTCC got this no action letter. Obviously, they they are, you know, a very prominent entity in this entire industry. Is there any general criteria or processes that you would recommend as we move forward that you anticipate will become sustainable in

the regulation moving forward? I mean, the biggest thing I would recommend is think about what what you're trying to do, what you need to do to make that commercially viable, and then what kind of regulatory relief you need. But this is a very complicated legal area and and people really need to be thinking about, do I need to come in and register this product? Do I need to ask for no action reliefs from something? might I be pulled into the definition of of broker, dealer, investment advisor, investment company?

Don't panic if that's the case. come in and talk to us and we can think about what makes sense in terms of what what would it look like for you to register your product or what you know are there any requirements that don't make sense because we have information on the blockchain that maybe replicates information that would otherwise be generated through a regulatory requirement. So, I think really best practices are get good I I hate to tell people that they have to go talk to to to lawyers, but go talk to a good lawyer who specializes in this area. Um, and then we we um really are are we the crypto task force, but more generally the staff at the SEC is very eager to

engage and I think we can make some good progress. It's only by people being willing to come in and say, "Hey, this is what I'm trying to do." Um I think we need some relief here um that we can move things forward. >> Yeah. And and this is a relatively recent phenomenon. Um I'm I mean I'm sure you can remember uh you know the SEC wasn't always as um open-minded to some of the innovations that are happening in in the digital asset industry. And so for a long time a lot of the industry was pushed offshore. the idea was, hey, the SEC, you know, if you go talk to them, they're going to serve you an enforcement letter. That's no

longer the case. But I think that is somewhat still a precedent in in the industry's mind and and that has changed and you've been a pioneer and a leader as as it pertains to that change. >> Yeah. Although I will say and and I and I'm very grateful for people who are who are coming in and talking to us. I think the frustration that I still have and that I know others have is that things don't move fast, right? You know, when you're dealing with a a regulatory regime that's complicated, you've got a lot of a lot of people taking different approaches to looking at things. Things can move very slowly. And and I I you know, I' I talked to companies that say, "We're trying to do this, but we need to go to market soon. We can't just wait

and wait and wait." And so that I feel that pressure um and I would love to be able to move things along faster and and so there is a bit of an apology here too that things do take a long time. >> Well, no need to apologize. I think you've been such a you know a a a lightning bolt as it pertains to the regulatory uh you know state of our industry at at least you know relative to some of the previous um you know regulatory complexes and and and you know representatives in the SEC. And I guess my question here is how do we maintain this pace because you know the SEC is very open-minded and and willing to collaborate with uh industry partners and and establish best practices. some

of these definitions are starting to become formed in the taxonomy and and so you've you know accelerated the pace of regulatory uh uh change uh in in the SEC in you know this current regime as you transition how do we ensure that we don't go backwards and we we continue to to accelerate the pace of the regulatory regime >> well I think as long as chairman Atkins is here that the the pace will continue he's very committed to getting clear rules in place and and you know he's someone who spent a lot of time thinking about what good financial regulation looks like. So he um has a real appreciation for the need for people to

be able to do things that are commercially viable but also he has a you know high commitment to achieving the the goals of the commission which are protecting investors facilitating capital formation and fostering market integrity. So I think that piece will will will be fine as long as he's here. I I would also say and this is the message I give everywhere and all the time and so it's a bit of a you know repeat but build things that people want and need and then it it will be the kind of thing that is more likely to stay around because people want and need them and so they'll be they'll speak up if a regulator tries to take them away.

>> Yeah. Yeah. That that makes complete sense. we're seeing those products come to market in real time. Um, another thing that we, you know, are are very very excited about as we've been talking about is this innovation exemption. Just want to double click on it. Um, for the sake of, you know, we we've talked about the clarity act as well and how we kind of understand the the typical process of how this uh becomes uh more established. You know, it passes the house, passes the senate, goes to the president's desk, he signs it, you know, and and uh it's it becomes a law. uh when it comes to uh the proposed innovation exemption, how does this progress? You know, ultimately who are the stakeholders that have to sign off on this before it

becomes established and and concrete uh in the regulation? >> Existing uh laws already give us the ability to to create exemptions. We can do that by rule or by order. And so um it it's a commission decision. It doesn't require input from Congress because they already gave us the permission to do this. So it's it's really an internal process, but as we discussed before, there are a lot of complicated issues here and we want to make sure that we we get it right. So that's um that's what what we're working on.

>> Awesome. And um a as we think about some some of the the foundations that being laid and and you know moving forward, you mentioned sort of the classifications of uh tokenized securities. they, you know, may fall into this, uh, you know, tokenized by directly by the issuer or, uh, you know, on their behalf and then this third party. Um, we're in the midst of this mega IPO season. You know, as we're recording this, SpaceX went, uh, and and went live just uh, hours ago. And so, this has been another catalyst in this area of tokenized equities. Um, and there's all kinds of SPV wrappers around some of these some of these company

shares. How how can we think about the the the third-party tokenization? Because that's generally, you know, kind of one of the two classifications here. And, you know, we've been talking about innovation exemptions uh primarily for that first class of of tokenized equities on behalf of the issuer themselves. >> Well, there are actually three categories. So I point people back to the staff statement and and one is >> um the it natively natively tokenized. The second is you can have an entitlement where there's actually a share being custodied um on behalf and the the token represents that. And then you've got the third category which is the synthetic category.

Um and so yeah with respect to the third category that's that's um one where again people can register those kinds of securities but it's important for people who hold no it's important for people who are holding securities that way to understand that they're getting economic exposure to the asset but they're not actually holding the asset itself. And so that's the that's the the piece that um you know if you were to register something like that in the United States, you would have to really explain that to your to your uh to your investors, >> right? And and so you you know, you had put out a post again trying to clarify some of these misconceptions where you

know you you appreciated the interest in but not the hyperbole of the the innovation exemption and as it pertains to to some of these classifications. Was there something in particular that you know you had intended where you know maybe you know some of the more egregious examples of things that people were claiming uh was effectively you know around some of this third party tokenization and you know there was this maybe broad exemption for those. But you've made it clear that's not the case. And so could we just could you just explain a little bit more h you know how based on based on the feedback that you've gotten on this proposed exemption so far how narrow or broad you would anticipate this exemption when it ultimately becomes

>> I mean again it's it's not out but as I as I said I had never envisioned it as involving that third category which is synthetics which are which are >> um securities held in an SPV but then then someone can get economic exposure to the securities through that SPV. That's not what I had been thinking. Um so again, I may not be here when the innovation exemption comes out. So so um I think it's important to say it's it's a conception. Um and uh so we'll have to see what the final looks like. But um I think there was there's a lot of hyperbole about

again arguing that it's it's much broader than it is. And as you said, some people are going to be disappointed because it's it's it's actually pretty traditional, right? It's it's it's onchain finance. It's it's it's it's a step um to see how tokenized securities will trade. It is not um you know it's it's it's not I think it's not even that big of a step frankly. I think it's important but it's not that big of a step. >> Right. Okay. Um and ultimately the you know there's there's obviously there's protocols that have been developing the the rails for onchain finance for a long time. They've innovated in into that more decentralized direction. But, you

know, we've also got, you know, the incumbent institutions that have been here and and, you know, they harness the lion share of securities trading and they're also now, you know, coming into the onchain world. Um, and this is a step for them to do that. Uh, and we've, you know, we've heard and thought about the the New York Stock Exchange alternative trading system and how some of these structures are are ultimately coming to market. Uh, the DTCC is also a big part of this. And so, you know, obviously part of the SEC's um uh mandate is to uh protect investors um as these things come online. And so um you know the tokenization of these securities h is it is it you know

primarily for making these markets more efficient. You also mentioned some of the regulatory uh benefits of tokenizing these securities bringing them into smart contracts on chain. Could you talk about, you know, what that looks like in practice? You know, maybe some of the more novel smart contract constructions that you may have seen or heard about or thought about um and how they can benefit uh both institutions and uh you know, newer newer companies alike as as we tokenize more of these securities. >> Well, I think that when we think about tokenization, it's really just a new format for securities. So you can have paper certificates, you can have um dematerialized, immobilized, you know,

we have now that's what we have now certificates so you're not actually holding the paper or this is another option tokenization because it does allow things to run on the same rails that your stable coins will be running on. that could be efficient and effective I think for uh uh using using tokenized securities in a variety of ways. One of them is you may want to post it as collateral. You may want to lend out your securities. It'll make it easier for you to lend out your securities and and um and that's an area where you can make a little bit of a return. You'll be able to do that without having potentially without having to pay someone else to help you do that. um you I think will see an

advantage to being able to program securities. So if you're if you're um involved in you know you're a founder of the company, we want to put restrictions on your on on your sales. We can do that through a smart contract. Um, I think there also will be interesting possibilities for companies to communicate with their investors by dropping an NFT in the investor's wallet. They won't necessarily even need to know who the investor is, but they'll be able to communicate. That could have some implications for voting as well.

Um, and then I think we'll see um for for companies that have treasuries for them to do treasury management if they have tokenized money market funds. It will be easier um than if they're not tokenized to be more precise about you know they can they can lend it for part of the take and do something with it for part of the day um and then they can take it back. It'll be um you know allow for more flexibility there I should say. And then I think there's also a possibility that it could be helpful in in combating naked shortselling. Um so that's that's when you when you're a short seller, you need to to locate the shares um ahead of time. And so this

will be a way to hold people to account for actually doing that. So I think that could be valuable. So I see a number of of different possibilities. Again, I'm just a regulator and I I really am excited to see what the market decides it wants to do. Um, but I think it's I think there are a lot of possibilities there. >> Yep. And and we've seen um a a lot of um demand for for these things both uh in you know maybe the the traditional financial world as well as uh some of this next generation onchain uh financial world as well. Um I I'm a little bit more curious to to chat about the the IPO season that we're we're you know kind of seeing unfold before us. Uh

you you mentioned at the the top of the conversation how you'd like to see you know companies go uh public a little bit sooner. I I think I just saw a company raising like a series M which I had never heard about before. Um and so you know I I guess just generally to start why is it important that we broaden access um for these companies and and you know we have them go public sooner and and you know what steps are important to ultimately incentivize the companies for going public rather than you know kind of maintaining shareholder value internally and staying private for longer. What are some of the steps that we can take to incentivize this? Well, it's important because retail investors are going to get most of their access to

the markets through the public markets and we can we can and are planning to take steps that will make it easier for them to participate in the private markets. Um, but realistically public markets are a great place for retail investors to get access. There's a lot of information there out there about those companies. The valuations are tested by the public markets and that's a good thing. Um and it can be very good for companies too because it enables them to um give liquidity to their employees um and it enables them to use their shares as as acquisition capital to go buy other companies. So there are a lot of benefits um to companies as well. The the thing that we're looking at is why are companies deciding to stay

private? Well, one is a good reason. They can find a lot of capital in the private markets. That's great. I don't want to stop that from happening. But there are some negative um associations with being public. One is that you're required to make disclosures about a whole range of things, many of which are not important to your investors. I hear all the time, the SEC requires these disclosures. Our investors never ask us about them. We spend a lot of time putting these disclosures together. We don't get one question from investors about them. Well, that seems to me maybe that's an area where we could pull back some of the disclosure requirements or you get boilerplate disclosures that build up over time. Um, and so we're looking at that. Shareholder litigation

is is one reason companies don't like to go public. We've tried to take some steps to at least make it possible for companies that decide they want to use arbitration instead to do that. That's it's up to the company and their shareholders, not up to us. and we we just want to say we're not going to put our thumb on the scale one way or the other there. Um and then research analyst coverage is another area where um where companies if they don't get that research analyst coverage often don't trade as well. So we tried to take some steps to make it easier for uh companies to get covered by research analysis.

And then um you know we're looking at a a a range of other possibilities. Is there anything that we can do to make it easier for exchanges to experiment with how um securities trade? So we're open to other ideas. Um I think there there are a lot of factors that go into whether a company decides to to go public or stay public. Um but I do think we have a role to play and we're trying to fulfill that. Absolutely. And I I think um we we've seen this in the digital asset market and and um these companies are uh they're choosing to go in a in a different direction than typically had

been done. Um and so uh for the sake of uh you know universal market access, getting retail investors um access to these companies that ultimately form uh the backbone of the economy is uh very very important. Um, one of the ways in which we've seen this, uh, because ultimately these investors, they want access and exposure to to the upside of these companies as they continue to scale. We've seen these pre-IPO markets, uh, become available, not necessarily to uh, US customers, but um, they they are happening offshore. Um, this is also involved in the per landscape, which I understand is under the purview primarily of the of the CFTC. Um, do you

think that, you know, under some of the the uh innovative regulatory uh changes that that that you're looking at and considering, do you think there's validity to these preIPO markets? I you know, I think one of them had it pretty with the SpaceX IPO today. The the price discovery was relatively consistent with where the the IPO inevitably launched, but do you think there's validity here? I'm just curious if you if you think that there's a path maybe for these to come and become a a primary vehicle for retail investors to get exposure to these companies pre-IPO. I >> mean, I think what you're describing is there's a real retail appetite to get access to these companies earlier in

their growth cycle. And and that's why, you know, my preference is that we work on figuring out ways to to to encourage companies to um to go public earlier and to say, you know, it this is this is a a good framework. We we are trying to create a framework that gets investors the information that they need, but also that doesn't burden companies um so that they don't want to go public. There are other alternatives out there as you say many of them are available um overseas to get economic exposure to companies.

Um you know if things like that are to trade in the United States they would have to go through the processes required um in the US if you want to sell a security it has to either be registered or subject to an exemption. So people would have to figure out how to how to uh comply with that. And then in terms of perpetual markets, I mean, they're they're they're an interesting that's an interesting market, uh an interesting product, and I think as as u the CFTC is is looking at them and trying to figure out how to how to bring that market on shore, um you know, that's that's interesting to watch. Some of those um could potentially be within our remitt. And so, um, that's that's an

area where I talked about the CFTC SEC harmonization. One of the things we're trying to do is is make sure that, um, everyone's on the same page about where a product is regulated >> and and what does the harmonization look like in practice? Maybe using perpetuals as as an example. Um given that these things are relatively new, uh maybe they don't fit as cleanly into the regulatory structure of a security or a commodity or a future. Um h how do you and the CFTC go about analyzing some of these new technologies, ultimately dissecting it, putting some clear definitions? H how have you been able to find harmony with the CFTC whereas other regulatory

regimes haven't? Well, it's a work in progress. I mean, we're doing a lot of joint work to think through these issues, to look at look at different products and and um and discuss them, but we're also looking for people to help us do that. Um, and so we're looking for feedback from the public and um we welcome that feedback and I think you'll you'll see um that that there are a lot of opportunities to comment and weigh in on that process. So if folks have a product that they are trying to launch and they want to know where does it fit um we we do welcome specific requests uh also >> abs absolutely um commissioner pur I I I

think I I'd love to just kind of understand you know as maybe a longer term view on you know given that tokenized equities are are progressing uh tokenization in general is progressing and you're sort of looking at the horizon and you know maybe riding off into the sunstead as as we approach your uh you know your tenure. How how how do you think that this space in general is going to what what is your hope for how how you'd like to leave the crypto task force project crypto? Um these have been very very strong initiatives. Um, and as you transition out, what is what are some of the the things that you hope are carried carried

about and and how can we ensure that these are carried through in the coming regulatory regimes? >> Well, I I hope that we'll just keep an open mind about about innovation and about um the possibility of of improvements in the in the financial world that we regulate. I think um often regulators can get very comfortable with the status quo because we know how it works. So we we sort of stick with it the way it is. So an open-mindedness I think is important. I'm not concerned about that with Chairman Atkins. He is very open-minded to thinking about um how new technologies fit within the existing regulatory scheme and he's he's

open to the idea of adjusting rules where needed. Um, I I think that I'm not too worried about how things will be after I leave because there's real momentum here at the CFTC, in Congress, at the banking regulators to really think about these issues, try to um come up with rules that are appropriate and make sense. Um, so I think that it's it's something that I look forward to watching from the outside. You know, I think there are going to be areas that that people debate about and I and I hope that we will um respect certain basic principles. The ability of people

to self-custody is very important that should not that should not be compromised. Um the ability of u people to protect their privacy in their financial transactions is very important should be protected. um the ability of developers to develop code and put it out there without having to get permission um from someone to do so. Um and so these kind of principles I think are are really important. We obviously have seen a lot of hacks and bad activity and I think it's in everyone's interest to try to prevent bad actors from um taking advantage of the technology for their purposes and and and I I love seeing um industry-led

grassroots initiatives to combat some of those kinds of things. Um and that's important but it really for me the biggest concern is that we will as we draft these rules and statutes will respect those really core principles. Um and I think we will we will find that that will put us in a better place um at the end of the day. >> One thing that comes to mind because I I I realize how important it is to you and and through the work that you've done is is the privacy element. Um, we've seen stable coin providers in particular have a bit of well, frankly, they they tend to have these seizures or or freezes of

these assets which are are totally compliant and that's uh, you know, in order to stay in compliance with uh, with the law. I guess the question here is what what are some of the best practices that maybe we can leave so that the privacy of of of some of these uh protocols are still respected but so is the law and we we're not you know kind of uh laxidasical as it pertains to you know potentially illicit movement of funds. This is a very tricky balance but you know your experience you're very knowledgeable you know at at through your work at the SEC. Do you have any any any lessons learned or or experiences that you can share as far as

how you've been able to balance this for the the regimes to follow? >> I think they're difficult questions and it is a balance and you do have to um make some decisions about what you're what you're trying to protect, but we've done that in other instances, right? Right. And so keeping base the base layer neutral is is a good way to to I think start you can build on top of it things that are consistent with with um regulatory requirements or you know you can design them for all kinds of reasons. You can make things more centralized or less centralized. And I think there there are applications that for which decentralization makes a lot of sense. you might find other

applications where you want to have some sort of um an intermediary with a freezing function with the ability to reverse transactions. So I think one of the advantages of the technology is it does allow sort of this layering. Um, but I I think my message that I really have learned as a regulator is it's not a perfect world and there are there are some choices that we're going to make um that we make because we're a free people. And um it's wonderful that there there are folks out there who are really good at at tracking down bad actors and um and and maybe their their

financial transactions, their transactions on chain are part of that helping helping to find them. Um but you know we we really need to look at this as uh protecting the privacy of innocent people's transactions should be very important to us at the same time as it's also important to us to try to track down the bad guys. And I think if we if we put those two things out there as very important um uh objectives, you'll find a lot of creativity in the private sector and in the public sector in achieving those two things. But we just can't leave the privacy of innocent people on the cutting room floor. Um

that that may seem like the right answer, but I think there are other ways to to get to the right outcome. >> Absolutely. Um, yeah, look, it it is a challenging problem, but uh we have not backed down, you know, as a country from challenging problems in the past. We've got a lot of very smart builders here and regulators here. Uh, and so ultimately, we want the best of both worlds. We want privacy for innocent people, but you know, we also want to catch any potential illicit activity. Um, and I think you mentioned, you know, a very thoughtful construction about a a credibly neutral base layer and applications on top that give users the freedom of choice uh how much privacy that they're they're they're they're looking for and also gives us

flexibility in in how we are protecting against some of those bad actors. So, uh, makes complete sense. Obviously can tell that uh this is something that's very important and and you've thought a lot about. Um and you know just I guess the last last question here is as as you think you know you know know what what the future entails um you mentioned you know public sector private sector is is it what where what where are you going next is is you know are you going to stay in the in the public sector we've seen a lot of you know regulators move from the public sector to the private sector. Just curious about you know your passion for privacy and and and market access. Is is there an opportunity that lies ahead that that you're excited about? Yeah, I'm going to be teaching

law school. So, I'm excited about working with uh the next generation. And I, you know, I always look at at what what what we've done and we've left a lot of problems for the next generation to solve. And so, I want to be part of preparing people who will um grab those problems and fix them. >> Well, there there's not a shortage of of work to do, but you you've done so much great work for the industry up to this point and and will continue, you know, through through the end of your tenure. So thank you so much for for all of the great work and also for spending some time with us today. Uh it is a very busy week and day here at uh you know in in the industry. So thank you so much as always and uh hopefully we can get you

back for one one more session before uh before the end of your tenure there at the SEC. >> Well, thanks so much for having me.