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Will the SEC Approve Prediction Market ETFs This Year? · Trillions

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
• 0:18
  Speaker 2: We came on tillions.
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  Speaker 3: I'm Joel Webber and I'm Eric. Eric. You've been on vacation,
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  Speaker 3: but while you were off, you did a little legwork,
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  Speaker 3: including organizing today's interview. And I'm really excited to say
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  Speaker 3: we have another person from the Security and Exchange Commission
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  Speaker 3: this time, Brian Day is going to be joining us.
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  Speaker 3: He's the director of the Division of Investment Management.
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  Speaker 2: Yeah.
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  Speaker 4: No, this is a big interview. It's tough to get
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  Speaker 4: people from the SEC.
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  Speaker 2: To talk at all, let alone come on a podcast.
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  Speaker 4: And so, yeah, I was off and I was the
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  Speaker 4: call came in. I was on one of those bikes
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  Speaker 4: and there's a thing called a co pilot, which is
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  Speaker 4: the bike on the back of the bike which your
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  Speaker 4: little kid can ride. Yeah, and we had stopped at
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  Speaker 4: the circle K that's like a huah wah or seven
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  Speaker 4: eleven in the South and got some water inst hot there.
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  Speaker 4: I was in Florida on the Panhandle anyway, but this
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  Speaker 4: was important enough to take a break because this is
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  Speaker 4: a big issue the SEC is looking at and really
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  Speaker 4: maybe concerned about novel ETFs. The prediction market ETFs are
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  Speaker 4: really I think what got this going. And as you know,
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  Speaker 4: we had Matt Hogan on from Bitwise, who they had
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  Speaker 4: one of the prediction market ETFs filed. We had a
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  Speaker 4: great podcast with him. It kind of turned me a
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  Speaker 4: little bit into how they are could be useful for
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  Speaker 4: the market, but they are complicated and it is a
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  Speaker 4: Pandora's box you could open. So the SEC kind of
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  Speaker 4: like told them, don't launch yet, let us look at them.
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  Speaker 4: And so they're looking at not just those but others.
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  Speaker 4: And let's face it, we use this phrase all the.
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  Speaker 2: Time, no market for old analysts. Yeah, there's some crazy stuff.
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  Speaker 4: Coming out and it can seem like the market has
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  Speaker 4: gone wild, and I think this is a great time
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  Speaker 4: to hear from the regulators about what they're thinking when
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  Speaker 4: they see all these launches and all these filings.
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  Speaker 3: Also joining us Lydia Bayoud. She's in Washington, d C.
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  Speaker 3: Where she's the SEC and CFTC works this time on Trillions.
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  Speaker 3: Brian Daily, Brian, Lydia, welcome to Trillions.
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  Speaker 5: Thanks for having us.
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  Speaker 6: Thank you.
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  Speaker 3: Okay, Brian, I'm gonna start with you. We've had hester
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  Speaker 3: person on occasion. This is the first time we've had
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  Speaker 3: somebody else from the SEC on. So welcome and we're
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  Speaker 3: really excited to speak with you. I'm curious you're new
• 2:35
  Speaker 3: at the SEC relatively new, started about a year ago
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  Speaker 3: July twenty twenty five. How is the Securities in Exchange
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  Speaker 3: Committee different now than the one that directly preceded you.
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  Speaker 7: I think what we're focused on from top down, from
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  Speaker 7: the administration through the Chairman through us is being very
• 2:53
  Speaker 7: pro innovation. We are embracing innovation that's like our Touchstowe,
• 2:59
  Speaker 7: but we also want to make sure that as we
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  Speaker 7: do that we do it in a way that ensures
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  Speaker 7: that the retail investor is still given enough information to
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  Speaker 7: make intelligent decisions. If you go up to the Chairman's office,
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  Speaker 7: you'll see on the wall, and you'll see it in
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  Speaker 7: a lot of different places in the SEC, but particularly
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  Speaker 7: right outside the Chairman's office, and there's a quote says
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  Speaker 7: we are the investor's advocate, and that's a reminder. Every
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  Speaker 7: day when the Chairman goes in, he sees it. Every
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  Speaker 7: time any of us goes go in to see the Chairman,
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  Speaker 7: we see it.
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  Speaker 5: Yeah.
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  Speaker 4: No, I noticed this because we had a hester person
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  Speaker 4: when Biden was president, and we had her on when
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  Speaker 4: Trump was president and get two different regimes there.
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  Speaker 2: But she was consistent.
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  Speaker 4: She's always been I consider libertarian, but pro innovation I
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  Speaker 4: think might be a better way to put it. She
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  Speaker 4: was for the bitcoin ETFs launching out sooner than they did.
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  Speaker 4: They took ten and a half or ten eleven years
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  Speaker 4: to be approved. Look, I understand where she's coming from.
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  Speaker 4: The ETF in particular, is really good. This structure has
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  Speaker 4: proven itself time and again. Gold bonds, bitcoin, all this
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  Speaker 4: stuff was doubted. The ETF seems to be able to
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  Speaker 4: handle it, and so I've become very liberal. I'm like,
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  Speaker 4: you could probably put Mickey Mantle Rookie carts into an
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  Speaker 4: ETF and the market makers would figure out how to
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  Speaker 4: make a market in it, and it would probably work.
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  Speaker 4: I've always thought it's the best way to not get
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  Speaker 4: ripped off and investing is ETF's pound for pound, and
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  Speaker 4: so I'm in tune with that as a analyst.
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  Speaker 3: But he's talk in his book here. Did you notice,
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  Speaker 3: like an ETF analyst, Tony, how great ETFs are.
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  Speaker 4: Yeah, I mean, well the evidence is there, but you're right,
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  Speaker 4: the market is so thriving that they are now throwing
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  Speaker 4: a lot of spaghetti at the wall.
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  Speaker 2: And so where is that line?
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  Speaker 4: Obviously that line moves sometimes, but it seems like prediction
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  Speaker 4: markets seem to be a touchstone, like they seem to
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  Speaker 4: be like maybe the line is there.
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  Speaker 7: I will say, working with all of our commissioners, but
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  Speaker 7: especially commission of Purse is like, just wonder if it's
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  Speaker 7: a real fringe benefit to the job to really be
• 4:59
  Speaker 7: able to go in talk with somebody who is so thoughtful,
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  Speaker 7: so forward looking and such a genuinely good person. So
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  Speaker 7: if that's the caliber person we have at the SEC,
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  Speaker 7: I think the investing public should feel good about that.
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  Speaker 7: On the merits, So what you were talking about or
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  Speaker 7: the substance, would it be okay if I took a
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  Speaker 7: second to walk through what we actually do with these ETFs,
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  Speaker 7: because I think there's a lot of misconception about that
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  Speaker 7: out there.
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  Speaker 3: As in when the filing comes in and it's like
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  Speaker 3: okay work.
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  Speaker 7: Yes, yeah, because I do see and here in the
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  Speaker 7: press a lot of people talk about the SEC approve
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  Speaker 7: this ETF and that's not exactly what we do.
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  Speaker 3: Okay, So filing comes in. What happens.
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  Speaker 7: So filing comes in comes in through Edgar, so it
• 5:40
  Speaker 7: gets routed to our team and what we did in
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  Speaker 7: twenty nineteen, we had this new rule chemebout sixty eleven,
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  Speaker 7: and what we did was we took a process that
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  Speaker 7: prior to twenty nineteen had been iterative and staff driven.
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  Speaker 7: Every ECF that came out had to get its own
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  Speaker 7: specific order. The staff had a role in that. Things
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  Speaker 7: got slow. Oh, things got hung up.
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  Speaker 3: It's like a ticket sort of the ticket would wind
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  Speaker 3: its way through.
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  Speaker 7: It was sort of that, and individual people had to
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  Speaker 7: push it through and complete it. So, yes, there was
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  Speaker 7: a task involved. So sixty eleven changes all of that.
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  Speaker 7: When a filing comes in now it comes in with
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  Speaker 7: a sell by date, so it comes in with the
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  Speaker 7: presumptive in most cases seventy five day effectiveness. So what
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  Speaker 7: effectiveness means. If you think about an ETF going to market,
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  Speaker 7: we call it a fund IPO sometimes, so it's a
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  Speaker 7: fund ipo and we do thousands of them, right, we
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  Speaker 7: have thousands of them go through. Last year we hit
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  Speaker 7: twenty six hundred filings coming in one thousand and change
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  Speaker 7: actually listed right this year we have eighteen hundred filings
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  Speaker 7: in so far. Year to date, go back to twenty nineteen,
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  Speaker 7: they were three hundred and thirty two new ETFs that
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  Speaker 7: hit the market. So this has been it's more than
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  Speaker 7: an order of magnitude. And so it goes through the process.
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  Speaker 7: The team looks at it and again the system is
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  Speaker 7: set upset seventy five days from it coming in. If
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  Speaker 7: nothing else happened, there were no other fingers on the.
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  Speaker 3: Scale, it goes live.
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  Speaker 5: It goes live.
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  Speaker 7: That doesn't happen all that often, particularly with new things,
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  Speaker 7: because what happens there is it gets routed to our staff,
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  Speaker 7: and our staff includes lawyers and accountants and a few
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  Speaker 7: other folks who look at it. And these are people
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  Speaker 7: who the entire division we call it DREO Disclosure review
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  Speaker 7: and in accounting office. But the DREO team reviews the filing
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  Speaker 7: and then has, in a good system, an iterative and
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  Speaker 7: constructive discussion with the sponsor, and we look at the
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  Speaker 7: disclosure because that's our role in this. We're generally disclosure reviewers,
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  Speaker 7: and they look at it from three different points of view.
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  Speaker 7: They come at it with is this just well written?
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  Speaker 7: The second part is they then look at it and say, okay,
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  Speaker 7: as an experience reviewer, somebody who has seen hundreds of
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  Speaker 7: thousands of ETFs, I know if this is an orange
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  Speaker 7: or a tangerine or an apple, and they can actually
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  Speaker 7: help the sponsor and say, okay, here's how similar products
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  Speaker 7: are products that are not so similar but analogous. Here's
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  Speaker 7: how they're doing it. Maybe you should look at that.
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  Speaker 7: And the third function they carry out is they go
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  Speaker 7: through and they look for potential violations of the federal
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  Speaker 7: securities laws. So it's a good process, and I think
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  Speaker 7: every sponsor would like to know that the SEC thinks
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  Speaker 7: some aspect of their offering might be violative of the
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  Speaker 7: federal securities laws before they go to market, rather than
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  Speaker 7: getting a call year after the fact from enforcement. That
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  Speaker 7: works really well. But it's a process where our team
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  Speaker 7: goes back and forth with the fund sponsor. That's great.
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  Speaker 7: It doesn't always take seventy five days. And what the
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  Speaker 7: fun sponsor does is we call it a BXT. They
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  Speaker 7: extend their effectiveness and they work with the staff until
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  Speaker 7: they get to a mutually mutually agreeable place. When we're
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  Speaker 7: finished with it, it goes effective. So the fund has
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  Speaker 7: effectively ipoed. And then under what it called generic listing standards,
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  Speaker 7: they go out to the exchanges and then often the
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  Speaker 7: next day they will get their listing.
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  Speaker 5: They've already pre approved the ticker.
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  Speaker 7: Eric, you took a lot about people shopping for tickers
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  Speaker 7: that's ready to go and they can be out the
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  Speaker 7: next day.
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  Speaker 4: So let's talk about all of the filings coming in
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  Speaker 4: and then novel ETFs and your initiative here, ye, because.
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  Speaker 3: This is novel. Ones were novel. Yeah, I'm curious.
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  Speaker 4: Novel is actually a nice way to put it. So
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  Speaker 4: I think the prediction market ETFs are probably the sort
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  Speaker 4: of poster child. But there were three xctfs they tried,
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  Speaker 4: which you told to get lost. You still can do
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  Speaker 4: a three XCTN, but you are taking a step back
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  Speaker 4: right now, and I just want you to talk a
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  Speaker 4: little bit about this step back, who's involved, and what
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  Speaker 4: this might mean for some of the ETFs pushing the envelope.
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  Speaker 7: So one thing is to three x ETFs, they're in
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  Speaker 7: a different category because there's a specific section of the
• 9:45
  Speaker 7: forty X section eighteen and real eighteen f four. Those
• 9:49
  Speaker 7: rules together they cap leverage. So those were just different
• 9:53
  Speaker 7: everything else you're talking about. You're absolutely right, and this
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  Speaker 7: is not an actual initiative focus on any one asset class.
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  Speaker 7: In fact, we're trying to get away from that we
• 10:02
  Speaker 7: as a commission we did not do a good job
• 10:06
  Speaker 7: with the crypto ETFs.
• 10:08
  Speaker 5: We didn't.
• 10:08
  Speaker 7: We did a bad job. We got sued, we broke
• 10:11
  Speaker 7: cruss with the industry. We're working really hard to rebuild
• 10:14
  Speaker 7: that trust. We think we're making progress, but we own
• 10:18
  Speaker 7: that it is what it is, and we're trying.
• 10:19
  Speaker 5: To get back to a good place.
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  Speaker 7: The prediction market ets coming in, we're in a sense
• 10:27
  Speaker 7: a catalyst because they're a different structure, they're focused or
• 10:32
  Speaker 7: they're tied to an underlying that. We have a sister
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  Speaker 7: regulator that's looking at very closely at the moment, they're
• 10:37
  Speaker 7: working at the regulatory scheme for that area. And it
• 10:41
  Speaker 7: really just, you know, it just crystallized that we have
• 10:45
  Speaker 7: come so far in seven years. This is a dramatically
• 10:48
  Speaker 7: different world. This has been the most perhaps the most
• 10:51
  Speaker 7: successful financial innovation in terms of legal structure maybe ever.
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  Speaker 7: It's an example of good government. But now, as you said, Eric,
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  Speaker 7: we have new assets, We have assets with different levels
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  Speaker 7: of disclosure, We have new structures. Most people don't know,
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  Speaker 7: but many ets actually have as their main holding an
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  Speaker 7: offshore company that then holds the you know, they hold swaps,
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  Speaker 7: they hold now perhaps event contracts. Looking six months to
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  Speaker 7: twelve months down the road, perhaps there'll be a lot
• 11:18
  Speaker 7: of purpose in and perpetual futures And I don't know
• 11:20
  Speaker 7: what is in line after that, but we want to
• 11:24
  Speaker 7: focus on having an orderly and predictable review process that
• 11:28
  Speaker 7: is asset neutral, exposure neutral, but that still works, rather
• 11:32
  Speaker 7: than walking in and trying to regulate this asset that
• 11:35
  Speaker 7: structure this particular innovation, because.
• 11:37
  Speaker 5: That's a leads to delays and be a leads to
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  Speaker 5: bad government.
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  Speaker 6: So I'm curious with this request for comment that y'all
• 11:44
  Speaker 6: have coming out on novel ETFs, what sort of questions
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  Speaker 6: are you hoping to get from the public and then
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  Speaker 6: how are you going to work with your sister agency
• 11:51
  Speaker 6: and sort of moving forward with that.
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  Speaker 7: So the RFC, as we call it the request for comment,
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  Speaker 7: it has in it about four or five pages of
• 11:59
  Speaker 7: questions that we've put together and what we're encouraging the
• 12:01
  Speaker 7: public to do and people in the industry, everybody from
• 12:04
  Speaker 7: exchanges to fun sponsors to retail investors and other intermediaries,
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  Speaker 7: is not only to look at those questions, but if
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  Speaker 7: there are things that are frustrating about the current system
• 12:15
  Speaker 7: or aren't optimal or are excellent. Then we're asking comment
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  Speaker 7: on that people should not be limited by the questions
• 12:21
  Speaker 7: we're asking. But we are very much focused on again
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  Speaker 7: the process. How do we ensure that we have an
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  Speaker 7: orderly and predictable process, How do we treat people fairly?
• 12:32
  Speaker 7: How do we ensure that the system as a whole works.
• 12:37
  Speaker 7: To be a little more specific, though, I do expect
• 12:39
  Speaker 7: that we will have people who comment, because we've heard
• 12:42
  Speaker 7: these already just in passing. I suspect we're going to
• 12:46
  Speaker 7: have people suggest that we have a confidential filing system
• 12:50
  Speaker 7: we don't have for ETFs, the same kind of system
• 12:53
  Speaker 7: we have for public companies, you know, regular companies, because
• 12:57
  Speaker 7: as you all know, you'll see in the papers that
• 12:59
  Speaker 7: such and such, you know, Corn has announced that they
• 13:01
  Speaker 7: filed a confidential IPO statement.
• 13:02
  Speaker 5: It's like, okay, well, thank you for telling me you
• 13:05
  Speaker 5: file a confidential Yeah.
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  Speaker 7: That arose out of a very specific set of regulatory initiatives,
• 13:14
  Speaker 7: because people look at emergent growth companies and said, these
• 13:16
  Speaker 7: people need to be able to get out, they need
• 13:18
  Speaker 7: to list, they need to be able to do something
• 13:21
  Speaker 7: before in a way that doesn't expose all their trade
• 13:23
  Speaker 7: secrets and strategies to some big established player who then
• 13:26
  Speaker 7: comes in and basically copycats the whole business and jumps
• 13:29
  Speaker 7: ahead of them.
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  Speaker 5: We don't have that in our system.
• 13:32
  Speaker 7: I suspect that some people will suggest that we'll certainly
• 13:35
  Speaker 7: look at those suggestions when they come in. But that's
• 13:37
  Speaker 7: one example. But we very much we know we don't know.
• 13:43
  Speaker 7: But then there's a lot of things we don't know
• 13:44
  Speaker 7: that we don't know.
• 13:45
  Speaker 5: We don't know.
• 13:46
  Speaker 7: And going out to actually the industry people who are
• 13:49
  Speaker 7: doing it, people who sponsor the funds, people who buy
• 13:51
  Speaker 7: the funds, advisors who recommend the funds to us, and
• 13:54
  Speaker 7: to the chairman who suggests this in the first place,
• 13:57
  Speaker 7: we think that is just the best place to s start.
• 14:00
  Speaker 7: Let's start with people who know what they're doing. We
• 14:03
  Speaker 7: are pro innovation, we are pro market solutions, and we
• 14:06
  Speaker 7: would be crazy and foolish to not take input from
• 14:10
  Speaker 7: people who are in the market every day.
• 14:12
  Speaker 6: Well, what kind of different questions do these novel ETFs
• 14:16
  Speaker 6: raise that Traditionally ETFs don't for the SEC.
• 14:20
  Speaker 7: It's funny because it's not a black and white change.
• 14:24
  Speaker 7: What we're looking at is what we've had over time
• 14:26
  Speaker 7: as an evolution, and there are questions about how much
• 14:30
  Speaker 7: exposure should there be to assets that are not listed
• 14:35
  Speaker 7: on exchange right, because back in twenty nineteen, when you
• 14:37
  Speaker 7: asked what an ETF was, people said, oh, I know
• 14:39
  Speaker 7: what ETF is. It's at S and P five hundred fund.
• 14:42
  Speaker 7: You take a bunch of listed assets, you put them
• 14:44
  Speaker 7: in one bucket, you list that to the public, and
• 14:48
  Speaker 7: you send it out. And the exotic thing at twenty
• 14:51
  Speaker 7: nineteen was there were some commodity focused ETFs.
• 14:55
  Speaker 5: That was it.
• 14:55
  Speaker 7: Today go to today we have exposure coming in through
• 14:59
  Speaker 7: other assets that are not necessarily transparent. You can't necessarily
• 15:02
  Speaker 7: go and check. The magic of the whole ETF structure
• 15:06
  Speaker 7: of the ETF rapper is that the aps stand ready
• 15:10
  Speaker 7: to ensure that the arbitrage mechanism works. Back in twenty nineteen,
• 15:15
  Speaker 7: that meant here is a whole host of securities I'm
• 15:17
  Speaker 7: going to deliver into you fun sponsor a ton of
• 15:21
  Speaker 7: five hundred different issuers varying amounts of shares, and rough
• 15:24
  Speaker 7: justice will get us thereat. I mean today we have
• 15:27
  Speaker 7: cash cash exchanging hands a lot of time, you have swaps.
• 15:30
  Speaker 7: So is that a bad thing? Not necessarily, but is
• 15:33
  Speaker 7: it something we should ask about and think about as
• 15:36
  Speaker 7: we go forward. Seems like a good idea to do.
• 15:38
  Speaker 4: So let's just hone it on prediction market ETFs a
• 15:54
  Speaker 4: little more because I think the idea here is that,
• 16:00
  Speaker 4: you know, the case for them is people don't want
• 16:01
  Speaker 4: to go to a prediction market exchange. They trust the
• 16:04
  Speaker 4: ETF wrapper, just like crypto.
• 16:06
  Speaker 3: Which also opens up things like brokerage accounts.
• 16:08
  Speaker 4: Yeah, people want to trade through the brokerage account and
• 16:11
  Speaker 4: have it all in one spot. I've always thought ETF
• 16:13
  Speaker 4: standardized everything, sort of like gas pump.
• 16:17
  Speaker 2: You know, it works on every kind of car.
• 16:19
  Speaker 4: Right, you have equities, bonds, commodities, crypto. It all trades
• 16:24
  Speaker 4: like equity, and everybody likes the way equities trade, so
• 16:27
  Speaker 4: to equitize these things is very valuable for people. Now,
• 16:31
  Speaker 4: prediction markets they're growing. It's interesting you can make a
• 16:35
  Speaker 4: minory bet well the FED raise rates. This is actually
• 16:39
  Speaker 4: a decent case for real investment or a hedge, because
• 16:42
  Speaker 4: then you'll have to guess what the markets will do.
• 16:44
  Speaker 4: You just bet on the thing. So I understand some
• 16:48
  Speaker 4: serious investment cases for it. If they can just do
• 16:51
  Speaker 4: a swap or use the contract itself, and an ap
• 16:54
  Speaker 4: can arbitrage. It it seems like it would work just
• 16:57
  Speaker 4: like anything else. I'm sure that's the case that issue
• 17:00
  Speaker 4: are making to you. Are there any other things we
• 17:03
  Speaker 4: don't know, like when it comes to elections and like,
• 17:06
  Speaker 4: well can this be manipulated by people? Does it get
• 17:09
  Speaker 4: into bigger issues prediction markets or is it about current
• 17:14
  Speaker 4: legal situations? Like I know sports isn't you can't really
• 17:18
  Speaker 4: like bet on sports in certain places, but for political
• 17:21
  Speaker 4: prediction markets, which is the first batch's coming out. Is
• 17:24
  Speaker 4: there anything we're missing here?
• 17:26
  Speaker 7: Well, I would just remind you of what we said earlier,
• 17:30
  Speaker 7: which is we we should not be We are not
• 17:33
  Speaker 7: statutorily authorized to be, and we don't want to be
• 17:36
  Speaker 7: in the process of making decisions like that. We don't
• 17:39
  Speaker 7: want to be saying, Okay, this kind of ETF is good,
• 17:42
  Speaker 7: this kind of prediction market underlying is good.
• 17:44
  Speaker 5: This one is bad.
• 17:45
  Speaker 7: That's really not our role. So we had I always
• 17:48
  Speaker 7: sound like a broken record on this, but we want
• 17:50
  Speaker 7: to get back to just having a good process in there.
• 17:53
  Speaker 7: But one thing that does hit us squarely in where
• 17:56
  Speaker 7: we are is in the prediction markets, the possibility of
• 18:00
  Speaker 7: ets based on event contracts almost be very careful what
• 18:03
  Speaker 7: we're saying, the volume could explode. I mean we said earlier,
• 18:09
  Speaker 7: I think we're running about fifty percent higher this year
• 18:14
  Speaker 7: than where we were last year on applications. If all
• 18:17
  Speaker 7: of a sudden people start bringing in prediction market ETFs
• 18:20
  Speaker 7: and we have the possibility of you know, ETF on
• 18:24
  Speaker 7: every single House and Senate race and the election is
• 18:27
  Speaker 7: not necessarily anything wrong with that, but the explosion we
• 18:30
  Speaker 7: could see of all of a sudden one sponsor job
• 18:33
  Speaker 7: right in five thousand applications.
• 18:36
  Speaker 2: Corgi will have half of those.
• 18:39
  Speaker 4: Wow, like that that's some ETF NERD humor there.
• 18:44
  Speaker 2: We'll probably get it.
• 18:45
  Speaker 3: Corky has launched about one hundred ETFs in about two months.
• 18:47
  Speaker 2: Sorgi does fifty in a shot.
• 18:49
  Speaker 4: Yeah, anyway, I get your point, because it's an unlimited,
• 18:53
  Speaker 4: endless possibilities with prediction markets, and you could be inundated
• 18:57
  Speaker 4: with filings, but I mean the market would take care
• 18:59
  Speaker 4: of some of it. Like, not all of those would
• 19:02
  Speaker 4: be hits at some point. There's a law of diminishing return.
• 19:04
  Speaker 4: Same thing that happen crypto. There's probably one million crypto coins,
• 19:08
  Speaker 4: but there's probably only twenty actual cryptos that are worthwhile
• 19:11
  Speaker 4: launching an ETF on you probably would have some point
• 19:14
  Speaker 4: where it's like not worth it, But my point taken,
• 19:17
  Speaker 4: you'd have at least dozens, if not hundreds.
• 19:20
  Speaker 7: Right, And there's a question about our review. How could
• 19:23
  Speaker 7: we intelligently review if people want to come out with
• 19:27
  Speaker 7: you know, one thousand, two thousand and three thousand ETFs
• 19:30
  Speaker 7: a month, either we have to staff up massively or
• 19:34
  Speaker 7: the equality of the review starts to drop. Now there
• 19:36
  Speaker 7: is a course, you know, situations where these here are
• 19:39
  Speaker 7: one hundred ETFs. Let's take our example on all of
• 19:42
  Speaker 7: the elections. If such a thing came to pass, it
• 19:45
  Speaker 7: doesn't change that much. I don't think you're going to
• 19:47
  Speaker 7: put a different risk factor in for an election in
• 19:49
  Speaker 7: one jurisdiction versus another.
• 19:50
  Speaker 5: So there are ways to scale in.
• 19:52
  Speaker 7: But there is a real question of if we are
• 19:56
  Speaker 7: to do an intelligent review with the sponsor, we have
• 19:59
  Speaker 7: to make sure we have the ability to do that
• 20:01
  Speaker 7: time wise.
• 20:02
  Speaker 5: And it does.
• 20:04
  Speaker 7: It does stress our system when people, I mean some
• 20:07
  Speaker 7: people call throw spaghetti the wall, some people say flood
• 20:09
  Speaker 7: the zone. But when we have sponsors come in with
• 20:12
  Speaker 7: just tons and tons of applications at once, it's hard.
• 20:14
  Speaker 3: So can I ask we had we saw this happen
• 20:17
  Speaker 3: basically already like everybody was like, we're gonna flood the zone,
• 20:21
  Speaker 3: and and you have really thoughtfully described the mechanism that
• 20:26
  Speaker 3: happens sort of behind the scenes within the SEC when
• 20:28
  Speaker 3: that happens. What specifically happened when the prediction market filings
• 20:34
  Speaker 3: entered Edgar came into the SEC. Was there like a
• 20:38
  Speaker 3: like alarm bell that says like novel products, novel products,
• 20:41
  Speaker 3: And like, what was the floor is the seventh floor
• 20:44
  Speaker 3: in the SEC where everybody's.
• 20:45
  Speaker 5: We're on the eighth eighth floor? Sorry, the tenth floor
• 20:47
  Speaker 5: is where all the commissions are.
• 20:48
  Speaker 2: Okay, tenth floor.
• 20:50
  Speaker 4: It's a tenth floor, Like okay, they somebody had to say,
• 20:53
  Speaker 4: somebody tell the tenth Yeah.
• 20:54
  Speaker 3: Yeah. I'm just curious what what happened because none of
• 20:57
  Speaker 3: those products around. Clearly you have gone to this, We're
• 21:00
  Speaker 3: going to take it to the public and get feedback.
• 21:02
  Speaker 3: But I'm curious because this really does seem like these
• 21:05
  Speaker 3: are gonna come at some point in some form, and
• 21:09
  Speaker 3: it sort of was where the spaghetti really met the wall,
• 21:12
  Speaker 3: And I'm curious, like what happened and what was the
• 21:15
  Speaker 3: discussion like internally.
• 21:16
  Speaker 7: So when everything comes in, so our team sees it right,
• 21:19
  Speaker 7: they see it in real time. Generally it's an end
• 21:21
  Speaker 7: of the day cut and we will have a discussion.
• 21:23
  Speaker 7: My colleagues and I will sit down and they'll say,
• 21:25
  Speaker 7: here's what came in today that was unusual. And if
• 21:29
  Speaker 7: something comes in on a Thursday that's unusual, go ahead.
• 21:32
  Speaker 2: And by the way, how many days a week does
• 21:35
  Speaker 2: that happen? Like three or four? Because I know I
• 21:38
  Speaker 2: try today's smilings.
• 21:39
  Speaker 4: Yeah, and I am moved to post on social at
• 21:42
  Speaker 4: least two or three.
• 21:43
  Speaker 2: Days a week because I'm like, really.
• 21:47
  Speaker 7: For us that level, So it happens a lot many
• 21:50
  Speaker 7: times a week. The trigger for that is not necessarily
• 21:54
  Speaker 7: this is an interesting asset or what are they thinking?
• 21:56
  Speaker 7: It's more of this raises this has this implicated our process,
• 22:00
  Speaker 7: It implicates our review implicates something you know, it may
• 22:03
  Speaker 7: be crosswise with a leverage rule.
• 22:05
  Speaker 5: Or something that's that's our threshold.
• 22:09
  Speaker 7: So when that happened, and if somebody comes in on
• 22:12
  Speaker 7: a Thursday with something new, it's novel.
• 22:14
  Speaker 5: Again I referred to this earlier. Because our process is public.
• 22:17
  Speaker 7: We will have you know, twenty copycats in by the
• 22:21
  Speaker 7: end of the day. Friday, probably by midday, and some
• 22:25
  Speaker 7: of those come in and some of those are good,
• 22:26
  Speaker 7: and sometimes we can tell that they are clearly producted
• 22:31
  Speaker 7: or AI assisted or you know whatever. But but definitely,
• 22:37
  Speaker 7: I mean, you know, you call you guys all call
• 22:39
  Speaker 7: it a terror dome, right, Yeah, that's just it.
• 22:41
  Speaker 5: That's the market.
• 22:41
  Speaker 7: The market is first mover, wins, second place, shuts down
• 22:45
  Speaker 7: and goes home, and it's fierce. It's fierce, and we
• 22:49
  Speaker 7: see it. So we definitely see that. So when it
• 22:50
  Speaker 7: comes in, we talk about and we say, okay, is
• 22:53
  Speaker 7: this something that is important? And this was because of
• 22:57
  Speaker 7: all the different intersections this. It was a new structure,
• 23:00
  Speaker 7: it's a new asset class. We have questions about how
• 23:02
  Speaker 7: the AP system's going to work, questions about the disclosures.
• 23:06
  Speaker 7: Things would go back and forth with the sponsor on
• 23:08
  Speaker 7: and then we had a bunch of copycats come in
• 23:11
  Speaker 7: and we had discussions, and then when we brief the
• 23:14
  Speaker 7: chairman on it, chairman suggested, why don't we go out
• 23:18
  Speaker 7: and talk to people and see what the best way
• 23:20
  Speaker 7: to handle this would be.
• 23:21
  Speaker 5: Because before we.
• 23:22
  Speaker 7: Do anything, before we start throwing out rules or or
• 23:25
  Speaker 7: stopping people from going public, let's go and have a chat,
• 23:29
  Speaker 7: and it was really well received and it was really gratifying,
• 23:33
  Speaker 7: and we spoke with some of the sponsors, and the
• 23:36
  Speaker 7: concern the sponsors generally have is I'm okay with this.
• 23:40
  Speaker 7: I want you guys to make sure we have an
• 23:42
  Speaker 7: orderly market. I want to come to market with more products,
• 23:45
  Speaker 7: and I want people jumping ahead of me or gaming
• 23:47
  Speaker 7: the system in anyway. I support you, but you've got
• 23:50
  Speaker 7: to tell me that it's going to be across the
• 23:52
  Speaker 7: board and I'm not going to be a good actor.
• 23:54
  Speaker 5: And somebody's going to leap frog me. And we said
• 23:57
  Speaker 5: fair enough.
• 23:57
  Speaker 7: That chairman went out and made a public statement to
• 23:59
  Speaker 7: give your Bay support, and the industry has voluntarily held
• 24:02
  Speaker 7: back until we get this RFC out to see what
• 24:05
  Speaker 7: comes back. This is I think pretty outstanding. If we
• 24:09
  Speaker 7: accomplish nothing else from this point forward, I think we
• 24:11
  Speaker 7: will accomplish a lot. That's pretty outstanding.
• 24:14
  Speaker 4: Let me just follow up on one quick thing you
• 24:16
  Speaker 4: said there, because I know I called the MJ move,
• 24:19
  Speaker 4: which is back in the day when they were all
• 24:21
  Speaker 4: trying to get cannabis ETFs launched and they had gone
• 24:23
  Speaker 4: into they got into line, you know, and then this
• 24:26
  Speaker 4: Latin America Real Estate ETF decided to switch which had
• 24:31
  Speaker 4: a ticker, Yeah, I think it was La ri E.
• 24:33
  Speaker 4: It switched to MJ and it was all of a sudden,
• 24:35
  Speaker 4: Now the wasn't cannabis. It's something like agricultural, you know, growing.
• 24:42
  Speaker 4: I don't know what they had a name that didn't
• 24:44
  Speaker 4: have cannabis, but it effectively it leapfrogged the group and
• 24:48
  Speaker 4: it became a big hit.
• 24:49
  Speaker 3: Because it was already listed.
• 24:50
  Speaker 4: And then recently the Friday that SpaceX one IPO, one
• 24:55
  Speaker 4: of the space the two X space theme ETF that
• 24:59
  Speaker 4: was decided to just hold SpaceX even though the other
• 25:04
  Speaker 4: ones were told to wait one more day, and that
• 25:07
  Speaker 4: tried to jump the line and it actually started to
• 25:09
  Speaker 4: get a lot of volume.
• 25:10
  Speaker 2: The market kind of caught on.
• 25:11
  Speaker 4: Hey, this is the two x SPACEXCTF. But then they
• 25:14
  Speaker 4: got halted for regulatory concern And so those are the
• 25:18
  Speaker 4: examples we see, and I think the other issue we'll
• 25:20
  Speaker 4: see with bitcoin. I think Vanak and Arc have a
• 25:23
  Speaker 4: little bit of a gripe because they were actually earlier
• 25:26
  Speaker 4: than Blackrock, but then Blackrock got to launch on the
• 25:29
  Speaker 4: same day and they thought, well, that's not fair because
• 25:31
  Speaker 4: Blackrock is so big, so that those are the questions
• 25:35
  Speaker 4: you're getting. And I understand their concern. I get that,
• 25:39
  Speaker 4: so do we.
• 25:40
  Speaker 7: I totally get it, and I think it spit it
• 25:43
  Speaker 7: out a little bit from where we sit. There is
• 25:45
  Speaker 7: no worse place to be as a regulator than to
• 25:48
  Speaker 7: be the one who's either intentional or unintentional actions direct
• 25:53
  Speaker 7: and influence who the winners and losers.
• 25:54
  Speaker 5: In the market are. That's that's a terrible outcome.
• 25:57
  Speaker 7: And so again that's part of our r is how
• 26:00
  Speaker 7: can we do that so it can be orderly and
• 26:03
  Speaker 7: predictable and not subject to the vagaries of staff action
• 26:06
  Speaker 7: or inaction?
• 26:07
  Speaker 6: Can you lift avail a little bit more on this
• 26:09
  Speaker 6: more so the interagency collaboration. I mean, I don't know
• 26:12
  Speaker 6: how much your division is working with counterparts at the CFTC,
• 26:17
  Speaker 6: but obviously, like the prediction markets issue has just dominated
• 26:21
  Speaker 6: that agency, even even more so than crypto, which I
• 26:23
  Speaker 6: think people initially thought to take up a lot of
• 26:26
  Speaker 6: a lot of their time and the SEC's time. And
• 26:28
  Speaker 6: y'all are collaborating in ways that we haven't really seen
• 26:32
  Speaker 6: in prior administrations. But so for the work that your
• 26:34
  Speaker 6: division does, what does that look like? Who are you
• 26:36
  Speaker 6: meeting with kind of how often are you meeting sort
• 26:39
  Speaker 6: of break.
• 26:40
  Speaker 7: Up, I would say across the board, even in the
• 26:45
  Speaker 7: I've only been in the government for one year, but
• 26:47
  Speaker 7: the amount of interagency collaboration on everything is amazing, and.
• 26:53
  Speaker 5: It's it's so easy to do.
• 26:55
  Speaker 7: If you call up somebody out another government agency and
• 26:58
  Speaker 7: you say, hey, you don't know me, but I'm Brian Daly.
• 27:00
  Speaker 5: And I'm at the SEC and we have this issue, you.
• 27:03
  Speaker 7: Might either want to know about it, you might have
• 27:05
  Speaker 7: some thoughts on Every single time we've done that or
• 27:08
  Speaker 7: gotten the inbound call, the answer is always all right,
• 27:10
  Speaker 7: you want to come over tomorrow, Just come over, we'll
• 27:12
  Speaker 7: put you in security, we'll talk to you. And it's
• 27:16
  Speaker 7: it's such I mean, I haven't seen a turf war yet.
• 27:19
  Speaker 7: It's really it's very very collaborative that way. It is
• 27:23
  Speaker 7: a one team, one government approach on everything. Specifically, what
• 27:27
  Speaker 7: you're asking about is we as an agency, we talk
• 27:30
  Speaker 7: to the CFTC all the time. The Chairman talks about
• 27:33
  Speaker 7: all the time and what a good relationship he and
• 27:36
  Speaker 7: Chairman seally have, and all the divisions in the SEC
• 27:42
  Speaker 7: will talk to their counterparts at the CFTC on some.
• 27:44
  Speaker 5: Kind of regular basis. So that's there.
• 27:47
  Speaker 7: On this specific topic, going broad to narrow, we I
• 27:52
  Speaker 7: think are doing we are trying to and I hope
• 27:54
  Speaker 7: I think we're doing a good job on it of
• 27:55
  Speaker 7: balancing collaboration and getting input for steps that we take
• 28:01
  Speaker 7: with a very very healthy dose, like an amazing amount
• 28:05
  Speaker 7: of stay in your lane, like we do not want
• 28:08
  Speaker 7: to step on their toes. I do not need to
• 28:10
  Speaker 7: get into substantive regulation of event contracts. That is not
• 28:13
  Speaker 7: our mandate, that is not where we are.
• 28:15
  Speaker 5: The CFTC is doing a fine job with it.
• 28:18
  Speaker 7: If they needed help, they would call us on any
• 28:20
  Speaker 7: particular issue and we would give it freely and vice versa.
• 28:23
  Speaker 6: What was your outreach to them, like on this particular issue.
• 28:27
  Speaker 6: All these ct of filings that started coming in.
• 28:29
  Speaker 7: So everything that we do, and you guys heard about
• 28:32
  Speaker 7: this initially because it went through what's called OHIRA, and
• 28:35
  Speaker 7: so one of the things that the CFTC and the
• 28:38
  Speaker 7: SEC have been brought into is the White House Review process.
• 28:41
  Speaker 7: And you go to reaginfo dot gov and you can
• 28:43
  Speaker 7: see all the rulemakings that are out there. And so
• 28:45
  Speaker 7: when we put something out, it goes out to all
• 28:48
  Speaker 7: the different offices and agencies under the executive branch, and
• 28:52
  Speaker 7: people get the opportunity to comment on it, to go
• 28:54
  Speaker 7: back and forth. But do we speak with them on
• 28:57
  Speaker 7: various topics all the time, Like, yes, of course.
• 29:13
  Speaker 3: I want to ask about something that's slightly tangent from
• 29:17
  Speaker 3: where we've been. Private assets in ETF which didn't used
• 29:21
  Speaker 3: to be a thing. And then we started to see
• 29:23
  Speaker 3: him sneak in, and then we started to talk about SpaceX,
• 29:25
  Speaker 3: and all of a sudden, it was like, all of
• 29:27
  Speaker 3: a sudden, there are private assets in ETFs in a
• 29:30
  Speaker 3: way that we have not seen before.
• 29:32
  Speaker 4: Yeah, and let me give one of So traditionally only
• 29:35
  Speaker 4: fifteen percent of the ETF could be earmarked for ill
• 29:38
  Speaker 4: liquid assets.
• 29:40
  Speaker 2: So even mutual funds.
• 29:41
  Speaker 4: Have, like a lot of them, have traditionally held a
• 29:43
  Speaker 4: little bit of ill liquid stuff, namely private's fidelity funds.
• 29:46
  Speaker 2: Et cetera.
• 29:47
  Speaker 4: Where this got broken was ron B, which is an
• 29:50
  Speaker 4: ETF from Barn. They went to like twenty five percent
• 29:53
  Speaker 4: of the fund SpaceX, and they their argument was, well, SpaceX,
• 29:58
  Speaker 4: even though it's private, it's so liquid in the secondary
• 30:02
  Speaker 4: market that it's not actually ill liquid in our view.
• 30:05
  Speaker 4: And I was like, well, that's interesting, and again that's
• 30:08
  Speaker 4: another maneuver that I thought we might see more of.
• 30:10
  Speaker 4: We haven't seen a lot of people test that. That seemed
• 30:12
  Speaker 4: to be a one offer now.
• 30:14
  Speaker 2: But what's your take on that.
• 30:15
  Speaker 4: How far could we go into getting privates into ETFs?
• 30:18
  Speaker 4: Could we go beyond that fifteen percent threshold like ron
• 30:21
  Speaker 4: Be did.
• 30:22
  Speaker 7: So there are two competing not competing, but there are
• 30:26
  Speaker 7: two different things which you're implicated by, two different concepts
• 30:29
  Speaker 7: implicated by what you just said. The first is there's
• 30:32
  Speaker 7: exposure to ill liquids and the second is exposure to
• 30:37
  Speaker 7: a single issuer. Right, So you have to make sure
• 30:39
  Speaker 7: you've got those two together and they come together and
• 30:42
  Speaker 7: in these kinds of situations they intersect. So I think
• 30:46
  Speaker 7: there's two things going on.
• 30:47
  Speaker 5: One. We are part of what's.
• 30:49
  Speaker 7: Called responsible retailization, right, That's what when I thought about
• 30:52
  Speaker 7: why I was hired. That was the reason I was
• 30:54
  Speaker 7: brought in because I have feet in both sides of
• 30:57
  Speaker 7: the private and the public side. Are charged with and
• 31:01
  Speaker 7: we're working on some initiatives that are going to roll out,
• 31:04
  Speaker 7: hopefully in the near future, to make sure that regular
• 31:08
  Speaker 7: retail investors have access to alternative investments.
• 31:12
  Speaker 5: That's the goal.
• 31:13
  Speaker 7: That's what we want to do. We have ideas and
• 31:15
  Speaker 7: you guys will tell us if you like the idea
• 31:17
  Speaker 7: when it comes.
• 31:17
  Speaker 5: Out of how to do it.
• 31:19
  Speaker 7: But part of that is making sure that we use
• 31:22
  Speaker 7: the forty Act vehicle. The forty Act vehicles have been
• 31:25
  Speaker 7: around obviously since the nineteen forty the forty Act It's
• 31:28
  Speaker 7: done pretty well for retail investors. It's sometimes paternalistic. It's
• 31:32
  Speaker 7: sometimes a little clunky, like any you know, eighty six
• 31:35
  Speaker 7: year old is pretty old, but the I guess sixty
• 31:37
  Speaker 7: six year.
• 31:37
  Speaker 3: Old, sorry, but at a certain ageer just the whole.
• 31:41
  Speaker 5: Let me just fix it.
• 31:41
  Speaker 7: Yeah, but like anybody all it gets a little clunky,
• 31:44
  Speaker 7: but the it's it's good. It ensures that there's transparency.
• 31:47
  Speaker 7: It ensures that there are sales channels that people can access.
• 31:50
  Speaker 7: In today's world with what you know you do here
• 31:53
  Speaker 7: on this podcast and your competitors and everybody else out there,
• 31:55
  Speaker 7: the amount of information and retail investor gets is tremendous.
• 31:59
  Speaker 7: It's you know, light years ahead of where it was
• 32:01
  Speaker 7: even when I was a kid, forget about where it
• 32:03
  Speaker 7: was in nineteen forty. So we think we can harness
• 32:06
  Speaker 7: all that we think the forty X vehicles written large
• 32:10
  Speaker 7: are the right way to get to the retail investor.
• 32:13
  Speaker 7: To me, the retail investor looks for one thing, which
• 32:16
  Speaker 7: is a ticker. Right the minute something doesn't have a ticker,
• 32:19
  Speaker 7: you've shrunked the universe dramatically and you've changed a lot
• 32:22
  Speaker 7: of the rules of the game. And that's not a
• 32:23
  Speaker 7: bad thing at all for the right people.
• 32:26
  Speaker 5: So that's where we're heading.
• 32:27
  Speaker 2: Yeah, okay, let's go to the two X ETFs.
• 32:30
  Speaker 4: Obviously you did the three they tried to They tried
• 32:34
  Speaker 4: to file three X and then four X, and then
• 32:37
  Speaker 4: some of them did five X. Reminds me of that
• 32:39
  Speaker 4: onion article.
• 32:40
  Speaker 3: Fit.
• 32:41
  Speaker 2: Let's do five blades. This is when the razor wars.
• 32:45
  Speaker 4: Yeah, the razor now five is normal. By the way, anyway,
• 32:49
  Speaker 4: you guys said get lost. A lot of people applauded you,
• 32:52
  Speaker 4: including me. We did a study and that if you
• 32:55
  Speaker 4: did three X single stocks and four X and five
• 32:58
  Speaker 4: X you probably have one or two terminations a week
• 33:02
  Speaker 4: because of the volatility of some of the stocks.
• 33:04
  Speaker 2: Two X you still get a lot of volatility.
• 33:07
  Speaker 4: But when people saw the SpaceX two X race, there
• 33:10
  Speaker 4: was some people like, what's even going on here, and
• 33:12
  Speaker 4: then in Europe you can do three X and four
• 33:15
  Speaker 4: X and five X, although Europeans don't aren't as like
• 33:18
  Speaker 4: gambling oriented as people in the US and in South Korea.
• 33:22
  Speaker 4: Those are the two countries that we call as a
• 33:24
  Speaker 4: high digen per capita, and they love these products. They
• 33:29
  Speaker 4: trade a ton. They only make up one percent of assets,
• 33:32
  Speaker 4: one of two percent of assets, but they do make
• 33:34
  Speaker 4: up about thirty to forty percent of all launches. Now,
• 33:37
  Speaker 4: what's your take on those? And the sort of public
• 33:39
  Speaker 4: reaction like, wait, this isn't investing.
• 33:42
  Speaker 7: It's really dangerous for somebody in my seat or any
• 33:46
  Speaker 7: of our seats to start making those decisions. This is investing.
• 33:50
  Speaker 7: This is not investing. I'm very cognizant of the fact
• 33:53
  Speaker 7: that I got zero votes in the last election, and
• 33:57
  Speaker 7: I did not sit in front of Congress, I did
• 33:58
  Speaker 7: not get confirmed. I'm an employee. I think I bring
• 34:02
  Speaker 7: a couple of good things to the table. I think
• 34:03
  Speaker 7: I'm reasonably experienced, but I am not omniscient, and I
• 34:07
  Speaker 7: am not here to dictate to ordinary American investors what
• 34:11
  Speaker 7: they should be doing with their money. We are the
• 34:13
  Speaker 7: investor's advocate. We will make sure that there's good disclosure.
• 34:16
  Speaker 7: We will make sure that extremely harmful illegal things are
• 34:19
  Speaker 7: not in the market. All of us at the SEC
• 34:21
  Speaker 7: will do that. But we do not want to walk
• 34:25
  Speaker 7: in and be regulators of what people can do. That's
• 34:28
  Speaker 7: what we did with bitcoin and it didn't work out
• 34:31
  Speaker 7: so well. We lost in court and we lost public opinion.
• 34:34
  Speaker 4: Here's my solution, which I've had for ten years. By
• 34:37
  Speaker 4: the way, this should be bigger than it is.
• 34:38
  Speaker 2: Droll and you know.
• 34:39
  Speaker 3: This, I've heard in a few tents.
• 34:41
  Speaker 4: We have a movie rating system for ETFs. It's not
• 34:45
  Speaker 4: rotten tomatoes. That's what Morning Star does. We don't tell
• 34:47
  Speaker 4: you whether it's good or not. We just say, here's
• 34:49
  Speaker 4: advanced information you need. Is their drug use and profanity
• 34:53
  Speaker 4: and nudity, like you know, is their leverage? Are they
• 34:56
  Speaker 4: rolling futures or is there a weird stuff that isn't obvious?
• 34:59
  Speaker 4: Green light, yellow light, red light. It's like g PG
• 35:04
  Speaker 4: thirteen or PGPG thirteen in r This is a way
• 35:08
  Speaker 4: to protect the innocent while allowing some of the you know,
• 35:11
  Speaker 4: innovation and the crazier stuff. What do you think of that, Like,
• 35:13
  Speaker 4: do you think the market should push that more? Like
• 35:16
  Speaker 4: have the actual marketplace come up with the solution the
• 35:20
  Speaker 4: way the movie industry and other industries have.
• 35:22
  Speaker 7: On any question, you're going to pose and you say,
• 35:25
  Speaker 7: should we let the marketplace have the first shot, We're
• 35:27
  Speaker 7: going to say yes, almost without.
• 35:29
  Speaker 2: Exceptionel the SEC just endorsed our traffic lights that.
• 35:33
  Speaker 3: I noticed that it should be every brokerage accountant.
• 35:36
  Speaker 7: We are not endorsing your traffic light system. It may
• 35:39
  Speaker 7: it may well have merit. We look forward to hearing
• 35:42
  Speaker 7: about it.
• 35:43
  Speaker 3: There's a filing you can put it in and.
• 35:45
  Speaker 7: Then you know the people at CNM will see it
• 35:48
  Speaker 7: and they'll co copy it because it'll be on Edgar.
• 35:51
  Speaker 7: But could I throw a quick advertisement for something else?
• 35:54
  Speaker 5: So we are also going to be coming out.
• 35:56
  Speaker 7: Soon and this is public knowledge and it's been flagged
• 35:59
  Speaker 7: on the reag infocyite already with an E delivery proposal.
• 36:04
  Speaker 7: E deliveries is not necessarily for this per se, but
• 36:08
  Speaker 7: it's for all the forty II products to allow email
• 36:11
  Speaker 7: or other electronic platforms to be the default delivery standard
• 36:15
  Speaker 7: for people to receive important statements, proxies, annual reports for
• 36:19
  Speaker 7: there in various investments. Rather than getting it in paper.
• 36:23
  Speaker 7: We all get the big paper everybody has some legacy
• 36:26
  Speaker 7: amount of paper coming to their house, usually these blue
• 36:28
  Speaker 7: plastic envelopes, and much of it just.
• 36:29
  Speaker 5: Gets thrown out.
• 36:31
  Speaker 7: So we're trying to move to get us to at
• 36:35
  Speaker 7: least late twentieth century standards, but hopefully twenty first. But
• 36:39
  Speaker 7: we are pushing industry every time we speak about the delivery.
• 36:42
  Speaker 7: Every time I speak about E delivery, I won't make
• 36:44
  Speaker 7: this pitch, which is I understand that if and when
• 36:49
  Speaker 7: the Commission puts something out making E delivery the default,
• 36:52
  Speaker 7: that the immediate aftermath is going.
• 36:55
  Speaker 5: To be PDFs going out by email. We understand that,
• 36:58
  Speaker 5: and that's good.
• 36:59
  Speaker 7: It's better than all the paper sitting in the landfill.
• 37:02
  Speaker 7: But it would be a shame, a crying shame, if
• 37:04
  Speaker 7: that's where we ended. And we are hoping that people
• 37:07
  Speaker 7: will take E delivery and leap frog from that forward.
• 37:11
  Speaker 7: We're hoping that either fun sponsors or advisors or other
• 37:14
  Speaker 7: intermediaries will start putting AI systems in the middle and
• 37:17
  Speaker 7: they will take And if this was video, you'd see
• 37:19
  Speaker 7: me holding up my phone right. This four inch screen
• 37:21
  Speaker 7: on your smartphone is the window by which most, if
• 37:25
  Speaker 7: not all, retail investors interact with their investment decisions an
• 37:29
  Speaker 7: equivalent eight half by eleven ten point font document that
• 37:32
  Speaker 7: runs three hundred pages or whatever. Scrolling through the window
• 37:35
  Speaker 7: is at best hard to do and most people will
• 37:38
  Speaker 7: never do it. But having an AI in the middle
• 37:41
  Speaker 7: that takes the ETF and does what you're suggesting Eric
• 37:45
  Speaker 7: and away, which is is this something I want? I
• 37:47
  Speaker 7: care about these values, I care about these exposures. I
• 37:50
  Speaker 7: am worried about this. To have an intelligent AI that can,
• 37:53
  Speaker 7: even on a rudimentary basis, and probably a lot better
• 37:55
  Speaker 7: than that, translate that for you takes this massive amount
• 38:00
  Speaker 7: of disclosure that's embedded in the system and makes it
• 38:04
  Speaker 7: useful for the average regular person like my sister nurse
• 38:08
  Speaker 7: with two kids, Like she didn't have time to be
• 38:10
  Speaker 7: going through prospectuses, but she does. You know, she will
• 38:13
  Speaker 7: take the time to say, hey, I'm retiring in this
• 38:15
  Speaker 7: many years or is this too risky for me? And
• 38:18
  Speaker 7: she'll get something back.
• 38:20
  Speaker 3: It's an interesting way of just bringing it back to innovation,
• 38:23
  Speaker 3: I guess, and that seems to be a hallmark of
• 38:26
  Speaker 3: turring sec So to that end, we have a thirty act.
• 38:30
  Speaker 3: We have a forty act. You are like foundational things
• 38:33
  Speaker 3: that let the ETF industry flourish. Do we need something new?
• 38:38
  Speaker 3: Should there be like a twenty six act? What would that?
• 38:40
  Speaker 3: What would that look like?
• 38:43
  Speaker 7: Well, that's Congress, So you'll just go back to my eye.
• 38:46
  Speaker 7: And I've got no votes in the last election. So
• 38:48
  Speaker 7: we have we have thirty three, thirty four, we have
• 38:50
  Speaker 7: two forty acts. We've got other acts out there, trust
• 38:52
  Speaker 7: and Interact and things like that. I think the question
• 38:55
  Speaker 7: is is there something fundamentally broken right Congress getting anything
• 39:00
  Speaker 7: through Congress? And I think it was probably the same
• 39:02
  Speaker 7: in nineteen thirty three. I mean it's a little different
• 39:04
  Speaker 7: there because they just gave it to Joe Kennedy and
• 39:05
  Speaker 7: gave a pen and said go do.
• 39:07
  Speaker 3: This, go do it.
• 39:08
  Speaker 5: It came back.
• 39:11
  Speaker 7: Unless something is fundamentally broken, I don't think we're going
• 39:13
  Speaker 7: to need a new act. What we have been doing
• 39:16
  Speaker 7: a lot of is listening and where we've gone out
• 39:20
  Speaker 7: with things that we can adapt and move forward, like
• 39:24
  Speaker 7: our share class initiative, being able to push all these
• 39:27
  Speaker 7: old mutual funds and letting them adopt new share classes
• 39:29
  Speaker 7: they want to offer ets in that trust. I think
• 39:33
  Speaker 7: that's the kind of innovation that we have been doing
• 39:35
  Speaker 7: that maybe obviates the need for Congress to move.
• 39:38
  Speaker 4: You know, also the thirty three and forty A lot
• 39:41
  Speaker 4: of stuff went down in that decade. I think usually
• 39:44
  Speaker 4: those acts are a result of like real crisis. So
• 39:48
  Speaker 4: maybe after the next crisis they'll come up with your act.
• 39:50
  Speaker 2: When that will happen, I don't know, but that's probably
• 39:52
  Speaker 2: my guess.
• 39:52
  Speaker 7: No, I think that's exactly right. I mean Sarmone's Oxley. Yeah,
• 39:56
  Speaker 7: you know, all these things come out. The Jobs Act
• 39:58
  Speaker 7: might be one of the few exceptions where there was
• 40:00
  Speaker 7: no crisis.
• 40:01
  Speaker 2: As Athanasio says, we need a hard rain.
• 40:03
  Speaker 3: Hard rain.
• 40:04
  Speaker 4: That's his solution to some of these crazy products, Like
• 40:07
  Speaker 4: a bear market will filter a lot of this stuff out.
• 40:10
  Speaker 3: Okay. The question that I really want to ask, though, is,
• 40:12
  Speaker 3: as long as we've been talking a lot about prediction markets,
• 40:15
  Speaker 3: can we make a prediction? Are we going to see
• 40:18
  Speaker 3: this by the end of the year any of these ETFs.
• 40:24
  Speaker 5: I don't know, we'll have to see I think again.
• 40:27
  Speaker 3: There's only there's only two options in prediction markets. There's
• 40:30
  Speaker 3: yes or no.
• 40:31
  Speaker 5: Well no, because don't on the table.
• 40:34
  Speaker 4: He wants to run over to polymarket and bet on
• 40:37
  Speaker 4: the current market for the approval of prediction Market ETFs.
• 40:42
  Speaker 7: No, I think it really depends what if we put
• 40:44
  Speaker 7: this RFC out and what we get back is a
• 40:47
  Speaker 7: universal you know, we get a lot of responses. They
• 40:50
  Speaker 7: are all universally saying they're unanimous. They say everything is great,
• 40:54
  Speaker 7: don't change a thing, it all works just fine. Well,
• 40:58
  Speaker 7: maybe we still move, maybe we don't, but certainly the
• 41:01
  Speaker 7: impetus for us to move has to be a lot higher.
• 41:03
  Speaker 7: I suspect we're going to get hopefully, and I do
• 41:06
  Speaker 7: think we're going to get. This is a very broad
• 41:08
  Speaker 7: and diverse set of responses that come back. I think
• 41:11
  Speaker 7: most of them will be thoughtful. I'm sure there'll be
• 41:13
  Speaker 7: a few knee jerks in there, but that's fine. That's
• 41:15
  Speaker 7: part of the system. And depending on what people come
• 41:19
  Speaker 7: back with, that will tell us what to do. I mean,
• 41:21
  Speaker 7: we get thoughtful responses from informed industry participants that say,
• 41:28
  Speaker 7: here are some really fundamental, some real fundamental problems, then
• 41:32
  Speaker 7: we've got a lot of work to do. I don't
• 41:33
  Speaker 7: think that's what it's going to come back with, but
• 41:35
  Speaker 7: again we don't know, and we're open minded, want to
• 41:38
  Speaker 7: hear what everybody has to say.
• 41:40
  Speaker 3: Eric and I have done a little bit of history
• 41:42
  Speaker 3: about the ETF, and one of the most fascinating things
• 41:45
  Speaker 3: was that when the ETF was formed, the SEC played
• 41:49
  Speaker 3: kind of a minor role in like creating the instrument
• 41:54
  Speaker 3: that we now know is an exchange traded fund within
• 41:57
  Speaker 3: the SEC. How much pride is there about that?
• 42:01
  Speaker 4: I bet some people don't even know what. We have
• 42:04
  Speaker 4: an article to send you, I have a book to
• 42:05
  Speaker 4: pitch you.
• 42:06
  Speaker 3: But yeah, well, you know, only pitched so many things
• 42:09
  Speaker 3: during an episode.
• 42:09
  Speaker 4: To be fair, I know, when you put institutional in
• 42:12
  Speaker 4: the title of a book, you're not going to sell copies,
• 42:15
  Speaker 4: so you have to do a lot of pitching. But
• 42:17
  Speaker 4: the SEC really was coming up for solutions for that
• 42:20
  Speaker 4: nineteen ey seven crash, and to be fair, ETFs have
• 42:24
  Speaker 4: become a liquidity release valve. They actually help price discovery,
• 42:28
  Speaker 4: they help take a lot of liquidity, and I think
• 42:31
  Speaker 4: they've actually done exactly what the SEC was trying to
• 42:34
  Speaker 4: cure in eighty seven.
• 42:36
  Speaker 7: So before I answer, where do you trace the beginning
• 42:39
  Speaker 7: of it too?
• 42:40
  Speaker 5: By what country?
• 42:42
  Speaker 3: Well, that's it.
• 42:44
  Speaker 4: Don't even bring up Canada.
• 42:47
  Speaker 5: Because they may have invented it, but we made it great.
• 42:50
  Speaker 4: No, No, I'm telling you that's the word on the street.
• 42:53
  Speaker 4: You go to Canada, they hate me in Canada because
• 42:55
  Speaker 4: I'm telling you Nate Most and Steve Bloom at ame
• 42:58
  Speaker 4: American Soucker Change, they filed first for spy while it
• 43:03
  Speaker 4: was waiting in the SEC for four years. That filing
• 43:06
  Speaker 4: Canada came down to the AMEX and Nate Most showed
• 43:10
  Speaker 4: them what they were working on, and they took it up.
• 43:13
  Speaker 4: And they have liberal regulators up there, way more quick
• 43:16
  Speaker 4: than you guys, and they launched it within a year.
• 43:19
  Speaker 4: And then now they run around taking credit. But I
• 43:22
  Speaker 4: got the guy who was at the Torontic Stock Exchange
• 43:24
  Speaker 4: to admit the idea was hatched in the US, thank
• 43:26
  Speaker 4: you very much.
• 43:27
  Speaker 3: So there you go. Started here. But the part of
• 43:30
  Speaker 3: the steer came from a lawyer at the SEC.
• 43:33
  Speaker 1: Yeah.
• 43:34
  Speaker 7: I think people are very proud of the ETF. I
• 43:37
  Speaker 7: mean when we sit around and we talk about the stats,
• 43:40
  Speaker 7: the idea that we have nearly one thousand fund IPOs
• 43:44
  Speaker 7: a month, I mean, that's just staggering to people. The
• 43:47
  Speaker 7: idea that we have a system that operates really well
• 43:53
  Speaker 7: without government bureaucrats.
• 43:55
  Speaker 5: In the middle of it.
• 43:56
  Speaker 7: I mean, the AP system was like genius. It really
• 43:59
  Speaker 7: works and It relies on the integrity the markets, the
• 44:03
  Speaker 7: integrity the participants, the exchanges do a terrific job ensuring
• 44:06
  Speaker 7: the safety sound is an orderly operation of their own
• 44:09
  Speaker 7: markets and where there when there's relief to be needed.
• 44:13
  Speaker 7: Obviously we have friends in enforcement. Things are really bad,
• 44:15
  Speaker 7: but you know, in the scale of things, they don't
• 44:18
  Speaker 7: come in that much. So I think we're very proud
• 44:20
  Speaker 7: of this product. This has been like I said earlier,
• 44:23
  Speaker 7: but this has been one of the best most successful
• 44:26
  Speaker 7: financial innovations ever.
• 44:28
  Speaker 3: Great way to end it, Brian Daily, Thanks for joining
• 44:30
  Speaker 3: us on Trillions. Thank you for having me, Thanks for
• 44:38
  Speaker 3: listening to Trillions until next time. You can find us
• 44:41
  Speaker 3: on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify,
• 44:46
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• 44:48
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• 44:52
  Speaker 3: produced by Magnus and Rickson and Keshav Pundia Bye.
• 45:00
  Speaker 6: This is in the