The Exchanges

Q and our LPs. But what it also does is then change the nature of how these markets behave. Can you just comment on the amount of time companies are staying private, the dearth of the IPO, because it has become a liquidity defining moment. It is much more so than the financing moment and whether things should change. And if so, how do you want to change that and why?

A Yeah, well, it's a free market, obviously. So, you know, investors, we should allow the market to develop as it will. But, uh, you're exactly right. So now it's more of a liquidity event, um, for insiders. And, um, and so what we are seeing now is, uh, in the private markets, you know, there's a lot of capital that's, uh, where people are willing to deploy it to companies at early stages and then to, to stay on. But at the same time, there is, there are inhibitions for, uh, for private companies to go public. And one of them is the, the, um, The, uh, cost of our rules to comply with our rules and the disclosure ones, especially where you have all the annual report requirements, proxy statements, and all of that. And so, uh, and then quarterly reporting and, and so forth. So that is one big inhibition where things are not necessarily focused on materiality anymore.

AI assessment note: “there are inhibitions for, uh, for private companies to go public.”

Q President Trump said, maybe we should move to six month reporting or one year reporting. And it was really well received by a lot of people. Do you think that quarterly reporting has sort of also killed the IPO? Meaning, when we think about making an IPO great again, just the complexity and the burden of such short termism, has it made the markets better or worse, do you think?

A Yeah. Well, that's a great point. And I just wanted to add one, uh, kind of a little note to the previous discussion there that, you know, if, if something is a tokenized security, you know, the federal securities laws apply. And so that goes for insider trading, you know, with respect to, uh, trading securities, uh, wherever they may be, you know, on the online or, or on an exchange floor or wherever. So anyway, but then to your point about, uh, the cadence of, uh, reporting, I think that's an important one. And we are going to come out with a proposed rule and, and seek comment on it. And I frankly am a bit agnostic myself personally, because if you look at things, uh, we haven't always had quarterly reporting. In fact, when the SEC was, uh, you know, formed back in, it basically codified the New York stock exchange rule book. Which at the time called for annual reports. So annual reports prevailed until 1955 and the SEC went to semi annual reporting. And by the way, the UK did the same thing around the same time. And then in 1970 only did things go to quarterly. And then the UK parted what they did quarterly as well. But then in 2014 or so, they, uh, they changed to go back to semi annual, but If you wanted to still report quarterly, you know, God bless you and go ahead and do that. So we're still at quarterly. And, uh, and so the president did send out a, you know, electron…

AI assessment note: “I frankly am a bit agnostic myself personally, because if you look at things”

Q this was Gensler's, I think, you know, maybe a logical point, although his execution was poor, there was a logical point to, Hey, we have rules. We can't let you break these rules for your dollar sign, whatever. If everybody else is doing their company properly, you know, and following this set of rules. So, so how do we evolve that to protect, which is the top mandate, the consumer?

A Well, that's a great question. I think the real problem has been, uh, definitionally. And so the, the kind of the very vague lines, and so people weren't sure they were. And as Mike was talking about, you know, people play paid lawyers, a lot of money to try to do it. Some lawyers just gave happy talk. And then people got in trouble, uh, with the SEC and other lawyers just said, forget it, go offshore. You know, you, there's no use to even trying here in the United States. So that's part of what, uh, you know, Mike and I are trying to do as far as harmonize. So we're, if it's a tokenized security, then that's one thing under the SEC's rule book. But if it's things like, uh, tokenized, uh, so digital coin, a digital token, sorry, or digital tools, Or digital collectibles. Then those sorts of things fall under the CFTC's oversight and their rule book is, is really more apposite for these sorts of things than ours is. But you have to have a logical oversight over things like that to prevent fraud, because the one thing that really, uh, you know, attracts people to our markets from overseas is that they perceive that there is You know, that fraudsters do get caught, and, you know, we have protections around, as we've been talking about, inside trading and things like that, trading on material, non-public information by insiders. That is, you know, so we have a robust thing for that…

AI assessment note: “harmonize... if it's a tokenized security, then that's one thing under the SEC's rule book”

Q I think a lot of people don't understand, or at least I don't, Where the SEC and the CFTC cooperate most effectively, but then as with all things, where does coordination maybe break down? Could you just explain that to people so that we understand and level set about what the expectations of each organization are and how you guys actually work together day to day when you have to?

A Having been around the two agencies now for 30 some years, um, I can really say that unfortunately the two Um, and not necessarily at the commissioner level, but, uh, certainly at the staff, there was a lot of sniping, uh, you know, back and forth. So I compare it to two, uh, fortresses with no man's land in between. And so the no man's land is littered with the bodies of would be products that people were unsure. Like, is it CFTC? Is it SEC? And the crossfire between the two just killed the products. They never went to market single stock futures. Portfolio margining, which has so much potential benefits for making the financial markets safer and more efficient. But Mike and I are setting out to change that, and I'll let you go forth on that one, Mike.

AI assessment note: “the crossfire between the two just killed the products.”

Q and your framework. And you've been at this for a while, as we mentioned, how has that changed over time? Educates a bit on how we got to a world in which Bitcoin investors might be a hundred X or 50 X and People might be leveraging their prediction market and seems like it has a function, but it also seems like almost every story starts and ends with leverage.

A Right. Well, so I think it depends on the marketplace and, and on the type, because obviously you have banks and they're all about fractional, uh, deposits and, and all of that and, and lending. Um, so, uh, you know, so we, we've gone through that back in 2008 and 2009 and the financial crisis and going all the way back to 1929 and then Even in the 1800, obviously all the repeated problems with, um, you know, financial disruption and financial markets. So we have to be careful about that. There are all sorts of rules for broker dealers, for banks, for in the futures markets, for margin and all of that to, um, like put a lid on some of this and to have some controls around it and, and, uh, transparency, you know, in the futures markets, the, the, Uh, the, the exchanges have a lot of power, you know, over their members and over margin and, you know, closing things down. We saw that even in the COVID time and, and whatnot, when the markets got hairy there. So, um, you know, those things are constantly looked at. The Fed plays a role as well, um, you know, with margining and the securities market. So all that, uh, has to be adjusted. And now we need to look carefully at these new markets. And then see what's analogous, and see what authority we have, and, uh, and then make sure that, you know, we're not killing, uh, trading, but we also have to keep an eye out for the future to mak…

AI assessment note: “now we need to look carefully at these new markets. And then see what's analogous”

Q Are you allowed to convene a group of people and start to line item these rules out or change them? Or does it have to go through some much more robust process where There's a lot of competing reasons why some people, some lobbies maybe may want these rules.

A Oh, sure. I mean, they're vested interests in everything, but that is part of my program, uh, for this year and going into next is to go through our rule book. We need a spring cleaning. We need to clean out the attic of the basement and the garage, and to really look at things. Unlike the agency has ever done before with a real focus on materiality. So that's one. The second to make IPOs great again is to focus on litigation, and, uh, and so that is another thing that is a key, uh, inhibition, I think, for people to go from the private markets to public, the threats of, uh, class action lawsuits and vexatious, uh, litigation with every dip in the, um, in the stocks. You have, uh, issues like mandatory arbitration, fee shifting, you know, loser pays, that sort of thing, both of which Delaware has recently, um, outlawed For public companies, but there are other states out there. And then the third is the weaponization of corporate governance around shareholder proposals, that sort of thing. So it becomes a pain to deal with the annual general shareholder meeting and that sort of thing. So those three are maybe not the only inhibitions, but there are three key ones that I've heard over and over and over again over the last, uh, 30 some years from venture capitalists, private equity folks, investment bankers, lawyers, and et cetera. So.

AI assessment note: “that is part of my program, uh, for this year and going into next”