Welcome at Trillions.
I'm Joel Webber and I'm Eric Belchernas.
Eric. Today we are at the SEC interviewing a commissioner who's been on the podcast before, Commissioner Hester Purse. I'm really excited to talk to her because she's been a fabulous interview twice already, and now we have a new administration and she's got a role on it. But she's not going to be here for that much longer. So what are you most interested in talking to her about.
Yeah, well, for the past several years, she's been the dissenting opinion. Well, now she's kind of in the she's in the majority of the power position, and so I bet she's excited and she's going to be able to have a lot of influence. I think now, especially with the new chairman coming in, it's probably way more aligned.
With her views. So it's Paul. It's interesting.
Just a lot of patients and now I think a lot of their framework will be influenced by some of the way she saw things that was in the minority for several years. Obviously, crypto is a big one. Private assets, the ETF share class. There's just so much.
Going on right now.
Regulation in general.
Just regulation in general. So yeah, it's it's really cool. And by the way, you forget to mention, we're on the tenth floor.
Tenth floor. We did it.
The commissioner, So.
If it's famous for people industry, you go, it's a tenth tenth floor decision. So we're on the tenth floor and it's pretty cool.
Joining us also Stacey Marie Ishmael, who's the head of cross Assets and Crypto at Bloomberg News, this time on trillions. SEC Commissioner Hester Perce Commissioner, Welcome back to Trillians.
It's great to be here.
Thanks for hosting us at the SEC, which is a real privilege and treat. So we've had the privilege of having you on Trillions. This is the third time, and the first one was in the early days of the pandemic and it has stuck with me that you were baking banana bread with chocolate chip cookies at the time. And then the next time we had on the podcast,
I asked a similar question. You said you were doing ginger snaps, which also may have had like an internal currency at the SEC, and I'm curious, what are you baking now?
I'm just baking boring bread because we need to get back to the basics.
Okay, how are the bread skills going?
I mean my bread skills. It's bread I like to eat. Nobody else necessarily likes to eat it, except for my dad.
Okay, serve yourself first. Okay, real question on a scale of one to ten, ten being high. How libertarian is the SEC? Right now?
Well, I mean the SEC is a regulatory agency, so I think we're governed by our statute as opposed to by a philosophy like libertarian thinking. So I mean I think I can't put it on a scale.
Is it a how big of a shift do you feel it is?
Well, I mean to get to your question, So first of all, let me give you my disclaimer, because I think it is important here. My views are my my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners. And I mean I think when I approach things, I'm thinking, how can we maximize people's ability to engage in transactions that they want to engage in in a way that's consistent with our statute, which requires us to think about things like investor protection
and capital formation and the integrity of the marketplace, right. So, I think we have changed in the sense, you know, in the last one hundred or so days, in the sense that now we're looking at things in terms of not looking for ways in the statute or outside of the statute to block people from doing what they want to do, but we're looking for ways to facilitate people's ability to do things that they want to do again
in a way that's consistent with our objectives. So I do think there's been a pretty dramatic shift in approach.
And to that point, one of the big big areas, or at least one of the big industries as it were, that's been vocal with how pleased they are about that
particular shift. Are folks at the intersection of cryptodigital assets, payments, and fintech to an extent, and what we're increasingly hearing from them is not just we're so glad that there are these pauses in some of the cases or withdrawals and others, but that they're looking forward to kind of proactive rulemaking, you know, to really get to that you know, much vaunted phrase of regulatory clarity. What in the environment that you're describing, where as you say you want to
enable and facilitate. Does a proactive rule making process look like as opposed to, you know, regulation by enforcement.
Well, I think that what we're trying to do is we're trying to use our regulatory divisions for their intended purpose, which is to help people think through how a pretty complex set of regulations applies in their particular facts and circumstances. And so some of that can be done on a guidance basis, so providing maybe generalized guidance that applies to
more than just one person or entity. Some of it is simply saying these activities or things are not within our purview as a securities regulator, and some of it is thinking about very individualized no action letters. And some of it is then thinking longer term about rulemaking. How can we go out for notice and comment rule making, get the public's input, and then how can we develop longer term, more durable rules. And then part of it is working with other regulators and with Congress to think
about the technical aspects of the legislative framework. So it's a mix of things, but that's kind of how we're looking at it.
We want to be basically divide this into a couple categories privates, crypto, and then we're going to look at some ETF share class questions.
But first privates, so private assets.
You had said on a podcast recently that you were looking on how to allow access to private markets. You didn't love that you had to be a credited investor. How do you do that? The ETF industry is obviously famous at pushing the envelope. State Street found a way to break that fifteen percent illiquidity barrier by using Apollo to provide a liquidity backstop, and it seemed to me that was a groundbreaking filing in that it does show how you can go beyond fifteen percent iliquid holdings.
And where do we go from here?
Is r ETF's the right way to get retail investors private investments. What's your take on making this issue you know, something that people can look forward to and what should they expect.
Well, I think there's an openness to using the ETF well and using the exemptive process really to allow people to try new things that might be in an ETF we're in some other kind of fund, but that's kind of what we've done historically, is people could come in for exemptive relief and then you've built on that. It's an iterative process. Someone might see what another issuer has done and might iterate on that slightly, and then you know,
that's how we got ETFs right. We did a lot of these exemptive applications and then finally we decided to do a rule. We did a rule too long, but still, you know, through that period of years we were able to figure out what kind of conditions were important. And so I expect that process to continue, and I expect and hope that we will be willing to engage very you know, answering questions, hearing from from people what kind of products they'd like to develop, and helping them think
through what that looks like. That's a normal function that I think we'll be carrying out. We sometimes impose, or the staff as sometimes I think at the behest of the Commission imposed restrictions that really don't have a statutory basis. If that's happened in the past, I think we should revisit those decisions. And so there's definitely, in my view, there should be an openness. That's just how the statute
is meant to work. I don't think that's the only way that retail investors should be able to get access to private investments. I do think that's a way that many of them may want to because it's diversified access, it's access with professional management through vehicles they're comfortable with
and used to. But again, as I said before, that accredited investor standard as a barrier is pretty counter to what we as Americans generally believe, which is that if people want to put the hard work in to do their investment research and they want to invest, they shouldn't have to come to the Commission and say, oh, and by the way, I'm wealthy too. That's really not very American.
So on this issue of private assets, the State Street of Polo ETF, which is a ticker, prev it got approved or it may have just released, there was this a little bit of back and forth with the SEC and State Street.
I've been doing this for twenty years. I had never seen anything quite like it.
Where it was listed, and the day before it listed, there was a letter from the State SEC saying there's like five things they weren't really comfortable with, and it talked about without resolution of staff comments, and that was a I just wanted to ask about that.
Do you have any more information on that or what went down there.
Well, I don't want to speak about a particular issuers engagement with the SEC, but I think just generally, the comment process is a very healthy process where you get lots and back, lots of back and forth between staff and someone who's trying to get a product filing through, and those conversations are very important. The idea is to get to a place where the disclosures are clear and they clearly portray for for people who will be buying
those products what it is they're getting. And so that's an important process and and you know it needs to be fully carried out before products are are out there. So I think that's just in general. You know, as you mentioned at the outset, this particular product was something new and so you know, it's not surprising that there are a lot of questions. But again, that iterative process is really important.
Okay, let's talk crypto.
We had to do that first because we thought we would get way down in crypto for a long time, so I can't imagine that we had Okay, so I'm pretty obsessed to I've really it's been a very exciting two years.
Okay, Bitcoin ETF huge race.
That's over though, and boy were they a huge hit. I mean, biggest launch ever, very exciting. Now we've got the spaghetti cannon, which is what Ben Jonson Morning Star calls it, where there's now over eighty filings sitting on maybe not your desk, but somebody's desk, and they include everything from XRP Solana, which we call me legit all coins. Then it goes right down to you know, things like bonk. Half the stuff I have to google when I see
the filing, I don't totally know. And then you've got a trump coin ETF, a Milania ETF, and then a two X Malania ETF. I mean, they're already going so far out there, and this is an interesting question for me. How do you look at approving all those and if you go to maybe what you'd think is the most maybe volatile one, which would be like a mean Coin ETF,
like a Trumper Milana ETF. Given that's the president, how does the SEC deal with evaluating like the investment merits and if that one would be okay, with the rest ipso facto be okay. Like you see, I'm trying to I'm trying to develop a logic on how like to handicap, how much and how soon these will be approved.
Well, I think first step in your logic should be to remember that the SEC is not a merit regulator, and so when something goes effective, when when something is green lit at the SEC, it does not mean that we're telling people this is a good investment for anyone or for you in particular. People have to make that
decision for themselves. I mean that really does go back to I think the first question about how the SEC thinks philosophically, Well, we think philosophically the way Congress told us too, which is not to be a merit regulator. So take that out of the out of the equation. The second thing I'd say is we have gotten lots of filings, and I'm glad you're compiling the list. That's helpful. So all of those filings have to go through folks in our division of Trading and Markets. Most of these
are ETPs, I think, not ETFs, some maybe ETFs. Those go through investment management. But we have a limited number of people working on these, and there's just a lot of incoming now. And so this is something that I said, when you know early on in this journey, as I've been calling it, toward more cryptoclarity. People have to be patient. There's just there's a lot going on. There are a
lot of people who want things done. There there's a real need for patients because any filing that comes in, our staff has to check to see whether it meets the technical requirements, and so that's part of what's going on. And then you know, there are a lot of other things that I have said could also complicate things. We have some ongoing litigation we have that we're trying to work through. We have lots of other considerations that we're
thinking about, and so you know, just be patient. Then on some of these filings, I would say, we got in a comment letter. We're also taking lots of comments in our written input from the Crypto Task Force, and one comment came in from an exchange saying, hey, you should really think about generic listing standards on the ETP side. And you know, that is a request that really resonates
with me too. So I think there there's a lot of work to do and we have to think about how to do it most efficiently.
And just one quick follow up on that, remember in the Bitcoin ETF extravaganza.
For lack of a better word.
You they all launched in the same day. You know, we call it the Kentucky Derby because they normally you file and.
You you're out the day.
It's staggered depending on when you filed. Are you going to group them together, group them together again, or was that sort of a one off that we probably won't see again.
You know, I don't know how these filings will be done. As you said, they're not all the same, right, But I think one thing to remember that whole process was terribly mismanaged, and so we had been going for ten years, We had been getting filings and so thinking about how to do it, and then there was so much build up and then the court case. You know, there was just a lot going on there. So that was a
unique set of circumstances. The second thing I'd say is if we just said well, it's first in, first out, then we would encourage people to put in really terrible filings just to get first in the door. And I really want people to know that the better the work that you do and the lead up, the easier it is for us to process these things. Because our staff has to look at everything, and again, if they're technical deficiencies,
they have to tell you that. And so it really what we really want to do is encourage people to come in with good filings, to have good conversations with us, and help us think through through how we can prioritize getting through the work that we have.
I'm interested in your comment about, you know, embracing the idea of not being a merit based regulator and from everything. One of the things we've been hearing a lot from the administration is, you know, this emphasis on kind of individual research, that people can make informed decisions based on the processes and systems and information that's available to them.
How are you thinking about that in the context where there is at the same time, kind of a deprioritization in some agencies of explicit investor protection in the sense of some agencies that were more dedicated to saying, Okay, if a bad thing did happen and you were not at fault, there was fraud, there was something you didn't have control over here with the systems that were able
to protect you, or here were mechanisms for whistleblowers. Do you see any tension between these sort of forces that we're seeing at the same time.
Well, at the start, I said, I can't speak for the SEC. I only speak for myself, and I certainly don't want to speak for other agencies. But what I will say about the SEC is investor protection is one of our core mandates and so that's something that we
will continue to emphasize here. And part of investor protection is ensuring that people have the ability to make investment decisions that they want to make and to make those without having the government say no, we think that you can't invest in this thing or you know, so it's investment opportunity is part of investor protection. Part of investor protection is ensuring that where there is fraud, we are
there with enforcement if you know. Of course, our role is limited to the statutory constraints that we have and that's where securities regulator. But if there's securities fraud, we're definitely interested in bringing those cases. And we have a
very active whistleblower program. You can go on our website and file what's called a TCR and you can select to be elect to be a whistleblower, and that's very important and will continue to be a Third piece of investor protection is disclosure and so a lot of the back and forth that you see with these filings in the investment management area, for example, is ensuring that there's adequate disclosure so that people are aware of the risks, and that will continue to be an important part of
what we do. It's you know, it's a big chunk of our staff works on these issues, whether it's with investment companies or whether it's with public companies, and that is going to continue to be an important role that we play. So I would urge you not to look at this from the perspective of at least you know, as we're looking at it, it's investor protection is very central, and I would urge you not to assume that we're
just saying no more enforcement. That is absolutely not true, and I think people should be careful to know that it's not anything goes, you know, we want to build a framework that encourages an industry that is healthy and dynamic and competitive and where people can be confident in the disclosures they're getting.
I'm curious about the relationship between the SEC and CFTC regarding crypto, because you've got an investor protection there. It's not something that's the same thing between the CFTC and the SECA so, and you have been a go between between the two agencies. So I'm curious, like who takes the lead in crypto and this new administration.
Well, I think what we're trying to do with the SEC is identify where our jurisdiction begins. And so that means that some of crypto is not in our jurisdiction, I mean, and what means Congress has laid out a framework and said, here's your jurisdiction, and so some of that stuff is outside. It may be at the CFTC, it may be at another regulator, and that's the way
it is now. But of course Congress is working on legislation on market structure, and that would perhaps create some new regulatory authority, maybe for the CFTC at least as they have designed the statute, there'd be a lot of new authority for the CFTC. And so we will be good partners with them and try to work with them. There may be some areas where Congress wants us to
work jointly with the CFTC explicitly, but more generally. Our jurisdictions bump up against each other all the time, and so we will have lots of constant contact and communication. The new chairman coming in, Chairman quintends it's someone that I've worked with before, someone Paul knows, Chairman Atkins know as well, and so I think there's going to be continued good work across agency lines.
Let's talk about tokenization.
So the more you kind of dive into crypto, one of the areas beyond the tokens is the blockchain, right, major technology. It's possible, so much just moves on the blockchain. Right. They're trying to use the blockchain for the back office
of a lot of the ETF industry. And then Larry Fink comes out and says, I want the SEC to rapidly approve the tokenization of bonds and stocks, and so I go to these tokenization crypto events and they all think everything's going to be a token someday and that's the quote endgame, and you know it.
Is a vision.
They're very excited, but they got to have the SEC on board to pull this off.
So where do you stand on that.
We're having a roundtable next week on the topic of tokenization and we'll see what people have to say there. It's one of the topics that we've gotten a lot of interest in sort of after this, you know, announcement that we're open to thinking about things in new ways. So we'll see what comes out of that roundtable and what comes out of the We've been getting again a lot of written input, and I'm open to trying to facilitate people trying this technology to see where it will fit.
I suspect what will happen is that there'll be some places where people had high hopes and it will it will those hopes will not pan out the way they expected in other areas where they will work very well. But that's really up for the industry and the market market participants to figure out. But we'll certainly work with them to facilitate their attempts to use the technology.
And building on what Eric said, I feel like when people aren't talking about tokenization, they're talking about stable coins, which you know, some folks will refer to as tokenized money market funds. In a world in which which things that look security adjacent or money adjacent or real world asset adjacent, depending on which conference you're going to, what are some of your priorities? Right, Like, you've just told us that there are a limited number of people working
on quite a number of things. If you could spend just you know, one thing a day, like, what does that list look like? Is stable coins the thing that the that you and your fellow commissioners are paying attention to. Is it tokenization, is it ETFs? Is it somehow all of the above? And how does that align with the message to the industry that everyone needs to show a little bit more patience than they might currently be doing.
Well. First of all, it's not just crypto. There's a lot of other work on our agenda, so people should remember that as well. But second, i'd say stable coins. The staff put out a statement saying non, ye'll bearing stable coins probably not within the SEC's jurisdiction again facts and circumstances. But tokenized money market funds are something that people have been working on and that's not new to
this year. People have been working on that over the past several years, and I expect to see continued interest in trying to think about how to do that. So we're open to those kinds of conversations. In terms of prioritizing, I mean, I think really the goal is just to try to figure out how we can get some clarity. And one of the first things we have to deal with there is helping people understand when the securities laws apply.
So this question of security non security, I think is continues to be a big gating factor because if it's not a security, people don't have to think about the whole panoply of securities laws. If it is, then then we need people to come in and really help us as we work through how do the laws apply to this unique asset class, to this unique technology. And that's something that we've done and in lots of other areas,
and we can do here. But I think that's kind of how I'm ranking it in terms of, you know, figuring out is it within our jurisdiction and then working with people and figuring that out.
And do you think that's about being in more of an affirmative posture, So you know, to your point, you've said, these things we don't, these don't fall into our universe. At what point do you think we'll be moving to and these things explicitly do.
Well, I think we're already doing that. We put out again this staff and the Division of Corporation Finance put out some disc some disclosure guidance for companies that are either involved with crypto or are issuing some sort of a crypto asset that is a security uh. And so we in that guidance that the staff gave some help in thinking about how do you how do you apply the traditional securities laws in this space. So I think that's one example, and I think you'll see other examples.
We're trying to not just do one thing at a time. We've got a lot of irons in the fire, and so we're working on a lot of different I would say proactive pieces as well.
I wanted to bring up another topic, which is just financial regulation, and we're kind of in this moment now where independent agencies are even being reviewed and the FED has come up and sec has come up, and just curious, like, is it independent regulatory agency a misnomer?
Now? No? I mean I think if you look at you know, I certainly feel independent and how I think about things. And I think that's the role of Commission is to think independently. But I think one thing that is positive in this environment is there's a real desire to try to have a uniform approach to thinking about new technologies, for example, and that means that we're not you know, we're seeing agencies worked more closely together. We're not seeing one agency do thing do one thing and
another agency do something that's contrary. And so I think that kind of unified approach is really helpful. The administration will be looking at our economic analysis as an example. We have a lot of economists here at the SEC. We do a lot of economic analysis. It can be helpful to get an outside perspective from someone who has the opportunity to look across agencies at economic analysis. So
I expect that that will be helpful to us. So, you know, I think we've got a lot of work to do, and we're one part of the financial regulatory infrastructure. The US has always had a complicated landscape there with federal regulators and state regulators. But it's good to work together and have coordination.
I'm curious about DOGE, the Department of Government Efficiency maybe more than a coin. What changes my DOGE bring to the SEC now that they've sort of, you know, worked through many many agencies and seem like they're coming to talk with SEC next. What kind of changes my DOGE instigate?
Oh? I don't know. I mean I expect that they will give us some thoughts around how we can gain some more efficiencies and in some of the ways that we do things. So I you know, I think they could serve a sort of an external consultant kind of role.
All right, let's talk about something that's wonky but huge, okay, which is the ETF share class situation.
So just let me sell this to people listening so they don't fall asleep.
ETF mutual fund companies have long figured out trial been had a problem getting into the ETF market. Now, Vanguard had a patent that added an ETF share class to their mutual fund share classes. That patent expired. Now there's fifty three big fund companies. Well not of them are big, but as a group, they're like ten trillion in assets. They are filing to bolt on an ETF share class to the mutual fund if that happens, and according to
a commissioner I unit this, this is a higher priority. Eleven of them have already responded to comments and refiled, so we're expecting this to sort of be approved this summer. And if that happens, I mean you could be looking at thousands of ETF share classes and potentially a whole other tributary of flows coming into the ETF.
That's sort of where I see it.
The only snag would be how does a mutual fund company deal with an ETF when you need a brokerage platform? And I think that's I don't think that's your problem, but that's something that the industry I think will have to figure out as well if these get approved. So where does that stand and what might we look out for there?
Well, I think you've really outlined the issue. Well, I mean, we have a lot of applicants. I think it's a very interesting issue. It's something that people have been asking us to work on for quite some time, and I'm glad that we're really getting down to the technical details of it now. And as you point out, there's some operational questions that have to be answered, and so I'm sure that industry will be working through those as we're working through their applications.
Just as a kind of a closing thought, going into a very interesting time in markets, a very interesting time in crypto, very interesting time in digital assets. One of the big criticisms that was levied at, you know, the previous regime, was that the US was a less attractive place for investors who were looking for certain types of environments.
And you know, at the Milligan conference we heard from Scott Bessett saying like the US should be the top investment destination for capital How do you see the SEC's rule in either enabling that, supplementing it, complementing it in one way? Like you know, if you were to give a sort of a theory of the case of what really is going to be different this time, what would you say that would be well?
As an initial matter, I'd say our capital markets have been the strongest and best, I think in the world for a long time, and it's the US is the place people want to come to invest, It's the place they want to come to build their companies. And that's one of the reasons that I was excited about being at the Commission as a commissioner, because I think it's such a treasure that the United States has, and it's a treasure that we have to shepherd and continue to
care for. And that means we have to always be thinking about modernizing our rules, making sure that they're working the way they should, and also be thinking of ways to encourage more people to participate in the capital markets. In the US, both as consumers of capital and as investors in capital, And so that's really the driving thing
that we're thinking of. How can we make our capital markets more robust, How can we make sure that they're more attractive for people, And that means getting the balance right of having regulations that give people the confidence to enter into those markets, knowing that they're going to get the disclosure that they that they need to understand what they're investing in, but also knowing that there'll be the freedom that they have to invest and that the barriers
to entry aren't so high that we're stuck with the same incumbents fifty years from now that we have today. So making sure that there's a vibrancy and dynamic entry and exit from the markets. So that's something that we're thinking about all the time. And I think if the SEC doesn't have that at the forefront of our minds, preserving, protecting, and fostering the capital markets, then we're not doing our job. And so I expect we'll just double down on that
in coming years. Part of that means that we can't do what we did in recent years, which is just throw bunches of rules out there and sort of suggests that there are going to be massive changes across the board. We have to do things without adequate notice and comment. We have to do things in a way that's deliberate
and careful and invites participation. We have to think about some fundamental rules that maybe haven't been modernized and need to be so it'll be a difficult job, but again worth very worthwhile to protect these capital markets, which I really do think are the end view of the world.
What's an example of something that needs to be modernized.
Well, I mean I think about rules like transfer agent rules. I think those could be modernized. And I think we should be continuously looking at rules around paper delivery versus electronic delivery. And that may seem trivial, but I think we need to be on top of how investors want communications to come to them, and it's not a matter of just getting an email versus getting something in the mail.
They should be getting information in an interactive format so that if they want to dive deeper, it's easy for them to do that. And I think a lot of financial firms are thinking about disclosure that way. But because our rules are sort of centered around everything being in paper, it hasn't allowed for that dynamic innovation in the way investors receive and process information. So that's talk about boring.
That may sound a little bit boring, but I think that's a really exciting avenue for potential positive change.
You're about a month away from the end of your term. What do you want your legacy at the SEC to be?
Well, you know, this is an agency that I think is a wonderful agency. And the thing that makes it wonderful is it's not about one person. It's about an amazing set of employees who are very dedicated to fostering
capital markets, protecting investors, facilitating capital formation. And so I hope that the legacy of me as a commissioner is just that I've helped to shepherd that agency and that it's not you know, people are able to look at the SEC and see it as a regulator that does get that balance right that we were just talking about.
Can I ask you've seen so many tickers? Yeah, and this is a question we often ask if like people have a favorite ticker. I'm assuming that you're not going to be able to answer any answer that, So can I ask, do you ever has there ever been a ticker ETF ticker that made you chuckle.
Yes, but I cannot answer which one is my favorite.
Actually, let me ask you this.
Tickers aren't you don't control those?
Correct?
Like tickers are basically you follow with the exchange. But that's like you just deal the fund.
If we controlled the tickers, they would all be like fund four seven five three.
Like in China, just numbers. Yeah, yeah, so no, we.
Do not control the tickers.
All right, Commissioner, thank you so much for your time.
It's been fun to be with you all.
Thank you, thank you. Thanks for listening to Trillions. Until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you'd like to listen. We'd love to hear from you. Hit us up on social I'm at Joel Webber Show, He's at Eric Paulchina's Trillions is produced by Magnus Hendrickson Special thanks to Rachel Lewis Christy for protection help on this episode.
Brendan Newman is our executive producer. Sage Bowman is the head of Bloomberg Podcasts.