Booking Trains. I'm Joel Webber and.
I'm Eric palchunas Eric.
Last week we got to do a really great interview at the Bloomberg Intelligence ETF In Depth event where we brought back one of our pandemic interviews, like very early in the pandemic and talked to an SEC commissioner named Hester Purse.
Yeah.
No, she's been a guest on Trillions before a couple of years ago.
During the pandemic. We were in our closets.
Yes, and she's great. She's very open, you know, very open for a SC commissioner, and I thought it was a good way to end our event, which by the way, the Index team and the BSKT team also kind of sponsored the event. But it was a great event, full house. We had two hundred fifty people there. It's the eighth time we've done that event. And Trillions live recording closed the event. So when you when you hear what you're about to hear, just know this is in front of
a live audience, which you can tell. I think you you. She kind of cracked people up a couple of times.
She's funny, she's got a good funny h and she joined remote from Washington, d C. And we're also joined by Katie Gryfeld ETF reporter with Bloomberg News, this time on Trillions Live with Hester purs.
All right, the grand Finale, hopefully we deliver. Uh So, this is a special situation here. We are going to record a live episode of Trillions. So let me bring up my co host, Joe Weber of Trillions and Katie Greyfeld, who I co host ETFIQ with, but she's on Trillions all the time. Anyway, let's bring them up and we have a great interview plan for you. And this is live, so let's keep the heckling limited, especially that guy over there.
Why don't you go here? And then we'll put her over there. Well, we only do this on special occasions where we do a live episode of Trillions. Usually for the six years that Eric and I have been doing this, we've been in studios for a lot of the time. We've been in our closet or I guess my closet. I've been in my closet.
You been in my closet. But he looks like the Blair Witch Project movie, where is like it just is really it's creepy.
Because that was the pandemic obviously, and we were recording from home. That's not normal. We're back in the studio mostly Katie Greifeld's often with us. It's cool that Hester Purse is here today, though, because that was an episode very very early in the pandemic when we weren't quite sure what was going on in the world. And the world's changed and we're sort of back to normal now and we're going to talk to her about all things SEC.
So let's let's bring her out SEC. Commissioner Hester Purse.
There you go, Hi.
I think she can see only us, but yeah, there's a big crowd here, so there you go.
High Hester, I can see only you, but I'm sure I'll be able to hear.
The Okay, So, Hester, The question that I asked you at the beginning of our interview with you last time was are you baking banana bread or sour dough? Because it was that point in the pandemic we were talking like late May one, and you replied that banana bread with chocolate chips is the only way to bake banana bread. So I'm curious, what are you baking now?
This week? It was ginger snaps.
Wow, there you go. What's next week going to be?
Next week?
Because I'm going to be trying to put off doing work. There will be bread, cookies, you name it.
Okay, that's great, all right.
It's my procrastinations. Cool.
I thought you guys were staying late to approve all the spot bit hoityt filings.
Yeah. Nice, nice try there.
Okay, So let's just keep it going on bitcoin because we have to ask who's going to be the first ETF to get approved?
All right, So.
Before I get in to get tricked into answering any questions, I'm going to tell you that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners.
And as you might guess, I'm not going to answer that question.
Okay, Okay, I'll try. We're all going to make make attempts here. I want to go over this. It's been ten years since the Winklevoss followed the ETF. You put out rebuttals over the years that you thought this should happen. I totally agreed with you. We're now at a point where it looks like, because of the Greyscale ruling, that something's happening. We've seen filings come back amended. We've seen meetings where they publicly show that, oh, black Rock and
other issuers met with the Trading Commission's division. It just seems like all signs are kind of pointing that direction. Would you agree or is there something else we should look for? Do you think this kind of engagement is good for people who are looking to are hoping that these do hit the market at some point?
I really am the wrong person to ask, because, as you noted, I thought that we should have approved one of these things over five years ago. So the fact that we haven't done it yet is a mystery to me. And trying to read the tea leaves is probably just as hard for me. We're almost as hard for me as it is for all of you.
And I guess as we watch this evolve, and really we've really been on Bitcoin ETF watch, as Eric said, for the past decade, but especially for the past six months after that Blackrock refiling. Would you say at this point that the ETF ecosystem is ready, and more importantly, is the crypto ecosystem ready to handle this?
I mean, I thought it was ready five years ago, so I don't think I think if anything that the system is more ready. We have experienced with foreign jurisdictions having tried similar things. We have experienced with products that are not spot products but futures products. So yes, I mean we're I think we have a lot of the things in place that need to be in place, even more than they were five years ago.
And when we talk about this Bitcoin ETF, part of it is the ETF vehicle. And I guess is was your confidence back then partially rooted in the fact that the ETF vehicle is robust and had a track record of being able to put all kinds of stuff in it and simply, you know, use the power of arbitrage to keep the price close to the nave And did that track record factor into that?
Yeah, I mean, I think that's absolutely right. ETFs have shown themselves to be a really helpful part of the market and a helpful way of bringing prices. You know, as you said, it's an arbitrage mechanism allows people a way to express their views about the value of things, and I think that could be very useful in this market. I should say that the facts and circumstances, of course,
will matter any any application for anything. We're considering we're always going to be looking at the specific facts and circumstances, but you know, in general, this is we're very familiar with exchange traded products. We're now very familiar with the underlying bitcoin.
So it seems to me that.
The reasons that I thought five years ago are still there today. But again, talk to my colleagues, because I've been an outlier.
Okay, so to get comfortable with that underlying bitcoin. How much bitcoin did the SEC have to acquire?
Yeah, I think that you might want to talk to other parts of the government that have acquired bitcoin through through court actions.
Through those It's true that I get the US government has acquired a bit of a bitcoin through some other means. I'm curious though about this Pandora's box effects that this opens up. Were you worried about that before five years ago? As you mentioned, Is that still a concern among your other commissioners? This what kind of response the fact that you know, you open something up, you authorize approval for it, but then we're going to have a whole other world of crypto knocking on your door.
Look, you know, people can build products, Whether people will come and buy them is another question, And I trust that people who build products and spend a lot of money doing it are going to think about whether there's a market for what they're building.
That's really not our it's not our job. Our job is to.
Look at the rules and to look to see whether the products satisfy those rules. When I looked at at the prior exchange traded product that we consider bitcoin exchange traded products, I said, well, it looks to me very similar to some of these other products we've approved, so why not approve it.
That doesn't mean that people.
Will necessarily come and buy it, and so I think I don't really worry about that because I think people.
Have market incentives to decide which products to bring.
To market and hester in this process.
It's been pretty amazing to just watch how much hype there has been over even routine paperwork refilings, et cetera.
You will see the price of bitcoin pop occasionally when someone refiles something, and it seems like what's really in the zeitgeist right now is there's been a lot of chatter about whether the SEC is going to give its blessing to in kind redemptions or whether they're going to require cash redemptions for spot bitcoin ETFs, the sort of conversation there being that the SEC wouldn't want broker dealers to actually be handling bitcoin itself, and for that reason maybe that they would FA for cash.
Can you bring us into any of that thinking, No.
I mean again, I really can't say where the conversations are. I think people have been discussing memos that they've seen in.
The file and what the filings look like.
And that's normal as people are waiting to figure out whether or not the approvals will happen, but what they'll ultimately look like. I can't speculate on that. I can't speculate on whether it'll be cash or in time.
And I was curious, as Katie mentioned, like someone updates in nineteen before these filings have very wonky names, and the thing blows up on Twitter, everybody is like getting excited, actually moves the price. Again, we're talking about these filings and the process. Do you guys see all this going on or you kind of shielded from it? And is
it I mean, what is it unusual? I mean, I think it's unusual that just these really I gotta be honest, I really never cared that much about s ones I mean, until the ETF was sent to us and we added the DS page, I didn't really care. But over ten years, these little tiny changes in filings are being like comb through and it's become such an almost like pastime for the past year. Yeah, do you guys watch this?
Do you see it?
Are you like? What do you think of it?
Well, I mean I've certainly seen that.
I've listened to a lot of crypto podcasts, and I'm on Twitter, so I do, of course their X so I do, of course.
See see that.
I think, you know, it reminds me of how unfortunate it is that regulation ends up driving so much of what happens, and speculation about regulation ends up.
Driving what happens.
I really do long for the day when crypto podcasts don't spend forty percent of their time talking about regulations.
Which podcasts.
Katie asked a question about other than trillions, which other which podcasts.
Do you listen to?
The list is too long.
To We're low on that list. So there's this tension that I since between you and some other commissioners about approval, and I'm just I'm curious what shortcomings has this process revealed to you? Like you mentioned you've been a fan of this idea for five years, So do you feel like there should be a change to how the SEC operates in this space.
I mean, look, the commission structure is one that I really like, and I think it's good to have a variety of perspectives, So that's not something I'm.
Trying to change. What I do think the SEC.
Needs to change is its attitude towards all things crypto and blockchain. I mean, it really has gotten to be to me a little bit ridiculous that we take a position and that the moment something involves crypto or blockchain, we start applying standards that are different. Is it fair
that we that we scrutinize things. Absolutely, I mean that's our job, and I think we all know that there's a lot of there are a lot of things that have happened in the name of crypto and blockchain that have been basically theft, and so there is certainly a role for the SEC and in watching out on these things and making sure that people are disclosing the risks properly and so forth. But we do owe it to people to apply the same standard to these products as we do to others.
How persuasive are your ginger snap cookies and getting people on the commission to change in their minds.
Well, I guess we'll see. I mean, I just made them this week.
So wait, if we see approval, we can link that cause and effect. Okay, you guys have any more Bitcoin questions?
Well, there's one more I did just want to ask, which came from from you, which is it seems like there's a lot of mystique within the SEC about how these conversations go down and physically there's actually like.
Different floor tenth floor.
Yeah, yeah, you've heard this thing about I don't know, is this something you guys say, like someone told me, Oh, it's a tenth floor issue now, and what goes on on the tenth floor.
Well, I'm on the tenth floor right now, I recording trillions podcast.
But yeah, I mean the building is set up so that the commissioners are on the tenth floor, and so you do hear that tenth floor decisions. And you know, I think the staff is always providing advice to us and recommendations, but I do like to highlight that to people that ultimately, at the end of the day, it's the five of us that make the decisions, and so you know you can do the math. You need to get three of the five in order to get decisions made.
So I do have to be a better baker and figure out what a few of my fellow commissioners what kind of cookies they like.
All right, before we move on from the crypto conversation, I do have one more question, and it kind of goes back to what Joel was asking about when it comes to the Pandora's box, and if we do get spot bitcoin ETF approval, is it too simplistic to think that spot ether will follow after that whatever other coin is in vogue right now?
Or what are you thinking about that?
Again, if you're trying to read tea leaves, you should talk to my colleagues because I have been an outlier on many crypto related issues for a long time, and so I don't think I'm the best one for you to talk to you about those kinds of things.
Okay, we're done the bitcoin, so let's all take a exhale now.
All right, let's move on. We have other good topics. Don't worry.
I was lucky enough to speak at the Division of Investment Management earlier this year, you had your first ever investment conference, and one of the topics I went the whole day and listened to other people's and this idea of like black Rock and Van Guard and how they vote and whether they're voting to ESG or not ESG.
Enough.
It came up a lot in this event, and I think it was Dalia Blasts, who used to be the commissioner, had said at one point, well, if they would just let people vote their shares, this would sort of maybe the marketplace would decide this because you know the size of black Rock and Vanguard. If you look at any stock, they're number one or number two. They own fifteen percent of every company in America, and this is something most people can like understand. Wait, we don't want them having
that much power. They now have proxy programs to allow their investors to have some choice in the voting. Is this an issue that the SEC is looking at. Does the proxy voting programs kind of easier concerns or is it just the nothing burger that is really more of just the media.
Issue without talking about any particular asset manager. I think it really is important to be pretty precise about how we think about funds and asset managers. So the asset managers, although they do many of the large asset managers have a lot of money under management, they don't actually own anything.
The ownership is at the fund level, right.
The funds own the assets and then people own the funds. So you have shareholders who own the funds. But the fund is itself a separate entity with its own objectives, and its shares ought to be voted or not voted in accordance with those objectives. So if you're buying a passive index fund, I would argue that you're not expecting an activist voting and engagement strategy unless you're being told
specifically that that's what you're getting. So if an asset manager wants to sell a fund that's a passive fund, passive index fund, but involves an act development in engaging with companies and voting and otherwise, then that's something that should be very clear. So when we talk about passing down a vote through to the shareholders of a fund, the vote actually belongs to the fund, not to the shareholders, and so I think that we have to be careful about what those mechanisms look like too.
Again, an asset manager can do what it.
Wants as long as it tells that the people who are buying the fund. If it says we're going to vote the shares in proportion to how shareholders of the fund say they want them voted, you know, as long as people know ahead of time. But I think it really is important to remember that the fund is its own entity, with its own objectives, which might clash with the objectives of the asset manager and with the objectives of shareholders.
In that fund.
I'm curious as we approach sort of the end of the year here has to we at Bloomberg News tend to do a lot of stories that are pitched toward the year ahead, and I'm just curious, like, what is your sleeper priority as you look in to next year.
Well, the SEC has a very busy agenda, and the chair sets the agenda. As chair, he gets that prerogative. I personally would if I were setting the agenda, would be working on some different things. I think Capital Formation has not gotten enough attention. I think there's some bread and butter, sort of boring kind of rules that need some attention to. I'd love us to take on transfer agent rulemaking as an example of that, so I think
there are areas we could be spending our time. I think it's likely that we'll be spending our time on the regulatory agenda that the Chair has set out.
Well, speaking of boring things that maybe very exciting to the people in this room, I want to talk about share classes specifically. Vanguard had that patent where it could issue its ETFs as a share class of its mutual funds. That patent has since expired, and you've seen the likes of Dimensional. I think Fidelity as well has applied for exemptive relief to also do that with its mutual funds. Where does that fall on the priority list if at all?
Yeah, I mean I certainly wasn't surprised to see those exemptive applications come in.
I think it is important to remember that there's a.
Process that they have to go through, and so that process is actually run at the staff level. A lot of the work is done at the staff level, and so it's kind of running in parallel to our rulemaking. But again, no sense of timing. I can't give you a sense of timing on that.
Well, beyond timing, can you talk a little bit about some of the potential issues here? The potential discussion points because speaking it over with some of the issuers involved and also people within the industry, it's been said that one of the hang ups is it's unclear what benefits this would actually mean for the ETF holders. Hoping you can share some thinking around that.
Yeah, I mean, I think it's too early for me to say what those discussions are ongoing now, So it's too early for me to say sort of where the issues will be. The staff is engaging with each of
the applicants on those kinds of issues. I mean, it's a little you know this is it can be a little frustrating sometimes the exemptive application process because there can be one fun complex that has particular relief and other fun complexes are lining up to get it, and that process then allows us over time to come up with conditions that we might use to craft a rule, which is what happened when we came out with sixty eleven. It took a lot of years, but we finally came
out with an ETF fool that had conditions. This wasn't part of that, So that's why they all have to go through the exemptive application process for discussion.
Application by application.
Hester I don't know if you're picking up on it, but we don't do this live very often. So we're trying to communicate with each other about who's next. And I'm going to bring in like baseball signals soon so that you know, we can get reads on each other so that we know, sorry, no, it's okay. We're just trying to figure it out as we go. Yeah, it's
the strong strong. But I think you said capital allocation would be a sleeper priority verse could you could you just talk through what that would look like if you got to.
Capital formation, I say, location, I don't want us to be doing capital allocation. I want us to be doing rules that support capital formation.
Okay, so tell us more about that.
What if you if there were more rules.
To that effect, what would they look like?
So I think one area we need to think about is small businesses. Do they have the tools that they need to raise capital? Are there things that we could do around finders? For example, could we do a microoferating exemption that would be a really stripped down exemption. And then thinking along the spectrum right as companies get bigger, One question that a lot of people are asking is why aren't more companies going public, and I think that's
a conversation we really need to be having. It is concerning to me that so much of the growth is happening in the private markets.
Now.
My answer to that is not to make the private markets look like the public markets. It's to say, what are we doing wrong on the public market side.
There are a lot of factors that work here, of course, but I think we're doing some.
Things wrong on the public market side that make it less attractive to be public than it should be.
And so I'd like us to spend some time working on that.
And when it comes to the biggest users of ETFs or advisors, they're about seventy percent ish of all the ETF assets. When you look at that market, I think like sixty percent are fiduciary fee based, maybe thirty percent sty'll get a commission from the mutual fund. Is there anything in that intermediary world that you guys look at or that you think might need some regulation.
Well, I mean, we have reg best interest and then we put out at the same time we put that out, we put a fiduciary interpretation out. So I think we have those out there. I think one thing I'm quite concerned about is making sure that advice is available to everyone at you know, even people who don't have a lot of money to invest.
And that's a.
Trend that I've seen that troubles me somewhat, which is that everyone wants to serve ultra high net worth investors, and the investors with the least to invest, who may most need not most, but certainly may may need assistance and want assistance, can't find it because it's the regulatory risks are too high and the rewards are too low. So we need to make sure that our regulatory regime is not standing in the way of offering services to
people all across the wealth spectrum. And I think part of that, part of what I'm concerned about, is we need to not stand in the way of financial professionals using technology to make their advice cheaper to provide. And that's a direction I'm not sure this commission is heading in. I think we're actually we're actually going the other way and making it harder to use technology.
Okay, on that front, when it comes to technology, I feel as though the issuers, the et officiers can't say anything and people will Index providers seem to be able to say anything they want. Advisors have a lot of freedom too, but when it comes to like their ticker, they can't even defend themselves. Is there any plans to
loosen that up? Given that social media and the Internet has really opened up the floodgates and letting etffiiciers, you know, sort of have a little more freedom to talk about their funds, defend their products, you know, give more information.
Yeah.
I mean, that's an interesting suggestion, and it's one I'd love to talk to you little bit more about. I think that, I know, the whole nature of communications has changed a lot since a lot of our rules were written, and I think it does make sense to think about.
Whether we need to refresh some of those rules.
I just wanted to talk about complex products. If we rewind about two years ago, I think it was October twenty twenty one, Gary Gensler came out and said that the SEC was looking into new rules for coimplex products. There's still question marks about what exactly is a complex product. But basically since then, I feel like we haven't heard.
About complex products or.
Any potential tightened rules since then. What is the status the thinking around that?
Well, again, I can't speak for other commissioners, but what I can say is that we should be thinking about again allowing people to use technology to better communicate with investors, and to communicate in a way that they not only absorb the information, but they really think about it, that it prompts them to ask the right kinds of questions and things like that.
But what I don't want us to do, and what I don't think.
We have the authority to do, is to try to override people's decisions. Right, people have the right to invest their money the way they want. And so when I look at these discussions around complex products, it often looks to me as if people are saying they want to engage in merit regulation, they want to start picking and choosing what investments are right for people. And that's just not a role that we at the SEC are well
situated to play. And I think it would be quite a departure from our role, which traditionally has been, Look, you provide the disclosure, and you let investors and their financial professionals make decisions about what's best for a particular investor.
Next year, sensing a theme here, I've thought next year election here in the US there's a chance new administration, there's a chance that you might be the next SEC commissioner. If your chair, what would we expect from you?
Look, I think that we need to work with the situation we're in now, and my goal at this point is to try to convince my colleagues that we ought to pivot from some of the agenda we're on and try to try to work on a more what I would describe as a more productive agenda that again focuses on capital formation. I would like, I mean, and not to bring up the topic that I know we said was closed out. I would like us also to think about how we could approach crypto regulation in a way
that made sense. So that's another item that I think should be on.
Okay, Well, I'm so glad you did that because you let me come back to it now. And like in good stories, you take the beginning and you go back to it at the end. So here I am at the end.
What do we not ask you.
About a bitcoin at ETF that we should have asked you about?
Oh?
I think you asked me and every one when everyone is going to be approved, and I can't tell you that there.
Is nothing else to ask Okay, actually I have one more question on crypto ETFs.
Sorry to bring us back there again, but.
It's been interesting, you know, seeing the memos coming out from the meetings that the issuers are having with the SEC and Eric.
This is a point that you've raised.
It's interesting that market makers haven't been in those meetings.
Why haven't they?
I can't answer that question.
I don't know why why they haven't been in meetings, and maybe they have been, but I just can't answer that question.
Well, when when they're ready to be in the meetings, we know that there's ginger snaps. That's true, Hester Verse, thank you so much for joining us at ETF's in Depth and as well on the on our ETF Trillions podcast.
Thanks for having me.
Thank you, sure.
Ah, you made it Hester, not you. You don't get the cocktails, but it looks like they have cocktails in the ten source.
You're good.
I'm sure they probably need them up there. You guys enjoy us join us for some cocktails in their networking for the next hour, and thank you for attending and making it the whole time.
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. We're on Twitter, I'm at Joel Webber Show. He's at Eric Balchunis. This episode of Trillions was produced by Magnus and Rickson Bye