Hello, and welcome to the Votes and Verdicts podcast, hosted by the litigation and policy team at Bloomberg Intelligence. Bloomberg Intelligence is the investment research platform on the Bloomberg Terminal, with five hundred analysts and strategists working across the globe and focused on all major markets. Our coverage includes over two thousand equities and credits, and we have outlooks on more than ninety industries and one hundred market indices, currencies
and commodities. This podcast series examines the intersection of business policy and law. I'm Elliott Stein, an analysts with Bloomberg Intelligence covering financials litigation, and.
My name is Nathan Dean, and I'm an analyst with Bloomberg Intelligence covering financials policy.
So today is a very special episode because we are recording this almost exactly twelve months since we did our last episode with our very esteemed guest, Dan Gallagher, Chief Legal Compliance and Corporate Affairs Officer of Robinhood Markets. Dan, Welcome back to the Votes and Verdicts podcast.
Hey guys, thanks for having me. I'm really excited to be back. We had a lot of fun last time.
Yeah, agreed, and we're looking forward to doing this episode as well.
So for our.
Listeners, I definitely recommend that you go back and listen to our last episode with Dan from twenty twenty four. But and in that episode we went over his credentials extensively. But given Dan's impressive background, I think it's just worth highlighting a few of those credentials again. Prior to joining Robin Hood, Dan was partner and deputy chair of the
securities department at the law firm Wilmer Hale. He also served as a Commissioner of the US Securities and Exchange Commission the SEC from twenty eleven to twenty fifteen, and he held several other positions at the SEC on the SEC staff prior to being an appointed commissioner. Dan's previous experience also includes serving as the chief legal officer at Mylin, a leading global pharmaceutical company, and as a president of a financial services consulting firm.
All right, Dan, let's bring you in.
Normally, we always ask our guests with the first question to tell us about their work history. But since we did that last time, and since I sort of just went over that in brief, why don't we sort of focus on the last twelve months since you were last on. Obviously, we're we were just passed the six month mark of
the second Trump administration. So maybe to start off, you can give us an update on recent developments at robin Hood over the past year, and you know, maybe more specifically, how what has changed for the company, what's better, what's worse over the last six months under the Trump administration.
Look, I couldn't be more excited to come and give you guys the update because a year ago, when when we were talking about the regulatory policy issues that we were dealing with at Robinhood, it was a pretty bleak, right. We had I think, as I told you at the time, five federal rules, all all aimed at our business model like scud missiles ready to blow us up. We had
SEC enforcement all over us in fin reinforcement. I mean, it just was a very hostile environment in which to you know, provide financial services generally, but to be in at based brokerage and to be robin Hood. Quite frankly, there was you know, I think there was an actual prejudice against Robinhood by the prior administration and the agencies
implementing their policies. And you know, I don't think it was appropriate, but I think there was one, and like Presto Changoh, since November, things could not be any more different. You know. We we have a very very knowledgeable and business friendly SEC chairman and Paul Atkins a good friend of mine, my my former boss. Uh, that's certainly one of my mentors.
You know.
I worked for him when he was a commissioner. I worked for him at Potoma Global Partners. And he understands the issues facing brokerage firms and other players in the in the capital markets. He's been living them for decades and and you know, very knowledgeable, but also you know, a free market guy and and not somebody who thinks that regulation is always the answer to any problem. So I you know, it's a an absolute sea change in the regulatory environment. I joke with my team here at
robin Hood. You know, I have the I have the government affairs team, I have external affairs. I'm legal, you know, I've got corporate compliance and I you know, I said to these teams coming into January, guys, girls like we need to start thinking offensively. We need to start going front foot. You know, we got very very good at the defense at the back foot and that's great, and you know we're still alive. We weathered this storm largely intact,
which is amazing. But now we have to start thinking, here's an environment in which we can actually help Robinhood progress and help Robinhood customers. What are the types of things we need to be doing to put some WS on the board, not just to defend, but to put some WS on the board. And it's just been really fun to use your brain in a different way.
And what are some of the areas where you could see robin Hood sort of going on the offensive?
Like you mentioned, there's a couple buckets see for me. One obviously is crypto. As you guys know and I think we talked about last year, we ran a very
conservative crypto platform during the Biden administration. We didn't list four hundred coins, we didn't do staking, we didn't do lending, we didn't do all these things that our competitors in the crypto space were doing, all with a mind towards being respectful of what the then leadership at the SEC was saying, the rules are you know, and Gary was basically saying everything's a security and come in register. We disagreed on the everything as a security, but we did
try to come in and register. We didn't do anything flagrantly, you know, in violation of the securities laws. We actually pretended like we were regulated. We operated our crypto entity like it was a broker. You know, we did tax reporting, we did fee disclosure to customers. We tried to create best execution in a world in which you know there's no MBBO. I mean, very hard thing to do, and
we think that was all good for the customers. Could we have made more money, yeah, if we had listed more coins and done other allowed other features that the competitors were doing. We didn't, and you know, looking back on it, I think it was the right tact. And you know, we came out, we got a way l letter, we never got sued by the SEC. And now of course you have you know, Congress working on on crypto, and so we're working with Congress, we're working with the SEC.
You know, we've been able to expand the platform with some clarity coming from the SEC on things like meaning coins and staking. But there's more to do. So so crypto is a big one for us. I would say, you know, market structure. If you remember right after Game Stop, this whole notion that payment for order flow is somehow
bad and must be. I mean basically the last SEC was going to kill it with some of the rule proposals they came out with, you know, recognizing that it's not bad and it's you know, to the extent that people think it's a conflict or the other issues with it. What can we do, you know, proactively to alleviate any of those concerns. What kind of disclosure or other things
can we do with payment for order flow? You know, can we work on And so those were thinking about that, and then you know, we're a public company two, uh, a big one at this point. You know, the companies really had a nice run and and you know we we have issues like other US public companies. It's hard to be a public company here. And you know Chairman Atkins has been talking about alleviating some of the burdens of being public, trying to get the IPO market started,
things like that. All of that is good for us, right if we can you know, streamline some disclosure requirements and uh, you know, get more clarity on you know, accounting rules and other things. Obviously, we are and will remain a public company. It's good for us if there's more I pos right, we're not right now, we're not an EC firm, so we're not you know, taking private interests in private companies at this point.
Uh.
You know, for us, it's good if there's more stocks trading on the platform, and so we're very interested in that whole work stream on, you know, streamlining the idea of being a public company.
You know, I'd love to come back and talk about crypto, and I think we will in a minute, But first I want to talk about tokenization because you know, we've seen, like you just mentioned, we've seen a tremendous difference between the Gary Gensler come in and registered mantra to what we're seeing under the chair, you know, you know, Chair Paul Ekins, And there was a lot of discussion of tokenization, and you know, when I was reading about the SEC's
Crypto Task Force and Commissioner Purs's statement and tokenization, I just thought, this is something that I think is probably gonna be one of the biggest issues of twenty twenty five released for the second half. So can we first start off, can you explain to our listeners how tokenization of securities works and how is Robinhood thinking about tokenization?
So, you know, unfortunately right now you don't see a lot of activity in the US as far as tokenizing stock trading. We certainly don't have it for public companies what we call the NMS equities, right, the NASDAC New York List in stocks. I know there's some limited amount of private company based blockchain trading going on, but it's still very nationent tokenization to me, it takes two flavors, right.
It's sort of the current state, which is the idea that you could trade a token that's basically a mirror reflection of the underlying equity, right, that gives you the right, you know, the economic interests in that underlying equity. But it's a separate instrument, you know, kind of a derivative kind of not because it's really got the same features. But it trades on a blockchain, not in the traditional equity market structure, right, not on an exchange with DTC
clearing it and brokers as intermediaries. That you know, there's a lot of discussion about that, and you know, the token versus the security, what rights do you have and other things like that. You know, under the UCC there's there's all sorts of debate. That's where a lot of
talk has happened. Now. I think the end state canon should be where the token is the security, and that where companies are issuing securities, whether they be bonds or equities, into the blockchain, and that there's a recognition under state law. By the way, fun fact because I know you got a lot of lawyers listening, right the Delaware code. Fun fact that the Delaware Corporate Code was amended in twenty seventeen to allow recognition of tokens basically as equity interests
in Delaware corporations. Not a lot of use for it yet, because you can do an issuance right it. It assumes that a company's going to do an issuance into the blockchain, but the secondary market trading side of it hasn't yet been figured out. And that's the real debate that Nathan's teed up here. So you can imagine a world though where you know, Texas, I don't know if they've on it yet, but they'll certainly if they haven't, they'll do
it soon. Right where all the states are recognizing a different form and it's kind of like amending your the UCC, right you're just saying, yeah, that that's token. Is your interests? Is your security interest in that in that company, that's your equity position. We're not there yet. I do think that's where we should get to. So in the in the current atmosphere, we're talking about, okay, tokens that represent interests in underlying securities we haven't seen because of the
existing rules. A lot of innovation in the space. Another fun fact I know you guys, I'll give you another one of rapid fire fund facts. Uh, there's a company called Paxos out there. I don't know if you've seen Paxos, great innovative company, amazing CEO Chad is terrific. They came in when Jay Clayton was SEC chairman and actually got a no action letter that allowed them on a very
limited pilot basis to trade NMS equities in a blockchain. Now, it was very complicated because they had to kind of reverse the you know, or mirror image the trade into the DTC at the end of the day, and there was just a I think ten or so equities and but it was kind of cool. And if you read that no action letter, which is up on the SEC website, Paxos did this amazing job of laying out all the issues they faced and trying to provide that functionality and
then requesting the relief which they got. And you know, when you read that list of issues to me, that just lays out the current impediments to blockchain based tokenized trading of equities today. You have to there's a requirement that DTC clear these equities. You've got transfer agent issues, you've got registration issues. Right. If you have a blockchain that's just continually processing transactions, there's there's folks acting in some capacity, right, or you know there's AI acting in
some capacity in the blockchain. Are they acting like a broker? Are they acting like a transfer region? Are they acting like an exchange? Are they acting like a clearing agency? And if so, do they have to be registered with
the SEC? Current law would tell you yes, but it would also tell you why this is silly, right, Like some of these registration categories become either redundant or just sort of superfluous in a blockchain based environment, and so that type of relief is going to be needed from
the SEC. Right, we need relief from this requirement to go clear and settle at DTC or at least some relief where DTC is a node in the blockchain and you know, validating transactions, something where you know, the government gets comfortable that the protections that come with that registration category are still being provided in the blockchain, and we're not there yet. You know.
I'm just amazed at the fact that somebody in Delaware in twenty seventeen had to force Sight to put that into the code. And if that person ever listens, I hope they decided to buy bitcoin, because it just amazes me that just that many years ago they were able.
To do that. And full props on that one. You know. A sub fun fact to the maiden fun fact is that Jack Markell was the governor of Delaware at the time and just an amazingly great guy. Actually sat on a board with him of a company, a blockchain company. He later became the ambassador to I don't know if it's to the a Vatican or to Italy. I think it might have been to Italy under Biden, but he
was Italy, it was Italy. Yeah, I mean, just an amazing guy, great guy, you know, just a fun person, generally super smart, but had that foresight because were almost ten years later and that provision sitting there. So I just.
Got technically it was Italy and San Marino. Oh we should have him on the podcast.
I love that. Yeah, you should get Dak Markel. He'd be a fun one.
So just one follow up on the tokenization. You you listed out a lot of things like disclosures and compliance and you know, things that he certainly excites Elliott and I, but you know, for certain other you know folks out there, you know, it may be more of a political handcuff or more of a detriment towards innovation.
Do you think as the SEC embarks.
With this tokenization work that their views, maybe it's a conditioner or person's view, that tokenization securities are still securities and so forth like that. Are they going to stave off any of the perceived benefits or do you think that the compliance and disclosure aspects will actually just be able to foster innovation.
I think the latter, I mean, and it's funny. I talked to Commissioner Purse after she put her statement out and I said, I agree with everything you said. I mean, this should be fully regulated, right and and it should be you know, Blessed by the SEC. There was this meme out there that you know, the crypto industry was coming in and asking the SEC, you know, basically, let us hokenize stock trading and don't apply any of the
rules to us. Now, if any of them were dumb enough to actually ask for that, they warranted her notice about tokens and they shouldn't be in DC. If you ask me, we would never do that because we're realists. And also, you know, as I mentioned that a lot of protections for customers come with these impediments to tokenization, right the registration categories and the requirement to clear and settle to etc. Is born of really good rationale. It's that you want to know that where your securities are.
You want, you know, not to have to trust some blockchain or some cold wallet or something else that you can't verify. But how do we replicate that or how do we give some comfort to the government and therefore to customers. But you know, what we come up with on a blockchain is just as good, or quite frankly, it's going to be even better. That's the challenge. And I think we can get there, I really do, and
I think we have to get there quickly. I mean, you know, I'm acting like we have three and a half years here because we've been living you know, every four years, we have a different economy and a different I mean, it's just crazy. So I have to assume the worst, you know, that we'll get a highly you know, a repeat of the Biden administration here in twenty eight. So let's get something together. Let's do it quickly, let's
lock it in. While we have Paul Atkins, you know, who's a really you know, I would say, a visionary when it comes to some of this stuff. While we have hester still around, and while we have you know, folks, whether it be at Finner A, DTC elsewhere, who are really interested quite frankly and being part of this. I actually give DTC a lot of credit.
Yeah, just one last question on the tokenization. Do you see any differences between you know, trying to put some sort of tory framework around tokenization of publicly issued securities versus private markets.
Yeah, they're actually pretty big differences. I think. I think eventually the public companies will just come along because it's kind of like, what's the difference you know, if I if I'm my stock is trading on ancient infrastructure now, and it's clunky and there's a two day settlement cycle. What do I a is the issue or care if it's in a more efficient blockchain, real time settlement, you know all the other benefits that come with that. So I actually think for them it's just sort of a
commoditized experience and they'll they'll be fine with it. On the private side, you have, I think each each company's idiosyncratic and in their view of this, right do they want the transparency, the liquidity, everything that comes with having
your equities, you know, being traded on a blockchain. Some do, some don't, you know, you could you know, we had recently we announced in the EU we had some tokens on SpaceX and open ai and you know, you know open Ai I would say, uh, you know, issued a public statement saying, you know, we had no part of this or whatever, and and you know I respect that, And I think, you know, for them, it's less exciting than it might be for SpaceX or some other even
smaller company to have a market, you know, a more accessible market in their equity. So we'll see. I do think I I think it will become a very good thing eventually for private companies you know right now just even even uh you know, keeping track of your holders and vesting events and all these other things. I mean, you have great services out there like Karta and others, you know, but I think and you know, even the
blockchain can do the same and more. And I know even the Kartas of the world are getting involved in blockchain initiatives and things like that. So yeah, I think this is all for the good, guys, and I think it's all for the good for customers and what we what we're coming up against though, and what you know,
we have to deal with their vested interests. Right. You have you know, major institutions in the US that that you know can't innovate quickly, that runs you know, these mainframes in buildings and you know, that operate on antiquated infrastructure that the current market structure works for them. And they're powerful and you know they they're on the boards of the important institutions. They're in Washington with with big lobbying forces. So we're gonna have to kind of overcome that.
And I think the advancement of crypto and the legitimization of crypto, which I know you guys want to talk about too in Congress is going to help us on the crypto related which is really just the blockchain innovation that we're going to have on the equities and fixed income side.
And we're going to talkbout crypto a little more, but before we get there, we'll leave the audience in suspense on that. Let's talk AI a little because yesterday, which was July twenty third, the President rolled out his AI Action Plan, which you know, to summarize, basically encourages eliminating regulations and barriers that unduly burden innovation in artificial intelligence.
And I know in March, SEC Commissioner Mark Uyada said something similar that financial regulators should take a technology neutral approach to AI, and that he was concerned about the
SEC potentially placing unnecessary barriers on artificial intelligence. I wanted to get your perspective, you know, from your seat, what do you see, as you know, barriers affecting robin Hood and your competitors and peers in the financial regulatory space, and you know, how do they affect Robinhood, how does it affect robin Hood's customer base, and what are the policy responses that you'd like to see coming from Washington to foster AI.
Yeah, great question, and you know, sort of the macro answer is that the barrier for us at robin Hood with our primary regulators right with with the SEC, with FINRA, I guess CFTC also now since I last talked to you guys, we registered in FCM with the CFTC and the States and our and now our international operations. All the rules and laws are written with human beings in mind, right and now some you could read to allow for technology or not. Some might actually speak to human actions
and regulating human actions. But you know, and we've encountered this, I mean, I would say most specifically with FINRA over the years, where the rules just have not kept pace with the advancement of technology. And I give Robert Cook over at Fenneral a lot of credit. He's on the you know, this modernization kick where they're going to modernize
the rules. I wish they had done that before they brought enforcement actions against me for you know, not not fitting their rules because the rules are from nineteen fifty. But you know, so really it's this sort of macro issue of how do we make sure if we're going to do things with AI that we used to use humans for How do we make sure the regulators get comfortable, you know, without amending their rules necessarily to say specifically
that AI can do it? But how do we get them comfortable that AI can do what humans did yesterday? They can AI can do it today? And what are the controls around that? So you know, if I was running the SEC, if I was running you know, finner A CFTC, I think I would just start from like this main thesis that we don't have to go amend every rule to say AI because once you do that, then you know the next thing comes along. Right, But you have to recognize that AI can do everything that
humans can do, probably do it better. But what we want to see as a regulator is that your AI does what you think it does right, that that you understand the code, you understand how it operates, and that the outputs are consistent with what you say the output should be. Right. So, if I'm a brokerage firm, make me have policies and procedures on AI, you know, make me write my code description in plain English so that
examiners can come in and understand what it does. Let them test outputs to see if it's actually working right, But otherwise let it, let it work like a human, have supervision of it, right, make sure that there's somebody that's going to ensure it's operating in that way that tests it. You know, have internal lot of testing whatever you want to do by way of controls. But that's it. Don't don't try to get in there and regulate AI. Right.
And a great example it's just use the investment advisory business right where you're you have a fiduciary reallylationship with your customer. You guys have seen the rise of robo advisors over the last twenty years, right, type of AI, right, I mean, you know, not not very sophisticated in the early stages. But what can that AI do that or a human do that the AI can't when it comes to recommending stocks and bonds and other you know, trading strategies.
The answer pretty soon is, you know, as AI develops, it's gonna be nothing, right, I mean, the AI theoretically should be better. It's going to take out the emotion of it and just get to the bottom line. You know, this is the best recommendation for you, like this trading strategy, and so you know, why do you have to write a whole rule set about that. The rule set today anticipates that Nathan's on the phone, you know, telling you Elliott what to do. Who cares if ahis doing it right?
And I think if we get into this mindset of, oh my god, we have to go in and have the rule for AI for advisory, it'll never happen. It'll take three years, right, and it'll be like, oh gosh, now I'm going to start trying to write a rule that tells you how to code, or that tells you what databases the AI can look at, or you know, whatever it is, and we're just going to go off, you know, off track. Instead, I think they should just do a very principles based AI can do what humans do.
We get it, have supervision, have policies and procedures, let you innovate, and let's see how it goes.
So and well, I was going to say, I know, Robin Hood in its policy position website says that you know, it envisions a regulatory environment that foster's collaboration between the industry and regulators. Are you seeing advancement in that area, especially in the last six months.
I mean, again, it's sort of night and day in the last six months. I think you heard it from you know SEC leadership in the last administration. You heard it from the White House like this fear of AI. We need to control it, we need to rein it in. We need And it wasn't sort of a focus on the positives, right And you saw this report yesterday, the
executive order from this administration. It's all largely focused on the positives and and you know, eliminating barriers to using AI and so yes, it's a much more collaborative environment. I mean, I've had great conversations directly with the senior folks at FINRA about you know, our intent to to really start rolling out a lot more AI use cases. We've got some great stuff going. We have AI c X agents, you know, doing customer service. We rolled out
AI based we call it core Tex. It's a digest that can you know, give give our customers more information about particular stocks, you know, and what's happening with them and what's moving you know, prices, things like that. I I want to get to a world in which you know, in the broker not just for advisory, but you know in the broker that we're actually making recommendations to customers using AI. The advisor that we rolled out is not
an AI based advisor. We actually have a you know, a very experienced person, Steph Guild running that who was on Wall Street, was at JP Morgan for I think a couple decades and you know, expert in wealth management. And that's sort of the value add touched there. But I do I do think more and more we're going to see a move to AI on the advisory site.
So the time has come for what we've all been waiting for. Let's go back to crypto. You know.
So we actually saw significant progress in Washington when Congress passed the Genius Act, the Stable Coin Bill, and the House passed the Clarity Act, also known as what we've been calling the.
Crypto Market Structure Bill. And you know, I'd like to say, like, so you've got the Genius Act, You've got this Clarity Act, which defines you know, what cryptocurrencies should fall in more of the securities bucket versus what falls in the commodities bucket. Gives the CFTC authority over the spot markets. But you also have the sec under chair Atkins doing some work.
You'll most likely have the CFTC under future chair Brian Quinten's doing some work just because I'm going to go out and Limbs say that Senate's going to confirm him. You know, how does Robin Hoods think about all these pieces of the puzzle and if you had your druthers, what would the best endgame scenario look like for you in the company.
Yes, so, look, I'm a genius act. We were super excited. Blad and Johan Crabat are head of Crypto. We're at the White House for the signing ceremony that they sat Blad between Chairman Atkins and Commissioner Purse. I told him, be careful what you say you're sitting with the sec. But it was a great moment I think for crypto and and for the country, you know, to legitimize stable coins and to really take a big step forward. I think for cryptover at large. So and look stable coins,
you know it got a lot of bipartisan support. I think it's gonna be like tokenization, and actually it'll be intrinsically eyed to tokenization. Once you're in the blockchain, right and you're using a stable coin to pay for your Tesla stock, and it settles instantaneously and you know, your your us DC is traded for your you know, TESLA token immediately and it's in your account and you see it.
I mean, this is this is the future, right, But we needed to legitimize stable coins first, because again, the last administration is super hostile, you know, saying that stable coins are security, stable coins are mutual funds. You know, a lot of debate about their status too, which you know, seemed a little silly to me, but but that's just what it was. Uh. Clarity is is really where the
gain is, right, Clarity. You know, creating the market structure for crypto is a huge moment and I don't think we've seen anything like this guy since Dodd Frank and derivatives quite frankly. Where Congress has decided we're going to think about a market that exists, a multi trillion dollar market, right, which we had with derivatives, which we do have with crypto, and we're going to create the market structure for it. We're going to allocate responsibility. We're going to be prescriptive
here and maybe principle there. And you know, I think it's they've made great progress with it. I think there's you know, going to be some peaks and changes obviously to it before it ever gets you know, to the President's desk for Robinhood. You know, we can pretty much operate in any environment, I would say. So we're feeling, from a business model perspective, pretty hedged with respect to wherever they come out on Clarity. We've got our you know,
CFTC registered, NFA registered at FCM. We've got our broker dealer, which is obviously you know, the biggest chunk of our business and and historical business line at robin Hood. We've got our crypto unit, which is heretofore unregistered but can be if need be. It's and it's just kind of fun when we sit back and look at you know, okay, well, if it's SEC regulated, you know, for whatever purpose the
you know, the Clarity Act. Obviously there's a strong deference to c FTC, but there's obviously a pathway for SEC registration. What can we do there, What can we do on the CFTC side, What do we do with our regulated identities? I mean, one thing though, is for sure, and this is where I think, you know, a bunch of folks in the crypto community are waking up to what regulation
actually means. You know that that even the lightest touch regulation where you you you're registered as X y Z entity uh with whatever agency, but you all of a sudden have reporting obligations, you have books and records requirements, you get examined, maybe you have some appital requirements. Whatever comes with it is a hell of a lot more
than existed today right when you have nothing. Right, So, the the idea of give me regulation, you know, which you've heard as a mantra from the community versus the reality of man, this is actually pretty tough, and there's a lot of programming that needs to be done, a lot of tech spend, and you know, hiring you know,
experienced compliance professionals, things like that. I don't think that's fully sunk in yet, but as the debate about clarity goes on, you're seeing more and more attention paid.
To that what happens if clarity doesn't pass?
You know, I hope, I gosh, I hope we don't face that. But you know, I testified after I talked to you guys. I testified in the fall last year in House Financial Services, and I laid out pretty cleanly that you know, the existing statutory authority. I just agreed with Gary Gensler when he said the existing securities laws
accommodate crypto. I disagree with that because the existing securities laws literally didn't from an infrastructure standpoint, you know, all the things we talked about with tokenization, all that, they just don't allow for it. Right, They issued disclosure pieces all this. But the existing securities laws, as modified through the use of exemptive authority at the SEC, can accommodate crypto. Right, Maybe not in a way that you'd like. Maybe you'd
prefer Congress to act. I would, given what the current Supreme Court has said about you know, major issues and other things like that, Right, I would want a little more certainty from Congress. But if the SEC used the exemptive authority that was given to it by Congress in nineteen ninety six in Ismia, right, which was I mean a brilliant stroke by Congress at the time and again hugely bipartisan, where they said, geez, things are moving fast
in markets. Let's give the SEC this exemptive authority that'll allow it to kind of with a scalpel, exempt people from certain provisions of the securities laws to accommodate new technologies, changes in the markets and the like, and people forget that. Back in ninety seven, the sec under Arthur Levitt used that authority to create Reggaets. Right. They saw these platforms that were rising and were great as far as efficiencies, and we're driving prices down, good for investors, but they
kind of were in exchange. And instead of saying you're all in exchange and putting them out of business, they came in creating Reggaets and you know, a thousand ships sailed from that and so and they cite it. I mean, it's really great. And the forward to that rule they say, Congress gave us this authority so we could accommodate new technology. So section thirty six in the thirty four, which you know is the exempt of authority from NISMIA, they could
use that. I know there's other provisions in the rest of the securities laws too that mirror that. And you go in, you carve it up and you say, okay,
let's create a rule set that accommodates crypto. Recognize that it's temporary until Congress can finally act, but get something in place where people are registered and there's some basic investor protections provided right, some level of transparency, reporting, examination, books, and records, that sort of thing should be done, could have been done, could have been done, you know, the sec could have done it last four years. We showed
them how to do it at Robinhood. When Gary said coming in register, we said, okay, here do this for us, and we will because right now we can't under the securities laws. And we came in asked for no action, relief, exemptor relief, whatever it was, and showed them where the rules don't work, and they had no interest none.
I wanted to shift topics a little bit because this is another area that's been in the news a lot, prediction markets, particularly as it relates to sports events, and how we should think about event contracts in relation to sports gambling. I know robin Hood and CALCI have both received cease and desist letters from various states such as New Jersey and Nevada, you know, concerning event contracts on sport and events, and some of the states say that
the contracts represent unauthorized sports gambling. I'm following a couple of cases where CALSI sued New Jersey and Nevada, and it'd want preliminary rulings, essentially allowing CALS to continue offering those event contracts at least for now as the litigation plays out. I think Robinhood sort of took a little bit of a different approach, and I know in a couple of instances they removed the event contracts from their
offerings related to March Madness and the Super Bowl. I'm I really am interested in and your thoughts on how we should just generally, how should we think about event contracts when it comes to sports, you know, how is it different from sports gambling. And I'm curious also why robin Hood sort of took a different approach than Cal she did by removing those contracts rather than trying to contest them in court.
Yes, so, look at the highest level, I think prediction markets are incredibly exciting. I think it's an awesome I mean, it is an asset class I just but I actually just think it's such a useful tool. You know, we ran the presidential election contract on our platform. I mean it was like spot on. I mean, I don't even know if there was any deviation from the actual results. It was so much more informative than what you'd read
in the polls. That. You know, it really just proves the power of the crowd, you know, is is very mighty. So so at a general level, I think it's it's great. But you do then get into some pretty thorny issues, right, what what should the limitations be on what those contracts can cover? Elections are one thing, and the judge in the Calcie case in d C said those are not prohibited, that those those can be you know, covered by the
CEA and and and that was the case against cal Case. Yeah, and I think that was the right decision by the court there. And you know there are proscriptions right in the wall that say you can't you know, national or you know, you couldn't have like assassination odds or things like that. That really but that's a slippery slope from a policy perspective. What's okay and what's not right? There's the main body of event contracts and prediction is pretty obvious, Right,
is the FED going to raise rates? You know, Uh, is there going to be a hurricane in the Gulf? You know in August that those sorts of things, Uh, you know, elections are another flavor. And then of course, you know, you get into sports and you know, I would say, you know, to your question, we're all about providing access to our customers to everything that is suitable for our regulated entities to offer. So on the brokerage side,
you know, it's we do the listed equities. We do three hundred bulletin board stocks that are really mostly eighty rs of big blue chip companies. We have you know, crypto, but that's a limited offering, you know, to we choose what we want to offer on the crypto side, and that's generally more liquid instruments and the like. And then on the event contract side, this is still evolving right that.
You saw Russ Benham, who's terrific by the way, you know, proposed a rule that would have prohibited you know, any types of sports e end contracts. That that rule is still, i guess technically pending. So the CFTC has kind kind of caught midstream right now. They started policymaking, they didn't conclude it. There was litigation. The litigation muddied it up a bit, and in the meantime, you know, Calshi and crypto dot Com I think and ibkr's entity have been
offering the contracts. We got our registration, you know our FCM registration and we're able to provide access to those you know, through CALSHI, through others, and you know, have decided to do it when we were threatened, you know, with by states saying hey, we think this is illegal. We've been trying to be very deferential to the states. I get it, like intellectually, practically speaking, I understand where
they're coming from. Right, you have states like New Jersey and Nevada that look at the institution of gambling in those states, right, it's critically important to those states tax revenues, I mean, the number of people employed. Like it's just a big deal. And you know, I think at Robinhood, we've decided to look, so many of our customers are interested in either sports, betting off you know, using other apps.
You know, they're there have other accounts. Maybe we you know, instead of them going off Robinhood, we could offer this here. Whether that be whether a state regulated product or a CFTC regulated product, you know, is still a bit of
an open question. But in the meantime, since the CFTC regulated product has become available, and quite frankly, you know, the courts of affirm that there's preemption we're offering it, you know, expecting that there'll be more clarity down the road, right that eventually we already have a built in circuit split you know in the court that the Supreme Court will eventually get pulled in and and weigh into it. So we're trying our best to be respectful of the
interests of the states, the Indian tribes. We're not saying, oh, geez, you have you know, oh, we totally disregard your interests here. But at the same time we're trying to balance that with what the customers want and quite frankly, if it's legal, we should be able to provide it, and in the courts of affirm.
That it is.
So it's my my pleasure to come in with the most difficult question of the day. Last year, we asked you what three pieces of music you would take on a desert island, and I think you two is the almost the immediate answer that came out, you know, from from your answer.
So I have a different question today.
Let's say that you're going to go over to your London office and you've got seven hours on a plane. What types of television or movies are you bringing with you have you seen anything recently that really is you know, you're thinking some great quality work.
You know. I've been on a little bit of like a Netflix binge thing, and I'm fortunate. I'm like, I'm coming up dry. I've seen it all right, and I and I fly you now you a lot, and so I'm kind of stuck with whatever. You go to that box collection thing on United TV, and and I made it blissfully. I've been flying to some pretty far from places, so I made it all the way through Landman two seasons on Netflix, and that was unbelievable. Billy Bob Thorton. I mean just I had no idea what to expect.
I heard from one of my colleagues, this is great. I didn't even know what it was about. And I just it's like, he's so incredible, and it was, you know, I was I think I landed in Dulles and I still had like ten minutes left of the last one. I'm like, oh god, oh god, I hope the gage's not open, you know, that sort of thing which never happens the plane. I was like, because I can't watch it home, I can't pick it back up.
You know.
I love Yellowstone and all the prequels and sequel I just think all of that is so well done. Unfortunately I've run my course on that one too. I kind of like, you know, I kind of like, you know, some of the you know, war movies or you know, that whole genre, you know, whether it be you know, some of the you know, World War two movies or other things. I always get a kick out of those, the modern, more modern ones, you know. Like I mean, I sort of got I watch American Sniper like every time.
I can't get past it. Every time I'm like, oh, maybe I'll just watch a few minutes of it, and of course two hours later, you know, my head's turned and I've watched the whole thing again. So but I'm kind of it's like my you know we talked about with music, I'm kind of all over the place, you know. I like taking recommendations from folks, and I kind of like watching a little bit of a little bit of everything.
But I have a nineteen hour flight coming up on Sunday, so h Lucas Moskowitz our GC here and I've been talking about, like God, we got to download some stuff because I don't think the airline has enough to keep me interested.
Yeah, although you'll maybe you'll wind up watching American Sniper ten times.
Well, what you guys have any recommendation for me?
Yeah?
If I don't know, if you know Star Wars, but and Or season two was amazing. I mean it's it's not just a sto Wars, but I really really.
Like that one on North season two.
Okay, just watch season one in season two, Okay, Okay.
We just started watching The Waterfront, which we really enjoy so far. Oh okay, Unfortunately, I think we're going to have to leave it there. These were great recommendations, Dan, and as always, really great insights into our evolving markets and the evolving regulatory landscape. We really appreciate you coming back on votes and verdicts and sharing your time and insights with us. We hope to have you again soon. You're I believe, only our second repeat guests so far,
so maybe you'll be our first free pet fun. I'll accept the invitation if you'll have me awesome and our safe travels on your upcoming flight. And as a reminder to our listeners, you can read all of our Bloomberg intelligence research on the Bloomberg terminal at Big With that, thank you again and have a great day.