WEBVTT 00:00:00.000 --> 00:00:02.610 align:middle line:84% BRIAN CHEUNG: Gary Gensler is chair of the Securities 00:00:02.610 --> 00:00:04.500 align:middle line:84% and Exchange Commission, the government's 00:00:04.500 --> 00:00:06.750 align:middle line:90% top financial markets watchdog. 00:00:06.750 --> 00:00:09.600 align:middle line:84% Gensler joined the SEC in April 2021, 00:00:09.600 --> 00:00:12.930 align:middle line:84% and is facing many regulatory puzzles from payment 00:00:12.930 --> 00:00:17.190 align:middle line:84% for order flow to ESG corporate disclosures to, of course, 00:00:17.190 --> 00:00:18.780 align:middle line:90% cryptocurrencies. 00:00:18.780 --> 00:00:21.930 align:middle line:84% The former MIT professor and Baltimore, Maryland native 00:00:21.930 --> 00:00:24.150 align:middle line:84% is no stranger to the regulatory world. 00:00:24.150 --> 00:00:26.040 align:middle line:84% Having served as the head of the Commodity 00:00:26.040 --> 00:00:29.520 align:middle line:84% Futures Trading Commission under the Obama administration. 00:00:29.520 --> 00:00:32.500 align:middle line:84% He's also an alumni of Goldman Sachs with a deep knowledge 00:00:32.500 --> 00:00:33.300 align:middle line:90% of Wall Street. 00:00:33.300 --> 00:00:36.126 align:middle line:90% [MUSIC PLAYING] 00:00:36.126 --> 00:00:38.490 align:middle line:90% 00:00:38.490 --> 00:00:39.910 align:middle line:84% I'm Brian Cheung with Yahoo Finance. 00:00:39.910 --> 00:00:41.490 align:middle line:84% Thrilled to be joined this morning 00:00:41.490 --> 00:00:43.620 align:middle line:90% by SEC chair Gary Gensler. 00:00:43.620 --> 00:00:44.650 align:middle line:90% Chair Gensler, good morning. 00:00:44.650 --> 00:00:46.530 align:middle line:90% Happy Monday. 00:00:46.530 --> 00:00:48.240 align:middle line:84% GARY GENSLER: Happy Monday to all your viewers 00:00:48.240 --> 00:00:51.310 align:middle line:90% and good to see you, Brian. 00:00:51.310 --> 00:00:53.740 align:middle line:84% BRIAN CHEUNG: So Chair Gensler, plenty of topics to talk about. 00:00:53.740 --> 00:00:55.450 align:middle line:84% A lot happen, even just last week. 00:00:55.450 --> 00:00:57.220 align:middle line:84% But want to start off in one of the hottest 00:00:57.220 --> 00:00:58.930 align:middle line:90% spaces, obviously crypto. 00:00:58.930 --> 00:01:01.270 align:middle line:84% A lot of excitement over those Bitcoin futures 00:01:01.270 --> 00:01:03.640 align:middle line:84% ETFs that we saw last week, a few products 00:01:03.640 --> 00:01:04.599 align:middle line:90% that were launched. 00:01:04.599 --> 00:01:07.450 align:middle line:84% Just wondering if you had any thoughts about how those two 00:01:07.450 --> 00:01:09.970 align:middle line:84% products rolled out, the ones from ProShares 00:01:09.970 --> 00:01:11.470 align:middle line:90% in addition to Valkyrie. 00:01:11.470 --> 00:01:13.510 align:middle line:84% Is anything that you're seeing, the volume and interest 00:01:13.510 --> 00:01:16.510 align:middle line:84% in this brand new product also guiding your thoughts on maybe 00:01:16.510 --> 00:01:18.190 align:middle line:84% the possibility of these applications 00:01:18.190 --> 00:01:22.300 align:middle line:84% that you're working through on a Bitcoin spot ETF? 00:01:22.300 --> 00:01:24.760 align:middle line:84% GARY GENSLER: Brian, we really take 00:01:24.760 --> 00:01:27.910 align:middle line:84% a look at these when effective as you know last week. 00:01:27.910 --> 00:01:33.550 align:middle line:84% But we look at these is the Chicago Mercantile Exchange has 00:01:33.550 --> 00:01:35.890 align:middle line:84% Bitcoin futures, it's been regulated 00:01:35.890 --> 00:01:38.560 align:middle line:84% by our sibling regulator, the Commodity Futures Trading 00:01:38.560 --> 00:01:40.360 align:middle line:90% Commission for four years. 00:01:40.360 --> 00:01:45.140 align:middle line:84% And then on top of that, there's the regulatory regime, 00:01:45.140 --> 00:01:49.690 align:middle line:84% which we've had for nearly 80 years for investment 00:01:49.690 --> 00:01:51.190 align:middle line:90% funds and the like. 00:01:51.190 --> 00:01:55.390 align:middle line:84% We'd already had some Bitcoin futures mutual funds. 00:01:55.390 --> 00:01:57.130 align:middle line:84% They didn't get as much publicity. 00:01:57.130 --> 00:02:00.250 align:middle line:84% And these weren't effective along with that. 00:02:00.250 --> 00:02:02.530 align:middle line:84% It's really a matter of bringing as much 00:02:02.530 --> 00:02:06.550 align:middle line:84% of this space within the investor protection remit. 00:02:06.550 --> 00:02:12.430 align:middle line:84% And I think that that's really the story here, is if projects, 00:02:12.430 --> 00:02:16.510 align:middle line:84% tokens come to us, work with us, and bring themselves 00:02:16.510 --> 00:02:19.480 align:middle line:84% inside the regulatory perimeter, investors 00:02:19.480 --> 00:02:20.800 align:middle line:90% will be better protected. 00:02:20.800 --> 00:02:23.310 align:middle line:90% 00:02:23.310 --> 00:02:24.670 align:middle line:84% BRIAN CHEUNG: So on that point, I mean, 00:02:24.670 --> 00:02:25.770 align:middle line:90% just to kind of drill down. 00:02:25.770 --> 00:02:27.270 align:middle line:90% The Bitcoin spot ETF. 00:02:27.270 --> 00:02:30.690 align:middle line:84% You've expressed concern about what the underlying risk might 00:02:30.690 --> 00:02:33.900 align:middle line:84% be with Bitcoin, whether that's anti-money laundering 00:02:33.900 --> 00:02:35.940 align:middle line:90% or other types of issues. 00:02:35.940 --> 00:02:37.470 align:middle line:84% Do you feel like anything that you've 00:02:37.470 --> 00:02:39.570 align:middle line:84% seen, though, with the Bitcoin futures products 00:02:39.570 --> 00:02:41.970 align:middle line:90% last week are resolved? 00:02:41.970 --> 00:02:44.310 align:middle line:84% Are any of those concerns kind of alleviated 00:02:44.310 --> 00:02:47.730 align:middle line:84% given what we've seen, the response to those products be? 00:02:47.730 --> 00:02:50.190 align:middle line:84% And are you becoming more friendly towards the idea 00:02:50.190 --> 00:02:52.143 align:middle line:84% of a spot ETF because of what you saw last week 00:02:52.143 --> 00:02:54.210 align:middle line:84% or are you still trying to kind of form what your thoughts are 00:02:54.210 --> 00:02:56.640 align:middle line:84% on the underlying product first before you 00:02:56.640 --> 00:02:59.250 align:middle line:84% try to move forward on any sort of other product there? 00:02:59.250 --> 00:03:00.450 align:middle line:84% GARY GENSLER: Brian, you can imagine 00:03:00.450 --> 00:03:03.390 align:middle line:84% I'm not going to speak to any individual filings that 00:03:03.390 --> 00:03:05.580 align:middle line:84% might be in front of us or prejudge anything. 00:03:05.580 --> 00:03:08.310 align:middle line:84% But I think that the concern for the investing public 00:03:08.310 --> 00:03:12.250 align:middle line:84% is the crypto asset space to plus 2 00:03:12.250 --> 00:03:14.160 align:middle line:90% and 1/2 trillion dollars. 00:03:14.160 --> 00:03:19.110 align:middle line:84% Most of it has not come within an investor protection remit. 00:03:19.110 --> 00:03:24.240 align:middle line:84% And thus, investors are protected the way they are, 00:03:24.240 --> 00:03:27.330 align:middle line:84% whether they go into the stock or bond markets 00:03:27.330 --> 00:03:29.880 align:middle line:90% that we've overseen for so long. 00:03:29.880 --> 00:03:32.100 align:middle line:84% Without that, I think that it's really 00:03:32.100 --> 00:03:36.140 align:middle line:84% is, as I've said to others, a bit of the Wild West. 00:03:36.140 --> 00:03:41.650 align:middle line:84% And these markets largely around the globe, 24 hours a day, 00:03:41.650 --> 00:03:45.690 align:middle line:84% seven days a week don't have the similar protections 00:03:45.690 --> 00:03:48.570 align:middle line:84% against fraud and manipulation and 00:03:48.570 --> 00:03:50.310 align:middle line:90% front-running and other abuses. 00:03:50.310 --> 00:03:53.310 align:middle line:90% 00:03:53.310 --> 00:03:56.490 align:middle line:84% BRIAN CHEUNG: So let's move on to stablecoins kind of sub 00:03:56.490 --> 00:03:57.837 align:middle line:90% corner in the crypto space. 00:03:57.837 --> 00:03:59.670 align:middle line:84% They've been eating a lot of lunch from the prime money 00:03:59.670 --> 00:04:00.470 align:middle line:90% market funds. 00:04:00.470 --> 00:04:02.280 align:middle line:84% And there's been some media reporting that's 00:04:02.280 --> 00:04:05.430 align:middle line:84% gotten a lot of attention about the transparency by which some 00:04:05.430 --> 00:04:07.800 align:middle line:84% of these stablecoins are detailing 00:04:07.800 --> 00:04:09.540 align:middle line:84% what's actually underlying the reserves that 00:04:09.540 --> 00:04:11.100 align:middle line:90% back these assets. 00:04:11.100 --> 00:04:13.770 align:middle line:84% You've compared stablecoins to chips at a Casino. 00:04:13.770 --> 00:04:17.100 align:middle line:84% Do you think that stablecoin should be regulated as banks? 00:04:17.100 --> 00:04:18.200 align:middle line:84% GARY GENSLER: Well, there's about 00:04:18.200 --> 00:04:21.860 align:middle line:90% $130 billion stablecoins today. 00:04:21.860 --> 00:04:24.860 align:middle line:84% That's up nearly tenfold in the last year. 00:04:24.860 --> 00:04:27.830 align:middle line:84% And they are intertwined inside of crypto 00:04:27.830 --> 00:04:32.750 align:middle line:84% exchanges, crypto lending platforms, so-called DeFi. 00:04:32.750 --> 00:04:37.590 align:middle line:84% And those poker chips, so to speak, 00:04:37.590 --> 00:04:40.620 align:middle line:84% are facilitating 80% of the volume. 00:04:40.620 --> 00:04:43.910 align:middle line:84% So there are only 5% of the crypto market. 00:04:43.910 --> 00:04:50.210 align:middle line:84% But 80% of the volume in this token to token, crypto 00:04:50.210 --> 00:04:53.600 align:middle line:90% to crypto trading. 00:04:53.600 --> 00:04:57.170 align:middle line:84% And so I think there's a lot of speculative activity. 00:04:57.170 --> 00:05:01.760 align:middle line:84% And again, it's best to bring that inside regulatory investor 00:05:01.760 --> 00:05:03.320 align:middle line:90% protection remit. 00:05:03.320 --> 00:05:07.660 align:middle line:84% So I do think there's work to be done here. 00:05:07.660 --> 00:05:09.560 align:middle line:84% BRIAN CHEUNG: By extension, I mean, what you kind of said 00:05:09.560 --> 00:05:11.210 align:middle line:84% right there about the amount of volume 00:05:11.210 --> 00:05:13.760 align:middle line:84% that we've been seeing in this space does kind of also extend 00:05:13.760 --> 00:05:15.830 align:middle line:90% to the broad DeFi movement. 00:05:15.830 --> 00:05:17.450 align:middle line:84% Just wondering what your thoughts are on DeFi. 00:05:17.450 --> 00:05:19.760 align:middle line:84% Obviously, it stretches into a lot of different areas. 00:05:19.760 --> 00:05:21.530 align:middle line:84% What do you feel like the SEC's role 00:05:21.530 --> 00:05:24.380 align:middle line:90% is in regulating that space? 00:05:24.380 --> 00:05:26.870 align:middle line:84% Just kind of your broad thoughts on that. 00:05:26.870 --> 00:05:28.270 align:middle line:84% GARY GENSLER: My broad thoughts are 00:05:28.270 --> 00:05:31.480 align:middle line:84% it's one of the innovative areas in this crypto movement. 00:05:31.480 --> 00:05:35.320 align:middle line:84% I mean, we start with Satoshi Nakamoto who was pressing up 00:05:35.320 --> 00:05:38.710 align:middle line:84% against the definition of money and ledgers, 00:05:38.710 --> 00:05:42.400 align:middle line:84% sort of an old, thousands of years old technology, 00:05:42.400 --> 00:05:43.690 align:middle line:90% money and ledgers. 00:05:43.690 --> 00:05:46.210 align:middle line:84% But decentralized finance has started to press 00:05:46.210 --> 00:05:49.440 align:middle line:90% up some other innovations. 00:05:49.440 --> 00:05:52.320 align:middle line:84% While that's all interesting, it reminds me 00:05:52.320 --> 00:05:54.330 align:middle line:84% a lot about when peer-to-peer lending 00:05:54.330 --> 00:05:56.620 align:middle line:90% came along about 15 years ago. 00:05:56.620 --> 00:05:58.680 align:middle line:84% People said, well, I'll lend money to you 00:05:58.680 --> 00:06:00.390 align:middle line:84% and it would just be peer-to-peer. 00:06:00.390 --> 00:06:03.570 align:middle line:84% And we had to take 3, 4, 5 years to bring it 00:06:03.570 --> 00:06:08.070 align:middle line:84% within an investor protection, and in some cases, banking 00:06:08.070 --> 00:06:09.370 align:middle line:90% regulation. 00:06:09.370 --> 00:06:11.880 align:middle line:84% And I would say that's what we're going through right now. 00:06:11.880 --> 00:06:15.270 align:middle line:84% The same process, hopefully, we get to the other side 00:06:15.270 --> 00:06:18.510 align:middle line:84% where whatever innovation it's there survives. 00:06:18.510 --> 00:06:20.800 align:middle line:84% But again, the public is protected. 00:06:20.800 --> 00:06:24.370 align:middle line:84% We protect against financial stability concerns as well. 00:06:24.370 --> 00:06:26.530 align:middle line:84% There's a lot of lending going on. 00:06:26.530 --> 00:06:28.750 align:middle line:84% There's a lot of trading going on. 00:06:28.750 --> 00:06:32.445 align:middle line:84% And without protections, I fear that it's going to end poorly. 00:06:32.445 --> 00:06:35.020 align:middle line:90% 00:06:35.020 --> 00:06:36.797 align:middle line:84% BRIAN CHEUNG: And you draw the comparison to banking. 00:06:36.797 --> 00:06:38.230 align:middle line:84% Does that mean that-- because it's not just 00:06:38.230 --> 00:06:39.850 align:middle line:90% the SEC that's in that space-- 00:06:39.850 --> 00:06:41.980 align:middle line:84% the Federal Reserve, the OCC, the FDIC. 00:06:41.980 --> 00:06:46.540 align:middle line:84% So have you had discussions with them also about the proper way 00:06:46.540 --> 00:06:49.530 align:middle line:84% to approach these types of new offerings? 00:06:49.530 --> 00:06:52.670 align:middle line:84% GARY GENSLER: Well, under Secretary Yellen's leadership 00:06:52.670 --> 00:06:56.120 align:middle line:84% at the Treasury Department, the president's working group, 00:06:56.120 --> 00:06:59.060 align:middle line:84% a group of financial regulators, were working 00:06:59.060 --> 00:07:01.400 align:middle line:90% together around stablecoins. 00:07:01.400 --> 00:07:05.810 align:middle line:84% And again the stablecoins of today, this $130 billion or so 00:07:05.810 --> 00:07:08.270 align:middle line:84% which has been rapidly growing, could 00:07:08.270 --> 00:07:12.110 align:middle line:84% lead to payment tokens and general purpose payment tokens 00:07:12.110 --> 00:07:13.040 align:middle line:90% in the future. 00:07:13.040 --> 00:07:16.730 align:middle line:84% But even the current system, the current remit, we're 00:07:16.730 --> 00:07:20.240 align:middle line:84% working most closely with, again, our sibling market 00:07:20.240 --> 00:07:23.090 align:middle line:84% regulator, the Commodity Futures Trading Commission, 00:07:23.090 --> 00:07:27.980 align:middle line:84% but also along with the bank regulators and lastly, 00:07:27.980 --> 00:07:32.090 align:middle line:84% the Consumer Bureau, the Consumer Financial Protection 00:07:32.090 --> 00:07:33.860 align:middle line:84% Bureau that has a lot of authorities 00:07:33.860 --> 00:07:35.880 align:middle line:90% around payment systems as well. 00:07:35.880 --> 00:07:39.950 align:middle line:84% So we're all working together trying to bring the protections 00:07:39.950 --> 00:07:43.250 align:middle line:84% that we've had in our traditional securities 00:07:43.250 --> 00:07:48.227 align:middle line:84% markets, derivatives markets, and the like. 00:07:48.227 --> 00:07:49.960 align:middle line:84% BRIAN CHEUNG: I have a big picture question for you. 00:07:49.960 --> 00:07:52.540 align:middle line:84% How would you describe your broad relationship 00:07:52.540 --> 00:07:54.160 align:middle line:90% with the crypto industry? 00:07:54.160 --> 00:07:57.920 align:middle line:84% Things are changing by the day, it seems like, and on one hand, 00:07:57.920 --> 00:08:00.010 align:middle line:84% you have to develop those types of relationships, 00:08:00.010 --> 00:08:01.630 align:middle line:84% engage with people in the industry 00:08:01.630 --> 00:08:03.560 align:middle line:90% to just learn more about it. 00:08:03.560 --> 00:08:05.140 align:middle line:84% But then on the other hand, as a regulator, 00:08:05.140 --> 00:08:08.120 align:middle line:84% you're trying to make sure that investors are safe as well. 00:08:08.120 --> 00:08:10.990 align:middle line:84% There's these anecdotes of SEC officials going to conferences, 00:08:10.990 --> 00:08:12.110 align:middle line:90% serving subpoenas. 00:08:12.110 --> 00:08:14.180 align:middle line:84% It's the subject of a lawsuit filed over the weekend. 00:08:14.180 --> 00:08:15.850 align:middle line:84% I know you won't speak specifically to that. 00:08:15.850 --> 00:08:19.780 align:middle line:84% But in describing the broad crypto space as the Wild West, 00:08:19.780 --> 00:08:21.730 align:middle line:84% just to stress the analogy, I mean, sometimes 00:08:21.730 --> 00:08:24.520 align:middle line:84% the gunslinging Sheriff that comes into town 00:08:24.520 --> 00:08:27.130 align:middle line:84% is just as privy to all the wildness and the Wild West 00:08:27.130 --> 00:08:28.940 align:middle line:90% as well. 00:08:28.940 --> 00:08:30.970 align:middle line:84% GARY GENSLER: Well, I just like to sort of 00:08:30.970 --> 00:08:36.200 align:middle line:84% speak to what I see to be the lay of the land 00:08:36.200 --> 00:08:37.580 align:middle line:90% as it is right now. 00:08:37.580 --> 00:08:40.490 align:middle line:84% And my role changed on April of this year 00:08:40.490 --> 00:08:43.850 align:middle line:84% when I took an oath of office and was 00:08:43.850 --> 00:08:45.080 align:middle line:90% honored to be in this job. 00:08:45.080 --> 00:08:47.690 align:middle line:84% Before that, I was at MIT, very intrigued 00:08:47.690 --> 00:08:50.870 align:middle line:84% by the field by Satoshi Nakamoto's innovations, 00:08:50.870 --> 00:08:55.040 align:middle line:84% but also the innovations along the way in this space. 00:08:55.040 --> 00:08:59.090 align:middle line:84% Look, the crypto field has been a catalyst for change. 00:08:59.090 --> 00:09:01.520 align:middle line:84% It is pressed up against what we think 00:09:01.520 --> 00:09:07.680 align:middle line:84% about money, about ledgers, about finance, and so forth. 00:09:07.680 --> 00:09:10.670 align:middle line:84% But at the same time in my new role, 00:09:10.670 --> 00:09:13.490 align:middle line:84% my relationship shifted in April. 00:09:13.490 --> 00:09:17.630 align:middle line:84% It's about trying to ensure that the public policy framework. 00:09:17.630 --> 00:09:19.820 align:middle line:84% We still guard against money laundering 00:09:19.820 --> 00:09:21.230 align:middle line:90% and terrorist finance. 00:09:21.230 --> 00:09:23.660 align:middle line:84% And yet, Bitcoin and other tokens 00:09:23.660 --> 00:09:26.540 align:middle line:84% are being used for ransomware by bad actors. 00:09:26.540 --> 00:09:29.390 align:middle line:84% We still want to guard against and guard 00:09:29.390 --> 00:09:31.910 align:middle line:84% for investor protection, and make sure 00:09:31.910 --> 00:09:33.290 align:middle line:90% that people aren't defrauded. 00:09:33.290 --> 00:09:36.500 align:middle line:84% And yet, there's dozens and dozens 00:09:36.500 --> 00:09:39.920 align:middle line:84% of cases where we know that people 00:09:39.920 --> 00:09:45.560 align:middle line:84% have basically perpetrated scams and frauds on the public. 00:09:45.560 --> 00:09:49.290 align:middle line:84% There's 5, 6,000 of these projects out there. 00:09:49.290 --> 00:09:52.640 align:middle line:84% Many of them, as my predecessor Jay Clayton would say, 00:09:52.640 --> 00:09:55.910 align:middle line:84% are likely to be within the securities law, 00:09:55.910 --> 00:09:57.890 align:middle line:84% but they haven't come in and registered. 00:09:57.890 --> 00:10:00.050 align:middle line:84% You can't prejudge any one of them, 00:10:00.050 --> 00:10:02.450 align:middle line:84% depends on the facts and circumstances. 00:10:02.450 --> 00:10:04.880 align:middle line:84% But this is a bit of the Wild West 00:10:04.880 --> 00:10:09.500 align:middle line:84% and I'm going to continue to speak openly and actively, 00:10:09.500 --> 00:10:13.700 align:middle line:84% direct staff to investigate fraud where they see it, try 00:10:13.700 --> 00:10:18.960 align:middle line:84% to bring those projects in to a better, 00:10:18.960 --> 00:10:24.383 align:middle line:84% more appropriate public policy framework. 00:10:24.383 --> 00:10:26.150 align:middle line:84% BRIAN CHEUNG: And you mentioned you started in April. 00:10:26.150 --> 00:10:27.620 align:middle line:84% It's felt like a lifetime since then. 00:10:27.620 --> 00:10:29.030 align:middle line:84% But one other thing that you dealt with 00:10:29.030 --> 00:10:31.820 align:middle line:84% was the GameStop situation that happened in January. 00:10:31.820 --> 00:10:36.030 align:middle line:84% But the SEC just released that over 40-page report last week. 00:10:36.030 --> 00:10:38.270 align:middle line:84% Now, there were no specific policy recommendations 00:10:38.270 --> 00:10:39.210 align:middle line:90% after that report. 00:10:39.210 --> 00:10:40.760 align:middle line:84% So I guess, can you just walk us through what 00:10:40.760 --> 00:10:43.340 align:middle line:84% might be the next steps for all these brokerages, 00:10:43.340 --> 00:10:46.310 align:middle line:84% wholesale market makers, clearinghouses, investors that 00:10:46.310 --> 00:10:48.300 align:middle line:84% are walking away from the events of January 00:10:48.300 --> 00:10:51.500 align:middle line:84% and wondering what might the SEC do next? 00:10:51.500 --> 00:10:53.980 align:middle line:84% GARY GENSLER: So we have a number of projects. 00:10:53.980 --> 00:10:56.410 align:middle line:84% Some of those highlighted in the report. 00:10:56.410 --> 00:11:00.160 align:middle line:84% There was a page or two at the end caught 00:11:00.160 --> 00:11:03.440 align:middle line:90% additional considerations. 00:11:03.440 --> 00:11:06.610 align:middle line:84% One is related to equity market structure itself. 00:11:06.610 --> 00:11:10.690 align:middle line:84% Are we today in the 2020s appropriate 00:11:10.690 --> 00:11:15.670 align:middle line:84% using technology of the 2020s to look out for regular investors? 00:11:15.670 --> 00:11:18.710 align:middle line:84% And nearly half of the market, the stock market, 00:11:18.710 --> 00:11:23.650 align:middle line:84% this is, doesn't trade on lit, transparent exchanges, 00:11:23.650 --> 00:11:26.950 align:middle line:84% but in dark pools or off exchange. 00:11:26.950 --> 00:11:29.020 align:middle line:84% And instead of having orders compete, 00:11:29.020 --> 00:11:33.190 align:middle line:84% one-by-one compete so that the investing public, 00:11:33.190 --> 00:11:35.860 align:middle line:84% the retail public gets the best price or what's 00:11:35.860 --> 00:11:37.840 align:middle line:90% called best execution. 00:11:37.840 --> 00:11:41.080 align:middle line:84% Right now a lot of this is flowing into the dark poles 00:11:41.080 --> 00:11:42.790 align:middle line:84% to the wholesalers through something 00:11:42.790 --> 00:11:44.450 align:middle line:90% called payment for order flow. 00:11:44.450 --> 00:11:46.180 align:middle line:84% Secondly is a bit of the plumbing. 00:11:46.180 --> 00:11:48.670 align:middle line:84% I know it's not as exciting for your listeners, 00:11:48.670 --> 00:11:51.670 align:middle line:84% but it has to do with the clearing and settlement cycles 00:11:51.670 --> 00:11:54.310 align:middle line:84% and shortening those, so there's less risk. 00:11:54.310 --> 00:11:56.080 align:middle line:84% In the January events, people had 00:11:56.080 --> 00:11:57.640 align:middle line:90% been restricted from trading. 00:11:57.640 --> 00:12:00.550 align:middle line:84% The third thing is something called digital engagement 00:12:00.550 --> 00:12:04.420 align:middle line:84% practices or what sometimes colloquially is part 00:12:04.420 --> 00:12:06.100 align:middle line:90% of that is called gamification. 00:12:06.100 --> 00:12:11.020 align:middle line:84% New digital analytics, new algorithms that are 00:12:11.020 --> 00:12:15.880 align:middle line:84% may be promoting more trading rather than investing, 00:12:15.880 --> 00:12:20.510 align:middle line:84% promoting activity that is good for the applications, 00:12:20.510 --> 00:12:22.010 align:middle line:90% but not good for the individual. 00:12:22.010 --> 00:12:26.160 align:middle line:84% So these are some of the projects we're working on. 00:12:26.160 --> 00:12:28.020 align:middle line:84% BRIAN CHEUNG: Now broadly, you know, there 00:12:28.020 --> 00:12:29.550 align:middle line:84% were a lot of weird events that happened 00:12:29.550 --> 00:12:30.810 align:middle line:90% during the meme stock craze. 00:12:30.810 --> 00:12:33.000 align:middle line:90% You saw some funds blow up. 00:12:33.000 --> 00:12:36.030 align:middle line:84% You saw some short squeezes get hurt there. 00:12:36.030 --> 00:12:39.690 align:middle line:84% I guess I'm wondering based off of what you were seeing tells 00:12:39.690 --> 00:12:42.210 align:middle line:84% you that the markets were or were not acting efficiently 00:12:42.210 --> 00:12:45.030 align:middle line:84% during that episode when you had stoppages in many cases 00:12:45.030 --> 00:12:48.120 align:middle line:84% preventing people from being able to take on new positions, 00:12:48.120 --> 00:12:50.390 align:middle line:90% but they were able to sell. 00:12:50.390 --> 00:12:56.180 align:middle line:84% GARY GENSLER: Look, restrictions on trading that fateful Friday 00:12:56.180 --> 00:12:59.570 align:middle line:84% in January, that was not good for the retail investors that 00:12:59.570 --> 00:13:01.460 align:middle line:90% wanted access to the markets. 00:13:01.460 --> 00:13:02.570 align:middle line:90% And we know that. 00:13:02.570 --> 00:13:05.330 align:middle line:84% And that's why we're taking a look at these clearing 00:13:05.330 --> 00:13:06.890 align:middle line:90% and settlement plumbing. 00:13:06.890 --> 00:13:10.670 align:middle line:84% But also we knew before January that there 00:13:10.670 --> 00:13:12.200 align:middle line:90% were inherent conflicts. 00:13:12.200 --> 00:13:15.740 align:middle line:84% When a brokerage app is maximizing potentially 00:13:15.740 --> 00:13:19.790 align:middle line:84% for their revenues rather than the welfare of their users 00:13:19.790 --> 00:13:22.730 align:middle line:84% on the other hand, whether it's because they're using 00:13:22.730 --> 00:13:26.990 align:middle line:84% algorithms to sort of encourage us to trade more behavioral 00:13:26.990 --> 00:13:31.310 align:middle line:84% prompts to encourage us to trade more, which economics shows 00:13:31.310 --> 00:13:33.140 align:middle line:90% usually get lower returns. 00:13:33.140 --> 00:13:38.390 align:middle line:84% Investing is good, but trading actively often lowers / 00:13:38.390 --> 00:13:41.510 align:middle line:84% whether it's that or the inherent conflicts of payment 00:13:41.510 --> 00:13:44.330 align:middle line:84% for order flow, January just highlighted 00:13:44.330 --> 00:13:47.900 align:middle line:84% that we were grappling with those inherent conflicts 00:13:47.900 --> 00:13:51.220 align:middle line:90% before January as well. 00:13:51.220 --> 00:13:52.620 align:middle line:84% BRIAN CHEUNG: With some of those conflicts 00:13:52.620 --> 00:13:54.210 align:middle line:84% is banning payment for order flow 00:13:54.210 --> 00:13:56.230 align:middle line:90% entirely still on the table. 00:13:56.230 --> 00:13:58.260 align:middle line:84% And as a kind of extension of that question, 00:13:58.260 --> 00:14:00.840 align:middle line:84% does the SEC have the legal authority to do so? 00:14:00.840 --> 00:14:03.030 align:middle line:84% Or would that be something that it's kind of a legal gray area 00:14:03.030 --> 00:14:04.290 align:middle line:84% that you would need clarification 00:14:04.290 --> 00:14:06.660 align:middle line:90% from Congress to go about? 00:14:06.660 --> 00:14:08.190 align:middle line:84% GARY GENSLER: Again, Brian, I'm not 00:14:08.190 --> 00:14:12.360 align:middle line:84% going to try to get ahead of a great staff at the SEC 00:14:12.360 --> 00:14:13.560 align:middle line:90% and my fellow commissioners. 00:14:13.560 --> 00:14:16.770 align:middle line:84% But really, the equity market structure has 00:14:16.770 --> 00:14:19.380 align:middle line:90% not been updated since 2005. 00:14:19.380 --> 00:14:22.080 align:middle line:84% And that which might have worked in 2005 00:14:22.080 --> 00:14:25.860 align:middle line:84% and there were debates then, 16 years later so much 00:14:25.860 --> 00:14:26.790 align:middle line:90% has changed. 00:14:26.790 --> 00:14:31.870 align:middle line:84% And so I've really said to staff, look, payment for order 00:14:31.870 --> 00:14:35.080 align:middle line:84% flow and what we do with that, whatever restrictions is 00:14:35.080 --> 00:14:37.030 align:middle line:84% on the table, but also we're looking 00:14:37.030 --> 00:14:40.990 align:middle line:84% at things that are within the market structure itself. 00:14:40.990 --> 00:14:43.210 align:middle line:84% How do we get more transparency, more 00:14:43.210 --> 00:14:45.400 align:middle line:90% competition order-by-order? 00:14:45.400 --> 00:14:47.620 align:middle line:84% And these are things like looking at something 00:14:47.620 --> 00:14:52.090 align:middle line:84% called the national best bid, best offer, and what's included 00:14:52.090 --> 00:14:55.210 align:middle line:84% and what's excluded, even the narrowness 00:14:55.210 --> 00:14:57.790 align:middle line:84% of that called the tick size, the minimum tick size. 00:14:57.790 --> 00:14:59.770 align:middle line:90% What do we do about that? 00:14:59.770 --> 00:15:02.810 align:middle line:84% There are also payments on the exchanges called rebate. 00:15:02.810 --> 00:15:07.090 align:middle line:84% So all of this I think needs to be on the table to think, 00:15:07.090 --> 00:15:09.490 align:middle line:84% all right, how do we ensure that the US 00:15:09.490 --> 00:15:14.410 align:middle line:84% stock markets are the most efficient in the world? 00:15:14.410 --> 00:15:16.940 align:middle line:84% And what that means, when you have efficiency, 00:15:16.940 --> 00:15:20.140 align:middle line:84% it's lower cost in the middle, and that's better for companies 00:15:20.140 --> 00:15:23.650 align:middle line:84% raising money, and it's better for investors. 00:15:23.650 --> 00:15:25.750 align:middle line:84% It might be that there's a little bit 00:15:25.750 --> 00:15:31.697 align:middle line:84% less economic rent in the middle for the folks in the middle. 00:15:31.697 --> 00:15:33.030 align:middle line:84% BRIAN CHEUNG: Gary Gensler, do you think 00:15:33.030 --> 00:15:35.760 align:middle line:84% that we're going to see more episodes like what 00:15:35.760 --> 00:15:37.650 align:middle line:90% we saw in late January? 00:15:37.650 --> 00:15:39.750 align:middle line:84% What was interesting was it's not quite to that extent. 00:15:39.750 --> 00:15:41.790 align:middle line:84% But social media was driving massive volatility 00:15:41.790 --> 00:15:43.770 align:middle line:84% into a SPAC last week that was tied 00:15:43.770 --> 00:15:45.270 align:middle line:84% to former President Trump in addition 00:15:45.270 --> 00:15:46.910 align:middle line:84% to some other adjacent penny stocks. 00:15:46.910 --> 00:15:48.810 align:middle line:84% Do you think that this is something we should just expect 00:15:48.810 --> 00:15:51.100 align:middle line:90% to see every now and then? 00:15:51.100 --> 00:15:52.780 align:middle line:84% GARY GENSLER: Look, the retail public 00:15:52.780 --> 00:15:58.280 align:middle line:84% is more engaged in the market today than 10 and 20 years ago. 00:15:58.280 --> 00:16:04.360 align:middle line:84% And as retail working families investing 00:16:04.360 --> 00:16:10.660 align:middle line:84% directly in the market for their future can be a good thing. 00:16:10.660 --> 00:16:13.300 align:middle line:84% That could be good to save for retirement 00:16:13.300 --> 00:16:15.100 align:middle line:84% and the inevitable bumps along the road. 00:16:15.100 --> 00:16:19.930 align:middle line:84% We at the SEC still need to look at and protect the public 00:16:19.930 --> 00:16:24.410 align:middle line:90% against any bad actors. 00:16:24.410 --> 00:16:26.650 align:middle line:90% And so that's our role. 00:16:26.650 --> 00:16:31.270 align:middle line:84% The retail being part of the mix and a growing part of the mix 00:16:31.270 --> 00:16:35.380 align:middle line:84% can be good as long as there's a real cop on the beat 00:16:35.380 --> 00:16:39.413 align:middle line:90% looking at the rules in place. 00:16:39.413 --> 00:16:40.580 align:middle line:84% BRIAN CHEUNG: I want to shift gears 00:16:40.580 --> 00:16:43.100 align:middle line:84% to the Financial Stability Oversight Council report 00:16:43.100 --> 00:16:44.540 align:middle line:90% that we got last week. 00:16:44.540 --> 00:16:47.760 align:middle line:84% You mentioned Secretary Yellen is the head of that council. 00:16:47.760 --> 00:16:50.960 align:middle line:84% It really talked about the need for more action on climate 00:16:50.960 --> 00:16:53.900 align:middle line:84% related risk as it pertains to the financial services 00:16:53.900 --> 00:16:54.890 align:middle line:90% industry. 00:16:54.890 --> 00:16:57.230 align:middle line:84% For the SEC, that would likely look like disclosures, 00:16:57.230 --> 00:16:58.490 align:middle line:84% increase corporate disclosures kind 00:16:58.490 --> 00:17:00.860 align:middle line:84% of detailing what their financial risks 00:17:00.860 --> 00:17:05.089 align:middle line:84% might be as climate disasters maybe increase in frequency. 00:17:05.089 --> 00:17:06.740 align:middle line:84% What might those disclosures look like? 00:17:06.740 --> 00:17:09.349 align:middle line:84% How do you standardize something like that? 00:17:09.349 --> 00:17:12.530 align:middle line:84% GARY GENSLER: So we at the SEC have a role 00:17:12.530 --> 00:17:17.599 align:middle line:84% and have over many years to try to bring 00:17:17.599 --> 00:17:21.410 align:middle line:84% consistency, comparability, and yes, decision 00:17:21.410 --> 00:17:23.480 align:middle line:90% usefulness to disclosures. 00:17:23.480 --> 00:17:24.710 align:middle line:90% That's the basic bargain. 00:17:24.710 --> 00:17:27.710 align:middle line:84% Investors get to decide what to invest in. 00:17:27.710 --> 00:17:30.080 align:middle line:84% Companies need to give full and fair disclosure. 00:17:30.080 --> 00:17:36.800 align:middle line:84% So staffs working on this will serve it up to commissioners 00:17:36.800 --> 00:17:41.600 align:middle line:84% in the near term building upon the disclosures 00:17:41.600 --> 00:17:44.930 align:middle line:84% that many companies, hundreds and hundreds of companies 00:17:44.930 --> 00:17:48.350 align:middle line:84% currently make disclosures, voluntary disclosures 00:17:48.350 --> 00:17:51.080 align:middle line:84% around their strategy, around their governance, 00:17:51.080 --> 00:17:54.110 align:middle line:84% around their risk management, and yes, certain metrics 00:17:54.110 --> 00:17:57.150 align:middle line:90% like greenhouse gas emissions. 00:17:57.150 --> 00:17:59.720 align:middle line:84% And so we think that we can serve a role, 00:17:59.720 --> 00:18:05.970 align:middle line:84% put out to public comment as a set of rules, mandatory rules 00:18:05.970 --> 00:18:09.310 align:middle line:84% for the disclosure around those areas-- governance, 00:18:09.310 --> 00:18:13.260 align:middle line:84% strategy, risk management, and yes, key metrics. 00:18:13.260 --> 00:18:17.010 align:middle line:84% And those metrics, including if a company says we're going 00:18:17.010 --> 00:18:23.340 align:middle line:84% to be committed by 2030 or 2050 to make certain adjustments 00:18:23.340 --> 00:18:26.580 align:middle line:84% to our greenhouse gas emissions, each year, 00:18:26.580 --> 00:18:30.810 align:middle line:84% how are they doing in managing towards that transition plan? 00:18:30.810 --> 00:18:34.545 align:middle line:84% How are they adjusting that transition plan for instance? 00:18:34.545 --> 00:18:37.000 align:middle line:90% 00:18:37.000 --> 00:18:37.800 align:middle line:90% BRIAN CHEUNG: All right. 00:18:37.800 --> 00:18:40.380 align:middle line:84% Securities and Exchange chair, Gary Gensler, 00:18:40.380 --> 00:18:42.510 align:middle line:84% thanks so much for stopping by our Markets Summit. 00:18:42.510 --> 00:18:44.690 align:middle line:90% Hope to talk to you again soon.