SEC Commissioner Hester Peirce on the Rulebook for Crypto & Tokenized Securities

Transcript

You know, having seen the financial crisis, it really gives you an appreciation for good financial regulation versus bad financial regulation. This issue is much bigger than just crypto. It's a question of do we tell people how they have to route their orders. If you are going to tokenize something, you need to figure out which bucket it fits in. We're looking at ways to enable people to experiment with trading tokenized securities, and that is going to require some experimentation. I think we really need to be careful not to say that pieces of software have to register as things. You know, one of the other rules that I've talked about needing to update for a long time are the transfer agent rules. I think it's a it's a really

exciting moment to rethink how some of this infrastructure works, where the regulation obligations and registration obligations should be that would make the system better for everyone. Nothing said on inflection point is a recommendation to buy or sell securities, tokens, or any other assets.

Nor does it constitute a solicitation or offer to invest in any fund, product, or financial instrument. This podcast is forformational purposes only. The views and opinions expressed by hosts and guests are their own and do not necessarily reflect the official positions or views of their respective employers or affiliates. Hosts and guests may hold positions in companies, funds, tokens, or projects discussed. Hey everyone, welcome back to Inflection Point. I'm joined as always by David Lant and Michael Mark Antonio. And today we have a very special guest, Commissioner Hester Pur. Uh Commissioner, thank you for being here.

Thanks for joining us. >> Thanks for having me. I'm excited to be here. I do have to give you my disclaimer, of course, which is that my views are my own views as a commissioner and not necessarily those of the SEC or my fellow commissioners. >> Yeah, thank you. I've been I've been listening to you long enough to know that that's the standard disclaimer. Um, so yeah, so I mean this this episode we're going to kick it off very high level. I mean there's a lot going on in crypto markets right now with strategy and Bitcoin but you know we're we're going to keep it very SEC focused and the you know the first question I kind of just wanted to get into is you know sometimes we do Fed watching sometimes we do SEC watching and I wanted to ask what do you think is what do you think

the coverage gets wrong about the SEC where where are people misreading the commission's intent you you think most of the time and I'm very happy you gave the disclaimer for this one before >> I I mean, I think when it comes to crypto, people assume that all we work on at the SEC is crypto, which is um definitely not true. >> Okay. Yeah. Love it. Um I I think that that's definitely a bias in in my world at least. Um you know, every every new rule that passes, everybody assumes it's crypto adjacent. And so I mean you you've been at the commission since 2018 and you know three different chairs you know and we've had two I'll call it like eras of crypto within the administration

and you know for a long stretch in you know prior to this administration u maybe even now you were writing the sense and and back then was explicitly as the minority voice and now 2026 a lot of what you've argued for has essentially become the house position and So, I I wanted to ask what's that shift actually been like to live through? Um, is there, you know, how how does it feel from 2018 to how it feels now? Did you think you were going to get here? Is there any decisions that you're very proud of or anything that you think you've gotten wrong in this transition?

Yeah, tell me about it. >> Well, definitely I I hoped that we would get to a better place, which we're we're in now. And so, it is a relief to be here. I would not have imagined that it would have taken as many years as it did. It was pretty remarkable to me um that that it it just took as long and and as many twists and turns as it did to get here. But I think being working now in an environment where the chairman is extremely supportive of making positive progress forward uh has been just just a really wonderful change. in terms of what I I regret having, you know, not having done maybe is that I think had I realized how what a bad road

we were going down earlier, I think I could have tried to pull us back onto the right road by doing a better, more thorough legal analysis myself um very early in my tenure here. Um, I, you know, I I did not think that that, um, that would be necessary, but I think if I had done that, it could have helped the conversation. I don't think it would have changed necessarily a lot of what happened, but it could have maybe set us up better for when we came into a a period where there was a more favorable administration.

>> That's that's excellent. Commissioner, uh, if I can ask a question and I want to get into tokenization and like all these cutting edge things that are being discussed at the commission, but if we could just just before that, can you talk us perhaps very briefly about your career because I think a lot of people know a lot of the crypto people know a lot about you over the past maybe five years or so, but you obviously have a very long career that spans both public and private uh service. So, can you can you talk us a little bit about that? how how you got to the SEC, how you got interested in in doing what you're doing and get to to to the spot that you're at now.

>> Yeah, sure. I I came to securities law because I had a deep interest in economics and in law and so it was a nice marriage of the two. uh and and ended up at a law firm doing securities law right out of I did a clerkship after law school and then I went and was working at a firm that was very heavily uh engaged in securities law of all types. that led me to uh go to the SEC because I I a lot of my colleagues had worked at the SEC and it became clear to me that it was it was a good place to work but also really helpful to understand securities law if you've worked at the the regulator. So I did that. I ended ended up um well I was

writing rules for mutual funds for the first part of my time as a staffer and then I worked for now chairman Atkins uh as when he was a commissioner. Then after that went off to work on the hill and was there during the financial crisis working at the Senate Banking Committee. um and then went into um a research center where I was working on thinking about how regulation could be done better. You know, having seen the financial crisis, it really gives you an appreciation for good financial regulation versus bad financial regulation. And so I wanted to to think about how we could do it better. Um I I

don't think that the lessons that a lot of people took from the financial crisis were the right ones. So uh there I was able to work with economists and and others to think about good regulation and then had a chance to come back to the SEC as a commissioner. That was something that I had not wanted to do. In fact, having worked for a commissioner, I I knew I didn't want to be a commissioner. Um but uh but then when I had the opportunity, I thought it might be fun to actually have a role in in shaping policy. And so, um, I was happy to and honored to be able to have that chance.

>> That That's fascinating. Can I can I just ask a followup? How did you get interested in crypto? When did that started to come in your your radar? Well, I mean, I heard about cryp I heard about Bitcoin uh pretty early on because I was working with with uh Jerry Breurto um at Mercadus and he he was uh very early on in involved in interested in in uh in Bitcoin and other crypto assets. So, that was my first exposure to it. But um when I got to the SEC, I had seen from outside that the SEC was struggling with I would describe it as struggling with how to approach Bitcoin exchange traded products. And so one of the first

things that that we had to look at when I was when I was uh when I after I became commissioner was this the the uh one of the exchange traded products. And it just was really my first digging down into that was really my first realization that we were applying a different approach here than we did to other things. And that's not what a regulator should do. And ultimately a court agreed that that was not what we should be doing, but that took years.

Um, so that really was my was my introduction to crypto. >> That's that's fascinating. Um I I'll ask just one more question uh if I can. Michael and Mark, um I guess wanted to touch a little bit on the tokenization side of things, which is obviously a massive trend in the market. I'm sure it's something that the SEC the staff has been spending a lot of time on. Uh we obviously saw uh episodes like token token AI uh open AI uh disavowing the tokenized equity that are linked to its shares. um I think at the time trading uh on a US platform. Um I think the SEC issued a statement kind of classifying

tokenized assets in three categories and kind of maybe uh delaying a little bit or at least shunning a little bit the idea of the synthetic uh category here. Can you talk a little bit about that? Like what is your view here? uh what do you think are are are the next steps and uh what what is your understanding on this this whole area of the market that is so important and it could impact so much of the market structure. >> You're right to point to that statement. And I think if people are interested they should look at that that statement on on the different models and I'm not going to talk about any particular issuer and it's uh and and and uh stock that is to its stock being tokenized but

I think more more relevant is the idea that if you are going to tokenize something you need to figure out which bucket it fits in. you can have natively, you know, the issuer itself can tokenize or it can be tokenized in sort of an entitlement form. Um, which is very standard. It's done now, right? Entitlements are not new. They're done with now. So, so that's um sort of standard. And then there is a synthetic version that's out there and and um what we want to emphasize is that you can have a synthetic, but it it's not the same security. And so that means that as with anything else, it has to be registered or exempt from registration

under one of the exemptions if you're going to offer it in the US. And so you really have to think about what that is and how it needs to be registered and and if that's something you're interested in, you should come talk to us. Issuers um when the when a when a stock is um is out there, issuers don't don't govern secondary trading of it, right? That's not that's not um when a when a company goes public, its stock is out there. But um this issue has really come up in connection with the innovation exemption which is not out there yet. But people seem to think they already know what it is and what it isn't. Um but as I have emphasized,

we're really not looking at setting up the the the the innovation exemption is about trading of tokenized securities. It's not about how you tokenize securities. But what I have said is that I've never envisioned it as being about trading of synthetic uh synthetics. It's about trading of the one of the first two categories in that statement. I mean do there's other rules that are being proposed. There's the, you know, the six the resending of the 611 610E. Are these just the parts that need to go into place in the background while the innovation exemption does the leg of the

work so to speak because you know if if we ignore the innovation exemption which is which isn't out yet which has been delayed. Yes, I know. But if we, you know, we have the six, you know, the the the proposal to resend these couple of rules, but then that still leaves a lot of other questions. Is is the idea that the innovation exemp uh exemption is to hold us down until we get to until all of the other rules are put in place or what's the actual purpose here? >> Well, first of all, I mean, the the notion that it's been delayed, I mean, we've been working on the innovation exemption for some time, but I don't know what what in this context delay means. Um, you know, there's sometimes people I think have put undue weight on the innovation exemption. As I've said

and as the chairman has said, we're we're looking at ways to enable people to experiment with trading tokenized securities and that is going to require some experimentation. You're going to we, you know, we have to understand how the stocks trading in tokenized format will interact with stocks um that are not trading in tokenized format. And so there's some there's some issues there that I think we all in the market need to work through. The innovation exemption is intended to be one piece of working through that. It is not a permanent thing. The goal is to get to a rule um or a set of rules that that govern this. And so we will get information from this as will the

marketplace and and I think it will help us as we develop a rule. But I think people really ought to keep their eye toward the longer term goal of get of of that rule. What should that look like? We would love to get people's input. So people want to weigh in on that. With respect to to 611, the trade-through rule, also known as the order protection rule, um that is that issue is a much bigger issue. It's not a crypto issue. I mean it it's relevant. So you're you're not wrong to bring it up in connection with trading of tokenized securities because there are some questions about how it would apply in that context. But this is something that even so I was working for the chairman at the time that rule 611 was adopted and he was he

and and commissioner Glassman at the time were um were were opposed to it and wrote a descent on it and we have subsequently you know had 20 years and we had a couple roundts on the topic and there you know there's a lot of sentiment and we'll see what the comment we now have the proposal out to to resend it. But in those roundts there was a lot of sentiment that even if it served a purpose at one point that purpose has sort of passed away and so we can move into a post 611 uh world. Now again we'll see what the comments say but I think this issue is

much bigger than just crypto. It's a question of do we tell people how they have to route their orders? that's in in the in the stock market. That's a very to me central planning kind of thing to do. And so we ought to have a very good reason for doing it if we're going to. And so that's why I'm really curious to see what what commenters will say and see if they agree um and see what if we do take away that rule, what we'll need to change um to make sure that we're still achieving the investor protection and market integrity goals that we have.

Yeah, let's stick with uh 611 because it's interesting uh because I think a lot of people are at least in crypto are couching uh the potential recision of 611 as a green light for tokenized equities on chain. The logic being that an AMM can't comply with 611 by construction. A bonding curve can't respect the national best bid and offer. Uh so killing the trade through rule clears that path. Um, two-part question here, but first, do you agree with that analysis or is that uh is that overstating it?

>> Well, I I mean, I I think that there are questions about how 611 would apply in um in an onchain world with AMM. So I I think that that's a fair point, but I think the overstatement comes in the fact that although the innovation exemption isn't out, if if people want the innovation exemption and other tokenized other trading of tokenized securities to wait until 611 is rescended, they may have to wait a long time. One, we don't know what the comments will say and the comments may say we don't think it's a good idea to rescend it. So then it wouldn't move forward or even if the comments as I anticipate um and and as

you know we heard a lot during the round table that there will be commenters who say no it's we we agree with you let's resend it that process takes some time and so the the exploration of tokenizing trading tokenized securities will move in parallel not sequentially um so I I don't think those two are inextricably linked and again I really do emphasize that that 611 debate is a much broader debate. No, I think the the point that I have always had the reason I've always had trouble with 611 is that the goal is the it was adopted under this part of the law where Congress said to the SEC, you need to facilitate a national market

system. You don't want to have a bunch of different exchanges all doing different things and you don't want those markets not to be interlin. But my view is that and you know Congress is Congress so they tell us what to do. But but I I also think the realities of the market are that people are really good at arbitrageing and as long as you have information out there so people can see what the prices are in different marketplaces. Uh market participants are very good at arbitrageing. if there's money to be made, if there are differences in the prices, they will they will work it so that those prices even out across the the different markets and we don't need to have a regulatory system that

mandates that it will happen organically. Um, so I think one of the the things that we are looking at in connection with tokenized securities and and the trading of them and AMMs and things like that, we need to make sure that there's information available so that people who want to engage in that arbitrage are able to do that and able to see what things how things are trading and and what the prices are and so forth. So that will be a process. um and that I I think we would love to get feedback on how we can we can best um facilitate people's experimentation and and make sure that the the markets really are integrated

because it will be good for everyone if those markets are integrated so you don't have fragmented liquidity, >> right? Yeah. I mean, my position on 611 is that even if it were rescended, that's not really a green light for trading tokenized equities. I mean it might be one barrier that may or may not be you know reduced but you still have a host of other rules that a AMM or smart contract can't yet comply with like 3B16 it would these AMMs would still arguably be defined as an exchange and therefore it'd have to register under section six or run as an ATS and um be registered as a broker dealer and obviously like a smart contract probably cannot do that.

Um, >> so I I right and I just want to I mean I just want to weigh in here because I I think this is one of the debates that we were having um under the prior SEC uh where we had a proposal out on 3B16 and we I I think we really need to be careful not to say that pieces of software have to register as things, >> right? Um, and I think we need to be really careful not to say that decentralized um, things need to register as if they were one united entity. That said, I think you're right that we're probably going to end up in a world where people are using

onchain mechanisms to trade and and someone in that in that system will be registered as an exchange or an ATS or something similar. But I think that's part of what we have to figure out who where does the where does the registration obligation properly attach and we can't be in a world where you um require registration of software code or you require a developer who just puts code out there to register simply because she's published code. Um that I don't think would be a good place to be.

>> Right. So that's one rule for sure that is a little uh has some tension with the existing law. I mean also settlement has to clear through a registered clearing agency under 17A. Like that doesn't make a lot of sense. The underlying share has to sit with a qualified custodian um and then a transfer agent. It seems to obiate the uh benefits of a blockchain. Right? Right. So, there's a bunch of different rules, which is why I think uh most people are excited about the innovation exemption just to be able to uh not have to comply potentially with a host of different rules that the technology is fundamentally incompatible with. Um but I I guess that that's at least how the industry is seeing it. Do

you see it that way? that that is the use of the innovation exemption is to sort of cut through a host of different rules um instead of having to uh modify each and every one of them to create space for for blockchains to uh be able to trade tokenized securities. Well, I mean, I I think that it what what rules are applicable to different people taking advantage of the exemption are going to depend on, you know, you could have someone who's a regulated entity decide to take advantage of the innovation exemption. And so I think we're trying to make it possible for people to explore doing trading on chain and providing relief where it's

necessary to do that. Um but you know I think you're raising the right questions and the right considerations. Will some of these enti regulated entities be replaced by the technology? Will they be supplemented by the technology? Well, could you have a a world in which transfer agents are actually doing more than they're doing now, but they're doing part of it using the blockchain? Um, you know, one of the other rules that I've talked about needing to update for a long time are the transfer agent rules. And I get I I'm sad that we've waited so long to update them because they're really out of date. But on the other hand, I'm actually happy that we've waited because

it really now is actually a better time for us to rethink what those rules should look like in light of what we're seeing with um what you know with with tokenized securities and and what role transfer agents are playing. So if we do get those proposals out the door, I hope that people in this space will pay close attention and will be thinking creatively about what role the blockchain can play in serving the functions that transfer agents play. And then you mentioned clearing agencies as well. I mean that's another area where you're seeing um we're seeing more interest in being a clearing agency than we've seen in a long time. And that comes not only from the crypto world but also from um the the treasury world

where we have a new mandate to clear treasuries and so we've got some new clearing agencies there. So I think it's a it's a really excit exciting moment to rethink how some of this infrastructure works, where the regulation obligations and registration obligations should be and what we can offload to technology um that would make make the system better for everyone. >> That is all fascinating. Um, and Commissioner, um, I think I heard you making the distinction between onchain finance and decentralized finance kind of in another setting. Uh, I wonder how it relates to this. Would it make sense to see uh, maybe at least in the short

term for us to see uh, blockchain finance or onchain finance being perhaps mostly or at least partially conducted by these registered players. Maybe in the future we're going to get to a world in which everything is decentralized and the OG uh more like akin to the OG uh crypto people. But in the short term, would it make sense to have this onchain finance that is more um let's say a little bit more like the the the walled DeFi or gated DeFi uh kind of construct that people have been referring for for a while.

>> Yeah. I mean, I think it's important to make the distinction because it really is um it is different. Um when you're involve when you're involving intermediaries, then you probably want some regulatory structure around them. But that's not to say that I don't think that the OG folks have have a good point about there being value in having the opportunity to engage peer-to-peer or more more I think directly it's peerto protocol right where you're you're deciding you're opting out of an intermediary structure and into this other structure I think that should be an option I think it's something this

technology enables in the securities world in a way that it hasn't been possible really um at least in recent years just because of the way that the the markets operate. But I I don't want to overpromise either because we live in a in such a regulated world. the securities world is so heavily regulated and um one thing that I've noticed in my in my time in DC is that um there are a lot of things that drive regulatory policy that are not like what's going to work best for people but it's like well what what can we have that will plug into our AML KYC regime or into our tax regime and you know they're good reasons

for both of those for both of those systems to exist and to make sure that they're comprehensive. But at the same time, I you know, I think we also as a free people need to be thinking about um ho how can we guard people's ability to engage in in peer-to-peer activity. Um and and so those are those are debates that we have to have and there's some complications there. We want to make sure that people are complying with the tax law. We want to make sure that our financial system isn't being used in ways that are harmful to the nation or its people. But we we also have to, you know, I keep coming back to the importance of giving

people sovereignty over their own their own uh assets being being able to hold those assets in a in a in a wallet um themselves instead of having to hold them through intermediaries and and and being able to interact with peers. >> Yeah. one one follow up on 611 that I have. Um it's actually broader than 611. It's related to market makers and the regulation of market makers for uh securities today. Um today in crypto you have market makers that I would argue is maybe the golden age of being a market maker in crypto because anyone could be a market maker. Um anyone could trade on centralized exchanges and make markets

or decentralized exchanges increasingly. Obviously that's much more restricted with when it comes to securities. When you start to look at securities trading onchain um what's your view on uh market makers either being AMMs which we you touched on before but or non AMMs um let's say prop AMMs or uh private market makers um having to register as dealers um to in order to trade securities. Do you think that is appropriate or do you think that um is uh is somewhat of an article of the past um and that because crypto models seem to be uh doing it just fine,

maybe it would also work for securities as well on chain? >> Well, you're opening up quite a can of worms. The dealer definition has been something that's been quite a matter of of debate and discussion at the commission. we had a rule that was pretty controversial and got struck down and not in the crypto context. This is just more broadly. Um, and so I think it's important for us to distinguish between someone who's actually a market maker with obl regulatory obligations and someone who's providing liquidity. I mean, I don't think that people should be punished for being liquidity providers by saying, "Hey, welcome to this regulatory regime." Um but at the same time we have a statute that tells us the dealers have to have to uh

register. So figuring out where that line is is difficult in the traditional world and I'm sure it'll be difficult in this world as well. Um you know I do think it's important for people to understand how the markets that they're trading on operate and what the who the different players are and what those what those folks incentives are. um and and you know, are they getting compensated to to play a role? I I think that it's regardless of what the regulatory scheme ends up looking like, I think there it's it's important for people in the industry to want these markets to work in a way that um people get to see and understand how they operate so they can know what they're

getting when they trade. >> Yeah. Yeah, I mean just last point on this um and then Mark I'll I'll hand it off to you. Uh the the dealer reg uh the dealer uh registration guidelines and and obligations especially under FINRA are so ownorous or so expensive that I think it might crowd out a lot of the current crypto market makers from being able to actually comply with them. Um, and so, you know, just my my my two cents on this is that that might be an interesting subject of the innovation exemption. Does that is that on the table to uh that the innovation exemption could cover the the regulations um the registration

requirements for for dealers? Uh well, I mean the innovation exemption primarily is is is about thinking about how people can use AMMs to trade on chain. But you know certainly the dealer issues are tangential to to to that question. And so, um, if the innovation exemption does come out and if people see it and they have questions on that front, they should definitely inquire with us.

>> So, I want to like tie this into a little bow here. I mean, we've talked about a quite a few different things. We've talked about the recision of 611, 610E. We've talked about the definition, you know, 13b. We've talked about the definitions of what it is to be a market maker or, you know, have these licenses. What you know we're talking a lot about market structure here. What are we what are we not talking about commissioner? Like what are the other areas that are potentially gray right now that you're looking into perhaps rescending as well or or maybe adding on to? Yeah. What is the SEC or you look what are you looking at right now?

Well, we still have to um do something with respect to people who were trying to raise raise funds in connection with issuing crypto. And so that's something that I've been thinking about for a long time. I had that uh years ago um uh idea for a safe harbor and I think there's still an appetite for something along those lines. So that's one piece of things. um you know clarity of course the clarity act is out there and so that's that's also something that we hope will get across the line here in the next couple weeks um and then we there are a lot of questions around custody for broker dealers for investment advisors um and I think there are a lot of

interesting questions around um money market funds which again that's that's an area that we've been working on for a long time but I I think they'll they'll people are thinking about ways that they can expand upon what tokenized funds are doing and are used for. And so I'm I'm hopeful that we'll be engaged in in that in those questions as well. Um, and I mean I think there there just any number of areas in which this tokenization and and blockchain and um crypto asset questions and stable coin questions, how do stable coins get

treated? All of these things are opening up a lot of different areas for us to look at. >> Nice. David, I think you have a followup, but I just wanted to ask there you said one of the first things you said and it sounds like there's a lot on the plate left, but one of the first things you mentioned was about around the fundraising and I know cl the clarity act also touches on that. Would would that with the clarity act passing help that aspect of it or or there still untouched areas? >> Yeah. No, it would it would certainly um that would be helpful. we we will have some rulemaking obligations that flow from the clarity act but but um I that's something that they've definitely been grappling with and so that will be helpful. I guess one other area I should

mention is that anything cryptoreated brings up questions around CFTC SEC harmonization and that's an area that we are also spending a lot of time on the commission is spending a lot of time on and it isn't limited to cryptoreated stuff but I think the crypto questions have really helpfully opened a number of areas where we can work with the CFTC um and so that's that's also So something for for folks to watch. >> Yeah, that is incredible. And we we can talk about hours about all these open questions, but if I may perhaps add two more here or just just general questions on those. Uh the first one is that uh

with regards to vaults, is uh is that an area of interest or something that the commission would be looking into potentially in the future or maybe that is already included in some of the categories that you already mentioned? >> Well, you're right to bring that up and I think that um it's important for people to think about the securities laws and how they might apply to to to activities in which they're engaged. I think it's really important especially in an environment where we have made it clear we're we want to work with people.

We're trying to be we're trying to be uh have an open door for people to come in and wrestle with us through the issues about when and if if so how the securities laws should apply to activity. But I think people need to not just make the assumption that the securities laws don't apply because this is a favorable environment. We have statutes that govern what we what we regulate and and and if activity that people are engaged in touches upon those statutes, they really need to be thinking about what would a good regulatory framework look like here. And so I I do urge people um who are who are interested in

using or or advising creating vaults um to be thinking about those questions to be engaging with us on those questions um and to to uh you know really really wrestle with them now so that we can get to a good place. >> That makes a ton of sense. And if I could ask another question along those lines of maybe a little bit uh questions that remain open. Uh this one is on the crypto asset taxonomy statement that the SEC put out what maybe three or or four months ago and that was obviously a major milestone for the crypto industry.

If I read it correctly there there are five categories there very well definfined token tokenized securities stable coins um I think digital collectibles there's another one called digital tools which are the utility NFTts as they're known in the industry and then there's the crypto commodities right which are these crypto tokens that achieved a certain level of decentralization like Bitcoin and ETH and a lot of these other assets um the the the question I have on this is that there is one category of assets that part of the industry and I would agree with that was not at least it's still a little bit hard to understand where they would fit which is what we call in the

industry the revenue generating crypto complex right so these are maybe the hyperlquids of the world or aerodrome these are token projects that are maybe not as decentralized as as Bitcoin or ETH uh they usually have some sort sort of re revenue generation and token buyback component. So in a sense they look a little bit more like equities. Uh is that still also an area of exploration? What is what is the latest thinking around those those assets? >> One of the things that we did when we put out that statement as we said you know we we invited feedback and comments and questions and I think some have come in with questions about those kinds of

tokens and so we're certainly open to engaging with people. I I do think um further guidance could be helpful. Um so if people have specific questions, they should let us know. I mean, I really hope that we can get to a point where if someone does want to create something that is a security, they feel comfortable doing that and that there'll be a way for them to register that and it won't be as much of an issue. Um you know, in the past people have had to do everything they can to run away from the security classification. So, I'm hoping that we can we can um make it a better environment for that.

But again, people should feel free to to come in and talk to us about if they have questions. Why wasn't this token included or where does this fit within the framework? Um, reach out. >> Got it. Makes a lot of sense. >> Yeah. I mean, you just you just said you hope people feel comfortable to, you know, come out and register the securities. And I've I've heard you in the past talk about the drought in the IPO market so to speak and you you you've argued that there's a lot of regulatory oversight and you know that's why the number of companies in the number of IPOs or number of listed companies have dropped like by over from 5,000 in 2024 in like 20 years to much less than that now. So what what needs to change in the rule making for us to

see you know more IPOs more listed securities you know to to get that that entrepreneurial spirit back into the regime. >> It's one of the chairman's primary um pillars of his mission is to try to make it more attractive for companies to go public and stay public. And so that requires a number of different angles. It requires thinking about the disclosure framework that we have which has become just we've layered on disclosure requirement after disclosure requirement and so can we peel away the ones that are not material and focus on material uh items. That's one piece of it. Another piece of it is is we we just put out um several rules that would that

would um change the the make it easier for companies that are public um uh streamline some things for them. It would streamline the categories of public companies. Um we're also asking questions about whether whether people think we should move from away from mandatory quarterly reporting. Um and we also have have looked at the issue of arbitration versus shareholder litigation since that's a reason that companies don't want to go public. Um so we have limited a limited role there but we have told people that if you want to have an arbitration provision we're not going to stand in the way of that. Um and then just other things like moving

away the barriers to research analyst coverage um and and giving um you know I think I think even 611 things like that market structure issues addressing those issues I think can all help to make the public markets more attractive. Um so we're working on it. the the quarterly the reduction from quarterly to semiannually. When I first saw that proposal, I was thinking was this was was the primary reason as you said to make it easier on the already listed companies cuz my first thought was you know this is something that happens in Europe where they do it semiannually and the argument here there's some like papers from the early 2000s discuss how it makes investors

switch to more long-term thinking and instead of quarterly you know focusing on next quarter's profit and it actually you can actually see higher returns in the longer ter longer time period. Was it primarily just to make regulation easier or was there any thought about this as well? Well, I think the research is mixed on whether or not quarterly uh moving away from quarterly would would change that dynamic. But I think the the real question was can we as for some companies is is the the cost of of producing quarterlys outweighed by the benefit to investors and and maybe it's not all companies. I mean that's

why we're sort of leaving it open in the proposal. We're leaving it open to to folks, but we've gotten a lot of comment so far that's not very positive on the on this particular proposal. One thing that I have asked in connection with it is um could we pair back the quarterly so that it's just an easier lift for companies and that you're really giving the financial information but maybe making making it an easier lift. So, that's a possibility. It is an open comment period and so I don't want to prejudge where we're going to come out.

I think we're we're very much um we're happy that we're hearing from people and we're very much um our ears are very much open to those comments. >> Love to hear that. So, so you know we we've we've really bogged down into the details here with all of these rules and market structure. So let's just zoom out again and then I I don't want I want to ask this kind of this question in two ways. In five years time what do you hope the markets will look like and then also if different what do you think the markets will look like?

>> I hope that we'll have markets where people are actively engaged including retail investors. I think one of the nice u developments in recent years have been that there is more and more retail investor interest in in the markets and our markets work best when we have broad participation. So I think that's great. Um I don't know whether whether um tokenization will be the format in which most securities are found but I I certainly hope that we get to a place where people can experiment with that. I think there's a lot of promise there for a number of reasons and I think it it could be um quite beneficial and so I would love to be in a place where in five years from now we had active eager enthusiastic participation by both

incumbents and new entrance in tokenizing. Um so what do I think it will actually end up looking like? Um I guess that remains to be seen. I mean I'm I'm optimistic. I think if clarity passes that will be helpful too. Um we're, you know, it's it's really an era of quite a bit of innovation in financial products as well. And so I don't know how all of those will um will end up um which ones will end up catching hold and which ones not. So um I'll be I'll be watching on the sidelines and and and eager to see.

>> Lovely. Yeah, I'm I think that question Mark's a good one. I think it really highlights a I think a confusion in the market about if you want to issue tokenized securities. There's three models right now, right? There's the issuer sponsored, there's the custodial, and then there's the synthetic. And like which one should you pick if you are thinking about doing the very necessary work of getting securities on chain, right? it it we're not going to be able to have a uh a block a blockchain marketplace of securities that is flourishing if it just there's a deficit of securities that are actually on there. Um the I think the the issuer

sponsored ones are are is are interesting but relatively uh I think straightforward. I think between the custodial which is to say the DTC model and the synthetic I think there are a lot of questions between the two and I think many of our listeners get confused about what's the differences between the two. I don't I I don't know commissioner if you if you have a very is there a clear way of distinguishing between the custodial framework um versus the synthetic framework or is is it really just like DTC DTC's uh tokenized entitlements that is um the custodial framework and then anything that is sits outside of that would be um uh that is uh that is holding securities on your

behalf that those would be synthetic. I mean the custodial entitlement framework is really one where you get all the the economic rights. You are the owner of it. You get the you get the voting rights, you get the economic rights, you get the dividends, so forth. So the the synthetic version is where someone is holding securities um and you're sort of buying into whatever whatever uh vehicle they have in which they're holding the securities. and and so your your claim to those securities depends somewhat on that entity that >> is is holding those.

>> And so that's why that does become a separate security whereas the entitlement is the is the actual underlying um security and so I think people just need to think about it that way and they need to think about what it looks like to register that synthetic option. um you know a lot of that activity has happened outside the United States but there's nothing stopping people from coming here and registering those synthetics >> right >> but the key is just that they have got to be clear with people buying them about what it is they're getting and what >> additional risks come from that model and what limitations on benefits come from that model and that may be you know

in the sense that you might not be getting getting the full rights but that may be what people want just economic exposure to the asset c >> could the so I believe is the largest securities issuer right now on chain if I'm not mistaken um and those I think most would consider synthetic ifo granted all of the and I'm not pick I'm not calling out and I'm actually not sure if this is the case but let's just assume that not all the rights are extended if they did extend all of the rights that the DTC's uh token iz entitlement model gave would that in effect transfer it to custodial or are there other things that you would need to do in order to make that

>> again I don't want to talk about any particular issuer or particular entity but you know that custodial model does does entail a registered entity >> right so so that's I think the the piece that people need to think about >> Got it got it okay no that that makes sense that makes sense yeah and and and then just uh final point for for me. Um I think I'd love to know your opinion on what happened with respect to tokenizing open AAI private shares. Um and and if if there's you know I mean for the for the viewers just to give some background like uh uh Robin Hood was uh you know OpenAI disavowed the tokenized equity

linked um to its shares that Robin Hood was offering. Um, and you know, I guess the question is, should an unaffiliated party be able to tokenize a company's shares without the issuers's consent at all? >> Well, I'm not going to talk about any particular um, company, so let me just take it out of that context. >> Yeah. But I think the point that people need to be aware of is that when a company decides to go public and its shares are are public um it doesn't have control over you know whether people take those shares and do something with it. They don't get to they don't get to have that um that limitation. But I I you know again facts and circumstances matter and so I I am

certainly not talking about any particular facts or circumstances. Um but you know people companies when there are entitlements of company shares nobody has to go ask the company about that. >> Got it. Yeah. I know that there's just so much room for discussion here and we could spend hours, but I think unfortunately we're getting to the end of our time. Uh if I may ask one more question, Commissioner, uh just a couple questions ago, you were uh answering Mark and saying that you'll be on the sidelines. Uh tell us a little bit what the sidelines look like. It looks like uh I think your term officially ended last year if I'm correct and then you

can stay until the end of the SEC fiscal year. you're going back to academia. Uh tell us a little bit more about what's next for Hesser Pers. >> Yeah. Um my term did end last June and I can could theoretically stay till the end of this calendar year, but I'll be leaving um before then to go teach uh and and I'll be teaching law school. So, I'm excited about that. And um I'm excited to be leaving all these difficult problems to someone else. What? What? Do you have any classes picked out that you're going to be teaching law school? Securities regulation.

>> I'll teach securities regulation. Yeah. >> Nice. Love it. >> Go ahead, David. >> Yeah. Know, I was going there's going to be a lot of crypto people who like to audit that class or squeeze in or maybe uh >> No, I don't I think the crypto people have heard enough from me. So, it'll be it'll be good to um for them to to get to learn from the new new uh commissioner. >> But thank you for uh everything you've done for crypto and for the industry more broadly. You've done and you still do. Thank you. I very much appreciate it.

>> Yeah. Thank you, Commissioner. >> Thanks for the conversation and and um I I I'm honored to be able to have the chance to talk with you all today. >> Okay. Love it. Thank you so much. those students will be very lucky. >> Um, thanks for watching everybody. Um, this was a special guest, special episode and our first guest. So, be sure to tune in next week where we're going to be back to market talks and what the World Cup predictions are. Cheers.