00:00You issued this innovation exemption within 48 hours of Clarity's failure.
00:04Chair Atkins tweeted, stay tuned, 24 hours after the vote.
00:07I'm wondering how long this has been in the works.
00:10Was an exemption always a backup if Congress couldn't get this done?
00:14We've been working on this since this summer, Tim, last summer.
00:17So was the expectation that Clarity wouldn't get through Congress?
00:20Never the expectation.
00:22Chairman Atkins' view has been that we can do a bunch of things exemptively, right,
00:27in terms of secondary trading, innovation exemption, clearing, no action of the DTCC,
00:32things like Red Crypto, which my colleague Jim Mahoney at CorpVent has done,
00:39that exemptive relief that leads to activity can inform legislation.
00:45So whether legislation is in place, which will be very helpful to us,
00:49or legislation comes later, and our exemptive relief generates activity,
00:54brings tokenization home to the U.S., that could inform legislation down the road.
00:59So people have been calling this a five-year exemption.
01:01But what happens in year six when an entire market has been built around all of this?
01:05Well, hopefully, if that happens, and we hope it does happen,
01:09and the exemption is successful, and tokenized trading comes to the states and gains traction,
01:14it'll be really hard to remove the exemption.
01:16And who would want to remove the exemption?
01:18Because in our view, tokenization and crypto has been politicized recently,
01:23but it's not naturally a politicized function.
01:26It's fairly bipartisan.
01:28And success of the country, in terms of developing these markets,
01:31should have good bipartisan support.
01:33I wanted to give you a chance to respond to the criticism from former SEC Chief of Staff Amanda Fisher.
01:39Again, I'm going to repeat this.
01:39She posted on X saying, quote,
01:41Overall, this will exacerbate market fragmentation and worsen price discovery.
01:45More venues that don't talk to one another increases the chances for price dislocations.
01:50How do you respond to that?
01:51Well, the challenge with Amanda's view is that tokenization is already happening.
01:54It's happening offshore.
01:55It's happening via synthetics, right?
01:58So, you know, our innovation exemption would require the tokens to have the full,
02:03you know, sort of rights and privileges of the equity, right?
02:07So shareholders get the same rights and privileges they do if they own the underlying equity.
02:11So, you know, they're insured that, they're protected.
02:14If we allow tokenization to continue to grow offshore, you know, that is true fragmentation.
02:19So we bring it home.
02:20When you say offshore, what specific exchanges are you talking about?
02:23There's any number of, you know, I don't know if they even trade on exchanges,
02:27but any number of issuers have issued tokenized swaps offshore,
02:31have issued tokenized debt instruments offshore.
02:34Again, none of the rights and privileges of the underlying equity.
02:37So, you know, there's a fairly famous now debate between Robinhood and AMC,
02:43you know, which illustrated the lack of clarity and the problems to, you know,
02:46that issuers see, you know, if this issuance is done, you know, offshore.
02:50So, look, tokenization, wonderful technology.
02:52We want it done in this country so this country wins.
02:56You know, if we sort of follow Amanda's advice and do nothing, you know, then we lose out.
03:01And investors are potentially disadvantaged because they're exposed to this activity offshore.
03:05But why move through this exemption effective immediately rather than the normal rulemaking process?
03:10Like what could, what had to happen now rather than waiting maybe six months or something?
03:14Well, one of your colleagues broke a story on this exemption earlier in the summer.
03:18So we feel that we've been in a bit of a comment period, notice a comment period for some time.
03:21And we did open a comment file with the exemption on Thursday.
03:26I think it's already, I think, by day's end, there were already five or six comments.
03:31We actually had one TSV application, you know, earlier.
03:34So people have really engaged with this.
03:36So we are going to get feedback.
03:37And that feedback is going to be critical in terms of how we administer the exemption.
03:41Because, look, putting it out there, letting people react to it, us actually working with people to get these TSVs
03:48to market, that's going to be critical, right?
03:50So feedback, it's not as if we're not listening to feedback.
03:54Feedback in terms of administering the exemption.
03:55Feedback also in terms of tweaking and tailoring the exemption.
03:58One theme that we've been talking about throughout the day and really over the last few days has been what
04:04happens if a future SEC chair comes in and modifies this or narrows it or revokes it?
04:11Like, if you're a company that is looking to invest in with some of this, you know, quote, unquote, regulatory
04:17clarity right now, what could you say to convince them that, OK, they actually should spend hundreds of millions of
04:23dollars going in this direction when the future is still uncertain?
04:26Based on maybe a political tide changing.
04:29Well, two things.
04:30First, I mean, from a policy perspective, right, it's incumbent on us to move from exemptive relief to formal rulemaking
04:36and then to continue to work with Congress.
04:38I think our agency did more work with Congress and congressional staff, you know, on clarity.
04:42We were big supporters and we absolutely engaged in terms of technical assistance on the legislation.
04:48So, number one, as policymakers, we need to move from exemptive relief to policymaking and then help with legislation to
04:54make it more permanent.
04:56First and foremost, but then secondly, I think issuers, I mean, if they talk to big proponents of tokenization, what
05:02they'll hear is, you know, there's a generation of investors, the younger cohort that wants to live in a wallet.
05:07They've engaged natively crypto assets.
05:09They like Bitcoin.
05:10They like Ethereum.
05:10They want stocks in tokenized form.
05:13So there's a whole cohort with which to engage.
05:16And then also people, proponents of tokenization will say it's a great technology to deepen the channel between the investor
05:23and the issuer, right?
05:24So you've got direct connectivity.
05:26So these are powerful things.
05:27We're not going to argue for those.
05:29We're aware of them.
05:30That's really for the private sector to determine.
05:32I want to pivot a little bit, but how does the SEC plan to regulate perps or perpetuals?
05:38I mean, how does the SEC and the CFTC plan to divvy up those, for example, when it comes to
05:42regulating predictor market contracts, which are mostly treated like swaps?
05:46Well, there's a lot in that question to unpack.
05:48We actually noticed with the CFTC three filings for security futures on equities on Friday, all in perpetual form.
05:58So we are working with our partner, the CFTC.
06:01That's a joint.
06:02These are securities futures, a joint jurisdiction to get those to market.
06:05And that will likely be a Q4 event in terms of launch.
06:08Did you want to follow, Isabel, on more on prediction markets?
06:12I mean, yeah.
06:13Okay, go ahead, please.
06:14No, please, you go ahead.
06:15Okay, because I want to do, we don't have a ton of time with you, but there's like so much
06:18we want to cover.
06:19You mentioned this AMC versus Robinhood thing, so I do want to circle back.
06:23The exemption says that tokenized stockholders must get the same rights as traditional shareholders.
06:27It gives issuers this 30-day window to object.
06:29The veto given to issuers seems like a direct response to this spat between Adam Aaron and Vlad,
06:36where Adam Aaron called Robinhood's tokenized, his stock without permission, contemptible.
06:41Does this innovation exemption effectively kill the synthetic model from Robinhood?
06:47No, no, because, and I don't want to sort of engage in that debate, but it's different.
06:52You feel free to engage in it.
06:53No, because what Robinhood's doing is offshore, right?
06:54It's not onshore.
06:55So it's not, so the issuer opt-out, right, or issuer consent is not a response to anything recent.
07:03It's a fundamental belief.
07:04I mean, two of our core constituencies at the SEC, retail investors, obviously, but also issuers, right?
07:10Without issuers, we all go home.
07:11You know, so the notion that this great technology would be embraced by our capital markets,
07:17and yet the issuer would somehow sort of be adversely affected, that's why we incorporated this concept.
07:22Okay, and I just, you said it's happening offshore.
07:25In your ideal world, would you want Robinhood to be able to do that onshore?
07:29Absolutely.
07:30And then could you engage in it?
07:32No, no, if Robinhood wanted to tokenize onshore, and you should ask Vlad and Dan Gallagher,
07:37and I'm sure they've got an answer for you, they would simply need to ask the issuer.
07:41And why not ask the issuer?
07:43Why not sell the issuer?
07:43Why not go to the issuer and say, you know, sort of these are the reasons to tokenize with us.
07:48Here's our value proposition.
07:49I bet they'll get uptake.
07:51And going back to where we started, did SEC just give crypto firms a regulatory opening when Congress couldn't?
07:57Because to Tim's question, how long has this been in the works?
08:00I mean, you said that it has been in the works for a while, but the timing is just almost
08:03perfect.
08:04The timing works out well.
08:06I mean, obviously, we were rooting for clarity to pass because it is more permanent, as we've talked about.
08:10But again, you know, listen to our chairman.
08:13I mean, there are all kinds of things that we can do, the CFTC can do, sort of as regulators,
08:17you know,
08:17to the extent that Congress doesn't get there now but gets there later.
08:21You know, it all works well together.
08:23I mean, there are all kinds of things that we can do, the CFTC can do, the CFTC can do,
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