Rewriting the Rules: The SEC & CFTC on Crypto, IPOs & the Future of American Markets

Today, we are delighted to have two of the most important individuals shaping

“capital markets over the next couple of years.”

SEC chair, Paul Ackens is with us as well as CFTC chair, Michael Cilig. Welcome to the all-in interview show, gentlemen. Glad to be here. Roger to be here. Yeah, also with me, my bestie.

Shemoth, Polly, Hippotia, who is known to participate in capital markets? I think there's a great structure here for us to talk. Many opportunities. And then guard rails and things that we should be concerned about in such a dynamic time.

Chairman Ackens, this is your third tour of duty since the 90s.

Things have changed dramatically, so maybe just to start us off here. And I know Shemoth's got a lot of great questions ready to go. I'm just curious, in your time, let's say the last 40 years or so, what have you noted here

“about the capital markets and how they've changed and what's important for us looking forward?”

Well, thanks, it's great to be here and see both of you all today. Well, so I started out as a young lawyer in New York City, doing corporation finance work, you know, new offerings and that sort of thing in the mid '80s. And it's, and there, you know, to be a startup company and to build your products and do R&D and all that, you had to go public in order to sew apple and Microsoft, advanced

micro-devices, all of those companies started off as, you know, IPOs. And so, in recent horror, what says a really, I think, a really good bar chart where they compare the companies of the early mid '80s to today, where, I mean, it just basically demonstrates through the ROI that insiders versus the buyers of the public stock, you know, enjoyed from those early companies, the insiders, being, you know, there's not much private equity

or venture capital back then, but the insiders, meaning the officers, directors, whatnot, they had a relatively thin slice of the entire pie, I mean, everyone made out well, obviously, but the public purchasers in the IPO, you know, made out very well over the years and then had the flying share of that. You look at today, the current situation where, you know, we have robust private capital markets and we have fully today, half the number of public companies as

we had 30 years ago and it's completely reversed. The return on investment is, you know, mainly to the insiders, private equity venture capital, the corporate officers and employees versus the public because they're mature companies when they actually go public. So that's a huge change. The private markets are a very robust and strong, but anyway, but the American capital

“markets are very healthy, I think. When you look at that back then, there was a real requirement”

for everybody to do an enormous amount of work because to your point, these companies were quite young. You'd be a four or five-year-old company and you'd go public because the going public was not about monetizing anything. It was actually a fundraising moment. It was like a series C or a series D.

I guess the answer is, the reason to change was probably because to your point, there's all these

returns and so investors said, well, let's go cap to these in the private markets for us in our LPs. But what it also does is then change the nature of how these markets behave. Can you just comment on the amount of time companies are staying private? The earth of the IPO because it has become a liquidity defining moment in as much more so than the financing moment and whether things should change and if so, how do you want to change that? And why? Yeah, well, it's a free market. Obviously,

so investors, we should allow the market to develop as it will. But you're exactly right. So now it's more of a liquidity event for insiders. And so what we are seeing now is in the private markets, there's a lot of capital where people are willing to deploy it to companies at early stages and then to stay on. But at the same time, there are other inhibitions for private companies to go public. And one of them is the cost of our rules to comply with our rules and the disclosure ones,

especially where you have all the annual report requirements, proxy statements and all that. And so I am quarterly reporting and so forth. So that is one big inhibition where things are not necessarily focused on materiality anymore. Are you allowed to convene a group of people and start to line

process where there's a lot of competing reasons why some people, some lobbies, maybe may want these rules. Oh, sure. I mean, the investors interest in everything, but that is part of my program for this year and going into next is to go through our world rule book. We need to spring cleaning. We need cleaning out the attic, the basement and the garage and to really look at things unlike the agency has ever done before with a real focus on materiality. So that's one.

The second to make IPOs great again is to focus on litigation. And so that is another thing

“that is a key inhibition. I thank for people to go from the private markets to public”

the threats of class action lawsuits and vexatious litigation with every dip in the in the stocks. You have issues like mandatory arbitration, fee shifting, it will lose her pay, that sort of thing. Both of which Delaware has recently outlawed for public companies, but there are other states out there. And then the third is the weaponization of corporate governance around shareholder proposals, that sort of thing. So it becomes a pain to deal with the annual general shareholder meeting and

that sort of thing. So those three are maybe not the only inhibitions, but there are three key ones that have heard over and over and over again over the last 30, some years from venture capitalists, private equity folks, and that's some bankers lawyers, etc. So what are your top priorities for 2026 in this EFTC? Well like Paul, I started off working in private practice at a law firm and right around 2021, 2022 every week, my clients would get a subpoena from Gary Gensler or from the

CFTC and were faced with this onslaught of regulation by enforcement. There are faced with regulations that did not work for their business models and these were crypto firms, prediction markets, artificial intelligence firms, as well as our traditional financial market participants. They were just relentlessly attacked by the federal government under the prior administration. So I really came into government to help write the ship to help make sure that we have purpose

fit rules and regulations for new innovative technologies and financial products. And so a big piece of my agenda has been crypto, our crypto asset markets, as you all, I'm sure tracking there's some legislation that we're really hopefully work with David Sachs to get across the finish line

“in the president, but that's going to be a key piece. So the CFTC would have a”

broad amount of authority over the spot markets and we're getting ready to implement those rules should the legislation get across the finish line. Another key piece of our agenda has also been modernizing and upgrading our rules and regulations for on-chain software systems, blockchain networks and other types of digital asset products, regardless of legislation. It's really important that we have future proof rules and regulations that are ready for the innovations of both today and tomorrow,

and that's blockchain, but that's also artificial intelligence and in other areas of technology innovations. So there's a lot of things we need to change within our regulatory framework to make sure that we're ready to accommodate that. Let me ask both of you guys a question. So this sits up the intersection of tokenization, crypto, and what I would call systemic risk. So if all, if everything becomes tokenized and digitized and 24 by 7, what do you think needs to happen to make sure that

the systemic risks to the system are managed? And here's what I mean. If you go on X, I've gone down

the automated trading rabbit hole. So I don't know if you guys know, but there are these incredible, young, vibrant projects that are basically replacing a Citadel, replacing a millennium, and they're building these automated agent-based hedge funds that are transacting across all kinds of markets all the time. And on the one hand, I'm completely attracted to it.

“I think it's totally democratic. It's the free market. It's like, let's figure out what's going on”

there. And on the other hand, I ask myself the question, where's the kill switch? Or where's the circuit breaker, if you will? And I just want to give you both the chance to talk about how you see these markets converge, and both the positives and the negatives of it. Absolutely, we need to be considering these risks as we're developing rules. And this to me is the whole reason we need to have a purpose fit regulatory framework for these products and asonymous agents and all of that.

Up until now, I think the approach has always been, let's apply the old rules and regulations,

and that's going to work out and make sure that nobody can actually innovate and create something new. So we are embracing these opportunities in the markets. We need to study them and make sure that we understand the risks, but we can develop rules that accommodate that. So having a regime in place that says go build, don't ask us for permission, but we need to study that work with the market

there are unique risks when you have the ability for an agent to go out and deploy capital on basically an autonomous basis, and that's going to be something that our markets we've really

never seen before as regulators, but that doesn't mean we have to stand in the way and block it.

“I think we need to really understand the risks, make sure that we have the right guardrails,”

whether that is operating nodes on block trains or really having technologists that are studying the contracts in the code, but I don't think there's any reason we can't have this technology is built here in America. I agree with that. And from my point of view, there are so many benefits to come from distributed ledger technology for the financial services industry where we're right at the cost of achieving T0, basically immediate delivery versus payment, receipt versus payment

on-chain by digital assets. And so that's pretty exciting. What we may even have to build in speed bumps to prevent fraud and things like that, but for some instruments it might not be possible. But your discussion there are 24/7 and all that I think is really an exciting prospect, but there are challenges from liquidity perspective, having the whole concept of

best bid and offer, what does that mean? So that's one that we will be wrestling with, but ultimately,

at least our approaches and what Mike and I are striving to do in harmonizing the approach of our two agencies is to, and hopefully we'll get a statue out of the whole Clarity Act. Discussions going on the Hill right now. That's really necessary to future proof what we're doing. So there is no backsliding in the future, but we need to focus on, if it's a security underneath and it's tokenized, it still is a security and it still, the security's laws still apply. But it's up to us to make sure

that our rules are fit for purpose. And as the whole purpose changes and as the delivery mechanism changes, we need to accommodate that. Unfortunately, in the previous administration, you know,

we said, "Oh, come in and talk to us. We have a simple form for you to fill out. It's on our

website." Well, ha, ha, it's called an S1. And it takes lots of lawyers and accountants to try to figure out how to do it for an existing company, much less for a new digital asset, the crypto sort of asset that, you know, where the form is completely in opposite, there's no board of directors, there's no offices around the country, around the world, or whatever, it's, you know, just the thing

“needs to be adjusted so that it is fit for purpose. So that's what we're striving to do,”

going through a rulebook to make sure it can accommodate the new technologies. So let's build on Chemoth's conversation here in his points. One of the key dangers and innovations, opportunities in the market is leverage. And we see it obviously hedge funds have been doing this for a long time, starting to see it in prediction markets, Mike, and we're seeing it in crypto. What is the proper amount of leverage and who should set those rules? Obviously, you have Congress

making laws, you're responsible for executing them, Chairman, in order to make sure the markets are orderly and that you protect investors. So just walk us through what you think is the proper amount of leverage and your framework. And you've been at this for a while, as we mentioned, how has that changed over time? Education is a bit on how we got to a world in which Bitcoin investors might be a hundred X or 50 X and people might be leveraging their prediction market.

And it seems like it has a function, but it also seems like almost every story starts and ends

“with leverage. Right. Well, so I think it depends on the marketplace and on the type because obviously”

of banks, they're all about fractional deposits and all of that and lending. So we've gone through that back in 2008 and 2009 and the financial crisis and going all the way back to 1929 and then even the 1800s obviously, all the repeated problems with financial disruption and financial markets. So we have to be careful about that. There are all sorts of rules for broker dealers, for banks, for in the futures markets, for margin and all of that to like put a lid on some of this and

to have some controls around it and transparency. You know, in the futures markets, the exchanges have a lot of power. You know, if they're members and over margin and you're closing things down, we saw that even in the COVID time and whatnot when the markets got hairy there. So, you know, those things are constantly looked at. The fed plays a role as well, you know, with margining

new markets and then see what's analogous and see what authority we have and then make sure that,

you know, we're not killing trading, but we also have to keep an eye out for the future to make sure that we're not allowing things to then blow up at our face. Here's a question that may sound dumb, so I apologize if it doesn't. This is to both of you. I think a lot of people don't understand, or at least I don't. Where the SEC and the CFTC cooperate most effectively, but then as with all things, where does coordination maybe break down? Could you just explain

that to people so that we understand and level set about what the expectations of each organization aren't

“how you guys actually work together day-to-day when you have to? Having been around the two agencies”

now for 30 some years, I can really say that, unfortunately, the two, and not necessarily at the commissioner or level, but certainly at the staff, there was a lot of sniping back and forth, so I compare it to two fortresses with a new man's land in between. And so the new man's land is littered with the bodies of would-be products that people were unsure like, is it CFTC, is it SEC,

and the crossfire between the two just killed the products they never went to market. Single stock

futures portfolio, margining, which has so much potential benefits for making the national market safer and more efficient. But Mike and I are setting out to change that, and I'll let you go forth from that one, Mike. Absolutely. The two agencies have unfortunately, rarely worked well together, and what we're really moving forward in a new direction with our harmonization efforts. We have a memorandum of understanding that the two agencies are working on hammering out and getting

in place that will allow us to share information, coordinate on specific issues, and make sure that we don't have this turf battle between the two agencies going forward. And part of that starts, of course, at the top, German hackins, and I work very closely together to make sure that we're coordinated on policy, but also at the staff level. So when exchanges and brokers and market estimates are coming in to register or to offer new product, we need to make sure that

there's not this fighting over where they're supposed to be registered and what they're able to offer some of these products across jurisdictions. A great example are some of the prediction markets products, some of them involve public companies and securities, and others are related to things like sports and politics, and that crosses jurisdictions. So we need to make sure that we have clear lines, and that our market participants aren't subject to duplicative regulatory frameworks,

and German hackins, and I've talked about substitute compliance regimes, where you have a primary regulator at the SEC or the CFTC, but we work together to figure out the cluster sexual products, so that you don't forget stuck with duplicative regulation, registration. Another area is crypto, where we've got blockchain networks. We've got smart contracts. We've got protocols that have both securities and non-security trading on them, cross-sturstictually, and we need to make sure

that the standards are consistent, because it won't work if we've got one blockchain for securities,

“and another blockchain for commodities, and nothing in between. So I think this is really critical”

that the agencies bury the hatchet and move forward with a harmonized and coordinated approach. As we look towards the future, I mean, to build on either two separate regimes, and there are differences in approaches based on the statutes that govern us. But we also, speaking for the SEC, we have a lot of flexibility with respect to exemptive authority and why not. So my dream is, one day, and I hope we can achieve that here in the next couple of years, to have like a super

app approach, where there is, okay, blurred lines between the two, but we've coordinated our approach, we've coordinated to reduce the friction between dual-ie registered companies and to make everything work very efficiently. I want to ask a question around prediction markets. Let me try to set this

up the way that I think about it. So I think that there is this inexorable tension that's always

existed, and we'll always exist between the investor protection that has to happen when you have publicly traded securities or commodities or derivatives. But then the capital formation process that on behalf of the company or whatever that wants to get access to this, and there's always been this kind of back and forth tension. The best example of this is Reg FD, where we said at some White hate, let's hold the trains. If one person knows something, every person needs to know that thing,

“makes a ton of sense. When you get into prediction markets, I think that this is going to stress”

test this assumption to the end degree. And the reason is that there are just certain things that some people know, and we see it now every other day, there's an article about some prediction market that

it's right for this question to come up all over again. The corollary to this is Brian Armstrong

tweeted something, which I thought was quite an interesting comment about prediction markets, which is that certain prediction markets only thrive on insider information, which is to say that

“they know a secret. And so that's how the market can exist and actually conform to an outcome,”

and that creates these two sides. I just want to get your thoughts on prediction markets. What role do they play? How do we balance the capital formation that the market creates versus the investor protection, the insider trading that may be happening? It's a very complicated space. I'm not going to hold you to any of it. I just want to think out loud. These markets aren't new. We've had them since the 90s. They started off with the electronic market in Iowa, where folks

were predicting the political outcomes on elections. We've been surveilling and monitoring and policing fraud manipulation in these markets for a very long time. And to the extent that there are contracts in certain markets, for example, what color gatorades going to be, you know, dunked on the the coach at the Super Bowl. Some of this stuff is potentially at risk of being manipulated. And there's a risk that somebody on the team is able to go trade because they have

special information about the gatorade. They put in the cooler. We have the hundreds to make sure

those contracts should not be listed. And it's on the exchanges as the first line of defense

as self regulatory organizations to evaluate each contract and certify to us the regulator, the CFTC, that those contracts are not readily susceptible to insider trading, manipulation, fraud, and the like. And we saw actually recently called she one of the prediction markets brought to enforcement actions against participants, one involved a contract related to Mr. Beast's YouTube channel, where one of his employees insider traded based on information of when a

video is going to launch what was in the video. And the same sort of authority that you have at the SEC around a duty of, you know, care to your employer is a prevalent in our markets. So to the

“extent, somebody insider trades on information, we police that. And it's really important for”

folks, you know, it's not just securities insider trading. We've got it in the commodities world as well. And the exchanges are policing that we're policing that. And to the extent folks are listing contracts that are susceptible to manipulation, there's consequences to that. We can reject those contracts, or we can police fraud on the back end. But there is a cop on the beat there. And I do want to caution that insider trading is not something that's necessarily allowed in our markets.

But we do believe that markets are truth machines that they do create a really powerful source

of information. We've seen the hoax is the fake news and the manipulation of the polls. The prior administration tried to ban these markets ahead of the 2024 election. And they really increased turnout. It showed that they were correct when a bunch of the fake bulls were put out right out of the election. So we really have to foster these markets here in the United States

“and make sure that they don't flourish and rush somewhere else where they really will turn out”

to be a source of disinformation. So we do believe it's valuable to have that trading and information flowing through the markets. But insider trading is still illegal in the US. Take us through some examples there, Mike. It's very obviously clear to people who work at Microsoft. If some new version of softwares coming out or the sales are dynamic and the number has haven't been released. Obviously you can't trade on that. You're going to jail. It's insider

trading. If I am a reseller of Microsoft software or a friend of mine works at Microsoft and says, hey, things are going great with this new product we have. And I make a thoughtful, you know, wager on a prediction market. Or if I intentionally do something like how Mr. Strieker at the Super Bowl was one that came up recently and I actually am the Strieker, not that I'm planning this to make the bet. There are those rules. Where do they live and who's responsible? Is it the

prediction market? Is it you or is it TBD because it does seem that there's a bit of gray area has some officer of alluding to here and does this need to be codified and this need to be a bit more education for the public on it? A lot of the gray started off with the prior administration really trying to ban these markets and not facilitating proper rulemaking and guidance in the markets over the past year. You know, I've been in the office for a couple of months now for the past

year and the acting chairman's leadership. A lot of these products have really exploded in popularity. And so now is the time to put out guidance and make sure that we're not regulating my enforcement as the prior administration did. But we are setting standards. We are making clear what our statute says and that is that these contracts cannot be listed if they're susceptible to manipulation.

and reviewing the contracts. And they certify to us the regulator that they are free of the risk of manipulation. And if there's manipulation of markets, we're policing that the exchanges are policing that. So there are controls in place. But a lot of these questions says to what's

“susceptible to manipulation are up for debate. And I think there's some risk. There's”

possibility. You know, your example at the street or if somebody can just jump out of the stands and go street across and collect on the contract. I mean, that's something that does seem potentially at risk of manipulation and and fraud. And so we need to be careful about that. The exchanges need to be on the lookout for that. And if they're not, there's consequences with us as a regulator.

The markets should take the first step and make sure they're thoughtful about which ones to fire

up to begin with. And we have seen that they are not saying, hey, this dictator is executed. They're saying this dictator is deposed or is no longer in power. That seems to be a very tricky one as well, yes, Mike. Well, there's got to be integrity in the contracts. Our rules require that the contracts have, for example, certain fundability and standardization. They're derivative contracts. This isn't simply just betting at a, you know, with a booky and the casino. And so each contract

that's, that's correct. It, you would look for, is it tied to an election or is it tied to a very specific event? Is there a risk that that event can be manipulated or insider traded? And the exchanges are evaluating that. And there are instances where something is insider traded and it wasn't something they could have seen. It wasn't readily susceptible to manipulation. And so they police that, they bring actions against the traders and calls she did just this with some of

its fines in the past few weeks. Let me ask a question about quarterly reporting because maybe where there was the most manipulation in the past was around that, right? People would try to frontrun these quarterly reports. They would try to make guesses invariably you would find some people that had crossed the right red line. But recently Paul President Trump said, maybe we should move to six month reporting for one year reporting. And it was really well received by a lot of people.

Do you think that quarterly reporting has sort of also killed the IPO, meaning when we think about making an IPO great again, just the complexity in the burden of such short termism, has it made the markets better or worse do you think? Yeah. Well, that's a great point. And I just wanted to add one kind of a little note to the previous discussion there that if something is a tokenized security, you know, the federal securities laws apply. And so that goes for insider trading with

respect to trading securities, whatever they may be, you know, on the online or on an exchange floor,

“wherever. But then to your point about the cadence of reporting, I think that's an important one.”

And we are going to come out with a proposed rule and seat comment on it. And I frankly am a bit

agnostic myself personally because if you look at things, we haven't always had quarterly reporting.

In fact, when the SEC was, you know, forward back in 1934, it basically codified the New York Stock Exchange rule book, which at the time called for annual reports. So annual reports prevailed until 1955 and the SEC went to semi annual reporting. And by the way, the UK did the same thing around the same time. And then in 1970, only did things go to quarterly. And then the UK parted what they did quarterly as well. But then in 2014 or so, they they changed to go back to

semi annual. But if you wanted to still report quarterly, you know, God bless you and go ahead and and do that. So we're still at quarterly. And so the president did Sonata, you know, electronic message about that. And so, but our staff was looking at, so we're looking at what we call "filer status." They're all sorts of different categories of fylers, what different rules like large accelerated fylers, accelerated fylers, emerging growth companies. And so forth. So we're looking

to kind of simplify all of this. And part of that also is perhaps smaller companies could benefit from, you know, reduced, you know, cadence of reporting. But maybe not they they have trouble finding analysts to follow their stock. That's another thing that might be an inhibition to go public for small companies of maybe analysts want quarterly. Maybe they don't. Maybe they would prefer semi

“annual too. So I think this is a great debate to have right now. And you did have Barry Deliver,”

you've been taking the other side of it where he's like, "I'm just tired of giving predictions. I'm tired of playing this game'smanship." Quarterly, I'm just going to release our accounting numbers

every month. And y'all can have fun with your numbers as much as you vibe. But that's amazing

Jason release a stream. And there'll be people that have, you know, developed agents and develop these AIs that will just process all of that. And they will then publish out a dashboard. And the whole thing will be almost real time. It could be real time. Yeah. And there are services that do semi interesting things already that you can buy that. Maybe people with budgets for data search streams can do. Let's talk a little bit, Chairman Atkins, about the history of accreditation in this country.

“I think when you brought up Microsoft and the early part of your career watching this company”

is go public. I did a little research while we're here when you were speaking. Microsoft and Apple went out with a thousand and 1,200 employees each. And about $400 million in revenue,

in today's dollars, $120 million in those dollars. So obviously, there was this incredible

opportunity for you to create and place a bed on these companies as an individual with the stock trading account. And maybe move from, you know, one tier in societal wealth to another. And that's a big part of the American dream. But as we talk about private markets, the SEC has ancient rules. Now, going on close to a century old to protect investors, called accreditation laws. They apply to 95% of the country, apparently, and about 5% of us get to trade in some way in private companies,

where the value is created. The SEC has been challenged and charged with changing these evolving these, and it never seems to happen. My perception is which SEC shares ever going to take this on, because, safe, it's just easier to keep the status quo. But is there not an argument? I know there are some legislation now to create a sophisticated investor test. So instead of you inherited

a million dollars, you're qualified to buy stock in Uber when it's a private company. Why not a

sophisticated test like a driver's license? And you learn how to trade in private companies, and you get to participate in that market instead of just saying to people, well, you can only participate in sports betting or blackjack in Vegas, but you can't. If you were an Uber driver or an Airbnb host, or an HR person using LinkedIn as a private company, buy those stocks, where you have an insight, and you have an instinct into maybe purchasing. So talk about

the accreditation test and sophisticated investor tests, and you're a personal beyond it. Yeah, well, great point. And so, well, here's one chairman who is going to tackle that issue, and so we intend to do that, the accredited investor definition. And so interestingly, I mean,

“to your point in the statute, in the investment advisors act of 1940, I believe, or investment”

companies act of 1940, there's a definition of that and it includes knowledge, not just where with all or sort of assets that you have, but it has the word knowledge in it. So to your point, why can't we have, and people suggested this over time, equivalent of a driver's test, or something like that, or recognize somebody who has a CPA or a CFA or whatever, but maybe a type of series seven, but you know, not so complicated is that the finra administer. So part of the thing is like

who's going to make the test, who's going to minister it, and how do you get there? But anyway, but we can, those are issues that we want to tackle. And I remember when this issue came up, when I was a commissioner back in the arts, there was one comment letter that came in that really struck me, and it said today, I am able to, this is the comment letter, the comment or speaking, today I am able to buy a hedge fund, or private asset, or whatnot, but tomorrow once you raise the

standard of, you know, I have to have x amount of money, assets, or income, or whatever, I won't be able to. So what's changed? Why, why are you going to take that away from me? So why does a finance professor who makes a hundred thousand dollars in the lives of an apartment and doesn't have any other assets? Why is he not able to your point to invest in some of these types of securities

whereas an eras who just came into ten million dollars or something like that suddenly is,

and she can hire people to advisor, but they could be dummies too. I mean, who knows what they are.

“But so anyway, so I think we have to take a fresh look at all this, and we are going to do that”

here this year and with a, oh, the proposed rule to address that. Have a question around the derivatives markets? Well, actually, before I ask a question, I want to ask about the futures markets, which is you have an enormous number of high frequency trading firms that really dominate futures volume. Can you just tell us both the value that these folks are providing? Is it truly

arb. And if it's the latter, where do you think we need to do necessarily a better job? I think

the best example is if you look at this, the volume of futures activities and spot prices of certain commodities, the basis is starting to kind of get out of wax. Just tell me about the market participants part of these derivatives and futures markets and what you think about what's going on. Our markets have three core types of participants. We've got the hedgers. We've got speculators and we've got market makers. And liquidity is really the, the result of all three.

So there's going to be market participants that really rely on whether it's a cattle contract or a credit default swap product. They need to, to enter into these agreements to hedge

“key risks in their business. And then you've got folks that are willing to provide liquidity,”

whether they're speculating and taking another position on that for, for their proprietary basis or they're doing so to make markets in earnest spread. And that's right. We're, we're regulating these markets. We're making sure that the trades that are going through have integrity and that folks aren't, you know, washed trading and trying to manipulate markets. There are some strategies that raise particular risk of manipulation or fraud.

And we police that, we've taken actions in the past to make sure that the, the changes are not subject to the illicit behavior and and trading. And the changes similar to my point earlier,

really, to prediction markets are a first line of defense here as well. They surveilled their

markets and weren't constant communication with them as well as the traders were oftentimes sending information requests to traders about their activity. So I do believe that these all three participants are very important to make sure that our markets are liquid. So on that last point

“that you just made, which I think is a very good one. Post GFC, there was like the central clearing”

functions, right, to make sure that derivatives contracts were getting, not getting out of control. And we had a good sense of systemic risk, but it turns out that one blind spot everybody has is to these bilateral swaps. I mean, I've done certain bilateral swaps with certain counterparties. It's not clear to me that you know that on the back end of it. Can you talk about that? And how you think that that should stay the same change? What that is, whether that keeps you

up at night, but there's you keep us up at night? Sure. Well, I'm not a huge fan of Dodd Frank, but in the wake of Dodd Frank, we got swapped out of reporting. And these bilateral over-the-counter swaps are now generally all. There are some exceptions, but sent to swap

out of our repositories where we're getting information on a daily basis as well as these third

party swapped out of our repositories that compiled that information. So the markets are much less opaque. We have transparency today, but my concern about the swapped out of reporting regulations is that they have really been a tool for enforcement divisions in the past where you've got so many different fields. It's really difficult to characterize each different type of swap. I'll tell you when I was in private practice and folks started entering into Bitcoin swaps

and crypto swaps. Characterizing that is a type of derivative relative to cattle and wheat and other commodities really was a whole lot of legal advising and a lot of wasted money frankly. So we need to simplify. We need to make sure that our swapped out of reporting regime is rational and coherent and make sense for the everyday participant in the market. You shouldn't have to go hire a high-priced law firm just to enter into a risk management tool. But these markets, these developments post-dot

Frank, some of them make sense. Some of them don't. A big priority of mine is going through rule by rule to make sure that all of our regulations are really the minimum effective dose. I have a question for both of you. Is there something that if you could borrow from the other person's regulatory toolbox, something that they can do that you cannot, that you would love to also be able to do? From my perspective, one thing for new products that the CFTC has is called self-certification.

So for repetitive products that once you go ahead and approve the general type of framework for it, then it's self-certification by the markets and by the people who are of course coming forward with the products. We don't necessarily have that kind of thing. We do for some things like for ETFs and whatnot where we've come up with rules that then, you know, then it's up to the market participants to abide by the rules and have their product conform. But on so many other

products, we have a much more complex labor intensive let's just say approach to it that requires approval by the staff and the commission and that sort of thing. It whereas it's much more streamlined

“on the CFTC side. On our side, there's one regulation that I think's been really effective on”

the SEC's jurisdiction and that's the alternative trading system. So on both sides of the house,

with a rulemaking that allows broker dealers to then set up an alternative trading system and it's

“really an exchange light framework and I'd love to see that on the CFTC side as well.”

Chairman Mackins, I want to talk about fund formation and the power of venture capital in the US economy, 20% of the GDP of this country comes from venture back companies, 40% of the S&P. Obviously at the Mack 7 contributing heavily comes from venture companies that we all know and love their products. But fund formation for venture capital is ancient and there are massive limitations on it. There's two ways obviously to address this. One is the path to accreditation

for people to become sophisticated. We just spoke about that. But the other is how many people are allowed to participate in a fund. As but one example, when I raised my last fund, I had well over

$100 million in accredited investors who wanted to have a small bite of the apple and get into venture

capital. But I can only accept a hundred. I can only accept $10 million and doesn't make any logical sense because in fact it would be better if more people could put in smaller amounts, many hands makes for a light work and more people could participate in this. This would have a dual impact on the economy. One, more startups would get funded and two, more individual investors would get to participate in this very closed ecosystem known as venture capital. So I was wondering

your thoughts on venture capital specifically and formation of what is the driver of the U.S. economy? You raise a great point. But a lot of that that you're talking about with funds is stichtorally mandated. And so there are two big exemptions in the investor company acted 1940 that are a pertinent here. And so those were adopted by Congress with a lot of debates and whatnot. And so that is more difficult to change and there are certain ways that we can change them. And

so we are going to look at this and there you have a lot of different types of accredited investors. You have qualified purchasers. You have, you know, also qualified institutional purchasers and whatnot or buyers or other. And so all of these things need to be, you know, I think looked at a new and where we have the authority through our exemptive power under the very statutes. We'll be able to use that. But I do think that especially now as we talk about

opening up private funds or private types of products to a broader range of people, including to, you know, 401k plans and whatnot. We're working with the Department of Labor and the Treasury

“Department to address this. And we all feel very strongly that here you have to have good”

guardrails, but you just can't open up the barn door wide open that we have to have standards for what can go into these sorts of, you know, plans for 1k plans, pension plans. But retail investors are already exposed to the private markets through their pension funds and insurance companies and all that. So all of this needs to have a, you know, fresh look and, you know, come up with a good

new ideas to basically provide democratize it. And just as a quick follow up there, one that I think

would be super easy is just, hey, 10% of whatever your last two years average income was or, you know, no more than 5% or 10% of your net worth, Michael, there are some common sense ideas here that would increase the amount of participation. Can you think of Michael any reason that we should restrict Americans from being able to participate in venture capital? Is there any argument here? If there were some basic level controls as I've outlined here, sophistication, taking a test or a cap,

“you can only put 5k and you make 150k a year you can put in 15k per year. What are your thoughts, Michael?”

I'm a believer in free markets and I really think that allowing more access to our capital markets is really a powerful thing for everyday Americans. We saw the ICOs, you know, the initial coin offerings were things just kind of moved into crypto and you had all sorts of investments in different projects and they were attempting to get under the radar of the securities laws, even though there are

capital raises with different tokens. And I think the markets always find a way. So allowing for more

access, decreasing some of the requirements around accreditation. I think that's a really great thing for the American people and really will just allow for people to have some skin in the game and maybe they lose sometimes, but other times they really hit it big and it's a great thing for everyone. Nature finds a way, right? Like, don't allow people to participate. They start doing ICOs. And when I looked at them, I looked at a hundred chum off. I said, wow, 99% of these are white

papers with spelling errors in them. These are not the real companies that you and I look at

hey, it went offshore. It went to another stream. I want to talk about just the capital markets globally.

We're in this very unique moment where there just seems to be this separation, where the American capital markets and you choose our tips of the spear have enormous credibility. And then when you look at some of these other capital markets, all you mentioned, the UK, but hey, to say, it's so bluntly, but the UK is a disaster. It is impossible to raise money. It's impossible to raise money or innovate in a European exchange. It's a little bit easier in Asia, but it's complicated.

But then you do see some of these upstart exchanges that are trying to push and innovate in Abu Dhabi and KSA, et cetera. If you just take a step back for a second, I just love your perspective on what's going to happen to capital formation. And specifically, what does America need to do to get

“this next couple of trillion dollars to be brought on shore? Well, first of all, I think, you know,”

our capital markets are the end of the world. I mean, it really is amazing when I travel through

Europe or Japan and the UK and in Middle East and whatnot, people really envy our huge capital markets and how robust they are, how fair they are, and it goes back to our rule of law and the forcefully of contract. And that's the essence of what is the foundation of, you know, our freedom and our ability to, you know, do innovating and have all these new products. So they would love to have that plus the, you know, the, I guess what they also really envy is our risk appetite

here in the United States where people are have an equity investment culture and that is really largely absent in Japan and in Europe and in a lot of ways they can't get out of their way

because of their own way, because through their regulatory system and whatnot, I mean, ours is bad enough,

but they, in many ways, take it to a different extreme with a very narrowly constructed code that

“really hamstrings them and is not very flexible in the future. So that's what, as far as if we can”

open up our markets as far as, you know, some of the things that we've been talking about here, as far as new products allow innovation. They take place here on onshore and then also to fix some of the things like the accredited investor and investor standard and that sort of thing, I think we, you know, can then to your point, you know, a turbo charge to continue our growth. Crypto has been a bit of the wild west and we have things NFTs, ICOs, meme coins, they feel

they look like stocks to be of all whether it's dollars, time, Trump, or dollar, sign doge, whatever it is. But they have a ticker symbol, they have a chart, they trade like a stock, what do we need to do in regards to crypto? What, what should, and where is the line between launching a crypto token and the public being protected? They're chairman-ackens versus, hey, it's a publicly traded stock because for a lot of them, they get into it and they're the

suckers at the table. It feels, it looks, it quacks like a duck, it looks like a duck and so they buy it like it's a duck, but it's not a duck, obviously. So what, and then this was Genslurs, I think, you know, maybe a logical point, although his execution was poor, there was a logical point to, hey, we have rules. We can't let you break these rules for your dollar, sign, whatever, if everybody else is doing their company properly, you know, and following this set of rules.

So, so how do we evolve that to protect, which is the top mandate, the consumer? Well, that's a great question. I think the real problem has been definitely, and so the kind of the very vague lines, and so people weren't sure they were, and as Mike was talking about, you know, people played, paid lawyers a lot of money to try to do it. Some lawyers just gave happy talk, and then people got in trouble with the SEC and other lawyers just said, "Forget it,

go offshore." You know, there's no use even trying here in the United States. So that's part of what you know, Mike and I are trying to do as far as harmonize. So, if it's a tokenized security, then that's one thing under the SEC's rulebook. But if it's things like tokenized, so digital coin, a digital token, sorry, or digital tools, or digital collectibles, then those sorts of things fall under the CFTCs oversight. And their rulebook is really more

“opposite for these sorts of things than ours is. But you have to have a logical oversight over”

things like that to prevent fraud, because the one thing that really attracts people to our markets

we have protections around, as we've been talking about, insider trading, and things like that,

“trading on material, non-public information by insiders. That is, you know, so we have a robust”

so thing for that. Mike, I'm back that for us, and maybe you could add to it the role of sometimes we see celebrities promoting these things, and it just feels like it's a bit of, it was a bit out of control there for a bit, and your job is to make it controlled. So what should the crypto community that wants to release utility tokens and participate? What do they need to know going forward? We have to separate the capital raising activity and selling something for the

purpose of raising capital to foreign business when you're going out there and giving folks the white papers and the business plan is and making promises to them from the actual thing that people are buying. The tokens themselves and many of these cases are just goods as Chairman Acton said they could be a digital commodity, something that's an input for a network like Ethereum or

“Solana or anything else, where you're using it for a function within the network. But the capital”

raises something separate and they could be collectibles like an NFT or a tool that you're using to run a command on a network. That sort of stuff, I mean, their their commodities are their goods or things that potentially not are of us regulate. We don't go out and regulate widgets that are sold as part of a capital raising. The SEC's brought many cases over the years related to fundraising with chinchillas and whiskey barrels and all sorts of things. But we've not had those trading

securities in our markets and we don't want that for the digital world either. As we start to wrap here, I have a final question which is both of you sit on top again, as I said, the most in my opinion. Important capital market in the world. You guys are responsible for the well functioning and the pass through of literally tens and tens of billions of dollars. You are responsible for enabling and not slowing down just to create vibrancy of the American economy as reflected in these

markets. That's the upside. The downside is that that also comes with a lot of pressure when you're in the bowels of the job and I obviously I don't know what that's like every day. But what are the

couple of things that the two of you think about at night? What are the critical risks to this

“experiment that you just know you have to get right or the critical issues that in the next year”

to you must get right for all of this to continue. Maybe Michael start with you and Paul. Two big things concern me. The first has been this push of innovation offshore. We've got to get it back here in the United States. That's really what's built this country over the years. Thomas Edison didn't have to go ask for permission to go innovate. We need to make sure that our builders, our visionaries, our entrepreneurs have the courage and the confidence to come and develop new

things and build here in our financial markets. That means blockchain. That means artificial intelligence. That means prediction markets. We'll set the rules for it. Make sure that it's possible to do it. But we don't want everyone fleeing to the Cayman Islands and the Bahamas and Russia to go do this stuff. That's really concerning to me. I want to make sure that the folks are back here in the U.S. The second piece, of course, is the risk to our system. If we've got too much manipulation

and set our trading fraud, why not trade elsewhere and there's real risk to our investors. So, making sure that we have the right controls and the customer protections, we can't have another FTX in the United States where funds are lost and there's an absolute fraud on our American

people. So, that's a really critical concern. Balancing innovation with our financial system,

the integrity of our markets. We're going to do it, but it's definitely hard work ahead of us. For me, I agree completely with the innovation point that we need to make sure that we are allowing people to innovate here on shore. The FTX one is a great point where there was one part of FTX that didn't implode with the rest of it and that was their investment in a swap trading platform called Ledger X, which was supervised by the CFTC and the examined and they had their accounts

segregated and all that. So, no customers lost any money through that and it still lives on you know, today. So, my worry is that we're finding always the last battle. You know, the French built the Maginou line and that didn't work very well and then so we had the same thing coming out of the financial crisis. So, we have to think ahead. We're confronting a lot of new challenges. So, artificial intelligence, of course, you know, is developing very quickly and

people whose who've lost their entire retirement nest egg through fraud where there are confidence people who, you know, through all sorts of manipulative types of communications, then draw people and get them to, you know, send off their their money elsewhere or even their their coin-based account or things like that where they give passwords away with, you know, these confidence artists out there. So, we have to be a tune to that. We have to be the cop on the beat because that's the real threat

“that will lead people not to necessarily, you know, invest their money here. But I think, you know,”

we are a cop on the beat where, you know, out to make sure that we can find the bad guys, but we can't then put too much overwhelming, you know, restrictions on the good guys so that they can't innovate and can't come out with new products. Those are great answers. I think both opportunity and policing. I just want to end with a final thought as these markets open up, wagering stocks, crypto. We do have an issue a second order effect that's happening young men,

18 to 30, 45 percent report that they've had a problem with wagering gambling and 10 percent,

meet the addiction criteria, a third have placed a bet. The upside to this in my mind is we have a generation generation bet that understands capital, vocation markets and how to participate in them, but I'll do a downside. Out comes soon. Out comes. Yes. And to really think about that, there's obviously a downside here which is a very young developing brain might not be ready for that.

“So, so Mike and then Chairman Ecken, what are your thoughts on how to protect these young men?”

Who? You know, they're they're excited about participating in these markets, but maybe their brains aren't fully formed and ready to take on that responsibility.

Think education is critical here. We need to make sure that our market participants are providing

information to participants and we don't regulate the casinos and the gambling and all of that, and I but I do believe that that is a key piece of their initiative as well to make sure that folks are informed when they're coming into the casinos. We should do the same at the federal level make sure that our participants voluntarily, of course, this isn't necessarily something that that we mandate on our derivatives exchanges, but I do think it's an important thing to

be informing the public. And of course, we've got really robust standards on brokers and on our exchanges, and they're making sure that the person is participating in the markets have the ability to participate, that they're suitable to invest and participate in our markets. And I think those controls come on with some education are really going to be important here. Chairman Ecken, I agree with that, but it's not just education of the many cases children or adult young

man and women too, but it's also their parents, especially for the children, where I think there is a large ignorance on the parents part as to what their kids are doing and with their phones or elsewhere and you're getting involved in these things. I hear that from a lot of my friends, so just, you know, apocryphally there, but so we shouldn't forget that. The schools are important as well, but the signs of that sort of addiction are really important to recognize that and then

take action, but we have the same thing with other sorts of gambling, lotto or lotteries and that sort of thing. So it's not just in the securities markets or crypto markets or elsewhere, but it's also on everyday things that we have to really watch out for. I love your suggestion, Mike,

“because I noticed Robin Hood now, if you want to go trade something complex, puts calls,”

you know, spreads, everything. It forces you to go through a little wizard to make sure you

understand it and to teach you what exactly you're doing. So I think education, so critical and it

can exist at the platform level. This has been an incredible hour plus. I want to thank you to gentlemen for joining us here on the all in interview. And we'll see you all next time. Bye. Bye. Thanks gentlemen.