Advancing a Modern Regulatory Framework: A Conversation with SEC Chairman Paul Atkins

And for this There's lots to do, but looking forward to comments. Yeah. So talking about that, what can we expect to see moving forward in, say, the next three to six? Months coming out of the agency? Well, so we're focusing on areas like corporate disclosure. That there's the backbone is called Regulation SK, which the agency has not really looked at, you know, for so many years. And so we'll be going through it to try to weed out things that have have piled up. And so I called it our spring cleaning, and where we're looking at not just the attic, but the basement and the garage. I hope your house looks like, but mine certainly needs that. The SEC's house. Definitely needs that. So what this is all with a goal of making America attractive again to invest in, which should certainly is, but to make basically IPOs great again is my goal because our public markets have the number of the public companies has decreased This path, more or less, what it was thirty years ago. So the Russell 5,000, I joke, is the Russell 3,000 now. So we need to refocus. Capital markets are important. Public markets are very important for valuation, if nothing else. But democratization of of participation in the capital Can can you give us some examples, some details on how you want to make IPOs great again? Tell us kinda how far you are in that process. Well, so in general, the whole focus of what we're doing is and I call our active strategy. So advance, clarify, and transform. So advance means to modernize. And so all different areas and, you know, with making high food straight again, digital assets, and other things, we need to modernize the SEC's approach to embrace innovation and to embrace the the way that the capital markets are functioning now. So are three different pillars that we're focusing on with IP And so the first is just the cost and complexity of disclosure and, you know, if you look at I a couple months ago, I had to do back to back here in this in congress. And so I brought with me the entry 10 k, and it's 970 odd pages. And so just that that amount of information think, is hard for investors to deal with. So we need to refocus on financially material you know, what does that mean. And then so we should demand no more from public company than that. And then secondly is litigation issues. That, you know, frivolous litigation that devil's our capital markets so look at the states up through permit, military and fee shifting. We will let people go public. And that's never been a a rule for or against that at the SEC. But, unfortunately, staff action and homes over the last few years have prevented companies with that and their bylaws are going public. And then finally, is the recognition of corporate governance. Shareholder proposals, and that sort of thing. To get away from special interest groups having an axe to and then and then abusing the corporate governance process from their end. Yeah. You mentioned your act strategy and the see and act clarify. And providing clarity for the crypto assets or digital assets markets is is one of your top priorities. And, you know, I know the SEC, you assisting congress in its efforts to pass market structure legislation to provide clarity in terms of the jurisdiction and authorities and grant new authorities to you and and the CFTC But as Congress continues its work, you're using your existing authorities to write clear rules Tell us about your efforts there. We are. So this is really just the the poster child of how, you know, the the problems that I found coming in were regulation through enforcement, in the digital asset space basically, innovators offshore. And so we need to as the president said, we need to focus on having innovators to be able to innovate here in The United States American laws and for the benefit of American economy and American investors. And so with that, we are working in the with the CFMC. The president appointed Mike Ceiling, who was the counsel at the SEC in my office for our task force. So he is now chairman of the CFTC. So we are meeting regularly, and so we came out here a few a couple months ago with an interpreting of the police. Joint action by the two agencies. What we adopted a taxonomy focusing on what is in the SEC's bail away less than the CFTC's bail of wicks are like. In the 15 hundreds when the vote divided the world between and Portugal. We know where our where we are in in collaborating. Sure there's still overlap with the with the SEC and the CFTC. Working to know we can solve that. But basically, digital tools, digital collect digital commodities are all all on the CSTC side. Tokenized securities are in our then the Genius Act took care of stable coins, that's with the bank regulatory So we are driving ahead in our lane, but we wanna make sure that there's no gap left between us and the CFTC. Have sufficient regulatory powers just like we do. And so we need to basically divide and conquer and make sure that we cover adequately the markets, and then in the best the confidence to invest through The United States. And we've seen over time, like, for example, with FTX, going offshore, that was one of the things that, you know, was enabled stand back and free to keep his fingers in the till. And abuse, you know, his customers and investors' investments in capital. Yeah. For those of us that have worked in either two agencies and calling for a long time with you and chairman Selig are doing, is strikingly striking involvement. So what you're doing. And as you point out, it's not only providing clarity for market participants, but it's actually helping to protect investors from more bringing stuff inside the regulatory framework. So and making it subject to enforcement by the agencies. So on enforcement, you mentioned regulation by enforcement You're stopping that, the prior administration had been doing. You'd be quite critical of what they've so the prior administration had done enforcement. And you said your approach is gonna be to recenter the SEC's enforcement program to focus on fraud. Like you to talk a little bit about that, and and I know that today is the first day of your new enforcement directory. Can you talk about what the goals are? That's really great to have Dave Lukak join us. So he's known for years, and he's competent and accomplished. And so he is aligned on your goals for the the division. So I really look forward to having him participate. But basically, again, our focus is on not quantity of cases, but on quality of cases. And so in the previous years, the FCC for you know, was focusing on, for example, you know, the the lack of saving of of tech messages and whatnot, a very financial services firms. There's not one instance in the suite that says did where they found the fraud or or a manipulation in the markets due to those sorts of issues. I of saving them. But the SEC just went down the cap table of the various trade associations handing out tickets. And whatnot. And so even though the SEC itself had exactly the same problem as identifying with the various players in the marketplace. So that's not the way a regulator should work. Should be like the teacher in the classroom wrapping the ruler on the desk and saying, class, you're at the order set up straight. You know, we have the same problem as you do. Let's jointly solve this and do it through roundtables, Pantel the market what to do, but we could certainly help Again, it's not all about enforcement numbers, but it's about having a functioning well functioning marketplace for investors and to build up confidence for investors, US investors and international investors in The United States. Alright. Let's turn to ETFs. So under your leadership, the SEC took action to allow mutual funds to offer ETF share classes Now this may seem like an in the weeds arcane technical rule, but he published a Washington Post op ed pointing out that this is a major tax break. To millions of investors. Can you share about little bit about this and how it benefits investors? Well, it is a huge tax rate for millions of investors. Our chief our economist of Vestability 150,000,000 or so per year at least. And so what it is is focused on allowing mutual fund families to add ETF sleeves. And so it's all about the tax laws, and mutual funds are not necessarily very taxing and charges. ETFs that have advantages. So, basically, through this change of our approach and allowing them to set up ETF sleeves and mutual funds That's creating a we'll be able to create huge advantages for our customers. I mean, it's amazing just at the regulatory agency, you were able to do this without any changes at long. But the any changes in the IRS code. So Well, I think it's I think it's a a good, you know, we have good focus of the SEC and creative thinking. And knowledge of the industry. Ryan Bailey are our head of investment management, is a great guy. So we are actively looking at things like this that can advance investors' interests. That's great. So let me let me turn to private credit, which is one of the hot topics of this year's. Global conference, the state of private credit markets. We've got some some funds are blocking redemption requests and the number of loans defaulting. So what role does the SEC play in the private credit market? Well, that's been in the news a lot lately. Obviously, And so we're monitoring it carefully with our colleagues at the treasury and elsewhere that and whatnot. So we have a special role to play because, you know, our jurisdiction with respect to fraud and manipulation and sale of securities extends to private markets as well under Section 10b of the 34 So we're taking it seriously. We are monitoring the situation. We're examining various, you know, firms and just like we would normally. In that particular sector. Then there's been allegations of fraud and obviously, you know, can't talk about any specific cases. But we are investigating that as well. So good thing about the private markets is that they exist. Because, you know, we should you know, if you look at small and medium sized enterprises because of the Basel three and Basel two capital rules and what came out of God Banks really cannot they they they cannot lend too many of these sorts of firms. And so, luckily, the private markets were there to step in and provide capital because we do have a robust capital private capital markets here in The United States both the equity side and the credit side. So our economy would not be anything near what it is now, especially for small and medium sized businesses. Which provide most of the job creation in our economy. So it's very important that we support that. So thank goodness for that. Obviously, we're monitoring it. But right now, the financial the FSAT, the financials fully oversight Council, which has us and the treasury and and other financial regulators You know, we don't see this as a systemic risk, at least at the during time, and but we're monitoring that. And staying staying priced. Yes. Earlier, you mentioned that you have fewer public companies. Today than we did thirty years ago. In terms of investment opportunities and equity, you've been doing things things to allow more retail assets and private equity. What about on the private credit side? Is that is that an appropriate there appropriate ways for retailers to gain exposure? Yes. Paul, so there's been obviously, there's a proposed rule that the labor department came out with to expand the ability of four zero one k plans to invest in private assets. And so, you know, we've been collaborating with them as have to try to treasury. And so, you know, looking forward to the proposals. I mean, the the comments come back with respect to this proposal. But I feel, you know, there there are issues around the private markets as with anything else. And it's, you know, it's we we need to be careful as to give good firm guidelines to trustees of four zero one k plans. Respect to appropriate investments because private markets have challenges since it's not everyday traded instruments, you know, whether equity or side. There are issues around valuation and, obviously, liquidity as we've seen in this in the recent issues around the private markets. And where investors stand in the capital stack. Let's you know, whether we have investment grade or you have junk. I mean, there's a huge difference there. So we need to be careful and and these guidelines to former k trustees so that they can look after their beneficiaries. But it was interesting. Soon after I became chairman of the SEC, the CEO of one of the largest state pension fund in The United States came to visit. And, basically, she's said that after the financial crisis, the board of that fund voted to get out of private markets altogether and only be in the public markets. Well, so then now, you know, twenty years later, fifteen years later, whatever, their coverage ratio plummeted from the nineties into the seventies, and she thinks it'll take twenty to thirty years to make that back up. And in the same state, there's a similar pension fund that never got out of the private markets. And they still have the coverage ratio in the nineties. So her her her bottom line is that one cannot be well diversified these days in this current booming economy that we have. Most one has exposure to the prime markets as well. So that's what we aim to do for American investors in in retirees to have a a good firm retirement income. Great. And so for our final question, I note that we're approaching America's two hundred and fiftieth anniversary, and you recently gave a speech at the New York Stock Exchange Exchange, highlighting the need to preserve the promise of our capital markets for the next quarter millennium and well beyond. Can you elaborate on this? Yes. Well, so the it's often said that American capital markets are the envy of the world, and they are. And every time I travel to Japan Britain, the EU, everybody says, how can we replicate what you have in The United States? So we're working now with the SEC to undergird that and to make it even more effective than before. And so part of that is we should remember that America was an investment before it was a nation. If you look at the public companies that were shares that were included, in and France and in The Netherlands and elsewhere. Amsterdam, New York was founded by a company and and elsewhere. In The United States. That public investment, it has built the railroads, the canals, the tall buildings that we see. And all the all the amazing innovations that we have in technology. So we have to thank our public markets, and it's basically it's because of the innovative spirit of the Americans. You you can't build this from a top down, which I think some of the European countries and otherwise think. It has to come from the bottom up, and Americans are entrepreneurs apart. They are investors. Risk papers, The Europeans say, how can we build much more risk accepting rather than risk culture? Again, it's really the inherent aspect of American investors. I think we need to recognize, foster, give them the opportunity to succeed and not smuggle them and see it red tape immaterial solution. America's investment before it was a nation and the SEC's role in making sure that continues. What a great way to end. Chairman thank you so much for taking time. Thank you.