บทถอดความฉบับเต็มของ Will the SEC Approve Prediction Market ETFs This Year?

team and what we did in twenty nineteen, we had this new rule chemebout sixty eleven, and what we did was we took a process that prior to twenty nineteen had been iterative and staff driven. Every ECF that came out had to get its own specific order. The staff had a role in that. Things got slow. Oh, things got hung up. 00:06:01 Speaker 3: It's like a ticket sort of the ticket would wind its way through. 00:06:04 Speaker 7: It was sort of that, and individual people had to push it through and complete it. So, yes, there was a task involved. So sixty eleven changes all of that. When a filing comes in now it comes in with a sell by date, so it comes in with the presumptive in most cases seventy five day effectiveness. So what effectiveness means. If you think about an ETF going to market, we call it a fund IPO sometimes, so it's a fund ipo and we do thousands of them, right, we have thousands of them go through. Last year we hit twenty six hundred filings coming in one thousand and change actually listed right this year we have eighteen hundred filings in so far. Year to date, go back to twenty nineteen, they were three hundred and thirty two new ETFs that hit the market. So this has been it's more than an order of magnitude. And so it goes through the process. The team looks at it and again the system is set upset seventy five days from it coming in. If nothing else happened, there were no other fingers on the. 00:07:06 Speaker 3: Scale, it goes live. 00:07:07 Speaker 5: It goes live. 00:07:08 Speaker 7: That doesn't happen all that often, particularly with new things, because what happens there is it gets routed to our staff, and our staff includes lawyers and accountants and a few other folks who look at it. And these are people who the entire division we call it DREO Disclosure review and in accounting office. But the DREO team reviews the filing and then has, in a good system, an iterative and constructive discussion with the sponsor, and we look at the disclosure because that's our role in this. We're generally disclosure reviewers, and they look at it from three different points of view. They come at it with is this just well written? The second part is they then look at it and say, okay, as an experience reviewer, somebody who has seen hundreds of thousands of ETFs, I know if this is an orange or a tangerine or an apple, and they can actually help the sponsor and say, okay, here's how similar products are products that are not so similar but analogous. Here's how they're doing it. Maybe you should look at that. And the third function they carry out is they go through and they look for potential violations of the federal securities laws. So it's a good process, and I think every sponsor would like to know that the SEC thinks some aspect of their offering might be violative of the federal securities laws before they go to market, rather than getting a call year after the fact from enforcement. That works really well. But it's a process where our team goes back and forth with the fund sponsor. That's great. It doesn't always take seventy five days. And what the fun sponsor does is we call it a BXT. They extend their effectiveness and they work with the staff until they get to a mutually mutually agreeable place. When we're finished with it, it goes effective. So the fund has effectively ipoed. And then under what it called generic listing standards, they go out to the exchanges and then often the next day they will get their listing. 00:08:58 Speaker 5: They've already pre approved the ticker. 00:09:00 Speaker 7: Eric, you took a lot about people shopping for tickers that's ready to go and they can be out the next day. 00:09:05 Speaker 4: So let's talk about all of the filings coming in and then novel ETFs and your initiative here, ye, because. 00:09:12 Speaker 3: This is novel. Ones were novel. Yeah, I'm curious. 00:09:14 Speaker 4: Novel is actually a nice way to put it. So I think the prediction market ETFs are probably the sort of poster child. But there were three xctfs they tried, which you told to get lost. You still can do a three XCTN, but you are taking a step back right now, and I just want you to talk a little bit about this step back, who's involved, and what this might mean for some of the ETFs pushing the envelope. 00:09:40 Speaker 7: So one thing is to three x ETFs, they're in a different category because there's a specific section of the forty X section eighteen and real eighteen f four. Those rules together they cap leverage. So those were just different everything else you're talking about. You're absolutely right, and this is not an actual initiative focus on any one asset class. In fact, we're trying to get away from that we as a commission we did not do a good job with the crypto ETFs. 00:10:08 Speaker 5: We didn't. 00:10:08 Speaker 7: We did a bad job. We got sued, we broke cruss with the industry. We're working really hard to rebuild that trust. We think we're making progress, but we own that it is what it is, and we're trying. 00:10:19 Speaker 5: To get back to a good place. 00:10:22 Speaker 7: The prediction market ets coming in, we're in a sense a catalyst because they're a different structure, they're focused or they're tied to an underlying that. We have a sister regulator that's looking at very closely at the moment, they're working at the regulatory scheme for that area. And it really just, you know, it just crystallized that we have come so far in seven years. This is a dramatically different world. This has been the most perhaps the most successful financial innovation in terms of legal structure maybe ever. It's an example of good government. But now, as you said, Eric, we have new assets, We have assets with different levels of disclosure, We have new structures. Most people don't know, but many ets actually have as their main holding an offshore company that then holds the you know, they hold swaps, they hold now perhaps event contracts. Looking six

months to twelve months down the road, perhaps there'll be a lot of purpose in and perpetual futures And I don't know what is in line after that, but we want to focus on having an orderly and predictable review process that is asset neutral, exposure neutral, but that still works, rather than walking in and trying to regulate this asset that structure this particular innovation, because. 00:11:37 Speaker 5: That's a leads to delays and be a leads to bad government. 00:11:41 Speaker 6: So I'm curious with this request for comment that y'all have coming out on novel ETFs, what sort of questions are you hoping to get from the public and then how are you going to work with your sister agency and sort of moving forward with that. 00:11:53 Speaker 7: So the RFC, as we call it the request for comment, it has in it about four or five pages of questions that we've put together and what we're encouraging the public to do and people in the industry, everybody from exchanges to fun sponsors to retail investors and other intermediaries, is not only to look at those questions, but if there are things that are frustrating about the current system or aren't optimal or are excellent. Then we're asking comment on that people should not be limited by the questions we're asking. But we are very much focused on again the process. How do we ensure that we have an orderly and predictable process, How do we treat people fairly? How do we ensure that the system as a whole works. To be a little more specific, though, I do expect that we will have people who comment, because we've heard these already just in passing. I suspect we're going to have people suggest that we have a confidential filing system we don't have for ETFs, the same kind of system we have for public companies, you know, regular companies, because as you all know, you'll see in the papers that such and such, you know, Corn has announced that they filed a confidential IPO statement. 00:13:02 Speaker 5: It's like, okay, well, thank you for telling me you file a confidential Yeah. 00:13:08 Speaker 7: That arose out of a very specific set of regulatory initiatives, because people look at emergent growth companies and said, these people need to be able to get out, they need to list, they need to be able to do something before in a way that doesn't expose all their trade secrets and strategies to some big established player who then comes in and basically copycats the whole business and jumps ahead of them. 00:13:30 Speaker 5: We don't have that in our system. 00:13:32 Speaker 7: I suspect that some people will suggest that we'll certainly look at those suggestions when they come in. But that's one example. But we very much we know we don't know. But then there's a lot of things we don't know that we don't know. 00:13:45 Speaker 5: We don't know. 00:13:46 Speaker 7: And going out to actually the industry people who are doing it, people who sponsor the funds, people who buy the funds, advisors who recommend the

funds to us, and to the chairman who suggests this in the first place, we think that is just the best place to s start. Let's start with people who know what they're doing. We are pro innovation, we are pro market solutions, and we would be crazy and foolish to not take input from people who are in the market every day. 00:14:12 Speaker 6: Well, what kind of different questions do these novel ETFs raise that Traditionally ETFs don't for the SEC. 00:14:20 Speaker 7: It's funny because it's not a black and white change. What we're looking at is what we've had over time as an evolution, and there are questions about how much exposure should there be to assets that are not listed on exchange right, because back in twenty nineteen, when you asked what an ETF was, people said, oh, I know what ETF is. It's at S and P five hundred fund. You take a bunch of listed assets, you put them in one bucket, you list that to the public, and you send it out. And the exotic thing at twenty nineteen was there were some commodity focused ETFs. 00:14:55 Speaker 5: That was it. 00:14:55 Speaker 7: Today go to today we have exposure coming in through other assets that are not necessarily transparent. You can't necessarily go and check. The magic of the whole ETF structure of the ETF rapper is that the aps stand ready to ensure that the arbitrage mechanism works. Back in twenty nineteen, that meant here is a whole host of securities I'm going to deliver into you fun sponsor a ton of five hundred different issuers varying amounts of shares, and rough justice will get us thereat. I mean today we have cash cash exchanging hands a lot of time, you have swaps. So is that a bad thing? Not necessarily, but is it something we should ask about and think about as we go forward. Seems like a good idea to do. 00:15:38 Speaker 4: So let's just hone it on prediction market ETFs a little more because I think the idea here is that, you know, the case for them is people don't want to go to a prediction market exchange. They trust the ETF wrapper, just like crypto. 00:16:06 Speaker 3: Which also opens up things like brokerage accounts. 00:16:08 Speaker 4: Yeah, people want to trade through the brokerage account and have it all in one spot. I've always thought ETF standardized everything, sort of like gas pump. 00:16:17 Speaker 2: You know, it works on every kind of car. 00:16:19 Speaker 4: Right, you have equities, bonds, commodities, crypto. It all trades like equity, and everybody likes the way equities trade, so to equitize these things is very valuable for people. Now, prediction markets they're growing. It's interesting you can make a minory bet well the FED raise rates. This is actually a decent case for real investment or a hedge, because then you'll have to guess what the markets will do. You just bet on the thing. So I understand some serious investment cases for it. If they can just do a swap or use the contract itself, and an ap can arbitrage. It it seems like it would work just

like anything else. I'm sure that's the case that issue are making to you. Are there any other things we don't know, like when it comes to elections and like, well can this be manipulated by people? Does it get into bigger issues prediction markets or is it about current legal situations? Like I know sports isn't you can't really like bet on sports in certain places, but for political prediction markets, which is the first batch's coming out. Is there anything we're missing here? 00:17:26 Speaker 7: Well, I would just remind you of what we said earlier, which is we we should not be We are not statutorily authorized to be, and we don't want to be in the process of making decisions like that. We don't want to be saying, Okay, this kind of ETF is good, this kind of prediction market underlying is good. 00:17:44 Speaker 5: This one is bad. 00:17:45 Speaker 7: That's really not our role. So we had I always sound like a broken record on this, but we want to get back to just having a good process in there. But one thing that does hit us squarely in where we are is in the prediction markets, the possibility of ets based on event contracts almost be very careful what we're saying, the volume could explode. I mean we said earlier, I think we're running about fifty percent higher this year than where we were last year on applications. If all of a sudden people start bringing in prediction market ETFs and we have the possibility of you know, ETF on every single House and Senate race and the election is not necessarily anything wrong with that, but the explosion we could see of all of a sudden one sponsor job right in five thousand applications. 00:18:36 Speaker 2: Corgi will have half of those. 00:18:39 Speaker 4: Wow, like that that's some ETF NERD humor there. 00:18:44 Speaker 2: We'll probably get it. 00:18:45 Speaker 3: Corky has launched about one hundred ETFs in about two months. 00:18:47 Speaker 2: Sorgi does fifty in a shot. 00:18:49 Speaker 4: Yeah, anyway, I get your point, because it's an unlimited, endless possibilities with prediction markets, and you could be inundated with filings, but I mean the market would take care of some of it. Like, not all of those would be hits at some point. There's a law of diminishing return. Same thing that happen crypto. There's probably one million crypto coins, but there's probably only twenty actual cryptos that are worthwhile launching an ETF on you probably would have some point where it's like not worth it, But my point taken, you'd have at least dozens, if not hundreds. 00:19:20 Speaker 7: Right, And there's a question about our review. How could we intelligently review if people want to come out with you know, one thousand, two thousand and three thousand ETFs a month, either we have to staff up massively or the equality of the review starts to drop. Now there is a course, you know, situations where these here are one hundred ETFs. Let's take our example on all of the elections. If such a thing came to pass, it doesn't change that much. I don't think you're going to put a different risk factor in for an election in one jurisdiction versus another. 00:19:50 Speaker 5: So there are ways to scale in. 00:19:52 Speaker 7: But there is a real question of if we are to do an intelligent review with the sponsor, we have to make sure we have the ability to do that time wise. 00:20:02 Speaker 5: And it does. 00:20:04 Speaker 7: It does stress our system when people, I mean some people call throw spaghetti the wall, some people say flood the zone. But when we have sponsors come in with just tons and tons of applications at once, it's hard. 00:20:14 Speaker 3: So can I ask we had we saw this happen basically already like everybody was like, we're gonna flood the zone, and and you have really thoughtfully described the mechanism that happens sort of behind the scenes within the SEC when that happens. What specifically happened when the prediction market filings entered Edgar came into the SEC. Was there like a like alarm bell that says like novel products, novel products, And like, what was the floor is the seventh floor in the SEC where everybody's. 00:20:45 Speaker 5: We're on the eighth eighth floor? Sorry, the tenth floor is where all the commissions are. 00:20:48 Speaker 2: Okay, tenth floor. 00:20:50 Speaker 4: It's a tenth floor, Like okay, they somebody had to say, somebody tell the tenth Yeah. 00:20:54 Speaker 3: Yeah. I'm just curious what what happened because none of those products around. Clearly you have gone to this, We're going to take it to the public and get feedback. But I'm curious because this really does seem like these are gonna come at some point in some form, and it sort of was where the spaghetti really met the wall, And I'm curious, like what happened and what was the discussion like internally. 00:21:16 Speaker 7: So when everything comes in, so our team sees it right, they see it in real time. Generally it's an end of the day cut and we will have a discussion. My colleagues and I will sit down and they'll say, here's what came in today that was unusual. And if something comes in on a Thursday that's unusual, go ahead. 00:21:32 Speaker 2: And by the way, how many days a week does that happen? Like three or four? Because I know I try today's smilings. 00:21:39 Speaker 4: Yeah, and I am moved to post on social at least two or three. 00:21:43 Speaker 2: Days a week because I'm like, really. 00:21:47 Speaker 7: For us that level, So it happens a lot many times a week. The trigger for that is not necessarily this is an interesting asset or what are they thinking? It's more of this raises this has this implicated our process, It implicates our review implicates something you know, it may be crosswise with a leverage rule. 00:22:05 Speaker 5: Or something that's that's our threshold. 00:22:09 Speaker 7: So when that happened, and if somebody comes in on a Thursday with something new, it's novel. 00:22:14 Speaker 5: Again I referred to

this earlier. Because our process is public. 00:22:17 Speaker 7: We will have you know, twenty copycats in by the end of the day. Friday, probably by midday, and some of those come in and some of those are good, and sometimes we can tell that they are clearly producted or AI assisted or you know whatever. But but definitely, I mean, you know, you call you guys all call it a terror dome, right, Yeah, that's just it. 00:22:41 Speaker 5: That's the market. 00:22:41 Speaker 7: The market is first mover, wins, second place, shuts down and goes home, and it's fierce. It's fierce, and we see it. So we definitely see that. So when it comes in, we talk about and we say, okay, is this something that is important? And this was because of all the different intersections this. It was a new structure, it's a new asset class. We have questions about how the AP system's going to work, questions about the disclosures. Things would go back and forth with the sponsor on and then we had a bunch of copycats come in and we had discussions, and then when we brief the chairman on it, chairman suggested, why don't we go out and talk to people and see what the best way to handle this would be. 00:23:21 Speaker 5: Because before we. 00:23:22 Speaker 7: Do anything, before we start throwing out rules or or stopping people from going public, let's go and have a chat, and it was really well received and it was really gratifying, and we spoke with some of the sponsors, and the concern the sponsors generally have is I'm okay with this. I want you guys to make sure we have an orderly market. I want to come to market with more products, and I want people jumping ahead of me or gaming the system in anyway. I support you, but you've got to tell me that it's going to be across the board and I'm not going to be a good actor. 00:23:54 Speaker 5: And somebody's going to leap frog me. And we said fair enough. 00:23:57 Speaker 7: That chairman went out and made a public statement to give your Bay support, and the industry has voluntarily held back until we get this RFC out to see what comes back. This is I think pretty outstanding. If we accomplish nothing else from this point forward, I think we will accomplish a lot. That's pretty outstanding. 00:24:14 Speaker 4: Let me just follow up on one quick thing you said there, because I know I called the MJ move, which is back in the day when they were all trying to get cannabis ETFs launched and they had gone into they got into line, you know, and then this Latin America Real Estate ETF decided to switch which had a ticker, Yeah, I think it was La ri E. It switched to MJ and it was all of a sudden, Now the wasn't cannabis. It's something like agricultural, you know, growing. I don't know what they had a name that didn't have cannabis, but it effectively it leapfrogged the group and it became a big hit. 00:24:49 Speaker 3: Because it was already listed. 00:24:50 Speaker 4: And then recently the Friday that SpaceX one IPO, one of the space the

two X space theme ETF that was decided to just hold SpaceX even though the other ones were told to wait one more day, and that tried to jump the line and it actually started to get a lot of volume. 00:25:10 Speaker 2: The market kind of caught on. 00:25:11 Speaker 4: Hey, this is the two x SPACEXCTF. But then they got halted for regulatory concern And so those are the examples we see, and I think the other issue we'll see with bitcoin. I think Vanak and Arc have a little bit of a gripe because they were actually earlier than Blackrock, but then Blackrock got to launch on the same day and they thought, well, that's not fair because Blackrock is so big, so that those are the questions you're getting. And I understand their concern. I get that, so do we. 00:25:40 Speaker 7: I totally get it, and I think it spit it out a little bit from where we sit. There is no worse place to be as a regulator than to be the one who's either intentional or unintentional actions direct and influence who the winners and losers. 00:25:54 Speaker 5: In the market are. That's that's a terrible outcome. 00:25:57 Speaker 7: And so again that's part of our r is how can we do that so it can be orderly and predictable and not subject to the vagaries of staff action or inaction? 00:26:07 Speaker 6: Can you lift avail a little bit more on this more so the interagency collaboration. I mean, I don't know how much your division is working with counterparts at the CFTC, but obviously, like the prediction markets issue has just dominated that agency, even even more so than crypto, which I think people initially thought to take up a lot of a lot of their time and the SEC's time. And y'all are collaborating in ways that we haven't really seen in prior administrations. But so for the work that your division does, what does that look like? Who are you meeting with kind of how often are you meeting sort of break. 00:26:40 Speaker 7: Up, I would say across the board, even in the I've only been in the government for one year, but the amount of interagency collaboration on everything is amazing, and. 00:26:53 Speaker 5: It's it's so easy to do. 00:26:55 Speaker 7: If you call up somebody out another government agency and you say, hey, you don't know me, but I'm Brian Daly. 00:27:00 Speaker 5: And I'm at the SEC and we have this issue, you. 00:27:03 Speaker 7: Might either want to know about it, you might have some thoughts on Every single time we've done that or gotten the inbound call, the answer is always all right, you want to come over tomorrow, Just come over, we'll put you in security, we'll talk to you. And it's it's such I mean, I haven't seen a turf war yet. It's really it's very very collaborative that way. It is a one team, one government approach on everything. Specifically, what you're asking about is we as an agency, we talk to the CFTC all the time. The Chairman talks about all the time and what a good relationship he and Chairman seally have, and all the divisions in the SEC

will talk to their counterparts at the CFTC on some. 00:27:44 Speaker 5: Kind of regular basis. So that's there. 00:27:47 Speaker 7: On this specific topic, going broad to narrow, we I think are doing we are trying to and I hope I think we're doing a good job on it of balancing collaboration and getting input for steps that we take with a very very healthy dose, like an amazing amount of stay in your lane, like we do not want to step on their toes. I do not need to get into substantive regulation of event contracts. That is not our mandate, that is not where we are. 00:28:15 Speaker 5: The CFTC is doing a fine job with it. 00:28:18 Speaker 7: If they needed help, they would call us on any particular issue and we would give it freely and vice versa. 00:28:23 Speaker 6: What was your outreach to them, like on this particular issue. All these ct of filings that started coming in. 00:28:29 Speaker 7: So everything that we do, and you guys heard about this initially because it went through what's called OHIRA, and so one of the things that the CFTC and the SEC have been brought into is the White House Review process. And you go to reaginfo dot gov and you can see all the rulemakings that are out there. And so when we put something out, it goes out to all the different offices and agencies under the executive branch, and people get the opportunity to comment on it, to go back and forth. But do we speak with them on various topics all the time, Like, yes, of course. 00:29:13 Speaker 3: I want to ask about something that's slightly tangent from where we've been. Private assets in ETF which didn't used to be a thing. And then we started to see him sneak in, and then we started to talk about SpaceX, and all of a sudden, it was like, all of a sudden, there are private assets in ETFs in a way that we have not seen before. 00:29:32 Speaker 4: Yeah, and let me give one of So traditionally only fifteen percent of the ETF could be earmarked for ill liquid assets. 00:29:40 Speaker 2: So even mutual funds. 00:29:41 Speaker 4: Have, like a lot of them, have traditionally held a little bit of ill liquid stuff, namely private's fidelity funds. 00:29:46 Speaker 2: Et cetera. 00:29:47 Speaker 4: Where this got broken was ron B, which is an ETF from Barn. They went to like twenty five percent of the fund SpaceX, and they their argument was, well, SpaceX, even though it's private, it's so liquid in the secondary market that it's not actually ill liquid in our view. And I was like, well, that's interesting, and again that's another maneuver that I thought we might see more of. We haven't seen a lot of people test that. That seemed to be a one offer now. 00:30:14 Speaker 2: But what's your take on that. 00:30:15 Speaker 4: How far could we go into getting privates into ETFs? Could we go beyond that fifteen percent threshold like ron Be did. 00:30:22 Speaker 7: So there are two competing not competing, but there are two different things which you're implicated by, two different concepts implicated by what you just said. The first is there's exposure to ill liquids and the second is exposure to a single issuer. Right, So you have to make sure you've got those two together and they come together and in these kinds of situations they intersect. So I think there's two things going on. 00:30:47 Speaker 5: One. We are part of what's. 00:30:49 Speaker 7: Called responsible retailization, right, That's what when I thought about why I was hired. That was the reason I was brought in because I have feet in both sides of the private and the public side. Are charged with and we're working on some initiatives that are going to roll out, hopefully in the near future, to make sure that regular retail investors have access to alternative investments. 00:31:12 Speaker 5: That's the goal. 00:31:13 Speaker 7: That's what we want to do. We have ideas and you guys will tell us if you like the idea when it comes. 00:31:17 Speaker 5: Out of how to do it. 00:31:19 Speaker 7: But part of that is making sure that we use the forty Act vehicle. The forty Act vehicles have been around obviously since the nineteen forty the forty Act It's done pretty well for retail investors. It's sometimes paternalistic. It's sometimes a little clunky, like any you know, eighty six year old is pretty old, but the I guess sixty six year. 00:31:37 Speaker 3: Old, sorry, but at a certain ageer just the whole. 00:31:41 Speaker 5: Let me just fix it. 00:31:41 Speaker 7: Yeah, but like anybody all it gets a little clunky, but the it's it's good. It ensures that there's transparency. It ensures that there are sales channels that people can access. In today's world with what you know you do here on this podcast and your competitors and everybody else out there, the amount of information and retail investor gets is tremendous. It's you know, light years ahead of where it was even when I was a kid, forget about where it was in nineteen forty. So we think we can harness all that we think the forty X vehicles written large are the right way to get to the retail investor. To me, the retail investor looks for one thing, which is a ticker. Right the minute something doesn't have a ticker, you've shrunked the universe dramatically and you've changed a lot of the rules of the game. And that's not a bad thing at all for the right people. 00:32:26 Speaker 5: So that's where we're heading. 00:32:27 Speaker 2: Yeah, okay, let's go to the two X ETFs. 00:32:30 Speaker 4: Obviously you did the three they tried to They tried to file three X and then four X, and then some of them did five X. Reminds me of that onion article. 00:32:40 Speaker 3: Fit. 00:32:41 Speaker 2: Let's do five blades. This is when the razor wars. 00:32:45 Speaker 4: Yeah, the razor now five is normal. By the way, anyway, you guys said get lost. A lot of people applauded you, including me. We did a study and that if you did three X single stocks and four X and five X you probably have one or two terminations

a week because of the volatility of some of the stocks. 00:33:04 Speaker 2: Two X you still get a lot of volatility. 00:33:07 Speaker 4: But when people saw the SpaceX two X race, there was some people like, what's even going on here, and then in Europe you can do three X and four X and five X, although Europeans don't aren't as like gambling oriented as people in the US and in South Korea. Those are the two countries that we call as a high digen per capita, and they love these products. They trade a ton. They only make up one percent of assets, one of two percent of assets, but they do make up about thirty to forty percent of all launches. Now, what's your take on those? And the sort of public reaction like, wait, this isn't investing. 00:33:42 Speaker 7: It's really dangerous for somebody in my seat or any of our seats to start making those decisions. This is investing. This is not investing. I'm very cognizant of the fact that I got zero votes in the last election, and I did not sit in front of Congress, I did not get confirmed. I'm an employee. I think I bring a couple of good things to the table. I think I'm reasonably experienced, but I am not omniscient, and I am not here to dictate to ordinary American investors what they should be doing with their money. We are the investor's advocate. We will make sure that there's good disclosure. We will make sure that extremely harmful illegal things are not in the market. All of us at the SEC will do that. But we do not want to walk in and be regulators of what people can do. That's what we did with bitcoin and it didn't work out so well. We lost in court and we lost public opinion. 00:34:34 Speaker 4: Here's my solution, which I've had for ten years. By the way, this should be bigger than it is. 00:34:38 Speaker 2: Droll and you know. 00:34:39 Speaker 3: This, I've heard in a few tents. 00:34:41 Speaker 4: We have a movie rating system for ETFs. It's not rotten tomatoes. That's what Morning Star does. We don't tell you whether it's good or not. We just say, here's advanced information you need. Is their drug use and profanity and nudity, like you know, is their leverage? Are they rolling futures or is there a weird stuff that isn't obvious? Green light, yellow light, red light. It's like g PG thirteen or PGPG thirteen in r This is a way to protect the innocent while allowing some of the you know, innovation and the crazier stuff. What do you think of that, Like, do you think the market should push that more? Like have the actual marketplace come up with the solution the way the movie industry and other industries have. 00:35:22 Speaker 7: On any question, you're going to pose and you say, should we let the marketplace have the first shot, We're going to say yes, almost without. 00:35:29 Speaker 2: Exceptionel the SEC just endorsed our traffic lights that. 00:35:33 Speaker 3: I noticed that it should be every brokerage accountant. 00:35:36 Speaker 7: We are not endorsing your traffic light system. It may it may well have merit. We look forward to hearing about it. 00:35:43 Speaker 3: There's a filing you can put it in and. 00:35:45 Speaker 7: Then you know the people at CNM will see it and they'll co copy it because it'll be on Edgar. But could I throw a quick advertisement for something else? 00:35:54 Speaker 5: So we are also going to be coming out. 00:35:56 Speaker 7: Soon and this is public knowledge and it's been flagged on the reag infocyite already with an E delivery proposal. E deliveries is not necessarily for this per se, but it's for all the forty II products to allow email or other electronic platforms to be the default delivery standard for people to receive important statements, proxies, annual reports for there in various investments. Rather than getting it in paper. We all get the big paper everybody has some legacy amount of paper coming to their house, usually these blue plastic envelopes, and much of it just. 00:36:29 Speaker 5: Gets thrown out. 00:36:31 Speaker 7: So we're trying to move to get us to at least late twentieth century standards, but hopefully twenty first. But we are pushing industry every time we speak about the delivery. Every time I speak about E delivery, I won't make this pitch, which is I understand that if and when the Commission puts something out making E delivery the default, that the immediate aftermath is going. 00:36:55 Speaker 5: To be PDFs going out by email. We understand that, and that's good. 00:36:59 Speaker 7: It's better than all the paper sitting in the landfill. But it would be a shame, a crying shame, if that's where we ended. And we are hoping that people will take E delivery and leap frog from that forward. We're hoping that either fun sponsors or advisors or other intermediaries will start putting AI systems in the middle and they will take And if this was video, you'd see me holding up my phone right. This four inch screen on your smartphone is the window by which most, if not all, retail investors interact with their investment decisions an equivalent eight half by eleven ten point font document that runs three hundred pages or whatever. Scrolling through the window is at best hard to do and most people will never do it. But having an AI in the middle that takes the ETF and does what you're suggesting Eric and away, which is is this something I want? I care about these values, I care about these exposures. I am worried about this. To have an intelligent AI that can, even on a rudimentary basis, and probably a lot better than that, translate that for you takes this massive amount of disclosure that's embedded in the system and makes it useful for the average regular person like my sister nurse with two kids, Like she didn't have time to be going through prospectuses, but she does. You know, she will take the time to say, hey, I'm retiring in this many years or is this too risky for me? And she'll get something back. 00:38:20 Speaker 3: It's an interesting way of just bringing it

back to innovation, I guess, and that seems to be a hallmark of turring sec So to that end, we have a thirty act. We have a forty act. You are like foundational things that let the ETF industry flourish. Do we need something new? Should there be like a twenty six act? What would that? What would that look like? 00:38:43 Speaker 7: Well, that's Congress, So you'll just go back to my eye. And I've got no votes in the last election. So we have we have thirty three, thirty four, we have two forty acts. We've got other acts out there, trust and Interact and things like that. I think the question is is there something fundamentally broken right Congress getting anything through Congress? And I think it was probably the same in nineteen thirty three. I mean it's a little different there because they just gave it to Joe Kennedy and gave a pen and said go do. 00:39:07 Speaker 3: This, go do it. 00:39:08 Speaker 5: It came back. 00:39:11 Speaker 7: Unless something is fundamentally broken, I don't think we're going to need a new act. What we have been doing a lot of is listening and where we've gone out with things that we can adapt and move forward, like our share class initiative, being able to push all these old mutual funds and letting them adopt new share classes they want to offer ets in that trust. I think that's the kind of innovation that we have been doing that maybe obviates the need for Congress to move. 00:39:38 Speaker 4: You know, also the thirty three and forty A lot of stuff went down in that decade. I think usually those acts are a result of like real crisis. So maybe after the next crisis they'll come up with your act. 00:39:50 Speaker 2: When that will happen, I don't know, but that's probably my guess. 00:39:52 Speaker 7: No, I think that's exactly right. I mean Sarmone's Oxley. Yeah, you know, all these things come out. The Jobs Act might be one of the few exceptions where there was no crisis. 00:40:01 Speaker 2: As Athanasio says, we need a hard rain. 00:40:03 Speaker 3: Hard rain. 00:40:04 Speaker 4: That's his solution to some of these crazy products, Like a bear market will filter a lot of this stuff out. 00:40:10 Speaker 3: Okay. The question that I really want to ask, though, is, as long as we've been talking a lot about prediction markets, can we make a prediction? Are we going to see this by the end of the year any of these ETFs. 00:40:24 Speaker 5: I don't know, we'll have to see I think again. 00:40:27 Speaker 3: There's only there's only two options in prediction markets. There's yes or no. 00:40:31 Speaker 5: Well no, because don't on the table. 00:40:34 Speaker 4: He wants to run over to polymarket and bet on the current market for the approval of prediction Market ETFs. 00:40:42 Speaker 7: No, I think it really depends what if we put this RFC out and what we get back is a universal you know, we get a lot of responses. They are all universally saying they're unanimous. They say everything is great, don't change a thing, it all works just fine. Well, maybe we still move, maybe we don't, but certainly the impetus for us to move has to be a lot higher. I suspect we're going to get hopefully, and I do think we're going to get. This is a very broad and diverse set of responses that come back. I think most of them will be thoughtful. I'm sure there'll be a few knee jerks in there, but that's fine. That's part of the system. And depending on what people come back with, that will tell us what to do. I mean, we get thoughtful responses from informed industry participants that say, here are some really fundamental, some real fundamental problems, then we've got a lot of work to do. I don't think that's what it's going to come back with, but again we don't know, and we're open minded, want to hear what everybody has to say. 00:41:40 Speaker 3: Eric and I have done a little bit of history about the ETF, and one of the most fascinating things was that when the ETF was formed, the SEC played kind of a minor role in like creating the instrument that we now know is an exchange traded fund within the SEC. How much pride is there about that? 00:42:01 Speaker 4: I bet some people don't even know what. We have an article to send you, I have a book to pitch you. 00:42:06 Speaker 3: But yeah, well, you know, only pitched so many things during an episode. 00:42:09 Speaker 4: To be fair, I know, when you put institutional in the title of a book, you're not going to sell copies, so you have to do a lot of pitching. But the SEC really was coming up for solutions for that nineteen ey seven crash, and to be fair, ETFs have become a liquidity release valve. They actually help price discovery, they help take a lot of liquidity, and I think they've actually done exactly what the SEC was trying to cure in eighty seven. 00:42:36 Speaker 7: So before I answer, where do you trace the beginning of it too? 00:42:40 Speaker 5: By what country? 00:42:42 Speaker 3: Well, that's it. 00:42:44 Speaker 4: Don't even bring up Canada. 00:42:47 Speaker 5: Because they may have invented it, but we made it great. 00:42:50 Speaker 4: No, No, I'm telling you that's the word on the street. You go to Canada, they hate me in Canada because I'm telling you Nate Most and Steve Bloom at ame American Soucker Change, they filed first for spy while it was waiting in the SEC for four years. That filing Canada came down to the AMEX and Nate Most showed them what they were working on, and they took it up. And they have liberal regulators up there, way more quick than you guys, and they launched it within a year. And then now they run around taking credit. But I got the guy who was at the Torontic Stock Exchange to admit the idea was hatched in the US, thank you very much. 00:43:27 Speaker 3: So there you go. Started here. But the part of the steer came from a lawyer at the SEC. 00:43:33 Speaker 1: Yeah. 00:43:34 Speaker 7: I think people are very proud of the ETF. I mean when we sit around and we talk about the stats, the idea that we have nearly one thousand fund IPOs a month, I mean, that's just staggering to people. The idea that we have a system that operates really well without government bureaucrats. 00:43:55 Speaker 5: In the middle of it. 00:43:56 Speaker 7: I mean, the AP system was like genius. It really works and It relies on the integrity the markets, the integrity the participants, the exchanges do a terrific job ensuring the safety sound is an orderly operation of their own markets and where there when there's relief to be needed. Obviously we have friends in enforcement. Things are really bad, but you know, in the scale of things, they don't come in that much. So I think we're very proud of this product. This has been like I said earlier, but this has been one of the best most successful financial innovations ever. 00:44:28 Speaker 3: Great way to end it, Brian Daily, Thanks for joining us on Trillions. Thank you for having me, Thanks for listening to Trillions until next time. You can find us on the Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, or wherever else you like to listen. We'd love to hear from you. Hit us up on social. Trillions is produced by Magnus and Rickson and Keshav Pundia Bye. 00:45:00 Speaker 6: This is in the