Bloomberg TalksSEC Commissioner Mark Uyeda discusses whether tokenization of popular stocks may be introduced to US trading. He speaks with Bloomberg's Matt Miller and Dani Burger.
Bloomberg Audio Studios, podcasts, radio news.
The crypto exchange Kraken is allowing non US customers to trade Apple, Tesla, Nvidia, and other popular stocks as tokens over a digital ledger. We asked the co CEO of Kracken yesterday how soon we could see this coming to the US.
The folks at the SEC have been extremely promotive of these types of ideas around how do we bring this to everyday consumers, how do we bring this to everyday investors? And so I'm pretty positive that like we'll get to a place where we can start thinking about how to launch this again, not just with one company or one customer, but across the board.
I'm pleased to say that joining us now is SEC Commissioner Mark You Wadam, Commissioner, thank you so much for joining this morning. Now, I understand you just held a round table about this very issue. What are your thoughts on tokenization and the ability to do this to trade equities twenty four to seven and have this new mechanism for it.
Yeah, well, certainly we've gone through numerous technological chams of the history of the top markets. Remember we were in paper, then we went to uncertificated securities, and then we went to what we have roughly today book untries on various financial institutions. Now tokenization is possibly another step forward in how we do the markets. You know, one thing that a lot of investors don't realize is the significant amount of resources that go into what they call the back office operations. That means a lot of reconciling between positions among financial institutions, DTC and sec. So again, those are acroums that hopefully most people don't know about because they do their job without anyone ever noticing that they're doing it right. So we've always been open decks experimentation on this.
How would this work? I mean, is there a framework in place for approving or denying which tokens would be created? Or are you in the process of putting that together? Who would be able to issue the tokens? I have so many questions about it.
All.
These are things that we want to engage with market participants. Exactly what do you propose to do when it comes to toganization of security's positions and more importantly, what type of safeguards are you going to have in place to protect investors and to guard against conflicts of interest?
Do we know, sorry, do we know how long it would be? We were talking with Mike Novograts of Galaxy Digital a couple of days ago, and he was saying, in one or two months, he thinks we could see it. Now, I don't know if he meant, you know, foreign investors would be able to participate. Do you know how long it would be till US investors are going to be able to, you know, pick up their phones and you know, buy a piece of an Apple stock or Nvidia stock with a token.
Well, there are a number of things that we could do. It could take if we need to do, actual rules that have to go through noticing the comment and then are subject to potential review by the court, tecting a lot of lengthier process, and what we do what we call either subregulatory guidance, which basically means a no action letter or an exemptive order, or there's some other things that we can do. But again it depends on whether or not with the proposals that they intend to seek are consistent with our mission of maintaining investor protection, fair orderly efficient markets.
Now elsewhere in this world, there also is a big push for stable coins I know there's a piece of legislature making its way through Congress at the moment. There's also some journal reporting that some of the big banks are possibly considering doing their own. Part of the thing that the big banks have been worried about is stable coins moving to other players and other players that are less regulated. Is that a concern for you if this is where stable coins emerge from, not from the banking industry, which again already has some onerous regulation.
Yeah, well, it depends on whether that particular stable coin even falls in our SEC jurisdiction. We put out some guidance earlier this year which said a stable coin that does not pay interests, is not yield dividends or otherwise have a profit, it's not a security because that is a fundamental part of what a security is. You have to anticipate making profits. Otherwise a gift card could easily be a security. So stable coins that don't have that profit motive not part of the SEC jurisdiction. Now, there is I think some interesting ideas out there. Can you create essentially a tokenized money market fund that one might be able to exchange. We do have rules on that, but that would be something that we would say, all right, what sort of safeguards do we need on here? Is this reliable? Do we know that it's going to protect or at least they're going to appropriately safeguard and custody the assets underlying the fund. So that's a little bit different. But you know, the whole banks versus money market funds has been something that's going on for at this point, I think almost four decades.
By the way, I'm sure you read Matt Levine's Money Stuff and he posits everything as a security, right, I mean, you can make everything a security if you want, if you want to go down that route.
Well, I thought his theme was more everything's security is fraud.
Yes, that's a good voto. That's a good point. Everything security is fraud. I got that wrong. Let me ask about the Trump coin ETF that right now is in registration. Is there any way that you would not approve that? Don't you have to? He's kind of like your boss's boss.
Well, we don't approve based on who is the boss's boss. What we do look at is we apply the same rule book that we apply any other type of security that's been registered for offering on us. We are what we call merit neutral. We are disclosure agency, so as long as we are comfortable that the appropriate disclosures have been made, there is no real legal basis for us to hold up a registration Stamen and meme coins.
Is that something you could see, uh trading in ETFs?
Well, that's, you know, a very interesting question. We have had a number of types of financial products that are that have other types of non securities assets. We put out again some guidance earlier this year that name coins and NFTs are not securities. But if you put it into a package like some sort of collective investment vehicle and then you sell interests in that, than that the interest in that vehicle very well may be a security.
Can I just ask, Commissioner, because you're doing a lot of work on this, you're heading up a new crypto task force too. We've mentioned just literally the tip of the iceberg of work that is being done in crypto. There's been reporting that SEC staff is shrunk by something like fifteen percent so far this year. Has that made it more difficult for you?
Yeah? Well, first off, it's actually one of my colleagues, Commissioner Hester Purse, who is leading the Crypto task course and that was one of the first things that I did when President Trump designated me as the acting chairman, was in fact a day one issue was to put her in charge. You know, I think she's got a fun little moniker as crypto mom. To put her because the issues of crypto are across all aspects of what we do at the SEC. So we've got a number of workstreams going on that and we've had already four round tables with respect to crypto. This is something that we should have been doing years ago. And the reason why we do these roundtables and we sow us from the public is we want to make sure that we make informed decisions and we just don't come down through what I believe happened the last four years is what we call regulation my enforcement. I don't like something, we might not have a positive view of crypto, so therefore we're going to take an enforcement action against that. That's what we do. We're supposed to be merit neutral.
I want to ask about something other than crypto. We're so focused on that just because of the newsflow lately, but really private markets have been at the heart of the discussion we have on this segment Wall Street Beat, and it looks increasingly like retail investors want to get involved, and certainly firms want to sell retail investors these products. So what kind of guardrails do you think the SEC needs to put in place as private markets become more prolific.
Well, our Trump and Paul act insessified on the Hillary this year. He's very interested in getting more exposure of retail investors private assets. But and there was a very big cavin it needs to make so that there needs to be the appropriate disclosures. There needs to be the other safeguards in terms of financial professionals who recommend these and how they satisfy their fiduciary duties and their duties of care before they recommend them. Now, when I look at private assets, my perspective is this, before I joined the SEC for two and a half years, I was a state regulator for California. When I look at the asset mix that underlies my retirement in the California Public Employees retirement system with small slices allocated venture capital, private credit, private equity, and then I think of myself, if I go now onto the marketplace and say, can I find a diversified fund that would provide exposures not only to public equities and public bonds, but also small slices of these other types of assets. You can't find it, so I think it's very important that we at least explore how we can make it possible. So as former chairman Jay Clayton would call it, mister and missus four OL one K can have the same exposure that many of our local and state government employees have through their retirement defined benefit REGs harmon plans.
Are you not concerned about the liquidity mismatch? This has been a real problem for when it comes to retail, not just the educational but should you want to pull it out, should you need access to which retail investors often do, that you could have something that looks like a run on these assets. Is that a real concern.
I think there's a big difference between the retirement market and the non retirement market. What we've seen is the retirement market tends the assets tend to be what they call sticky. Is much rare for people to pull them out early because there is also a tax penalty if you would draw those assets early, and many times, especially for younger workers, if they have a thirty or forty year investment horizon. Some of these less liquid assets are much more appropriate than say, somebody who is amassed quite a bit over a lifetime of savings and therefore one K and now they're seventy years old. Their investment horizon may be much shorter and less appropriate for these types of private assets.
Very cool, Commissioner. Great to get to spend some time with you. I hope we can have you back on the show.
