#203 - How the SEC Writes Crypto Rules

Now, I'm recording this intro from my home office, but where the interview took place is by far the coolest location I've ever done in interview. No offense to any of my prior guests, but this interview takes place on the 10th floor in the ceremonial room of the offices of the Securities and Exchange Commission. Can you imagine saying that in 2021? I'm so grateful for SEC Commissioner Hester Perse and to Chief Council of the Crypto Taskforce Taylor Lindman. In this episode, we talk about the rulemaking process within an agency like the Securities and Exchange Commission, how they're coordinating on joint rulemaking with the CFTC, as well as what other processes they have ongoing. Welcome to the Law of Code podcast. My mission with this podcast is to help everyone understand the rules that shape our world so we can create better ones. I'm Jacob Robinson. I'm a former Securities Regulatory Lawyer. And really my goal with this interview is to help you understand what goes on inside the agency Commissioner Perse and Taylor Lindman are both so generous with their time. Now, we don't just cover the rulemaking process in this episode. Commissioner Perse also shares her personal philosophy to approaching work in capital markets. I don't think anyone's really asked her that before. Taylor shares how the team at the Crypto Taskforce approaches answering the tough questions that shape our industry, starting with a conversation about their personal philosophy towards the capital markets. Let's start with why each of you joined the Securities and Exchange Commission. What I'd love to hear you answer if you're willing to is how you think about morality in the philosophy, how you approach the work that you do, and especially you have to just because I've spoken to a lot of your colleagues and people who used to work with you, people who work with you now. No one has anything but great things to say about you and the same thing is true in private industry. I think the world needs more people like you. So I'd just love to hear you talk about how you think about those things. First, I can introduce you to some people who definitely do not feel that way. So there are a lot of them who could say some very negative things. But I will say that I have to give you my disclaimer, which is that my views are my own views as a commissioner, not necessarily those of the SEC or my fellow commissioners. And I think what drew me to the SEC was a little bit accident. I worked. I was drawn to Securities Law and was working in the private sector and met a lot of people who had worked at the SEC and said good things about it. And so found myself here many years ago as a staff attorney. And it was a great place to learn. You really being inside the agency really opens things up in a way that you don't get so much from the outside as kind of a mystery looking in from the outside. And then when I got a chance to come back in a policy making role, again, not something I would have sought out, but there are a lot of really interesting policy issues. And I had some pretty strong feelings about a lot of them. And so I wanted to jump back in in terms of just the moral question, which I think is an interesting one. I mean, the reason I love capital markets and the reason I think good regulation is so important is that it really can affect people's lives for the good if you get the rules right. The goal of the capital markets is to bring together people who have money with people who have ideas and that that marriage is great, especially if you don't have to have wealthy friends to get money. That's what distinguishes the capital markets is like merit based. And so you can dramatically improve the lives of the investors, the lives of the entrepreneurs that are getting money. And then the lives of the communities that they live in and serve. And so that's what really makes me enthusiastic. Thanks for sharing that and Taylor. I'd love to hear from you. I'm enjoying it. It's been I think four months now since you've been in with the SEC and the crypto task force. What drew you to SEC? Sure. As first was saying, these are my own views. They don't sort of represent the staff of the commission. So I would say like my journey was a little different than most because it started through working, I think, crypto more than 10 years ago. And I was being exposed to these security, laws issues in various different ways. This was 33 act stuff with investment contracts. It was brokers asking questions. And each of these topics were different little puzzles that I was trying to fit together myself, law, I was in private practice, and then more when I was in house and just trying to figure out what it was like, what would I do if I had the ability to try to get a sensible rule in place or try to try to solve this problem, you know, definitively, or folks in the market. What would that look like? And I spent a ton of time doing that in my personal life outside of work, just trying to figure out how to solve these puzzles because it's like a game like regulation is like a puzzle that has to fit together. Like a mechanism that's to fit together really well in order for it to work for society. And that was what drew me that idea being able to go and do that kind of thing at a level that can help society and help this industry as well because this industry has a lot of these pernicious questions that need to have thoughtful governance brought to them and regulation brought to them. Yeah. It's such an exciting time to be working in the capital markets. And I'm so excited with what we're seeing and with clarity, obviously, is a big thing that we're seeing move forward and something that I flagged in the podcast that I did with rulemaking process and rules that will come next. I know this is something that is being worked on and so not completed as we're as we're recording now. But what does the rulemaking process look like? Like when we hear things like rulemaking and we see dates 180 days a year, what I've had, there's a lot of questions that I could ask there, but I'd love to turn to you, Hester, and just talk about what does that look like when we talk about rulemaking and how does an agency like the SEC tackle that? It's a complicated and long process. The hundred and days, 180 days stresses me out a little bit because it's very hard to get stuff done quickly. As you might imagine, and there's a reason for that. So what we typically do if we get a directive, so say the clarity passes and it has a number of directives for different agencies, including the SEC. So we'll take those directives, we parcel them out to the right people in the building. They start with a proposal and the proposal will go out for comment. It includes an economic analysis to try to understand what is this going to look like in practice. We'll get comments and that process can last. The comments can be 60 days. Typically would be 60 days for people to comment. Then we take all that in and we'll look at that and then we'll formulate a final rule and give people some time to comply. Then there'll be an implementation process where people are coming in and they're asking us questions and we're helping with the implementation process. When you say we take that all in, what does that look like at a more granular level in terms of is it different divisions? Is it the crypto task force? Who is it that's taking all this information in? So maybe just to give you a picture of what the SEC is, how it's made up. It's made up of a number of different divisions. We have our economists in our division of economic and risk analysis. They're involved in every rulemaking because they have to do an economic analysis. We have our Office of General Counsel also involved in every rulemaking because they're checking to make sure we're doing things consistent with the law. But then you have different divisions. So you have division of trading and markets. They deal with things like broker dealers, exchanges and they also deal with customer relationships, those kinds of things. But it's really the exchanges and brokers and market infrastructure division. So if it's a rule that relates to that area, there are the ones who will be working on that. And then we have our division of investment management, which deals with investment advisors and mutual funds and exchange traded funds. And then you have our division of corporation finance, which deals with public companies and the filings that they make. So depending on what the rule relates to, it'll be parsing out to one of those. Sometimes you have multiple divisions working on one rule because they have different pieces. And so the rule will get prepared by that division. I was a rule writer. So part of my job was when the comments came in, I would read them. And they sometimes help you think of things in a different way or think of an issue that you might not have included. And so you, you modify the proposal based on those kinds of things. And so it's really a, it's a project that takes everyone in the commission. Now with respect to crypto rulemaking specifically, we have a crypto task force now, which is made up of people mostly drawn from within the building from different divisions. We've taken people from from each of the different divisions. And then we've brought in a few people from the outside. Taylor is one of those people. So he has particular expertise, which we, which we really needed to have. And so we will be involved. And I would imagine we would be spearheading the, the rulemaking that comes out of the clarity act. There's a lot of it. It needs to be sequenced and sort of thought about what makes sense to, to, to do and how to do it. So I think that will be a project that we, we take on, but we will be working closely with people across the commission. And a lot of the work will be done by people in the divisions with the help of the task force. So I probably will not be here by the time that, that project starts. But I think we're, we're gearing up to, to be able to be helpful there. Yeah, just on that point, we're heading to Virginia Beach after recording this. Oh, that's great. I think we're home. Yeah. So that's where you'll be heading. You'll be heading to be a professor there and teach securities. Yep. And probably some other classes as well. But, um, securities. Congratulations. That's the next exciting step. Yeah. And I think everyone, uh, everyone I know is, like, I wonder if we can just go out at those classes. And maybe you said it. And maybe we could put a wire on you and turn it into a podcast. That could be fun. Um, I want to just talk about some prior rulemaking experiences coming out of the body. because that and Taylor and I were talking before we hit record about just this time in history is very interesting because we're getting all the rulemaking and we haven't really seen that too often. I think the next closest period was Dodd Frank and I wasn't involved in that. But I'm kind of I'm not really involved anymore either but talking to you about it. Anyways, well there was also the job sacs. So that was another big one that gave us a lot on the capital formation side. Okay. So those are two good examples. Yeah, could you talk a little bit about what you learned from those processes and how what you've learned from those expenses is being applied to this rulemaking and the process. So I was not here in 2010 but I was working on the Senate banking committee. So we were involved. My senator that I work for did not support Dodd Frank but we were certainly involved in the process. And then once the the statute was done in the implementation period had begun, we did a lot of oversight of the regulators as they were trying to implement. So one thing I think that came through is that it is really important for Congress to continue to be involved because when there's so many rulemakings that are being considered, it's just quite overwhelming for the agencies. And so Congress I think will certainly stay involved. I think we learned that it can take a very long time. So a lot of those Dodd Frank rulemakings had very short trigger dates, but still were being worked on many, many years later. So I came back to the SEC in 2018 and Dodd Frank rulemakings weren't done. So 2010, the 2018 they weren't done, there was still more to do. And so I think having the benefit, I think with respect to the crypto legislation is that we do have the task force in place. And so I think that will help to play a coordinating function. And then we also have been working closely with the CFTC. And one of the issues with Dodd Frank was that like clarity was trying to divide responsibility between two agencies, there are other regulatory agencies involved as well, but on our areas, right, that there was a lot of close work with the CFTC, some joint rulemaking, which can be difficult, because then you've got two commissions, two staffs. And so I think having this is already a coordinating function set up. The chairman of both the agencies have been working hard on cooperating and coordinating now. And I think that work will be a good basis for joint rulemaking down the road. I think that will be helpful. But it's just really an enormous undertaking. And so I think that we're kind of prepared to take that on and to try to even now, I think tailors, you know, we don't have the final legislation, but I think tailors in the process of trying to figure out what will need to be done and how that should be staged. Yeah, just to speak to it a little bit generally. So I actually sit down with the staff every day. And I've been there since I started just because that was an important part of trying to be really directly involved in some of the rulemaking and some of the day-to-day processes with the staff. And what I've seen with the rulemaking process even before clarity is kicked off is that the rulemaking process is is it's a lot different than how an agreement comes together in a law from environment. There's a lot of artisans. There's people who are like craftsmen, they've been owning a specific area of the law and then thinking about that area of the law with a lot of ownership for for a tremendous amount of time. And so their mastery of it really is key to getting things done right. And they each kind of have a role to play in assembling what is can ultimately be one of these major rules. And so I've been able to see that just in the last four months. And also because what the task force enables us to do is we can see across the divisions, we can see how this rule is being received and thought about within a different division and then ensure that like those issues, whatever those issues are can be addressed or come up with novel solutions to help cut things off at the past before they impede progress. Yeah, well, these are some hard questions that you that the task force that the SEC that the divisions are grappling with. And it's certainly not an easy thing to do. Let me just add one other point, which is so Congress has very difficult job writing legislation is really, really hard. You're working on a not a blank slate because you're dealing with the existing securities laws and you're trying to slot things in there. But it's it's just really difficult. And so we do provide technical assistance. We and other regulatory agencies do that. And part of that is within I toward, okay, we are now imagining what it will be like if we have to implement this. And so let's talk to you about maybe what that will look like and where we'll run into challenges. And so that the process of us providing that technical assistance now can make life easier later when we have the rulemaking agenda in front of us. I'm so glad you said that because I was I was blanking on my question and I was trying to stall for time. So thank you, Esther, for jumping in there that actually worked really well. What I wanted to ask was about prioritizing the different areas. Cause like I said, this is such a hard thing to do. There's so many different things. There's 180 deadlines like, how do you individually think about what to prioritize in terms of how you're going to tackle this rulemaking? Yeah, I mean, I would say that ultimately the chairman is setting the agenda for the agency. And so so a lot of this rests on him. But again, the crypto task force, it will advise him as does the staff. I think the thing that has really impressed me now that I've been at the agency so long as a commissioner and I've had a chance to work with people from across the agency is people are very hard working here. And you can have a lot of parallel work streams going on at the same time. And so it's not like we're going to be working on one rulemaking and then you know, we'll take the next one up. It's nope, you've got people firing on all cylinders. And so I think that will happen with the crypto rulemaking as well. There'll be a lot of work for our division of corporation finance. And again, they're thinking about that already. We have some rules that are in the works. We have an authority already where we can do things. So we have we have things that are in the works already and those will slot very nicely into what's happening with clarity. And then trading in markets, I think again, they have been thinking about these issues. Crypto has the virtue and maybe also the the vice of bringing us to a place where we have to consider a lot of different foundational definitions, whether that's exchange or transfer agent or broker and clearing agency. So all of these things are sort of being opened up and considered. And so I liked Taylor's formulation of or description of these folks as artisans because they really do know the law in such a deep way. They have the historical background. And so working with them and bringing to do them Taylor's knowledge of the technology and of some of the challenges that folks in the crypto space trying to commercialize things have. I think that is something that we're starting now and will help us then go to work and be working all of the divisions working at the same time. Yeah, well, I think if I would add anything, I would echo that I think it's more like trying to play like there's a lot of different instruments in front of you and there's an orchestra and you can have all the instruments playing at once so you can get a lot done that way. It can be just a whole wall of sound, so to speak. And that's going to be I think a big part of how things move quickly is ensuring that when one group is finished with one area, they've got the next thing. There's a logical building progression there. And that each of these builds upon the next, there's going to be foundational rules. I think those are going to be the things that are like the big chunks that are within the draft. And then there's going to be some stuff that's going to be kind of added on later. How do you've got the foundation built you're putting up the rest around the scaffolding. And then I'd also say that like in addition to being able to hit it from many different divisions at once, there's also just the translation function that needs to be performed so much of the existing securities markets and securities rules were designed with a very specific view towards a specific type of market structure and regulation around kind of this new market activity requires a lot of translation. It requires that engagement with industry, which we've done a ton of it in the last year, as well as just a lot of grappling with some of the nuances there about what the technology doesn't doesn't do and ensuring that we're still matching things up appropriately towards our mandate and towards the relevant risks that still exist. Yeah, no, it's it's an interesting paradigm shift in terms of how we think about these markets because I mean the 33 act the 34 act the creation of the SEC came after the roaring 20s right trading on margin speculation there was counterparty credit risk that sort of wasn't realized at the time. And now we live in this world where it's possible to build tools where you don't you're not exposed to those same risks those intermediary risks. And sometimes you are right it's it's sometimes it's for like it seems like it's a decentralized project. I'm not going to name any but it's not right and then so how do you guys think about navigating the not even just the rulemaking process but like the taxonomy and all the other work that you're doing given how I don't even want to say quickly the technology is changing it though better way to say it is like how different it all is in terms of how we've traditionally thought about securities rules and capital markets. Yeah, I mean I think that that's an area that we've spent a lot of time sort of trying to sort through. We're not trying to take a position on whether or not something needs to be centralized or decentralized. We're just trying to deal with the reality of what things actually are. And so there are a lot of reasons why you might want to remove intermediaries and why that that could address some of the risks that we've traditionally confronted, but you're right, there may be new risks that are introduced there and we need to confront those risks. And so I think we are trying to design a regulatory framework that recognizes there will be different ways that people want to do things and allows us to calibrate the regulation for that. I'm a big believer that if people want to engage in peer-to-peer transactions, they should be able to do that, but we also have to recognize that as you say, some things may purport to be peer-to-peer when in reality you're actually relying on some third party and we better know that and that's probably where a point of regulation is going to come in. That's a slightly different approach towards this question because I've been thinking a lot just in the broader context of rulemaking and how good regulation happens and around technology, prescriptive regulation can get really out of date very quick and it can become really problematic when you use the prescriptive tool, but they come with predictability. And then on the other end of the spectrum, you've got principles-based regulation, which is highly flexible and amenable to a lot of different circumstances, but you end up in a world where interpretation can get harder and harder without touching grass, so to speak, on the reality of the situation. Principles approach, I think, has a lot of merit in it because it allows for the flexibility afforded to the different ways in which people build tech, but there's also a place for prescriptive rulemaking. And that's, I think, an example that I could think of that's not necessarily just crypto-related, but offering exemptions. You've got a fact and circumstances approach with the investment contract test, which I know you've spoken about at length, and then you've got safe harbors, you've got things like a proposed red crypto. The idea there is to try to provide a bright line test, something that is a little bit more prescriptive that you can follow and have predictability around. Having both, I think, is the best way to address emerging technologies, also find ways for predictability in the market. Yeah, no, that was great. You guys really are coming for my job with this podcast stuff. That was going to be one of my questions, Taylor, about how you, how you view your role to provide the market with practical guidance versus overly prescriptive guidance. So great job. I'm getting a little nervous now with that with love. Koda, I better hit the gas on that. You'll be fine. Thank you. Can we just talk quickly and history to do great jobs sort of outlining the agency divisions and how it works. Could we just get a sense of how they would come into play when it comes to rulemaking for clarity and just like what aspects they would maybe tackle. I mean, I think when we talk about what is a security and where we're, what's the disclosure around the digital assets that will be corporation finance thing to the extent it deals with the actual structure of the market that will be trading and markets project. And then our investment management division is very much deep in the weeds on crypto issues. You know, it's money market funds that are trying to go on chain. It's the different exchange traded funds as opposed to the broader category of exchange traded products exchange traded funds are regulated under the investment company active 1940. Those that's not really a clarity issue, but they're they're definitely engaged as well issues around custody if they're broker deal or custody would be in the trading and markets division if their investment advisor custody would be an investment management. Why would you say like you could almost run through the titles and say kind of where these are going to fall with title ones probably going to fall a lot with a lot of the title three is probably going to fall out with trading and markets. And then some of these are going to be across across the board. And then you know, there's also CFTC. We can't forget that because there's a lot of joint making. Yeah, out of that. Shout out to Mike Selig who former and alum of the CTF. Yeah. Yeah. Yep. And and the last time I think the last time we did a podcast. It was it was exactly, which is pretty cool. One thing I want to say is just like commend the work that the crypto task force has done. And the policy divisions as well too. I mean over the past. Well, since inception really I mean the work has been incredible. And I think it's done a great job not only in United States, but also showing the rest of the world like how policy making could be done, which is talk to experts in the industry. Figure out how the rule, how the things work figure out rules to make those things work and you use the analogy earlier Taylor of the puzzle and like I think of it like when you're playing a board game if you're playing the game of monopoly. And someone can manipulate the rules or if the rules don't make sense and you're disincentivized from building or something. It's going to lead to some very perverse outcomes. So when you think about rule making when you think about just the taxonomy and all those things. What are some of the steps that go into tackling these hard problems in crypto internally if you can speak on that. I know like I've seen the public round tables and stuff, but like what does it look like internally. I mean for us, you know, starting out it was really compiling the questions that we had, which I put out an initial pretty long set of questions those have been supplemented over time. And then pouring through the responses meeting with people to try to figure out what other questions are concerns they had and how they were thinking about the questions we had raised. And really trying to speak with people internally the artisans internally who know the areas of the law so well to figure out where does this work already. I mean sometimes we'll talk to someone in court, for example, and he'll say you can do this already there's a way there's a way to do it you actually can come in and register. And then we just talk to folks about how they could come in and register their products. And at other times there's a recognition, OK, you know, there's something new here the staff put out an interface statement recently to recognize the fact that OK, there's something new here let's let's think about how this fits with our with our existing rules and some of this is really a process so that we can get to rulemaking. So this is a temporary state of being and we'll get to a rulemaking but we need some more time to think about it. And so it's you know it's a bit of a mix of how this works. Yeah, no, I was going to give a couple more tactical things. So I benefited from there being 200 plus task force meetings all these round tables hundreds of written submissions. So we had a lot of different ways of getting a lot of data for purposes of getting signal regarding where the kind of most important areas of focus and a tremendous amount of those have already a path for those have been charted which is so helpful. But I was also interested in understanding, especially as we're starting to move more towards these intermediary questions questions around brokers and transfer agents and others. So I was just trying to get to the heart of some of those specific issues that was a tactic that I think has been pretty successful to date. The other thing that I think about is just as you just mentioned it too, which is a really interesting thing. There's a translation function that goes the other way, which is the staff often knows how things work and how it could work, but they may not have told anybody. Like, oh, why are they doing it this way? They're just running up against the wall. They don't need to. They can just go around the wall this way. Sometimes that's the most useful thing that we can do is not change anything that just enable a market by providing transparency around a solution that may not just be obvious to a market like this that hasn't grown up around the security laws as long as folks in this building and as long as traditional firms and participants have. Are there any examples you can give of that? Well, sometimes you just need to you actually do just need to come in and register your thing as a security and I feel like the answer that we we give to people or the answers that we give may not be ones they like like well, you know, actually, yeah, you are a broker. So come in and register or what you want to do is it sounds like is run an ATS. So let's think about what that looks like in this area. I think we will see, you know, more and more people recognizing, okay, we can deal with the SEC and if you're dealing with with tokenized securities, for example, there are going to be people who have to register and that's that's okay. We can figure out how to do that. So thinking exactly the same way in as I was, which was there are existing ways for you to bring securities into the market, these people who are thinking about tokenizing should be thinking about those because there are other very sophisticated organizations who've been using these same tools for a lot of years and those tools are well developed and functional regardless of the technology. So running in those lanes, like just finding the lane and going and running and running down it is is a really I think a powerful thing. But it's a little bit rewiring people's minds out in the industry because there had been this period where you couldn't do anything in this space. The only way you are going to get to some sort of registration was through the door of an enforcement action, which was going to force you into some regime that didn't work. Whereas now we're saying no, actually come through the front door. You may well have to fit within an existing regime, but we will be willing to work with you to figure out if there are areas where an exemption makes sense or if we can just work with you to sort of help you think through the issues you need to register just the normal way everyone else does. Yeah, that's something I want to touch on quickly because it's a phrase the industry's heard for years, the coming register. What do you mean when you say that and let's just talk in the context, let's say of an issuer token related project, not an ATS like what does that mean when it's coming in register. register. Well, so if you're trying to sell a security in the US, you have to either register it or you have to rely on an exemption. And there are a number of exemptions that are out there already. And so sometimes people really do want to register the security so they can sell it to everyone. And it may seem a daunting project, but actually it can be done. You just need to think about what this looks like. And we will not give you legal advice here. But again, we have the people who know the laws really well. And they can help you think through what that might actually functionally look like. And then you go back and do the work and will respond to the work that you do. Again, I don't know if you have-- The only other thing I would add is that there's just a really broad range of securities that exist. And I think what a lot of people say, come in and register. They're thinking, this is an S1. And this is going to be an equity-- I'm about to IPO. It's not the only way to register security. And there are a lot of different types of securities that are out there that come with a lot of different features. And so as this technology encounters those different types of securities that are out there, the different paths that are available to them are the same as the conventional path that's just with a technology wrapper a lot of the time. I guess, and what I'd add too is that I think people need to realize whether you're providing investment advice, for example, with respect to securities. You have a registration. We have a whole regime that governs that, actually. And so don't run away from thinking about whether what you're doing is securities activity. Come and talk to us about what it would look like to have that come within the regulatory fold. Because I think it really is important for people to understand that our desire is to work with people so they can do things that are commercially viable. But it also is to grapple with the reality that we have statutes. Congress gave us to administer. And if people are operating in a way that's not consistent with those statutes, there can be enforcement consequences. So this is not like an enforcement-free zone. It's a zone where we're engaging in good faith. We're expecting people to engage in good faith with us. And when there is something that falls within a statutory requirement, we expect people to adhere to that. Yeah, and as they should. I mean, I got into golf last year for the first time. And I played with some friends of mine. I won't name, but they know who they are. Who like to move their balls sometimes if it's not in an optimal spot or they want to maybe move it back a little bit. And I tell them, guys, maybe I'm a pain in the ass, but I say, guys, if we don't follow the rules, we're not playing golf anymore. And the same is true in the capital markets where these rules are made. And I don't need to say to you guys, you have to follow these rules. And they exist for a reason. It's not that some regulators arbitrarily made up these rules. A lot of them came after something bad happened. Yeah. And sometimes they're, you know, I may not agree. I worked to implement Dodd-Frank when I came back here. As I said, we weren't done. And I worked closely actually with the CFTC with Brian Quintenz from the CFTC on implementing some of those. And there were things that, you know, if I had been writing the law, it would have been different. But that doesn't matter because the law is a representation of what the people have spoken through their members of Congress. And so it's really important for us to administer that. And so I think it's just a really important message for people to get, which is, we exist within the statutory framework that we have. If you want to change it, be my guest. But you've got to go to Congress to change it. But we will implement it. And we are implementing it. And so work with us. Yeah. I don't know if there's anything else. Check this out. That's the right spot. That is the right spot. I agree. So let's just talk. As we mentioned the CFTC, and I know there's this coordination and collaboration between the SEC and the CFTC right now. What does that look like in reality? Is that like a weekly meeting? Is that interagency sort of cooperation at a more granular level? Well, obviously the chairman know each other very well because Mike Selig, now chairman Selig, was working with chairman atkins in his office. So they know each other well, and they have lots of conversations. But the real bulk of the work has to be done at the staff level. And so there are a lot of communications between our staff and their staff, whether it's about general things or about specific rule makings or specific products. We're having those conversations frequently. And I guess that would look like almost like a counterparty in a private deal where it's like, hey, we're negotiating on something. We're trying to figure this out together. We're going to exchange information, get on calls, emails. I would just add that like it is as frequent as you could probably imagine. There's so many areas of our laws that are budding up against each other. And so those are the points of coordination. That's where the conversation happens. Hey, we're thinking about doing it this way. Let's make sure we're both doing it this way. Because yeah, this is a special moment to be able to try to find regulatory equivalencies, find ways for harmonization to occur. And then there are the more informal meetings. We enjoy learning from each other as well, and we have common interests. So we're talking with each other. Yeah, no. I'd love to be in one of those with a microphone and get some of that content for this, because that'd be great. I think one thing that, for me, I was such a big fan to see what you guys, what the SEC did, what the crypto task force did to re-engage the industry. There was a time where the industry was very-- And when I say the industry, I just mean Americans were afraid to come in and talk to their regulator because they were worried about what could happen and the consequences of that. And they didn't want to put their hand up and say, hey, I'm thinking about doing something. You might need to be involved in some way. I want to figure out how with you and then sort of paying to target on their back, what did those initial conversations look like when you started to re-engage the industry and how did you find you were able to best do that? People have been very gracious. I will say some people, even people who had dealt with us through the enforcement arm before now are dealing with us when talking with us. And I just have been very impressed at their willingness to be so gracious and explain things to us. And so it's essential. If we want to get to a good place, we have to have those conversations. And I think we're trying to build that good will. Again, I have to emphasize this doesn't mean that you get to just do whatever you want. And we're going to say, oh, that's great. No, we're working within a rule set. But we are trying to get to a rule set that really does accomplish both our objectives that Congress gave us as a regulator, but also the objectives of people who are trying to bring real things to the marketplace. And that's what I hope can distinguish us from the prior bad episode, which I think led to a world in which it was much easier to bring useless things into the market and not face consequences for that, then to build something that you would really pour your heart and soul in and then have the SEC come and take that away with an enforcement action, which could be devastating. And so those kind of interactions with people who have that happen or who saw friends have things happen to them and we're really scared, have really influenced the way I approach these issues. Sometimes we are actually dealing with someone's life's work. And things never move fast enough for me, but sometimes I see time is ticking along, and I realize people's funding is probably drying up as time is ticking along. And so we are trying to be sensitive to that. Things don't move as fast as I'd like, of course. That's so considerative, though, to take into account people's funding. Oh, I've had conversations with them about it. And I get these calls and they're like, "Hester, we're not going to be an ex-- yeah, nice to hear that you might get to this in three months. We will not be around in three months." So I don't know if you have anything to-- You've been outside. So yeah. I would say that I experienced just that full range for clients that I had. I represented a lot of clients in a transactional practice, but I sat on a floor at one of the Perkins, Kui that also represented a ton of clients that were in enforcement posture with the SEC and on crypto matters. And so I got exposure directly to this building and how it was working at the time. And it was painful. It was a lot of clients that the funding was gone. We were representing them pro bono to keep that case moving forward. And a lot of those cases were-- I mean, the vast majority were-- these were registration violations for companies that were people who were a couple of guys in New Hampshire. And that was a painful lesson for me, but also, like, I think galvanized by interest in finding more productive ways to do policy making. And so for me, that was a big turning point in my career in terms of where I wanted to focus and specialize. But it was also a realization that there's a very human cost to regulation. Yeah. And good regulation is in zero sum. It's positive sum. It's like the industry can win. All the users can win. Regulators can win. Americans can win. And that principle, I think, is what made America such a great country where it was just win, win for everybody. And I think what we've seen now with the SEC re-engaging, not just the crypto industry, but just like Americans and allowing them to build is so important. Yeah. I mean, I like that win, win notion. I will acknowledge that no matter how you write regulations, they're going to work better for some people than others. And so you are always going to have a level of unhappiness, no matter what you do. And I think we're seeing that even with some of the conversations we're having around things that we're thinking about doing. And there are a lot of different views on it from people who have different approaches and hope that the regulation will line up directly with their approach as opposed to a competitor's approach. So we're trying to balance and really think about it in terms of market integrity, investor protection, And that's really our guiding thing is to try to get to the right place there. And so I'd love if you guys could just walk me through how the crypto task force will operate within the rulemaking process. What role does the crypto task force have? Because I think a lot of people who might not be too in the weeds might see it as like, oh, they're just there to get everything through for crypto. But it's like, are they explaining technical things like walk me through what? Yeah, I mean, it's a mix, right? It's working with people on the actual guts of regulations. So I mean, again, we have excellent staff throughout the commission. And so they're doing the bulk of the heavy lifting, but there are, you know, there's expertise that someone like Taylor can bring that people who have been in the building for a long time simply don't have because they haven't had the chance to work with the range of clients to be involved in what's going on on the ground. And so Taylor can bring that expertise in and, you know, give us a better sense of what is it actually going to look like when this when this thing goes out the door? Who's going to use it? That's a question that I often ask. How are they going to use it? And so I think it's really a collaboration, I would say. Yeah, I'd say so. I think one thing I, in my engagements with the staff, especially because I've been doing this not for very long, a lot of it is I want to be able to be there to help provide context or provide answers if they have questions and things, but not to persuade because they're the ones that have been thinking about how these rules should work. And so it's not about persuasion. This is about surfacing questions, making sure that the issue's being looked at from all sides and the side that I can bring is usually that of the technologist or that of the person who's utilizing it. But then giving the space for that decision and that judgment to be made by staff, whatever possible because they are the experts. I am not the expert. I am a guy who's coming in who knows a decent amount of the series, but we'll never know what a person who's been studying and focusing on an issue for 20 years does and respecting that. And ultimately the decisions. Yeah, yeah. Land at the commission. That's right. And so that's where the policy decisions get made is the commission level. But hearing from whether it's crypto or something else, hearing from the people who have said, oh, yeah, this looks an awful lot like something I saw 40 years ago in some unrelated area, but similar problems arise. So we're being informed by them and making those decisions. Yeah, it's sort of the to use the analogy used earlier of going through the door, right? I'm sure the crypto task force helps to say, hey, here's a door almost in the same way that divisions and the policy experts and those artisans that you talked about, they can do the same thing, right? You can do that from the technology side from the second order effect side. There's a lot of good when experts talk about things that they know better than others. Yeah, I think just to put a final point on that, I think when the task force is working its best, it's when it's bringing those experts that maybe experts in the areas that secure as laws within our building in close enough contact with the ways that things are really working on the outside, such that they can come up with good workable solutions. And that is probably our best value. That's the biggest value you bring. That was a good sound bite. That was a very good sound bite. Thank you, Taylor. That was a good one. One thing I want to ask because you mentioned the Dodd-Frank rulemaking and sort of how there's I don't know if there's still some outstanding things that happen. Yeah, there's still there always is still some outstanding Dodd-Frank to be done. Are there things we're doing differently now to avoid that happening with clarity? Yeah, I mean, I think the work that we are doing, working, you know, providing technical assistance in light of our experience with whether it's the job to act or the or Dodd-Frank, it's the work that we're doing now and looking at the bills that are being discussed on the Hill and and thinking about, okay, what is it's going to look like for us when we have to start implementing? There's been a lot of work going on with the task force and others and in the divisions on related issues that will be very much applicable and we're trying to think about how we can apply that work to the rulemaking. Yeah, I don't think it'd be good for anyone for it to take as long for rulemaking with clarity as it does for Dodd-Frank. Yeah, I mean, to be fair to the SEC, I think there were about 100 rulemaking mandates in Dodd-Frank. Dodd-Frank was a pretty big piece of legislation and it came at the same time that the agency had a lot of other things going on and some of those rulemaking are actually very complicated and difficult and so, you know, it's a similar thing here. We're dealing with some new issues that will be challenging, but of course we want to keep things moving. Yeah, yeah, what do you guys think in terms of the timing on rulemaking? I mean, I recall the 180 days in some cases a year, like what? Yeah, I mean, we'll see what the mandates come out with the time period comes out, but obviously we try to achieve the time periods that Congress sets out for us. I mean, I think again, they recognize that time is of the essence here. One of the things that I think everyone recognizes is having a world in which or having a country in which the rules are unclear makes that country less favorable, a place for people to build their businesses and so we want to get things clarified as soon as possible and, you know, I also think that for investor protection purposes, having rules in place quickly is really helpful. Yeah, I agree. Very small minor point and this is a personal point. My wife will definitely say, this is true. I'm a very impatient person just in my life. So that's all I can add to this conversation other than saying I'm impatient. See, he'll want to get the rulemaking done quickly. I'm glad to hear that. That is great. Yeah, and I think it's so it's so important to have people like both of you in agencies like the Securities and Exchange Commission. And I'm not sure if it ever dawns on you, like how cool the jobs are that you both have. No, I mean, I'm grateful for the opportunity. I think another point to make is contrary to what some people think, the SEC actually has a lot of things on its plate that are totally unrelated to crypto. And so, you know, there's staff has limited time too. And so we have to balance those priorities also. Yeah, could you, I mean, could you just walk through at a very high level, those other things that are going on just so people get a sense of like how much you guys are doing here? Yeah, and some of it will touch on crypto. Like, I want to get, I've been talking about this for a long time, a transfer agent rulemaking modernization is something that we've needed to do for a long time. It's something that commissioners have been calling for for 10 years. And so that's something that yeah, it may well touch on crypto and tokenization, but it's a bigger issue. But I think more generally the chairman has made it very clear that he wants to make it more attractive to become and stay public in the United States. We're seeing a lot of capital formation happen in the private markets, which is fine, but we love seeing companies go into our public markets where retail investors are most likely to access or to have their investments. It's a place where you get good transparency and it can be very good for the companies themselves for for many reasons. And so that's a big project at the SEC that there's a lot of a lot of effort being being spent on that. We had a couple of rule proposals that came out just recently on that. And so that's one piece we're also looking at our market structure rules, just not market structure in the sense of clarity market structure, but equity market structure writ large, specifically the trade through rule, which is one that has gotten a lot of scrutiny. We've had a couple round tables on it. And then there are things like the markets are moving to overnight trading. That's not something new for crypto. It is something that's relatively new in our equity world. There's some of it that's happening now, but it's looking like it's going to be a bigger phenomenon. Treasury markets are hugely important markets in the United States. We're implementing a Treasury clearing mandate. And that has a lot of moving pieces, a lot of work with folks in the industry. And so that's another area where we spend a lot of time. So those are a couple examples. All right, I'm convinced. Yeah, it's not just crypto. That's very fair. One thing I just want to quickly touch on before we wrap up is this the change in approach that we've seen from the Securities and Exchange Commission with the new administration and sort of the regulation by enforcement sort of changing to hey, we want to work with you. We want to figure things out. Still enforce and still have rules, but figure out a way to make it a win-win. That's sort of been the theme. Is there anything we can do to avoid a future where things can change so quickly depending on who's in power? Because to me, that doesn't seem like the right thing. Yeah, it's certainly not ideal. So a couple things. And this is a message I always give. Build good things now while you've got the opportunity to build things that meet actual human needs. That's a good motivator for you because the more you do of that, the more that everyone on all sides all across the political spectrum will want to keep it around. The second thing I would say is don't do bad things. And again, enforcement is not shut down here at the SEC and we have every intention of going after bad conduct. And so if you know of someone who's engaged in bad conduct, you can go to our website and you can report that. You can put in a tip, a complaint, or referral. We call it the TCR. And we really do encourage that because that bad activity doesn't serve anyone well. And we want to take care of that. So I think that's a couple things. And then, you know, part of the reason I think that we do want to get the rules in place is because once you have legislation in place and rules in place, people see, oh, you you know what, this actually makes sense. This brings a measure of order that we didn't have before, and I think people will get comfortable with it and won't feel the need to change it. - Yeah, that's generally my thought as well, which is it's true, like having durable rules and durable legislation that was hard to revert is part of it, but I think even more important than that is just that every day, nature of a new technology being adopted by registered firms and our registered firms and people in between, and the normalization of that will, I think, be pretty rapid here. And I think we've seen it with past technologies when things digitized the first time. It was a lot of questions, and there was, I'm sure a tremendous amount of tumultuous arguments and things, ATMs, I think were a big issue once upon a time and alternative trading systems and venues were a big issue once upon a time and they normalize over time, and our markets are better for it. And I think the crypto market is kind of going after that exact same thing right now. - And I mean, part of the thing that has been interesting about this past year and a half or so is, obviously when we came in, crypto task force was created, I wanted to send the message that we're doing things differently now, but it turns out a lot of the interest in the topic was coming from firms that before hadn't really been able to experiment in this area because their SEC regulated entities who felt like they couldn't step into this area, at least not publicly because it could result in regulatory backlash. We don't have that now, and so we've seen a lot of traditional financial firms want to come in. And so we're very enthusiastic about all kinds of participants coming in. We want to level playing field for folks. And so I think what I really urge is that people come and tell us what it is they're trying to do, what it is they think the right regulatory approaches, don't get carried away by seeing, you know, specters of terrible things happening because of a story that you've read or because you think this is how things are going to come out. We really are doing things iteratively. We want to hear from people. We want people to tell us when we're doing things wrong, but we want them to base it on things we've actually done. So as an example, there's been a lot of, a lot of conversation around the innovation exemption that both Chairman Atkinson and I have talked a lot about. And we're thinking very deliberatively about how to get to a good place there and specifically kind of thinking about what are the limitations around that look like? What do the conditions look like? We are thinking about what kind of, it'll be tokenized NMS stocks, right? And that's stocks that are either natively issued on chain or digital representations of stock, which is just really formatting stocks in a different way. It's not as, it's not as new and scary, I think as some people think. It's really just on chain finance, I don't know if. - I mean, I would say there's been a lot of discussion on a lot of different topics in the building that are pleasantly mundane, but yet are still crucial to the use of this technology. That part of the discussion I think doesn't get as much attention because it's not as exciting, but the spreadsheet in the sky is what the blockchain is a lot of ways and it is something that can bring a lot of back office processes, it can improve secondary market liquidity, it can do a lot of things that are not as exciting on X and other places, but can still bring a lot of value and benefits. - Yeah, they could be transformative. - Yeah, it's fun to see that part too. And I think that is also part of what builds the bulwark of keeping this around. And I do see so many parallels with Cloud and other adopting and emerging technologies that disrupt things, force changes, force reconsideration, then ultimately consolidate around something that is better market structure as a result. - I mean, even like a lot of people have made this analogy, but when we move from paper certificates, it's really, yeah, I mean, in some ways, it seems like that's not a big deal, but it really was at the time quite a big deal and it required rewiring of the system. And so we may be undergoing a similar transformation. And even more recently, the on-prem server to the Cloud, what a scary concept that must have been for so many firms, a lot of questions being asked there doesn't seem very safe this Cloud. Where is the Cloud? And yeah, that question got resolved. And now it's the market practice and same things will happen with these on-chain markets, I think over time, it's just another, it's another venue, it's another medium, it's another mechanism for coordination. - And we're not trying to dictate how the market should go, but we're trying to just be there to facilitate as market participants decide they want to move in in direction to facilitate that in a way that's consistent with our regulatory objectives. - Well, even the principles that you opened the podcast by speaking about, if the SEC was to be a merit-based regulator, all of a sudden that's out the window, 'cause now the SEC is in charge of what's built in America, which no offense, it probably isn't the best. - We're more not, yeah, that's the goal and all the mission. - It's not the goal or the mission, and some other regulators and other jurisdictions have that mission, but I think we've been, the US has been a place where a lot of people want to come to build things, to raise capital to invest, and we want to keep it that way. - And it's a place that I wanted to come to do this interview. And so thank you so both, dang, I messed that up. The whole podcast I was doing great, and then I messed up the clothes, gosh, it's just on that point though, maybe I'll redo it, maybe I'll leave this in, I don't know. But America's a place like I wanted to come, and I admire the rules that are here in the foundation that the country was built on in the freedoms that drew all the immigrants, that drew all the people who came across the world, the builders who built this world. And honestly, the world benefits when America does well. And I think the work that both of you are doing is really important. So thank you so much for having me just a quick question because I'm curious, how come you were willing to let me come here? 'Cause I feel like I might wake up and I'll be still at my house in Angaster and be like, oh, yeah, of course that didn't happen. I mean, we love to talk to people about this topic. It's one that both of us care a lot about, and we know you care a lot about it as well. So we're grateful that you showed up in person. - Oh, well, hopefully we get a chance to do it again soon. Thank you both so much. Thanks. - Alrighty, and now before we go, I do have to say as someone who's been a lifelong next fan for the past two weeks, I couldn't be happier with the result of the NBA championship. Congratulations to Jalen Brunson and the whole team on the next. He's probably my new favorite player, who said his favorite player growing up was Steve Nash, like what a great team, what a great run. Anyways, thank you so much for listening. If you enjoyed that podcast, you can subscribe to a newsletter that I'm going to be launching. It will be free for now, lawofco.fm. Thank you, obviously, to Commissioner Purse and Taylor Limman, who were so nice, talking with my wife and I after we recorded the podcast. Taylor actually helped us carry our bags. We had these huge suitcases with all the recording equipment, such great people. And really just was an honor for me to be able to do that. So thank you for listening. If you found this episode helpful, it would really mean a lot for me if you could share it. Even if your Spurs fan helped me get this type of content out more. Now, if you're a long time listener of this podcast, I've been doing this for about six years. This is going to be episode 203. You might notice the camera quality is a little bit better. You know, I'm now traveling for interviews and I'm so grateful that I get to do that thanks to some of the sponsors of this podcast. Day one law had been a big sponsor for a long time and really helped me get this podcast back on its feet after some health issues that I had over the past couple years. Thank you to Nick Pullman, the whole team there for that support. Now, I have been able to get more sponsors on the podcast, which has been amazing. So thank you all so much for listening and supporting and sharing the podcast. It really, really means a lot to me. This podcast, this episode, nobody sponsored this one or paid for this, but I do want to give a special shout out to the team at K-Hell. K-Hell next in particular, Sam Enzer and Lewis Cohen, who have been long time supporters of the podcast. And when I told them what I went through with getting diagnosed with cancer and sort of going through basically a three-year process of dealing with that, you know, a lot of times people say, how can I help? But Sam and Lewis immediately began a conversation with me about supporting the podcast and making this type of work publicly accessible. So I'm really excited that that'll be announced in the next episode, which is going to be on prediction markets. But really, I just wanted to say a quick thank you to Sam and Lewis because the support they've given me really means a lot. I work with them because I think they're both world class people, world class lawyers. And so I'm excited to see all the value that they bring to the law of code podcast as well too. So shout out, Sam, shout out, Lewis. Thank you guys so much for believing in me and the whole team at K-Hell really for back in this podcast and making it possible. And there's so many other sponsors that I'm excited to share in the future because this is important to me. I really want to just make these conversations more public and help make the world a better place. So thank you all for listening. And if you are listening and you're in Ontario, this podcast is eligible for 50 minutes of substantive continuing professional development hours. As I've mentioned, all times there's going to be an upcoming episode on prediction markets which I'm really, really excited that'll be June 28th. So make sure you subscribe wherever you get your podcasts to get that one. I feel like such a YouTuber now saying things like subscribe. I wanted to be a lawyer and I guess I can. But thank you so much for listening. Go Nick's. Congratulations again to everyone in New York who I know is going to have a lot of fun over the next couple of days. Yeah, so we'll see you next time. Thanks for listening.