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Bloomberg Audio Studios podcasts, radio, news. Welcome to Trillions. I'm Joel Weber. And I'm Eric Valis. Eric, you've been on vacation, but while you were off, you did a little leg work, including organizing today's interview. And I'm really excited to say we have another person from the Security and Exchange Commission this time. Brian Daly is going to be joining us. He's the director of the Division of Investment Management. Yeah. No, this is a big interview. It's tough to get people from the SEC to talk at all, let alone come on a podcast. And so, yeah, I was off and I was the call came in. And I was on one of those bikes and there's a thing called a co-pilot
which is the bike on the back of the bike which your little kid can ride. Yeah. And we had stopped at the Circle K. That's like a Waw Wa 7-Eleven in the south. And got some water. It's hot there. I was in Florida in the panhandle anyway. And but this was important enough to take a break because this is a big issue. The SEC is looking at and really maybe concerned about novel ETFs. The prediction market ETFs are really I think what got this going and as you know we had Matt Hogan on from Bitwise who uh they had one of the prediction market ETFs filed. We had a great podcast with him. It kind of turned me a
little bit into how they are could be useful for the market but they are complicated and it is a Pandora's box you could open. So the SEC kind of like told them don't launch yet. Let us look at them. And so they're looking at not just those but others. And let's face it we use this phrase all the time. No, no market for old analysts. Yeah, cuz there's some crazy stuff coming out and it can seem like the market has gone wild and I think this is a great time to hear from the regulators about what they're thinking when they see all these launches and all these filings. Also joining us, Lydia Beayud. She's in Washington DC where she's the SEC and CFTC reporter for News. This time on Trillians, Brian Dailyaly.
Brian, Lydia, welcome to Trillians. Thanks for having us. Thank you. Okay, Brian, I'm gonna start with you. We've had Hester Purse on occasion. This is the first time we've had somebody else from the SEC on. So, so welcome and we're really excited to um speak with you. I'm I'm curious, you're new at the SEC, relatively new. You started about a year ago, July 2025. How is the Securities and Exchange Committee different now than the one that directly preceded you? I think what we're focused on from top down from the administration through the chairman through us is being very pro- innovation. We are embracing
That's like our touchstone. But we also want to make sure that as we do that, we do it in a way that ensures that the retail investor is still given enough information to make intelligent decisions. If you go up to the chairman's office, you'll see on the wall, and you'll see it in a lot of different places in the SEC, but particularly right outside the chairman's office, there's a quote says, "We are the investor's advocate." And that's a reminder every day when the chairman goes in, he sees it. Every time any of us goes in go in to see the chairman, we see it. Yeah. No, I noticed this because we had Esther Pur on when Biden was president and we had her on when Trump was president and two different regimes there, but she was consistent. She's
always been I consider libertarian but pro- innovation I think might be a better way to put it. She was for the Bitcoin ETFs launching out sooner than they did. They took 10 and a half or 10 11 years to be approved. Look, I understand where she's coming from. The ETF in particular is really good. This structure has proven itself time and again. Gold, bonds, Bitcoin, all this stuff was doubted. The ETF seems to be able to handle it. And so I've become very liberal. I'm like, you could probably put Mickey Manel rookie cards into an ETF and the market makers would figure out how to make a market in it and it would probably work. I've always thought it's the best way to not
get ripped off in investing is ETFs pound-for-pound. And so I'm in tune with that as a analyst, but he's talking his book here. Did you notice like an ETF analyst telling you how great ETFs are? Yeah. I mean, well, the evidence is there, but you're right. the market is so thriving that they are now throwing a lot of spaghetti at the wall. And so where is that line? Obviously that line moves sometimes, but it seems like prediction markets seem to be a touchstone. Like they seem to be like maybe the line is there. I will say working with all of our commissioners, but especially Commissioner Pur is like just wonderful. It's a real fringe benefit to the job to really be able to
go in talk with somebody who is so thoughtful, so forward-looking, and such a genuinely good person. So, if that's the caliber of person we have at the SEC, I think the investing public should feel good about that. on the merits of what you're talking about or the sub the substance would it be okay if I took a second to walk through what we actually do with these ETFs because I think there's a lot of misconception about that out there as in when the filing comes in and it's like okay how yeah because I do see and hear in the press a lot of people talk about the SEC approved this ETF and that's not exactly what we do and okay so filing comes in what happens so filing comes in through Edgar so it gets routed to our team. And
what we did in 2019, we had this new rule came out, 611. And what we did was we took a process that prior to 2019 had been iterative and staff driven. Every ETF that came out had to get its own specific order. The staff had a role in that. Things got slow, things got hung up. It's like a ticket sort of and that the ticket would wind its way through. It was sort of that and individual people had to push it through and complete it. So yes, there was a task involved. So 611 changes all of that. When a filing comes in now, it comes in with a sell by date. So it comes in with a presumptive in most cases 75day effectiveness. So an 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. Uh last year we hit 2600 filings coming in, 1,000 and change actually listed. Right? This year we have 1,800 filings in so far year to date. Go back to 2019, there were 332 new ETFs that hit the market. So this has been it's more than an order of magnitude. And the so it goes through the process. The team looks at it and again the system is set up so that 75 days from it coming in if nothing else happened there were no other fingers on the scale it goes live.
It goes live. 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 accounting office but the DRO 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. were 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
experienced 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 or product 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 uh 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 spun 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 75 days. And what the fund sponsor does is they we call it a BXT. They extend their effectiveness and they work with the staff until they get to a mutually, you know, mutually agreeable place. When we're finished with it, it goes effective. So, the fund has effectively IPOed and then under what are called generic listing standards, they go out to the exchanges and then often the next day they will get their listing. They've already pre-approved the ticker.
Eric, you talk a lot about people shopping for tickers. That's ready to go and they can be out the next day. So, let's talk about all of the filings coming in and then novel ETFs and your initiative here. Yeah, because the novel ones were novel and I'm curious how that went. 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 3x ETFs they tried which you told to get lost. Uh you still can do a 3x ETN but you are taking a step back right now and I just wanted 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.
Right. So, one thing is the 3X ETFs, they're in a different category because there's a specific section of the 40 act, section 18 and rule 18 F4. 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 focused 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. We didn't. We did a bad job. We got sued. We broke trust 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 to get back to a good place.
The prediction market ETFs coming in were 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 out 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 ETFs 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 12 months down the road, perhaps there'll be a lot of purpos 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 that's a it leads to delays and b it leads to bad government. 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? So the RFC as we call it, the request for comment, it has in it 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 fund 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, i.e. regular companies because as you all know you'll see in the papers that such and such unicorn has announced that they filed a confidential IPO statement. It's like okay well thank you
for telling me you filed a confidential state thereorn now. Yeah. Um that arose out of a very specific set of regulatory initiatives because people have looked at emerging growth companies and said these people need to be able to get out. They need to list. You 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. We don't have that in our system. 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. and going out to actually the industry people who are doing it, people who sponsor the funds, people who buy the funds, advisers who recommend the funds to us and to the chairman who suggested this in the first place. We think that is just the best place to start. Let's start with people who know what they're doing. We are pro- innovation. We are promarket solutions and we would be crazy and foolish to not take input from people who are in the market every day. Well, what kind of different questions do these novel ETFs raise that traditional ETFs don't? For the SEC, it's it's funny because it's not a 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 what how much exposure should there be to assets that are not listed on exchange, right? Because back in 2019, when you asked what an ETF was, people said, "Oh, I know what an ETF is. It's it's an S&P 500 fund. You take a bunch of listed assets, you put them in one bucket, you list that to the public. Yeah. The um and you send it out. And the exotic thing in 2019 was there were some commodity focused exchange uh ETFs. That was it. Today, you go to today, we have exposure coming in through other assets, things that are not necessarily transparent. You can't
necessarily go and check. The magic of the whole ETF structure, the ETF wrapper is that the APS stand ready to ensure that the arbitrage mechanism works. Back in 2019, that meant here is a whole host of securities. I'm going to deliver into you fund sponsor a ton of, you know, 500 different issuers, varying amounts of shares, and rough justice will get us there. Great. I mean, today we have cash, you know, cash exchanging hands a lot of times. We 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 so.
Let's let's just hone in 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 rapper just like crypto which also opens up things like brokerage accounts. Yeah. People want to trade through the brokerage account and have it all in one spot. I've always thought ETFs standardized everything. Sort of like gas pump, you know, it works on every kind of car, 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 binary bet. Will the Fed raise rates? This is actually a decent case for real investment or a hedge because then you don't 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 AP can arbitrage it, it seems like it would work just like anything else. I'm sure that's the case the issuers 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 that's coming out is there anything we're missing here? Well, I would just remind you of what we said earlier, which is we should not be we are not statutoily 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, this one is bad. That's really not our role. So, we I know we 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 ETFs based on event contracts. Let's be very careful what we're saying. The volume could explode. I mean, like we said earlier, I think, you know, we're look we're running about 50% 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, there's not necessarily anything wrong with that, but the explosion we could see of all of a sudden one ETF sponsor drops in 5,000 applications.
Corgi will have half of those. Wow, that was a good one. You like that? That's a that's some ETF nerd humor there. You probably get it. Corgi has launched about 100 ETFs in about two months. Corgi does 50 in a shot. Yeah. Anyway, you 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 this. Like not all of those would be hits. At some point there's a law of diminishing return. Same thing happened in crypto. There's probably 1 million crypto coins, but there's probably only 20 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, right? And then there's a question about our review. I mean, how could we intelligently review if people want to come out with, you know, 1,000, 2,000, 3,000 ETFs a month? Either we have to staff up massively or the quality of the review starts to drop. Now, there's of course, you know, situations where these here are 100 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. So, there are ways to scale in. 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 timewise. And it does stress our system when people I mean some people call throw spaghetti at 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. So, can I ask we have we saw this happen basically already like everybody was like we're going to flood the zone 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?
Is that was there like a like alarm bell that says like novel products, novel products and like what was the floor? Is it the seventh floor in the SEC where everybody we're on the eighth floor? Eighth floor. Sorry. The 10th floor is where all the commissioners are. It's the 10th floor. It's like the 10th floor like okay they somebody had to say somebody tell the 10th floor. Yeah. I'm I'm just curious 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
going to 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? 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. By the way, how many days a week does that happen? Like three or four. That's funny because I know I track filings and I am moved to post on social at least two or three days a week because I'm like really for us that so it happens a lot have many times
a week. The trigger for that is not necessarily this is a an interesting asset or what are they thinking. It's more of this raises this has this implicates our process it implicates our review implicates something you know it may be crosswise with a leverage rule or something that's that's our threshold the so when that hap when and if somebody comes in on a Thursday with something new it's novel again I referred to this earlier because our process is public we will have you know 20 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 productive or AI assisted or um you know whatever um but definitely I
mean you know you call you guys all call it a terror dome right yeah that's just it that's the market is first mover wins second place shuts down and goes home and it's fierce and we see it so we definitely see that so when it comes in we talk about it we say okay is this something that is important And this was because of all the different intersections of this. It was a new structure. It's a new asset class. We have questions about how the AP system is going to work, questions about the disclosures, things we 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 briefed 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 because before we do anything, before we start throwing out rules or stopping people from going public. Let's go and have a chat. And it was really wellreceived and that was it was really gratifying. 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 any way. 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 and somebody's going to
leaprog me. And we said, fair, fair enough. The chairman went out, made a public statement to give everybody support and the industry has voluntarily held back till we get this RFC out until you 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. Let me just follow up on one quick thing you said there because you know I call it 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 LE it switched to MJ
and it was all of a sudden now the wasn't canvas it was something like agricultural you know growing hemp I don't know what the they had a name that didn't have cannabis, but it effectively it leapfrogged the group and it became a big hit because it was already listed. And then recently, the Friday that SpaceX went IPO, one of the space the 2x space theme ETF that was active 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. The market kind of caught on. Hey, this is the 2x SpaceX ETF, but then they got halted for regulatory concern. And so those are the examples we see and I think the other issuers see with
Bitcoin. I think Van and ARC have a little bit of a gripe because they were actually earlier than Black Rockck, but then Black Rockck got to launch on the same day and they thought, well, that's not fair because Black Rockck's so big. So that those are the questions you're getting and I understand their concern. I get that. So do we. I totally get it. and think spin it out a little bit from where we sit. There is no worse place to be as a regulator than to be the one whose either intentional or unintentional actions direct and influence who the winners and losers in the market are. That's that's a terrible outcome. And so again, that's part of our RFC is how can we do that so it can be orderly and
predictable and not subject to the vagaries of staff action or inaction. Can you lift the veil a little bit more on this more so the inter agency collaboration? I mean I don't know how much your division is working with counterparts at the C CFTC but obviously like the prediction market issue has just dominated that agency even more so than crypto which I think people initially thought to take up a lot of a lot of their time and 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 up the I would say across the board even in the my I've only been in the government for
one year but the amount of inter agency collaboration on everything is amazing and it's it's so easy to do if you call up somebody at another government agency and you say hey you don't know me but I'm Brian Daly and I'm at the SEC and we have this issue you might either want to know about or 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 it's 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. um the chairman talks about all the time and what a good relationship he and chairman celic have and all the divisions in the SEC will talk to their counterparts at the CFTC on some kind of regular basis. So that's there 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 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. The CFTC is doing a fine job with it. If they needed help, they would call us on any particular issue and we would give it freely and vice versa. What was your outreach to them like on this particular issue, all these ETF filings that started coming in? So, everything that we do and you guys heard about this initially because it went through what's called OIRA. And so, one of the things that the CFTC and the SEC have been brought into is the White House review process. You go to regggainfo.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. I want to ask about something that's slightly tangent from where we've been. Private assets in ETFs which didn't used to be a thing and then we started to see them 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. Yeah. And let me give one. So traditionally only 15% of the ETF could be earmarked for illlquid assets. So even mutual funds have like a lot of
them have traditionally held a little bit of illquid stuff namely privates fidelity funds etc. Where this got broken was Ron B which is an ETF from Baron. They went to like 25% 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 illquid 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-off for now but what's your take on that? How far could we go in getting privates into ETFs?
Could we go beyond that 15% threshold like Ron B did? 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 illquids 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. one, we are part of what's 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 the in both sides of it, the private and the public side. We
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. That's the goal. That's what we want to do. We have ideas and you guys will tell us if you like the idea when it comes out of how to do it. But part of that is making sure that we use the 40act vehicle. The 40act vehicles have been around obviously since 1940. The 40 act it's done pretty well for retail investors. It's sometimes paternalistic. It's sometimes a little clunky like any, you know, 86 year old is pretty old. But the I guess 66 year old sorry but um at a certain age you're just old.
Let me just fix that. Yeah. But like anybody, 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 a 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 1940. So we think we can harness all that. We think the 40 act vehicles writ 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 shrunk 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. So, that's where we're heading. Yeah. Okay. Let's go to the 2x ETFs. Obviously, you did the three. They tried to file 3x and then 4x and then some even did 5x. Reminds me of that Onion article. F it. Let's do five blades. This is when the razor wars for Yeah, the razor. Now five is normal, by the way. Anyway, you guys said get lost. Uh a lot of people applauded you, including me. We did a study and that if you did 3x single stocks and 4x and 5x, you'd
probably have one or two terminations a week because of the volatility of some of the stocks. 2x, you still get a lot of volatility. But when people saw the SpaceX 2x race, there was some people like, what's even going on here? And then in Europe, you can do 3x and 4x and 5x. 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 a high degen per capita and they love these products. They trade a ton. They only make up 1% of assets, one to 2% of assets, but they do make up about 30 to 40% of all launches. Now, what's your take on those and the sort of public reaction? Like, wait, this isn't investing. 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 am 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. Here's my solution, which I' I've had for 10 years, by the way. This should be bigger than it is, Joel. And you know this, I've heard it a few times. 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 there drug use and profanity and nudity?" Like, you know, is there leverage? Are they rolling futures? Is there weird stuff that isn't obvious? Green light, yellow light, red light. It's like G PG-13 or PG-13 and HAR. 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 a the actual marketplace come up with the solution the way the movie industry and other industries have? 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 exception. Joel, the SEC just endorsed our traffic light. Just I noticed that clear every brokerage account. We are not endorsing your traffic light system. It may well have merit. We look forward to hearing about it. Yeah, there's a filing you can put it in. And then you know the people at CNN will see it and they'll copy it because it'll be on Edgar. Um but can I throw a quick advertisement in for something else? So we are also going to be coming out soon and this is public knowledge and it's been flagged on the uh reg info site already with an e
delivery proposal right e deliveries is not necessarily for this per se but it's for all the 40i products to allow email or other electronic platforms to be the default delivery standard for people to receive important statements proxies annual reports for their in various investments rather than getting it in paper. We all get big paper. Everybody has some legacy amount of paper coming to their house, usually in these blue plastic envelopes, and much of it just gets thrown out. So, we're trying to move to get us to, you know, at least late 20th century standards, but hopefully 21st. But we are pushing industry. Every time we speak about e delivery, every time I speak about e delivery, I will 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 to be PDFs going out by email. We understand that and that's good. 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 leapfrog from that forward. We're hoping that either fund sponsors or advisers 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 4in screen on your smartphone is the window by which most if not all retail
investors interact with their investment decisions. an equivalent 8 and a half by 11 10point font document that runs 300 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, in a way, which 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, probably a lot better than that, translate that for you, takes this massive amount of disclosure that's embedded in a 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 perspectuses, 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. It's a interesting way of just bringing it back to innovation I guess and that seems to be a hallmark of current SEC. So to that end we have a 30 act we have a 40 act these are like foundational things that let the ETF industry flourish. Do we need something new? Should there be like a 26 act? What would that look like? Well that's Congress. So let's go back to my id got no votes in the last election. So we have 3334 we have 240 acts we've got other acts out there trust indenture act and things
like that I think the question is there something fundamentally broken right Congress getting anything through Congress and I think it was probably the same in 1933 it was a little different there because they just gave it to Joe Kennedy and gave him a pen and said go do this go do it yeah he came back um 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 if they want to offer ETFs in that trust. I think that's the kind of
innovation that we have been doing that maybe obiates the need for Congress to move you know also the 33 and 40 a lot of stuff went down yeah 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 when that will happen I don't know but that's probably my guess no I think that's exactly right I mean sarbain oxley yeah you know all the all these things come out the jobs act might be one of the few exceptions where there was no crisis as aio says, "We need a hard rain." That's his solution to some of these crazy products. Like a bare market will like filter a lot of this stuff out.
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? I don't know. We'll have to see. I think again there's only two options in prediction markets. There's yes or no. Well, no, because don't don't put money on the table. He wants to run over to uh Poly Market and bet on the current market for the approval of prediction market ETFs. No, I think it really depend. 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, I mean, 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, if 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. We want to hear what everybody has to say. 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 as an exchange traded fund within the SEC. How much pride is there about that? I bet some people don't even know. Well, we have an article to send you. I have a book to pitch you. But yeah, well, you know, you can only pitch so many things during an episode
to be fair. I know when you put institutional in the title of a book, uh, 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 1987 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 ' 87. So before I answer, where do you trace the beginning of it to by what country? Well, that's a that was a little hard. Don't even bring up Canada. No, no, I was going to say they may have invented it, but we made it great. No, no. I'm telling you that's the word on the street. You go to Canada, I they hate me in Canada because
I'm telling you, uh, Nate Most and Steve Bloom at AMX, American Stock Exchange, they filed first for SPY. While you it was waiting in the SEC for four years, that filing, Canada came down to the AMX and they Nate Mo 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 Toronto Stock Exchange to admit the idea was hatched in the US. Thank you very much. So there you go. Started here. But the part of the steer came from a lawyer at the SEC.
Yeah. I think people are very proud of the ETF. I mean when we sit around we talk about the stats. The idea that we have nearly a 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 in the middle of it. I mean the AP system was like genius. It really works and it relies on the integrity of the markets, the integrity of the participants. The exchanges do a terrific job ensuring the safety, soundness, and orderly operation of their own markets. And we're there when there's relief to be needed. Obviously, we have friends in enforcement when things go really bad, but you know, on in the scale of things, they don't come in that much. So, I
think we're 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. Great way to end it. Brian Dailyaly, thanks for joining us on Trillians. Thank you for having me. Thanks for listening to Trillians. Until next time, you can find us on the Bloomberg terminal. bloomberg.com, Apple Podcast, 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 Hendrickson and Keshov Pia. Bye.
