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Today, we are delighted to have 2 of the most important individuals shaping capital markets over the next couple of years. SEC Chair Paul Atkins is with us, as is CFTC Chair Michael Selig. Welcome to the show, gentlemen.

Glad to be here.

Thank you very much. Great to be here.

Also with me is my bestie, Chamath Palihapitiya, who is known to participate in capital markets. I think there's a great structure here for us to talk about the many opportunities, and then guardrails and things that we should be concerned about in such a dynamic time. Chairman Atkins, this is your 3rd tour of duty since the '90s. Things have changed dramatically, so maybe just to start us off here—and Chamath has a lot of great questions ready to go—I'm curious: in your time, let's say the last 40 years or so, what have you noted about capital markets and how they've changed, and what's important for us looking forward?

Thanks. It's great to be here and see both of you today. I started out as a young lawyer in New York City doing corporate finance work—new offerings and that sort of thing—in the mid-'80s. To be a startup company and build your products, do R&D, and all that, you had to go public. Apple, Microsoft, and Advanced Micro Devices—all of those companies started off as IPOs.

Andreessen Horowitz has a really good bar chart where they compare the companies of the early and mid-to-late '80s to today. It basically demonstrates, through the ROI enjoyed by insiders versus buyers of the public stock in those early companies, that insiders—officers, directors, and whatnot—had a relatively thin slice of the entire pie. Everyone made out well, obviously, but the public purchasers in the IPO made out very well over the years and had the lion's share of that.

You look at today, the current situation, where we have robust private capital markets, and we have today half the number of public companies that we had 30 years ago. It's completely reversed. The return on investment is mainly enjoyed by insiders—private equity, venture capital, corporate officers, and employees—versus the public, because they're mature companies when they actually go public. So that's a huge change. The private markets are very robust and strong, but American capital markets are very healthy, I think.

When you look at that, back then there was a real requirement for everybody to do an enormous amount of work because, to your point, these companies were quite young. You'd be a 4- or 5-year-old company and you'd go public because going public was not about monetizing anything. It was actually a fundraising moment. It was like a Series C or a Series D.

I guess the reason it changed was probably because, to your point, there were all these returns, and so investors said, “Well, let's go capture these in the private markets for us and our LPs.” But what it also does is change the nature of how these markets behave. Can you just comment on the amount of time companies are staying private, the dearth of IPOs because it has become a liquidity-defining moment and is much more so than the financing moment, and whether things should change and, if so, how you want to change that and why?

Yeah, well, it's a free market, obviously, so investors should be allowed to let the market develop as it will, but you're exactly right. Now it's more of a liquidity event for insiders. What we are seeing now is that in the private markets, there's a lot of capital, and people are willing to deploy it to companies at early stages and then stay on.

At the same time, there are inhibitions for private companies to go public, and 1 of them is the cost of complying with our rules, especially the disclosure requirements, where you have all the annual-report requirements, proxy statements, and all of that, and then quarterly reporting and so forth. That is 1 big inhibition, where things are not necessarily focused on materiality anymore.

Are you allowed to convene a group of people and start to line-item these rules out or change them, or does it have to go through some much more robust process where there are a lot of competing reasons why some people—some lobbies, maybe—may want these rules?

Oh, for sure. There are vested interests in everything, but that is part of my program for this year and going into next year: to go through our rulebook. We need a spring cleaning. We need to clean out the attic, the basement, and the garage, and really look at things unlike the agency has ever done before, with a real focus on materiality.

The 2nd thing is to make IPOs great again by focusing on litigation. That is another key inhibition, I think, for people to go from the private markets to public: the threats of class-action lawsuits and vexatious litigation with every dip in the stocks. You have issues like mandatory arbitration and fee shifting—loser pays, that sort of thing—both of which Delaware has recently outlawed for public companies. But there are other states out there.

The 3rd is the weaponization of corporate governance around shareholder proposals, that sort of thing. It becomes a pain to deal with the annual general shareholders' meeting and that sort of thing. Those 3 are maybe not the only inhibitions, but they're 3 key ones that I've heard over and over and over again over the last 30-some years from venture capitalists, private equity folks, investment bankers, lawyers, and et cetera.

Mike, what are your top priorities for 2026 at the CFTC?

Well, like Paul, I started off working in private practice at a law firm, and right around 2021 or 2022, every week my clients would get a subpoena from Gary Gensler or the CFTC and were faced with this onslaught of regulation by enforcement. They were faced with regulations that did not work for their business models, and these were crypto firms, prediction markets, artificial intelligence firms, as well as our traditional financial market participants. They were just relentlessly attacked by the federal government under the prior administration.

So I really came into government to help right the ship, to help make sure that we have purpose-fit rules and regulations for new, innovative technologies and financial products. A big piece of my agenda has been crypto. Our crypto asset markets—as I'm sure you all are tracking—are the subject of some legislation that we're really hopeful about, and we're working with David Sacks to get it across the finish line and to the president. That's going to be a key piece.

The CFTC would have authority over the spot markets, and we're getting ready to implement those rules should the legislation get across the finish line. Another key piece of our agenda has also been modernizing and upgrading our rules and regulations for on-chain software systems, blockchain networks, and other types of digital asset products, regardless of legislation.

It's really important that we have future-proof rules and regulations that are ready to accommodate the innovations of both today and tomorrow. That's blockchain, but that's also artificial intelligence and other areas of technological innovation. So there are a lot of things we need to change within our regulatory framework to make sure that we're ready to accommodate that.

Let me ask both of you a question. This sits at the intersection of tokenization, crypto, and what I would call systemic risk. If everything becomes tokenized and digitized and 24/7, what do you think needs to happen to make sure that the systemic risks to the system are managed?

Here's what I mean. If you go on X, I've gone down the automated-trading rabbit hole. I don't know if you guys know, but there are these incredible, young, vibrant projects that are basically replacing a Citadel, replacing a Millennium, and building these automated, agent-based hedge funds that are transacting across all kinds of markets all the time.

On the 1 hand, I'm completely attracted to it. I think it's totally democratic. It's the free market. It's like, let's figure out what's going on there. On the other hand, I ask the question: Where's the kill switch? Or where's the circuit breaker, if you will? I just want to give you both the chance to talk about how you see these markets converge, and both the positives and the negatives of it.

Absolutely. We need to be considering these risks as we're developing rules, and this, to me, is the whole reason we need to have a purpose-fit regulatory framework for these products, autonomous agents, and all of that. Up until now, I think the approach has always been, “Let's apply the old rules and regulations, and that's going to work out,” and make sure that nobody can actually innovate and create something new.

We are embracing these opportunities in the market. We need to study them and make sure that we understand the risks, but we can develop rules that accommodate that. We need to have a regime in place that says, “Go build. Don't ask us for permission,” while we study that, work with the market participants, understand the risks, and, on our end, set up guardrails.

I do think there are unique risks when you have the ability for an agent to go out and deploy capital on basically an autonomous basis. That's going to be something that our markets have really never seen before as regulators, but that doesn't mean we have to stand in the way and block it.

I think we need to really understand the risks and make sure that we have the right guardrails, whether that is us operating nodes on blockchains or really having technologists who are studying the contracts in the code. But I don't think there's any reason we can't have this technology built here in America.

I agree with that. From my point of view, there's so many benefits to come from distributed ledger technology for the financial services industry. We're right at the cusp of achieving T+0—basically, immediate delivery versus payment, receipt versus payment on-chain—by digital assets, and so that's pretty exciting.

We may even have to build in speed bumps to prevent fraud and things like that. For many—and for some instruments—it might not be possible, but your discussion there with 24/7 and all that, I think, is really an exciting prospect. But there are challenges from the liquidity perspective: having the whole concept of best bid and offer, what does that mean? So that's one that we will be wrestling with.

But ultimately, at least our approach—and what Mike and I are striving to do in harmonizing the approach of our 2 agencies—is to hopefully get a statute out of the whole CLARITY Act discussions going on in the Hill right now. That's really necessary to future-proof what we're doing so there is no backsliding in the future.

We need to focus on the fact that if it's a security underneath and it's tokenized, it's still a security, and the securities laws still apply. But it's up to us to make sure that our rules are fit for purpose. As the whole purpose changes and as the delivery mechanism changes, we need to accommodate that.

Unfortunately, in the previous administration, we said, “Oh, come in and talk to us. We have a simple form for you to fill out. It's on our website.” Well, ha-ha, it's called an S-1, and it takes lots of lawyers and accountants to try to figure out how to do it for an existing company, much less for a new digital asset, a crypto sort of asset where the form is completely inapposite. There are no boards of directors, there are no offices around the country or around the world, or whatever. The thing needs to be adjusted so that it is fit for purpose.

So that's what we're striving to do, going through our rulebook to make sure it can accommodate the new technologies.

So let's build on Chamath's conversation here and his points. One of the key dangers and innovation opportunities in the market is leverage. We see it, obviously: hedge funds have been doing this for a long time. We're starting to see it in prediction markets, Mike, and we're seeing it in crypto.

What is the proper amount of leverage, and who should set those rules? Obviously, you have Congress making laws; you're responsible for executing them, Chairman, in order to make sure the markets are orderly and that you protect investors. So just walk us through what you think is the proper amount of leverage and your framework. You've been at this for a while, as we mentioned. How has that changed over time?

Educate us a bit on how we got to a world in which Bitcoin investors might be 100x or 50x and people might be leveraging their prediction market. It seems like it has a function, but it also seems like almost every story starts and ends with leverage.

Well, I think it depends on the marketplace and on the type, because obviously you have banks, and they're all about fractional deposits and all of that, and lending. We've gone through that back in 2008 and 2009 in the financial crisis, going all the way back to 1929 and even in the 1800s—obviously, all the repeated problems with financial disruption in financial markets. So we have to be careful about that.

There are all sorts of rules for broker-dealers, for banks, in the futures markets, for margin and all of that, to put a lid on some of this and to have some controls around it and transparency. In the futures markets, the exchanges have a lot of power over their members, over margin, and over closing things down. We saw that even during COVID and whatnot, when the markets got hairy. Those things are constantly looked at.

The Fed plays a role as well with margining in the securities markets. All that has to be adjusted, and now we need to look carefully at these new markets, see what's analogous, see what authority we have, and then make sure that we're not killing trading. But we also have to keep an eye out for the future to make sure that we're not allowing things to blow up in our face.

Here's a question that may sound dumb, so I apologize if it does, and this is to both of you. I think a lot of people don't understand—or at least I don't—where the SEC and the CFTC cooperate most effectively, but then, as with all things, where does coordination maybe break down?

Could you just explain that to people so that we understand and level-set about what the expectations of each organization are and how you actually work together day-to-day when you have to?

Having been around the 2 agencies now for 30-some years, I can really say that, unfortunately, the 2 agencies—not necessarily at the commissioner level, but certainly at the staff level—had a lot of sniping back and forth. I compare it to 2 fortresses with a no-man's-land in between.

The no-man's-land is littered with the bodies of would-be products. People were unsure: Is it CFTC? Is it SEC? The crossfire between the 2 just killed the products. They never went to market.

Single-stock futures and portfolio margining have so much potential benefit for making the financial markets safer and more efficient. But Mike and I are setting out to change that, and I'll let you go forth on that one, Mike.

Absolutely. The 2 agencies have unfortunately rarely worked well together, and we're really moving forward in a new direction with our harmonization efforts. We have a memorandum of understanding that the 2 agencies are working on, hammering out and getting in place, that will allow us to share information, coordinate on specific issues, and make sure that we don't have this turf battle between the 2 agencies going forward.

Part of that starts, of course, at the top. Chairman Atkins and I work very closely together to make sure that we're coordinated on policy, but also at the staff level. When exchanges, brokers, and market participants are coming in to register or to offer new products, we need to make sure that there's not this fighting over where they're supposed to be registered and what they're able to offer.

Some of these products cross jurisdictions. A great example is some of the prediction market products. Some involve public companies and securities, and others are related to things like sports and politics. That crosses jurisdictions, so we need to make sure that we have clear lines and that our market participants aren't subject to duplicative regulatory frameworks.

Chairman Atkins and I have talked about substituted compliance regimes, where you have a primary regulator at the SEC or the CFTC, but we work together to figure out the cross-jurisdictional products so that you don't get stuck with duplicative regulation or registration.

Another area is crypto, where we've got blockchain networks, smart contracts, and protocols that have both securities and non-securities trading on them across jurisdictions. We need to make sure that the standards are consistent, because it won't work if we've got one blockchain for securities and another blockchain for commodities and nothing in between.

I think this is really critical: that the agencies bury the hatchet and move forward with a harmonized and coordinated approach.

As we look towards the future, to build on the fact that there are 2 separate regimes, there are differences in approaches based on the statutes that govern us. But speaking for the SEC, we also have a lot of flexibility with respect to exemptive authority and whatnot.

My dream is, one day—and I hope we can achieve that here in the next couple years—to have a super-app approach where there are blurred lines between the 2, but we've coordinated our approach, coordinated to reduce the friction between dually registered companies, and made everything work very efficiently.

I want to ask a question around prediction markets. Let me try to set this up the way that I think about it.

I think that there is this inexorable tension that's always existed and will always exist between the investor protection that has to happen when you have publicly traded securities or commodities or derivatives, and the capital formation process on behalf of the company or whatever that wants to get access to this. There's always been this back-and-forth tension.

The best example of this is Reg FD, where we said at some point, “Hey, let's hold the trains. If 1 person knows something, every person needs to know that thing.” It makes a ton of sense.

When you get into prediction markets, I think this is going to stress-test this assumption to the nth degree. The reason is that there are just certain things that some people know. We see it now. Every other day there's an article about some prediction market that turned out to be right, or a bunch of other markets that were almost manipulated. It seems ripe for this question to come up all over again.

The corollary to this is Brian Armstrong tweeted something which I thought was quite an interesting comment about prediction markets: that certain prediction markets only thrive on insider information.

Which is to say that they know a secret. That's how the market can exist and actually conform to an outcome. That creates these two sides. I just want to get your thoughts on prediction markets: What role do they play? How do we balance the capital formation that the market creates against investor protection and the insider trading that may be happening? It's a very complicated space. I'm not going to hold you to any of it; I just want to think out loud.

Markets aren't new. We've had them since the '90s. They started off with the Iowa Electronic Markets, where folks were predicting political outcomes in elections. We've been surveilling, monitoring, and policing fraud and manipulation in these markets for a very long time.

To the extent that there are contracts in certain markets—for example, what color Gatorade is going to be dumped on the coach at the Super Bowl—some of this stuff is potentially at risk of being manipulated. There's a risk that somebody on the team could trade because they have special information about the Gatorade they put in the cooler.

We have standards to make sure those contracts should not be listed, with the exchanges as the first line of defense as self-regulatory organizations. They evaluate each contract and certify to us, the regulator—the CFTC—that those contracts are not readily susceptible to insider trading, manipulation, fraud, and the like.

We saw recently that Kalshi, one of the prediction markets, brought 2 enforcement actions against participants. One involved a contract related to MrBeast's YouTube channel, where one of his employees insider traded based on information about when a video was going to launch or what was in the video.

The same sort of authority that you have at the SEC around a duty of care to your employer is prevalent in our markets. To the extent somebody insider trades on information, we police that. It's really important for folks to know that it's not just securities insider trading; we've got it in the commodities world as well.

The exchanges are policing that, and we're policing that. To the extent folks are listing contracts that are susceptible to manipulation, there are consequences to that. We can reject those contracts, or we can police fraud on the back end. There is a cop on the beat there, and I do want to caution that insider trading is not necessarily allowed in our markets.

But we do believe that markets are truth machines. They create a really powerful source of information. We've seen hoaxes, fake news, and manipulation of the polls. The prior administration tried to ban these markets ahead of the 2024 election, and they really increased turnout. It showed that they were correct when a bunch of the fake polls were put out right ahead of the election.

We really have to foster these markets here in the United States and make sure that they don't flourish in Russia or somewhere else, where they really will turn out to be a source of disinformation. We do believe it's valuable to have that trading and information flowing through the markets, but insider trading is still not legal here in the United States.

Walk us through some examples there, Mike. It's very obvious and clear to people who work at Microsoft if a new version of software is coming out, or if sales are dynamic and the numbers haven't been released. Obviously, you can't trade on that. You're going to jail. It's insider trading.

If I am a reseller of Microsoft software, or if a friend of mine works at Microsoft and says, "Hey, things are going great with this new product we have," and I make a thoughtful wager on a prediction market, where do all those rules live? Or if I intentionally do something like being a streaker at the Super Bowl—that was one that came up recently—and I actually am the streaker, not that I'm planning any of this, and I make the bet, where do all those rules live?

Who's responsible? Is it the prediction market? Is it you? Or is it still to be determined? It does seem that there's a bit of a gray area, as Chamath was alluding to here. Does this need to be codified, and does there need to be a bit more education for the public on it?

A lot of the gray area started with the prior administration really trying to ban these markets and not facilitating proper rulemaking and guidance in the markets. Over the past year—I've been in the office for a couple of months now—a lot of these products have really exploded in popularity.

Now is the time to put out guidance and make sure that we're not regulating by enforcement, as the prior administration did, but that we are setting standards. We are making clear what our statute says, and that is that these contracts cannot be listed if they're susceptible to manipulation. We take that very seriously.

Standard. Yeah, yeah, yeah.

The exchanges are responsible for policing that and reviewing the contracts. They certify to us, the regulator, that they are free of the risk of manipulation. If there's manipulation in the markets, we're policing that, and the exchanges are policing that.

There are controls in place, but a lot of these questions about what's susceptible to manipulation are up for debate. I think there's some real responsibility here. Your example of the streaker—if somebody can just jump out of the stands, streak across the field, and collect on the contract, that's something that does seem potentially at risk of manipulation and fraud. We need to be careful about that. The exchanges need to be on the lookout for it, and if they're not, there are consequences with us as the regulator.

The markets should take the first step and make sure they're thoughtful about which contracts to fire up to begin with. We have seen that. They're not saying, "Hey, this dictator is executed." They're saying, "This dictator is deposed or is no longer in power." That seems to be a very tricky one as well.

Yes, Mike.

Well, there's got to be integrity in the contracts. Our rules require that the contracts have, for example, certain fungibility and standardization. They're derivatives contracts. This isn't simply betting with a bookie at a casino.

For each contract that's created, you would look for whether it's tied to an election or a very specific event, and whether there's a risk that the event can be manipulated or insider traded. The exchanges are evaluating that.

There are instances where something is insider traded and it wasn't something they could have foreseen. It wasn't readily susceptible to manipulation, and so they police that. They bring actions against the traders, and Kalshi did just this with some of its fines in the past few weeks.

Let me ask a question about quarterly reporting, because maybe that's where there was the most manipulation in the past, right? People would try to front-run these quarterly reports. They would try to make guesses. Invariably, you would find some people who had crossed the bright red line.

Recently, Paul, President Trump said maybe we should move to 6-month reporting or 1-year reporting, and it was really well received by a lot of people. Do you think that quarterly reporting has also killed the IPO? When we think about making the IPO great again, has the complexity and burden of such short-termism made the markets better or worse?

That's a great point. I just wanted to add one little note to the previous discussion: If something is a tokenized security, the federal securities laws apply. That goes for insider trading with respect to trading securities, wherever they may be—online, on an exchange floor, or wherever.

To your point about the cadence of reporting, I think that's an important one. We are going to come out with a proposed rule and seek comment on it. I'm frankly a bit agnostic myself, because we haven't always had quarterly reporting.

In fact, when the SEC was formed back in 1934, it basically codified the New York Stock Exchange rulebook, which at the time called for annual reports. Annual reports prevailed until 1955, when the SEC went to semiannual reporting. The UK did the same thing around the same time.

Then, in 1970, things went to quarterly reporting. The UK went quarterly as well, but in 2014 or so, it changed back to semiannual reporting. If you wanted to still report quarterly, God bless you, go ahead and do that.

We're still at quarterly reporting. The president did send out an electronic message about that, and we're looking at what we call filer status. There are all sorts of different categories of filers with different rules, like large accelerated filers, accelerated filers, emerging growth companies, and so forth.

We're looking to simplify all of this. Part of that is that perhaps smaller companies could benefit from a reduced cadence of reporting, but maybe not. They have trouble finding analysts to follow their stock. That's another thing that might be an inhibition to going public for small companies.

Maybe analysts want quarterly reporting, maybe they don't. Maybe they would prefer semiannual reporting, too. I think this is a great debate to have right now. Barry Diller even took the other side of it. He said, "I'm just tired of giving predictions. I'm tired of playing this quarterly gamesmanship. I'm just going to release our accounting numbers every month, and you all can have fun with the numbers as much as you like."

But that's amazing, because you can do that now, right? You can have software that's so vibrant that it can just JSON-release a stream, and there'll be people who have developed agents and developed these AIs that will process all of that. They'll then publish a dashboard, and the whole thing will be almost real-time.

It could be real time. Yeah, there are services that do semi-interesting things already that you can buy, which maybe people with budgets for data streams can use.

Let’s talk a little bit, Chairman Atkins, about the history of accreditation in this country. When you brought up Microsoft and watching these companies go public early in your career, I did a little research while we were here and you were speaking. Microsoft and Apple went out with 1,000 and 1,200 employees each and about $400 million in revenue in today’s dollars—$120 million in those dollars. So obviously, there was this incredible opportunity for you to create and place a bet on these companies as an individual with a stock-trading account and maybe move from one tier in societal wealth to another. That’s a big part of the American dream.

But as we talk about private markets, the SEC has ancient rules, now going on close to a century old, to protect investors called accredited-investor rules. They apply to 95% of the country, apparently, and about 5% of us get to trade in some way in private companies where the value is created. The SEC has been challenged and charged with changing and evolving these, and it never seems to happen. My perception is: which SEC chair is ever going to take this on? Because, hey, it’s just easier to keep the status quo.

I know there is some legislation now to create a sophisticated-investor test. So instead of saying, “You inherited $1 million, so you’re qualified to buy stock in Uber when it’s a private company,” why not have a sophisticated test like a driver’s license, where you learn how to trade in private companies and get to participate in that market? Instead of just saying to people, “Well, you can only participate in sports betting or blackjack in Vegas, but if you were an Uber driver or an Airbnb host or an HR person using LinkedIn as a private company, you can’t buy those stocks.” You have an insight and an instinct into maybe purchasing. So talk about the accredited-investor test and sophisticated-investor tests, and your personal view on it.

Great point. Well, here’s one chairman who is going to tackle that issue. We intend to do that.

The accredited-investor definition is interesting. To your point, in the statute—in the Securities Act of 1933, I believe, or the Investment Company Act of 1940—there’s a definition of that, and it includes knowledge, not just wherewithal or the assets that you have. It includes—it has the word “knowledge” in it.

Why can’t we have an equivalent of a driver’s test, as people have suggested over time, or recognize somebody who has a CPA, a CFA, or whatever? Maybe a type of Series 7, but not so complicated as the one that FINRA administers. Part of the question is: who’s going to make the test, who’s going to administer it, and how do you get there? Anyway, those are issues that we want to tackle.

I remember when this issue came up when I was a commissioner back in the aughts. There was one comment letter that really struck me. It said, “Today I am able to buy a hedge fund or private asset or whatnot. But tomorrow, once you raise the standard so that I have to have X amount of assets or income or whatever, I won’t be able to. So what’s changed? Why are you going to take that away from me?”

Why is a finance professor who makes $100,000, lives in an apartment, and doesn’t have any other assets not able, to your point, to invest in some of these types of securities, whereas an heiress who just came into $10 million or something like that suddenly is able to? Now, she can hire people to advise her, but they could be dummies, too. I mean, who knows what they are?

Anyway, I think we have to take a fresh look at all this, and we are going to do that this year with a proposed rule to address that.

I have a question around the derivatives markets. Well, actually, before I ask the question about that, I want to ask about the futures markets. You have an enormous number of high-frequency trading firms that really dominate futures volume. Can you tell us what value these folks are providing? Is it truly liquidity, or, as there has been some speculation, very sophisticated market arbitrage? If it’s the latter, where do you think we need to do a better job?

I think the best example is if you look at the volume of futures activity and spot prices of certain commodities, the basis is starting to get out of whack. So tell me about the market participants in these derivatives and futures markets and what you think is going on.

Our markets have 3 core types of participants: hedgers, speculators, and market makers. The liquidity is really the result of all 3.

There are market participants that really rely on these markets. Whether it’s a cattle contract or a credit default swap product, they need to enter into these agreements to hedge key risks in their business. Then you’ve got folks who are willing to provide liquidity, whether they’re speculating and taking another position on that for their proprietary basis, or they’re doing so to make markets and earn a spread.

We’re regulating these markets and making sure that the trades going through have integrity, and that folks aren’t wash trading and trying to manipulate markets. There are some strategies that raise particular risks of manipulation or fraud, and we police that. We’ve taken actions in the past to make sure that the exchanges are not subject to illicit behavior and trading.

The exchanges, similar to my point earlier related to prediction markets, are the first line of defense here as well. They surveil their markets, and we’re in constant communication with them, as well as with the traders. We’re often sending information requests to traders about their activity. So I do believe that all 3 participants are very important to making sure that our markets are liquid.

On that last point that you just made, which I think is a very good one, post-GFC there were these central-clearing functions, right, to make sure that derivatives contracts were not getting out of control and that we had a good sense of systemic risk. But it turns out that one blind spot everybody has is these bilateral swaps. I’ve done certain bilateral swaps with certain counterparties, and it’s not clear to me what happens on the back end. Can you talk about that, how you think that should stay the same or change, and whether that keeps you up at night—whether it should keep us up at night?

Sure. Well, I’m not a huge fan of Dodd-Frank, but in the wake of Dodd-Frank, we got swap-data reporting, and these bilateral over-the-counter swaps are now generally all—there are some exceptions—sent to swap-data repositories, where we’re getting information on a daily basis, as well as from these third-party repositories that compile that information. So the markets are much less opaque. We have transparency today.

My concern about the swap-data-reporting regulations is that they have really been a tool for our enforcement divisions in the past. You’ve got so many different fields that it’s really difficult to characterize each different type of swap. I’ll tell you, when I was in private practice and folks started entering into Bitcoin swaps and crypto swaps, characterizing that as a type of derivative relative to cattle and wheat and other commodities really was a whole lot of legal advising and a lot of wasted money, frankly.

We need to simplify. We need to make sure that our swap-data-reporting regime is rational, coherent, and makes sense for the everyday participant in the markets. You shouldn’t have to hire a high-priced law firm just to enter into a risk-management tool.

These developments post-Dodd-Frank—some of them make sense, and some of them don’t. A big priority of mine is going through rule by rule to make sure that all of our regulations are really the minimum effective dose.

I have a question for both of you. Is there something that, if you could borrow from the other person’s regulatory toolbox—something they can do that you cannot—you would love to be able to do as well?

From my perspective, one thing the CFTC has for new products is called self-certification. For repetitive products, once you go ahead and approve the general type of framework for it, then it’s self-certification by the markets and by the people who are, of course, coming forward with the products.

We don’t necessarily have that kind of thing. We do for some things, like ETFs and whatnot, where we’ve come up with rules, and then it’s up to the market participants to abide by the rules and have their product conform. But on so many other products, we have a much more complex, labor-intensive—let’s just say—approach to it that requires approval by the staff and the Commission and that sort of thing. Whereas it’s much more streamlined on the CFTC side.

On our side, there’s one regulation that I think has been really effective on the SEC’s side, and that’s the alternative trading system. On both sides of the house, we have full-blown, very intensive exchange registrations. The SEC went ahead with a rulemaking that allows broker-dealers to set up an alternative trading system, and it’s really an exchange-light framework. I’d love to see that on the CFTC side as well.

Chairman Atkins, I want to talk about fund formation and the power of venture capital in the U.S. economy.

20% of the GDP of this country comes from venture-backed companies. It is 40% of the S&P. Obviously, with the Magnificent 7 contributing heavily, that comes from venture-backed companies whose products we all know and love.

But fund formation for venture capital is ancient, and there are massive limitations on it. There are 2 ways, obviously, to address this. One is the path to accreditation for people to become sophisticated. We just spoke about that. But the other is how many people are allowed to participate in a fund.

As one example, when I raised my last fund, I had well over $100 million in accredited investors who wanted to have a small bite of the apple and get into venture capital, but I could only accept 100. I could only accept $10 million. It doesn't make any logical sense because, in fact, it would be better if more people could put in smaller amounts. Many hands make light work, and more people could participate in this.

This would have a dual impact on the economy. One, more startups would get funded, and 2, more individual investors would get to participate in this very closed ecosystem known as venture capital. So, I was wondering about your thoughts on venture capital, specifically its formation, which is the driver of the U.S. economy.

Well, you raise a great point, but a lot of what you're talking about with funds is statutorily mandated. There are 2 big exemptions in the Investment Company Act of 1940 that are pertinent here. Those were adopted by Congress with a lot of debate and whatnot, so that is more difficult to change, and there are certain ways that we can change them.

We are going to look at this. You have a lot of different types of accredited investors. You have qualified purchasers. You also have qualified institutional purchasers and whatnot—or buyers, rather. All of these things need to be looked at anew, and where we have the authority through our exemptive power under the various statutes, we'll be able to use that.

I do think that, especially now, as we talk about opening up private funds or private types of products to a broader range of people, including 401(k) plans and whatnot, we're working with the Department of Labor and the Treasury Department to address this. We all feel very strongly that you have to have good guardrails. You just can't open up the barn door wide open. We have to have standards for what can go into these sorts of plans—401(k) plans, pension plans.

But retail investors are already exposed to the private markets through their pension funds, insurance companies, and all that. So, all of this needs to have a fresh look, and we need to come up with good new ideas to basically democratize it.

And just as a quick follow-up there, one that I think would be super easy is, hey, 10% of whatever your last 2 years' average income was, or no more than 5% or 10% of your net worth.

Michael, there are some common-sense ideas here that would increase participation. Can you think of any reason that we should restrict Americans from being able to participate in venture capital? Is there any argument here if there were some basic-level controls, as I've outlined here—sophistication, taking a test, or a cap? You can only put $5,000 in. You make $150,000 a year; you can put in $15,000 per year. What are your thoughts, Michael?

I'm a believer in free markets, and I really think that allowing more access to our capital markets is a powerful thing for everyday Americans. We saw the ICOs—the initial coin offerings—where things moved into crypto and you had all sorts of investments in different projects. They were attempting to get under the radar of the securities laws, even though they were capital raises with different tokens, and I think the market always finds a way.

Allowing for more access and decreasing some of the requirements around accreditation, I think, is a really great thing for the American people. It will allow people to have some skin in the game. Maybe they lose sometimes, but other times they really hit it big, and it's a great thing for everyone.

So, nature finds a way, right? Like, if you don't allow people to participate, they start doing ICOs. When I looked at ICOs, Chamath, I said, "Wow, 99% of these are white papers with spelling errors in them. These are not the real companies that you and I look at in our daily lives in venture capital."

It reminds me of what happened with crypto: "Hey, it went offshore. It went to another stream."

I want to talk about the capital markets globally. We're in this very unique moment where there just seems to be this separation. The American capital markets—and you 2 are tips of the spear—have enormous credibility. Then, when you look at some of these other capital markets, Paul, you mentioned the UK, but I hate to say it so bluntly: the UK's a disaster. It is impossible to raise money there. It's impossible to raise money or innovate on a European exchange. It's a little bit easier in Asia, but it's complicated.

But then you do see some of these upstart exchanges that are trying to push and innovate in Abu Dhabi and KSA, et cetera. If you just take a step back for a second, I'd love your perspective on what's going to happen to capital formation, and specifically, what does America need to do to get this next couple of trillion dollars to be brought onshore?

Well, first of all, I think our capital markets are the envy of the world. It really is amazing. When I travel through Europe, Japan, the UK, and the Middle East and whatnot, people really envy our huge capital markets, how robust they are, and how fair they are.

It goes back to our rule of law and enforceability of contracts, and that's the essence of the foundation of our freedom and our ability to innovate and have all these new products. They would love to have that. Plus, what they also really envy is our risk appetite here in the United States, where people have an equity-investment culture, and that is largely absent in Japan and Europe.

In a lot of ways, they can't get out of their own way because, through their regulatory systems and whatnot—I mean, ours is bad enough—they take it to a different extreme with a very narrowly constructed code that really hamstrings them and is not very flexible for the future.

As far as opening up our markets, some of the things that we've been talking about here—new products, allowing innovation to take place onshore, and fixing some of the things like the accredited-investor standard and that sort of thing—I think we can then, to your point, turbocharge it to continue our growth.

Crypto's been a bit of the Wild West, and we have things like NFTs, ICOs, and meme coins. They feel—[laughter]—they look like stocks to people. Whether it's $TRUMP or $DOGE, whatever it is, they have a ticker symbol, they have a chart, and they trade like a stock.

What do we need to do in regard to crypto? What should we do, and where is the line between launching a crypto token and protecting the public, Chairman Atkins, versus, hey, it's a publicly traded stock?

Because for a lot of them, they get into it and they're the suckers at the table. It feels, it looks, it quacks like a duck, it looks like a duck, and so they buy it like it's a duck, but it's not a duck, obviously. So, what do we do?

And this was Gensler's, I think, maybe logical point, although his execution was poor. There was a logical point to, hey, we have rules. We can't let you break these rules for your dollar-sign whatever if everybody else is doing their company properly and following this set of rules.

So, how do we evolve that to protect the consumer, which is the top mandate?

Well, that's a great question. I think the real problem has been definitional, and the lines were very vague, so people weren't sure where they were. As Mike was talking about, people paid lawyers a lot of money to try to do it. Some lawyers just gave happy talk, and then people got in trouble with the SEC. Other lawyers just said, "Forget it. Go offshore. There's no use even trying here in the United States."

That's part of what Mike and I are trying to do—to harmonize. If it's a tokenized security, then that's one thing under the SEC's rulebook. But if it's things like a digital coin, a digital token—sorry—or digital commodities or digital collectibles, then those sorts of things fall under the CFTC's oversight. Their rulebook is really more apposite for these sorts of things than ours is.

But you have to have logical oversight over things like that to prevent fraud, because the one thing that really attracts people to our markets from overseas is that they perceive that fraudsters do get caught. We have protections around, as we've been talking about, insider trading and things like that—trading on material nonpublic information by insiders. We have robust protections for that.

Mike, unpack that for us, and maybe you could add to it the role of celebrities. Sometimes we see celebrities promoting these things, and it just felt like it was a bit out of control there for a bit. Your job is to make it controlled.

What should the crypto community that wants to release utility tokens and participate here know going forward?

We have to separate the capital-raising activity—selling something for the purpose of raising capital to form a business, when you're going out there and giving folks the white papers and the business plans and making promises to them—from the actual thing that people are buying.

The tokens themselves, in many of these cases, are just goods. As Chairman Atkins said, they could be a digital commodity—something that's an input for a network like Ethereum or Solana, or anything else where you're using it for a function within the network. But the capital raise is something separate, and they could be collectibles like an NFT or a tool that you're using to run a command on a network, that sort of stuff. They're commodities, goods, or things that potentially neither of us regulate. We don't go out and regulate widgets that are sold as part of a capital raising.

The SEC has brought many cases over the years related to fundraising with chinchillas and whiskey barrels and all sorts of things, but we've not had those traded as securities in our markets, and we don't want that for the digital world either.

As we start to wrap here, I have a final question. Both of you sit on top, again, as I said, of the most important capital market in the world, in my opinion. You guys are responsible for the well-functioning and pass-through of literally tens and tens of trillions of dollars. You are responsible for enabling, and not slowing down, the great vibrancy of the American economy as reflected in these markets. That's the upside.

The downside is that that also comes with a lot of pressure when you're in the bowels of the job. Obviously, I don't know what that's like every day, but what are the couple of things that the two of you think about at night? What are the critical risks to this experiment that you just know you have to get right, or the critical issues that in the next year or two you must get right for all of this to continue? Maybe Michael, start with you and then Paul.

Two big things concern me. The first has been this push of innovation offshore. We've got to get it back here in the United States. That's really what's built this country over the years. Thomas Edison didn't have to ask for permission to innovate. We need to make sure that our builders, our visionaries, and our entrepreneurs have the courage and the confidence to come and develop new things and build here in our financial markets.

And that means blockchain, artificial intelligence, and prediction markets. We'll set the rules for it and make sure that it's possible to do it, but we don't want everyone fleeing to the Cayman Islands, the Bahamas, and Russia to go do this stuff. So that's really concerning to me. I want to make sure that folks are back here in the U.S.

The second piece, of course, is the risk to our system. If we've got too much manipulation, insider trading, and fraud, why not trade elsewhere? And there's real risk to our investors. So making sure that we have the right controls and customer protections—we can't have another FTX in the United States where funds are lost and there's an absolute fraud on the American people. So that's a really critical concern. Balancing innovation with our financial system and the integrity of our markets—we're going to do it, but it's definitely hard work ahead of us.

And for me, I agree completely with the innovation point: We need to make sure that we are allowing people to innovate here onshore. FTX is a great point, where there was 1 part of FTX that didn't implode with the rest of it, and that was their investment in a swaps trading platform called LedgerX, which was supervised by the CFTC and examined. They had their accounts segregated and all that. So no customers lost any money through that, and it still lives on today.

So my worry is that we're always fighting the last battle. The French built the Maginot Line, and that didn't work very well. Then we had the same thing coming out of the financial crisis. So we have to think ahead. We're confronting a lot of new challenges.

Artificial intelligence, of course, is developing very quickly. But we're also seeing it on the fraud side. I hear horrible stories about people who've lost their entire retirement nest egg through fraud, where there are confidence artists who, through all sorts of manipulative types of communications, draw people in and get them to send off their money elsewhere, or even their Coinbase account or things like that, where they give passwords away to these confidence artists out there.

We have to be attuned to that. We have to be the cop on the beat, because that's the real threat that will lead people not to necessarily invest their money here. But I think we are a cop on the beat, and we're out to make sure that we can find the bad guys. We can't put overwhelming restrictions on the good guys so that they can't innovate and can't come out with new products.

Those are great answers. I think this is both about opportunity and policing. I just want to end with a final thought. As these markets open up—wagering, stocks, crypto—we do have a second-order effect that's happening. Young men 18 to 30: 45% report that they've had a problem with wagering or gambling, and 10% meet the addiction criteria. 1/3 have placed a bet.

The upside to this, in my mind, is we have a generation—Generation Bet—that understands capital formation, markets, and how to participate in them. But we do have a downside.

Outcomes, yeah.

Outcomes, yes. And to really think about that, there's obviously a downside here, which is that a very young, developing brain might not be ready for that. So, Mike, and then Chairman Atkins, what are your thoughts on how to protect these young men who are excited about participating in these markets, but maybe their brains aren't fully formed and ready to take on that responsibility?

I think education's critical here. We need to make sure that our market participants are providing information to participants. We don't regulate the casinos and the gambling and all of that, but I do believe that that's a key piece of their initiative as well, to make sure that folks are informed when they're coming into the casinos.

We should do the same at the federal level and make sure that our participants voluntarily—of course, this isn't necessarily something that we mandate on our derivatives exchanges—are informing the public. Of course, we've got really robust standards on brokers and on our exchanges, and they're making sure that the persons participating in the markets have the ability to participate, that they're suitable to invest and participate in our markets. I think those controls, combined with some education, are really going to be important here.

Chairman Atkins.

I agree with that, but it's not just education of, in many cases, children or young adult men and women, too. It's also their parents, especially for the children, where I think there is a large ignorance on the parents' part as to what their kids are doing with their phones or elsewhere and getting involved in these things.

I hear that from a lot of my friends, just anecdotally, but we shouldn't forget that. The schools are important as well, but the signs of that sort of addiction are really important to recognize and then take action. But we have the same thing with other sorts of gambling, lotto or lotteries and that sort of thing. So it's not just in the securities markets or crypto markets or elsewhere; it's also in everyday things that we have to really watch out for.

I love your suggestion, Mike, because I noticed Robinhood now, if you want to go trade something complex—puts, calls, spreads, everything—it forces you to go through a little wizard to make sure you understand it and to teach you what exactly you're doing. So I think education is so critical, and it can exist at the platform level.