Paul Atkins and the New SEC Administration

PETER HAYNES: Welcome to episode 70 of TD Cowen's podcast series Bid Out, A Market Structure Perspective from North of 49. My name is Peter Haynes, and today, we are joined by two veteran Washington pundits to discuss what a Paul Atkins SEC will look like for investors and traders.
First up, we have Jim Toes, who's president of the Security Traders Association and an expert on the SEC and its process for appointments and rule approvals. As well, back for another turn at the wheels, my colleague at TD Securities, Jaret Seiberg, our Washington policy expert on financial services. Jim and Jaret, welcome back to the show.
JARET SEIBERG: Thanks for having us, Peter.
JIM TOES: Always fun.
PETER HAYNES: All right, Jim. I'm going to start with you. Paul Atkins is a well-known capital markets expert in Washington circles for his time. First of all, as a staffer at the SEC, then as a former commissioner at the SEC, and for the past decade and a half, as a consultant to businesses seeking advice on congressional and government matters.
In December, then President-elect Trump nominated Atkins to fill the seat of Chair of the SEC, and his hearing was last Thursday. As part of the process, Atkins provided his opening remarks, which were only two pages in length, and the hearing itself would best be described as both short in length and short on drama.
In fact, the hearing in front of the Senate Banking, Housing and Urban Affairs Committee also involved three other nominees across other government agencies. What do you make of the apparent lack of drama?
JIM TOES: Yeah. So I'll take that like in reverse order. So as far as the four speakers, like that he was one of four. So as you know, the Republicans are in the majority in the Senate, which means that the chairs of all the committees are Republicans, and therefore, they control the agendas and how the meetings are conducted.
Obviously, we all know that there's a tremendous amount of pressure being applied to the Senate from Donald Trump to move his appointees through the process. So I think that was probably the reason why we saw four speakers on there. If this was different, Peter, like if this was a Democrat-controlled Senate, you probably would have seen two, maybe two speakers. All would have been there with maybe one other speaker because they're dragging the process out a little bit. But they couldn't be accused of like being really trying to be severe roadblocks on it.
As far as the nomination letter goes, yeah, like that's kind of normal for nominees to have short written statements. And the reason for that is like there's a general expectation that when you're taking a job like this and you're coming in with an open mind, so that you're really not there to express any strong opinions. You're just kind of there to say, hi, my name is John Doe, and here are my qualifications for this job. Thank you for nominating me, and I look forward to working with the committee.
So the letter didn't really stand out. That kind of seemed like normal. But as you talked about the questions, like I was kind of surprised. Because Paul is unique. Mr. Atkins is unique. And he does have a voting record. There is history with him being at the Commission.
And he's also stayed, like he's remained. He stayed involved since leaving the commission. So there were some things they could have maybe looked at and asked some questions on, but they chose not to.
Now, why? It's probably a combination of factors. I think the first factor is that, as you know, he is nominated in December. Between December and the hearing, he is taking meetings with senators who are on that committee. So maybe in those meetings, nothing really-- there weren't any major confrontations that they felt had to be aired out.
And also too, I think the makeup of the Senate Banking Committee hearing, there are a fair amount of new members on the committee who don't really have a lot of subject matter expertise. So they might have been a little concerned with getting tangled up with someone like Paul who's got three decades under his belt and knows the material inside and out.
JARET SEIBERG: I think it's important to remember that prior to the great financial crisis, we had a filibuster in place for nominees. And so you had to give more respect to the minority party because you had to get to 60 votes for a particular nominee. That's not the case anymore. All these nominations advanced by simple majority. And that's why this has become much more of a perfunctory process. That the name of the game, avoid anything controversial in your meetings on the Hill, in your opening statement, and in your answers during the hearing because your confirmation is already a given.
JIM TOES: That's a great point. And in some ways, some of the people-- the only time that people are getting cut or getting cut in between the nomination and before they even appear at the hearing, like with Gaetz. He kind of self-cut himself from it. But that's an excellent point about the filibuster.
PETER HAYNES: And Jim, you mentioned that there are a lot of new members that may not have staff with a lot of history in the space. There is, however, one member, ranking member of the minority party that does have quite a history in the financial sector, at least as a government official in Congress, and that's Liz Warren, Elizabeth Warren. And we're going to get to some of her thoughts as she wrote a very detailed letter, which is going to form the basis of a lot of the questions that I'm going to have for both you and Jaret here today.
Before we dig in, Jaret, on those key issues that I just discussed for the next administration, can you just walk through the process? We know that Atkins was nominated in December and had the hearing last week. Where do we go from here?
JARET SEIBERG: The approval process really is assured. It's just a question of how quickly can this get to the full Senate? We have the Easter recess coming up because God forbid the Senate or the House work for more than two weeks in any given month. There's a chance that they could try to get to him before the Senate leaves town.
I'm more inclined to think that it ends up taking into May, and that's simply because as important as the SEC chairman is to everybody listening to this podcast, in the grand scheme of Washington, there are jobs that get prioritized just higher up.
And those jobs take the same amount of floor time as the SEC chair, and floor time is still a very limited and precious commodity in the Senate. And so Atkins is going to compete with a lot of other nominees who are trying to get to the finish line.
PETER HAYNES: OK. So you're saying it's just a process at this point, that you'll expect it to happen by early May. Let's say it happens on, I don't know, May 3rd. Is he literally in his chair at the SEC on May 4th?
JARET SEIBERG: Yeah. I mean, he will be officially sworn in. I mean, sometimes, it could take 24 to 48 hours. But I expect that they will have the skids greased, so that this can happen very, very quickly, that he gets sworn in.
And they can swear him in informally the first time, and then they can have a big ceremony that's open to members of the securities industry and others to come by and witness this very public swearing in, and that could be a week later even. That one is all show. All that matters is that somebody gives them the oath of office.
PETER HAYNES: And how long does it normally take for the chair to appoint heads of the various divisions of the SEC?
JARET SEIBERG: So I would expect that would be relatively quickly, particularly in this case, where Atkins is known for a while, that he was going to get this job. I have no doubt that there's been outreach going. And so I would expect within a few weeks, we're going to have really good insight as to who he wants in charge of the various different branches of the SEC.
PETER HAYNES: So Jim, as I mentioned earlier, that prior to the hearing, minority ranking member Elizabeth Warren of Massachusetts wrote what is a 34-page letter to the Chair Designate Atkins. And that letter, I would argue, was very critical of Atkins across a number of subjects related to his career, including the fact that while he was an SEC commissioner in the mid-2000s, the SEC went on a deregulation binge for financial markets, which she then blamed the SEC officials, including Atkins, for the great financial crisis. What did you make of Warren's letter? Did you find it was just simply politics?
JIM TOES: Well, I mean, it is DC. So there's always going to be a certain element of politics and everything that gets done down there. But I thought it was an informative letter in the sense that it provided a very good roadmap for where the Democrats are going to be focusing as he goes on with his tenure here.
And I think that I was impressed by it. Obviously, I don't know how much pen to paper Senator Warren had on it, but her staff obviously was probably heavily involved in writing. But I thought it was, overall, it was a very good 34 pages of material here.
And I think in her role as ranking member, it's kind of like her responsibility to get everybody on that side of the aisle, like in the same boat, rowing in the same direction. So I think that the letter served a very good purpose to achieve that goal.
In fact, if you notice, all the questions that were answered, with the exception of one, came right from the letter? So they all read the letter, and all the questions came from that. There was only one question, I think, from Senator Reed, who's been there for a long time. He asked his own question on it. But I thought it was good fodder. And this should give us some it gives us some good visibility into where she's going to be focused.
PETER HAYNES: Yeah. So Jaret, as Jim mentioned, most of the questions that were asked by senators, at least on the left side of the aisle, were at least in some part addressed in this letter that Senator Warren had written. Now in her letter, she was asking Chair Designate Atkins for answers in writing, and if not in writing, then at the hearing, and not all of the questions that were addressed in the letter were actually answered during the hearing, and I'm assuming that's partly due to time limitations. Can you tell us if there is any obligation for Atkins to actually respond to Warren's litany of questions? And if so, then will those answers be made public before the confirmation vote?
JARET SEIBERG: So there's obligation, and then there's "obligation" with quotation marks around it. And I would say that most nominees do try to respond to these before there's a vote, even committee chairman even from the other party usually are pretty insistent that there is a response to these.
Now, the responses can sometimes be very brief. They can say, I haven't formed an opinion on this, and I need to be briefed on this. So they can be very short answers. But typically, we do get some sort of response. I would point out that Senator Warren has been doing this for all the nominees that have been coming before her committee.
I think, actually, in some ways, they pair Jonathan Gould with Paul Atkins to give Gould some cover. He is the nominee to be comptroller of the currency, the top US national bank regulator. He's going to easily get confirmed as well. But he also got a letter of similar length with numerous questions.
And so I would expect that all of these letters are going to get made public and in advance of any kind of final voting, and we'll all, much like we were with the testimony and the hearing, be underwhelmed with the answers.
PETER HAYNES: Yeah. Like for instance, is he obligated to answer questions around compensation while he was at Potomac and how much money he was paid by various clients of his? Are those the kinds of questions he can just say none of your business?
JARET SEIBERG: So I don't know if he will say none of your business. But I think there are ways that he can answer that, where the language is politer than none of your business. I would be very shocked if there were concrete numbers anywhere in there.
PETER HAYNES: Well, you guys in our pre-- when we were speaking before we went to live taping, both made fun of me when I suggested I felt like the letter was pretty mean. And you guys said, well, you're not used to Washington. It was tame by Washington standards. So I'm just going to have to get a bit of a thicker skin here, I guess.
So Jaret, let's follow on a little bit on some of the more significant topics that Senator Warren raised in her letter that I think are worth discussing for our audience. Now, I'm not going to do that in the order that she brought them up in the letter or they were asked during the hearing.
So first of all, I want to start with if and when Chair Atkins fills the seat previously occupied by Gary Gensler, Democrat nominee in the previous administration, there will then be four commissioners in total, three Republican nominees and one Democrat. The lone Democrat commissioner, Carolyn Crenshaw, had a term that expired in June of 2024, and she's allowed to serve an extra 18 months. Therefore, her term would end in December of 2025, after which point, there would then only be three Republican nominees.
Now, the typical process for the SEC is to keep a 2-2 partisan balance of commissioners with the chair nominated from the executive branch but supposedly acting apolitical. Warren asked Atkins in her letter if he supported partisan balance at the commissioner level, stating that minority party commissioners, quote, "serve as a critical source of accountability and enhance agency independence," end quote, and went on to ask Atkins if he believed if it was appropriate that he was nominated to replace a Democrat whose term didn't end for another year and a half while no Democratic commissioners had been nominated.
Jaret, is the chair obligated to follow protocol, or is it possible that when Crenshaw rolls off the commission, we're left with three commissioners, all from the same party?
JARET SEIBERG: I think this is really a Donald Trump question, and I think that President Trump has made clear in actions over recent weeks that he does not believe in the bipartisan makeup of these so-called independent agencies. He doesn't view them as independent at all. He sees them as an extension of the executive branch.
And given his efforts to fire the two Democrats on the Federal Trade Commission, I find it surprising that he would try to fill either of the two Democratic seats on the SEC. In fact, I was shocked that he didn't name Atkins to replace Crenshaw rather than to replace Gensler. Because if he had done that, would have left it with just three Republicans upon his confirmation, and you wouldn't even have to wait until December when she has to step away.
To me, this is a terrible direction for policy-making. I've written a lot about this in notes to clients over the many months. We are moving to a system where you're going to have much more radical shifts in policy from one administration to the next. I think having these commissions be bipartisan does lead to some moderation, and it also gives experience to the potential next chair of the commission, right?
I mean, just think about it. If we didn't have minority commissioners, then any time we have a change in administrations, you'd really be picking somebody who was unlikely to have really much, if any, experience with the agency. That said, I think this train has left the station, and it's going to be all GOP.
PETER HAYNES: Yeah. That's not good, I agree. Because one of the things that I enjoyed most during the Gensler administration was actually reading letters that came from, I think, first when Elad Roisman was still a commissioner early in the term, and then more recently, when Hester Peirce was I think the sort of lead Republican commissioner. I know she remains on the commission, but her letters were always very informative, because they took a more balanced or opposite side to the arguments, so that we could then form our own opinions. I felt like that was very valuable.
So Jim, in the letter that Warren wrote, there are several references to Project 2025, the so-called policy wish list for proposals that would expand presidential powers under a Trump 2.0 presidency. In particular, in the Project 2025 document, there was a suggestion that the government should eliminate SROs such as FINRA and the Public Company Accounting Oversight Board, PCAOB, and also to disband the consolidated audit trail, which has drawn a lot of attention over information, content, and security, et cetera.
In his testimony, Atkins denied being heavily involved in Project 2025. He said he was on a couple of phone calls but had said that he would keep PCAOB. And while he did commit to investigate some of the data safeguards around the CAT, he sounded like he favored keeping it.
I was a little surprised to see FINRA on the minds of some people who suggested that it should be eliminated, as it's industry funded and performs a fairly important role overseeing market activity. Jimmy, what are you hearing on CAT and FINRA, if anything? And what do you know about DOGE cuts at the SEC?
JIM TOES: So first, I just want to go back just a little bit because I know, obviously, when Trump was running for President, he was they were trying to associate him with the Project 2025 report that was put out by the Heritage Association, which is like a think tank down in DC.
And I know we don't care about what's fair and what's not fair, but he really had nothing to-- Trump had nothing to do with it. His agenda is more under the American First Project on. Now having said that, Atkins obviously did-- he has some contributing remarks to the report. However, we don't know exactly which ones he really did contribute to.
We've been part of some of these reports that have been done in the past, like the Treasury Department did one on capital formation that we were happy to take some meetings on and then get a mention at the end. But nowhere in the report did it say, and Jim told us that STA recommended this on. So that's just one thing that there should be a little bit of distance there from what that Project 2025 is and then what may or may not happen on this, OK?
OK. So listen. As far as the FINRA and CAT, and I want to start with FINRA first because there has always been a little bit of friction between FINRA and the SEC. Now, the SEC, as we all know, they have the ultimate authority over the securities industry. However, it has delegated some of its responsibilities, especially like the day to day responsibilities on exams and enforcement responsibilities for broker dealers to SROs.
And when you delegate the authority to day to day, sometimes, what happens here is that the SRO maybe does something that's within their power but that the SEC may not like or somebody within the SEC may not like. And they really can't change that particular rule because their control over the SRO is at a higher level.
Just to give you some background here on this, FINRA was created in 2007 when they merged the NASD and New York Stock, the NYSE regulation. And I think that this is important to know the history here because we're kind of repeating it again. Now, back in 2007, those two SROs merged because there was a significant amount of regulatory overlap.
Broker dealers were being regulated by both the NASD and also NYSE, the New York Stock Exchange regulation. There were inefficiencies. Obviously, you had duplicative as far as the systems and personnel, and the SEC allowed the merger to occur because they felt that. OK, listen. Right now, these broker dealers are this overlapping regulations going on. There's inconsistencies in the rules that are being written by these two organizations, and there's a tremendous amount of change occurring in the marketplace, in particular, Reg ATS.
So they put the two together. And Mary Shapiro from the SEC and John Thain at NYSE did their victory lap, and everyone was happy about it. Now we have CAT. Now we're in a CAT world. And in a CAT world, the information that's available in CAT is now, if you're an SRO, you can see the information that is in there, which means if you're in exchange, you can see the activity of brokers not just on your exchange but on other exchanges.
And this has now led to a proliferation of more SROs in the marketplace than what there was back in 2007 when this is done. So we're in a world right now where this has repeated itself again, where the broker dealers are, there's an enormous amount of regulatory overlap between investigations from multiple SROs that needs to be addressed here. And I think it's something that when Atkins looks at one of the contributing factors that CAT has had in the marketplace, that is going to be looking at correcting this part of it.
PETER HAYNES: He needs to figure out who's going to pay for CAT too because that's obviously being litigated as we speak. So then we'll switch over here to DOGE. I know there have been some fairly high profile names that I believe are exiting the SEC. What do you know about DOGE, and are you concerned that it's going to carve into what we think of as the SEC's daily functions?
JIM TOES: No, I don't think it is. I mean, the SEC budget is around $2.3 billion. I don't think DOGE really gets overly excited unless they can find $1 billion in cost savings, and they're certainly not going to cut the SEC's budget in half by any means.
And also too, as you pointed out, like the SEC's budget, while they are appropriated money by Congress, they do collect Section 31 fees, which are paid by the industry and paid by investors, that then go back and fill and try to hit whatever the budget they were allocated on it.
So there's really no meaningful cost savings here to taxpayers because their money really isn't being used here to fund the SEC. But maybe there are some efficiencies that they can find that can be done better.
PETER HAYNES: Yep. Yeah. I think every country that's complaining around the world about what DOGE is doing secretly will say, we should have a DOGE. I know that people have said that in Canada and in other countries as well. So it's just perhaps the method that some people are more concerned about.
Jaret, one of the most common questions I've received in the past few months ahead of this transition into a new administration, and it was also raised by Senator Warren, is whether Commissioner or Chair Atkins plans to reverse policy decisions from the previous Gensler administration, and that would include rules that are currently subject to litigation, such as the access fee and tick increment rule. Is this likely to happen? And if so, then how would you expect it to be enacted?
JARET SEIBERG: Yeah. So I think that the clear MO that we have seen, both from the SEC and the other financial regulators so far, is that the mandate is to undo or freeze pretty much any rule that was adopted by the Biden administration but has not yet been fully finalized.
That means it's either being litigated in court or it's still pending at the agency. And so I would expect there to be at least some rethinking. Even though I do believe there was a lot of consensus on the tick rule. In particular, I still think that you're going to see a decision by Atkins to have a reconsideration of anything that Gensler did as chair.
PETER HAYNES: I raised this question to Elad Roisman at our conference back in the fall as a former commissioner, and that was that every single time there's a rule proposal, there are some commercial entity that feels they may be harmed and therefore litigates. And it's become quite frustrating.
At some point, we need to be able to approve rules that make the markets better, even if it harms certain commercial interests. How long is it going to take for that balance to ever get figured out?
JARET SEIBERG: That is a double edged sword across the board in financial regulation right now. Because the industry very successfully used litigation and particularly nationwide injunctions issued by a single district court judge in districts that are favorable to industry, like within the Fifth Circuit, such as judges in federal courts in Texas.
So you sort of go to a playing field where you think you have a big advantage. And then you can block a rule that would also impact other parts of the country, where judges may have been far more skeptical of your lawsuit. And so the Trump administration is looking at reversing that, and they're trying to limit the power of these district court judges to broadly block policy changes.
In some ways, I think that makes a lot of sense because as you pointed out, it is becoming increasingly difficult for agencies to adopt rules. The Administrative Procedures Act is highly technical. It's very easy to come up with litigation for potential mistakes made during the process, and we end up with nothing getting done.
It just needs to realize that anything you do to make it easier for Trump's regulators to implement its policies means you're making it easier for the next Democratic president and that person's regulators to implement their changes.
PETER HAYNES: Yeah. And add on top of that, the Chevron ruling last June, which narrowed the scope of what agencies can do. So Jim, well-respected former SEC Head of Trading and Markets, Brett Redfearn, remains frustrated that some of the rules finalized while he was in Trading and Markets during the SEC administration run by Jay Clayton, namely those with respect to market data, were never actually implemented by the Gensler SEC.
Now, based on what Jaret just said, things that weren't implemented from the past administration will die on the vine. But we're actually going back two administrations to Trump 1.0. Do you think there will be added pressure on the next Republican SEC to finish some of these outstanding files, like market data that were ignored under Gensler's term?
JIM TOES: I don't think there's going to be an enormous amount of pressure on them from outside forces to do things in this area. I mean, I think he's going to look at it, and does he want to do it? And if yes, where does it fit in on his list of priorities?
As we often talk about, Peter, the story used to be that every time you get a new chairman, a third of their responsibility is finishing up work from the previous chairman, responding to some event in the marketplace.
And then the last third is finally getting to do what you want to do and what you're trying to achieve some of the goals that you want. And it does seem that a precedent was set with the last chair to so much to get about that first third and only do things that maybe fits what you're trying to achieve here.
So I don't think he's going to get much pressure on it. I do hope though that we do get some of those changes that were in the market data infrastructure rule. I think there would be obviously beneficial and helpful to the clients and make it a better marketplace.
PETER HAYNES: And just as a follow-on to that question, Jim, I've personally been a bit surprised how aggressive Acting Chair Mark Uyeda has been in enacting new policies and reversing old policies, as per what you just said a second ago, in his very short window in the seat before Atkins is actually confirmed. Would you consider this to be normal practice for an acting chair and as expected?
JIM TOES: So it is kind of funny. I know you kind of said it, and I did a little bit of research on it because it's been inconsistent in the past as far as how active acting chairs have been. And sometimes, it kind of depends on is it, like for example, Michael Piwowar, Republican, was an acting chair. Before him was Mary Jo White, a Democrat. And then Jay Clayton obviously was the one that was coming up next.
So in his four-month window, he really wasn't that active in the sense of he wasn't going to allow some of the Mary Jo White things to progress. Although obviously, he was very instrumental in getting T plus 3 and T plus 2 done. But then there's also been other situations where you've had acting chairs, like Commissioner Elisse Walter, who was in between Shapiro and Mary Jo White. All three were Democrats, and she was active.
So I think in this particular situation, you have an acting chair, obviously, Republican. You've we've got Republican coming in. These two, they just don't-- I think it's important that they just don't share the same philosophy on regulation, but they've also worked together in the past.
2006, Mark Uyeda, his first job at the SEC was counsel to then Commissioner Atkins. So I think that he probably feels very comfortable and the decisions that he's making that they're going to be consistent with Paul Atkins coming in. And I think he kind of sees his role now as maybe cleaning up, getting the decks cleared out to make it easy for him to start enacting legislative regulation when he gets in there.
PETER HAYNES: And yet another question in the Warren letter was how much contact does Acting Chair Uyeda had, or how much contact has Designate Atkins had with Chair Uyeda on some of these policies that are being reversed right now? And we'll talk about crypto in just a second.
So Jaret, Senator Warren spent a considerable amount of time in her letter again at poking at potential conflicts of interest for Atkins given his background consulting issuers and investors that often end up in front of the commission. How will this issue around conflicts of interest for Atkins be managed over the next four year period?
JARET SEIBERG: I think this is going to be as clear as mud. And I think that is somewhat intentional in the process. You can make an argument that pretty much anybody who's qualified to be SEC chair is going to bring conflicts of interest with them if they had any sort of career in the private sector.
The recusal requirements are often determined by counsel at the agency. I would be very surprised if Atkins had to broadly recuse himself on any of the major policy issues. I think if that was the case, they would not have advanced his nomination because you would not want to put in place an SEC chair who would have to recuse on everything related, especially to crypto. And so in my mind, I think that with legal counsel, he has a lot of confidence that he's going to be able to participate in everything.
PETER HAYNES: Yeah. And as you mentioned, there are a lot of conflicts around crypto, which is I think the next topic I want to focus on, which is crypto oversight. Chair Uyeda has been not only changing certain policies in other areas but also looking very specifically at reversing course on a lot of the SEC litigation concerning crypto firms and actors in that space and also in providing guidance to the courts on what does not constitute a security, namely meme coins.
Liz Warren asked Atkins how he will deal with executive branch conflicts in the crypto space given the Trump family's involvement in this burgeoning industry. Atkins stated during his confirmation speech, specifically stated the importance, quote, to keep politics out of our securities, laws, and regulations are applied, end quote. But this may be easier said than done. What are your thoughts?
JARET SEIBERG: Yeah. My thought is I'm glad I'm not the SEC chairman. This is going to be an extraordinarily difficult process. We saw this come up during the House Financial Services Committee debate on the stablecoin legislation. It is really taking policy into uncharted waters.
I've been following what financial regulators and Congress has been doing for 35 years now. It's a really long time. I can't think of any time a president's family has been so heavily involved in a type of instrument where regulators who report directly to the president are going to be writing the rules.
I think Atkins is probably uniquely qualified to push back on some of this. This is clearly a capstone appointment in his career. It is not a career-building appointment. And I think that as I think through the list of everybody who was rumored at one point or another to be up for SEC chairman, I think I'd have the most confidence in Atkins in trying to walk the walk and actually keep some of these politics out of the process. But it's going to be very caustic, and that's going to be the major point of Democratic opposition.
PETER HAYNES: And certainly, look, I mean, we all agree that he has his chops. He knows the industry. People who attend his annual Christmas party in Washington are the who's who of capital markets. He's very well known. And I think in that sense, market participants are quite happy. But as you say, Jaret, there's going to be some very, very tricky lines for him to be able to manage, especially as we say around the burgeoning industry of crypto.
So Jim, I thought there would be more attention in the Atkins testimony to the debate between private and public markets. Instead, in the Warren letter and in the Q&A at the committee hearing, there was more attention that was devoted to whether or not the definition for accredited investors should be abolished.
And then what protections are needed as retail investors gain access through products to private market asset classes? Meanwhile, at the same time, public markets continue in atrophy as more companies stay private for longer. And when they do go public, these companies are much more mature.
Given the fact that the SEC's mandate includes capital formation, were you surprised by the limited dialogue on this topic? And what should the next administration do to improve our public markets?
JIM TOES: Yeah. So I was surprised on the limited amount of time that was spent on it, and I was also surprised with some of the line of direction of questioning that they took on it. I mean, listen, I think the SEC obviously, that is like one of their three mandates is capital formation. And they realize that capital formation requires robust private and public markets.
But ever since Sarbanes-Oxley for the past two decades, they've just been out of balance between the two. We've had private markets obviously have grown dramatically. Public markets, you now the numbers. It's like a third less companies that are public today than there were back in early 2000s.
But however, the strange part, not the strange part, but another offshoot is that the total market capitalization today, even though there's a third less companies, is 2 and 1/2 times what it was 20 years ago. And that's even when you adjusted for inflation. So what does that kind of tell you?
It just tells you that the markets that we have today in the US is one size fits all, is serving large companies with large market caps. And the public markets that we have just have really no offering to a small company, $500 million market cap and under, that's just starting out.
So they do need to find some reporting regime here that really loosens some of the reporting requirements we think for these smaller companies to get them to go public sooner. And developing two sets of rules is just something that regulators tend to not be comfortable with.
On the private market side, yeah, like I don't really like the way it's going on there, like in the sense that anything that I'm kind of hearing on the private market side is the rules and stuff around eliminating credit or investor. It's really about, OK, if we pass these rules, these companies can stay can stay private longer.
They really should be looking to get these-- trying to figure out ways to get these companies to go public sooner and get them some of the investor protections that are provided to investors in the public markets. So this is what they're going to look at it. They're going to look at it from the perspective of what can we do to get retail investors access to these private markets that have performed so well, and what it needs to be changed there? And then obviously, on the public side, they're going to have to figure out another set of rules set to make it more attractive for smaller companies.
PETER HAYNES: I did some work this week, guys, on what Regulation A new issues are. I wanted to pay attention to run to ground this Newsmax IPO that came out this week, and as people that are following markets know, went up about 1,500% in the first couple of days of being public. And that really is limited to very, very small issues under, I think, $75 million.
So I think you're right, Jim, that there's going to need to be some middle ground there built in. And we talk about it all the time. And I think back to the JOBS Act 10 or 15 years ago and some of the things like tick tests, which ended up being-- or tick pilots, which ended up going in the wrong direction. So hopefully we don't get buried in those kinds of issues going forward.
And so Jaret, next topic I wanted to discuss with you is kind of a hodgepodge of some of the other Senator Warren topics. And I'm going to combine them into one, and these are all being amplified by the growth in crypto trading.
The three main topics I'm talking about that she discusses are gamification, zero days to trade expiry options, and 24/5 trading. Do you think the SEC should be more concerned about these issues as it pertains to protection of retail investors?
JARET SEIBERG: Yeah. I think we're not done with gamification in particular. And I expect that is going to continue to get more attention. It's hard to get Congress and the regulators to really act on that as long as the markets are going up. And I don't mean up by day to day. I mean up year over year when you kind look at it more broadly.
If we have a major correction, I think that's when you're going to see gamification really come into focus. And the argument is going to be that people who really needed to be more diversified, gamification actually led them to highly levered, to highly volatile stocks. And they will have lost all their savings or a majority of their savings.
And that those are the types of stories that lead to the kinds of onerous legislative responses that end up doing more harm than good. And so I would keep a particular eye on that. In terms of 24-hour trading, I think that that is something that is moving forward, and it's not going to require Washington to push it one direction or another. And I think ultimately, how successful that is and how broad it is is going to depend upon whether it's something that investors really demand and if they're willing to pay for it.
JIM TOES: When we look at equity markets today, like when we think about what are some of the influences that are impacting equity market structure today? Obviously, the crypto market structure. When you think about how crypto is traded, which is traded 24/5, which has that the settlement is instantaneous. You can buy a notional amount of a coin as opposed to buying a full coin.
And that's having an impact, obviously, on the equity markets as well when you think about fractional trading. Think about 24/5 and around it. Gambling, I hate to say it, but like gambling is also having an impact on equity market structure, on providing that same type of exposure to investors.
And it's unfortunate to say because obviously, I don't like gambling and investing kind of occurring within it, but they are occurring on it. And the one area that I would be that I would encourage you just to look out for that is around this area of it's like it's a regulatory philosophy around allowing people to self-certify that they know what they are doing.
And we do have a new chair coming in here that is he sees their role as a regulator just as far as let's give all the information that investors need. We're not here. We're not a merit regulator. We're not here to say that buying Bitcoin is bad or taking the jets and laying 25 is good.
We're not here to say that. We're just here to give them information and then allow them to make their own decisions on it. So that it's just something to keep an eye out around this idea that we have a new chairman coming in who's not really a merit regulator. He's more around disclosure than allowing investors to self-certify themselves and then be responsible for whatever the outcomes are.
PETER HAYNES: And you mentioned gambling. Chair Clayton said during his term when zero days to expiry options started to gain some traction. And then we started to think more and more about single stock options in that regard. Chair Clayton referred to zero days to expiration options as gambling and suggested at the time, they should not be allowed. So it is an interesting point that you make around gambling, and gamification, and sports betting, which is all sort of converging.
So final question for you, Jim. I find it personally gobsmacking, that's the term I'm using, that when regulation NMS was first approved in 2005, it was approved with a 3-2 commissioner vote, and the two dissenters came from the majority party in power. That is truly unthinkable 20 years later in 2025.
Now, of course, it is well known that one of the dissenters was Paul Atkins, who at the time, as we were moving from manual to electronic markets, was worried about the complexity associated with topic book order protection and also the related risk that for-profit exchanges would charge significant rents for market data.
As all of us deal with increasing complexity in markets and the seemingly endless string of new venues that are launched month by month, do you think it is possible that under an Atkins SEC, order protection might in fact be replaced by best ex as part of an NMS unwind?
JIM TOES: I think he's going to look at it. And I think he may look at it in the context of maybe-- we kind of talked about earlier with the market data rules that have not been implemented yet around here. So listen, I do think that Paul does have strong opinions. However, I don't think he's opinionated. I think if you are looking to move him off an opinion that he has or an idea that he has, you better come with some good data on it and look at it.
Obviously, we are in a completely different marketplace than what we were when OPR was first discussed over 20 years ago. So I think if he does look at it, I'm confident that he'll look at it through the lens of today's market structure and not what it was 20 years ago.
And I think he's going to look at it from what is the value-- this is a tough topic because no matter how you look at OPR, it is going to be viewed as a you are taking something away. I mean, just the name, order protection rule. We're going to take that away, right?
The nuance around explaining why that's a good thing is very it's very hard to explain to people. So I think he's going to-- if he is going to look at it, I'm confident he'll look at it through today's market structure and not what it was 20 years ago. And I do think that he's going to look at it from the perspective of we're taking this away because there is a value add of A, B, and C.
PETER HAYNES: Yeah. Well, I definitely agree with you, Jim, that the world has changed so much since Atkins was in the chair back in the mid-2000s. It was interesting to read his dissenting letter and think about some of the things he must have been thinking about at that time. He certainly got the point around market data correct because that's a major sore spot for the industry, how much the monopoly exchanges can charge for what should be a utility, which is a market data.
So Jim and Jaret, I learned a ton here today. I really think I feel so much better positioned for what's coming down the pike here with the new administration. I look forward to the final confirmation, and I'm sure we'll have you guys back sometime down the road as we maybe hit the middle of the cycle here and see how Atkins has done over those first couple of years. Jaret, Jim, thanks very much for coming on.
JARET SEIBERG: Thanks, Peter.
JIM TOES: Thank you, Peter.
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