There's something else that we definitely definitely need to speak about today. This happened a couple hours ago, sec response to meme stock mania coming next week, according to the sec chairman, gary gensler agency, to waste shortening stock settlement time next week, hey that's good used to be five, then it was three currently two, the closer and closer. We get to uh t evening instantaneous, like the shorter the settlement cycle. That's going to close the window uh where people like they kind of use that as like the loophole, the window of settlement to do various things that, in my opinion, increase the fragility of the overall market we'll get into that more in a second sec chair gary Gensler speaks to bloomberg television if you haven't seen it yet.

This is definitely worth a listen and we're going to be going into it. We're going to be dissecting everything that you need to know. So let me put this up on the big screen, so here we have gary genzler speaking today, and this is very, very important for the stock market and particularly retail a lot about things you'd like to get done, but there are quite a few things that we Haven't seen yet, let's start with crypto, because everyone loves to talk about crypto. You said you think a lot of these tokens really are securities.

Are you seeing evidence? Actually, there are things being done in this market that would be violations of the securities laws if the securities laws apply well david. I thank you for inviting me here and you're right. We do have a broad agenda and crypto is part of that agenda uh, but it's an agenda really to make the capital work. Its markets work better for the investing public and for the companies on the other side, drive more efficiency in these markets.

As to your question about crypto, the agency is really just looking out for investors and many of these tokens not trying to pre-judge anyone. But many of these tokens have the attributes of securities they're, raising money from the public and the public is anticipating profits based upon the efforts of others, and so uh. We've brought a number of actions we're trying to work with the various crypto platforms, the exchanges, the lending platforms to come in, get registered, find where we can uh to adjust our rule set to get the investor protection for the public. As you say, you've encouraged the exchanges to come in and get now hang on one.

Second. What we need to talk about this is um. If you want to know more about the sec and the historic law, and like kind of what's going on with crypto, you need to look at some of the content from oh. You could just check out actually the interview with uh professor veret.

We had him on and hey he's a lawyer he's been involved in this world on capitol hill, and, what's nuts about this like, and this is going to be a key takeaway from that interview is um, are kryptos securities and like whatever that's up to them. To like really decipher, but what's wild about this is they are basically using you're, going to hear the term like howie test, which is um, it's very, very antiquated. So, basically, from like the 30s or 40s, we have laws that were based on rules that were even a couple decades before that, so we're basically using definitions and like legal definitions and the way to examine if something is or isn't a security from almost a hundred Years ago, that would be equivalent to what's going on right now with crypto. Like the best metaphor, i could come up with is, and this is actually exactly how professor very explained it was imagine if you had all these rules based on like like a horse and buggy like a carriage and then all of a sudden hundreds of years later, We're now applying these like horse and carriage rules to a car and we're like well hey.

They both have four tires. They both have four wheels so like. That means that we can still use these rules, i mean regardless, if they decide certain ones are or aren't securities. The methodology that they're currently using to apply it to see if it is and right now like the hot topic, is like the xrp, the ripple case.

Um, it's insane, it's absolutely wild, it's absolutely archaic. They need to make a new set of rules and regulations. That properly is, i guess, descriptive, of the current crypto landscape, because you can't use something based on rules from a hundred years ago. That's insane registered uh.

At the same time, a lot of them have not, as far as i can tell yeah. Well, no, it's because look if you're, if you're a platform, and you have 75 or 100 or sometimes 5 000 tokens on that platform. Probabilities are that a number of them - and maybe many of them are what's called a security and and it's congress painted with a broad brush - and it comes down to this - are you raising money from the public and the public's, anticipating profits, based on the efforts of Others, uh and uh my predecessor, chair clayton uh the agency that i'm honored to share at this point in time. Uh is gon na try to pursue investor protection and if that means bringing greater enforcement actions we'll do that.

But it would be better to have these platforms come in work with us and come under the securities laws. Do you think you've done everything you can under the statutes as they exist now? Do you need legislation in order to really go after and really get registration from those exchanges? I think that they um. I think that the laws are pretty clear. It's laid out in the 1930s uh and we have it right.

There, laws laid out in the 1930s. Those laws were the ones based on rules from decades before that. Is it appropriate that we're using those raw laws which then created these? Like those rules that then created these laws, he said it right there. I think it's time for some.

Some adjustments ready to work with these exchanges using various authorities to to uh basically tailor some of these, because these crypto exchanges and lending platforms uh have operated differently than the traditional new york stock exchange. But would it be helpful to work with congress on some things? I've i've said this in the past around some details: around transfer agents and others. Yes, but unless congress says otherwise, we have to ensure there's investor protection in this space and we're going to work with the commodity futures trading commission, where there are some that are commodity tokens, because, while many of these are securities, some may be under their remit and We work together as two federal agencies. Let me turn gary if i could to a second item on the agenda and no particular order here, and that is payment for order flow, something that you've come out against.

Last, oh brother, it's about to go down! Uh august! You said you were considering actually banning it all together. Where does that regulation stand at this point? Do you still think that's possible to ban it all together, or is it more likely we'll have full disclosure? Well again, what we're trying to do within our uh remit is help. Investors get a better deal on one side and companies raising money on the other side, a better deal and drive greater transparency and efficiency in the middle of the market. So in the equity markets.

Right now, if you place a market order, a retail market order, 90 95 percent - do not go to the lit exchanges, do not go to nasdaq or new york stock exchange, they go to wholesalers and they don't have order by order. Competition and part of that is because of what you just said - payment ford or flow, which is yes, it's banned in in the uk and in canada and australia. The european union, through something called asthma, is looking at that right now, and so i think it's natural that we look to say how do we drive greater competition and efficiency of this market and use the tools that congress have given us, but are you keeping? How are we gon na? We just have to drive it. We just you know sometimes you're, on the right side of the road, sometimes you're, on the left side of the road, sometimes you're on the right side of history, sometimes you're on the wrong side of history, and the answer to that is just you.

Just got. Ta drive it right in the freaking middle all right, we got ta. Stop there a couple important things: yes, it does seem like gary gensler is against it right there. He was just signing it's banned in australia, it's been in the uk, it's banning canada, um, and previously he was talking about how it does like really increase the conflicts of interest.

Let's see if he gets a little bit more into that, but isn't that wild that right there we knew this, and this is what really blows my mind. 90 to 95 of retail traders are not getting to a lit exchange. That is crazy. We know in about 50 to 60 of all trades getting to a lid exchange, so you have 90 to 95.

Are retail that's going off exchange which is inclusive of these internalizers, such as like vertu citadel securities, and also dark pools um, but most of it is going to internalize there's a high majority of that is going to internalizers so and then so that's just retail itself. You count: everyone 50 to 60 is not making it this situation, it's crazy, and this is from the previous new york stock exchange president stacey cunningham, when you have that it truly is hampering price discovery. So when you are given all of that information, especially for some of these people, who have been this for a year now, nothing drives me more up the wall than people who are like allegedly apes, but are currently trading on the likes of robin hood. And now it's weeble, i'm telling you folks, so many people who you know large followings, allegedly apes, all of their trades.

They sometimes they brag about it and they're posting it on twitter and no one questions them and then other ones are just telling me and closer yeah i like to spawn on weeble. What are you doing? I don't get it it's insane. That's exactly why i use a different one, a non-payment for order flow brokerage, because i want all of my orders to go to a lit exchange. You heard it right.

There 90 to 95 are not hitting a lit exchange, they are off exchange trading and most of the off exchange is going right to a retail wholesaler, a market internalizer whatever you want to call it, but it's citadel securities and it's vertu over the possibility. The optional east of banning it all together, and if so, when will you make a decision? Whether you'll do that or not well, it would be a decision for the five-member commission. We would put it out to notice and comment so the public gets to weigh in. We benefit from the public's view from the investor side, the issuer side, to basically a lot of our market right now is dark.

It's not in the lit markets, david, it's dark and going to wholesalers and how we get more transparency and competition the market. So each feature is on the table, whether it's something called the minimum, increment or tick size or the national best best bid best offer and how the order routing works. And yes, that includes not just payment voter flow but possibly what's called exchange rebates. So it all fits together and we haven't served up a recommendation to the commission yet and the commission, if they supported it, would put it out to public comment.

Do you have an estimate or a guess before we get into the like the estimate? I guess like just a little bit more clarity. I know there might have been like some cute confusion there of what he's talking about and how this relates to. Maybe some real world examples um. The best example i could give you is what's going on in canada right now, uh in canada, if you're trading on one of their exchanges, they have a system - that's referred to as trade at it's like the trade at system.

Basically, it has to get executed on a lid exchange unless they can find a material price improvement somewhere else. A very close example to that is what we have going on right now, with the brokerage public on public. Seventy-Five percent of the trades are going to the lit exchange. The only time it's not going to a lit exchange is when they legally have to give you a fill somewhere else, i.e off exchange because they found you a better price.

That is something such dave. Lauer taught me about it, i hope to teach all of you about it, but it's called the trade at system. It hits the lid exchange and the only time it's not going to get filled. There is, if there's a material price improvement elsewhere.

So that's what he was talking about, like kind of confusion of like oh well, you have this and the routing this and that that type of thing and rebates is like another kickback to get like your trade, some somewhere else. Overall, i think yeah that makes sense. Everyone should start out at the lit exchange, and then i guess if the broker can find you a better price, i don't know like i'd, have to find a little bit more of the specifics on it. But if you want to read a bit more once again look at the trade at like methadone.

I served the commission david i learned long ago, not to sort of do that. I i i have occasionally and it's about trying to get the economics and the law on the policy right, get it in front of a commission if so get it out to the public. So i understand the question, but i'll beg off for you. I learned long ago to expect that answer, but nonetheless to ask the question: you never know you're doing your job.

A lot of us really focused a lot on the payment for overflow when we had the robinhood situation with those meme stocks, which i think we just passed the one year anniversary of at the time. I know this commission was looking into the possibility. There was some wrongdoing. Have you drawn a conclusion? The fact we haven't seen enforcement action? Does that suggest that maybe there wasn't any wrongdoing well again for the public, i in the job, i'm in i'm also a chair of a commission and sometimes uh has to vote on these various enforcement actions.

So i can't get into any one matter or prejudge anything, but there was four matters of policy, not enforcement. The policy that we noted in the staff did a staff report and one of them we're going to take up next week. Actually, an open commission meeting is about the plumbing of the stock market, what's called clearing and settling and how we can take some risk out of the system and also last year, uh. The retail public found that they were foreclosed from trading that a number of brokerage apps said nope.

It was a fateful friday and they said you couldn't buy any more of this stock or that stock. So we're trying to address the plumbing and put a proposal out next week, we'll also, i think, hopefully uh i'll, be taking up. What's called digital engagement practices, what some people call gamification and and what to do there and and as you've and i've, been talking about the actual market structure itself. So there's three or four projects that we have here and next week we're going to put our first proposal, hopefully in front of the public, so very quickly on that uh.

The one that i don't really care about is gamification, like they're, like they're, basically trying to hate on these apps because they have like superior user interface. In fact, i think other applications should take a page or two out of the playbook of robin and how they pulled it off, because it is very good ui, very good, ux. Okay, maybe they want to get a psychologist in there and say like okay. Is it prompting people to buy like more? I don't know about that.

I think that's a like i've. Never seen like a confetti wheel go off or something i'm like. I might as well buy 10x more. That was a really good.

Like result, like i love this, i don't know if anyone's ever really thought that way. So in all of those gamification is by far my least worry um. I think one that's important, but i'm confident it's going to get changed is the settlement cycle right now we're on a two day settlement cycle and that's why it gets a little bit more difficult to track shorts, and it's also it really does kind of change. The risk of the overall system, because with two-day settlement that kind of changes how much collateral these brokerages have to have at the dtcc and then that relates to the whole liquidity thing.

We were talking about robinhood, which, like really prompted them to take away the buy button and it's all because they have to have the money on like a net trades in the day instead of the gross. Well, if you have like a smaller settlement like window like if you shorten that you're gon na be closer to like the the gross amount of trading opposed to the net, and it can help it's not perfect, but with shortening the window. That is a thing that many people it's actually become bipartisan now that which is also why i'm confident that, like we're gon na, probably do it really? In reality, the only people who are against, like shortening the settlement cycle, are brokers uh because they're using that to loan out their extra money to get more payments, but anyway, that's a different story. We could talk about that later, but overall, i'm confident it's really coming down to payment for order flow to the extreme nature of off exchange trading.

Uh, subject to my commission's approvals: uh, a third item on the agenda you laid out has to do with climate and disclosure respect to climate. My understanding has been bloomberg all right, um, i'm not saying the climate's not important. I'm just saying that this has already been running for a little bit, so i just wanted to pause it here and kind of wrap up this. If you want to know more about the climate, uh make sure you're checking out this bloomberg article.

But what i wanted to tell you and please, if there's any questions about payment for order flow or this off exchange training or what's the difference between an ats, a dark pool and like this um, i guess internalization the hotel, the retail wholesaling, whatever you want to Call it: how do all these venues work, blah blah? If you have any questions, please post them in a comment below, but overall here's what you need to know one of this guy, this guy, whoever the interviewer is he used the word disclosure? Are you going to ban payment for order flow? Are you just going to increase disclosure and gary gensler basically said? Not only do i not have an answer, but i don't even know when i'm going to give you the answer that i'm not sure that i have at this moment in time. What i want to stress is increasing disclosure. That's like i don't even know it's like a fuck. All result, it doesn't matter.

We have enough of the higher level numbers. We know how many trades are not getting to a lid exchange. If you give me the specifics of like okay citadel handled this one and virtue handled this one and they got paid this much and they got paid that much, it doesn't help me just to know that data, because it's uh it's more of like if you have A cancerous system, well, okay, and you already know it's bad. Well, okay, knowing the specific details of it.

Like you just know, you have a cancerous system and yeah. Maybe knowing some of the details can uh, i guess help with the ailment, but in this scenario we already know the results and we know how to fight it. You just get rid of the cancer um. So with it this concept of disclosures, you know what disclosures aren't going to do if the public knows about it, disclosures are not going to help with the the power concentration in the duopoly.

That is citadel. That is virtue. What am i talking about when everything went? Haywire about a year ago, now citadel was literally bragging. They are they're like we are the only ones who continuously provided liquidity.

We are gon na pat ourselves on the back. We did so good. That is not good. Only one person per like continuously provided liquidity to me.

That's a pretty fragile system, so there's too much count power concentration in too few of players. That's no bueno! That's not good! On top of it, it's not solving many many other issues, okay, so on top of it, like i said, we have 50 to 60 off exchange trading and we know 90 to 95 of retail is all ending up on off exchange. So right there. You now have a new age of conflicts of interest.

You're gon na have someone like robin hood, someone like weeble, who cares more about the money they're getting paid and not necessarily the quality of execution. In fact, gary gensler in may of 2021 said this himself. He said robin hood explicitly went out of its way to accept higher payment for order flow in return for worse quality execution for its clients, and actually that difference was so bad that it would have been net better for the clients to be on a commission-based brokerage. So from there there's just a host of issues, um, what's another one, the spreads disclosures do not address that with all this being taken into account.

Now on the markets, you have wider spreads price discovery, the fragility of the market. The list goes on and on and just disclosing it giving us more detailed information in no way fixes any of that. So if i wanted to wrap this part up, the the best thing, i would say is it's: we've been at this for a year. Payment for order flow is not good for the system, it hampers price discovery, it increases the fragility and it incentivizes conflicts of interest.

That's your tagline right there and my take away from it, especially out of these, like quote, unquote, people who have a following. If you see you someone using robinhood, if you see someone using weibull, if you see someone using a payment for order flow brokerage, if they are pitching themselves as an ape, i would not trust them in the absolute slightest. It's simply been too long. We have too much time has passed if you're following them for something else and they're, not necessarily taking up the mantle to fight for market transparency and fairness whatever have at it.

I don't care, but i'm telling you if they're pitching themselves as an ape and they're on weeble robinhood, another payment for order flow brokerage. That is the biggest hypocrisy, that's crazy. That is insane. It needs to be stopped.

They need to be called out. There is literally no room for it like that. It's the opposite of what this movement is. If you want more informed, like i guess, decisions and opinions on this, i'm telling you follow dave lauer check him out, see what he has to say see some of those interviews.

The guy is a wealth of information. He literally is an expert of what's going on right now, um, very, very cool guy and this stuff. This is wild. So apparently we might be getting some sort of update next week.

Obviously fingers crossed. Hopefully it goes in our way, but time will tell.