Following is the unofficial transcript of a CNBC interview with SEC Chair Paul Atkins on CNBC’s “Squawk Box” (M-F, 6AM – 9AM ET) today, Wednesday, July 2. Following are links to video on CNBC.com:
SEC Chairman Paul Atkins on public vs. private markets
ANDREW ROSS SORKIN: We are joined right now at the table by SEC Chairman Paul Atkins. We're thrilled to have you.
PAUL ATKINS: Thanks for having me.
SORKIN: A lot going on in Washington. as you know, drinking from a fire hose at this point.
ATKINS: Yeah.
SORKIN: And we've got about a million questions about the market, about what you're doing, about what the regulatory landscape looks like. And so, there's so many different places we can go. I wanted to start with actually something that happened on this set yesterday, if you'd indulge me—
ATKINS: Sure.
SORKIN: Only because it was such an interesting conversation. And it's now even again in the press today, there's a -- Vanguard doing something similar, which is, you know, we've long talked about the public markets and the benefits of public markets, but we've also talked about how in the private markets, there's so many companies that are still private and what it takes to get them to be public. But one of the things that's happening now is this idea of trying to let the public have access to the private markets. And there was a company that came on yesterday. They're, quote/unquote, tokenizing, if you will, shares in a private company -- in this case, SpaceX. You have Robinhood now doing something similar, but they're doing it outside of the United States, in Europe. I'm so curious just how you, given where you sit, think about what's happening right now?
ATKINS: Well, Andrew, it's, well, it's great to be here. Thank you very much for you all having me. You know, the markets have changed a lot, obviously, over the span of the last few decades. And so, whereas the IPO market used to be like when I was a young lawyer starting in the mid ‘80s out, that was a way for companies to raise money for, to build a property, plant, equipment, develop their R&D and things like that. Apple, Microsoft—
SORKIN: Right.
ATKINS: All of those companies started that way. Now -- fast forward to now, you have a really robust private markets. And so, there hasn't been that drive to go public. And part of that also is not just the capital that's there in the private market, but also the impediments to be a public company. That's litigation threats, just the cost of doing—
SORKIN: Right.
ATKINS: Of being public and the other—
SORKIN: And so, what is the answer then? Is the answer to make it more attractive to be a public company or is the answer to make private markets more accessible to the public.
MELISSA LEE: And more transparent?
SORKIN: Right.
LEE: I mean, that's a key aspect to this. I mean, companies stay private for a reason. One of the reasons is they don't have to file as many things with the SEC. They're not the same disclosure requirements. But to protect investors, particularly average investors, you would think you want that transparency.
ATKINS: Right. Well, so that's exactly true. The law is clear as to public companies and what needs to be disclosed. And so, what my goal is, is to make IPOs great again, basically, is to, there's been a lot of red tape and a lot of impediments. As I mentioned, I think if we address those sorts of aspects, I think we can make the—
SORKIN: What do you, what are the 1, 2 or 3 top things you think you need to do to make being a public company, as you say, great again?
ATKINS: Well, first of all, is the disclosure is important. But if you look at, I dare you all to look at an average 10-K or a proxy statement and tell me, you know, what actually is going on with the company. Over the years, there has been so much disclosure. A lot of it is CYA, basically—
SORKIN: Right.
ATKINS: For potential lawsuits. So, if we can address those sorts of aspects, I think we can make it better and more attractive to be a public company.
SORKIN: In the meantime, though, there are these efforts taking place to effectively change what it means to be a, quote/unquote, “accredited” investor in private markets. Historically, you've had to have $1 million as a sort of threshold. With the idea being that if you're wealthy enough and have over $1 million, you can afford to lose money or do something that's, quote/unquote, “more risky” because you don't have all the same disclosure requirements in a private company. But you, I think, have a different view of this.
ATKINS: Yeah. Well, I think, well, we will definitely take a look at those rules to see, you know, what should be tweaked, because there is a lot of demand on the investor side to be able to invest into private products. And so, but that has to be done, I believe, you know, very, with our eyes open to because we don't want to have people go in where they don't understand what they're doing and they're not well-equipped. So—
SORKIN: And so, what would that mean? We talked about tests or other kinds of things to suggest there's an education process and that that's -- it's the education that would make you accredited, not how much money you actually have?
ATKINS: Well, so, there are lots of different ways. I mean, part of the accredited investor standard came about because the idea is, well, if you don't know about it yourself, you can hire somebody or you have the means to kind of ferret out the information and make decisions or hire somebody to make decisions for you. So, we need to take a look at that. But we also need to look at, for example, for long-term investing, for people investing for retirement and funds that are very long lived—
SORKIN: Right.
ATKINS: You know, the aspects about private markets, it’s -- liquidity is not what it is in public markets. Valuations are a little bit more tricky, let's just say. And so, those sorts of things, you cannot go into a private fund or a private investment and expect to turn that around.
SORKIN: Right. What do you make of these sort of tokenization efforts? I mean, it seems to me that we have rules. We can debate whether the rules are the right rules and maybe they should be changed. But given the rules that are in place and the intention of the rule today, it seems to me that the effort to sort of, quote/unquote, “tokenize” something, you know, an underlying asset and to sort of use the structure is really effectively just a workaround to what the actual intent of the rule is.
ATKINS: Well, I guess I disagree with that a bit, because tokenization is an innovation, and we at the SEC should be focused on how do we advance innovation in the marketplace. And so, I would argue here, over the last several years, the SEC has been standing athwart efforts to innovate in the marketplace because things have been unclear. The rules have not been clear. We've had regulation through enforcement.
SORKIN: Right.
ATKINS: That day is over. We are now, I, my whole goal is to make things transparent, you know, from the regulatory aspect and give people a firm foundation upon which to innovate and to come out with new products and so that they know what they're doing.
LEE: I think there are two things to think about, Andrew, in the tokenization of U.S. stocks—
SORKIN: Right.
LEE: Which is one thing, which could drive a lot of cost savings for all parties.
SORKIN: Oh, I'm not against tokenization. I’m saying if you want to, I'm talking about if you wanted to tokenize—
LEE: Tokenizing—
ROSS SORKIN: SpaceX, which is a private company.
LEE: A private company. And then there's also access to private credit, I think you were mentioning, which is a complete individual investor, access to private credit, which is also another sort of tricky area in that this is also, as you mentioned, it's not as much liquidity. You know, valuations are very difficult, particularly, I would imagine, for an individual investor. I mean, there's -- there are a lot of things here that are new frontiers for investors. Where do you stand on that?
ATKINS: Well, so, well, two questions.
LEE: Yeah.
ATKINS: So as far as tokenization and other innovations in the marketplace to make trading and holding securities easier and with quick settlement, my predecessor pushed for what, we call T plus one, meaning a settlement and clearance the day after the trade, the trading day. And so, tokenization and other aspects of doing the tokenization in the marketplace is yet the next step to have much more efficiency in the marketplace and, and certainty of having a trade settle. But way back in the ‘60s, 1960s, before our time, basically the New York Stock Exchange had to close for two days a week just to catch up on the paperwork from the stacks of paper certificates that were going from one brokerage to another. So, then, the -- then came DTCC and digitization of securities book entry. That was a huge advance. And so, now, we are in a -- in a new world for --
SORKIN: Where do you land on SPACs? We had sort of a big number of blank check companies go public a couple of years ago. Most of them did not work out. It was a bad vintage, if you will. I've argued that SPACs could be very interesting if -- and I don't know if you'll agree or disagree with me, if whoever the sponsor or promoter is locked in place for whatever duration of the forward-looking statements they make about a deal is. Meaning, if you want to come on TV or put in your documents, or do whatever you want and say, here are the future prospects for this company and we'll give you the numbers. What we think is three years out, four years out and five years out. Great. You should be locked for the three, four and five years out. Part of the problem was that these promoters and sponsors of these things could technically, depending on where the stocks traded and other things, they had ways to get out, oftentimes six months into the process.
ATKINS: Yeah. Well, so I don't have anything against SPACs. Basically. I do think that, again, we were talking about IPOs and how the incidences of IPOs have really decreased over time. And so, SPACs are yet another symptom of that because it's a -- it's a much faster way—
SORKIN: Right.
ATKINS: Going public. You have a ready-made company. Disclosures, very important. Obviously, the structure of it is very important. But I think if we pay attention to going public and what are the impediments for people to access the public markets through IPOs and other means like that, I think the other situation will be able to solve itself.
SORKIN: So let me ask a philosophical question, because what I hear you saying is two things at the same time. One is I want to fix the system so that the IPO market is a more attractive place to be. And if I do that, I won't necessarily have to deal with tokenizing private companies, and I won't have to really think too much about SPACs, because those will be less attractive options compared to going public. My question is, since we all have to walk and chew gum at the same time, what do you do -- while you're working on fixing the IPO system to make it more attractive, you have all of these other things going on in the not in the background, in the foreground.
ATKINS: Right.
ROSS SORKIN: What do you do about that?
ATKINS: Well, so that's I mean, I've been on the job for two months—
SORKIN: Right.
ATKINS: Which is great. And again, like you said, drinking from a fire hose. So, we will -- you know, we are going about it, but we have a really good program I think now addressing the crypto markets. So, we have that underway, working with the folks in the administration and on the Hill. So, there's -- you know, moving afoot with bills to bills, particularly in particular on the Hill. So, with respect to the IPO market, you will start seeing our proposals coming out. We, obviously, are cognizant of what's going on. There have been new rules adopted by the commission in the last couple of years regarding SPACs. Those were very, you know, rather controversial, let's say. So, we'll be looking at all of those things. So, you can't build Rome in, you know, overnight. But we're we'll be, you know, addressing that.
LEE: Is there a time or place for the SEC to say we should halt the tokenization of private companies for now, until we can examine this and the impact to the markets and to investors?
ATKINS: Well, again, I think, you know, we have our rules.
LEE: It’s too late?
ATKINS: No, we have our rules. And again, I'm looking at that as an innovative way to address, you know, the workings of the marketplace. I don't view that as a wholesale new type of product. And so, I view that as beneficial to the markets. And obviously, you know, we will be adjusting our rules.
SORKIN: Okay. We’ll Rome wasn't built in a day. And this interview isn't built in a day or even a segment either, because we're going to take a quick pause and we're going to come back with Paul Atkins right after this. Slip in a quick break. Don't go anywhere.
SEC Chairman Paul Atkins on regulating booming crypto industry
SORKIN: Welcome back to “Squawk Box” this morning right here on CNBC. We're speaking with the SEC Chairman Paul Atkins. And we're thrilled to have him at the table. I have a question because, about insider trading, an issue that the SEC has always sort of oversaw. But there hasn't been a huge number of insider trading cases in recent years. I mean, not big famous ones. But there's this whole crypto industry that is not really regulated. And I'm curious what you think of that, which is to say that there's lots of people doing things and the reason I mention this is, three or four months ago, if you remember, somebody developed a Sorkin coin briefly for a hot minute. Worth I think a couple hundred million dollars at some point.
LEE: Wow, nice.
SORKIN: It was a wild thing. And what I saw happening was people were creating these Telegram and Signal accounts, and they were all talking to each other about how they were going to buy and sell. I mean, it was literally like the pools of the 1920s. It was a very interesting thing to watch. And the question, just -- to see how it was happening, and I was curious, sir, where you think the SEC should play in that universe?
ATKINS: Well, I think the, there has been a fair amount of regulation in that area or regulatory activity over the last few years, which has been also part of the problem of, you know, innovation. But getting back to it, fraud is fraud.
SORKIN: Right.
ATKINS: And, you know, the mission of SEC is to look after investors, protect investors, but also look after capital formation and orderly and efficient markets. So those are all important aspects of our mission. So, the SEC has been very active on that—
SORKIN: Do you have different ideas about how companies communicate with the public though? Because, you know, for so long it was, you know, you had to put your statement on both EDGAR, but really on Business Wire or something like that. And now, obviously, you can go on Twitter, or you can do this and -- but you know, people are going on podcasts, obviously they come on places like “Squawk.” But how do you think about sort of broadly pushing out all of this information at the same time?
ATKINS: Well, so the markets live on information, obviously. And that's why, you know, insider trading comes up, you know, very often, you know, as far as people who have more information than others—
SORKIN: Right.
ATKINS: And abuse their aspect there. But as far as, you know, the access to information, that's what's so wonderful about modern markets, is that information is all over the place, but it's up to the company, up to the issuer what to make—
SORKIN: What do you think about Congress? So, this -- and this is going to be a “bite the hand that feeds you” situation. But no, no, I remember talking to Jay Clayton about this. I've always thought it should be the SEC who could somehow step in and start to really look at insider trading in Congress, because we've had a lot of questions about whether it's Nancy Pelosi and that family. And there's so many examples where you go to yourself, well, how is it possible that these people are trading? Do you think there should be a rule in place that makes it much more complicated or difficult, or disclosure that doesn't exist today?
ATKINS: Well, a few years ago, Congress did enact a rule that's called the STOCK Act.
SORKIN: Yeah.
ATKINS: And so—
SORKIN: I'm aware of it, but it doesn't seem to have shifted the balance when you see some of the disclosures, and also, how well they've done, you say to yourself, how is that happening?
ATKINS: Well, I've seen -- there are all sorts of different studies as to that, whether or not, you know, there's any evidence of it. The SEC gets literally thousands and thousands of tips from all over the place coming in, you know, from a -- from the Net and from people on the outside, whistleblowers and whatnot. So, obviously, we take all tips seriously and look into them. So, obviously, I can't comment on anything, but just let's say that the SEC is very active.
LEE: I want to get back to our conversation about private companies, private credit. These are things that individual investors want to have access to. How do you view the role of the SEC in terms of products that investors want to have access to, products that investors should have access to, and what your role is? Or is it your role to put up guardrails here? Or is it your role to just say all these products, as long as you disclose properly, they are available to individual investors? Or there are some products that are not a good idea for individual investors, and the SEC will take a more activist standpoint?
ATKINS: Well, right now, we are at a cusp of where we need to look at the rules and how they apply. But, obviously, there are standards for public disclosure. And in the private markets, because of these particular products are not publicly registered, those rules of disclosure don't necessarily apply. But the private markets have developed a lot over the last 40 years, and institutional investors and others demand make demands on issuers for information. And so, there's been kind of a leveling of the amount of information that's in both of them.
LEE: But a separate issue, private credit, which is the new, you know, it's been done on Wall Street for, I don't know, 10 years, maybe more. But in terms of access by individual investors, that's only opening up right now. Is that an area that investors should have access to now that -- I mean, some might argue here that we're in sort of the waning days of private credit, and investors will be marketed the worst of the credits out there that aren't rated properly, that are, you know, the dregs, of what's left over, that the individual -- that the institutions don't want.
ATKINS: Well, I'm afraid of that too, obviously. And so, we will -- as we look at, you know, the accredited investor standard and other things, we’ll be cognizant of that. And as I said earlier, it's very important to have, you know, good standards as to what retail investors would be getting into.
SORKIN: Chairman Atkins, we are out of time. I wish we could continue this. I want to talk about semi-liquid investments, be reading some of those kinds of things that people don't know. There's so much to do. Come on back, sir. Thank you.
ATKINS: I'd be happy to.
SORKIN: Thank you very much.
ATKINS: Thank you very much.
LEE: Thank you.
