SEC Chairman Jay Clayton On Bitcoin ETF, IPOs And Algorithmic Trading

CNBC Exclusive: CNBC Transcript: SEC Chairman Jay Clayton Speaks with CNBC’s Bob Pisani Today

WHEN: Today, Monday, September 9, 2019

WHERE: CNBC’s “The Exchange

The following is the unofficial transcript of a CNBC exclusive interview with SEC Chairman Jay Clayton and CNBC’s Bob Pisani on CNBC’s “The Exchange” (M-F 1PM – 2PM) today, Monday, September 9th. The following is a link to video of the interview on CNBC.com:

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SEC Chairman Jay Clayton on bitcoin ETF, IPOs and algorithmic trading

 

KELLY EVANS: Welcome back. Securities and Exchange Commission Chairman Jay Clayton delivering remarks at the Economic Club Of New York today, touching on global markets, on financial regulation, on so much more. Bob Pisani is there and joins us now with the Chairman himself. Bob.

PISANI: Kelly, thanks very much. And Jay Clayton joining us, the Chairman of the SEC here at the Hilton here in New York. You just gave a very interesting speech. A big part of it was about the IPO market. It’s been a big year for the IPOs. We’ve seen big companies, Uber and Lyft, going public. But you’ve made it a little bit of a thing in your administration to try to make it easier for companies to go public. We all know many companies stay private too long. How can that be done while still providing disclosure to the public about what these companies are doing?

IPOs

JAY CLAYTON: Well, you hit the nail on the head, Bob. Are companies going public early in the lifecycle or are they going public very late, after their growth phase has passed? And there was a time twenty years ago when companies sought growth capital in our public markets and our Main Street investors had an opportunity to participate in that growth phase. Today we don’t see that as much. And we are working, in many ways, to make our public capital markets more attractive to those growth stage companies. The Jobs Act: this was a bipartisan act of Congress. It made it easier for companies to go public. We’re expanding the Jobs Act.

What I would say is the Jobs Act accommodations, they’re smart ones. Congress thought about it. They did a good job. We’re expanding those to more companies, and we’re looking at scaled disclosure. We’re basically looking to eliminate frictions without in any way reducing investor protection.

BOB PISANI: Are we going to see less intensive 10k filings? Will they be simpler -- will the filings for the companies be less intense, less information in them? I’m trying to figure out -- what’s the balance here?

JAY CLAYTON: Well, look, if you have a fairly simple company, you should have a fairly simple 10k. And we want to make sure that people understand that. You know, multi-national, you know, multi-line companies with different segments, they’re going to have a complicated 10-K. But if you’re an early stage company, you ought to be able to go public and talk to investors in the same way you talk to private investors.

Chairman Jay Clayton on HFT

BOB PISANI: Let me move on to algorithms and the whole issue of machines doing trading. We -- every time the Dow is down 600 points, someone comes on our air and says, ‘The machines have taken over. The algorithms are taking over.’ We know this is an exaggeration. It’s the people who write the algorithms. But it’s a concern our viewers have. Can you tell us, does the SEC have any concerns about how machine trading is being done? Are the rules being enforced? Is there any need to tighten the rules? What’s the SEC doing, if anything, about this?

JAY CLAYTON: Well, I think what viewers should understand, and sophisticated market participants understand this, almost all trading today, and I can say -- for all practical purposes, all trading today is machine trading. It’s done through an algorithm. If you go to your broker and say I want a hundred shares of this or I want to sell a hundred shares of that, it gets fed through an algorithm.

And there are different types of algorithms. Now to give some comfort, we know that, our rules have been adjusted, we are continuing to look at them to make sure that trading today is as fair and transparent as it was when it was voice trading.

In some ways, look, trading’s much more efficient today than was when it was all voice trading. So, investors benefit from that. But, you know, like I always say to you, my job is to worry. I do want to make sure that our regulations today reflect the fact that we do have machines talking to each other.

Clayton on corporate governance

BOB PISANI: I want to bring in my colleague Kelly Evans. Kelly.

KELLY EVANS: Thank you, Bob. And Chair Clayton, my question is about the Business Roundtable’s recent proposal or shift to basically say, ‘We’re going to emphasize stakeholder accountability and not just shareholder accountability for corporate America.’ I mean, it’s gotten a ton of attention and I’ve seen criticism that by making that kind of move you’re basically, you know, going from the accountable to shareholders to being accountable to frankly no one. Are you worried this is going to be bad for investors in the long run?

JAY CLAYTON: Let me say this. I’m going to go back to what I did before I took this job and had the opportunity to be in a lot of board rooms. In the board rooms of good companies, those constituencies were almost always front of mind. Because you couldn’t deliver for your shareholders unless you were delivering for your customers and your employees. Now, the question about what the law should be around what your duties are, that’s a very complicated question. I’ll just say that we’ve done very well leaving that to the states and not having the Securities and Exchange Commission get involved in the fiduciary duties. That’s largely a Delaware law issue. And I’m happy to stay in my lane on the law of this.

Chairman Jay Clayton on crypto ETFs

BOB PISANI: Let me ask you about bitcoin. I know I’ve asked you many times about this in the last couple of years, but it’s of intense interest to the viewers. Are we any further along on a bitcoin ETF? I know you did a memo – you and your staff – a year and a half ago, where you made it very clear you were concerned about custody and the security of custody, and you were very concerned about the fact that much of the pricing of bitcoin was done on foreign exchanges that had the potential to be easily manipulated. Now, your realm here is a bitcoin ETF. Are we any closer? Has – have the people involved in the bitcoin businesses in any way come closer to satisfying your concerns?

JAY CLAYTON: The short answer is yes. But there’s -- there’s work left to be done. Those were not trivial questions. How do we know that we can custody and have a hold of these crypto assets? That’s a key question. And an even harder question, given that they trade on largely unregulated exchanges, is how can we be sure that those prices aren’t subject to significant manipulation. Now, progress is being made but people needed to answer those hard questions for us to be comfortable that this was the appropriate type of product.

Chairman Jay Clayton on buybacks

BOB PISANI: Before we let you go – and Kelly might have one more question -- I just wanted to get in a buyback question. Very interesting political question. There’s been people on both sides of the political aisles who have weighed in on buybacks, saying – some people are saying, there’s too many buybacks that are out there. Corporations are using them too excessively. They should be investing in the companies more. Does the SEC have a position on this? Is there any sign that buybacks are being abused? Is there anything that the SEC is looking at around this?

JAY CLAYTON: We don’t regulate whether companies do or do not to do buybacks. What we do regulate is: if they decide to do them, are they appropriately disclosing them, and are they doing them in a way that’s non-manipulative? Are they doing it in a fair way? But whether a company does or does not to do a buyback, that’s not for the SEC to decide.

BOB PISANI: We appreciate all of your work and we appreciate the fact that you make yourself available and explain what your position is. That’s very helpful to all of us who cover these kinds of issues. Jay, thanks very much for joining us and thanks for your speech today. Appreciate it very much.

JAY CLAYTON: Thanks to Kelly, and thanks to you, Bob. I really appreciate it.




About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver