ETF Edge - Regulation reform with SEC Commissioner Peirce 3/16/26

Episode Date: March 16, 2026

From leverage to tokenization, find out where the SEC stands now on product innovation and regulation.   Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The ETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange-traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm your host, Dominic Chu. Today we are live from Las Vegas at the largest gathering of the ETF industry, the Exchange 2020. conference. Here's our interview with an all-star panel of guests within the industry. Today we are live from Las Vegas at the go-to gathering of the ETF industry. It's Exchange 2026. We've got a lot to cover, so let's get right into it. Joining me now for the program are Anna Pahlia, Chief Business Officer and Global Head of ETFs at State Street Global Advisors, Also, Bill Birmingham, managing director at Osprey funds, David Mann, Senior Vice President,

and Head of Capital Markets at Franklin Templeton, and Paul Diochi, head of fund sales and strategy at SSNC Alps Advisors. So thank you very much to our esteemed panel for being here with us. I'd like to make the overall theme for our program today about the future of the exchange traded fund business. Each of you folks has a large presence with regard to this business overall. and have seen a lot of things develop over the course of the last 10, 20 years and have some interesting thoughts about where we go in the future.

So that's kind of the overarching theme of this conversation. I'm going to start, Anna, with you over here on my left, about from the State Street Global Advisors standpoint, a very large issuer when it comes to exchange traded funds. How exactly are you looking at the current landscape for ETFs and how you are positioning for new products in the, say, coming year? Sure.

So we have 30 years of history developing and launching ETFs. And what we see going into the next 12 months is that something that is working will continue to work. So the evolution of the industry is not going to be just about new products. But it's also going to be the growth of existing capabilities that especially in the recent macroeconomic environment are really really. going to drive the flows. And I'm thinking about things like, you know, gold, select sectors since the beginning of the conflict that we have seen a lot of flows going into sectors

like energy, industrials, materials, but we also look at new product development and new innovation for these markets. Private markets are going to play a major role in ETFs product development. We have We've seen the incorporation of private credit, CLOs, ABS into liquid wrappers like ETFs, but we will also see the growth of active strategies. Now if you look back at the last five years, the growth of income-oriented ETFs has been kind of unprecedented. So whether you are looking at buffered ETFs or derivative income ETFs, we see a need for income that is going to drive new innovation in equity and equity like securities.

Okay, that's the good opening salvo from the SSGA standpoint. So, Bill, let's talk a little bit about what you think in terms of the way that ETFs have developed over time with your focus at Osprey and then how exactly they will kind of move forward here. Because, to be fair, the funds that you are most engaged in are some of the ones that are maybe more at the tip of the spear with regard to financial technology and markets technology overall as well. vis-a-vis crypto and everything else.

Yeah, absolutely. And so we are very focused on giving investors exposure to digital assets, crypto specifically. And we're trying to do that in a way that is the most compliant and simple for them to fit into their portfolio structures. So we've been very active in pushing 40-Ax structures in our ETF business. We have some innovative staking products. We think that yield is going to be a very important piece of the picture for ETF investors

in crypto. And just solving kind of their everyday problems in terms of getting access to the asset class, whether it's key management, custody, cash management. The ETF wrapper really solves a lot of that for crypto assets, and it diversifies and broadens out the demand picture for it. All right. Now, Franklin Templeton, David, to name many people have known for years, especially when it comes to mutual funds.

More so these days because you have now pushed as many issuers have, into the world of exchange traded funds, specifically the active ones that Anna had mentioned earlier. From the perspective of a massive fund manager that has maybe cut its teeth growing up in the mutual fund business, what exactly has it been like to transition a chunk of that business towards exchange traded funds? And how exactly has that been in terms of the product development cycle for mutual fund managers to then think about things, from an ETF Rapper standpoint. Yeah, so it's been an interesting journey. I've been at the firm now 10 years,

and I think you could chart this event with the growth of the active strategies within ETFs, which fits nicely with Franklin Templeton. So specifically Franklin Templeton, Law and Standing mutual fund stop, lots of active strategies, and so one of the things that we were watching is at what point were those same strategies just be delivered through a new vehicle?

Because at the end of the day, whether you get it through a mutual fund, through an SMA or through an ETF, we just want to give investors the choice that they want. So specifically for the, you know, here in the US, this year a little over 40% of the net inflows into ETFs are active strategies. That's up from 30% or so, 25 in the 20s the year before.

So this is general awareness now that transparency, tax efficiency, all the things that investors like about ETFs are now available getting active strategies, which allows us to evolve to the, What specific outcomes do we want to do to give investors what they want? Is it managing risk? Is it downside production?

Is it income? All of those things fit very nicely in the active ETF strategy. And then we can just say, okay, here's how we compare to benchmarks or other offerings. It doesn't just mean I'm a alpha-generating stock picker. I can actually manage risk. I can be benchmark aware.

That fits nicely with our firms, you know, bringing active strategies to the masses. Now, Paul, one of the big deals here been talked about a lot is just how much it's grown, the ETF product itself, and then the kinds of tilts, to David's point, about where we're going. It used to pretty much be the conversation was just about passive index tracking instruments. But now we all know, or if you didn't, the hyper growth in this business and the ETF business overall has been very much about the active management kind of strategies that are out there. Do you think that that's a trend

that continues, and if so, just how much runway is there for that kind of active management platform to garner new assets and grow at the rate that passive instruments did in the early stages of ETF development? I think there is still a tremendous amount of runway for active strategies. And I think if you go back in time 10, 15 years ago in the ETF world, there were only a couple on ramps to the ETF marketplace. You either went and got your own exemptive relief or maybe you went and work with a white label provider. Now you can get an ETF share class of a mutual fund family. You can do a 351 exchange

of an SMA. You can convert a mutual fund to an ETF or you can use a white label provider or go the traditional routes to launching ETFs. I think that means that you've got legacy active managers who only operate in the mutual fund wrapper who are now coming in earnest to the ETF wrapper vis-a-vis the share class and are looking to attack a market that is clearly growing. in front of their eyes. So I think there's a lot more runway for active strategies, but I think at the same time, there's a lot more runway for active strategies and maybe categories where the issuer feels there is opportunity to generate risk-adjusted outperformance. So that's why we've seen in so many ways a focus from an active perspective on categories like

core fixed income, where SPIVA is on your side. Once you start to get away from the core building blocks that are dominated by passive, so large-cap equity, maybe to an extent developed XUS equities. How do you take a framework, a durable, repeatable process from an active management perspective, apply it to the ETF wrapper in a category where it's additive?

All right, so that was the opening salvo, right? We've gotten the, we're taking the funnel approach, that's our big picture right now. Each of you guys has kind of laid out the case for that. I'm going to go down the funnel now and get a little bit more specific with regard to the conversation because we've also assigned each of you kind of an area

that I want to explore more. For Anna, it's going to be a little bit more about the kind of traditional stock and equity side of things, although we know that she does a lot more than just that. We're going to focus a little bit more with crypto with Bill. David, a little bit more on the fixed income, active side of things, and then a little bit more on the commodities, natural resources side. And that's very much of the news of the moment these days,

given the war in Iran, and given what's happening with oil markets and certain commodity markets around the world. So for this conversation, I'm going to start off with something that Anna said. You mentioned this idea that these products being developed are going to be ones that kind of fit specific needs in certain parts, whether it be specific to sectors or overall kind of moves in certain themes. From a product development standpoint, is there anything else that can be done with regard to equity ETF management that State Street is currently exploring to put new product on the market beyond the sector spiders that we know of and some of the traditional kind of index following instruments?

Sure, there is so much more. And actually, our innovation lab has never been as busy as it is today. We are looking at not only the exposure. And by the way, I like what this panel is unpacking right now, which is there is a difference between the technology and the contents. Because historically, the debate has always been active versus passive, ETFs versus mutual funds. It's not the one and the other.

The ETIF wrapper is a technology. And what we see today is that the technology is being used to really develop new capabilities, a new content for the end of clients. What we are working on right now, since it was mentioned already, is the ETF share class, or the mutual fund share class of ETFs. We are looking at not only the wealth channel,

the institutional channel, that have been, historically, very big users of ETFs. But we are now looking at the retirement channel. And we are really observing that passive strategies are very widely used in wrappers like CITs or IRAs, but they have not found a way into 401 case. But if you look at how the industry has evolved, in the last 20 years, the retirement industry moved

from 17% exposure to passive strategies, up to 44% exposure to passive. And it's not just the S&P 500. It's not just the basic equity building blocks. Retirement plans, DC plans, are making use of passive strategies in a much more tactical way in their portfolios. So what we are building on is really a capability where we use the ETF share class to really feel a gap

in the retirement arena. What kinds of things build specifically? Because crypto is such a new relative product, right? I mean, it's been around for a while. But it's safe to say that the masses, whether they be retail investors or investment advisors, have now only really begun to really start to think about crypto as an asset class,

one that is maybe allocatable to it, right? This idea that you can have a portfolio and there's a certain percentage that maybe you want to keep in certain types of assets, crypto specifically. Do you feel as though right now there is a runway for a certain type of crypto-focused products that will appeal more to the masses who are trying to get a little bit more exposure

without having to feel like they're so idiosyncratic in a market that, let's be honest, most people don't know that much about? Absolutely. I think that you put it right on the hat in the sense that the early, early kind of iterations of crypto were very trader driven for people who really understood kind of the early phases

of technology. Obviously, it's worth mapping a little bit to say that Bitcoin being kind of the originator, you know, drew a lot of attention, became a worldwide asset, you know, has kind of set the stage for the overall asset class, and then you had kind of an explosion of tokens after that, you know, who have all been kind of working

to prove their use case over time. So what's an advisor to do, right? How are you going to sort through this, you know, giant kind of Darwinian environment, of protocols that are all fighting for, you know, ways to get investor intention. And the way we look at it is, you know, we think that indexing is going to be the way to get advisors to take that baby step into getting their clients allocated. Because what it allows them to do is to essentially let that kind of Darwinian battle happen

underneath the surface while still maintaining asset class level exposure to what we call kind of the fifth asset class. So crypto is now following on equities, fixed income. real estate commodities and now it's established itself through a lot of various you know kind of wins over the last 15 years to be its own asset class and at that point it deserves an allocation but you should really try to match it to the top level and I think an index product is the way that you know will allow people to get that kind of just like it did for exchange traded products with

with regard to stocks exactly you know 20 30 years ago that's exactly all right now the active fixed income side is something that's getting a ton of attention in just the last few years. Part of it might be demographic because there is a larger portion of the population that is seeking income in terms of the way that they view their investments. From an ETF standpoint,

when it comes to fixed income, what exactly do you think is going to be that driving force behind how people view fixed income in those ETF wrappers? What kinds of income profiles are they looking for? Do you feel as though people are looking beyond just say the rates treasury side of things for that income and are looking even further down the spectrum beyond even corporate investment grade and do you feel as though that is

going to be the driving force behind active ETFs in the coming years you know and it's interesting to hear your comments on the indexing because I feel you know if I go back five to ten years you know the the active fixed income tended to be the one oh you know what there's really room to outperform within the fixed income space compared to equities where oftentimes market cap is sometimes very difficult to beat and the rules of the fixed income. So I would say a couple things. One is certainly to have the conversation with the clients to say, okay, what is you're looking

to achieve within the fixed income spectrum? It could be municipal bonds. It could be a rates play. It could be a credit play. That's all in play. What's the new interesting evolution that I think is now having additional income almost on top of income, whether it's multi-asset, So having simultaneous equity within fixed income in the same portfolio.

We're seeing a really growing trend now of options overlay strategy within both fixed income and equity underlying. And so, you know, the beauty here is the ETF is just a delivery vehicle, whether it's crypto or equities or fixed income or anything else, being able to work with the ETF ecosystem and, you know, and credit to everyone for the crypto to build up that and have that be efficient. working with the ecosystem, they have this liquid environment where market makers and authorized participants know how to price bonds and commodities and Bitcoins and other fixed income, provided a liquid manner that then they can get through the ETF vehicle. Can I follow up with that really quickly? The income orientation has been something because you brought up the idea of these different types of offerings, the options, overlay strategies, and everything else. There's also been an evolution or a greater demand for frequency of payments.

Right? So it used to be maybe like maybe a year, then it became twice a year, then it became quarterly, then it became monthly. Now there are some products out there who are paying distribution yields on a maybe weekly basis. The evolution of financial technology has made it so maybe you could even get at some point income on a more regular basis than even weekly. Is that something that fixed income is paying attention to right now in terms of fund management? Yeah. The paycheck. No, absolutely. I mean, certainly the Fortyac deities how much income you need to be paying out in terms of what's received, but certainly we have conversations all the time

between dividend frequency, you know, looking at and maybe we can talk later about the next iteration when we think about blockchain technologies and the future where daily or even real-time distributions are even possible in terms of the rewards, but absolutely that's something we're looking at. All right, commodities front and center

for a lot of folks, as I mentioned, Paul because of what's happening in oil markets specifically, but precious metal markets by extension, other, you know, base metal trades as well. The idea now is that commodities have always been in kind of a partial allocation strategy instrument, but they're getting a lot more attention these days because they are grouped with alts, generally speaking, and those alts because of gold and silver and the crazy price movements that we've seen. And more recently, because of oil and nat gas prices have put a huge focus on whether or not some people are maybe perhaps, and again, talk to your financial advisor, right?

Whether or not you're under-indexed to certain types of these products. Is that something that you're paying attention to you more closely these days as well? Without a doubt, and in some ways it gets back to the idea of product development and the evolution of products, because in many ways, there are products that exist that are maybe underutilized from our perspective that don't require laying a buffer on top of it or aren't reaching for additional sources of yield. They're just portfolio diversifiers inherently. At a moment where the market is as concentrated

as ever been in terms of the Mag 7 representing more than 30% of the S&B 500, discretionary, comm services, technology representing more than 50% of the S&P 500, while materials, utilities, energy represent less than 10% in aggregate. Those are the segments of the market. In addition to the commodities themselves,

that people are typically under-allowing. allocated to. And in some ways, it's about thinking about the path we're on, whether it's AI, whether it's increasing electricity demand, the implications that has on those sectors of the market, those individual commodities, you talk about energy which dominates most commodities benchmarks, but beyond that, the base metals that are so critical to the build out of these data centers that you can put on Manhattan and show how big they are and scale, when you think about portfolio construction and what the goal is long-term, it's to be diversified, to offset certain risks in your portfolio,

commodities have this thought in most advisors' mind that they're inherently volatile. At the individual commodity level, they are. From a basket perspective, over the course of the past 25 years or so, commodities have basically the same volatility profile of the equity market. So it's educational in terms of you're under-exposed to the commodities themselves, the companies that produce them, the companies that transport them, and making a case for why, from a portfolio construction perspective,

they're additive, and they allow you to create a durable portfolio that will be insulated from what we believe is this secular trend around electrification, the electrification of everything, and the insatiable demand, not just for electricity and what's powering it, but the resources that need to go into transmission lines like copper, for example. All right, so I'm going to go back in reverse. It's a jumping off point, because we all know that, of the driving forces behind the market narrative in the course of the last two to three

years has been artificial intelligence, this idea that even from a product development of business perspective, AI could change the way people do business and how markets function. I wonder from that standpoint, if you look at the way certain markets have developed, is there a case to be made that people have to look at their investments differently through the lens of artificial intelligence, whether or not it's directly investing in AI companies like an Nvidia or a cybersecurity firm or whether or not it's a more holistic influence on the way they have to treat the kinds of investments and the derivative effects of AI on those investments, specifically with regard to kind of what you're talking about, Paul.

Without a doubt, I think we've seen a bubbling up of some of the themes in the market around how do you position your portfolio to be insulated from some of the disruption that AI might prove in categories like software. And one thing that's really hard to disrupt through artificial intelligence or otherwise is the physical real world. So we think about AI, doot do, do, we put in our phone, something goes out, something comes back, but in between that is copper transmission wire. There's all of the construction equipment and inputs that go into the data center itself. There's the electricity generated by virtue of, say, natural gas, the pipelines that transport it. So real assets, energy infrastructure, utilities, materials, more broadly are at the heart of AI in a way that maybe is disconnected from how people think about investing in AI.

So diversifying your portfolio into real asset categories, hard asset categories, perhaps even the REITs that own some of the data centers, is a way to offset some of the impending risks that AI presents for a portfolio. That's the thing, right, Halo, right? That's the new acronym these day. Heavy asset, low obsolescence. I didn't want to say it. I said it. I went there. I'm sorry about that.

David, it's interesting, right? Has it changed the way that fixed income markets are viewing their products themselves or what investor demand is like for some of these products vis-a-vis the fixed income markets, this idea that maybe you have to look at things through kind of more of an AI lens? And does that lend credence to the idea that people are looking at even fixed income? come differently because of the way that AI has permeated through that narrative. Yeah, so I guess there's, I mean, there's a couple things.

One absolutely right, you know, regarding the, you know, the materials that go into the AI. Then certainly there's the industries and the specific companies that AI are going to be impacted by. But, you know, I would say from Franklin's view, it's been really fascinating to watch the investment teams, how they incorporate artificial intelligence into how they run money, okay?

So that's like the big, you know, and every time we go to any, of the CIO forums, I'm like blown away by the extent of which they can be more efficient with, you know, reading earning statements or screening industry trends, etc. So, you know, specifically when building portfolios, it's been an awesome tool just to make everyone more efficient in terms of, you know, building the active strategies that ideally will fit this specific client outcome. It may or may not be correct, Bill, to associate financial technology, cryptocurrencies, artificial intelligence in the same breath.

But oftentimes people do, because they are relatively interconnected. They're kind of at that forefront of technology right now, just at the edge of what people are kind of accustomed to talking about or maybe uncomfortable talking about. How exactly has that AI narrative affected the way that crypto investors and crypto portfolios operate? I think the AI narrative is going to be incredibly bullish

for crypto assets over the long term. And here's the case why. If you look at just how the internet functions and using agentic AI on top of that, there needs to be a native payment system that allows for AI to essentially do the kind of work that it needs to do. You're referencing all of the amazing tools

that in the financial community, all that has to come from API calls inside the system. I wish I had those tools when I was an analyst it would have made my job a lot easier. But for now, you're gonna see AI take a lot of those roles and they're going to be basically having to spend internet money to make those calls and to process that compute. If there was enter a perfect fit in terms of an asset

and a technology, it's crypto and AI. Because at the end of the day, agenic AI is gonna have to use 24-7, non-counterparty instant settlement assets to pay for the various amounts of computer workflows that they do online. So I think this sets up for the digital asset world, extremely well as AI becomes a part of everyone's integral workflows going forward.

Anna, has AI changed the way that you do business at State Street? And will it change? What exactly are you expecting or not expecting? I was at a conference recently where a chief technology officer of a very large company here in America, multi, multi-billion dollar company, said one of the things that keeps him up at night is this idea that he's either moving too fast with AI, or not fast enough with AI. That keeps him up at night.

So how exactly is State Street tackling the use cases for AI and whether or not that changes how product development works at State Street? Yeah, absolutely. So AI is fascinating because it seems to me we went from F to formal, from fear to fear of missing out. There was an initial part where everybody thought, I'm gonna lose my job, AI is gonna replace me.

And now we really moved into that fear of missing out, which is AI is a powerful force that is gonna change the way we do business. It's not gonna replace innovation, is not gonna replace creativity, but it's gonna make us better at how we do our job. Right now at State Street, we are already incorporating Gen AI in what we do.

We use co-pilots to prioritize emails, to look through documents, to look at earnings reports and summarize those earning reports in minutes instead of days, instead of weeks. AI right now is giving us tools to be better at our job. AI is also going to help us source through data. This is not going to be possible right now with Gen. But we are looking at many ways to incorporate

agentic AI in how we insource data, dissect data, and build product development pipelines or client options, client outcomes that are generated by a very good use of data. Now if you think about innovation, there is a trial and error component to innovation, failure is part of innovation. The use of good data as foundation

to making the good investment decisions is gonna remove some of those failures. So this is gonna be a driving force in the way we do business. All right, let's leave our audience now with a forward-looking view. I'm gonna end the program here with putting it through the lens of something that you had brought up before, all of you.

This idea that tokenization is going to be a thing. It is very much going to be a part of the story in financial markets going forward. Earlier today on CNBC, we had SEC Commissioner Hester Hearst talk about the idea that tokenization is something that they are looking at very closely and working with the fund management community on. How big of a deal, and in your opinion,

is tokenization going to be for financial? market is going to be it is going to be transformative tokenization is here today we can tokenize most assets we can tokenize money market funds we can tokenize real estate we can tokenize private assets the reason why is not so big right now is because the use case has not been proven we have use cases for tokenized the money market funds to be used as collateral and this is why they are growing in assets and they are growing in popularity But as soon as assets on chain will become available to wealth advisors, retail investors, we will see more assets being tokenized.

All right, so Bill, this is kind of your thing, right? So tokenization, instead of asking if it's going to be a big deal, because I kind of know you have an axe to grind, it's going to be a big deal in your mind, right? Thank you. How quickly is it going to evolve and happen? Just how much do you think financial markets will move in terms of evolving product to adapt to this idea of being on-chain for tokenization. Yeah, I think to your point, I think it's already there.

And I think that issuers are definitely ready to tokenize a lot of various assets and asset classes. I think the biggest thing that we need right now is regulatory clarity in the market. So, pardon the pun, but the Clarity Act that's currently working its way through the Senate, if that were to pass and if that were to create some guardrails around, you know, what is a digital asset, who controls the regulatory environment for that type of digital asset, who can trade them, what is in exchange, you know, all those various things that have kind of held back the broader implementation of tokenization, you know, I think well then, you will see a Cambrian explosion of tokenized assets to really kind of fulfill the promise at that point.

What do you think, Dave? So, you know, back to sort of the big picture at this event. If I think about how the ETF industry disrupted the mutual fund industry, What were the problems that were being solved? Okay, people like trading through the day. They like the transparency, they like liquidity, tax. Okay, so there was real stories to say, hey, this is why you, the investor,

should be using an ETF instead of other vehicles. And here we are trillions of dollars later. Okay, so one of the things that we think a lot about with the ETF tokenization is, okay, if now the ETF industry is gonna start getting disrupted. What is this gonna look like and what specific problems are we solving for the end investor? Blockchain technologies do a lot of interesting things.

So the atomic settlement, you know, the idea of an exchange closed, well, what if we're in a 24-7 environment? From an ecosystem perspective, we're spending a lot of time working with the ecosystem because if the markets are closed and someone wants to trade at three in the morning and the spreads are wide, that's not a great experience using any of our tokenized vehicles.

So we gotta get the plumbing proper. There's no doubt this is gonna happen, we're spending a lot of time with it as well, but we're really trying to build the ecosystem properly, which I think the ETF industry did a great job of and then identifying, hey, these are the things that now tokenization are getting you, whether it's new distribution channels, whether it's new, you know, being able to trade all through the day, whatever the problems are, we think that's what the future is going to look like.

But I think it's going to take a lot of time. All right. Ownership is always a thing, and that's one of the big deals about why chain works. When it comes to things like asset heavy type instruments, whether they're physical gold or physical real estate or things like that, how disruptive? is going to be that force that is tokenization? Well, I think it's going to be significant. And do you think about we've already seen tokenization of real estate, and so that's already in the marketplace,

not necessarily adopted as much as maybe people anticipated five or six years ago. A couple threads to pull on here. One is that because of the Genius Act and the idea that you can't earn yield on a tokenized security, whether it's, say, a stable coin or otherwise, there is a desire for digitally native investors to get yield and not have to go from Fiat back to digital assets. And so to the extent that you could have a money market fund

that pays a yield tokenized, then in theory that allows you to move between your stable coin or your other digital asset and something that is yield-bearing. That's one piece of it. The other piece of it is I do think it's an evolution of access to markets in the sense when you think about just a simple dividend strategy, all the companies in the dividend strategy pay their dividends at different times, and then they all pay it out quarterly through the ETF itself.

In that time, you get creation activity, creation activity, redemption activity that can dilute or enhance the yield. In theory, with a tokenized structure, you could pay out a stable coin or you could automatically reinvest a tokenized share of that dividend strategy, creating less friction between the portfolio itself, the dividends that you want access to, and how the ETF currently delivers it. I think we're a ways off from that, but I think it's very promising. Now it's time to round out the conversation with some thoughtful analysis and perspective

to help you better understand ETFs with our Markets 102 portion of the podcast. Live from Exchange 2026 in Las Vegas, join me now is Hester Purse, the commissioner at the Securities and Exchange Commission, for part two of our exclusive interview that we started on CNBC broadcast air earlier today. Commissioner Perce, thank you so much for joining us here on the ETF Edge podcast. Dominic, it's great to be with you again. All right. So I want to build on the stuff that we talked about during the live air interviews,

which was just about how important some of these emerging financial technologies are to the world of fund management and markets operations in the coming years. We had talked about tokenization briefly. We didn't give it enough time. But I wonder the tokenization conversation is one I've heard multiple times at this conference so far. And this SEC has been very much at the 4. of digital assets and how they will be utilized and regulated in the coming years. With that in mind, I would wonder what your philosophy personally is with regard to how you

view these emerging technologies and just how important digital assets and the concept of tokenization of assets will be in the coming years. It's hard as a regulator to make that determination, but what I don't want to have happen is have the regulation be the barrier to preventing people. from using something they'd otherwise use. And so right now, we're really working with a lot of people who are interested in tokenizing traditional assets, right? And so we have kind of two traps.

One is working with people who are trying to do something with digital assets that are not securities, but doing it within an SEC wrapper. So that's something that we have a touch point on. but then people who are taking assets that we already regulate and they're trying to figure out how do we put them on chain. And that, I think, could be quite a dramatic change just because it'll enable faster settlement. It enables, when you're talking fixed income,

you can use smart contracts to do some of the back office operations. It enables you to use your assets very easily as collateral. So I think there are a lot of potential uses, and that's why people are interested in experimenting with tokenization. I know one of the things I was at a conference recently at an executive forum filled with a lot of Fortune 500 chief information officers, chief technology officers, chief information security officers and the like. And one of the things that was talked about was this kind of emergence of AI,

just how rapidly things have come about. And one of the CTOs in attendance said, the thing that keeps me up the most at night is wondering whether I'm moving too fast with regard to AI adoption or not fast enough with regard to AI adoption. The same could be said of tokenization, the digital asset world, cryptocurrencies overall and at large. I wonder from your perspective, do you feel as though from a feel standpoint? we're moving quickly enough to make sure that we are keeping up with some of these emerging forces or whether or not you think that there's work to be done with regard to picking up the pace at which we are adopting and developing some of these technologies. I mean, I think people need to have a thesis about why they want to use a particular technology and what they want to use it for. And, you know, it should be a problem looking for a solution, not the other way around.

although, of course, you're going to be thinking, well, maybe tokenization, maybe AI can do something for us, but have a thesis for it. What I think has been the problem in the U.S. is that regulation really has stymied what would, I think, have been normal commercial experimentation, particularly with tokenization and crypto assets, because there was such a, you know, don't go here kind of sign that the regulators had put up. And now that we've taken that down, people can try it. AI, I mean, I think has had a little bit more freedom, but I think there are potential things regulators could do that would make it harder for AI to move forward, and I think we need to be careful. So, for example, a few years ago,

the SEC put out a rule that would have governed the use of AI and other technologies by our regulated entities and would have made it so hard for them to use it, that it would have not made sense. So that rule never got finalized, which is great. And I think if we're going to do anything on the AI side, it will be only after having identified a problem that we're trying to solve as a regulator.

But I really think the best thing we can do is encourage people to come into us if they have an experiment they want to run. We'll work with them on making sure that it can happen in a way that's commercially viable. and they can see if there is actually a market for it. We can't guarantee commercial viability, but we will work with you to make sure our rules don't stand in the way.

How important is it for us as Americans to be at the forefront of this kind of stuff, for lack of a better way to put it? I mean, how important is it for us to maintain some kind of a leadership position, to be a vanguard, to be a pioneer in this kind of, this world, because there are such competitive forces, whether they be sovereign in nature, or whether they be enterprise or business in nature, how exactly then do you kind of view what the overall, I guess, tilt or philosophy should be with regard to how we not only help develop these technologies and constructs,

but then ultimately how they're deployed and then regularly? I mean, I'm a strong believer that the U.S. should be the place where everyone wants to come from all over the world to build all kinds of interesting things using the newest technologies. Technology can be used for good or bad, right? But I think that having people working here in the U.S. to build things, bringing the best and brightest

from Oliver to do that is going to serve us well. And that's how we have been the destination for innovation in the past, and I want us to continue to be that. And lastly, what has you the most of the best? excited about your role at the SEC in the coming months? Well, I think it's finally possible for us to get some durable things out the door. The Crypto Task Force, for example, has been up and running for now about a year. And we've helped, I think, provide some guidelines about what is outside of our jurisdiction.

And then we've heard from lots of people. We've been meeting with lots of people getting written input. But now we have the opportunity to do some more. durable things, put out some commission level guidance around a token taxonomy, work on an innovation exemption to allow people to trade tokenized securities using DFI protocols, for example. We have the opportunity to do a rule around raising capital using crypto assets. So these kinds of things, and then modernizing rules like transfer agent rules or rules for broker dealers, custody rules, those kinds of things. That's very exciting. And then finally,

working with Congress as they work on the Clarity Act, to get the really durable change in place. And then people can work on building stuff and not thinking all the time, well, where do I sit in terms of the regulation or not? And then, of course, working with the CFTC, I should add in is a piece of providing that clarity. And so all of those things, I think, will come together to build the framework within which, as you said, people can then come to the U.S. and do their thinking and they're innovating here. It's a conversation for them at the time as well, Commissioner first, but the interaction between that and prediction markets and the intersection and everything else is fascinating.

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