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Wall Street’s Perspective on Security Tokens

David Weild, former vice chairman of NASDAQ


David Weild

CEO of Weild & Co., former Vice Chairman of Nasdaq

David Weild IV is Chairman & CEO of Weild & Co. one of the world’s fastest growing investment banks. He is the former vice chairman of Nasdaq where he worked with such luminaries as Steve Jobs (Apple and Pixar) and Tom Stemberg (Staples). He is a renowned capital markets expert known for his experience pricing over 1,000 equity offerings (including early offerings for Blackrock, Celgene, Nvidea and Chesapeake Energy) and for his public policy work on how market structure can help or hinder capital formation. His work led to him being referred to as the “Father of the JOBS Act” and is frequently cited by regulators, legislators, academics, politicians and stock exchanges. Mr. Weild has testified on stock exchange structure in the US Congress, at the US Securities & Exchange Commission and has spoken at the G-20, OECD (France, Italy and Japan), the European Federation of Securities Exchanges (Switzerland and Norway) and the Arab Federation of Exchanges in Jordan. Mr. Weild received his B.A. from Wesleyan University and his M.B.A. from New York University Stern School of Business. He also studied at the Sorbonne and on exchange at the Ecoles des Hautes Etudes Commerciales (HEC Paris) and the Stockholm School of Economics (Stockholm, Sweden). Mr. Weild is married and the father of three teenagers.

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Weild & Co. is the fastest investment bank in the United States. Cloud-based, it pursues a radically different model focused on aggregating, organizing and enabling skilled human capital to provide better investment banking services to the growth and middle market economy. The Company was founded a former vice chairman of NASDAQ who earlier headed a top Wall Street investment bank and helped such companies as Blackrock, Celgene, Nvidea and Chesapeake Energy in the early part of their growth cycles. His thought leadership changed the discussion in Washington and led to a wave of pro-capital formation legislation. For this reason, he is known as the “Father” of the JOBS Act.



David Weild:

I’ve been asked to talk about the Wall Street perspective and sort of subtitle this cooperation, coop-petition versus competition, but I’m going to throw it through the lens of. One of the things in my bio is I was in the senior management of the 17,000 person Wall Street firm. I ran investment banking, I ran equity capital markets. I was the CEO of all their dotcom businesses, was actually a subsidiary of a 60,000 person organization. At one point I got all of the DOTCOM businesses reporting into me in the securities insurance, asset management, real estate and other areas. I think there were about six of them total. And so, I think I’ve got a pretty fair idea of how a major Wall Street firms look at risks. And we’re going to talk a little bit about that. So here we go.

Wall Street’s is very big. Firms are very risk averse and it’s, it shouldn’t be surprising to folks because they have very large, very deep pockets. And if something blows up on them, it cost them a heck of a lot of money more than it’s worth. There were also a kingmaker meaning that the imprimatur of a JP Morgan or Morgan Stanley or a city group on a business as an investor can confer obvious advantages they can bring business. So, on and so forth and they know that. And as a consequence, it tends to dictate strategies where they act as an investor.

They will be a fast follower into a space, meaning that if you’ve got billions and billions and billions of customer assets that you advise usually hundreds of billions. You don’t need to be the first mover. You need to make sure that you’ve got moats around your business and you watch the technology, you watch other people make mistakes, take on regulatory risk, legal risk, legal liability.

And when you feel that it’s properly vetted, you can either implement or buy. It’s typically how the big firms approach these problems. I went to an online, you could do the same thing. And I pulled up Morgan Stanley’s code of conduct just as one example, and one of the fellows on my board of directors used to be in the strategic investment group at Morgan Stanley. We used to talk about something called their franchise committing and they actually have calculated internally at Morgan Stanley. People have done this. What happens if I lose a penny terms of aggregate loss to shareholder value? If I lose a penny in my share price, I lose at today’s prices, 17 and a half million dollars.

If I lose a dollar because of some of scandal that goes through the marketplace and it stock sells off, I lose $1.75 billion of shareholder value. If you go online, you’ll see that they, these are direct quotes. Does my action comply with the letter and spirit of applicable laws, regulations, and our policies? Well, I mean, if you look at the early ICO is clearly the vast majority of them work clearly not complying with at least the spirit of the law. Matters determined to pose potentially significant franchise risk. Franchise risk is the value of their company in the marketplace.

That’s how it’s seen. Potentially significant franchise risk must be raised for review and approval by the appropriate franchise committee. That was an interesting anecdote that a friend of mine relayed to me about an investment that Morgan Stanley had made in African exchange. They had put about $30, million dollars to work and then one of the heads of state it turned out was actually engaged in graft and if this came to the attention of Morgan Stanley’s franchise committee and they told him to sell their $30 million-dollar stake to the other investors in the company for a dollar, just get out of it. Because the width of scandal and the potential for Morgan Stanley’s name to get dragged through the mud was seen as so concerning that it was better off just a gift that $30,000,000 stake to Africa.

So, when do you fully adopt? Well, big forearm is going to look at it and they want to understand that it’s been completely directs that the legal framework is completely established. I think we’re in the early throws of that happening. People are applying securities law is they got to see that the technology is proven. That there is than adoption in the marketplace. Others have become the proverbial Guinea pig and that nothing has blown up. Others have been the proverbial penguin at the edge of the ice flow. Ones jumped into his, jumped in threes, jumped in, and guess what? No sharks are eating penguins. And that’s how we look at it in this industry.

There’s also something driving in the background which is the competitive threat reaches a tipping point. If I have 18,000 retail financial advisors at some of these big firms do, I’m going to be concerned about token assets and crypto and being held outside of my firm because I will start to lose. If those capital flows start to move into crypto and my firm doesn’t accommodate Crypto, at some point I’m going to see an erosion in assets under management, which is obviously going to threaten my core business. So at some point that phenomena, if it gets large enough, is going to force me to have to shore up my flanks and to figure out what the solution is so that my customers who now are dabbling, we’re engaged in Crypto, can hold their crypto assets, their securities as tokens, their tokens are securities, anything of that ilk within the confines of be at Morgan Stanley, Wells Fargo, Bank of America, Merrill Lynch or UBS I just named off some of the bigger retail houses in the country.

You also have you’re going to reach a tipping point at which point certain institutional investors want to come into the market. Right now, I think that the major a blockage is custody and then they can’t take the risks that somehow, they’re millions of dollar’s worth of crypto assets somehow go poof and can’t be replaced. when we go back to the core foundation committee, I mean these are clearly things that needed to be checked off a box standpoint before that tidal wave of bigger institutional assets come into the market. I mean, does anybody know what the aggregate market capitalization of the Nasdaq and the New York Stock Exchanges Ballpark? So over $30,000,000,000,000. When we look at numbers like there were $13,000,000,000 worth of ICO or related issuance it’s really pretty trivial at this point.

So, the tsunami is where some portion of that $30,000,000,000,000 in assets in public market starts to come in and become ultimately tokenized. When some of that money, that real revolution can get down to smaller, innovative growth companies that drive innovation and a job formation can come down into smaller, earlier stage companies where the real, where the real sort of economic foundational growth and development occurs. And that’s sort of the magic of this, of a revolution is availability of capital for worthy ideas that then in turn have profound social impact. We all know crossing the chasm a, been popularized but what I would say is that bringing it back to the originals, sub title, we start with cooperation. We call it best. That’s what we do on Wall Street.

There are, if you go back, there’s a great tradition of electronic communication networks. Really, ATS is alternative trading systems. They were done sort of pass the hat rounds with major Wall Street firms, each taking a piece and driving some of their own volume through these stock markets that were being set up in the late 1990s to compete with the traditional stock exchanges. Firms like and ready if you remember some of those names, Dave Tech, I think was one of them. You then sort of move into a more uncomfortable sound where there is cooperation that we’re starting to accept the technology more broadly at the larger firms and we’ve now got to stake out how we’re going to defend our flanks until finally it becomes absolutely seamless. It’s fully adopted and we’re back to just beating each other’s brains out, trying to get the books on a deal for the sake of argument.

That tends to be the adoption cycle. And I, I think that what I’ve tried to line up is that competition and full adoption, it’s really at the late majority stage. This is a derisked part of the market. The co-opetition may be in the latter part of the early majority stage and we’re in the cooperation phase right now, which is really before it starts to cross the chasm. So, I’m picking up on a couple of slides here that I wanted to focus on. What our securities tokens I wanted to add to this is in terms of discussion, I mean there has to be securities tokens that are fully SCC registered and meeting exchange listing requirements at some point. I mean I’ve had the conversations with the guys that are running listings review at some of the major stock exchanges.

They’ve, if you looked at the template of announcement recently, they actually got a cusp number, which is the identifier for Tokens as securities. And so, all of these kinds of traditional vestiges check the box that are actually required, are starting to kind of come into place so that we can ultimately treat these things as being largely indistinguishable from a, from traditional securities, at least from the standpoint of regulation. You are going to want to have a token that’s listed that enjoys preemption of state blue sky. And right now, there are only two national stock exchanges in the United States that confer that advantage there, the New York Stock Exchange and Nasdaq. The significance of that is if you don’t preempt state blue sky, then you have to register in each of the 50 states in order to allow folks to solicit trades. And what you find is that in this country, that most of the big firms by policy do not allow their brokers to solicit trades in the aftermarket.

If those securities are not enjoying a national securities exchange exemption, those securities have to be listed. As we think through these issues, and I’ve seen from I’ve heard from the people that are running listings that they’ve received, for example, a securities that are convertible and underlying tokens and I’m not sure that any of them have actually gone through and been approved at this point, but the significance of that is, is that there’s a for a listed company on a major exchange, there’s a transfer agent requirement. Of course, the black may obviate the need for a transfer agent, but they’re very slow on the regulatory side, very risk averse, very concerned about if we say that, that’s okay, then what are we giving up? And so, we know that there’s been discussions going on at the SECC to address exactly that problem, that concern. It’s going to take some time, but I would expect it to happen.

So, a little bit like manifest destiny. Why? Because look at the SECC chair and I want to take a second, just tell you a little bit about SECC chairman, Jay Clayton. I met with him on the 18th of September in his office. I’ve known every SECC chair going back to Arthur Levitt. That includes Arthur, I met with Christopher Cox. He was a congressman, a Harvard law educated but didn’t come from the deal business, if you will. Harvey Pitt who had a reputation for really doing more work with the accounting firms broadly and worked with Harvey on 9/11 and he was actually very instrumental to getting the stock market’s reopened when I was vice chairman of Nasdaq. I knew Mary Shapiro. Mary was the head of a dispute resolution at the NASD which then became FINRA.

Worked for Bob Glauber. I was at Nasdaq when she was there. Nasdaq had of controlling an NASD at a controlling stake in Nasdaq at the time. So, we knew each other fairly well. A great public servant Mary Joe White, who I adore, she was on the board of the major bracket, Wall Street firm I was on for a period of time, and then a Will Simmons who was the CEO of Nasdaq, brought her onto the board of Nasdaq. I know her husband John White, who headed the division of corporation finance at the SECC.

Mary Jo as a public service been in public service at least three times. She’s the head of the litigation practice at a voice. She was the US attorney that put the blind cleric into jail. A real patriot. But again, look at Jay Clayton. Jay comes from Sullivan crime while he has done a bazillion deals. He’s worked with equity capital markets professionals. When you walk into Jay’s office and you talk about syndicate process and allocating institutional investors and how you actually bring an aftermarket order out of that allocation process he could run an equity syndicate department. I mean, he has a level of granular knowledge which we have never enjoyed at the SECC about capital formation, and so I think he’s going to be end up being, I hope, a very important leader at this particularly sensitive time.

He says that there are two principles. This is Nashville speech which is focused on capital formation. I call your attention to it because it tells you a lot about the leadership of the SECC right now. Two key principles the SECC is followed for many decades. One, to embrace new technologies that cut costs and provide new investment opportunities. Ding, Ding, Ding, right? Is that not the securities token market and continuing to require that our retail investors have access to material information necessary to make an investment decision, including the key risks involved as well as other fundamental protections. This is exactly why most of the ICO is that were done early on in the process. You have created a lot of angst and an increasing flood of prosecution.

Sort of clean up because they did not respect investors in the sense of disclosure. There was not a lot of material information. If we went through early white papers, there were no risk factors sections. what I would urge everybody is don’t get caught up in the weeds of trying to determine whether or not something is a security or not. There are basic fundamental principles at work here and one of those principles is, yeah, have to respect the people that are investing in these securities. You have to give them an attractive deal. It has to be well thought out and articulated. You can’t screw retail investors and you have disclose and if you do those things, you’re going to be in much better stead. And anybody that does it frankly deserves to be on the end of a subpoena. Anybody that does it. He also in this in his speech expressed concerns about improving capital formation in both public markets and private markets.

And I’m going to tell you that getting more capital down into earlier stage companies broadly is an absolute national imperative in order for us to be able to compete globally. This has been some of the core part of the work that I’ve done down in Washington where we actually, if you go back to 2008 first documented that there’s been a decline. There was an absolute collapse in the small IPO, defined as companies under $50,000,000 in size and then there was a collapse in the number of listed companies. We went from 9,000 publicly listed companies in this country down to $5,000 and meanwhile other countries were growing in terms of their numbers of listed companies and so this is the kind of thing that we have to fix this. A nation. It’s so important to actually convince folks that you know that if you’re making markets that create an ECO system with adequate economic incentive for more people to get involved, to provide the value that’s required to make markets and securities to take them public. Whether their tokens are securities or we’re playing old securities that is actually a foundational element that’s required to allow the next generation to thrive and prosper.

To talk quickly about a liquidity, this was again, Aubrey’s slide speed efficiency and liquidity. Liquidity is a little arcane. There’s a lot of people that are running around saying, if I tokenize things that there’s going to be spontaneous liquidity, that is going to create a valuation increase in its own right. It’s absolute nonsense. Take it from somebody who had worked as vice chairman of the Nasdaq stock market and if you go down the market cap spectrum, there’s a world of difference between large cap stocks and microcap stocks and nano cap stocks can talk about that in a second, but you know, one thing it will do, particularly in private markets is it’s going to take a lot of the constipation and inertia and processing costs in private markets out of the system by automating such things is know your customer checks. A Patriot Act compliance, which is largely focused on anti-money laundering and financing of terrorism and all this what we talked about, which was cross-jurisdictional compliance or interoperability if you will.

But what it’s not going to help is what we see. What academics call asymmetrical order book tokens were securities. It’s most of the work’s done insecurities where you’ve got a big seller and no buyer, and the typical condition is I’ve got I’ve got $500,000 worth of tokens on something that’s trading maybe $5,000 worth of tokens a day. Let me tell you, that’s not going to be liquid unless there are liquidity providers, and these are not ATS’s. Those are trade facilitation platforms. It’s not stock exchanges. Those are trade facilitation platforms. Those are people that are doing research. They have a view on the value that then in turn have salespeople that can call customers and create buy orders to offset sell orders. At that point in time when it’s required, it’s still a people intensive business and that’s the part of markets which has largely been collapsed out with this sort of maniacal focus on low cost trading, which may work for innately liquid securities, sovereigns, so on and so forth, but it’s an unmitigated disaster for microcap securities in tokens.

So, you’re still going to need sales and distribution. You’re still going to need research, you’re still going to need an economic model to incentivize ECO system investments, which are smaller middle market investment banks. Core foundations very quickly one of the things that I want to stress here is it’s important to get right, but there’s a major advocacy pro as an educational process that I think is critical people down in Washington. I think that the security token, a foundation industry is going to be able to lead. Aubrey is going to help us to be able to lead. I think it’s one of the things that’s a core competency of mine, but we’re going to have to take lots of policy makers would be they at the SECC were down on Capitol Hill and we’re going to have to educate and there’s going to have to be a legislative agenda over time to make sure that we get this right. And so, I would add to this list, a traditional core foundation includes public policy. Can’t ignore that outreach aspect of it.

And this was, I guess it was September 19th. This is a letter that I had handed to the FCC chair when I saw him, which was entitled Fixing America’s IPO markets. Why this is essential to know US national interests and jobs act four point now and what we’re talking about. That was just an act that was passed through Congress called the House of Representatives called the jobs act. 3.0 is a 32 piece and it sort of Omnibus Act. It passed the house 410 to four overwhelmingly bipartisan. Where it goes, if it goes to the Senate, I don’t know, but what we’re going to start to talk about down on the hill and frame is this notion of aftermarket, an aftermarket liquidity, which is probably the if you will, the blockage that we have to really unleash the, the next wave of innovation in this country and get more money down into the hands broadly of entrepreneurs, be it through a security tokens or traditional securities.

I hope all of you play a part in that. I appreciate the time and I appreciate the major amazing job in leadership that Aubrey’s doing kind of convening everybody and getting folks to focus because I do agree. I do believe that we’re going to be much better off in the end product is going to serve the country and terrific status as a result of this leadership.