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.
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.
Hi, I’m Adam Chapnick. Welcome to our new series, Global Capital Markets and Security Tokens with David Weild, brought to you by the Security Token Academy. David Weild is the founder, chairman, and CEO of Weild & Co. He’s also the former vice chairman of NASDAQ. David has spent years running Wall Street investment banking and equity capital markets. He’s also known as the father of the JOBS Act, due to the studies that he coauthored, which led to the creation of the FAST act, also known as JOBS Act 2.0, and he continues to work to advance a JOBS Act 3.0 to support the growth of the economy. David’s company, Weild & Co., is also a gold corporate member of the Security Token Academy.
Back in 2018, the Security Token Academy hosted security token industry launch week in New York City. The week signaled the kickoff to the security token industry. Our main conference took place inside the Conrad New York. David Weild was there and delivered the keynote address to a packed house. Let’s take a look at what he had to say.
So the tsunami is where some portion of that $30 trillion in assets in public market starts to come in and become ultimately tokenized, when some of that money, the real revolution, can get down to smaller, innovative growth companies that drive innovation and job formation can come down into smaller, earlier stage companies where the real sort of economic foundational growth and development occurs. And that’s sort of the magic of this kind of a revolution, is availability of capital for worthy ideas that then in turn have profound social impact.
We all know the crossing the chasm been popularized, but what I would say is that, bringing it back to the original sub title, we start with cooperation. We co-invest. That’s what we do on Wall Street. There are, if you go back, there’s a great tradition of electronic communication networks. Early 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, so firms like Brute and Reddy if you remember some of those names. Daytech, I think, was one of them.
You then sort of move into a more uncomfortable zone where there’s co-opetition 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. 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 de-risked 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.
And now without further ado, allow me to welcome to the show, the one and only Mr. David Weild. David joins us now from New York. It’s great to be speaking with you today.
Yes. Hi. Hi, Adam. How have you been? Thank you for having me.
Thank you for being here. So let’s start with your background. Can you tell us a little bit more about yourself for everybody to understand?
Oh. I spent over 30 years on Wall Street. I’ve run equity capital markets businesses, which are those that price IPOs, follow on equity offerings. Was an innovator, actually pioneered the first shelf registration uses on overnight equity offerings and registered directs. And then, you know, followed my mentor, who was Wick Simmons, over to the NASDAQ Stock Market. Was vice chairman of the NASDAQ Stock Market for a number of years, running the listings businesses globally. Got to meet people like Steve Jobs and Steve Ballmer and Craig Barrett, who ran Intel, worked with Tom Stemberg who was the founder of Staples. So lots of fun and heady times, if you will, and then I left and started writing about market structure as it impacted capital formation and it got picked up down in Washington. Spent quite a bit of time testifying in Congress and at the SEC. That led to the JOBS Act. Founded Weild & Co., which is revolutionizing investment banking by pushing it out to the cloud. We’re up to 70 bankers now in 15 states and the District of Columbia. So having just a terrific time, working in U.S. capital markets, trying to improve them so that we get more money into the growth economy.
Yeah, it’s quite a trajectory. So let’s dive in and start with some of the basics about what we do here, the Security Token Academy. What do you, in your mind, what are the applications of security tokens? How do they fit in with today’s finance world?
Well, I think first and foremost, I think we’re going to be able to strip out costs from the issuance of securities and the trading of securities in general. When you do that, you also enable certain kinds of securities that heretofore have probably been cost prohibitive, and what I mean by that is I think the frequency of distributions can be increased very significantly. Why is that important? It’s important because retail, in particular, values higher frequency distribution. So if you look at a traditional bond, it may pay twice a year. If you look at a closed end bond fund, there are two forms, ones that pay quarterly distributions versus monthly. The monthly ones that trade on the New York Stock Exchange and NASDAQ actually traded about a 4 or 5% premium to those that pay on a quarterly basis, so I suspect that what we’re going to see is the tokenization of certain kinds of assets in a way that they will pay weekly distributions, maybe even daily distributions at some point.
That’s interesting. It’ll be interesting to see how that curve is shaped when you go from quarterly to monthly to weekly to daily in terms of the premium you were describing. What do you think about that?
Well, if you’re a retiree, you’re going to live week to week, you’re managing your budget that way, so having something actually hit your account, a distribution hit your account on a weekly basis, is something that I think that retirees would really value. So I think it will happen. I think it’s just a question of time, and I think that it will be highly valued by at least some subset of the market.
Yeah, no doubt. So why is this a preferred method as opposed to issuance of traditional securities? What benefits did the security token have over traditional security?
Well, you can hold it directly in a cyber wallet if you so choose, as opposed to, through a traditional security account, which would be held by a broker dealer. But I think that the real advantage is that there are a number of, in certain markets, there’s an application layer that is wedded to the token. And so for example, you can automate all of the legal and compliance checks that are done in private markets to be able to trade securities in private markets, stripping out a lot of the costs and some of the constipation from having tokens, or securities, if you will, move from the hands of one investor to another. So there’s a big uptick in ease and efficiency for certain kinds of applications, and so my suspicion is, is that that’s where we’re going to see most of the early adoption.
What are some of the real world uses where security tokens offer an advantage over traditional securities?
Well, if I was to apply it to asset classes, if you drive down the cost of tokenizing or securitizing an asset, for instance, we might be able to ... We’ve already actually seen the beginning of this ... tokenize a particular building, and you know, it would then allow, instead of somebody having to buy a basket of buildings through a real estate investment trust, you might be able to actually say, “Okay, here’s an interest directly in the Empire State building or in a tower, the Sears Tower.”
So you can then, the old cliche, which is location, location, location, it will actually allow investors then to put together portfolios that are very much location-based type of real estate, so for example, whether it’s warehouse facilities or multifamily residential or office properties, and so as a consequence, I think it will create greater overall efficiency of capital allocation to the real estate market. So I think it’s the beginning or the dawn of a brave new world in certain types of asset classes, as opposed to forcing you to buy a big basket of properties where you don’t have control over the actual building selection within a portfolio.
Got it. Now, when it comes to issuers, what do you generally recommend; that an issuer issue a security token or start with a traditional security and maybe tokenize later?
Well, I actually think that you really need to give the customer what the customer wants, and in this particular instance, the customer is the investor. If the investor prefers to own something as a token, you should provide them with a token option, and if the investor prefers a traditional security or electronic delivery, you should provide that as well. Right now, because my guess is, is that 90% of the market still is ... it’s easier for them to access capital and purchase securities through their security account at a Morgan Stanley, a UBS, an E*TRADE, an Ameritrade, that until cyber wallets are integrated into security accounts, that if you want to access as an issuer the full marketplace, you probably want to offer both tokens and securities. And in fact, some of the firms that are tokenizing assets are doing exactly that for their issuer clients.
So, you have your ear to the ground more than most people on this particular question, and you’re saying people should give what the customer wants. Do you have a sense if the idea of having a security token is still super off putting to a majority of investors? Are they just totally bewildered by it and want nothing to do with it yet?
Well, you know, there’s a great book called Crossing the Chasm, right? And we started out with early adopters, and we’re still pretty much in the early adopter phase. I think that until the major Wall Street firms fully embrace tokenization, I think ... and then start advocating for it wherein it’ll start to become actually common place, we won’t cross the chasm and have sort of full broad scale adoption. A lot of people, particularly older people that are skeptical of tokens, but there are also some practical problems that the SEC is having issuers work through right now, including custody, the need for transfer agents. Institutions in particular who act as fiduciaries are, in many times, standing by, sitting on the sideline, not investing in tokens until they are confident that the custody solutions are up to snuff and battle-hardened because they can’t afford to somehow lose tokens, if you will.
Yeah, that’s exactly right. I think that is exactly in line with what we’ve heard that custody seems to be the friction point, and it’s ... Well, you’re talking about institutionally, but I think also, like you said, one of the facts is that a lot of the ways this is smoothing things out for investors is it’s giving more access, but mostly to people who are accredited, who typically are older and they typically don’t understand, “How do I own one of these things?” A wallet frightens them, and custody confuses them, and so it’s sort of this loop. Do you find that investors are having that same confusion around literally how they own a token?
Well, highly sophisticated investors clearly are. The early adopters, the people that Alan Greenspan would say are engaged in irrational exuberance, jumped into the original ICO wave, caution to the wind. They wanted to get in on the new-new thing, and some of them made out like bandits and some of them I’m sure lost money, but then there was sort of a much more buttoned-down group that would rather be fast followers once they see that the technology is proven out.
Wall Street, just so you know, has strategic investment groups, and they’ve been making investments in blockchain technology. I mean, all the major firms, Morgan Stanley, Goldman Sachs. So, they are very clearly monitoring blockchain technology in the aggregate for what it can do to cut costs in the back office, and also from the standpoint of being applied to securities trading at some point.
Yeah. And we’ve seen a multitude of news articles regarding the SEC cracking down on enforcement of even STOs over the past year. I’m sure a lot of issuers may choose to do a token but not realize what they’re wading into. What types of things should issuers be aware of before deciding to do a security token?
Well, for me, it’s kind of a religion to go through the front door of regulation, right? I mean, first of all, don’t delude yourself as an issuer into thinking that something is not going to be deemed to be a security. Better be very, very, very clear on that. It could be a utility token, but the interest in utility tokens is not particularly high because almost by definition when people purchase something, the reason why they throw their money at it is because they have a prospect for a gain. The minute that you think that you’re going to have a gain, it’s probably going to be a security.
My advice to people in this area is either do it as a private placement, and there are two rules. They both come under reg D, 506(b), which is not generally solicited, and then 506(c), which comes from the JOBS Act, which is general solicitation in a private placement, but in that case, in both of these cases, you can only distribute to accredited investors and you can’t trade the tokens immediately. They have to be seasoned for a considerable period of time.
The flip side is you can go through the front door with the Securities and Exchange Commission to register a token offering, and you can do that as typically either an IPO, which would be an S-1 filing, or if you’re a foreign issue or an F-1. I mean, I’ve been working on the board of directors of a company that has an F-1 on file with the SEC. We’ve been in front of the SEC for 15 months right now to do a token issuance publicly. The SEC has very diligently been going through all the questions and the issues, as you would expect them to do, understanding that if they declare the prospectus effective that it’s going to establish precedence. So I think that my sort of view is that the SEC is very serious at allowing this technology to come to market, but only when they get comfort that they can protect investors adequately, and that means checking all of the boxes on custody and clearance and so on and so forth.
So we’re going through that process right now. My suspicion is, is that in the not too distant future, you’ll start to see some public token issuances where tokens are indeed securities.
So now that we know what security tokens are and why people choose to use them, can you explain how this is going to apply to public markets?
Well, there was a point years ago where all securities issuance were done as physical stock certificates, and then the way that investors invested in securities became mostly electronic. In some instances, you can still get a physical stock certificate. And there was a crossover point, if you will, or a transition period where we went from all stock certificates, which everybody was comfortable with, to, in some instances, a global electronic settlement where there are no physical stock certificates. I think that that is exactly what’s going on with tokens, where you are ... In some instances, people want to own tokens, or they don’t want to own tokens, and that we’re going to go through a transition period where more and more of the market will move from traditional electronic delivery to issuance and holding of tokens. And in fact, I think that the major, if you will, custody and clearance organization, which is the Depository Trust Company or DTCC, that indeed that they will be offering blockchain solutions, and potentially even acting as a transfer agent.
So it remains to be seen, but I think that this technology is going to be gradually moving into the mainstream, but it may take a while. It just makes, it makes too much sense to get right. It’s going to cut a layer cost out of the equation, and I think, even as SEC chair Jay Clayton has said, that there’s a long tradition at the SEC of embracing new technologies to cut costs to deliver, if you will, advantages and improvements to investors.
Yeah. God bless. So how about tokenizing assets? Are you seeing an uptick in the tokenization of things like ... I mean, we’ve seen commercial real estate. Is there anything else, or including that? What are you seeing?
Wow. You know, we are seeing all sorts of innovation being attempted. I mean, I’ll give you a couple of cases in point. I mean, there’s discussion around taking music portfolios and the cash flows associated with them, like the once famous Bowie Bonds.
The Bowie Bonds, right.
Yeah, the Bowie Bonds, and securitizing those cashflow streams so that then you can make an upfront payment to the artist in one lump sum. Or, for instance, tokenizing artwork. Wouldn’t it be interesting to be able to have an interest in a van Gogh, and you diversify your portfolio that way.
Now, there’ll be a lot of sort of tax and related issues, but there are certainly people out there that are thinking about doing that. The other one, and again, employment law and other things not withstanding, there are folks that are looking at tokenizing interests in the career earnings of, for instance, a professional baseball player.
Makes sense. It’s another version of the Bowie Bond. I like the art example, except I always wondered, well, when do I get the van Gogh? Is it on the third Thursday of every month, or, you know.
Well, you get an interest in it. Right? And you get-
Yeah. I don’t get it in my living room.
Yeah. Well, that might be outside the scope of tokenization.
Yes. Agreed. Too bad for me. All right. All right, any updates you want to provide our viewers with on you and Weild & Co., anything new coming down the pipe?
Well, I mean, we’re growing. We’re in 15 states, and we want to take Wall Street to Main Street. I like to say we’re constructive, we’re constructively disruptive in the sense that we think we’re going to take a lot of people that have been sitting on the bench, that left Wall Street to have kids or last child is in first grade and don’t have a path back into Wall Street, the option is to be the 60th residential real estate broker, but they can run an M&A process with the best of them, and I want to take that woman and reengage her for the benefit of the growth economy. So we’re pretty excited about where we’re going.
There was a massive, if you will, collapse in middle market investment banks, and so the middle market and growth economy in the United States is really, really, really under-banked at this point in time. We’re intent on creating an army of high quality investment bankers and professionals that in a network, as we push it to the cloud, can actually collaborate for the betterment of the growth economy.
It’s interesting, Adam. If you look at U.S. Census Bureau data, the number of startups in this country has actually dropped off a cliff in the last 10 years, and we think that that’s related to sort of broader access to capital issues and investment banking and loss of investment banking in the middle market, and also the fact that the IPO hurdle was taken way up and the people don’t do IPOs for the most part unless they’re over $100 million, whereas market structure supported when I first got into the business doing $10 million IPOs all day long. Inflation adjusted, that would be maybe a $20 million IPO today.
So I think that there’s a great opportunity for us to build a massive business at the same time that we contribute greatly to the U.S. economy, to employment, to innovation. I mean, everybody I think understands, at least economists do, that almost all jobs and all quality jobs are created by entrepreneurs. And so if we don’t, as a country, figure out how in general to do a better job of getting capital into the hands of qualified entrepreneurs, the very competitiveness of the U.S. economy is going to be put into jeopardy.
I love it. So lastly, let’s bring it back to the security token world. Where do you see the security token industry heading in the second half of 2019, especially in regards to regulations and the proliferation of STOs?
Well, I think you’re going to see the first public registration statements actually declared effective with the SEC, and I think that that will be an inflection point for the industry. It’ll take a while for others to jump on board, but as you can imagine, if the SEC has vetted the first or second or third token offering and it’s then in the public domain, because remember, we have confidential filings in the United States, so you can’t really see the sausage making that’s going on behind the scenes, that once people have effectively a template or a roadmap, I think you’re going to see an awful lot of other attorneys jump on the bandwagon, advise clients on doing publicly registered tokens, and I think the game will be on, so to speak, and then it’ll be interesting to see just how many companies join the fray, how many investment banks join the fray.
Ultimately, the big investment banks will have to join in because it will be a competitive necessity, but they’re not going to do that until they think that it’s been adequately de-risked. I think that that de-risking, if you will, is going to happen over the next 12 months.
Exciting. All right. Well, as always, it’s a pleasure to speak with you, David.
Yeah, nice to see you.
Thanks again to you and Weild & Co. for your continued support of the Security Token Academy. You can see more of David Weild’s keynote address and much more on our website at securitytokenacademy.com. And a reminder to make sure you follow us on Twitter, Facebook, Telegram, and Medium. Also, don’t forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. A big thank you to our gold corporate member, Weild & Co., and all of our platinum and gold corporate members as well. We invite you to learn more about our corporate members by clicking on the directory page on our website. For everyone here at Security Token Academy, I’m Adam Chapnick. Thanks for watching.
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