CNBC News Releases

CNBC Transcript: SEC Chairman Jay Clayton Speaks with CNBC's "Squawk Box" Today

WHEN: Today, Thursday, June 6, 2019

WHERE: CNBC's "Squawk Box"

The following is the unofficial transcript of a CNBC interview with SEC Chairman Jay Clayton on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Thursday, June 6th. The following is a link to video of the interview on

All references must be sourced to CNBC.

ANDREW ROSS SORKIN: Welcome back to "Squawk Box." This morning, the Securities and Exchange Commission voting to approve a new rule that would call for brokers to act in the best interest of their clients when advising them on investments. The decision coming one year after regulators first proposed those changes. Joining us right now is the "Squawk" newsmaker of the hour, SEC Chairman Jay Clayton. We're thrilled to have you here this morning.

JAY CLAYTON: Thanks, Andrew.

ANDREW ROSS SORKIN: Tell us about this new rule— what you think it means and we'll get into some of the debate about it.

JAY CLAYTON: So, look, there's a lot in this new rule package. It's thousands of pages. But let me summarize the three key things. The first is: we're raising the standard of conduct for broker dealers. The obligations that they owe to their clients. The second thing is: we're covering more of the advice spectrum. And one of the things we're covering that's key is account type. When you're rolling over your 401(k) into a different type of account, that advice is now covered by our Standards of Conduct, whether you're a broker dealer or an investment adviser.

ANDREW ROSS SORKIN: And so, before this there was no standard?

JAY CLAYTON: You know what, it wasn't clear enough. It wasn't clear enough that when someone was telling you, "Hey, you have a lot of money in your 401(k), you've saved it for 30 years, this is what you should do with it," it wasn't clear that that advice-- whether you go into a brokerage account, an investment advisory account -- was covered by our Standards of Conduct. That's one of the most critical decisions an investor makes and that needs to be covered. And then the third thing that's important is: we're making it so if you're at a broker dealer or investment adviser you have got to tell people how you make your money.

BECKY QUICK: Now, very quickly, the ECB leaving rates unchanged. That's what we've been anticipating, but just to get it out there: ECB leaving rates unchanged. We will hear more from Mario Draghi a little later and we'll be updating you with that as well.

ANDREW ROSS SORKIN: So, just to get back to this point and this is the thing I never understood, what is the difference between working in my best interests and the fiduciary rule or in my -- to have a fiduciary duty to me?

JAY CLAYTON: Okay. Let's talk about what a fiduciary duty is. Now, there are all types of fiduciary duties, but I'm going to talk about the investment adviser fiduciary duty. It's a combination of care and loyalty. You owe somebody a duty of care and you can't put your interests ahead of their interests. Best interest on the broker side has many of the same elements. But we want people to understand that the investment adviser space and the broker dealer space and are different. They're very different in the way people get paid. In the broker dealer space, you get paid usually a commission on a transaction by transaction basis.


JAY CLAYTON: In the investment adviser space, it's more of a long-term relationship where you get paid, you know, on a quarterly fee, you pay a quarterly fee, you pay a yearly fee and the adviser has a, I would say a more portfolio lifetime relationship with you. Those are two very different relationships and we want to be clear.

KEVIN O'LEARY: Can I ask you a question on behalf of the advisory industry? I'm a participant in financial service. The number one growing cost we have is compliance. There's nothing that's inflating faster than the cost of complying. And I'm not whining. Not to the Chairman. I'm just asking --

JAY CLAYTON: You can whine.

KEVIN O'LEARY: Okay, let me whine then. So, you talk about 1,000 new pages. That's going to cost me a lot of lawyers to go read that and figure that out and then actually put it into play and maintain it to stay compliant. I have to stay compliant. I want to stay compliant. Are you stifling innovation a little bit in the broker dealer space by making it so expensive to just stay alive?

JAY CLAYTON: No. No. Look, I think what investors need to know is how much of their money is going to work for them. And the key part of this rule package is, whether you're an investment adviser or a broker dealer, you're going to have to be very candid with them how you're making your money. And look, I don't— you do a good job managing money, you should get paid. But your investor should know –

KEVIN O'LEARY: We agree on transparency. It's how you maintain that transparency and the cost of doing so. Because our cry, if we're going to whine, is tell us what we have to do but make it easier for us to do it. That would be great.

JAY CLAYTON: And we're trying to do that. We're saying, 'Put it on two pages.' If you're both an investment adviser and broker dealer, put it on less than four pages. Tell people how you make their money. Tell them what your conflicts are. And they can make good choices. Look, you know what's happened in this industry? The power of competition has inured to the benefit of investors so much. I mean, when we all started in this business the drag for a retail investor was 2, 3% a year. You know, if you invest your money in index funds these days, we're talking 10 BPS. I mean, people are putting an extra 2.5% in their pocket every year. That kind of competition –

KEVIN O'LEARY: That's forced consolidation. You can't start a small business anymore –

ANDREW ROSS SORKIN: But Kevin, on the other side of this and Chairman, I want to ask you about this, there are people think this rule does not go far enough. I mean, that's the flip side of this. This is Rick Flemming, the SEC's Investor Advocate, who says: I anticipate the same confusion will exist a decade from now. The commission had an opportunity to help investors by brightening the lines between investment adviser and broker dealers but instead they have formalized its long-standing acquiescence to the preferences of the brokerage industry. Tough stuff.

JAY CLAYTON: Tough stuff.

KEVIN O'LEARY: Well, you have to serve both markets, I guess. You have to listen to that criticism and then you've got a guy like me whining about costs. I get it.

JAY CLAYTON: Look, if you don't like criticism, you don't take this job.

KEVIN O'LEARY: No, I get it. We have to ask you about crypto currencies.


KEVIN O'LEARY: Where are you at on that? Because so many people want this to become a regulated space so that we can issue ETFs and do all the things we can do. And yet there's been a real resistance. The tonality –

JAY CLAYTON: We're talking -- let's level set. We're talking about crypto currencies. We're not talking about tokens that are securities. We're talking about –

KEVIN O'LEARY: I agree with you on that. To me, that's garbage, that stuff. I'm talking about doing an ETF of a bundle of cryptocurrencies and having you say, I'm willing to—

JAY CLAYTON: We're engaging on this. But there are a couple things about it that we need to feel comfortable with. The first is custody. You know, custody is a long-standing requirement in our markets. That is, you know, if you say you have something, you really have it.

KEVIN O'LEARY: So, then you're treating it more like a stock than a currency.

JAY CLAYTON: When we get into the retail space, custody is important. The other thing that is important is you look at the trading of these crypto currencies and our retail investors look at that and say, 'That looks like a stock or a bond that trades.' We have sophisticated rules and surveillance to ensure that people are not manipulating the stock market. Those cryptocurrency markets, by and large, do not have that. And we're working hard to see if we can get there, but I'm not just going to flip a switch and say, 'This is just like stocks and bonds.' Because it's not.

BECKY QUICK: Mr. Chairman, Elon Musk is an interesting guy. And I haven't seen him Tweet anything that I thought was inappropriate since your last settlement, but I do keep seeing these emails that he sends to his staff that gets leaked out saying all kinds of positive things or tough things that are coming out there. What do you think about Elon?

JAY CLAYTON: So, look, I'm not going to comment on a specific matter or specific -- I try not to comment on specific companies or specific CEOs. But let's just be clear. When you speak to investors and you're a senior part of an organization, you have to be candid and you have to, you know, you have to be fair.

BECKY QUICK: Do you think that there have been situations where that's not the case? Do you think you have to be very vigilant?

JAY CLAYTON: Oh, I think we always have to be vigilant, you know. And I think most public companies are very good about communicating with investors.

ANDREW ROSS SORKIN: Let me put it into a different context. How do you feel, broadly speaking, about the business community using mediums like Twitter or other forms of social media that have either a restricted character count or things like that as a means of communication?

JAY CLAYTON: I think it's great when used responsibly. Look, you can communicate some things in a very short burst. But things as complicated as a merger or other, you know, other things where investors want to know more, a short burst may not be appropriate.

BECKY QUICK: Are there a lot of actions that you feel like you have to go around chasing this or is it a rare case where you actually feel a CEO is misusing it?

JAY CLAYTON: Look, it kind of comes and goes. But I think -- let me say this, I think our public companies understand their obligations to shareholders. You know, we scrutinize them. When people make mistakes, we enforce our rules. But I have been lucky to travel the world in my job. We do do it better here than anywhere else. The amount of transparency, the – I would say the quality of the information. These are the best markets. There's no doubt.

KEVIN O'LEARY: I would agree with that. Just look at market capitalization. More people are more comfortable with more money here than anywhere else on earth. So, you're doing a hell of a job. But still, I like to whine once and awhile on cost.

JAY CLAYTON: Whine whenever you want. Look, we're open for business. If people aren't telling us what's wrong, we're not doing a good job.

ANDREW ROSS SORKIN: And just to bring it back to where we started -- you know what, we're going to run out of time. Because we've got music playing. I was just going to ask, what do you think the long-term impact of the new rule, because you have been working on this the last year, will ultimately be?

JAY CLAYTON: I think investors are going to have more protection. There is going to be more -- there is going to be more transparency. And that comparison shopping is going to continue to drive prices down for investors.

ANDREW ROSS SORKIN: Okay. Chairman, great to see you. Thank you for joining us this morning.

JAY CLAYTON: Thanks for having me.

ANDREW ROSS SORKIN: We appreciate it.

For more information contact:

Jennifer Dauble
t: 201.735.4721
m: 201.615.2787

Emma Martin
t: 201.735.4713
m: 551.275.6221