Cromwell Coulson Q&A with the Capitol Account, Originally Published February 21, 2025
Friday Q and A: Over the past four years, relations between Wall Street traders and the SEC hit what many say was a historic nadir. Financial firms were largely on the defensive, fending off dozens of aggressive rule proposals that touched all corners of their businesses. The agency, executives argued, rarely bothered to listen to concerns – or heed warnings about the potential market disruption.
With Republicans now in control in Washington, there is a reset underway. The SEC’s rulemaking flurry is being replaced by a directive to cut red tape and ease industry burdens. Spurring capital formation is at the top of the agenda. That’s an issue that Cromwell Coulson, the CEO of OTC Markets Group, has been advocating on for years. His firm operates the main trading platforms for over-the-counter securities, where thousands of small public companies get their start.
Coulson has long argued that reducing the complexity of regulation benefits the entire marketplace – and can be done while maintaining investor protection. His own company, he says, provides a good example of how the SEC should work. When he bought OTC Markets in the late 1990s, the agency allowed it and other new venues to develop with light-touch oversight before adjusting the rules as trading technology evolved.
Read on for his thoughts about what went wrong under Chair Gary Gensler and how the commission can change course. What follows is our (lightly edited and condensed) conversation.
Capitol Account: How did you get into this business?
Cromwell Coulson: I worked for a large market maker. Back then, over-the-counter trading was on something called the OTC Bulletin Board, operated by [the National Association of Securities Dealers] and the Pink Sheets. The Pink Sheets was as buggy-whip a way for a market to work as could be.
CA: How so?
CC: There was this publisher called National Quotation Bureau who owned the Pink Sheets. I hated the way it worked because the regulations only required that brokers call three other market makers to get a quote. And often we would miss trades because we were the fourth or fifth call. There were firms much better at getting the call, and there was no price transparency to drive trades to us.
CA: What was your plan to fix the situation?
CC: I got all excited and I called Michael Bloomberg – you could call him in those days. I said, `You need to buy the National Quotation Bureau and put the Pink Sheets on your terminal.’ I loved the Bloomberg terminal. It had so much better data. But he said, `That’s the dumbest idea I’ve ever heard,’ and hung up.
CA: You obviously didn’t agree because you decided to buy it yourself.
CC: I did, with a bunch of great value investors…The idea was just really a quick fix: close the printing plant, put it on screens and improve price transparency. Make the data available across the Bloomberg and the Reuters terminals of the world so that you open up the market.
CA: When is this?
CC: The spring of 1997…At the same time, Nasdaq went from being what was called an automated inter-dealer quotation system [to] becoming an exchange. I looked at it as there’s an opening…in the capital formation stack to be that market for everything else.
CA: Take us up to the present.
CC: Last year we had $478 billion of trading volume. The majority is in international securities, yet we have hundreds of community banks that we offer a low-cost public market for [their shares].
CA: Part of the story of OTC Markets is that the regulation grew with the company. You’ve argued that this kind of oversight should be a model for how the SEC operates.
CC: We were really lucky because when we went electronic, the SEC at the time didn’t impose huge regulatory burdens on us. They had regulated different Alternative Trading Systems and [Electronic Communications Networks] through no action letters. And they didn’t even require a no action letter for us at first for going real-time with firm quote prices. Then we added trade messaging, and again, it was a reg-light approach.
CA: Today the SEC oversees trading venues like yours through a broader regime known as Regulation ATS. And it has updated the rules as the markets and technology have evolved.
CC: The building up of Reg ATS is a superb example for any type of rulemaking, because for the first 20 years or so the SEC gave exemptions to what didn’t fit…By the time they were ready to write Reg ATS they had a lot of experience with these systems and how to regulate them.
CA: Was it an easy process?
CC: It wasn’t all champagne and roses, date night with the SEC. There were disagreements with the staff and there were blunt differences, but we got there. I have so much respect for the SEC staff when they’re working through hard problems.
CA: Market participants seemed to not only disagree with Gensler during his tenure, but also be openly antagonistic. What happened?
CC: One of my biggest frustrations with the Gensler era was everything was run out of the chairman’s office. So we lost a lot of the staff knowledge.
CA: How should things work with the SEC in your view?
CC: As an industry person, a commercial operator, I’m not going to be in total lockstep agreement. However, there has to be that candid conversation when we all identify a problem we need to solve. We need to be like divorced parents who both love their child – which in this case is markets and capital formation – and we want to make the right decisions for the long term.
CA: What should the SEC be focusing on now that Republicans are in charge?
CC: We need [more companies] going public. That’s the number one change in my mind. We need to make being public more popular than being private…With democracy and capitalism, it’s fantastic when large corporations are transparent, have sustainable governance and the average citizen can buy shares as an investor.
CA: Many Republicans have been saying that the SEC neglected this part of its mission – promoting capital formation – under Gensler.
CC: I found it funny that Gensler – I’m pretty sure he was a media investment banker, that was his core skill when he was on the street a while ago – did nothing for making capital raising more efficient…How do we make being public the preferred path? By adding advantages versus being private. That’s very different than the Gensler era where private companies had no ESG obligation and public companies got a big ESG obligation [under his climate disclosure rule].
CA: What can the SEC do proactively on capital formation?
CC: The most important thing is really expand the use of shelf offerings.
CA: That’s a process that not many people are familiar with. How does it work?
CC: If you are a `Well-Known Seasoned Issuer,’ which is a very large company, the SEC allows you to raise money by selling shares instantly into the market through a broker. We need to vastly expand this to all companies trading on exchanges and OTC markets. Right now, the regulations force smaller companies to raise capital privately at a substantial discount to their public market price.
CA: Another way to boost capital formation that some lawmakers favor is passing legislation to set up `venture’ exchanges for early stage companies. What do you think?
CC: That’s a really dumb idea that just keeps moving around Washington…Basically it gives a trading monopoly to an exchange…It also holds brokers hostage for where their orders go.
CA: Is there a better solution?
CC: We have a different view. We support diverse choices and healthy competition for trade executions. We also strongly disagree with the suggestions by stock exchanges that trading in smaller companies should only take place on one exchange. To have more successful small public companies, the fix is to lower the cost of being public and increase the opportunities to raise capital.
CA: How do you think the commission will change under Paul Atkins, Trump’s chairman nominee?
CC: I’m incredibly hopeful because capital raising and capital formation and making being public more popular is back in the conversation. And Atkins, as a commissioner, was a very pragmatic, thoughtful person. Having been out in the private sector, he has a much better idea of how things work – and where modernized regulation is needed, where enforcement is needed, where [rules are] just adding unnecessary cost and complexity.
CA: What should he prioritize?
CC: He has a big list of things to address. If you look at the Trump administration directive, for every rule you add, you need to remove ten. That’s a pretty high KPI [key performance indicator].
CA: What are people in the markets looking for?
CC: For the industry, the question is: can [the SEC] streamline rules? Can it reduce drags, can it pull things back? A second part, which is much easier, is [reviewing] the staff guidance. There’s a lot of staff guidance that’s come out and the industry [wants to know], does this really matter? And a third is exemptive relief. That is a big opportunity, and especially in the crypto world.
CA: How so?
CC: I think Gensler’s mistake in the crypto world was he didn’t issue exemptive relief to bring the lawful operators into the regulated system. There’s no path in.
CA: What does exemptive relief do?
CC: Exemptive relief says, okay, you’re a platform trading digital asset securities…we’re going to exempt you from all these [regulations] that don’t matter…Our ATS has a license to trade digital asset securities. At the same time, we couldn’t get a license to trade digital assets that are not securities. That is kind of ludicrous because brokers can trade currencies, and there’s rules that work for it.
CA: What about on the enforcement side?
CC: I think rolling back some of the regulation by enforcement initiatives at the SEC presents a huge opportunity.
CA: This has been a big issue in the digital assets world. Are there other examples?
CC: Here’s a simple one. There was a case with a huge fine brought against a big bank [in 2021] for not retaining text messages. Then [the SEC] came along and hit every other firm…There is a rule about your business records, some of it is keeping trade books, orders, advertising, communications to the public. Traditionally, we have not forced brokers to record every phone call, every Zoom call…However, enforcement came out and said, everything now needs to be retained – even if your broker or investment advisor wants to play golf with you on the weekend. It became this huge drag on firms’ infrastructure because now you have to buy a system to collect all these things. You have to have a compliance team that looks through all this stuff. It’s also a big invasion of privacy.
CA: The SEC has settled these off-channel communications cases with dozens of firms. You think it has been overkill?
CC: If an order comes into a system, we’ve got the records. [To find] the bad business that people are doing, you don’t need to look through the 99.99 percent of lawful, innocuous private texts. This is an area where the SEC expanded, through enforcement, a books and records rule and a customer written communications rule to create this big regulatory drag and pain point on the industry.
CA: What do you do when you’re not running your business or advocating for free markets?
CC: Well, it’s not fun, but raising twin teenage boys and setting them on the right course to be decent humans is, I think, going to be satisfying in the long term. And second, I’ve always found that successful executives need some diversions.
CA: What’s yours?
CC: My latest technology-driven diversion is wing foiling, which is a surfboard with a foil and a sail you hold. It can get you going about 30 knots across the water and you feel like an America’s Cup racer.
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View Cromwell Coulson’s most recent blog post here.
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