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visit MIT OpenCourseWare at GARY GENSLER: Today we get to
explore one of the use cases where there's actually a lot of
activity going on in blockchain technology, trade finance. We also have, I
think, at least two of the groups for final
projects are doing things on trade finance. There might be some that
haven't disclosed that to me or after today
might shift to it.

You never know. And I think 8 or 10
of you actually wrote your individual pieces today. So it's 15 or 20 of you
that have been spending a lot of time on trade finance. And I think the reason is that
there's a lot of application of the underlying technology. And that's what I'm going
to try to do today and then hopefully get the help
from the two groups that have some final projects
in this regard and so many of you that wrote on this today.

I'm going to go through
readings and study guide, what is trade finance. So we're going to run through. I'm going to give you a little
sense of what trade finance is from my perspective. And then we're going to
just go into the blockchain projects themselves. So we'll skip through
these because we're going to be chatting
about what attributes that trade finance really has. Well, Alpha you have a group. What attributes
is trade finance? What attracted you to this? AUDIENCE: Multiple
stakeholders that are changing, transferring
data and information. GARY GENSLER: So two
things that I just heard multiple stakeholders
transferring a lot of data. Anybody else, what other
attributes are there? AUDIENCE: There's
a lot of paperwork that is being transferred
between the importer, exporter, and the banks, issuing
banks and beneficiary banks. GARY GENSLER: So
not only is it data, but it's still actually
a lot of paperwork. And actually often times
actual physical paperwork.

There are still
companies, I mean, they're not as persistent now
as they were years ago called document couriers
that literally brought the documents around the globe. AUDIENCE: You have
different regulations in different countries. It's hard to see and trust
one central authority that it's going to give you all
you need done on the charge. GARY GENSLER: So a lot of
different regulatory regimes.

But also different countries. So you have some
information asymmetries. And thus those issues of trust
across those jurisdictions. AUDIENCE: Along the lines
of the issues of trust, there's also a lot of
fraud with it as well, a lot of double spend
and financing issues that come with this space. GARY GENSLER: So a lot of
fraud and double spend. Or in trade finance, it
has another term, actually. Anybody? It's double financing. But it's basically the
same conceptual framework as a double spend. Can I finance one set of
goods, one cargo being shipped across the Atlantic or
Pacific, can I fund it twice? And so that's a
bit of the fraud. AUDIENCE: And also
because of the high cost, and also all the due diligence,
like small and medium enterprises have a very
hard time getting it, like because of the
financial crisis and also all the
terrorist attacks. GARY GENSLER: So do you
think that small and medium sized enterprises have a
difficulty for the reasons you just said, because of
terrorist attacks and so forth or is there something more
broadly that's going on, maybe even for centuries? New hand here.

AUDIENCE: I know it's more of
a problem like small financing that they don't have access to
the find the things they need that are required,
their business requires, the essential things. GARY GENSLER: And I can't
tell whether it's a hand up or you were fixing your hair. AUDIENCE: Um, both. GARY GENSLER: Both, OK. AUDIENCE: So I guess
I was going to say, so small businesses often
don't have the resources administratively to
deal with paperwork. So often the operational burden
becomes so costly for them, that it is no longer actually
profitable for them to trade. GARY GENSLER: And also small
businesses– you want to add? AUDIENCE: They just don't
have a credit history. So banks tend to not
want to finance them. They just don't trust them. GARY GENSLER: Right. AUDIENCE: I just want to
put some numbers to make it clear to everybody. I was looking at a study for
the Asian Development Bank saying that small and
medium sized enterprises are the most credit constrained.

Around 50% of their
demands are being rejected by banks for
trade finance, whereas 7% to multinational corporations. GARY GENSLER: So
this small and medium sized enterprises
also are smaller. They're not as well known. And trade finance, just by
definition, is cross border. It's cross jurisdiction,
cross country. How does somebody in the US
know a small business in Kenya? Or pick your countries– China and Mexico. So there is a lot of
information challenges. That's been the history of
this business for a long time. We'll hold off on
the ongoing projects. But we'll come back to that. So we had a bunch of readings. I updated this because
it's ever changing. And I hope that if
you had a chance to dig in to the Bain review.

I thought as these writings
go, it was probably a little better than some of– I'm sorry for any of you
going into consultancy, Tom. But as these things go, I
thought it was better than some of the Deloitte
papers and PwC papers that are still quite helpful. But I thought this was a
little bit more detailed. So what is the background,
the economic background? This is just from– I think I pulled this from
some World Bank figures. Worldwide exports of
goods are $17 trillion. Services are 5 or 6 trillion. But trade finance is
really around the exporting of goods more than services. I'm not really familiar with
it in the service context. And manufacturer's $12 trillion. Fuels, agriculture,
you can see that. So that's basically
the body of it. And the financing,
international finance– and I purposely use words. This is the financing
of international trade. It can come in two
different ways. One is if the bank is
guaranteeing something or the bank is supporting
it through the documents. This is the traditional
definition of trade finance.

It is letters of credits
and documentary collection. Anybody want to tell
me what a letter of– what the difference
of two things are? Since we've got a
whole bunch of people– I see a hand up. AUDIENCE: A letter of
credit is a formal letter from a bank just laying out
the terms of credit extended to let's say the next year. GARY GENSLER: OK, so it's
a formal letter laying out the terms. But critically,
what is it doing? AUDIENCE: Removes
counterparty risk. Removes the counterparty
risk away from your buyer to the bank. GARY GENSLER: So it
removes counterparty risk. It's guaranteeing payment. But there is a second
form that banks support this market
in a very big way is documentary collection. Anybody familiar with DCs? It's basically the
banks are moving the paperwork, this incredible
paperwork around the globe. And we'll dive into
this a little bit. And they're not– they're
not taking counterparty risk. The banks themselves are
not guaranteeing the credit. But they are performing
enormous services in terms of the paperwork.

And in essence, it's documents
versus performance or documents versus authentication
that goes in. A bunch of different ways. Factoring and
forfaiting, not that this is a quiz on these terms. But these are different terms. Factoring is when
you sell receivables, short-term receivables. Forfaiting is when
they're longer term. So they're kind of a
little bit the same thing. But one is short-term
receivables, short-term letters of credit. One are longer term. You can actually take
import and export loans out which are longer term. And they're about a whole
inventory and a whole supply chain. You can get financing
beforehand, supplier credit, and a new form aboard called
supply chain financing where you're really funding
the whole supply chain. But we're going to focus
primarily on the first two. And most of the blockchain
projects in this space are focusing on the first two.

But international trade
also has trade credit. What's open account? What does that mean
in any business when we're here at
Sloan, somebody? Alean I'm not going
to call on you. I'm not going to make you. Jake. AUDIENCE: Trade is that when
you ship the goods like prior to payment being due. GARY GENSLER: So? AUDIENCE: So you ship goods
prior to payment being due. GARY GENSLER: All right. AUDIENCE: The payment is
due like 90 days later. GARY GENSLER: So it's
due 90 days later. Open account is what
most businesses do. If you just say I'm shipping
something, send an invoice. And the terms might be 2 and 30. You get a 2% discount if you pay
prompt, but 30 days, just open account.

In domestic business that's
how most services are provided and goods are shipped
is open account. It's the international
export business that you find it different. Then cash in advance, of
course, is what it sounds like. And consignment is
all the other way. An exporter would actually ship. You'd put it on your shelves. You wouldn't have to pay. And the exporter continues
to have the risk of the sale. Not used a lot in
international trade. You can also get public
guarantees or insurance. So that's the whole world of
these $17 trillion of trade. Only about 5 or 6
trillion is thought to be actually using
trade credit, letters of credit and
documentary commitments, these two main things. So this ranges it. This gives you a
little bit of a flavor. And this you can think of
is what's the most secure for the exporter is over here. The exporter is going to
have the most security if they get cash in advance. But does an importer like that? Not really.

An importer really
would rather have consignment, having risk all
the way on the other side. Consignment would say the
exporter takes all the risk. So it's all about
commercial terms. But you can think of it
as the other side of this is the least attractive
for the importer is paying cash in advance. The most attractive to the
exporter is cash in advance. And every one of these
happens somewhere. In a $17 trillion market,
$17 trillion of exports, all of this is open
for negotiation. But think of the exporter
likes this curve. And the importer likes this. And as I will show in a
second, most of the market is in the middle. So now trade finance. Exporters, importers, advising
banks, and issuing banks.

And what you're going to
quickly sort of sense is, there's a lot of room maybe
for blockchain technology because there's a
lot of moving parts. By the way, normally if
you work at Wall Street or at a commercial
bank, you might never touch trade finance. It's just like a department that
if you're on a trading floor, you're not really
thinking about a lot. Who's worked on a
trading floor here? Did you ever think
about trade finance? No. But it's a big market. It's a very big market. But basically, the exporter and
importer sign a contract that's for the sale of goods. It could be oil. It could be agriculture
product or manufacturers. The importer then arranges
with an issuing bank a letter of credit. The letter of credit is
sent to the exporter's bank. Sometimes the exporter's bank
puts a second guarantee on it.

The exporter's bank might
be actually guaranteeing the importer's bank performance. So there's hundreds of
different arrangements. But the classic thing is
that the importer gets a letter of credit to say,
look, you don't know me, but you can take the risk and
I get this letter of credit. You exporter will get your money
based upon some documents, when you put some documents
together and send them to me that you've actually put your
oil or agricultural products on a ship. So shipping is a big part of it. The second piece of this is, how
did the documents actually go? The exporter then
ships something.

The shipment usually
leads to some documents. And at the time of
the shipping, you see number six in this
little box over here is, the exporter, when
they ship something, also sends some
documents to their bank. Their bank sends it overseas
to the bank in Kenya, let's say, even though that
doesn't have any ports. Ethiopia, you have ports, right? AUDIENCE: Kenya has ports. GARY GENSLER: Kenya
has ports, sorry. You're landlocked. All right, sorry. So I've got it right. So Kenya– I got it wrong. But Kenya's got ports. But the exporter, at the
same time they're shipping, will also send the documents,
but send the documents to their bank.

Their bank sends it
to the foreign bank. The foreign bank says, ah-ha. That triggers the condition
in the letter of credit. Payment will be made. And payment can be made when
you put the goods on the ship. Payment maybe is
made when the goods get to the foreign country. All these arrangements
can be different. So this gives you a
sense of the change. Letter credits were estimated
in 1970 to be about half of all of trade. Now they're about 15%. World Economic Forum
Bain papers that you all had the pleasure of either
reading or skimming or you'll read it tomorrow. But letters of credit is
a big piece of the market. Primary open account has
widened as part of the market, I think, in part because
international trade is probably more dominated
by large companies now than in the past.

And in the 1970s, even
the large companies didn't know if they
could trust each other. The larger enterprises,
larger multinationals really would prefer just
to trade on open account and extend each
other's credit rather than using the banking system
to guarantee their credit. But trade finance is still
a good call at 15% to 20%, which would still be
rather significant numbers. So that's a little bit
on the sort of questions about trade finance, how it
fits in, before we start talking about blockchain projects. I think I had one other thing. Here are all the parties
that can be involved. And just to sort
of confuse us all, here is a list of
some of the documents. And that's not even
a complete list. I went to a legal
website to find out what all the different
documents you might have.

Anybody know what a
bill of lading is? AUDIENCE: It's some kind of
receipt from the vessel carrier that is carrying your goods. And whoever owns
that bill of lading has the right to
claim the goods. GARY GENSLER: Right. So it's like a
warehouse receipt. Remember, we talked about
some of the origins of money were around warehouse
receipts because I might put my corn or wheat or
gold or bronze in a warehouse. A bill of lading originally,
though the definition is moved on over the centuries, the
original definition it was like a warehouse
receipt on a ship that you took your products or
goods and placed it on a ship.

And you had a bill of lading
because it was on the ship. And you could actually, just
like those original forms of money, warehouse receipts,
you could sell a bill of lading or discount it and
get money for it. So bills of lading
have centuries old, maybe thousands
of years of history, similar to warehouse receipts. And in essence, you
might think of a bill of lading a little bit
as a form of money. But what did I
list just for fun? 50 different documents. Alean. AUDIENCE: How easy is
it to fake one of these? GARY GENSLER: Say it louder. AUDIENCE: How easy is it
to fake one of these bills and claim someone else's goods? GARY GENSLER: Very
good question. So is was a point earlier. And again, this
goes back centuries that there's been a lot of fraud
around faking a bill of lading or a bill of exchange,
a warehouse receipt, in another effort.

So what you have is you have
a lot of forms of notary, well before cryptography,
a lot of forms of notary where various transport agents
and shippers had to really have seals and forms of ways
to say this was a committed. Leonardo. AUDIENCE: And I think
part of the problem is that each one single
piece of those documents are easy to falsify. That's why this system
became so burdensome in terms of paperwork,
because they started to build a lot of
steps to guarantee that you can track all
those things and make sure you reduce the risk. It's relatively easy to
get one of those faked too. GARY GENSLER: And it's why many
people think this is actually one of the better use cases,
better ecosystems for a revised technology similar to
blockchain or actually blockchain technology itself,
a lot of multiple parties.

And though I only listed seven,
you can have multiple banks. You can have the importer's
bank, the exporter's bank, between them you can have a
correspondent bank, right, so at least three banks in the
chain or sometimes even more. Freight forwarders,
shippers, customs agents in both countries. You have a question, James? AUDIENCE: Nope. GARY GENSLER: So lots of
parties, lots of documents, high chance of fraud. And guaranteeing
validation and verification is a big piece of
this marketplace. So then the question is, can
you put somebody in the middle? See that little blockchain
in the middle, kind of cute. All right, you're not going
to laugh a little with me. That's the question, so
multiple parties involved. Verification is critical
to all the workflows and the economics. And it relies on
significant document flows. That's the basic. And it's what– Today's lecture is
really to say well whether you're looking
at health care records, whether you're thinking
about commercial real estate, you're thinking about
internet of things, remind yourself of trade
finance because this is probably one of the best
use cases, at least for permissioned blockchains.

So you can debate
whether it could be done on a traditional database. But it's multiple parties. Lots of validation
and verification is important, an awful lot
of different documents. And there there's
property rights involved. Critically, there is
key property rights because when you're shipping
oil on the high seas or shipping any bits of that
$17 trillion on the high seas, people want to
finance against it. AUDIENCE: I have
one question for me to better understand this. How do you finance these
from sending a good from San Francisco to Boston? And the same time, why? Is it a matter of that we
need all these documents and we need to put
documents on the blockchain or can we just get
rid of the documents? Why don't we see the
same thing in intra-US? GARY GENSLER: Very
good question.

Though the word trade
finance has come to mean, for many decades, maybe hundreds
of years, international trade, the same can be true
for domestic trade, particularly as you're going,
as you said, from San Francisco to Boston. You could use a letter
of credit between a major domestic manufacturer
and a small business in Boston. So I might say, I
don't want to take– sorry, Joe Quin, but you're
that small manufacturer. You're that small
entity in Boston. And Tom's not willing to
take your credit risk. You could still want to
have a letter of credit. It wouldn't be
called technically a bill of lading if
it's not on a ship, even though that term
sometimes is used.

But everything back here could
happen in domestic trade, but usually doesn't. Most of domestic trade
is done on open account. But some of it's done on
letter of credit especially, if just small businesses. Does that help? AUDIENCE: Yes. I'm trying to think why
do we need it in one case and not in the other one? GARY GENSLER: There's more– I think it's applicable in both. It's more applicable
on international trade because you have more
challenges of trust, I would even say
information asymmetries. If you're sitting in China
and you're exporting to Kenya, you have less chance to actually
know that local community.

And your bank in China
doesn't know them either. And so what was built up to
satisfy those issues of trust is the banking sector
largely picked up that, either guaranteeing
the documents or actually
guaranteeing the credit. Hugo. AUDIENCE: There's also something
to say for like border control, right. Like, I know, in my lab we've
had like waste materials shipped to us internationally. And customs agents really
even care about that. You have to put a price on
that, even if it has no price. So like if you could just
put something on a car and drive it from San
Francisco to Boston, then maybe like, yeah. If you're driving
from Canada to the US, it would be different
from shipping it from China to the US. But I think the trust
issue comes up a lot more when you're dealing with
international and regulatory differences between
the two places.

not saying it doesn't exist in domestic trade. It definitely exists
in domestic trade. But international trade
long ago created a system to address different
languages, different cultures, different regulatory
regimes, taxing regimes. And it was going on a ship. AUDIENCE: Even more
anti-money laundering. So there is other
regulation that is part of the policy
that complicates it. One nation, a letter
of credit– you need to make sure
that you're not breaking any regulation between
different jurisdictions. Part of it will be ML as
well or ABC or whatever. GARY GENSLER: James. AUDIENCE: But, I think,
looking at that question, it seems like we are
using technology, in this case, blockchain
to fit into the existing framework of how things work.

But shouldn't the
question be flipped to say, hang on a second,
do we need blockchain in a system that
is better designed, not having 50
different documents, and actually thinking
about the actual problem. I can see the point
of the trust which may need a blockchain solution. But a lot of that– be that trucking receipts,
railroad receipts, or cargo receipts, those
are historical relics. Surely there must
be a technology other than blockchain that
could solve the problem. GARY GENSLER: Well, maybe. Or maybe blockchain
technology is just the right technology
that's coming along in the 21st century to solve
it better than initially pieces of paper and literally
document couriers that had to be trusted to do it.

AUDIENCE: They've gone
the way the dodo, right? So– GARY GENSLER: Well, they haven't
fully gone the way of the dodo. AUDIENCE: While I
think that there's much to be said about blockchain
that creates trust in parties that may not naturally
trust each other, the problem seems to me is there
is a lot of things that doesn't need to happen in this day
and age, as you mentioned, domestic mail services. It's between sender
and receiver. What happens in between is
tracked by UPS or whoever. But what we certainly don't see
is all of that list of stuff while this is happening. But it's unnecessary,
domestically, GARY GENSLER: You
might be right. But what's happened well before
blockchain technology came along is digitization. But part of the trade
can't be dematerialized. See in the securities
business, what we talked about when we talked
about clearing and settling of securities, the
equity ownership has been dematerialized.

And it started to
happen in the 1970s. The legal right that
you have this cash flow called an equity interest
in Apple is all digitized. Part of this trade is not
digitized, $17 trillion of physical goods
on the high seas. So I still think you're
going to need something that shows that the physical
goods made it on a ship or on a cargo
vessel of some sort. And so there are
some differences. Erik. Still haven't heard from. AUDIENCE: Yes. Just to address a
concern of James that many of the manual
plus the station projects fail at the beginning because
they actually did that. They kind of tried to
reflect exactly what happened in the manual world into the
digitized world, which resulted in many inefficiencies. And this is not the case. We're not actually trying to do
exactly that off line process using blockchain technology. That's not the alternative. But that actually made me think
that I wanted to point out this to your argumentative of
centralized databases. And centralized databases
have been around for more than 60 years.

They've been digitizing
manual processes for a while. The question comes is, why
didn't they already digitize these sort of problems? The answer is because
this trade finance issue has special characteristics
that make it especially suitable for it to be addressed
by these specific technologies. So that's why I
would argue that. GARY GENSLER: And what do you
think that specialness is? AUDIENCE: It's
precisely the fact that you have multiple
stakeholders dealing with information that goes
among all of these moving parts and you have a
high cost of trust. So what you're actually doing
is using blockchain technology permissioned or
otherwise to address this specific challenge. GARY GENSLER: And you have
a property right as well that people often want to
borrow still against while it's on the high seas. But I agree it may well be that
the blockchain technology is not the only solution to this. But it does feel like it's
a particularly fertile area. And we're going to turn right
now to some of the projects.

And there is a lot of
projects in this space. Alean. And then we'll go
in back to Aviva. AUDIENCE: So is the overarching
goal here to fix the fraud or to fix the complexity,
what's the goal? GARY GENSLER: Well it's
a really good question. So those working
on projects, is it more about fraud
or the complexity? AUDIENCE: Fraud. GARY GENSLER: So efficiency. AUDIENCE: Yes, the
complexity I guess is a function of the fact. GARY GENSLER: So you can you
can drive a lot of efficiency, which is due to the complexity. I think, that's one of
the overarching goals is driving efficiency, but also
to lower the fraud or the loss to fraud. It's both. But I think it's driven
more by the efficiency from my readings of this. AUDIENCE: Fraud. GARY GENSLER: More
by the efficiencies. AUDIENCE: What's the fraud rate? GARY GENSLER: I don't
know the fraud rate.

That's a good question. We'll see if we can find it
out Aviva was going to be next. AUDIENCE: So let's say that
trade finance does transition to a blockchain
and then that it's more in the private blockchain. So then how do we solve the
problem of interoperability? GARY GENSLER: Can I
hold that, because it's a very good question
that will come up when we talk a little bit
about some of the IBM projects, particularly with one
of the largest shippers? So it's the right question. But we're going to chat
about when we talk about it. Can I talk about some of
the projects or was there something? So where are we? Well, there's five
big consortium. Two of them you can
see are backed on– or working on the Corda. That was R3 Corda that we talked
about earlier this semester. Two are on IBM.

One that's on a
Ping An Group, we didn't talk about
earlier this year. So letter of credit approach. Receivables and payment
guarantee financing, which is a little bit different. This is, we already
have receivables, how do we fund them? Monitoring open transactions
and letters of credit. And then the Hong Kong group is
a supply chain record keeping. And just if you want to
see it sort of visually, this is all the banks
that are involved in each of the consortium. And you'll see basically that
there's some overlap, I think, unless I'm mistaken. I and G might be in
a couple of them. I think two of these consortia
maybe have now merged. But it goes a little bit. It's not fully going to
answer your question of Aviva. But even if there were five
different consortium trying to figure this out amongst
different groups of banks, at some point in time to
really gain a great deal more efficiency, how do they
operate, how do they transact across their platforms? Now they each, obviously, don't
want to give up economic rents. They don't want to give up
market power to somebody.

They don't want
to all of a sudden find out that some
entrepreneur is charging them so much because they created
a network, because the one consortium that figures this
out early on could price pretty close to their cost structure,
but later on could, you know, price a lot higher and
collect a lot of monopoly or economic rents. So I don't know where
this will sort out. And I don't even
know that they're going to want to solve the
interoperability problem amongst themselves. Sean. AUDIENCE: One interesting kind
of finding fault with consortia is all of the banks
listed up there, all these are Asian
bank or European bank. None of the US banks are
actually participating. I see US Bank, so one. GARY GENSLER: But do
you see JP Morgan Chase? Now, who's the largest issuer
of trade finance in the world? AUDIENCE: US Government? GARY GENSLER: What's that? AUDIENCE: It's not the
US Government, is it? GARY GENSLER: No, no, no.

I think it's– I think it's HSBC. I might be mistaken. AUDIENCE: I think it's HSBC. GARY GENSLER: You
think too, it is HSBC. But you're right. The five big– Wells Fargo
is not on there either. Now that doesn't mean they're
not working on other projects, because here here's
some other projects. And these aren't the consortia. I'm just giving us flavor. There's a lot going
on in this space. And those of you who are
doing final projects, I challenge you to think
about these projects. And say, well what are you
recommending that's different, you know. It's not just me too, me
too financial, not the other me too stuff.

India's interesting to me. There's another consortium
that wasn't on that page. And I'll probably
pronounce it wrong. "Final Cal" or "Finic Cal." AUDIENCE: Finacle. GARY GENSLER: What's that? AUDIENCE: Finacle. GARY GENSLER: Are you
familiar with that? AUDIENCE: Not much, I just
know the pronunciation. GARY GENSLER: Just
the pronunciation. Thank you for helping me out. I needed it. For validation
documents and payment, so they're not really saying
we're just trade finance. But we're going to validate all
the documents This goes more to fraud. I think this project, validating
the documents, saying, yes, they're true
and good, and you can lend against these documents. And a lot of times
these documents are the bills of
lading and bills of exchange or loan
lendable and so forth. So a lot of projects, one– I could only find and
there may be others, I could only find
one with a token. And I put it up
there last, Ethereum based ConsenSys,
the company that's run by Joe Lubin who is the
Canadian venture capitalist who helped back Vitalik
Buterin and Ethereum. ConsenSys has 300 or
400 people at least working in ConsenSys doing
Ethereum based projects.

So I was pleased to see I could
find one native based token. But to my knowledge, all of the
consortia and all of the ones I listed up there are
permissioned blockchains from what I can tell. But I'm curious, those of
you who are working on this, have you found any native
token projects here? AUDIENCE: There
is still b-verify, which is a project
from the Media Lab. It doesn't have a
native token per se, but uses permissionless
blockchain, existing permissionless
blockchain infrastructure to gain the readability
of lots of statements to build a warehouse
receipts use case.

So they are using transactions
in the Bitcoin network right now to write– GARY GENSLER: But does
b-verify have a token? AUDIENCE: No. GARY GENSLER: No token. AUDIENCE: It's
been restructured. Yeah. Yeah. GARY GENSLER: What's that Alean? AUDIENCE: I think they build on
top of our research from Cecil. GARY GENSLER: Catina? AUDIENCE: Yes. Exactly. Yeah. Catina is a person. GARY GENSLER: So is
that your research? AUDIENCE: That's right. Yeah. GARY GENSLER: That's terrific. But you're– you're– so
you're going to talk to Eric. But you didn't have
a token in that. AUDIENCE: No, you
don't need a token. That's the whole point. Like Bitcoin is out there. It's a great system.

And you can build on
top of it efficiently, providing mutability to
any permissioned app. So don't start it as a
contract necessarily, unless, I don't know, maybe
there's a need for that. But in a lot of
things there's not, like digital
identity, for example. That can be very conservative. GARY GENSLER: But if
you put a token in it and sold it right
into this bull market, I guess you wouldn't be
sitting in this class. AUDIENCE: Well, yeah. [LAUGHTER] GARY GENSLER: But I mean, I'm
glad you didn't put a token. I'm glad you're here. But I mean that's part
of– like you're saying, you didn't need it as a
technological and commercial point is what you're saying. Leonardo. AUDIENCE: I was just
going to mention, I happen to know a couple of
people working on this project. GARY GENSLER: Which one of them? AUDIENCE: The last one. GARY GENSLER: Could you
tell us something about it? AUDIENCE: Yeah, so I had to dig
a little bit into the native talking that you mentioned.

But most of the
trading firms there are petroleum based, so like
very large shippers of oil. Back to your point, bill of
lading, in the commodity space, the petroleum bill of lading
are the ones that most actively traded. And they change hands very often
while the vessel is at sea. GARY GENSLER: Actually if I can
add to this, because I learned a little bit about this when I
was in the US Commodity Futures Trading Commission. The bill of lading for
oil on the high seas can trade hands hundreds
if not thousands of times. The oil coming from the
Strait of Hormuz to Houston might change ownership in– I don't know how long it
takes a 15 or 30 day trip. AUDIENCE: About 20 days. GARY GENSLER: A 20 day trip. It can change the ownership
hundreds of times. So those documents
become tradable goods. And it's not just in theory. It's very much in practice. AUDIENCE: So the
point I was going to make is I suspect they
may be talking there must be some kind of collateralization
against those, you know, the bill of
lading from the company.

GARY GENSLER: So Alpha, who
I'm sure I remember everybody in your group, what
can you tell us about what you're working on? How are you going to
beat all these consortia? I'm thinking, you know,
your final project is going to do better than these, right? AUDIENCE: Of course. [LAUGHTER] We're taking the– GARY GENSLER: I did give these
two groups the heads up that I was going to I call on them. So this is not just– but yeah. AUDIENCE: We're
taking the approach of just being very specific. So we're focusing
on a narrow corridor between Chinese exports
coming into Ethiopia. And so one there aren't
many people, obviously, looking at that space,
at least not yet.

through the trade finance side or what I'll call the
supply chain side? AUDIENCE: The
trade finance side. And so we think it's
particularly interesting around not just
Ethiopia, but all of the sort of developing
countries in that region, because credit and finance
is already so limited. And so the domestic banking
systems are undeveloped. GARY GENSLER: Domestic
banking system in Ethiopia particularly? AUDIENCE: Right, and across
East Africa, I would say. And so the reliance on trade
finance in those import heavy economies, I
think, is even higher. So the ping point, I think,
is even stronger there. GARY GENSLER:
James, did you have a question for their group? Anybody that has questions
for the group, pile in. They'll take the advice. AUDIENCE: Not
specific on this one, but more of a clarification. So I can clearly see that
trade finance requires different parties
and the ownership of the goods at any point
in time in the supply chain is important, but– GARY GENSLER: Particularly
when it becomes commoditized, like oil and so forth.

AUDIENCE: But from
like over time– a lot of the times
I hear about people saying blockchain
using, in this scenario, there's a supply chain. Given that they're not
really exchanging it for money, are there actually
any commercial cases or use cases with genuine useful
points about supply chain being on the blockchain? I mean, tracing where
my coffee bean came from on the blockchain
is pretty useless to me. But people seem to think
about it as a great thing. I can trace back where
something came from. GARY GENSLER: Are
you a coffee drinker? AUDIENCE: Yes. Yes. Not because of your class. GARY GENSLER: No. No. I just didn't know. You could drink tea to
stay awake in my class too. AUDIENCE: But I just
didn't understand when people keep talking
about supply chain needing to be on the blockchain. I just don't understand why. Where's there is trade
finance, absolutely.

right, your solved is– wait before
everybody piles in. Does anybody have advice for
China Ethiopia trade finance? I'm going to give
everybody a chance to pile into James's question. But you're in a China
Ethiopia trade finance. AUDIENCE: Yes, I have a question
of the interoperability. I mean, what's the solution for
the Ethiopian purchasers, just have to basically buy
into whatever system these firms are using? So Ethiopian firms have
to use letters of credit. So that's a regulation. So everything is done
completely manualized right now. So we would offer just something
very, very sort of specific like an eBill of lading
or an eInvoice platform.

It could be on a smartphone. My Impression is
that it'd be easier to get the Ethiopian
firms to buy into this, whereas the Chinese firms
may have multiple options or multiple systems. So how would you approach
getting them onto your system specifically or
being able to utilize your system using websites or
whatever else they are using? So yeah, so we agree. So you'd have to get just
Ethiopian businesses and banks on the system. And so they would be sort
of our initial customers. And for any Chinese
bank that wants to do business to
export to Ethiopia, they have to go
through Ethiopian Bank. So inevitably, they'd
have to go through this. GARY GENSLER: So it
sounds like you're trying to build a solution. Your adoption is through
the importer side, through the Ethiopian
side initially. And then the Chinese
exporters would say, well this is how I get
into the Ethiopian market in a more secure, maybe more
efficient, but certainly more secure way.

Other thoughts on this project? AUDIENCE: I thought I saw
there was a new consortium that was predominantly Chinese
shippers and container companies. It wasn't on that
particular one. GARY GENSLER: And it's not this. It's not the first
one, The People's– AUDIENCE: Not the first one. No, this one has a couple of
Chinese shipping companies. It's very new. It's like November 8th or 9th or
something that it was launched. So it's just getting started. They were looking for vendors. And yeah, it's a
huge consortia there. GARY GENSLER: No, no. This is one of the most active
and it's remained active, but mostly permissioned
blockchain chain technology.

It's the most active
and very vibrant. And if you had to say
probability weighted, there'll be something
successful in this space more than maybe some of
the other spaces. So who wants to chime
into James' supply chain– this unit? You're going to jump in. So I just want to
tell– here's just two example of some shipping. And I just pulled up
five quick examples of supply chain projects. But Eric, you want to
address James coffee? You like coffee more than James. AUDIENCE: I won't give
you an example of coffee, but let's say fruits. You have a big
retailer chain that– and I think the
example is in Britain. Suddenly you have reports
of sudden infection of E coli in a specific fruit.

OK, so as a responsible measure,
the retailer have to hold off– actually has to know which
part or which load of fruit is the one affected. So since the whole
process of, you know, digging through a huge file
of paperwork takes weeks. These guys would have to
hold off a big bunch of fruit that they would
eventually get lost with the economic
implications of that. That was a– They probably– GARY GENSLER: So wait, wait.

So let's see. AUDIENCE: We're getting there. We're getting there. So having your
supply chain connect to a blockchain, that
can allow you quickly get the information within
hours and immediately identify which is the load
that's been affected and take it out with the
decreased economic costs. GARY GENSLER: So you got
at least three other hands. We'll go– AUDIENCE: So I tend
to agree with James. So what I've heard
critiques of using both blockchain
for supply chains for things like blood diamonds
or preventing counterfeit goods or whatever. Diamonds we have
DeBeers project. Yeah, so I know these
guys are doing that.

But the criticism. I've heard is that because these
aren't digital native goods, there has to be an interface
between the real world and the blockchain. GARY GENSLER: Physical
good to the digital good. AUDIENCE: And what
I've heard from critics is that it's at
the point of origin that fraud or counterfeiting
whatever takes place. And it's the point of
origin, where that data needs to take place anyway.

So it's garbage in garbage out. You can put a
counterfeit thing in, but then that passes
through the supply chain. GARY GENSLER: We have
Shammon, Raheem, and then Tom. AUDIENCE: I'm going
to pick James' side. GARY GENSLER: Oh my
god, I need somebody on the other side of James. AUDIENCE: Maybe you
can help me in a sense that like Walmart, right,
is kind of a prime example. They've implemented, et cetera. But basically if Walmart
just said like, so basically they're using
IBM infrastructure, right. If they went to the supply
chain said, look guys, we hired IBM, OK. Now you're going to send– every time this good
can transfer hands, you're going to to send
that information to IBM. That's it. I mean basically that's
what happened because it's being stored on a
server that IBM– like what is blockchain about? GARY GENSLER: Well– AUDIENCE: Like I heard them
how this is blockchain. But I really don't see what
is blockchain about it.

I mean basically– GARY GENSLER: So who
wants to take– who want to take the other side for him? And I know, James. You're not taking the
other side of James. AUDIENCE: I think is
a bit controversial. But when I was in the UK
a couple of years ago, there were some
activists talking about the origin of
weapons and some areas where weapons were being
smuggled in some war zones. The point of origin
in this case will be the developed world, which
is going into the US, UK, China. If you can trace the origin of
the weapons sent in war zones, you could know how did it end
up there and you can stop maybe. I don't know. You need to trust the data
entry in the first place. GARY GENSLER: You
do have to have– AUDIENCE: But the point
of origin in this case, is not trusted. It would be trusted because
it would be manufacturers. And most of the
manufacturing would be– GARY GENSLER: I'm going to hold
off because I want to get Tom and then I'm going to
give you a reply, James.

Tom. AUDIENCE: Yes, so I
am on the other side. I think it works. And it sort of goes back to
Alean's original question of whether or not this is about
addressing fraud or addressing the efficiency of the system. The data entry is the same. I mean, if the data
entry from a paper system or a non-block digital system
or a blockchain system is bad, then it's always
going to be bad. But if it's good, it's as good
as it is right now and probably as good as it's going
to be short of like RFID chipping every
individual product, then what it does is allow
that same record to go through the entire supply chain.

So what is deemed by
whatever data input system to be a conflict free
diamond is seen by DeBeers, the exporter, the producer, the
porch, the ultimate importer of the good. And so you can save what are
now verification costs in terms of time by processing
a railway receipt, a trucking receipt, a shipping
receipt, forwarding exchange receipt by making that
same document viewable and immutable to all of
the partners in the trade. GARY GENSLER: And to
Shammon's question, I think you've framed
the right question. Basically, well, why not just
the traditional database? IBM is the software provider
of Hyperledger Fabric.

Why not just give the
information to IBM? And in fact, maybe that's
what Walmart is doing, is what you said. AUDIENCE: That's why
I said what I did. GARY GENSLER: Now I
haven't dug deeply enough. And often when you dig into
these websites and the news articles and the white
papers you can't quite tell how they're using IBM. IBM, I think, has 1,500
people in their division that does Hyperledger projects. So they they're out there. IBM is marketing this. But I think the theory
at least, because I'm not going to be able to answer
what Walmart's really doing. The theory is it's more
censorship resistant, that the data is actually
shared on multiple nodes even if it's permissioned,
even if there's only 15 or 20 nodes
or 30 nodes, that it's more censorship resistant
than if it's all stored on an IBM server.

And I don't know the answer,
whether the Walmart is actually stored on 30 different nodes. But if it were,
then arguably then, even though it's
permissioned and private, it's more censorship resistant
and you can have more assurance around this. One of the challenges– Aviva left the room, on
interoperability is this number two, TradeLens. TradeLens, the IBM and
"Marks," "Merks," how do you pronounce that company? AUDIENCE: Maersk. GARY GENSLER: Maersk. It's one of the largest– it's one of the two or three
largest shipping companies in the entire world. They come up with a project. They announce it, tout it. It's over a year and a half ago.

There's no adoption
because the other shipping companies are
saying, why do I want to adopt something with you? Now it would be one thing if
some neutral standard setter, almost like in the internet
the I Can or something. But some neutral standard setter
came up with a consortium. But all the other
shippers in the world say, I don't want to give up to
Maersk my data, my information, and what might be
also market power. So interoperability
works there as well. All right, James
wants to have a reply. But are you all
right holding off? AUDIENCE: Sure. GARY GENSLER: All right. So we'll take two from my right. AUDIENCE: I think there's
another issue which is more about the
economics of it, which is, OK, let's say
that Walmart adopts, like basically right now they
can force a lot of the supply chain to adopt this. I think there's a real
question about what they're going to do with
that data, right, because essentially what it
does it allows them access to the end producer.

So the production of mangoes
is very fragmented, right. But then you get consolidated. So there are multiple
steps along the chain that actually extract economic
value, not the growers. I mean, they're kind
of screwed, right. But now Walmart can go
directly to the growers, because now they have access to
the data of who the grower is, what their productivity is,
and how much they produce or what time of the year
they produce, et cetera. Well, there's a question
about whether they want to cooperate with that
or how much information I want to share with that
if I'm in the middle and I'm actually accepting
economic rent right now.

GARY GENSLER: Right, so if the
whole supply chain is somehow– AUDIENCE: It's not just
the administration. GARY GENSLER: Yeah,
that's right, the data. Just like Facebook collects
data or Visa collects EMI data, that maybe Walmart
would collect data. AUDIENCE: My question takes the
Walmart example a little bit further. I'm curious to
understand do you put a supplier early
on in the process, say a farmer or something
selling to Walmart, do they even have exposure in
terms of the user experience that they are on blockchain
or does this just become the back end. I guess, I understand
what we've talked in terms of private keys
for digital currency. I'm trying to connect how that
ties to the user experience here. They have like scanners
that they basically scan or it's their phones
or whatever, right. So you have third parties
using these linkages. They don't know basically
where this data is going. GARY GENSLER: So I'm honest. I'm going to take Shammon's
description of it. I'm not as close to the Walmart.

I think in the trade
finance side, the consortium that these and these, the
importer, the exporter, the banks, the shippers,
and the best of these are meant to have a lot of
involvement and exposure, because even though this looks
pretty complicated and it is, they're large institutions. They're banks. They're shippers. They're freight forwarders,
except for maybe the small and medium sized
enterprises in Ethiopia. But then they're an importer
that needs to have involvement. I think on the supply
chain side, the Walmart, an individual grower
of mango, you're saying from your understanding
Walmart's not looking for them. AUDIENCE: Again, this is because
they're very proud of that. They're proud of the fact that
they can actually influence. The reason why is because
they have the last mile. It is very simple. GARY GENSLER: But they
would have to have some way to do what Tom said.

They have to be able to
put into digital form the physical asset, the mangoes
are from this pack farm. AUDIENCE: Yeah. But they can use a cell phone. You know, so you type in,
OK, so you know like– GARY GENSLER: A scan. AUDIENCE: Yeah. GARY GENSLER: A QR
code or something. James, you want to reply? And then we'll go
back to you here. AUDIENCE: Just quick points. I think– GARY GENSLER: Are
you convinced yet? AUDIENCE: No. I think ultimately
there's no doubt that once the digital
record's created, the digital immutability,
whether it's a blockchain or a very secure
standard traditional database, they are going to be the same. The digital records, it's fine. But in the fiscal
world in the context of supply chain, whether
it's from the origin or any other individuals
along the chain, all it takes is one bad actor to do
something to the physical good. But while traditional
record is immutable, you're link between the physical
and digital is not guaranteed. So I still don't see how
a physical commodity can be guaranteed to go from one
end to the other of the supply chain without ever being
tampered or altered.

That is still a big
question for me. GARY GENSLER: Hugo. AUDIENCE: Yeah, I was
going to say that. I don't know if
that's the objective. Because if you take diamonds,
right, and as long as you– like what people care about
when they're buying a diamond is just the margin, right. But my point is that it doesn't
stop anyone along the supply chain to have– It just makes it more expensive. But, but– GARY GENSLER: Seriously,
I think you're holding it up to too high of a standard. Because even the oil, let's go
back, not diamonds, but oil.

For quite some time you
could have a bill of lading and then sell it. And as I mentioned
earlier for the 20 days that things are coming from
the Mideast to Houston, that might transact
20 times, 100 times today in 2018 markets. And nobody is actually looking
to see whether the oil has been somehow siphoned off the
ship and it's no longer there. So there are aspects of
trust that would still be in the system with somebody
certifying when the ship is– I don't remember the
word, but on board, when the oil is put on the
ship and when it comes off. And there's validations
at those moments that would then communicate
to the digital records. AUDIENCE: But I guess that's– GARY GENSLER: Then you could
do that through inspections of diamonds. I don't think you're
going to change that. I think that's still
going to be important. But what you can do is
Alean's earlier point, you can lower a lot of the cost. You can drive a
lot of efficiency.

And you can probably lower the
fraud around the documents. AUDIENCE: Yeah. So I guess my point– one of my– I guess
what I'm saying is– GARY GENSLER: And then
we're going to move on. AUDIENCE: If the trust isn't
there in the first place or you have to rely on some
other trust, what exactly is blockchain adding in
terms of the physical, the digital records? That's what I'm finding
difficult to understand. But I think I'll finish
up with a quick point. I spoke to someone at the
conference from ExxonMobil, since we're talking oil. And he does a supply chain and
implementation of blockchain. And I challenged him, why not
use a standardized database? And he said, well, it's because
if you're going to get everyone along the chain to
upgrade to a new system, it's far easier by telling
them, oh, it's blockchain, rather than saying, well, I have
this sophisticated database. GARY GENSLER: I'm going
to hold that point. I'm agreeing with that point. But we had Dan and Jay.

AUDIENCE: Yeah. I just want to
say, I mean, I fell like this is way more
feasible for a smaller kind of vertically
integrated supply chains, where like for
DeBeers where like they own every kind of
step in the process. And therefore, you kind of– can really trust and trace
the flow of the product. But something for like
groceries where you have, kind of, farmers
all over the world and, you know, there's
seasonality, right, changing. So there's just so many
smaller shops that I can't ever see it being feasible for them
to adopt kind of a high level technology. GARY GENSLER: You
may well be right, though QR codes have
been adopted in millions of retail establishments,
when 20 years ago it was kind of like, what's this all about? In fact 30 years ago– he's in the news because
he just passed away– but President George
Herbert Walker Bush, some people say
part of the reason he lost the election
in 1992 was that he didn't know what a scanner
was in a grocery store.

And he was president
of the United States. Can you imagine that? But he didn't because
he grew up in an era and it was happening while
he was in the White House. And now you couldn't imagine
not knowing what a scanner is. So I agree with you. But what's happening in 20 years
is sometimes hard to predict. AUDIENCE: Yes to build
on that a little bit, I think if you are
completely vertical, then you don't really need
blockchain in the first place, because you have
your own database. Your tracking everything
as it goes through that. The reason you need block chain
is for the traceability when you have 20 different parties. But also once you
digitalized this whole thing, I mean, right now it's all
paperwork, so you bring it– digitalization is
going to allow you to use other tools like IoT. So you can maybe use– to take the diamond
example, use computer vision to actually tell that you have
the exact diamond that you started with at the end
of the supply chain.

Or with food, that you can test
the texture of food and things like that. So it's all about
quality as well. GARY GENSLER: By the
way, you can hash– you remember that stuff, that
broccoli at the beginning? You can use
cryptographic hashes also to take pictures, to take
other data about the diamond, other data about the foods. AUDIENCE: I'm just going to add,
especially with the diamonds, I got kind of razzed after
reading the article because we all know DeBeers.

They're like the best
marketers out in the world. They convinced every
woman that they need a diamond in their life. They invented the concept of
like a diamond engagement ring. So I think like this is
the perfect marketing ploy to say they needed to blockchain
for diamonds, like the entire– like DeBeers is the
entire diamond industry and how they now receive
diamonds is already completely regulated. But with regard
of about in house and controlled by them
because of the backlash against like conflict– diamonds from conflict– or
conflict originated diamonds. So for me, it just seems
like a big marketing scheme that they already feel like
they have this under control. But in order to like buy
more consumer confidence, they're using it. GARY GENSLER: I think you land
upon a point about marketing. And James has said it earlier,
and a little bit of others in short. Oil executives, says,
well, it's the only way I'm going to get broad adoption
is if I call this blockchain. And that might be true even of
the Australian stock exchange, even though I think there's
a real use case there.

But it's about adoption. Now DeBeers might be
doing it because they want to sell more diamonds. The oil executive
might be doing it because he just wants to
get rid of a legacy system. Or the Australian
stock exchange might say, this is the only way I can
get investment in getting rid of a legacy system,
because I can either scare my
board of directors and say we have to
do blockchain or I can inspire my
board of directors by saying I have
to use blockchain. But nonetheless,
blockchain technology will have some adoption. And I think it will
have more adoption, so it's more ripe for adoption. And I'm going to
turn to this again. You know where I'm going. It's like, yep, yep, you
know, cost and benefits. These are– I'm doing this
as a favor for all of you too because, you're all
writing your final projects. But it's really about– it's going to be where there's
multiple parties involved in data and that data
represents some property right, either money.

In a dematerialized
way, it's easier to envision that's money
versus security, money versus something dematerialized. It's a little harder as we've
done today on the supply chain, when it's against
a physical asset. But if there's multiple parties
and where verification matters, verification costs,
you can probably drive some efficiency with a
blockchain technology solution. Good question Shammon raises. Well, wait a
minute, maybe you're just shipping the data to IBM. Are you really
shipping it to just– that's called a traditional
database, a distributed database. Or do you get something out
of censorship resistance? And if it's truly shared in
20, 30, 50, or 100 places, do you lower, as the Australian
stock exchange really does believe they'll do, lower
reconciliation costs, which is, again, a way to
drive efficiency.

But I can't remember
the number, there are 77 member companies can
all have a shared ledger and then lower the
cost of reconciliation. It's still what
somewhat controlled. Those 77, it's not a public
blockchain like Bitcoin. So whether it's the two
groups that are here today that are doing trade finance. And you have a harder challenge,
by the way, because you've got to go beyond this lecture. Alpha's is going, yeah, sure. But if you're doing
commercial or consumer finance or real estate or
whatever, and there are some really interesting
projects amongst you, just thinking about
where is that value add? What verification and networking
costs are going to be lowered? What's the competition doing? Figure out if there's any
consortium doing whatever you're proposing to do.

Or is there any of the
3,000 to 5,000 white papers, was there any ICO token? And then if you want to
do a slap down and say why what they're doing is
foolish and doesn't work and you're doing
something better or you just want to learn,
just please don't plagiarize. But just look at what the
competition's doing as well. And why is an append only log,
you know, the right way to go? Alean. AUDIENCE: What about
competitors who are incumbents? GARY GENSLER: Absolutely. So you're still doing the
mortgage product, right? I don't know if you changed. Yeah, what's happening
in the mortgage market? How is it being– whether it's securitized
or underwritten and whether it's traditional
database management. But it's also an
interesting to know if anyone else is trying to
look at either permissioned or permissionless systems and
where you fit in to that, because you're actually
trying to raise money on this, if I remember. AUDIENCE: Yeah. GARY GENSLER: Yeah, so
to the extent that you're going to raise money,
those venture capitalists are going to be asking tougher
questions than I'll ever be asking, at least I hope.

AUDIENCE: I honestly don't. GARY GENSLER: Yeah. Yeah. I got it. You want cheap money. You want me to be the toughie. Yeah. All right. And what are the trade-offs? I'm not asking any
of you to have solved scalability and performance. Some of the scalability
and performance issues won't be solved
for 5 to 10 years. But at least note them. At least say, hey,
this won't work until this is solved
or something like that. Thursday we're going
to do identity. I can't remember, is anybody
doing projects on identity? You're together, right? Yeah. All right. Be ready to chat on Thursday
and share where you are. Kelly's looking like you're
going to be sick on Thursday. You'll be here. And how many of you are
going to get your MIT diploma on a blockchain? AUDIENCE: You have option? GARY GENSLER: Yes.

AUDIENCE: Do we get an
option of not getting one? I don't think so. GARY GENSLER: Oh, you mean
you think you have to. AUDIENCE: I think
it's done for you. GARY GENSLER: Oh,
it's done for you. All right, there you go. What's that? You excited by that? Do you think you can
finance off of it though? So trade finance, $17 trillion. It's a very significant
role that in financing this $17 trillion of trade,
lots of people involved, sort of ripe for
blockchain technology, a lot of consortiums
and projects underway. But they're almost all
permissioned systems with a couple of exceptions. But it feels like it's
a catalyst for change. I think that even
if it's just simply because it's the
way to get adoption. And I'm talking
about trade finance. And then there's this related
part of the supply chain management and so forth. Any other questions or
are we breaking early? AUDIENCE: Early. GARY GENSLER: Do
you want anything? All right, we'll break early. Great. [APPLAUSE] .

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