[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                   COMPETITION AND CONSOLIDATION IN 
                           FINANCIAL MARKETS

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 1, 2011

                               __________

                           Serial No. 112-24

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TOM REED, New York                   LINDA T. SANCHEZ, California
TIM GRIFFIN, Arkansas                DEBBIE WASSERMAN SCHULTZ, Florida
TOM MARINO, Pennsylvania
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona

      Sean McLaughlin, Majority Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

  Subcommittee on Intellectual Property, Competition, and the Internet

                   BOB GOODLATTE, Virginia, Chairman

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     DEBBIE WASSERMAN SCHULTZ, Florida
TED POE, Texas                       JERROLD NADLER, New York
JASON CHAFFETZ, Utah                 ZOE LOFGREN, California
TOM REED, New York                   SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania
SANDY ADAMS, Florida

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             APRIL 1, 2011

                                                                   Page

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     1
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Intellectual Property, Competition, and the Internet........     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................     3

                               WITNESSES

Lawrence E. Harris, Fred V. Keenan Chair in Finance, Professor of 
  Finance and Business Economics, Marshall School of Business, 
  University of Southern California
  Oral Testimony.................................................     5
  Prepared Statement.............................................     7
Mercer E. Bullard, Associate Professor of Law, The University of 
  Mississippi School of Law
  Oral Testimony.................................................    15

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas, and Member, 
  Subcommittee on Intellectual Property, Competition, and the 
  Internet.......................................................    29
Material submitted by the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas, and Member, 
  Subcommittee on Intellectual Property, Competition, and the 
  Internet.......................................................    36


           COMPETITION AND CONSOLIDATION IN FINANCIAL MARKETS

                              ----------                              


                         FRIDAY, APRIL 1, 2011

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 11:05 a.m., in 
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Sensenbrenner, Chabot, 
Marino, Quayle, Watt, Conyers, Jackson Lee, and Waters.
    Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee, 
Clerk; and Stephanie Moore, Minority Counsel.
    Mr. Goodlatte. Good morning. The Subcommittee will come to 
order. And I will recognize myself for an opening statement.
    The complexion of this hearing has changed considerably in 
the last few hours. When we went to bed last night, the primary 
focus of the hearing was the proposed merger between the New 
York Stock Exchange Euronext, parent company of the New York 
Stock Exchange, and Deutsche Borse, a leading German-based 
securities and derivatives exchange company. Overnight, NASDAQ, 
OMX, and the IntercontinentalExchange announced a joint 
proposal to purchase NYSE Euronext. This Committee remains very 
interested in evaluating the competing bids by Deutsche Borse 
and NASDAQ, and their effects on competition and consumers.
    At this point, a proper evaluation of the competing bids 
demands a hearing at which the executives from the New York 
Stock Exchange, NASDAQ, and Deutsche Borse have an equal 
opportunity to debate the merits of the issue.
    This morning's hearing was scheduled to include a witness 
from NYSE, but not from NASDAQ or Deutsche Borse. In consulting 
with representatives for all three companies this morning, it 
became clear that there was no possibility of having executives 
from all three testify today. In any case, testimony today 
would likely have been premature.
    At this point, it would not be appropriate to take 
testimony only from the New York Stock Exchange without giving 
the other companies an equal forum. For this reason, the 
Committee decided to cancel the appearance by the NYSE at this 
morning's hearing, and we will hold a hearing soon at which we 
will take testimony from the interested companies and perhaps 
other witnesses.
    This morning's witness panel also included two expert 
witnesses, Professor Larry Harris of the University of Southern 
California, and Professor Mercer Bullard of the University of 
Mississippi. These distinguished professors have traveled 
across the country to assist the Committee in its evaluation of 
competition in financial markets. They are both ready and able 
to testify. This Committee and the public will benefit by the 
insight that they can shed on these important issues. We will, 
therefore, proceed today with what will now be part one of a 
two-part hearing on Competition and Consolidation in Financial 
Markets.
    Today's hearing will take testimony from our two expert 
witnesses. A hearing in the near future will take testimony 
from executives of the three interested companies.
    It would be premature for anyone to draw definitive 
judgments about the newly-announced NASDAQ proposal or the 
relative merits of the two proposals, but it is appropriate to 
begin considering these profound issues without delay. The New 
York Stock Exchange sits near the center of the American 
economy; events on Wall Street ripple through our economy with 
profound effects for every American. The stock market crash of 
1929 contributed to the Great Depression, the most harrowing 
and prolonged period of unemployment and economic instability 
in our Nation's history. The crash of 2008 helped precipitate 
our current economic downturn, and unemployment remains around 
9 percent.
    When he became CEO of the New York Stock Exchange in 2007, 
Duncan Niederauer said, ``As NYSE Group reshapes its business 
model, it reshapes global finance.'' I agree. The shape of the 
future of global finance is at stake. Congress and the 
Department of Justice must evaluate these proposed deals with 
the utmost diligence and fairness. The future of American 
business and jobs are inextricably tied to the future of the 
New York Stock Exchange.
    It is now my pleasure to recognize the Ranking Member of 
the Committee, the gentleman from North Carolina, Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman.
    I have scrapped my opening statement and will make a few 
observations off the cuff, which is always dangerous, but I 
think necessary under the circumstances.
    First of all, I want to applaud the Chair's decision not to 
press to have the New York Stock Exchange represented here 
today. I am not sure that I am exactly in accord with where the 
Chair is leading us on the next stage of this because I have 
some reservations about whether it is this Committee's or the 
government's role to start to assess competing merger proposals 
or takeover proposals before there is a final agreement between 
parties, at which point our role obviously is to evaluate the 
antitrust or potential antitrust consequences of whatever 
agreement has been reached by the parties, not some theoretical 
possible agreement that might be reached by the parties. In 
other words, I am not sure I think it is appropriate for us to 
be putting our finger on the balance and tipping the scale 
either toward the NASDAQ merger or the other merger that was 
already out there. But that is a subject of another day, and I 
obviously do not want to have a public debate with my Chair 
about that today.
    I do think it is important to have what we are about to 
have today, and that is an academic discussion about this 
question of concentration, the implications that it has, 
whether there are potential antitrust implications from the 
growing concentration in this area, as we have expressed 
concerns about concentration in other areas. And so, for that 
purpose I certainly welcome these two outstanding academicians 
to have an academic discussion because I think they are well 
equipped to guide us in that discussion. And what we learn from 
academic discussions educate us and allow us to make better 
decisions as we go forward, regardless of which direction we go 
forward in.
    So I welcome the witnesses. I thank them for the sacrifices 
they have made to be here. It would have been a shame to have 
you travel all this way and then not have your perspective on 
the concentration issues and the potential consequences of 
mergers. But I hope that we will not put you in the awkward 
position of trying to evaluate either one of these proposed 
mergers without enough detail about the real body of what the 
merger would look like or consist of.
    So, I welcome you and thank you for being here.
    And with that, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Goodlatte. I thank the gentleman for his very pertinent 
comments, and we certainly will take them into full 
consideration as we plan for that subsequent hearing.
    The Chair would ask the Ranking Member of the full 
Committee if he has any opening statement that he would like to 
make.
    Mr. Conyers. Yes, sir.
    Mr. Goodlatte. The Chair recognizes the gentleman from 
Michigan for 5 minutes?
    Mr. Conyers. Thank you very much. I am delighted to be here 
and to have this hearing. We welcome our witnesses.
    But for the life of me, I do not see what has changed, 
outside of the fact that there is now a new bidder in this 
ballgame. What about next week when a fourth company comes in? 
We want to cancel another meeting? I do not think so.
    I want to just indicate we are in a wave of mergers that 
have only been slowed down by the fact that the American 
economy is in the worst circumstance since 1929. And so, for us 
to be concerned about every time a bunch of Wall Street actors 
decide that this is a ripe opportunity for them to take over 
something, or make yet another acquisition, that we have got to 
wait to see what happens then, to me is no reason for us to 
stop the examination of mergers and acquisitions that go on in 
this country.
    And while I am at it, we should take another good look at 
the title, ``Competition and Consolidation in Financial 
Markets.'' Guess what? Competition and consolidation are 
antithetical. You do not get the same results from both of 
them. And for us, it is important to me that our distinguished 
witnesses separate this out. What happens when consolidation 
keeps going on at the greatest wave of mergers that have 
occurred since the turn of the 20th century? And here we are 
again in the midst of another.
    And so, I just want you to know that the adjournment 
proposal is totally unacceptable to me. It would do the same 
thing that any other merger would do in this financial area, a 
reduced consumer choice. It will cost us jobs and create a 
massive transnational regulatory issue in terms of how we can 
regulate such a global combined entity.
    But the latest offer is worse. Now we are talking about 
General Motors and Chrysler coming together as if that is going 
to help the automobile industry and job creation in Detroit and 
the United States. This is totally unacceptable. Oh, is there 
more being offered and put on the table, Chairman Emeritus? 
Yes, there is more being put on the table, but that does not 
make it any better. This would be another takeover within the 
United States.
    And so, I would like to revise and extend my remarks and 
wait for the comments of our two witnesses. And I thank them 
for their appearance.
    Mr. Goodlatte. I thank the gentleman, and we have a 
diversity of views about the appropriate way to proceed here. 
And we will proceed by hearing from Professor Harris and 
Professor Bullard, but first we have a series of votes on the 
floor, and we will resume as soon as those votes have 
concluded.
    The Committee stands in recess.
    [Whereupon, at 11:18 a.m., the Subcommittee recessed, to 
reconvene at 1 p.m., the same day.]
    Mr. Goodlatte. Before I introduce our witnesses, we would 
ask you both to stand and be sworn in.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you, and be seated.
    You have little lights in front of you there which will 
turn on in just a minute, and they indicate the 5 minutes. We 
ask that you summarize your testimony in 5 minutes. When it 
gets to 1 minute remaining, a yellow light will come on, and 
then when the red light comes on, your 5 minutes are up. Your 
entire statement will be made a part of the record whether you 
verbally get it out here or not, so do not worry about that. 
And give us the best points.
    And we will start with Professor Harris, who is a scholar 
who literally wrote the book on trading and exchanges. His 2003 
book titled, Trading and Exchanges: Market Microstructure for 
Practitioners, is widely regarded as a must read for entrance 
into the securities industry.
    From 2002 to 2004, Professor Harris served as the Chief 
Economist at the Securities and Exchange Commission. As Chief 
Economist, Harris was the primary advisor to the Commission on 
all economic issues. He contributed extensively to the 
development of regulations, implementing Sarbanes-Oxley, the 
resolution of the mutual fund timing crisis, the specification 
of regulation NMS, which stands for National Market System, the 
promotion of bond price transparency, and numerous legal cases.
    Professor Harris currently holds the Fred V. Keenan Chair 
in Finance at the University of Southern California, Marshall 
School of Business, where his research, teaching, and 
consulting focus on regulatory and practitioner issues in 
trading and in investment management.
    Professor Harris, welcome.

   TESTIMONY OF LAWRENCE E. HARRIS, FRED V. KEENAN CHAIR IN 
FINANCE, PROFESSOR OF FINANCE AND BUSINESS ECONOMICS, MARSHALL 
     SCHOOL OF BUSINESS, UNIVERSITY OF SOUTHERN CALIFORNIA

    Mr. Harris. Thank you very much, Mr. Chairman.
    Voice. Press that button there. There we go.
    Mr. Harris. Now does it work?
    Mr. Goodlatte. Yes.
    Mr. Harris. Very good.
    Thank you, Mr. Chairman, Mr. Watt, and Members. Thank you 
for inviting me.
    A number of competition issues are coming before the 
country at this point in the area of market microstructure, 
which is the structure of how we organize our trading in the 
United States. I would like to highlight what the competitive 
issues are and then comment very briefly on the two proposed 
transactions that we have before us.
    First of all, within markets, we have a very strange 
situation that we do not see in other industries. We are all 
generally in favor of competition, but there actually are two 
competitions that take place in the marketplace for stocks or 
for bonds, options or futures, or even currencies. And the two 
competitions are these:
    The first competition is the competition among traders to 
find the best price. The buyers are looking for sellers, and 
the sellers are looking for buyers. The buyers, of course, want 
the lowest prices, and the sellers want the highest prices.
    The second competition is the competition among exchanges 
and other entities that behave like exchanges--dealers, 
brokers--to provide the forum for the first competition. So, 
the second competition is the New York Stock Exchange competing 
against NASDAQ, or the Chicago Mercantile Exchange competing 
against life in Europe.
    Now, it turns out that it is very difficult to be in favor 
of both of these competitions and still be consistent. To make 
it as easy as possible for a buyer to find a seller, we could 
just require that everybody come to a single exchange by 
putting them all in a single place and time, and it is very 
cheap for them to find each other. But in doing so, we 
eliminate the competition among exchanges. And the competition 
among exchanges is something we respect because it promotes low 
cost trading, innovation, and because, frankly, we are, as 
regulators, we would not be certain what the proper market 
structure is by letting the market or the marketplace discover 
for itself what is the best structure, whether trading should 
be--rewards should be given to people who arrive first or to 
large traders or to the traders who expose those orders. These 
are all issues that have to be decided by exchanges.
    Exchanges compete with each other to provide a set of 
trading rules that will be attractive to the traders, who 
themselves are competing among themselves to get the best 
price. So, there is this tension between the two types of 
trading, and when we talk about competition, we always have to 
be aware of that tension.
    Consolidation is good for the traders as long as the 
consolidation is through a market that they like. But 
consolidation is not good for the competition among 
marketplaces because it effectively creates monopolies.
    So, those are things to keep in mind as we start thinking 
about transactions.
    Now, I would like to take a quick survey of the types of 
competition that we see among the exchanges as we consider the 
mergers that have been proposed by these three players, NYSE, 
Deutsche Borse, and NASDAQ.
    The first competition we have to think about is the 
competition to provide exchange services, a place where people 
trade. In the United States, we see these competitions in 
equities, futures, and options. And in the equities market, the 
market is extraordinarily complex--competitive. We have an 
awful lot of competition in that area. The mergers that we are 
seeing here are not going to affect it. Even a NASDAQ merger 
with the NYSE will not make much difference.
    In the futures markets, that is not an issue that is 
engaged here in the United States. There are some issues in 
Europe, but we will let the Europeans deal with it. I can 
comment about that later if you would like.
    In the options markets, we have presently nine options 
exchanges. Although those options exchanges are often--several 
of them are held by single entities. If the New York Stock 
Exchange were to merge with Deutsche Borse, one of the major 
entities, the International Stock Exchange--Securities 
Exchange, I forget--ISE--would then come under a common control 
and we would see more concentration.
    That said, it is very easy to start options exchanges in 
the United States. BATS just started an exchange, and the 
market share is growing rather quickly, so I am not 
particularly worried about any of these mergers with respect to 
options.
    Where I do have concerns is with respect to listings. A 
merger between NYSE and Deutsche Borse will not have much 
effect on the listing market in the United States, but a merger 
between NASDAQ and NYSE would concentrate virtually all the 
listings into a single market, and that would be quite 
problematic.
    [The prepared statement of Mr. Harris follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

                               __________
    Mr. Goodlatte. Thank you, Professor Harris.
    Our second witness is Mercer Bullard, an Associate 
Professor of Law at the University of Mississippi. Professor 
Bullard focuses his scholarship and teaching on securities, 
banking, corporations, corporate finance, and law and 
economics. He is also the founder and president of Fund 
Democracy, an advocacy group for mutual fund shareholders, and 
a senior advisor with the wealth management firm Plan Corp, 
Incorporated.
    He currently serves as the Securities and Exchange 
Commission's Investment Advisory Committee member and the 
Public Policy Council of the Certified Financial Planner Board 
of Standards.
    Before entering academia, Professor Bullard served as 
Assistant Chief Counsel at the Securities and Exchange 
Commission and practiced securities law at WilmerHale here in 
Washington, D.C.
    Professor Bullard, welcome.

TESTIMONY OF MERCER E. BULLARD, ASSOCIATE PROFESSOR OF LAW, THE 
            UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW

    Mr. Bullard. Thank you, Mr. Chairman.
    Chairman Goodlatte, Ranking Member Watt, Ranking Member 
Conyers, Members of the Committee, thank you for the 
opportunity to appear here today.
    Professor Harris, I think, has covered in his testimony and 
in his statement today some of the more specific antitrust 
issues. What I would like to talk about is something I refer to 
as the regulatory market, and although my discussion might seem 
a little bit securities law laden to you, I believe the 
regulatory market is really an integral part of any evaluation 
of the competitive effects of any kind of merger in this 
business. That is because financial exchanges are not simply 
markets for trading of financial instruments that are also 
regulatory markets. Exchanges establish listing rules that are 
in effect a form of regulation themselves. In the United 
States, for example, the rules of national securities exchanges 
are approved and reviewed by the SEC, so exchanges do not have 
complete freedom to choose their rules. But the rules reflect 
the exchanges' general view of their position in this kind of 
regulatory market, and it is, to some extent, a private or 
privately-ordered regulatory market, the lines of which are 
drawn based somewhat on competitive forces, and not necessarily 
on state or Federal law.
    Exchanges are also subject to Federal rules. They have no 
authority over those rules. If they want to operate a 
securities or other financial market in the U.S., they must 
follow Federal law.
    Now this monopoly of Federal law has been possible because 
these financial markets have been manifested in tangible ways. 
They have trading floors. They have buildings for those trading 
floors. They used to trade actual stock certificates so they 
are even selling something that was arguably tangible itself. 
They had back offices where piles of trading slips accumulated 
over time. And essentially, there was something to regulate, 
and it was not easy for exchanges to go somewhere else.
    Well, exchanges could lobby for changes in these Federal 
rules. They could not change them, and they could not really go 
anywhere else. Perhaps more importantly, issuers are subject to 
the Federal rules if they want to take advantage of these 
exchanges' services. For example, public companies are subject 
to the Federal proxy rules and Federal tender offer rules that 
effectively cannot be escaped if the company wants to raise 
capital in U.S. markets.
    This monopoly has created a kind of regulatory equilibrium. 
Exchanges and issuers often lobby legislators and regulators in 
order to ease the burdens of regulation. Legislators and 
regulators sometimes create new rules and new burdens.
    For better or for worse, the evolution of modern exchanges, 
principally as a result of technology, is threatening that 
equilibrium. The operation of modern exchanges has shed the 
tangible context that enabled the Federal monopoly over rules 
governing the raising of capital. U.S. issuers can now raise 
capital overseas in foreign markets, while bypassing U.S. 
securities regulation.
    Now, only a small number of U.S. companies have gone public 
overseas, but that number is sure to rise, and the New York 
Stock Exchange/Deutsche Borse merger or, what I think are 
inevitably going to be more transnational mergers, is likely to 
accelerate that process of even U.S.-based companies doing IPOs 
and seeking capital overseas.
    Now, is this kind of regulatory arbitrage a positive 
development? Well, that depends on your faith in free markets. 
Rest free markets, if left alone, will arrive in an equilibrium 
that results in the most efficient allocation of capital. If 
they do not, however, there will be no supranational overseer 
to set them straight. If they create systemic risk that 
threatens U.S. interests, it will be up to the host nation to 
take action.
    The structure of corporate law provides an illustration of 
this dynamic. Some commentators consider the ability of 
corporations to choose the state laws under which they operate 
to create a kind of regulatory market. But it truly is not 
free. There is only a free market to the extents that Congress 
allows such a free market. Federal law can trump law, and often 
does.
    Now, in the case of free international regulatory markets, 
there is no such parental oversight. No entity currently has 
the authority to step in and impose rules. This might not be a 
significant risk for the regulatory arbitrage that is going on 
between countries with highly-developed business regulatory 
regimes. However, Congress needs to think about this risk as 
the globalization of financial exchanges expands to less 
developed countries.
    A parallel concern is the expansion of the self-regulatory 
state. Self-regulatory organizations may seek transnational 
regulatory authority to resolve the issue of parental 
supervision and oversight. They may have the flexibility and 
the resources to be quite successful; however, Congress should 
consider the implications that further derogation of 
administrative authority could have for broader national 
interests.
    Transnational SRO is no longer a national SRO. The Supreme 
Court recently expressed concern that the constitutionality of 
SROs are already two steps removed from the authority of 
elected government officials. The transnational SRO structure 
will hardly mitigate that concern.
    Congress should also consider ways to address the risk 
created by transnational exchanges and transnational regulatory 
arbitrage. The multiplication of exchanges will increase the 
likelihood that U.S. retail investors will purchase securities 
in foreign markets without the protection of fundamental 
investor and shareholder rights that apply in the United 
States. This may militate for reforms to our regulation to the 
point of sale; and that is, at the broker-dealer or at the 
advisor point of sale, contact with the customer. And this is 
an illustration of how in some cases freeing up the regulatory 
marketplace in one area, for example, exchanges, can sometimes 
be balanced by adjustments in other areas, such as with respect 
to the duties of brokers, dealers, and other salespersons and 
advisors.
    In conclusion, we could also look inward at our own private 
markets as potential outlets for a more flexible regulatory 
market. The current private offering rules, like the regulation 
of exchanges, have been overwhelmed by technological advances. 
Facebook's failed private offering in the United States 
illustrates the incompatibility of modern communications and 
the Securities Act's restriction on offers.
    Congress should consider reforming restrictions on offers 
so that private markets can provide a more feasible escape 
valve for issuers that seek capital and more regulatory 
freedom.
    So, the New York Stock Exchange/Deutsche Borse merger will 
take us another step down the road to free regulatory markets 
for financial exchanges. I strongly encourage Congress to look 
carefully down this road and think hard about where it is 
taking us.
    Thank you again for the opportunity to appear before you 
today, and I will do the best I can to answer any questions you 
might have.
                              ----------                              


    Mr. Goodlatte. Thank you both. Those are both very 
instructive statements.
    Professor Harris focused on the issue of competition 
amongst the companies that may want to list their securities on 
exchanges and the consumers, and how they might be affected by 
these mergers, and expressed concern that maybe two domestic 
mergers might reduce that more than the international. And you 
addressed an issue that I was going to ask you about, and you 
pretty much addressed it, in terms of the concern that I have 
had in the--how do we handle, in our responsibility of putting 
forth laws that are then translated into regulations, and not 
keep people from taking these transactions outside the United 
States to the lowest common denominator?
    So, I am going to ask you to flip. I want you to comment on 
Professor Harris' observations about the competition from the 
standpoint of the consumer and from the companies being listed 
on these exchanges. And I will come back to Professor Harris 
and ask him to comment on your observations.
    So, Professor Bullard, I will let you start with that.
    Mr. Bullard. I would be happy to. It is quite a challenge 
and a little bit intimidating.
    But what I hear when I listen to a kind of antitrust 
analysis is, what is the demand side of the market, because 
that what is I have generally focused on, and that is what is 
the type of investor? What is the most efficient regulatory 
regime for that investor? And what I would like to see is an 
analysis that thinks about what is the appropriate role for 
individual retail investors, and how will these exchange 
mergers affect them? And what is the overarching U.S. policy as 
to how it wants to regulate those investors? That is really a 
separate question from the exchange mergers as such, but it is 
one that really stands behind them because I think Congress 
needs to decide where it wants to be with respect to retail 
investors going forward.
    There are some proposals that have talked about some of the 
issues I discussed, and that is how you deal with this kind of 
transnational, super national law. The source of that law is 
intended to deal with investors as individuals who should be 
able to go out and choose whatever regulatory regime they want. 
Without those fundamental investor protections, they can opt 
for the anti-fraud rules of Germany, if they wish, as opposed 
to the SEC, and then buy German stocks on U.S. exchanges. Then 
I think Congress needs to decide it wants to go that way, and 
then the answer to the antitrust question would clearly be 
affected by that because some of these regulatory decisions 
will drive, to some extent, the antitrust issues.
    If, on the other hand, Congress is committed to the 
structures that we have for the last 80 years, which is where 
we essentially draw a line--we decide what is at least a close 
approximation of a kind of investor with respect to which we 
want to have different rules, and it is clearly a paternalistic 
regime, but it is one that nonetheless has created the most 
liquid, deepest, most successful capital markets in the world, 
then that really goes right to your concern. In that case, the 
model that we would follow to deal with these issues and these 
antitrust concerns would be very different.
    And we need to think about issues, such as how do we really 
want retail investors to be accessing the marketplace? If we 
are going to oversee the way they do so, there are serious 
questions about what role individual retail investors have 
buying stocks directly in the first place, not to mention 
buying stocks on overseas exchange perhaps where you have got 
fundamentally different investor and shareholder protections.
    Mr. Goodlatte. Thank you.
    Professor Harris, you make a very valid point in creating 
this tension, or observing this tension, that exists between 
the two levels of competition that we are inviting with these 
exchanges, that it is perhaps easier to regulate the fewer the 
exchanges there are because there are fewer opportunities for 
people to go elsewhere. We would bring everybody together, and 
you have more competition at that lower level.
    On the other hand, I would like you to address what 
Professor Bullard talked about in terms of the fact that it is 
not easier to regulate if they all escape to Europe or some 
other exchange that can be formed elsewhere, that it 
constitutes a race to the lowest common denominator.
    Mr. Harris. Professor Bullard raises some very interesting 
issues that trouble all of us. I want to distinguish between 
the problems that we presently encounter and those problems 
that we have not yet encountered and may never encounter.
    First of all, with respect to the transactions that we have 
seen already and that are proposed in the last few weeks, these 
are transactions that involve the ownership of regulated 
exchanges. The owners are not the ones that are primarily 
regulated; it is the exchanges themselves. So, the New York 
Stock Exchange, whether it is owned by New York Stock Exchange 
Euronext or whether it is owned by some consortium involving 
Deutsche Borse or NASDAQ, will continue to be regulated by the 
SEC. And all trading at the New York Stock Exchange will be 
under the same arrangement. So, the notion that we have these 
transnational combinations raising regulatory problems is, at 
this point, premature.
    Now, one of the potential benefits of having these 
transnational combinations is that in some distant future, it 
might be possible with changes in the regulatory environment to 
allow German investors and U.S. investors to trade these same 
securities in the same trading system so that a buyer could 
easily find a seller regardless of whether they are in Germany 
or in America. And that would be very advantageous both for the 
American traders and for the German traders, making the market 
much more liquid.
    But to get to that point, we would have to have a 
regulatory agreement between the regulators of those two 
exchanges to allow the merger of their order books and of their 
trading systems, at which point, of course, there would be some 
sort of negotiation, and we would have a strong arm in that 
negotiation because we could always say it should not happen.
    Now, that said, the attraction of that is that you would 
now have a market that would operate maybe for 12 or 14 hours 
and would be liquid during that entire period. And the 
implication of that might be that, or the extension of that 
would be that they would bring in somebody in the Far East, and 
they have a 24-hour market.
    But running against that is the fact that we already have 
24-hour markets in many instruments, particularly the futures 
contracts, and we have markets that are moving toward 24 hours 
in the individual securities equities and whatnot. Those 
markets operate out of a single exchange, and, of course, we 
would like those exchanges to be U.S. domiciled, and often they 
are, but maybe they are not.
    Presently in the United States, if you want to trade in a 
European exchange, you go through an American broker. The 
broker has a responsibility to you that is governed by 
regulations that are domiciled here in the United States. And 
so your relationship to the broker is governed by U.S. 
regulations, and that broker then takes you to the foreign 
market either through that broker subsidiary in the foreign 
market or through a correspondent relationship where the broker 
is responsible ultimately for your relationship to that market, 
subject to our laws. And so, we really have not lost that much 
control at this point over Americans who would be trading 
either in the United States or elsewhere.
    So, those are things that are current and potentially 
future.
    I want to address two, or at least one other quick point. 
People often speak about the loss of the IPOs in the United 
States, that this represents some sort of problem. And, in 
fact, the press releases that we saw this morning from NASDAQ 
referred to IPOs going abroad. So, the fact that IPOs are going 
abroad should be of concern to all of us, but we should also be 
mature about what it is happening. It could be happening for 
two reasons.
    It could be happening because somehow we have failed and we 
have imposed significant costs on firms here in the United 
States, and we are driving them away. But the other reason, and 
a very likely reason, in my opinion, is that the other markets 
have simply become more mature. There is more liquidity in 
those markets, there is more financial sophistication, and they 
have simply become better competitors.
    There was a time when an Israeli firm or a European firm in 
a smaller place would do its IPO in the United States simply 
because it had to because there were no good markets in Europe. 
As the Europeans have become more financially sophisticated and 
wealthier, and this is true also in Asia, they are doing more 
IPOs. And so, the fact that we do fewer IPOs is disappointing 
to us, but not necessarily a reflection of our regulations. It 
may be a reflection of the increasing sophistication and power 
from competitors that we see elsewhere.
    Now, that is disappointing to us because we would like to 
have all of the business, but we also recognize that these 
people are our partners. We are all better off when everybody 
is wealthy. I would like to have more of that wealth here, but 
I am not going to cry too much about it.
    Mr. Goodlatte. Thank you. My time has expired. I anticipate 
we may do a second round, but we will now go to the Ranking 
Member, the gentleman from North Carolina, Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman.
    Professor Harris, Professor Bullard, thank you for being 
here, and thank you for being patient while we were over 
booting. It has been a kind of a choppy experience for us this 
morning.
    I perhaps have a little bias here because I serve not only 
on the Judiciary Committee, but on the Financial Services 
Committee. And it seems to me that most of what you all have 
talked about here, both the things that Professor Harris and 
the things that Professor Bullard addressed, we have been 
trying to deal with appropriately in the Financial Services 
Committee. The regulatory framework that Professor Harris just 
outlined very cogently is one that we have been working on 
aggressively in Financial Services to bulk up the Securities 
and Exchange Commission, bulk up the protections for individual 
investors, unsophisticated investors who might be investing 
either domestically or in foreign markets.
    The issues that Professor Bullard talked about, we have 
been aggressively working on because we have been trying to 
harmonize the standards that are applicable worldwide in this 
global market in which we are operating.
    What is surprising is that neither one of you has addressed 
what I was expecting us to address this morning in this 
Committee, which is the antitrust aspects of this. And it seems 
to me that I would have expected some discussion of what is 
driving us toward this greater concentration of ownerships, 
which, from my perspective, is cost and the drive for cost 
savings, and the drive for greater profits, or to minimize 
losses, whichever way you want to look at that--flip sides of 
the same coin.
    And the mix of things that are going on on these exchanges 
now, as I understand it, we would be hard pressed to make a 
case that either of these mergers--well, I have not looked at 
NASDAQ quite as closely, but certainly the first one has 
substantial antitrust implications for stock ownership, stock 
transfers, because the New York Stock Exchange apparently has 
gone from trading 70 percent or 69 percent of trading to down 
to like 24 percent now. And most of the trading is taking place 
on smaller platforms electronically outside any kind of 
exchange.
    What at least one writer has suggesting is that this is 
being driven by the concentration of trading derivatives, which 
contributed, according to that writer, 40 percent of the 
profits of the New York Stock Exchange. And if you put the 
derivatives that the New York Stock Exchange is controlling and 
derivatives that the German Exchange is controlling together, 
then you have got potentially an antitrust concern.
    So, I guess my question is, let us talk about what this 
Committee has jurisdiction over, which is the antitrust aspects 
of this. Do either one of you see any particular antitrust 
concerns about either the prospect that the New York Stock 
Exchange will either merge with German Exchange or the NASDAQ 
domestic exchange? Do you see any adverse consequences from the 
control or administration of derivatives from either one of 
these kind of mergers taking place? That is what I want to hear 
because, I mean, at the end of the day, our jurisdiction in 
this Committee--I mean, I might invite you back to talk about 
all the things you all talked about in the Financial Services 
Committee, although I cannot invite you for that. I cannot 
invite you over here. I am not in control. We are not in the 
majority any more.
    So, but it seems to me that most of what you have talked 
about are subjects that we are dealing with in the other 
Committee. I want to hear your perspective, if I can get it, on 
the antitrust aspects of this. Are there any antitrust 
implications, and are they driven more by the monopoly that we 
are creating about transfer of stocks, or is it being driven 
more by the monopoly or movement toward a monopoly that we may 
be creating in the control of trading of derivatives? That is a 
long question. I am sorry.
    Mr. Goodlatte. I will give you both a chance to answer.
    Mr. Harris. May I answer first?
    Mr. Watt. Sure.
    Mr. Harris. There are two places where I see antitrust 
problems. One is in front of us and the other one is not in 
front of us.
    The one that is in front of us is with respect to listings. 
If the NASDAQ is able to purchase the New York Stock Exchange, 
we will have one entity that will be responsible for the vast 
majority--virtually all listings in the United States.
    Now coincidentally--I presume it is coincidental, but I do 
not know--the BATS Exchange just announced on Tuesday that they 
wanted to enter the listing business. The listing business is 
an extremely difficult business to penetrate because a listing 
is a brand; it is association with a brand. And the New York 
Stock Exchange and NASDAQ both have strong brands that took a 
long time to develop. BATS does not presently have a brand. 
They might in the future, but I suspect that if a listing is 
valuable to a company, that the BATS brand will have a 
challenge getting started up. So, to put all the listings into 
a single entity seems somewhat problematic to me. So, that is 
the area where there is----
    Mr. Watt. Even if those listings are going to be allowed to 
be traded by different platforms? Is it the listing that is 
troubling you, or is it the trading that is troubling you?
    Mr. Harris. No. It is the listing itself.
    Mr. Watt. Okay.
    Mr. Harris. The trading is subject to all the different 
platforms, and we have no problem there. There is very, very 
competitive markets in the equities space. But the listings are 
associated with control over governance, control over capital 
structure, and control over disclosure. And one might argue 
that it is best to put that under one entity so that the SEC 
can control all of it in a single place. But if we do believe 
that exchanges should be allowed to appeal to different 
clienteles among their issuers, then we basically preclude a 
significant competition by allowing this type of merger.
    The other place where I have significant concern is not in 
front of us, but it is worth discussing. You spoke about the 
derivatives and the profitability in the derivatives. The 
profitability in derivatives has to do with the clearing houses 
and the fact that the clearing houses are vertically integrated 
with the exchanges that feed contracts to them. It is a simply 
a felony in the United States for us to trade a futures 
contract off an exchange, whereas you and I, if we wanted to 
right now, could trade IBM among us. We might have difficulty 
settling it, but that would just be a practical problem; it 
would not be a felony.
    The exchanges and their clearing houses effectively have 
extraordinary market power in their successful contracts. And 
that is a fact already, and the aggregation of various 
contracts under a single holding company does not change that 
fact. So, if the New York Stock Exchange Euronext merges with 
Deutsche Borse, then we will see a lot more futures contracts 
aggregated under a single umbrella, but each one of those 
presently operates, by and large, with an awful lot of market 
power. It would make it very difficult for any competitor to 
open up a similar contract and try to trade against them.
    So, the market power is already there. The notion that 
these exchanges are buying or merging to acquire that market 
power seems wrong to me. It is already there, and they are 
undoubtedly paying for it. So that cannot be the source of 
value from these transactions. The source of value is that they 
hope to substantially reduce their expenditures on information 
technologies.
    Exchange platforms are essentially the same whether you are 
trading equities, futures, options. They are all about the 
same. They are electronic databases, in effect, and they have 
pretty much become a commodity. But to maintain two when they 
are both identical is very expensive, so if you combine the two 
into one entity, you have a great cost savings.
    Mr. Watt. Let me quickly get Mr. Bullard's reaction, 
because my time has long since expired.
    Mr. Bullard. I think I agree with the point about the 
brands. The way I would see it is that listing requirements are 
essentially the set of rules that are imposed in order to list 
with that exchange. You can go trade on another exchange, but 
where it is listed is what determines what the rules are. And 
those are very much kind of corporate governance type rules in 
many cases. And to see the merger of those two sets of rules 
into one set of rules is not consistent, in my mind, with the 
kind of useful free market in regulatory approaches that we 
would like to see because that has the kind of super national 
oversight to make sure things do not get out of hand. And that 
is essentially today the SEC and the CFTC.
    As to the international issue, you know, even though, as 
Professor Harris has pointed out, some of these have not come 
to pass yet, although, of course, NYSE itself exists because of 
the merger with a transnational set of exchanges. I think we 
need to look forward to what I think is a real serious 
antitrust problem, and that is that you will have the primary 
regulator of competition among exchanges missing from the 
picture to the extent you have the kinds of transactions 
Professor Harris described going on where a U.S. retail 
investor is buying securities traded under a German listing. 
Now, I do not have particular concerns with respect to German 
listings and German corporate requirements; in fact, they are a 
lot more stringent and a lot more burdensome than Sarbanes-
Oxley if you actually look at them. But I do have a concern as 
we go down the road that we will see other jurisdictions where 
we will not be comfortable, and we will need to have some kind 
of umbrella oversight mechanism in place, or we will not have a 
regulator as to the competitive aspects of these exchanges.
    And the inverse of our system where you have orders trading 
through different exchanges, and you have, as he pointed out, a 
lot of competition, is the more European approach where they do 
not push so hard for that, and where you have exchanges able to 
act opportunistically by having essentially sold trading 
privileges. And, you know, that is the kind of development that 
I ask who is going to be overseeing that when we have these 
transnational types of transactions.
    Mr. Watt. Thank you, Mr. Chairman. I yield back.
    Mr. Goodlatte. I thank the gentleman.
    The gentleman from Michigan, Mr. Conyers, is recognized for 
5 minutes?
    Mr. Conyers. Thank you.
    Professor Bullard, what is your law student organization 
like doing in this related activities at this time?
    Mr. Bullard. Well, as we were discussing before the 
hearing, there is another related SRO issue, and that is 
whether FINRA's authority would be extended to allow them to 
regulate investment advisors. And there are a number of 
investment advisors in the United States who would like to be 
regulated by a separate entity, and students at University of 
Mississippi, and not just the University of Mississippi. We 
have students in Ohio, Alabama, California, New York, Kentucky, 
Florida, and California--we have not heard from Michigan yet--
that are all working on this project to develop a structure 
whereby if Congress authorizes the creation of an SRO for 
advisors, there would then be one ready to apply with the SEC 
to provide that for investment advisors.
    And it is not directly relevant here, but it is 
structurally relevant in that the principle purpose that these 
students see this serving is to establish a different brand, a 
different set of regulatory requirements, where the SOROYA, as 
we are calling it, could compete with FINRA and offer different 
options.
    The idea that exchanges might coalesce and thereby 
eliminate that kind of regulatory marketplace in a way is 
nearer in the SRO world, and there are lots of different SRO 
type organizations. In the United States, you have, for 
example, the Municipals Securities Rulemaking Board, which 
interestingly has essentially rulemaking promulgation 
authority, but then leaves examinations and enforcement to 
others. You have FINRA, on the other hand, which really 
captures the whole mix and does just about everything, 
including arbitration or private disputes.
    So there are a lot of different models and there are lot of 
different models on an international scale. One model for some 
kind of super national authority might be IOSCO, which is the 
existing long-standing international group for securities 
regulators. Another would be something structured perhaps along 
the lines of the World Trade Organization. So, there are a lot 
of different models in which what we are seeing is the 
development of NGOs, the administrative state coming in and 
serving roles that are problematic under a constitutional 
authority, but are particularly problematic in deciding how are 
U.S. interests being protected abroad as we move into more 
formal transnational relationships in a lot of different areas.
    Mr. Conyers. Professor Harris, have there been any kind of 
student law school combinations of activities going on at the 
University of Southern California?
    Mr. Harris. None in this area.
    Mr. Conyers. In any area.
    Mr. Harris. I believe so. I know that we have students in 
the two schools working together on issues involving, I 
believe, venture capital and also, I believe, involving 
distressed workout situations.
    Mr. Conyers. Professor Bullard, has the antitrust division 
been dormant here for several Administrations?
    Mr. Bullard. I am sorry? Has the antitrust----
    Mr. Conyers. Division of the Department of Justice----
    Voice. He said dormant.
    Mr. Conyers. Dormant.
    Mr. Bullard. Dormant? I cannot really speak to that. It is 
not an area that I follow closely enough. But in the world of 
exchanges, especially as a securities lawyer, I generally view 
antitrust activities as being a securities regulation issue. 
And I would say that the SEC has been dormant on a number of 
fronts increasingly in the time preceding Mary Schapiro's 
tenure. And I think that in the respect of regulating 
investment banks, for example, and other aspects of SEC 
oversight, you have seen some of those problems bearing fruit 
today.
    Mr. Conyers. Professor Harris, do you think there are 
things we could do to improve DoJ and SEC in terms of oversight 
and enforcement?
    Mr. Harris. Certainly having two agencies who can 
reasonably believe that they have jurisdiction over similar 
issues is potentially problematic. The SEC, of course, has more 
expertise with respect to the financial markets. DoJ, when it 
is paying attention, potentially has more expertise over 
antitrust issues. And we would, of course, like to see the two 
of them cooperate.
    I will note that the SEC, in my opinion, has actually been 
pretty pro-competitive in the last decade. In particular, 
regulation NMS is the reason why we see so much competition now 
among the equities markets because we basically allowed those 
equity markets to become electronic and compete. And electronic 
competition has just vastly opened the marketplace for low-cost 
competitors who are providing really great service.
    But to your question of how they get along, they have 
different perspectives. I have a particular fear here in the 
options markets. The options markets now have a common clearing 
corporation called OCC, the Options Clearing Corp., which 
operates as an industry utility, and it serves the nine 
different exchanges that trade options. Those nine different 
exchanges are in a vicious competition with each other for 
order flow, and it is only because they are all served by the 
same clearing corp., the implication of which is that you can 
buy a contract at one exchange and sell the same contract in 
another exchange, which is a tremendous benefit to consumers.
    Now if we see substantial consolidation in the option space 
under the control of, say, two or three different entities that 
own these nine exchanges, and if that consolidation leads to 
substantial power over this OCC--and I frankly do not know the 
governance structure there--if that were to result, then the 
options markets will start looking a lot more like the futures 
markets. Futures markets produce an incredible amount of 
revenue for the clearing houses and the exchanges that own them 
in this vertical structure, a structure that, of course, the 
Department of Justice might more readily recognize than perhaps 
the CFTC.
    So, I would think that this would be an unattractive 
outcome if, as a result of mergers like this, the independence 
of the Options Clearing Corp. were in some way challenged.
    Mr. Conyers. Thank you, Chairman.
    Mr. Goodlatte. I thank the gentleman.
    The gentlewoman from Texas, Ms. Jackson Lee, is recognized 
for 5 minutes?
    Ms. Jackson Lee. Mr. Chairman, let me thank you very much. 
I had engaged the Chairman of the full Committee and the 
Ranking Member of this full Committee on the importance of 
having a hearing on this proposed purchase really by Deutsch 
Bank initially with German shareholders, to hold such a hearing 
as quickly as possible. And I thank the Chairman of the 
Subcommittee and the Ranking Member of this Committee.
    And let me express amazement and dismay because it looks as 
if we are tool-less. And I must place on the record, Mr. 
Chairman, my concern that the chief operating officer, Mr. 
Leibowitz, is not here. And I am disappointed that a short trip 
from New York City prevented him from being here. I can just 
well assume that the next trip from Germany might be even more 
challenging.
    So, I would like to raise these questions with you, and as 
I do that, I am interested in the antitrust issues, but I am 
just going to put the information on the record so that both 
professors can speak from your level of expertise. If it 
happens to be antitrust, so be it.
    But we have a very good memorandum that is prepared for us. 
And when you look to the issue of the Hart-Scott-Rodino review 
processes--7A Clayton--let me say that initially Teddy 
Roosevelt got it right to break up these large monopolies, to 
increase competitiveness, and for the 20th century it worked. 
And I understand that we may have to assess, but just listen to 
what the Justice Department has to do when there is this 
merger. The parties must notify the Federal Government, send 
them a note, or maybe you send them an e-mail, or you Twitter 
to them, while you are continuing to negotiate and get ready to 
sign the deal. Then the parties must then wait for a specified 
period of time, simply 30 days. That is the average. That can 
go in the flick of a hand--30 days to look at a complex merger 
such as the one before us or NASDAQ.
    Then after--let's see. The parties then wait a period of 
time, determine through a clearance process established by the 
Congress. The two agencies that have to be involved decides 
whether to clear the merger, after which it may be consummated. 
So, it could be 30 days plus one, and then maybe if they are a 
little challenged, they can issue a second level of 
information. They cannot stop it. They cannot enjoin it. And 
only after all of that and they feel that there's comfort, they 
can go into the courthouse that has already narrowed the 
interpretation of the Clayton Act.
    Literally America's hands are tied, and I have been asking, 
and I think it is important, for all the case law to go back 
and look at Section 7, to give us something to talk about with 
all these mergers, whether it is securities, whether it is 
automobile industry, whether it is TV, whatever it happens to 
be. It is because of the lack of teeth that we have in this 
particular legislation that is on antitrust.
    But let me go to you, Professor Bullard, and just ask a 
question, and I think you were saying about the race to the 
bottom for the financial markets premised on these mergers. Is 
there some truth to that kind of analysis, and expand on your 
issue of the potential lack of oversight of the securities and 
exchange market, I think is truly one that I would be concerned 
about.
    Mr. Harris, with this economy percolating and the global 
economy making some efforts, we saw job creation today 
increase, I believe. We see the efforts that were made, 
funding, stimulus dollars, American Reinvestment and Recovery 
Act, which is really putting this market in a direction where 
it is making a profit. But years past, as you well know, we 
moved the market from a little club of bankers and others, and 
shareholders are there, and it is the argument that the leaders 
of the stock exchange will say, which is, we need to make 
money. And these mergers help make money for the general 
public, the shareholders.
    So, my question to Professor Bullard, speak to me about a 
race to the bottom. And what should we be looking at when we 
assess whether this is a right approach and whether it is anti-
competitive, worry about whether we have a Clayton Act. And, 
two, Professor Harris, how does this skew the markets for the 
common man when we are talking about these kinds of mergers?
    Professor Bullard first, please.
    Mr. Bullard. I should probably warn you I have a bit of a 
different view of the common popular theory of the race to the 
bottom, which is usually used to describe state corporate law, 
and the theory that companies will go to the state with the 
worst regulation.
    I think that the idea of a race only makes sense when there 
is no higher authority that can ultimately place a check on 
that kind of race. And that is precisely what the Federal 
Government does. That is precisely what it has done repeatedly 
over the last 10 years. And to give you a concrete example, one 
of the provisions of Sarbanes-Oxley prohibits loans to 
executives by companies. That is precisely the kind of thing 
that no state law prohibited. The Federal Government stepped in 
because of the WorldCom scandal and decided to make that a 
minimum floor below which states could not drop.
    Ms. Jackson Lee. Right.
    Mr. Bullard. So in that sense, if you have that strong 
centralized Federal regulator, I am not concerned personally 
with the race to the bottom because structurally to me it just 
does not----
    Ms. Jackson Lee. But if your entity moves off shore----
    Mr. Bullard. I was going to add, in the national context, 
if the SEC continues to have both a doubling of its burdens and 
a having of its budget, you are no longer going to have that 
oversight in the U.S.. And then the race to the bottom will be 
a serious issue because securities regulation does supplement 
and, in many cases, supplant state law. If you do not have an 
agency, such as the SEC, that can carry out its enforcement 
responsibilities, then you really do have a race to the bottom. 
And I think that is what would happen.
    Ms. Jackson Lee. And mergers do not help the situation.
    Mr. Bullard. And in addition to that, it is a given 
structurally that if you go abroad, you are going to have a 
race to the bottom because, again, you have no formal mechanism 
that can impose requirements in order to constrain the 
competition that will exist if you do not have that oversight.
    Ms. Jackson Lee. Professor Harris. Thank you.
    Mr. Harris. These mergers will reduce the cost to the 
companies who are providing their services because they reduce 
duplicative processes.
    To the extent that they can reduce the costs if the firms 
remain in competition with other firms, those benefits will be 
passed through to the public, and that will be for the best, 
both for Americans and for others who use these markets, 
whether they are here or abroad.
    Now, with respect to regulation, I think it is important to 
recognize that the need for regulation has changed 
substantially with electronic trading. So, we regulate in 
several different areas. We regulate trading practices. We 
regulate brokers and their relations with their clients. And we 
regulate issuers and their capital structure and their 
governance.
    With respect to trading practices in electronic systems, 
there is hardly any need to regulate anymore because those 
computers simply do not break the rules. We still need to 
regulate the brokers, but the brokers are locally domiciled, 
and we have control over that, which brings us back to the 
listing issue.
    So, we regulate listings or listings agencies, which are 
the NYSE and NASDAQ, regulate the issuers through their listing 
standards, with some input from the SEC. And, of course, these 
issues are all states' rights issues by and large. Those are 
places where we may have some concern with these transactions.
    Ms. Jackson Lee. Mr. Chairman, if I could ask unanimous 
consent to put into the record From Shame to Antitrust: New 
York Stock Exchange and NASDAQ/ICE Merger, and----
    Mr. Goodlatte. Let me interrupt the gentle lady. Her time 
has expired. We are going to do a second round, and we will 
return to you in a----
    Ms. Jackson Lee. I am just asking to enter into the 
record----
    Mr. Goodlatte. Without objection.
    [The information referred to follows:]
    
    
    
    
                               __________

    Ms. Jackson Lee. And I would just make an inquiry to you, 
and I know we are doing a second round, but it is just an 
inquiry. I do appreciate being informed that the COO is not 
here because of the potential NASDAQ/ICE merger. Since I happen 
to question that potential merger and am opposed to it, I am 
still disappointed that he is not here. But I would just make 
the inquiry, Mr. Chairman, will he be able to come back sooner 
rather than later? Will this Committee reconvene for the 
opportunity for us to hear him?
    Mr. Goodlatte. Well, I thank you for raising that point 
because we, at the outset of the hearing, made clear that his 
presence here was not, in my opinion, to be characterized as 
ducking the hearing. The Committee made the determination that 
because Mr. Leibowitz was confronted last night with a sudden 
development involving another major competing bid for the 
acquisition of the NYSE Euronext, that it would be 
inappropriate to call him to testify today. It was the 
Committee's decision to do so. I also announced that we would 
hold another hearing on the issue. The exact timing of that 
will depend upon a number of variables, including the 
Committee's schedule. But it is our hope that we will be able 
to accomplish that, and I will work with the Chairman of the 
full Committee to accomplish that.
    Ms. Jackson Lee. Thank you, Mr. Chairman. It is a very 
important issue. Thank you.
    Mr. Goodlatte. I recognize myself for some additional 
questions, and then I will recognize other Members who may wish 
to ask some questions as well. I have several, so I would ask 
you to keep your answers as brief as possible, although I know 
some of these are not easy to answer briefly.
    First of all, I would ask both of you, why is it that the 
New York Stock Exchange, which is the world's largest exchange 
by trading volume, has a relatively small market 
capitalization? Do either of you know the answer to that?
    Mr. Harris. I believe I----
    Mr. Goodlatte. Professor Harris?
    Mr. Harris. The New York Stock Exchange market share has 
dropped very substantially as it competes with other electronic 
entities that have provided high quality service. Has been very 
attractive to brokers and to traders. So where the New York 
Stock Exchange used to have a market share in excess of 90 
percent at one time, it has now dropped into the 20's. And with 
that and all that competition, they have had to reduce fees 
very substantially, and as a consequence, the market 
capitalization is much lower.
    Mr. Goodlatte. It is lower because the profitability of the 
entity is much lower.
    Mr. Harris. The electronic trading has substantially 
reduced the costs of providing service in this area, and as a 
consequence, the business is less profitable.
    Mr. Goodlatte. In your testimony, you reflect that 
technology and regulations have made securities markets far 
more competitive in the past 15 years. And according to some 
estimates, this competition has shrunk the New York Stock 
Exchange share of the securities market from over 70 percent to 
under 30 percent since 1996. How has this competition affected 
ordinary investors, and how has it affected small and 
developing companies that are seeking capital? How has it 
affected established listing companies? Has it been a plus or a 
minus for each of those three areas? And I will start with you, 
and then go to Professor Bullard.
    Mr. Harris. I recently did a study on the quality of 
markets over the last 20 years. Market quality has increased 
very substantially. Those spreads have gotten smaller for large 
companies and small companies. The aggregate sizes on the bids 
and the offers have increased over time. Just about every 
measure of market quality has improved. The public is being 
served by much better markets now than they used to be. And it 
is, I think, pretty easy to understand that the entities that 
are now providing service to the public are largely computers 
and not people. And it is not that we do not like the people, 
but the computers just work a whole lot cheaper. They are more 
reliable. They are certainly more trustworthy in the sense that 
they never break the rules. And they are, of course, governed 
by people who are trying to use them to make profits. But they 
are only able to make profits within the narrow confines of 
electronic exchanges where the rules are well defined and 
completely enforced.
    In that environment where people can instantly move from 
one market to another looking for liquidity, it is very easy to 
find the other side, even when the markets are broken up and 
fragmented. And that indeed is what is happening. So, I believe 
that at least with respect to exchange services, the public and 
the small investors and small issuers have never been better 
served.
    Mr. Goodlatte. Thank you. Professor Bullard? Turn the 
microphone on.
    Mr. Bullard. I would echo that in that that is directly 
felt by retail investors, for example, through mutual funds who 
are now trading at small fractions of the cost of trading that 
existed 20 or 25 years ago. And the same indirect benefits 
accrue to issuers on those markets, including small issuers.
    Mr. Goodlatte. Sal Amuk, AMUK, an institutional broker at 
Themis Trading, has questioned the for-profit exchange model 
and argued that exchanges should be utilities that look after 
their customers and the markets rather than for-profit 
businesses that ``act like bonus-seeking bankers.'' What are 
the advantages of the for-profit exchange model? Professor 
Harris?
    Mr. Harris. The for-profit exchange model, when the for-
profit exchange is in competition with many other exchanges, 
tends to innovate a lot faster than does the mutual model, and 
it tends to lower costs much more aggressively.
    The mutual model has its advantages in that you don't have 
a conflict of interest between the interest of the shareholders 
and the interest of the customers. In the mutual model, if the 
directors of the exchange are looking out for the interests of 
the customers, then, of course, the customer comes first, 
although quite frequently in the mutual model, the directors 
are looking out for the members, in which case you have a 
conflict between the members and their customers.
    Mr. Goodlatte. And are there examples of the mutual 
exchange model? Are there any operating entities?
    Mr. Harris. Over the last 10 years, almost all exchanges 
that used to be mutual model exchanges have converted to public 
equity exchanges.
    Mr. Goodlatte. For-profit exchanges.
    Mr. Harris. For-profit, yes.
    Mr. Goodlatte. All right.
    Mr. Harris. Undoubtedly, there are some left somewhere, but 
I frankly do not know which ones they would be.
    Mr. Goodlatte. Professor Bullard, do you have any comment 
on that?
    Mr. Bullard. The essential difference between a mutual 
model and a for-profit model is that one is answerable to the 
members--traders--who use the services on the exchange, and the 
other being shareholders. Shareholders have no loyalty other 
than to their company as a profit-making concern. So, there are 
necessarily going to be far fewer responsibilities of 
shareholders as such to other types of relationships that 
members have in the mutual context. Members of the New York 
Stock Exchange, for example, are directly regulated by the SEC, 
and that puts a significant crimp in their ability to act 
solely not only in the interest of making profits for the New 
York Stock Exchange, it also puts a serious crimp in their 
ability to run contrary to what might be U.S. policy in the 
securities markets. On the other hand, when you have got public 
shareholders who can be anyone around the world essentially, so 
I think there may be some limits on share ownership with 
exchanges. They are looking for one thing, and that is profits. 
And as much as you may hear those talking about mergers, hoping 
that they will be in the best interests of the United States, 
you know, I consider that nothing more than diplomacy. They are 
out there doing one thing, and that is trying to maximize value 
for their shareholders. And if it means going abroad, that is 
where they will go. If it means staying in the U.S., they will 
stay.
    Mr. Goodlatte. Thank you. Two more questions I will direct 
each of you. Do you believe that the Deutsche Borse merger will 
enhance or reduce New York City's role as a global financial 
center?
    Mr. Harris. I do not think it will have any difference at 
all. The trading of securities now is not a major issue within 
financial markets. The financial markets, the intelligence, the 
where the money is made, the where the difficulties are, have 
to do with raising capital. They have to do with structuring 
transactions. They have to do with recognizing where value 
lies.
    The actual trading in the securities and electronic markets 
is a commodity business, could take place anywhere. There is 
not a lot of money to be made in it. And, frankly, that is the 
reason why we are seeing these mergers is because they are 
trying to reduce those costs.
    Mr. Goodlatte. Thank you. Professor Bullard?
    Mr. Bullard. I just do not know the answer to that 
question.
    Mr. Goodlatte. Okay, very good.
    Mr. Bullard. We do not say that very often.
    Mr. Goodlatte. We certainly understand. There are questions 
like that out there.
    And the last question I have is, some, such as Grant 
Thornton Senior Advisor David Weild, argue that the 
technological and regulatory changes that have increased 
competition for exchanges have helped to drive spreads and fees 
so low that exchanges focus on generating trading volume with 
large-cap companies rather than helping small- and mid-cap 
companies access capital. Do you agree with his analysis? 
Professor Harris?
    Mr. Harris. No, I do not.
    Mr. Goodlatte. Can you explain?
    Mr. Harris. I just do not see any evidence of it. The 
exchanges are actively looking for listings, both for large 
firms and small firms. There might be some basis in the 
argument on the sense that in the past, the exchanges tried to 
encourage dealers to subsidize the trading in the smaller firms 
by charging wider spreads, but standing present in the event 
that somebody needed to trade. It is harder to do that in an 
electronic environment, but that subsidy was, in some sense, a 
false subsidy. It was damaging traders or hurting traders when 
trading was normal, and it was helping only the dealers' 
friends when the liquidity was really necessary. It represented 
a regulatory problem that, frankly, I think has gone away, and 
I welcome that we do not face it anymore.
    Mr. Goodlatte. Thank you. Professor Bullard?
    Mr. Bullard. You know, I do not have an opinion on that 
issue.
    Mr. Goodlatte. Thank you.
    Gentleman from North Carolina, Mr. Watt?
    Mr. Watt. Mr. Chairman, I think I will pass on this round.
    Mr. Goodlatte. The gentlewoman from California, Ms. Waters. 
Are you ready to ask questions?
    Ms. Waters. Thank you very much, Mr. Chairman. Sorry I 
could not be here during the entire hearing.
    And I suppose I am wondering, as many others are, about 
this NASDAQ/New York Stock Exchange merger. What are the 
implications of this merger? Are there some anti-competitive 
aspects of this that we should be concerned about? I suppose 
that is on everybody's minds, so I would appreciate any 
thoughts on that.
    Mr. Goodlatte. I thank the--go ahead.
    Mr. Bullard. I could repeat Professor Harris' comments, and 
he could repeat mine. Earlier we had a discussion about some 
potential impacts, and we talked about how there does not seem 
to be much market benefit to merging the two primary brands in 
U.S. markets. And that with respect to trading, where you have 
a system where trades can really find their best execution, to 
a great extent, under current SEC rules, that is an area where 
there is probably less of a concern, although I also noted at 
the time that, you know, it concerns me as to whether you will 
have on an ongoing basis the kind of oversight of that kind of 
enforced competition if the SEC continues to see restrictions 
on its ability to provide that degree of oversight.
    Mr. Harris. I will introduce a new observation without 
commenting much on it.
    The NASDAQ used to have market share approaching 80 percent 
in its securities. It was eroded by competition from Island and 
InstaNet and other ECMs. NASDAQ bought those entities in an 
attempt to acquire their technology and restored their market 
share only to see the market share drop to new entities, like 
Direct Edge and BATS. And now once again, NASDAQ's market share 
is on the order of 20 or 30 percent, I believe. Maybe it is 40 
percent, I am not sure.
    So, now they propose to buy the New York Stock Exchange, 
hopefully with a different outcome. And I do not want to 
comment on it; it has other dimensions, including the fact that 
now they will control listings if the transaction works--the 
control listings for both markets, and essentially be the 
exclusive listing agent, except perhaps for a new entrant in 
BATS that was just announced on Tuesday.
    But I do wonder whether the continual combination is just a 
denial of what is ultimately true, which is that this is a 
commodity business in which people with computers can buy 
software off the shelf, open up an exchange that provides 
excellent service to everybody. How can you compete well 
against that model? And the answer is it is very difficult, but 
that is great for the consumer because they are getting pretty 
good service.
    There are market fragmentation concerns by having so many 
competitors where, you know, there is a buyer in one market and 
a seller in another market. How do they ever find each other? 
But the answer is, there are electronic mechanisms that connect 
them. Many of those mechanisms are operated by the so-called 
high frequency traders who are in the business of basically 
connecting a buyer in one market to a seller in another market. 
And they do earn some profit from it, but in the end the 
consumer is better off because it is so cheap to trade.
    In a world where we had perfect, perfect foresight, we 
might construct a single exchange that in some way would 
hopefully serve everybody's interests perfectly, which is 
impossible because people have different interests. And then it 
would be really easy for the buyer to find the seller. But 
there we would have a problem with, what about the tension 
between well-informed traders and large institutions? Large 
institutions often represent pensioners. They are often not 
particularly well informed, and they do not like to lose to 
well-informed traders. So, they patronize dark pools, these so-
called hidden order systems, where they actually obtain much 
better executions because they do not display their orders. If 
they display the orders, there are a variety of strategies that 
allow other people to become parasites off of these 
institutions and ultimately hurt pensioners.
    So, we have a diversity of market structures that appeal to 
the diverse needs of different types of traders, and to force 
them all into a single structure would seem pretty unwise to 
me.
    Ms. Waters. Well, I certainly thank you for that answer. 
You have certainly provided me with more information than I can 
digest or comprehend at this time. Thank you very much.
    Mr. Goodlatte. I thank the gentlewoman.
    The gentlewoman from Texas, Ms. Jackson Lee, is recognized 
for 5 minutes?
    Ms. Jackson Lee. Thank you very much, Mr. Chairman.
    I indicated to you that I wanted to submit into the record 
the article that I believe is CNN. But anyhow, just the 
headline, From Shame to Anti-Trust. And then I have one from 
Financial
Times.com, and they have a very good sentence here. ``The 
move''--and this is about NASDAQ--``is a sign that a wave of 
exchange consolidation triggered 5 months ago has become a 
battle between the world's biggest entities for poll position 
in an industry pressured by competition.'' What an irony that 
we have now tried to demonize competition and find a way to 
swallow up, to consume anyone or any entity that poses a 
competitive edge, or allows there to be some tension in the 
industry, tension in the media industry, good tension in the 
airline industry. And so, besides the board of directors and 
the shareholders, the CEO apparently gets brownie points for 
coming and saying, here is our next opportunity for making 
money. You are not making a product. You are not creating more 
jobs. But the way to make more money is let us, you know, just 
consume--put a little salt on it, a little pepper--the 
competitor.
    [The information referred to follows:]

    
    
    
    
    
    
                               __________

    Ms. Jackson Lee. I do not get it, I really do not. And so, 
my question, since we are in the midst of job surging and job 
creating, it is just a simple question. Will these mergers--and 
I know these are the financial markets--lead to further job 
creation for Americans? Do they have any impact on reversing 
job growth trends that we are experiencing--good news that we 
are experiencing? Americans need jobs, and obviously this is 
financial markets and very technical. Most Americans do not 
understand.
    But let me add to that that if there was a merger, does 
that mean that the special, talented guys and ladies that I 
have come to know and being on the floor of the New York Stock 
Exchange, and paper falling all over everywhere--they have 
gotten a little bit more sophisticated. Do they get slashed in 
the hand? Do you cut them? Professor Harris, you talked about 
technology, but when you go to the stock exchange, there are 
still a bunch of folk running around--quite a number of jobs 
and also jobs that provide a good income.
    And let me add this point to my inquiry. Is there any 
precedent--and obviously I am answering my own question, but I 
want to hear from you--for these types of mergers? And what 
have you seen, and what results have you seen with respect to 
these types of mergers? And I do not know whether you would 
assume that the bank mergers equal that, but I sort of separate 
out the bank mergers from the exchange. But if you can deal 
with this question of job creation. Can we go back and say this 
is really a good initiative for job creation? Are we going to 
see the cutting of personnel at the New York Stock Exchange? 
And what impact have you seen on mergers similar to this kind 
of financial merger?
    Professor Harris and then Professor Bullard. Thank you.
    Mr. Harris. First, let us put things into perspective. The 
exchange services industry is really a very small industry. 
There is not a lot of employment here, and, of course, 
employment has been dropping as computers are doing the work 
more effectively.
    Before the New York Stock Exchange used to be a much, much 
busier place than it presently is, and it has gotten much less 
busy because they are using computers increasingly. And it will 
get less busy in the future undoubtedly.
    The vast majority of the people who trade on the floor of 
the exchange are honest people and always have been. But there 
are unfortunately a good number of them who were not honest. We 
had scandals with the specialists. We had scandals with 
brokers. We had people who were violating rules because we 
could not see that they were violating the rules. That does not 
happen with computers anymore, and that is a good thing.
    So, to be concerned about their jobs, absolutely. There are 
people about whom we should be concerned. But at the same time, 
we do not want people to be plowing our fields behind oxen 
because that is the way they always did it. There have been 
changes that allow us to be far more productive, and we feed 
far more people now because we use powered machines to plow our 
fields. In the same way, we are able to do far more in the 
exchange services arena using computers.
    Now, with respect to job creation in general, there is 
basically within the Western world a single market for capital. 
Capital moves quite easily among countries, and while we would 
like to have the managers of that capital to be working in the 
United States, the sources of capital are all over the place. 
And they will serve up capital to people who have good ideas 
regardless of how the financial system is organized.
    So, we need to do things to make it possible for those 
transactions that take place here to support jobs in this 
country. But the big story, will capital go to the best ideas, 
that is going to happen no matter what. And getting capital to 
the best ideas is the way we get the most jobs in the United 
States.
    Within the exchange services industry, we would like to see 
a very strong industry that is reliable, safe, that does 
provide sensible employment where it is possible. And for that 
we just need to have well-educated people who can manage money 
and who know how to connect the buyers and sellers, the savers 
to the investors.
    Ms. Jackson Lee. Professor Bullard?
    Mr. Bullard. I think I would largely echo virtually all of 
that. I think just more bluntly, in the short term, there is no 
question there will be job lost, and there will be jobs lost in 
New York. Whatever merger happens, the CEOs will ensure that 
the promise of savings happens, and it will be in the form of 
some job losses. In theory, what happens to those people is 
then they find jobs with the new competitors of this new 
entity, and they continue to thrive and----
    Ms. Jackson Lee. Maybe.
    Mr. Bullard [continuing]. Engage in competition, in theory.
    As to job creation going forward, I think that is a 
function of whether the United States is producing the bodies 
that are going to be paid these higher incomes for providing 
this high-end, very sophisticated service, which is setting up 
the kinds of exchanges that do the best job for the markets. 
And all you have to look at is just the training and testing 
scores that you see in the United States to make judgments 
about where we are in that competition. I think some of the 
news is good and some of the news is bad, but I think that is 
really where you are going to find the answers.
    Whether in the long term, the bottom line is whether those 
exchanges are going to be paying U.S. people or are they going 
to be paying other people.
    Mr. Goodlatte. The time of the gentlewoman has expired.
    Ms. Jackson Lee. I thank the gentleman.
    Mr. Goodlatte. The gentleman from Ohio, Mr. Chabot, is 
recognized for 5 minutes?
    Mr. Chabot. Thank you, Mr. Chairman. I will not take up the 
5 minutes. It was just a point that I wanted to make, or at 
least ask a question related to the questioning and the answers 
that we just heard.
    Professor, you had mentioned that there were fewer people 
working on the floor of the Stock Exchange nowadays, and that 
we have computers that have replaced some of those folks. And 
obviously, if you are one of those folks, that is very 
unfortunate.
    But what has it done relative to the, say, the per cost 
transaction to the consumer, the person that is either buying 
or selling stocks? What has been the trend over time, even 
though we have fewer people there?
    Mr. Harris. The trend has been extremely obvious and in one 
direction. The cost of trading to individuals and institutions 
has dropped very significantly. We see this both in bid out 
spreads that have dropped from--it used to be a quarter, 25 
cents; it is now typically one penny or two pennies.
    We also see it in the form of much lower commissions. Now, 
this is in the brokerage industry, not in the exchange services 
industry. But it is an allied industry subject to the same 
technological innovations. Brokerage commissions have dropped 
very substantially, both for institutions and for individuals, 
where individuals now can trade essentially as much as they 
want for about $10. It used to cost them $150 or more. 
Institutions used to pay 5, 7, 10 cents a share; now they are 
typically paying 1 and a half to 3 cents, and they can pay and 
get excellent quality service for less than a penny.
    Mr. Chabot. And so, the consumer, small investors--and 
would it be accurate to say that nowadays, other than after the 
meltdown, in which case I am guessing that a lot of small 
consumers either got out or were scared out of the market or 
whatever. But the trends other than that, more and more people 
are investing, I would say, on their own and in larger 
percentages of the population than in the past? Would that be 
accurate?
    Mr. Harris. That certainly has been the trend since World 
War II, and I believe it continues.
    Mr. Chabot. And so, the consumer--if the consumer is the 
person who buys and sells stock, especially the small consumer, 
they would be making more money in each transaction because 
they are paying out less costs, or at least the expenses are 
lower to them. Is that correct?
    Mr. Harris. Yes. Any time the expenses are lower, the 
trading activity is more profitable or, alternatively, less 
costly.
    What we hope by this is that if the consumer believes that 
they can use the markets to move their money from the present 
to the future so that they can retire, or move money from the 
present to the future so that their children can go to a 
university, if they can do that more cheaply than they 
otherwise could do it, then they will save their money in the 
markets, and that will make money available to companies who 
hopefully have good ideas and generate more employment.
    Mr. Chabot. Thank you very much, Professor.
    Professor Bullard, I do not know if you----
    Mr. Bullard. When you were talking about there are more 
direct investors, I think there has actually been declining 
direct investment in equities as opposed to investment through 
other collective investment vehicles. These savings----
    Mr. Chabot. Do you mean mutual funds in particular? Do you 
mean----
    Mr. Bullard. Mutual funds, but there you have seen equally 
drastic reduction in trading costs as well. So, investors are 
benefitting in that context just as well.
    Mr. Chabot. Okay, very good. Thank you very much. I yield 
back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman.
    I would like to thank both of our witnesses for their 
testimony. They have made, I think, an important contribution 
to our understanding of competition in this market. And as I 
noted at the outset, because of the rapid developments that 
have occurred within the last now 15 hours, we will revisit 
this issue at the appropriate time with the appropriate 
witnesses and taking heed of the concerns raised by the Ranking 
Member, Mr. Watt, that the Subcommittee do so with the fairness 
that one would expect of us.
    So without objection, all Members will have 5 legislative 
days to submit to the Chair additional written questions for 
the witnesses, which we will forward and ask the witnesses to 
respond as promptly as they can so that their answers may be 
made a part of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    And with that, I, again, thank the witnesses and declare 
the hearing adjourned.
    Mr. Harris. Thank you.
    Mr. Bullard. Thank you.
    [Whereupon, at 2:22 p.m., the Subcommittee was adjourned.]

                                 
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