    [House Hearing, 113 Congress]
    [From the U.S. Government Publishing Office]

                             OVERSIGHT OF THE SEC'S

                            AGENDA, OPERATIONS, AND

                             FY 2014 BUDGET REQUEST
    =======================================================================

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED THIRTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 16, 2013

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 113-20

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking
        Chairman                             Member
    SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
        Emeritus                         NYDIA M. VELAZQUEZ, New York
    PETER T. KING, New York              MELVIN L. WATT, North Carolina
    EDWARD R. ROYCE, California          BRAD SHERMAN, California
    FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
    SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
    SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
    RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
    PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
    JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
    MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
    KEVIN McCARTHY, California           AL GREEN, Texas
    STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
    BILL POSEY, Florida                  GWEN MOORE, Wisconsin
    MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
        Pennsylvania                     ED PERLMUTTER, Colorado
    LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
    BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
    BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
    SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
    ROBERT HURT, Virginia                BILL FOSTER, Illinois
    MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
    STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
    STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
    MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
    MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
    RANDY HULTGREN, Illinois             DENNY HECK, Washington
    DENNIS A. ROSS, Florida
    ROBERT PITTENGER, North Carolina
    ANN WAGNER, Missouri
    ANDY BARR, Kentucky
    TOM COTTON, Arkansas

                         Shannon McGahn, Staff Director
                        James H. Clinger, Chief Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        May 16, 2013.................................................     1
    Appendix:
        May 16, 2013.................................................    53

                                   WITNESSES
                             Thursday, May 16, 2013

    White, Hon. Mary Jo, Chairman, U.S. Securities and Exchange
      Commission.....................................................     8

                                    APPENDIX

    Prepared statements:
        Neugebauer, Hon. Randy.......................................    54
        White, Hon. Mary Jo..........................................    55

                  Additional Material Submitted for the Record

    Bachus, Hon. Spencer:
        Letter to Federal Reserve Chairman Ben Bernanke dated March
          14, 2013...................................................    79
        Witness bio of Hon. Mary Jo White............................    81
    Maloney, Hon. Carolyn:
        Letter to Senator Jack Reed from SEC Chairman Mary Schapiro,
          dated November 28, 2011....................................    82
    Pearce, Hon. Stevan:
        Article entitled, ``Wind farms get pass on bald eagle
          deaths,'' dated May 14, 2013...............................    86
        Wall Street Journal article entitled, ``SEC Bears Down on
          Fracking,'' dated August 25, 2011..........................    92
    White, Hon. Mary Jo:
        Written responses to questions submitted by Representative
          Huizenga...................................................    95
        Written responses to questions submitted by Representative
          McCarthy...................................................    98
        Written responses to questions submitted by Representative
          Murphy.....................................................   100
        Written responses to questions submitted by Representative
          Pearce.....................................................   101
        Written responses to questions submitted by Representative
          Stivers....................................................   103
        Additional information provided for the record in response to
          questions posed by Chairman Hensarling and Representative
          Hultgren during the hearing................................   110

                             OVERSIGHT OF THE SEC'S

                            AGENDA, OPERATIONS, AND

                             FY 2014 BUDGET REQUEST

                                  ----------

                             Thursday, May 16, 2013

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10:05 a.m., in
    room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
    [chairman of the committee] presiding.
        Members present: Representatives Hensarling, Miller,
    Bachus, Royce, Garrett, Neugebauer, McHenry, Pearce, Posey,
    Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Hurt,
    Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross,
    Pittenger, Barr, Cotton, Rothfus; Waters, Maloney, Velazquez,
    Watt, Sherman, Meeks, Scott, Green, Cleaver, Moore, Perlmutter,
    Himes, Peters, Carney, Sewell, Foster, Murphy, Delaney, Sinema,
    Beatty, and Heck.
        Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a recess
    of the committee at any time.
        The Chair will now recognize himself for 4 minutes for an
    opening statement.
        Like most Americans, I was both angered and appalled to
    learn of the IRS' campaign to selectively intimidate Americans
    based upon their political beliefs. And yet, it was just days
    ago that our President urged college graduates not to view the
    government as ``some separate, sinister entity.'' And to ignore
    the voices warning that, ``Tyranny is always lurking just
    around the corner.''
        But it is under this President's watch that we get the news
    that the IRS, perhaps the single most feared government agency,
    has been caught trampling upon our most sacred right, namely
    our freedom of speech. Using the IRS to selectively punish and
    harass one's political opponents is right out of the Watergate
    playbook, a playbook I thought had disappeared 40 years ago. In
    2013, this is something that we would expect perhaps in
    Venezuela or Cuba, but not in the United States of America.
        This is an issue that should rise above partisanship. It
    hits at the heart of who we are as a people, and why we fight
    for justice and fear such a large powerful government that
    clearly has become too big to manage.
        What the IRS did was wrong, because it tried to turn our
    citizens into subjects. It is wrong because it violates both
    our constitutional and civil rights. It is wrong because it
    treats citizens wishing to speak out against the government's
    policies, exercising a God-given right, like enemies under
    state investigation.
        In a word, Mr. President, it is tyranny. Now fearful and
    outraged Americans want to know just how pervasive the IRS'
    tactics of harassment have become within the Administration.
        So, the question is most relevant to this SEC oversight
    hearing we are having today. The SEC has three statutory
    purposes: protecting investors; maintaining fair, orderly, and
    efficient markets; and facilitating capital formation.
        And that is why it is most disturbing to many of us to
    realize that while the SEC has missed numerous mandatory
    rulemaking deadlines, it is devoting time and resources to a
    discretionary rulemaking, and more specifically, a highly
    controversial discretionary rule to force public companies to
    report all perceived facets of political involvement.
        This rulemaking is well known to be a part of a partisan
    political agenda of labor union bosses, George Soros, and
    assorted leftist groups who conveniently would not have to
    abide by the rule.
        Media Matters was quoted as saying that this is in part to
    ``make the case that political spending is not within the
    fiduciary interests of publicly traded corporations and
    therefore, should be limited.''
        A New York City public advocate was quoted as saying,
    ``Strength that all of these organizations can bring to bear
    against companies: boycotts; shareholder actions; legal
    actions; you name it, it is on the table.''
        The Center for Public Accountability: ``We and our partners
    are putting pressure on companies to adopt political
    disclosure, to change the behavior of companies and trade
    associations and their political spending.''
        Now, the American people are horrified at those who would
    use the strong arm of government for partisan political
    advantage, but it remains to be seen whether this could ever
    happen at the SEC.
        One of our chief oversight responsibilities regarding the
    SEC is to ensure the agency is a good steward of its resources,
    both its time and its budget, which has tripled over the last
    10 years, and there are serious concerns.
        These discretionary projects come at the expense of more
    important and legally required tasks that actually help
    struggling working families secure their financial futures,
    such as the bipartisan JOBS Act, which the SEC has regrettably
    and deliberately failed to implement on time.
        A change in leadership represents an opportunity for a
    fresh start. While the SEC's recent history is riddled with
    misplaced priorities and misallocated resources, hopefully a
    fresh start is exactly what will happen at the SEC under the
    new leadership of our witness, Chairman White.
        I now recognize the ranking member for 5 minutes for her
    opening statement.
        Ms. Waters. Thank you very much.
        The Honorable Ms. White, I welcome you to the committee
    this morning. I congratulate you on your appointment and I am
    poised, as many of us are, to work with you to make sure the
    SEC can do its job.
        And as you perhaps already know, it is not going to be
    easy. It is going to be very difficult for a lot of reasons.
    First, allow me to do everything that I can to make you feel
    comfortable in being here with us today, and while my colleague
    has referred to the debacle at the IRS, I assure you none of us
    think you had anything to do with that.
        And so, you should not have to take any kind of reprimand.
    You should not have to endure any kind of similar criticism,
    and so I wish to say that on behalf of many of our colleagues
    who understand that you have this huge responsibility of being
    the cop on the block, I am focused at this particular time on
    something called cost/benefit analysis, and I am very worried.
        I am very worried, and at question time, I will perhaps
    have the opportunity to raise some questions and create some
    discussion about cost/benefit analysis. The reason I am so
    focused on it is, I worked with institutional investors who
    came to us during the Dodd-Frank conference committee because
    they were concerned that many of the big companies that they
    were investing in appeared not to be under the control of a
    board of directors.
        Many of them were not participating, and we still have
    questions that are going on in some of our big financial
    institutions about not only pay and other kinds of things, but
    whether or not some people should hold dual positions, as
    perhaps you are very much aware.
        They came to us and they wanted to create an opportunity
    for our proxy materials to include the ability to nominate
    directors to those boards. They thought it was very important
    because, don't forget, they are the ones responsible for the
    retirements of our teachers, our firefighters, our police
    officers, and our first responders, all of those upon whom we
    depend.
        And so, they want to have a say. They want to be involved.
    They want to be able to nominate and, lo and behold, some of my
    friends on the opposite side of the aisle teamed up with some
    of the business interests and went to court, into the 9th
    Circuit here in Washington, D.C., and they got a ruling against
    the SEC.
        But the SEC went back and not only did they send out a
    directive to all of its personnel about, okay, let us see if we
    can do even better. They have a reputation for having done well
    on cost/benefit analysis.
        And when we look at GAO, a report that took a look at how
    the SEC does cost/benefit analysis, they received compliments
    that they do a good job, but the court ruled.
        The SEC has made an attempt to improve even more, but, lo
    and behold, we have a bill before us that is going to be on the
    Floor tomorrow, where the SEC is going to be challenged with
    the kind of burdens that are going to make your job even
    tougher, and there is no more money to go along with it.
        And in addition to piling up unreasonable conditions on
    cost/benefit analysis, they are saying you must review it every
    5 years, and you must go all the way back to the Depression
    era.
        This is unreasonable, and I want you to know that while all
    this other stuff is going on, we still depend on you and the
    SEC, but you are going to be doing it with your hands tied
    behind you.
        Because my friends who can rail about all of the other
    stuff that is going on--that makes for good propaganda--are not
    going to do anything to help you get the resources you need to
    do your job. But some of us are committed to the proposition
    that if we are to protect investors, if you are to carry out
    your mission, that you must have the support, and we are going
    to fight for you.
        We are going to fight for you, and we are not going to
    blame you for anybody else's mistake. You start anew in this
    job. You need to have the opportunity to get this job done.
        Mr. Chairman, I yield back the balance of my time if I have
    any.
        Chairman Hensarling. The Chair now recognizes the chairman
    of the Capital Markets Subcommittee, the gentleman from New
    Jersey, Mr. Garrett, for 3 minutes.
        Mr. Garrett. I thank the chairman for holding this
    important hearing today, and I thank Chairman White as well for
    your participation.
        Chairman White, I want to commend you, first of all, for
    your first month on the job. As indicated already, the job is
    only going to get only harder as the days go along.
        It appears from what I have seen thus far, you are taking a
    pragmatic, commonsense approach to your issues at task, and I
    greatly appreciate it. I think this is refreshing.
        But as you move forward, as has already been indicated,
    there will be pressures from outside forces that will begin to
    push you harder and more frequently.
        And I encourage you to resist the temptation to take those
    more ideological, political positions, but continue as you have
    to seek logical, consensus-driven ones.
        Your work and comments on Title VII, which is a cross-
    border application section, the JOBS Act implementation, the
    equity market structure prioritization, have all been very
    positive in my view.
        So, I encourage you to continue down this pragmatic path, a
    reasonable path, and not be overly influenced by outside
    special interest and political groups.
        And this brings me to the topic I am sure you have already
    heard about and will hear about today, as the chairman
    mentioned, our concerns are about an independent agency being
    subject to political pressure by the White House and this
    Administration and by outside political special interests
    groups.
        There appears to be a coordinated effort to use any and all
    methods possible to tamp down political opposition, in some
    cases to stifle Americans' constitutional rights of freedom of
    speech.
        This recent incident that had come to light just recently
    with the IRS has only helped crystallize for Americans exactly
    what this Administration and outside special interests appear
    to try to do.
        Whether it is in the tax code, the corporate political
    disclosure process, union rules, EPA guidelines, et cetera, it
    becomes painstakingly clear that this Administration is more
    worried about crushing its political opposition than about
    governing and leading the American people through our current
    economic downturn.
        Now I know, as indicated, you just started and you have not
    had anything to do with the issues as of yet. But we are just
    giving you an opportunity today to make a clear and emphatic
    statement that you will refuse to be bullied by these outside
    radical groups that are trying to exploit the corporate
    disclosure process.
        Moreover, you are going to have an opportunity to make a
    clear and concise statement that you agree to formally and
    permanently remove the corporate political disclosure measure
    from your regulatory flexibility agenda.
        As you are aware, these types of political witch hunts will
    only poison the well and make achieving your other priorities
    more difficult.
        With all the important work the SEC has to do with
    finalizing the JOBS Act and Dodd-Frank rulemakings to policing
    bad actors in the market and working with Congress to reform
    the equity markets, it would be a shame to have these
    worthwhile goals suffer because of political and ideological
    pressure.
        I think we should all agree that the SEC should remain
    focused on its core mission: protecting investors; ensuring
    orderly and fair markets; and facilitating capital formation--
    not on partisan political moves outside of your main purview
    that would limit the debate and deprive Americans of their
    constitutional rights.
        Thank you, Mr. Chairman.
        Chairman Hensarling. The Chair now recognizes the
    gentlelady from New York, the ranking member of the Capital
    Markets Subcommittee, and notes her presence on the top row yet
    again. We are happy to have you rejoin us.
        Mrs. Maloney. Thank you.
        Chairman Hensarling. The gentlelady is recognized for 3
    minutes.
        Mrs. Maloney. Three minutes, good heavens. First of all,
    thank you, Chairman Hensarling and Ranking Member Waters. And I
    would like to give an especially warm welcome to my fellow New
    Yorker, Chairman Mary Jo White.
        I was absolutely so pleased when President Obama nominated
    you and even happier when you were confirmed by the Senate with
    such a strong bipartisan vote.
        And I can say, from very close personal observation over
    her entire career, she will not be bullied. She has a career of
    great distinction in both the public and private sector.
        I will never forget her touring the infamous Kenmore Hotel,
    probably the largest drug den in the City of New York, probably
    in the Nation, and it was the largest, I believe, public
    forfeiture where the Federal Government seized the property to
    stop the injustice of illegal drug dealing.
        I want to report to her that it is now a very important
    community center serving people and helping people. That is
    just one example of her hands-on work on the ground.
        She has taken on big issues, small issues, and has always
    been accessible. So, congratulations. My friend, Mel Watt,
    wants to know how you got confirmed so strongly. We would like
    to follow the same procedure and get him confirmed very
    quickly, too.
        I am still deeply concerned over the fact that this country
    lost over $14 trillion in wealth in a financial crisis that
    economists tell us could have been prevented with stronger and
    better financial regulation.
        So the country is looking to you for that leadership and I
    certainly will join with the ranking member and any likeminded
    member on either side of the aisle to work for you to get the
    resources that you need in a position that has really grown in
    responsibility as your budget has decreased.
        As you yourself have said, ``The SEC has a number of new
    regulatory responsibilities, but because of sequestration we
    are unable to build the structure for that oversight that we
    are mandated to carry out.''
        It is our responsibility to give you those resources. There
    is a saying in New York that investors lost more in Madoff, in
    that scandal, than the SEC's entire budget since the
    Commission's inception in 1934.
        So there is something seriously wrong with that. We just
    had a hearing last week on a number of derivatives bills that
    will be your responsibility to implement and to enforce.
        And I look forward to working to make sure that you get
    your resources and that bills that are put in the area that I
    believe will create barriers to the SEC with your ability to
    get done, such as one that will be on the Floor tomorrow, we
    will be working together to help you get the resources you
    need.
        I am so pleased with your appointment. Thank you for being
    here today. We look forward to your testimony.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from Texas, Mr. Neugebauer, for 1 minute.
        Mr. Neugebauer. Thank you, Mr. Chairman, for holding this
    hearing.
        And, Chairman White, welcome. Congratulations on your
    appointment.
        I was just listening to my colleague on the other side of
    the aisle; that is a familiar story in Washington, ``Well, we
    didn't do our job because we didn't have enough money.'' But
    when you go back and you look at the record, whether it is
    Madoff, Stanford, Bear Stearns, Lehman, or the Reserve Primary
    Fund, it wasn't necessarily a case that we didn't have
    regulations. It was a case that we had regulators who weren't
    actually doing their job.
        And you go back and look at the record where the regulators
    had some reason to believe that Mr. Madoff was involved in some
    activities, but failed to follow up on it, and the same with
    Stanford.
        So what we did is, since we had people who weren't doing
    their jobs, we went out there and said, let us pass some more
    regulations. That will help.
        And so we went out and passed more regulations and now we
    have created this huge new risk category called regulatory risk
    that is impeding the ability of many of our financial
    institutions in America to be competitive.
        And so, Chairman White, I hope that as you look at your
    organization, you are not necessarily looking for more
    resources, but making sure that the people under your charge
    are actually doing their jobs.
        With that, I yield back my time.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from Illinois, Mr. Foster, for 2 minutes.
        Mr. Foster. Thank you. I thank the chairman and the ranking
    member.
        Chairman White, I appreciate your testifying before our
    committee today, and I congratulate you on your nomination.
        I want to emphasize to my colleagues the importance of
    fully funding the SEC. The President's request for Fiscal Year
    2014 seeks $1.67 billion, a 26 percent increase in the current
    level, which is not incommensurate with your additional
    responsibilities in the wake of the financial crisis.
        Some of my colleagues will assert that it is too costly to
    fully fund an agency whose primary responsibility is the
    regulation of the securities markets and a wide variety of
    other market issues, but I would respond by reminding my
    colleagues of the costs of deregulation and of inadequately
    funded regulators.
        Families in America lost more than $16 trillion during the
    financial crisis of 2008, $16 trillion. That is, incidentally,
    or interestingly, enough to fully fund the SEC for about 1,000
    years. Bearing in mind how many of our constituents lost their
    homes, retirement funds, and small businesses a short time ago,
    it is imperative that this Congress provide the agencies that
    are charged with policing the financial markets with the
    funding that they need to hire staff in the numbers and quality
    necessary to successfully execute their important tasks.
        Thank you, and I yield back.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from North Carolina, Mr. McHenry, for 1 minute.
        Mr. McHenry. Chairman White, thank you so much for your
    leadership. I congratulate you on being the 31st Chair of the
    SEC.
        Knowing tough prosecutions, such as the John Gotti case
    that you previously oversaw, I think Washington should be a
    little bit easier on you than that. Having said that--yes,
    exactly--having said that, we understand your commitment to the
    mission of the Securities and Exchange Commission, but we want
    to make it clear that we have statutory and legislative
    directives for the Securities and Exchange Commission to get on
    with the job of implementing the JOBS Act.
        This is going to be a question that is going to be
    recurring, so the faster you get done with that, the more
    efficiently you get done with that, the better off we all are
    and we can move on to other questions.
        With that, yesterday the House overwhelmingly passed a
    renewed Regulation A, giving the SEC a deadline for writing
    those regulations. I hope you will be able to comply with that
    statutory deadline. I welcome you for your first House
    testimony and I look forward to the answers to our questions.
        Chairman Hensarling. The Chair now yields 1 minute to the
    gentleman from Virginia, the vice chairman of the Capital
    Markets Subcommittee, Mr. Hurt.
        Mr. Hurt. Thank you, Mr. Chairman. And thank you for
    holding today's committee hearing. I, too, join in welcoming
    Chairman White to this committee.
        I believe that the formal responsibility of this committee
    is to provide appropriate oversight and scrutiny of the Federal
    agencies' budgets under our jurisdiction. At a time when our
    Nation is approaching a national debt of $17 trillion, Federal
    agencies must learn to work smarter and to do more with less.
        As we have seen from this budget request, the SEC has
    requested a 30 percent increase in funding. Undoubtedly,
    Washington has piled new responsibilities onto the SEC as a
    consequence of Dodd-Frank. I remain concerned, however, that
    the SEC has not made the necessary changes to its internal
    operations and structure or prioritized much-needed technology
    upgrades to oversee our capital markets.
        Additionally, it is important that we ensure that the SEC
    is committed to completing the rulemakings required by Congress
    on time, such as those implementing the JOBS Act. I think that
    we can all agree that properly functioning capital markets will
    lead to the real jobs that Americans need, that people in my
    Virginia district need.
        I would like to thank you again for your appearance here.
        Thank you, Mr. Chairman, for holding this hearing, and I
    yield back my time.
        Chairman Hensarling. We have no additional opening
    statements, so today we welcome the Chairman of the Securities
    and Exchange Commission, Mary Jo White. She was sworn in as the
    31st Chair of the SEC on April 10th of this year, so she brings
    all the wisdom and insight of 36 days of being on the job to
    our committee today.
        Most recently, she has served as the chair of the
    litigation department of the New York law firm of Debevoise &
    Plimpton. Before that she served as the U.S. Attorney for the
    Southern District of New York from 1993 to 2002, where she
    oversaw the prosecutions of John Gotti, as well as the
    defendants responsible for the 1993 World Trade Center bombing.
        Born in Kansas City, Missouri, she received her law degree
    from Columbia Law School, and she has a Masters in Psychology
    from The New School for Social Research, and a Bachelor's
    degree from the College of William and Mary.
        Chairman White, welcome to the committee for your first
    appearance. I feel quite confident it will not be your last.
    You will be recognized to give an oral presentation of your
    testimony. And without objection, your written statement will
    be made a part of the record. Once you have finished
    presenting, each member of the committee will have 5 minutes
    within which to ask questions.
        I wish to alert all committee members that we have agreed
    to allow the Chairman to be excused at 1 p.m.
        Chairman White, again, welcome, and please proceed with
    your testimony at this time.

       STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIRMAN, U.S.
                   SECURITIES AND EXCHANGE COMMISSION

        Ms. White. Thank you very much, Mr. Chairman.
        Chairman Hensarling, Ranking Member Waters, and members of
    the committee, thank you for the opportunity to testify on
    behalf of the Commission regarding the agency's recent
    activities, budget request, and upcoming challenges. Let me
    say, I am very pleased to be back in public service and to be
    appearing before this committee for the first time. I look
    forward to working with you to advance the Commission's
    critical mission of protecting investors, facilitating capital
    formation, and maintaining fair and efficient markets.
        As has been said, I have been Chair of the SEC for only a
    month, but in this short period I have been impressed by the
    commitment and expertise of my four fellow Commissioners and my
    colleagues across the agency. And I am committed to working
    tirelessly with them on behalf of investors and our markets.
        I have also been struck by the massiveness and importance
    of the SEC's responsibilities. Our agency is responsible for
    implementing and enforcing the Federal securities laws,
    overseeing over 25,000 participants in the securities markets,
    and reviewing disclosures and financial statements of more than
    9,100 reporting companies.
        My written testimony details the extensive work being done
    in the divisions and many of our offices that is so critical to
    the savings of American families and the growth potential of
    American businesses. With the passage of the Dodd-Frank and
    JOBS Acts, the SEC's vast responsibilities have become greater
    than ever.
        As I enter this job, a number of immediate priorities are
    clear. They include completing in as timely and smart a way as
    possible the rulemaking mandates contained in both the Dodd-
    Frank Act and the JOBS Act; further strengthening our
    enforcement and examination functions, thus bolstering investor
    confidence and the integrity of our financial markets; and
    fully understanding and providing expert oversight of today's
    complex and dispersed marketplace so that it can be wisely
    regulated, which will require investing in technology and
    expertise to keep pace with the markets we oversee.
        Continued funding at the current level and the staffing it
    supports would present significant challenges as we attempt to
    fulfill these and our many other responsibilities. The agency's
    Fiscal Year 2014 budget request will allow us to add
    approximately 676 new positions needed to improve core
    operations and effectively execute against both existing and
    new responsibilities.
        While our funding is fully offset by securities transaction
    fees, and thus will not impact the deficit, we understand we
    must seek to use appropriated funds as careful stewards in the
    most efficient and effective way possible. We also acknowledge
    the need for the agency to continue to enhance its
    effectiveness and efficiency.
        In recent years, the agency has made significant strides to
    strengthen its examination and enforcement functions, improved
    its capacity to assess risks, enhanced its technology, and
    reformed its operations.
        With this in mind, the Fiscal Year 2014 budget request
    would provide additional funding in the following key areas.
        Expanding oversight of investment advisers: During Fiscal
    Year 2012, the SEC was able to examine only about 8 percent of
    registered advisers. Significant additional coverage is
    essential if investors are to be appropriately protected.
        Bolstering enforcement: it is important that we continue to
    send a strong message to would-be wrongdoers that misconduct
    will be swiftly and aggressively punished.
        Hiring additional economists to support economic analyses
    in connection with Commission rulemaking and risk analysis.
        Building oversight of derivatives and clearing agencies:
    two facets of our Dodd-Frank mandates.
        Enhancing reviews of corporate disclosures, including staff
    to review draft registration statements submitted by emerging
    growth companies under the JOBS Act.
        Investing in technology, a need that in my view cannot be
    overstated. While the SEC is rapidly modernizing our systems,
    significant investments are needed to properly oversee the
    markets and entities we regulate including improving our IT
    security and building data analysis tools.
        And finally, enhancing training and development programs to
    increase our expertise and help maximize our efficiencies.
        Thank you for inviting me to be here today to discuss the
    SEC's many initiatives. Your continued support will allow us to
    better protect investors and facilitate capital formation, more
    effectively oversee the markets and entities we regulate, and
    build upon the significant improvements the agency has made to
    date.
        I would be happy to answer any questions that you may have.
        Thank you.
        [The prepared statement of Chairman White can be found on
    page 55 of the appendix.]
        Chairman Hensarling. Thank you, Madam Chairman.
        The Chair will now recognize himself for 5 minutes for
    questions.
        Chairman White, you can probably appreciate this, but
    having been in office for 10 years, I have yet to meet a head
    of a government agency who did not ask for more resources. So,
    you are certainly not atypical in that respect.
        But the questions we have--a number of which obviously
    clearly predate your tenure--deal with the challenges with
    which your agency is faced. Is it a question of competence, is
    it a question of priorities, or is it a question of resources?
        Many of my colleagues will be speaking more to these
    issues, but with respect to priorities, as you probably noted
    throughout my opening statement, I still have concerns, as do
    many, about the SEC devoting resources to a discretionary
    rulemaking dealing with corporate political reporting.
        So the first question I have is, do you believe the SEC
    should require disclosure of items that are not material under
    Rule 10b-5?
        Ms. White. I think the answer to that is that the SEC does
    have authority, certainly with respect to line item
    disclosures, to require them if they would be helpful and
    important to investors. But plainly, the core of required
    disclosures is what will be material to investors.
        Chairman Hensarling. Okay.
        Let me ask you this, Madam Chairman. Okay, the bulk of it
    is material, but you may require disclosure of items that are
    immaterial. But doesn't the SEC have to demonstrate materiality
    in order to bring a 10b-5 enforcement action? And if so, what
    is the point of adopting reporting rules if you cannot enforce
    them?
        Ms. White. Certainly in a 10b-5 action, the SEC would have
    the burden to prove materiality. You can have compliance
    infractions and violations that don't have materiality as an
    element.
        Chairman Hensarling. Okay. Let us look at materiality then.
        Is it, in your opinion, material where--from what source a
    public company buys its coffee? Rainforestconcern.org has
    alleged that many public companies are helping destroy
    rainforests by their selection of coffee.
        Is that material?
        Ms. White. I know that is an issue that presents itself in
    some of our disclosure rules that are under litigation now,
    that were actually mandated by Congress.
        It is a very fact-specific analysis. As you stated,
    depending on the company circumstances, I don't hear
    materiality in what you are stating.
        Chairman Hensarling. Let me try another one.
        Is it material whether a company chooses to lease office
    space to an abortion clinic? Is that material?
        Ms. White. It is a fact and circumstances analysis to
    determine materiality. And so, you would have to look at all
    the facts with respect to that particular company in that
    particular situation.
        Chairman Hensarling. I am not really hearing an answer in
    there, Madam Chairman. But my thought process was or my
    understanding was that materiality is relevant to the investor.
    And I am just somewhat curious about rules that potentially
    could be adopted that really accommodate kind of the infinite
    and diverse political views of our Nation. And at a time when
    most of my constituents care about whether or not their
    investments will help them pay their increased health care
    premiums or help send a kid to college, I am not really sure
    that they want their SEC engaged in what they believe to be
    political policy.
        And let me ask you this, Madam Chairman. Do you have any
    concern that it would undermine the credibility of your agency
    if there was a public perception that the agency was engaged in
    partisan political rulemaking?
        Ms. White. I think any government agency always has to be
    wary of, aware of the perception that it may be acting for
    political purposes, or any purpose other than fulfilling its
    core mission.
        I am a very--for good or ill--apolitical person, and a very
    independent person. And my intention in running the SEC as
    Chair is to do the best job I possibly can in fulfilling that
    mission. But the answer--
        Chairman Hensarling. I'm sorry. My time is drawing to a
    close. I realize you have been on the job for 36 days, but are
    you aware if the Office of Management and Budget (OMB) has
    contacted you or anyone at the SEC regarding the SEC's Reg Flex
    agenda which, as you well know, recognizes your rulemaking
    priorities? And if so, have individuals from the OMB expressed
    an interest in seeing the potential rulemaking regarding
    political reporting moved forward?
        Ms. White. I am not aware of any such contact, Mr.
    Chairman, or any such view being expressed to the SEC.
        Chairman Hensarling. Okay. I would respectfully request
    that when you return to the SEC, you ask the question and
    present the committee with an answer.

    [The information requested can be found on page 110 of the
    appendix.]

        The Chair now recognizes the ranking member for 5 minutes.
        Ms. Waters. Thank you very much, Mr. Chairman.
        As I referenced in my opening statement, my concern about
    cost benefit analysis, and the court case relative to the use
    of proxies to nominate to boards, I am very, very worried that
    this is going to be a tactic that will be employed over and
    over again in order to try and impede the SEC's ability to do
    its work.
        We are aware, of course, of that case relative to the
    proxies, but there are two other cases that have already been
    brought to the court. I suspect there will be more. And I am
    worried about the costs.
        I don't know what the cost of litigation was in the proxy
    case. And I don't know what the cost of litigation may be in
    the two cases that are before the courts. But do you see this
    as another way to have to spend precious resources that could
    be going to rulemaking if you end up having to fight all of
    these court battles?
        Ms. White. Clearly, any activity that occupies you
    significantly costs more resources, including litigation.
        I do believe in the importance of robust economic analysis
    with respect to our rulemaking. My predecessor issued guidance
    to enhance the SEC's work in that arena in March of 2012. I
    think that is very important analysis to the rulemaking.
    Obviously, it is our responsibility also to make certain that
    our rules withstand a judicial challenge.
        We need to be sure that we are being efficient as we do the
    economic analysis and we do the litigation so that it doesn't
    prevent us from doing necessary rulemaking.
        Ms. Waters. Oh, good. I guess we agree, as any reasonable
    person would, that it costs money to fight these battles in
    court.
        Ms. White. No question about that.
        Ms. Waters. And that takes away from your budget?
        Ms. White. No question that is part of the budget
    consumption, yes.
        Ms. Waters. Added to that, there is a bill that will be on
    the Floor tomorrow, H.R. 1062, the SEC Regulatory
    Accountability Act, the cost/benefit analysis bill.
        There is a requirement in H.R. 1062 that the Commission
    revisit all past rulemakings 1 year after enactment, and every
    5 years thereafter. To me, this seems like an unreasonable
    requirement, particularly when we consider that you would have
    to revisit longstanding provisions in our securities laws
    dating back to the Great Depression.
        I would like you to comment on this. Is this reasonable?
    How do you envision being able to do that?
        Ms. White. I am familiar with the bill. And as I said
    before, I am a firm supporter of rigorous economic analysis. I
    do have concerns about this bill in terms of our being able to
    carry out our rulemaking function expeditiously and to provide
    market participants with certainty.
        I think, at least as I read it, it would add additional new
    requirements to the SEC's economic analysis, the one you
    mentioned being one that is particularly of concern to me--the
    retrospective review that would need to be done after a year
    and then every 5 years under various criteria.
        First, that sort of pops out to me as creating uncertainty
    for the market, and putting the rules under kind of constant
    challenge. I guess I would add, though--and I go back to how
    committed I am to both the guidance that my predecessor
    issued--but robust economic analysis throughout everything we
    do, frankly, at the SEC, not just the rulemaking, and we have
    enhanced that function.
        We have recently actually been, praised may not be a word
    you use here, but we have gotten positive comments from the GAO
    and the Chamber, as well as a recent comment on our cross-
    border rule about how well and robust the SEC is doing with
    respect to economic analysis.
        I think we have to take great care that we don't impose
    additional requirements. I think these would provide at least
    the basis for a lot of challenges in court. Obviously, the
    rules should be subject to valid challenges, but that would
    create a lot of litigation that I think would undermine our
    ability to do our job.
        Ms. Waters. Thank you, Madam Chairman. And in addition to
    my concerns about the cost and the time and the burdens that
    are being placed, I am taking a look at H.R. 1062. In your
    opinion, does this legislation appropriately balance investor
    protection with other missions of the Commission such as
    capital formation?
        Ms. White. I think our mission is the tripartite mission we
    have all been talking about and reciting. And it is not just a
    mantra. I think you do have to sometimes effect a balance. I
    don't think they should be in conflict with each other.
        I think what you would end up with here is an inability
    to--it doesn't just apply, as I read the bill, to rulemaking,
    but also interpretive guidance of various kinds. I think it
    would end up hampering us in our mission to fulfill our duty to
    investors, but also capital formation and the functioning
    markets.
        Ms. Waters. Thank you very much.
        Chairman Hensarling. The time of the gentlelady has
    expired.
        The Chair now recognizes the gentleman from New Jersey, Mr.
    Garrett, for 5 minutes.
        Mr. Garrett. I thank the chairman.
        Going back to my opening statement, discussing the ongoing
    concerns being raised by the American public about this
    Administration's attempt to bully organizations and groups that
    disagree with them politically, and in light of the chairman's
    comments with regard to some specific examples, can you commit
    formally today on removing the mention of a corporate political
    disclosure requirement from your Reg Flex agenda?
        Ms. White. Mr. Chairman, I think--my response to that is
    essentially, the petitions for requiring the political
    contributions are being reviewed in our Corporation Finance
    Division. That review is not completed. I can't prejudge the
    issue until I am the beneficiary of that analysis.
        No one is working on a proposed rule now, and the Reg Flex
    agenda, I think, will come to me somewhat later in my tenure
    than today.
        Mr. Garrett. And just to spend 10 seconds on the examples
    that the chairman raised, I think your response was first, the
    difference between materiality and important. And second, you
    said these would be fact-specific to a particular company?
        Ms. White. Materiality tends to be fact-specific.
        Mr. Garrett. But any rule that you would promulgate, if you
    were to adopt any of those, as the chairman was suggesting,
    would not be for a specific company. It would be for all public
    companies, would it be not?
        Ms. White. That is correct, and the petitions do make the
    argument that such disclosure would be material--
        Mr. Garrett. Right. And--
        Ms. White. --across companies. But I get your point.
        Mr. Garrett. --the three main core missions of the SEC are
    what? Protecting the investors, ensuring orderly and fair
    markets, and facilitating capital formation. Using those as
    your core missions, do any of those examples that the chairman
    just gave you fall into any of those categories? Facilitating
    capital formation? Fair and orderly markets? Protecting
    investors?
        Ms. White. Those arguments, as I understand it, have been
    made in the petitions. I don't think it would be appropriate
    for me to comment and prejudge those arguments until I have
    gotten the staff's briefing.
        Mr. Garrett. Okay.
        With regard to--I will just say it--with regard to economic
    analysis, your predecessor issued a memorandum last March
    providing guidance to SEC staff on economic analysis and SEC
    rulemaking. She indicated that this guidance was binding for
    SEC staff.
        Have you also indicated to your staff--do you believe this
    guidance is also binding on them, as well?
        Ms. White. Yes, and I fully support it. And my
    understanding is that it is being followed, since my
    predecessor issued the guidance to the staff.
        Mr. Garrett. Without objection, I ask unanimous consent to
    put the prior memo from March 16th in the record.
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Garrett. Thank you. With regard to equity market
    structure, I know that we just had this roundtable, and that
    was good, a lot of back-and-forth. There seemed to be unanimity
    in certain areas where we could go forward on this.
        Do you agree that the SEC should conduct a comprehensive
    review of the equity market structure regulatory regime?
        Ms. White. I think there is no question about that. We did
    issue the concept release on the equity market structure in
    2010.
        Mr. Garrett. Right.
        Ms. White. And that work is actually continuing in that
    direction, to do that comprehensive review.
        Mr. Garrett. Okay. But that one was not truly a
    comprehensive review back in 2010.
        Ms. White. Essentially, lots of comments came in. There was
    a lot of work done. The Flash Crash happened. Dodd-Frank
    happened. There was a slowdown of that review.
        However, it has continued, and is reaching the point where
    it is yielding some data and analysis that I think will be very
    useful. But certainly, it does recite that it is a
    comprehensive review of those issues.
        Mr. Garrett. Great. And just yesterday, thank you, I had
    the opportunity to be at the rating agency roundtable that you
    had. Do you believe that the SEC should finalize--as I pointed
    out in my comments there--Section 939(a), before moving forward
    what I believe is really an unworkable and unwise idea of
    having the government select rating agencies or establishing a
    new or rotating formula?
        Ms. White. We have obligations under 939(a) and 939(f). But
    I am committed to--
        Mr. Garrett. But you would do 939(a), which is basically
    the first, before we get onto the start of the beginning of the
    alphabet, before we go down to the rest of it?
        Ms. White. I haven't--and I really can't commit to
    sequencing. I understand the importance of 939(a). It is
    something we need to carry out.
        Mr. Garrett. The importance of it is that it is mandatory,
    and later on it is discretionary, right?
        Ms. White. And--I am sorry. Later on?
        Mr. Garrett. Yes--
        Ms. White. We are required to do the study we are doing
    now. Yes. In that sense, it is not discretionary. But
    obviously, we make a decision as to what to do following the
    information that came in, including at that roundtable.
        But what I am trying to do with all these rules and these
    rulemakings, is to make sure that we have the bandwidth so that
    one doesn't detract from the other.
        Mr. Garrett. And the last question with regard to the CFTC,
    I appreciate what you are all doing over at the SEC. The CFTC
    is working at a different pace than you are.
        Are you committed to sitting down with CFTC Chairman
    Gensler to see if you can actually get it done jointly, since
    there is no benefit in having you working at cross purposes?
    That is a yes or no, I guess?
        Ms. White. We are totally committed to that. There have
    been a lot of discussions, prior to my arrival as well. But we
    are totally committed to that.
        Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs.
    Maloney, for 5 minutes.
        Mrs. Maloney. Thank you. During your confirmation hearing
    in March, you indicated that one of your highest priorities
    would be to further strengthen the enforcement function of the
    SEC in a way that is ``bold and unrelenting.''
        Your predecessor had the same concern. In fact, one of the
    last letters that Chairman Schapiro sent was to Senator Reed,
    saying that certain statutory changes could enhance the
    effectiveness of the Commission's enforcement program.
        I would like unanimous consent to place former Chairman
    Schapiro's letter in the record. I think it is an important
    letter. And--
        Chairman Hensarling. Without objection, it is so ordered.
        Mrs. Maloney. Thank you. It is my understanding that under
    the statute, the SEC cannot collect an amount equal to what
    investors actually lost as a result of a finding of abuse.
        Can you comment on the limitations of the SEC on penalties?
    Can you comment on your feelings? Do you share her concerns?
    What actions do you intend to take in this area?
        Ms. White. I totally share the concerns. I think one of the
    most important things you do in a law enforcement agency, which
    the SEC is, is to have a strong enforcement arm that is a
    deterrent, not only to the individual committing the instant
    violation, but to those who might be thinking about committing
    violations in the future.
        And the SEC's penalty structure doesn't allow, I don't
    think, a meaningful penalty in many situations, even in the
    case of the most serious offense or in the case of a
    recidivist.
        We can't, for example, pitch a penalty to the amount of
    investor loss, which tends to be the big number in the big
    frauds, and we should do that. We don't have enhanced penalties
    for someone who commits a more serious violation 3 or 4 or 5
    times.
        And so, I fully support former Chairman Schapiro's request
    for legislation. I also support the bill that has been
    introduced to try to give that to the SEC.
        Mrs. Maloney. What other ways do you see the SEC
    strengthening enforcement in addition to penalties? What other
    ways do you intend to enforce measures?
        Ms. White. As we speak, essentially I am undertaking a
    review with the enforcement division of their various practices
    and policies to see if we can, in effect, enhance their ability
    to more efficiently go after the most serious wrongdoers up the
    chain, if the evidence goes up the chain, and to look at the
    settlement policies, as well as their capacity to litigate.
        I think one thing that needs to happen at the SEC, and
    actually in our current budget request for enforcement, we are
    seeking 131 new positions, many of them for litigation and
    trial work, which I think we very much need to have.
        Mrs. Maloney. In terms of a global marketplace, which we
    have, what powers does the SEC have to enforce our laws and
    rules and regulations in a foreign country?
        Ms. White. We don't have powers to enforce in a foreign
    country. It is a global market. We certainly have global frauds
    that we have jurisdiction over to bring enforcement action
    against--again, depending on what the facts are, what the
    involvement of U.S. players are, but if you have a completely
    foreign company, a foreign national who commits a fraud,
    certainly in the United States, is the simplest example, we can
    proceed, and do proceed, against foreign nationals.
        We also have in our regulatory powers the ability to deal
    with, for example, foreign issuers who don't play by the rules.
    We have a lot of initiatives going on, for example, and
    enforcement actions included involving CEOs in companies in the
    People's Republic of China, as one example.
        Mrs. Maloney. What about foreign subsidiaries that are
    connected with our financial institutions? Again, the
    enforcement powers in those situations?
        Ms. White. It will depend on what the facts are in a
    particular enforcement matter as to what you can do with
    respect to the foreign subsidiaries. You certainly don't have
    the power to go into another country and enforce our laws
    against a foreign subsidiary in those countries.
        You also do get into difficult issues with respect to
    getting documents in the United States when you are
    investigating a global institution that has a foreign
    subsidiary.
        Mrs. Maloney. My time has expired. Thank you.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from California, the vice chair of the committee, Mr. Miller,
    for 5 minutes.
        Mr. Miller. Welcome, Chairman White. It is good to have you
    here. I have somewhat of a concern on overreach that the
    chairman mentioned in his opening statement on the intent
    behind the Volker Rule as it prohibits insurance depository
    institutions' affiliates from engaging in proprietary trading.
        And the statute specifically prohibits trading by an
    insurance business for the general account of the insurance
    companies, 619. I believe you are familiar with that. The
    proposal prevents the very trading, though, that Congress
    allows. Before you have an insurance company that happens to
    have a holding of a minor, small bank. And now those banking
    rules are being applied to the insurance company.
        Your predecessor stated in March that the SEC was looking
    at whether there would be flexibility on this point. What is
    your position at this point on the rule?
        Ms. White. If I caught the full range of your question--
        Mr. Miller. Do you want me to restate it? Insurance company
    during their normal frame of business, they have a minor
    holding in a bank.
        Ms. White. Right.
        Mr. Miller. Now, those banking regulations are being
    applied to the insurance company.
        Ms. White. And we are very focused on that issue as we go
    through this rulemaking, and fully take the point.
        Mr. Miller. Do you agree with your predecessor? Section 13
    of 619 is very clear. And my concern is that the perception on
    the street is that you are moving in a different direction. And
    I hope you are a breath of fresh air on this issue.
        Ms. White. I don't think that is the case. But if we need
    to say something more that we can say at this point, given that
    we are in the midst of the rulemaking, perhaps we should, and I
    will review that.
        Mr. Miller. Okay. Daily Average Revenue Trades (DARTs) are
    another concern. Regulators around the world are looking at
    U.S. markets and expressing concerns over high-level DART
    trading. Three years ago, the SEC put out a concept release on
    the market structure, but has not acted in any way on the items
    they proposed.
        I understand you are only a month on the job, but where do
    you think you will see some of these changes occur in the area?
        Ms. White. I think, if you are talking about the concept
    release in 2010 on the equity markets, that is an extremely
    high priority to complete, to continue. It is something that
    did get delayed by the press of other business, but it has
    proceeded in the last 2 years, and it is nearing a place where
    I think we are going to be getting very useful data and
    analytics that will be very helpful to those issues.
        Mr. Miller. Okay--conflict minerals, I am assuming?
        Ms. White. I'm sorry.
        Mr. Miller. Conflict minerals?
        Ms. White. Yes.
        Mr. Miller. We are all concerned about what is happening in
    the Democratic Republic of Congo, but if you believe in a rule
    of law, you are innocent until proven guilty. If you look at
    the way that is being applied--and I know this is not an
    expertise of the SEC, and I don't think you should even be
    involved in this, but the problem is, you have businesses out
    there having to prove that there are no conflict minerals in
    their product, and if you can't prove it, you are found guilty
    at that point. And your mission is to protect investors,
    maintain fair, orderly, and efficient markets, and capital
    formation.
        The SEC has little or no experience in crafting trade
    sanctions. Yet, that is the position you have been put in. And
    the burden on American businesses is huge. There is not even an
    exemption for recycled material.
        But if you look at the application of the rule in the
    guidelines, we are impacting a huge sector of the African
    continent rather than dealing with the specific problem. What
    is your opinion on that issue, and how could you see us going
    forward in a more favorable direction, or at least a direction
    that is more fair to American businesses?
        Ms. White. I appreciate the question. That is one of the
    congressionally mandated rulemakings that the SEC was required
    to make. We certainly got a lot of comments along the same
    lines as yours. Again, this does precede me, but my
    understanding is that the staff, particularly of the Division
    of Corporation Finance, took great pains to try to reduce the
    burdens, but still be true to the statutory language and
    objective.
        Some of the issues--this rulemaking has also been
    challenged. It is currently under challenge in the D.C. courts,
    and those issues have been raised there as well.
        Mr. Miller. I know you are very busy. It has been a tough
    30 days, but I would like to see you do a few things: conduct a
    brief review of a small-business impact, and publish that study
    so we can actually review it; provide a means of minimizing
    eliminating unnecessary costs and burdens upon small
    businesses, which today they are very, very heavy on the
    business sector; explore innovative means of meeting the intent
    of exempting recycled material might be one way of doing it,
    because I don't believe anybody can find a source of recycled
    material.
        Create a safe harbor that allows public companies to
    exercise reasonable due diligence. And I think reasonable due
    diligence is most important, and provide measures to reduce
    potential liability for public companies. You have General
    Motors, or Boeing, that might have a million different parts,
    or a million different contractors, and the liability falls
    back on them. I would like to see you do something in that
    area.
        Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms.
    Velazquez, for 5 minutes.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Chairman White, to better oversee the emerging crowdfunding
    industry, and prevent instances of fraud, the JOBS Act requires
    anyone acting as an intermediary to register with the
    appropriate self-regulatory organization as well as the SEC.
    How will this added layer of SEC oversight better protect
    investors?
        Ms. White. I think you mentioned two of the safeguards that
    are in the crowdfunding legislation and structure. The funding
    portal and the self-regulatory organization are very important
    to seeing to it that when we do actually do the rulemaking in
    that arena, investors are protected. The SEC always has to be
    focused on maximizing investor protection wherever it can be.
    Those are safeguards in that legislation.
        Ms. Velazquez. I am concerned about the likelihood that two
    regulators will create confusion and drive up costs, regulatory
    costs for small businesses. What is your take on that?
        Ms. White. The SEC is, and certainly I personally am very
    focused on small businesses and their ability to more easily
    raise capital. Some of the market structure issues relate to
    that as well. And in terms of inconsistency between regulators
    in the same space, the goal should be for consistency.
        Ms. Velazquez. We are starting to hear from most Federal
    agencies about the impact that the sequestration is having on
    their day-to-day operations. And I would like to ask you, what
    effect, or what impact is sequestration having on the SEC's
    ability to implement the Dodd-Frank Act and the JOBS Act?
        Ms. White. There is no question that it is having a
    significant impact on the SEC, although to credit our financial
    management folks in particular, I think the SEC anticipated
    well and planned well for the possibility of sequestration. And
    so, I don't think we will have furloughs, for example.
        But we certainly have had to slow investments in various IT
    initiatives that are important to enforcement and examination.
    We have also had to delay hiring to build out the staff we need
    for the new responsibilities under Dodd-Frank.
        Ms. Velazquez. Beyond sequestration, what effects will
    further reductions in your budget have on rulemaking and
    enforcement?
        Ms. White. I guess everyone who comes says this, but I am
    struck by the massiveness of our responsibilities, and the need
    for, certainly, the funding that we have sought in this budget.
        I think the independent consulting group that actually
    reported to us per Dodd-Frank pointed out the gap between our
    funding and the ability to carry out our mission. We have tried
    to be surgical with respect to our request, and really to
    target the most pressing needs, but we need the funding.
        Ms. Velazquez. Chairman White, the SEC has been criticized
    for the proposed rule on general solicitation, and advertising
    of private securities. Specifically, stakeholders have stated
    that the rule does not provide a proper mechanism for
    validating accredited investors, which will create confusion in
    the marketplace.
        Do you expect the SEC to clarify this rule to help small
    companies verify which investors can invest in their securities
    and avoid unintentional violations?
        Ms. White. That, again, is among the many rulemakings that
    are currently under active discussion between the staff and my
    fellow Commissioners. We are very much aware of that issue as
    we go forward.
        Ms. Velazquez. Thank you.
        Thank you, Mr. Chairman.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from Alabama, Mr. Bachus, our chairman emeritus, for 5 minutes.
        Mr. Bachus. Thank you, Mr. Chairman.
        And it is ``Chairman,'' Chairman White. The Senate
    confirmed you unanimously, and I think you come with eminent
    qualifications, and I think many of us were thrilled with your
    nomination.
        And I want to just introduce in the record, Chairman Mary
    Jo White's biography, and invite all of the Members to read it.
    I think anyone who thinks she is going to be bullied probably
    has not read her biography.
        She was the first woman in over 200 years to serve as the
    U.S. Atorney for the southern district of New York, and others
    have mentioned many of your prosecutions. They didn't mention
    the embassy bombings in Africa, which you successfully
    prosecuted.
        Chairman Hensarling. Without objection, that will be
    entered into the record.
        Mr. Bachus. Thank you.
        The question of funding has come up this morning. We as a
    committee have urged you to do more economic analysis. You have
    the implementation of Dodd-Frank, which we described many times
    as one of the most massive statutes ever passed by this
    Congress.
        You mentioned investor advisers, and we very much think
    that there ought to be more frequent examinations, as do you
    and your predecessor. Others have mentioned the JOBS Act and
    others so you have many other rulemaking responsibilities, and
    you are being asked to review existing statutes.
        So you do have very much of an increased workload. And I do
    want to say publicly that I think it would be penny wise and
    pound foolish for there not to be some bipartisan agreement for
    a funding increase. And I would urge you to use the goodwill
    that you have with both the Senate and the House to be a
    catalyst for that.
        Ms. White. Thank you very much.
        Mr. Bachus. We have discussed this morning, the chairman
    and the subcommittee chair, political contributions and their
    disclosure. We have all kind of followed the IRS, and I think
    we are all very concerned with the constitutional rights to
    free speech, free association, the right to participate in the
    political process.
        And I would urge you to look at--also, you mentioned
    investors. And I can't really see any more than maybe tenuous
    at the most, a remote, tie between the coordination of the SEC
    in disclosing this. And I think there may be some nebulous
    benefit.
        The chilling effect on that, or the message it has sent
    would be serious. I would urge you--and I will note--I am not
    sure if anyone mentioned that the catalyst for this was, I
    think, 11 law school professors. And I think you will
    acknowledge they are not economists, they are not business
    people. They are not investing capital. They are not running
    companies.
        They don't have a fiduciary relationship with the
    shareholders. And I also would ask you to respect State,
    corporate law, which you did as a U.S. Attorney. And also
    remember that there is the fiduciary role of the board of
    directors as you move forward with that petition.
        Ms. White. I appreciate that. I take your points. I can't
    prejudge the issue, but I fully take your points.
        Mr. Bachus. Thank you. Governor Tarullo has talked about
    Section 165, that there may be inadequate capital standards for
    broker-dealers, and I am not going to again ask you to pre-
    judge that. But I see that as a usurping of the SEC's authority
    by the Federal Reserve.
        And I see nothing in Dodd-Frank Section 165 that allows
    them to do that. I am going to give you a letter that I wrote
    to Chairman Ben Bernanke, and I really pointed out four reasons
    why I believe the Fed is wrong on this issue.
        Probably the most important is that our national treatment
    of foreign broker-dealers, and foreign financial institutions
    has always been evenhanded with our domestic institutions. And
    as you know from being in New York, it is very important that
    we are evenhanded in that regard. So I am going to introduce
    this for the record, and I ask you to--
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Bachus. --defend the SEC's jurisdiction.
        Ms. White. I appreciate that.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from North Carolina,
    Mr. Watt, for 5 minutes.
        Mr. Watt. Thank you, Mr. Chairman.
        And thank you for being here, Madam Chairman. I have, over
    the last month or so, started having a greater degree of
    empathy toward regulators who have come before the committee.
        [laughter]
        Ms. White. It is a dying breed, right?
        [laughter]
        Mr. Watt. So, I have a couple of softball questions to--
        [laughter]
        Ms. White. Good!
        Mr. Watt. --pose to you.
        Ms. White. Can I say, yes now or--
        [laughter]
        Mr. Watt. Seriously, a month or so ago a number of House
    and Senate Members sent a letter to the SEC about the question
    of pre-dispute arbitration agreements, that broker-dealers and
    investment advisers are entering into with customers. And the
    SEC has the authority under Section 921 of Dodd-Frank to
    promulgate some rules about this.
        Because of my service on the Judiciary Committee, I am a
    little concerned that these supposedly voluntary agreements are
    not so voluntary at all. And that they often restrict access to
    participating class actions, for example, and things of that
    sort.
        So I wanted to see whether you think that is an issue and
    whether the SEC is planning to promulgate rules, and if so,
    when that might occur? Is it a high priority issue for the
    Commission?
        Ms. White. It is one that is under--I guess active work is
    the right term.
        The SEC has not made a decision whether to exercise its
    discretionary authority in that space. It has gotten a lot of
    pre-proposal comments on it, lots of discussion on it, with
    both sides represented in that discussion.
        Recently, I think on March 1st, if I am remembering
    correctly, as part of a request for further public information
    on the standards that ought to apply to brokers and investment
    advisers, legal standards and also just possible harmonization
    of those regulations, one set of those questions to get
    information for the staff was addressed to the various
    alternative dispute resolution mechanisms that are used by both
    the broker community as well as the investor advisory
    community.
        So that is something that will be coming in shortly and
    then we will review that and proceed to figure out what to do
    about it, but no judgment has been made yet.
        Mr. Watt. Thank you. I am glad that you all are looking
    into that in a very balanced way.
        And, Mr. Chairman, I think I will yield back the balance of
    my time without treading into any additional territory here.
        [laughter]
        Chairman Hensarling. No additional territory tread on in
    the last minute, 36 seconds.
        The gentleman from New Mexico, Mr. Pearce, is recognized
    for 5 minutes.
        Mr. Pearce. Thank you, Mr. Chairman.
        And thank you, Madam Chairman, for being here today. A Wall
    Street Journal article from August 25, 2011, discusses the SEC
    questioning oil and gas companies about fracking.
        And the SEC's comments in that article--and, Mr. Chairman,
    I request unanimous consent to place this article into the
    record.
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Pearce. In the article, the SEC is saying that the
    questions are directed to minimize the environmental impact and
    that is according to copies of the letters that you all sent.
        And so my question is, under your watch, are you going to
    continue asking such questions?
        Ms. White. That is an area I have to say that I will
    probably have to get back to you on. I am not familiar with
    what the history on that has been and I certainly would commit
    to get back to you on that.
        Mr. Pearce. I appreciate that, but in the hearing on
    September 15, 2011, the SEC Chairman promised to get back to me
    on at least five different things and I am still waiting. My
    ears are just delicately waiting for even a phone call.
        Ms. White. Just hold me to it. I will get back to you on it
    very promptly.
        Mr. Pearce. Okay. Is it possible that we might deal with
    some of the questions that were raised in this hearing on
    September 25, 2011?
        Ms. White. I haven't seen what that is--
        Mr. Pearce. No, I understand.
        Ms. White. But yes is the--
        Mr. Pearce. Yes, they--track along the same way.
        Ms. White. I will look at--
        Mr. Pearce. They track along the same way.
        So basically, this idea that the SEC is interested in what
    people are doing to mitigate environmental impact is a curious
    thing. I can understand the rationale because if you are
    messing up the environment, then you will be subject to
    lawsuits or fines or something which would affect the stock
    price, so I follow the rationale.
        One of the other questions I am sure you will have to ask
    the system, but have you ever asked anything with regard to the
    killing of bald eagles or other migratory birds?
        We have two acts, the Migratory Bird Treaty Act and the
    Golden and Bald Eagle Protection Act. So my question is, I know
    you have asked questions on fracking, but have you ever asked
    any company regarding wind energy if they are involved in the
    killing of these species?
        Ms. White. Not that I am aware of, but--
        Mr. Pearce. But you see the discontinuity--
        Ms. White. Yes, I take that point.
        Mr. Pearce. That you have an interest in the environmental
    impact, and with the things that are happening in the IRS right
    now, it gives one pause to ask if you are only concentrating,
    in the SEC, on those conservative organizations.
        Are these Nixonian tactics spreading across from the IRS to
    you? The Fish and Wildlife Service has yet to convict anyone.
    BP paid $100 million in fines for killing birds in that spill.
    Exxon killed 85 birds and paid a $600,000 fine, but this
    Administration is doing zero.
        They haven't fined any wind companies and the estimates are
    that the wind companies kill 530,000 birds a year. And in fact,
    the golden eagle is diminishing in population in parts of
    California because of the wind generators, and so your agency
    has been asking questions, and I will take it that it is your
    responsibility. But if your agency has not also been asking
    questions--to protect the environment and protect the species
    of other laws, then I think that we have a right to question
    whether or not your agency is being used as a political tool by
    the Administration the way that other agencies appear to have
    been used.
        And we look at the AP scandal. This Administration is
    appearing to get a scandal a day. But please understand that if
    you are going to question one group of companies on their
    environmental impact, you must also ask the other side of the
    political equation, if there is a political equation business,
    about their environmental impact and their impact on endangered
    species.
        Does that seem credible?
        Ms. White. Clearly, I need to look at the specifics of
    these particular issues, but I will say this. The SEC is an
    independent agency. I think--
        Mr. Pearce. The IRS is, too. We have been told that in the
    press in just the last couple of days.
        Ms. White. And my experience with the SEC over my career
    has been that it is a very apolitical agency. I have no reason
    to think they are not on this, although I obviously am going to
    look into these specifics.
        And I can also assure you that I am--
        Mr. Pearce. --my time has lapsed--
        Ms. White. --that I am also--
        Mr. Pearce. Before it lapses, Mr. Chairman, I request
    unanimous consent to put this other article from the Dispatch
    in the record. I will submit that.
        Chairman Hensarling. Without objection, it is so ordered.
        Ms. White. And I would just add that I am a very, very
    independent person, also.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from California, Mr.
    Sherman, for 5 minutes.
        Mr. Sherman. I stopped reading science fiction when I got
    to Congress because in my work I found more strange and
    wonderful things than could be in the pages of science fiction.
        I want to discuss with you a little bit the proposal for
    disclosure of political expenditures.
        You have been called upon by the Chair of the relevant
    subcommittee to resist outside political pressure, refuse to be
    bullied, and to demonstrate the SEC's independence by
    immediately exceeding to the demands of the Chair of the
    relevant subcommittee and the full committee.
        [laughter]
        We have been told that there is a constitutional right of
    corporate CEOs to use other people's money, in this case the
    shareholders, on political communications or propaganda without
    even disclosing what they are doing.
        This is, of course, the strangest of all constitutional
    rights since it is vested only in corporate CEOs. None of my
    constituents whom I know well have the authority to spend other
    people's money on political communications.
        Now, if indeed we do have these disclosure requirements, it
    is critically important that they be impartial.
        Could you imagine any draft emerging from the SEC that
    would impose one kind of disclosure requirement on, say, Koch
    Brothers Industries and a different disclosure requirement on,
    say, Berkshire Hathaway or Ben and Jerry's? Or would the
    regulations be even-handed regardless of which corporation was
    involved?
        Ms. White. Again, I emphasize there isn't a current
    proposal.
        Mr. Sherman. Right.
        Ms. White. We don't have a recommendation even from the
    division as to whether or not to recommend the rule proposal.
    But if you are talking about required disclosure on a
    particular subject, that is generally applied uniformly.
        Certainly, you don't make distinctions on any factors you
    shouldn't be. Sometimes, you will have scaled disclosure for
    smaller companies and things like that, but--
        Mr. Sherman. But not a requirement that a corporation must
    disclose its conservative expenditures and ignore its liberal
    ones.
        I would point out that materiality is what is of interest
    to investors and not all investors focus exclusively on
    earnings per share.
        We already require the disclosure of executive pay, of
    involvement in terrorist countries, in the conflict diamonds,
    and now millions of Americans, all of them potential investors
    or investors through their pension plan want to know about
    these political expenditures. I hope you will, when you come
    before us next time, be able to report that this process has
    gone forward.
        Another process that should go forward is the Franken-
    Sherman Amendment dealing with credit rating agencies. Many
    have pointed to the fact that they gave AAA ratings to junk
    bonds as the cause of the great calamity that hit us in 2008.
        Congress, in the law that was signed in July 2010, required
    the SEC to either implement the Franken-Sherman solution or to
    come up with a better one. You have done neither.
        I would hope that next time you come here, you will be able
    to say that you adopted regulations consistent with the statue
    to provide for a panel to choose the credit rating agencies,
    especially for mortgage-backed securities, so that we end the
    process where the issuer selects the evaluator of the bonds
    being issued, which is like the umpire being selected by the
    home team.
        And the one other thing I would want to mention--my time is
    going quickly--is that the FASB derives much of its power by
    the mandate of the SEC.
        They are coming up with a draft regulation today which will
    substantially harm small business, which will throw a real
    monkey wrench in the real estate economy.
        They had promised 67 Members of Congress who wrote them
    about this that they wouldn't adopt regulations which would
    have that effect. And I hope that just as we oversee you, you
    will oversee them.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Pennsylvania,
    Mr. Fitzpatrick, for 5 minutes.
        Mr. Fitzpatrick. Thank you, Mr. Chairman. I yield my first
    30 seconds to Mr. Garrett of New Jersey.
        Mr. Garrett. Thank you.
        And just briefly, in retort to the gentleman from
    California, I wish to remind the gentleman from California that
    it is the Constitutional and legislative authority of this
    committee to have oversight of the SEC. When we direct the SEC
    to do something, we are doing so within our legal authority to
    do so.
        That is not the case when outside organizations are using
    bullying techniques against the organization, and it is not the
    case when this Administration exerts undue influence outside
    the normal channels.
        I yield back to the gentleman.
        Mr. Fitzpatrick. I thank the gentleman.
        As a result of several factors like the U.S. credit
    downgrade, as well as the euro debt crisis, there was about
    $170 billion in outflows and money market funds during the
    summer of 2011. And I understand that some funds saw redemption
    request beyond 30 percent of total assets.
        However, no fund broke the buck during this period, which
    seems to have been a good test for the effectiveness of the
    2010 rule change' specifically, Rule 2a-7. The question is, how
    would you rate the performance of money market funds since the
    SEC's 2010 amendments, Rule 2a-7?
        Ms. White. I think that the 2010 reforms, which were
    designed to make them more resilient--the staff has done an
    economic study of that particular issue, economic analysis of
    it, and I think the conclusion is that they are more resilient.
        What the study also says, though, is that the systemic
    risks run on the funds concern, as we saw during the financial
    crisis, is not met, or was intended to be met, by those
    reforms, but certainly, I think they have done well.
        Mr. Fitzpatrick. But do you support the study conclusion
    that the reforms--it is much less likely that a fund would
    break the buck?
        Ms. White. I think the--as I recall, what the study says is
    if the same stress that was apparent during the crisis was
    present, you still had that potential risk.
        Mr. Fitzpatrick. On April 25th, when you spoke at the
    meeting of the FSOC, you told them--and this is a quote from
    that meeting--``I think it is important to move ahead with
    further reform of money market mutual funds.'' You said that
    you believed this reform would be best handled by the SEC.
        Do you believe the SEC must act with new rules for money
    market funds in order to stave off some action from FSOC?
        Ms. White. I can't speak for FSOC. I can speak for myself
    and the SEC, that I think that money market funds are
    investment products. And if something more is to be done--and,
    indeed, I made a statement of FSOC that I am expecting that the
    staff will soon make recommendations to the Commissioner in
    this field that should be done by the SEC.
        Mr. Fitzpatrick. Have you had time to review the extensive
    money market fund comment file at the SEC and FSOC? And is
    there still a possibility that after reviewing all the data,
    all the comment letters, that you will decide not to move
    forward with major changes in the money market fund?
        Ms. White. My statement at FSOC is still the current state
    of affairs, which is I think it is important to move forward
    with further reforms. All issues are currently under discussion
    between the staff and the Commissioners, but I do expect the
    staff and the Commissioners to be dealing with that in the near
    future.
        Mr. Fitzpatrick. Ma'am, before I came to Congress, I was a
    local elected official in Bucks County, not far from the City
    of New York, and a lot of local officials and State officials
    rely on money market funds as a source of sort of cash
    management. It is an important tool to have in the toolbox.
        Numerous municipalities and municipal organizations have
    written to the SEC and FSOC with concerns about how new
    regulations on money market funds would impact their costs of
    borrowing. If there were large outflows from the $2.7 trillion
    money market mutual fund industry, do you think that banks or
    other alternatives to money market funds would redeploy those
    assets to meet the needs of these municipal borrowers without
    imposing new borrowing costs on those municipalities or States?
        Ms. White. Let me say one thing that I think is very
    important, which is that there is no question about the utility
    of money market funds, both to investors and to those who
    borrow short term. And certainly one of our objectives in doing
    anything further at all would be to preserve the value of that
    product.
        We also--and again, our economic study addressed this--you
    want to have a very careful eye on the impact of, where does
    this money go if it actually does leave the money market funds?
    You don't want it going into more systemically at-risk
    institutions. So, the staff and the Commissioners are very
    cognizant of those factors.
        Mr. Fitzpatrick. So you will consider the cost on municipal
    organizations with respect to any reforms that are suggested
    or--
        Ms. White. We are considering all issues and all impacts.
        Mr. Fitzpatrick. Thank you.
        I yield back.
        Chairman Hensarling. I now recognize Mr. Green of Texas.
        Mr. Green. Thank you, Mr. Chairman.
        I thank Chairman White for appearing today. My
    understanding is, that has been codified, such that you are the
    Chair--
        Ms. White. I tried to call myself ``Chair,'' but I was told
    I was violating the statute, so--
        Mr. Green. Okay.
        I want to accord you every respect that you have earned,
    and I greatly appreciate your appearance here today.
        I do want to take just a moment to say to persons who may
    be viewing and to you that there is a spirit of bipartisanship
    that creeps into this committee from time to time. And
    yesterday was one such occasion when we passed the Homes for
    Heroes Act.
        I want to thank the chairman of the committee, Mr.
    Hensarling, and the ranking member, Ms. Waters, because they
    were very instrumental in getting this done. I would also thank
    the staff, again, because without a great staff, you can't do
    great things, and they have done a tremendous job.
        If I may, I would like to just visit with you about the
    budget, which is a part of the style of the hearing today. And
    I do want to mention to you that the President has asked for
    $1.67 billion.
        My understanding is that these are not dollars that would
    come from taxes. The $1.67 billion would come from fees that
    are collected. And my question to you is, are the transaction
    fees and other fees sufficient to cover the $1.67 billion that
    has been requested?
        Ms. White. The answer to that is it would not have any
    impact on the taxpayers. It would be deficit-neutral. And I
    think it is approximately $0.02 to the $1,000 ratio--would
    cover it, is my understanding.
        And obviously, you would also have the ability to charge a
    slightly higher amount if you needed to, but I don't believe
    that is necessary.
        Mr. Green. And is it true--I believe you have said it, but
    some things absolutely require repeating--that the amount in
    question would not involve one cent, not one cent of tax
    dollars? Is this true?
        Ms. White. That is correct.
        Mr. Green. Hence, the amount in question would not in any
    way impact the deficit? Is this true?
        Ms. White. That is right. It is deficit-neutral. No impact
    at all on the deficit.
        Mr. Green. And notwithstanding the lack of impact of your
    request on the deficit, is it also true that you are subject to
    sequestration?
        Ms. White. Yes, we are.
        Mr. Green. And is it true that you have not furloughed
    anyone thus far, but sequestration is having an adverse impact
    on your technology needs, your training needs, your contracts?
    In fact, you need to hire about 676 additional people. Is this
    correct?
        Ms. White. That is correct.
        Mr. Green. And could you just explain for just a moment
    some of what you might do with the 676 new people? Let me just
    mention some of what I have been accorded.
        I have an indication that you currently oversee about
    35,000 entities, including 11,000 investment advisers, 9,700
    mutual fund and exchange traded funds, and 4,600 broker-dealers
    with more than 160,000 branch offices.
        I show that you have approximately 460 transfer agents that
    you have to work with at 17 national security exchanges, 8
    active clearing agencies, 10 Nationally Recognized Statistical
    Rating Organizations (NRSROs), as well as the Public Company
    Accounting Oversight Board (PCAOB).
        This is just a little bit of what you do. It appears to me
    that we need to make more of the fact that you do have a very
    large job to do, and we need to well define what you do. So,
    could you say just a little bit more about what you do and why
    it is so important that you get this $1.67 billion in fees, not
    tax dollars, and why it is so critical to the operation that
    you oversee?
        Ms. White. Yes. As I think I said earlier, one of the
    things that struck me in my first month here--and I have
    reviewed the budget request, I fully support it--is just how
    massive the responsibilities are of the SEC.
        This budget request is, I believe, not only responsible,
    but surgical in many ways. It is essential for the SEC to be
    able to carry out its mission.
        I cited one example on investment advisers. We would--
        Mr. Green. Allow me to interrupt for just a moment and ask
    this quickly. Do you have an internal process by which you do
    this such that it is not done arbitrarily, capriciously, or
    willy-nilly?
        Chairman Hensarling. The time of the gentleman has expired.
        Chairman White can submit the answer in writing.
        The Chair now recognizes the gentleman from California, Mr.
    Royce, for 5 minutes.
        Mr. Royce. Thank you, Mr. Chairman.
        And Chairman White, welcome.
        I listened closely to your comments before the
    Appropriations Committee, stating that we must find common
    ground with our counterparts abroad, and nit together a
    regulatory network that offers protection, consistency, and
    stability to market participants.
        On this subject, at a hearing in October 2011, I asked
    Secretary Geithner about the extraterritorial application of
    derivative rules. Specifically, his thoughts on whether a
    misalignment between U.S. and foreign jurisdictions on either
    timing or content could, as Fed Chairman Bernanke stated
    previously, cause a ``significant competitive disadvantage.''
    Those would be Chairman Bernanke's words.
        The Treasury Secretary agreed, saying--and I will quote
    him--``The Fed Chairman is right to point out that there are
    provisions of the law that, because of how they treat the
    foreign operations of U.S. affiliates, could cause that problem
    that we are worried about.''
        I assume you agree with Chairman Bernanke and Secretary
    Geithner about the competitiveness issues that could arise with
    cross-border application. Just maybe a yes or no on that,
    Chairman, if it is okay.
        Ms. White. I do agree with that. I think our rules are also
    quite robust as well.
        Mr. Royce. I also asked then-Secretary Geithner about the
    divide between the CFTC and the SEC on timing and on content.
    And he asserted, and I will just go with what he said, ``If you
    don't have alignment among them, then you are right to say how
    are we going to convince the rest of the world to come to a
    common standard?''
        So these comments were 20 months ago, and still today, the
    CFTC and the SEC are not on the same page. One, yours, is
    conducting a deliberate process with a proposed rule versus
    rushed guidance and no-action letters, over at the CFTC.
        We have heard from foreign regulators, both in testimony
    and in a recent letter, that the bifurcated U.S. approach is
    causing confusion, and putting us at a disadvantage. And I have
    a couple of letters here from The Journal today, ``New U.S.
    rules hinder derivatives trading in Asia,'' and this is sort of
    a common theme that we see.
        Briefly, do you agree that misalignment between the SEC and
    the CFTC is problematic, and would your preference be that the
    CFTC extend their executive order, which expires on July 12th,
    to avoid market uncertainty and avoid the confusion and
    measurable impacts similar to last year?
        Ms. White. I guess my first point is plainly, yes,
    consistency is an objective, I think of everyone, to avoid the
    issues that you are mentioning. We have been working with the
    CFTC and our foreign counterparts for quite some time, and we
    continue to do that as we try to fashion these rules. It is not
    required that they be joint, but plainly, it is extraordinarily
    important for the marketplace that we try to reach that common
    ground.
        Mr. Royce. Thank you. I am going to ask you another
    question, because we are 5 years out from one of the biggest
    regulatory breakdowns in U.S. history, at least from the
    standpoint of Mr. Markopolos, who testified here, but I tend to
    agree with him on that. I think that the SEC's failure to
    detect the multi-billion-dollar Ponzi scheme run by Bernie
    Madoff was truly egregious.
        And one of the takeaways from it, as he testified to us
    about the over-lawyered nature and the culture and the desire
    to get into the equation expertise with market experience, do
    you now have an adequate complement of staff at the SEC with
    market experience in investment and in trading? And do you
    believe having a workforce with deep knowledge of the inner
    workings of our capital markets will assist you as head of the
    SEC?
        And lastly, among the recommendations of the Boston
    Consulting Group study required by DFA was that the number of
    offices and divisions reporting to the SEC Chairman be
    streamlined at present. Chairman White, you have 22 direct
    reports. Do you believe this is a structure that promotes
    efficiency? What will you do to address this? These were the
    other issues I was going to ask you.
        Ms. White. First, on the market-expert question, it is an
    extremely high priority of mine to see that we indeed--and not
    just in enforcement and the obvious divisions--throughout the
    agency, enhance the number of experts, economists, market
    experts, and traders that we need. Enforcement has done that
    since the Madoff situation.
        Chairman Hensarling. The time of the gentleman has expired.
    Any further answer can be submitted in writing.
        The Chair now recognizes the gentleman from New York, Mr.
    Meeks, for 5 minutes.
        Mr. Meeks. Thank you, Mr. Chairman.
        Thank you, Madam Chairwoman. Welcome. Congratulations to
    you, I think.
        Let me ask you a question. Basically, Section 913 of the
    Dodd-Frank Act required the SEC to study the differences in the
    standard of care for investment advisers, the fiduciary
    standard and broker-dealers, the suitability standard, and
    provided the SEC with the authority to impose the fiduciary
    standard on broker-dealers.
        Now, there was a staff report that recommended that the SEC
    consider rulemaking that would uniformly apply the fiduciary
    standard no less stringent than currently applied to investment
    advisers to broker-dealers.
        My question is, how is the SEC taking into consideration
    the possibility of a likely impact on smaller accounts if
    brokers leave the marketplace or reduce the quality and depth
    of the services they provide? I am just concerned, if they just
    left the marketplace.
        Ms. White. If those rules were applied?
        Mr. Meeks. That is correct.
        Ms. White. I think one of the reasons--and again, this
    precedes my arriving at the SEC--but that the SEC decided to
    get additional information with respect to the business models,
    the market of brokers, and investment advisers was so that they
    would have that additional information before the SEC makes any
    decision on those issues.
        Plainly, what you have seen in the marketplace, and the SEC
    has gotten data on this, is that retail investors can be
    confused as to whether they have hired a broker or investment
    adviser and don't realize the standards may be different and
    may mean something to them. And so, you obviously want to be
    very careful to protect those interests.
        But on the other hand, you also want to take into account
    the different business models and to make an optimal decision.
    So no decisions will be made on this issue until that
    information comes in. It was put out for request on March 1st,
    and then the SEC staff will analyze that and make a decision.
        Mr. Meeks. Let me--and I appreciate that, and I applaud the
    SEC's approach because I think it has been careful, in
    particular, your decision to ask for the RFI to provide the
    information.
        But you know that the Department of Labor (DOL) has
    indicated that it intends to fast-track a rule that would
    impose its own standard of care on brokers. And I am concerned
    that the DOL's fast-track approach will seriously undermine the
    kind of approach that the SEC has been going by, if not
    completely negated it.
        And so I was wondering, does the SEC share any similar
    concerns?
        Ms. White. The answer is that the staff has been in very
    close contact, frequent contact with the staff at the
    Department of Labor as well to discuss the issues you
    mentioned, as well as others. Obviously, they are an
    independent different agency than the SEC. They have to make
    their decisions ultimately.
        But one of the things we are certainly engaging in the
    dialogue for is to make certain that the differences in our
    space, and all the issues are on the table for them to consider
    as well. So, we are continuing those dialogues.
        Mr. Meeks. So you are having this kind of cross-dialogue
    with the DOL so that we could try to make sure that--I don't
    want the kind of confusion that would come particularly in
    regards to many of those that service IRA services, because
    then small folks--I know especially in the African-American
    community, if we we don't have those brokers, then they won't
    have the opportunity to invest.
        And so, I don't want the complications or the confusion to
    cause individuals to leave the market, and thereby cause people
    not to be able to save for retirement.
        Ms. White. I take your point completely. And my
    understanding is that is part of the discussion. They will
    ultimately make their independent decision. But we are
    certainly informing them from our expertise and knowledge what
    the marketplace looks like, and what the effects could be.
        Mr. Meeks. Let me just ask another question that is off
    topic a bit. I am, as you know, from New York. And I am kind of
    concerned about our current market structure, when you talk
    about technology and the significant rise of what is called
    ``DART trading'' and fragmented liquidity. A lot of
    complexities, a lot of which I am just trying to figure out and
    understand as I talk to some of my folks.
        But particularly, as it does erode the public price to help
    for smaller-cap companies--I am looking at the smaller-cap
    companies, and the effects that it has. So I am wondering--and
    I know that there are some programs or some pilot programs--I
    see I am out of time--that are being utilized and looked at. Is
    the SEC interested in looking at pilot programs or initiating
    pilot programs in that area?
        Ms. White. We recently had a decimalization roundtable that
    was directed to that, and there was enthusiasm for a pilot
    program in terms of what the spread should be, and how one
    might structure a pilot program.
        All those views are being considered under discussion now
    between the staff and soon I think there are going to be
    recommendations made to the Commission. But certainly, we are
    always focused on small businesses and the small-cap companies
    as well.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Texas, Mr.
    Neugebauer, for 5 minutes.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        Chairman White, the SEC's mission is to protect investors,
    maintain fair, orderly, and efficient markets, and to
    facilitate capital formation. I think the Dodd-Frank Act has
    attempted to address the first two parts of that mission--
    investor protection and promotion of fair markets.
        I am interested in hearing your perspective on what you
    think the role of the SEC is for capital formation, and how you
    see your tenure there facilitating that?
        Ms. White. First, it is a critical part of our mission. All
    parts of our mission are critical. But capital formation is
    certainly very much on my mind, and I think on the agency's
    mind.
        At the moment where we are focused, in terms of the staff
    work, is predominantly on the JOBS Act and the rulemakings
    under that. Plainly, the objective of the JOBS Act is to
    facilitate capital formation.
        I think before the JOBS Act was enacted, the staff was
    quite focused on a review of what one might do really across-
    the-board, across markets, to facilitate capital formation
    because that is what is critical to the health of the Nation.
    It is what is critical to the health of investors.
        Mr. Neugebauer. One of the things that I think sometimes
    the agencies do, is they are really good at waiting around for
    Congress to encourage them to do something, or in some cases,
    instruct them to do that or regulate that they do, or legislate
    that they do that.
        Do you see yourself fostering an agency where you can see
    opportunities in the marketplace where you can sometimes
    streamline some of these processes, instead of waiting for us
    to ask you to do that? One of the things I get frustrated with
    is that the government is really supposed to work for the
    people. And certainly, making sure that markets are transparent
    and operate with integrity is an important part of that.
        But the other part of it is this capital formation piece.
    Your predecessor came to talk about that. And we didn't ever
    hear much out of that.
        Ms. White. It is certainly my impression that the staff is
    quite focused on that. I certainly am quite focused on that.
        I think one of the things that I actually think should be a
    priority--it is a priority of mine as an example--is to
    simplify, make more meaningful the disclosure requirements, not
    just for small companies, but for larger companies, so that we
    end up not having it be so burdensome, and perhaps make it more
    informative.
        So that is an example. But it is our responsibility to stay
    focused on capital formation. And certainly during my tenure,
    we will.
        Mr. Neugebauer. So when are we going to finish the jobs?
        Ms. White. As promptly as I possibly can.
        Mr. Neugebauer. That is--
        Ms. White. I am a member of a 5-person Commission, but it
    is a high priority of mine to finish all of the congressionally
    mandated rulemakings. And I am trying to provide the leadership
    at the Commission to do that.
        Mr. Neugebauer. I think we are disappointed, because I
    think we were all kind of excited that we actually were able to
    pass something, and then I think, the honeymoon has kind of
    worn off on that now, because there was a lot of excitement
    about that, because it had taken so long to get the wagon up
    and running.
        Ms. White. I appreciate that. There is excitement. I hope
    it is still out there, but I understand your point completely.
        Mr. Neugebauer. Section 939(a) of Dodd-Frank sought to end
    the Federal Government's apparent endorsement of credit rating
    agencies and investor overreliance on them by almost requiring
    every Federal agency to review any of their rules using credit
    ratings to assist creditworthiness.
        The SEC has not yet completed its work to comply with
    Section 939(a). Nevertheless, the SEC announced on February
    26th that it would convene a credit ratings roundtable, I
    guess, on May 14th--and I assume that already happened--to
    examine the feasibility of a system in which the public or
    private utility would assign credit rating agencies to
    determine credit ratings for structured finance products.
        Do you believe that the SEC should reinsert the government
    into the rating business?
        Ms. White. The roundtable was to inform the staff and the
    Commissioners as to what judgments should be made in that
    space. In terms of the removal of the references, some have
    been done, but that remains as the priority as well.
        But I can't really prejudge the assignment issue since we
    just received the additional information that the staff and the
    Commissioners had decided was needed in the roundtable we just
    had.
        Mr. Neugebauer. I think it would be interesting, it would
    be informative if you could kind of follow up with me on that
    after you have had a chance to debrief on that roundtable.
        Chairman Hensarling. The time of the gentleman has expired,
    and Chairman White can follow up in writing.
        The Chair now recognizes the gentleman from Missouri, Mr.
    Cleaver, for 5 minutes.
        Mr. Cleaver. Thank you, Mr. Chairman.
        Madam Chairman, last weekend, the Kansas City Royals lost a
    weekend series to the New York Yankees. Do you believe that the
    IRS was involved in any way?
        [laughter]
        Ms. White. Do I believe what was involved? I am sorry.
        Mr. Cleaver. That is all right.
        Ms. White. It was pure skill by the Yankees, I think. I am
    from Kansas City, though, so I like them, too.
        Mr. Cleaver. Yes, I know you are. My real issue is
    regarding sequestration. Do you fear at all, or do you have any
    concern over the fact that with sequestration, that you will
    have the dollars to sufficiently oversee things such as the
    over-the-counter derivatives and a lot of other areas that this
    committee is going to hold the SEC responsible for monitoring
    and providing oversight?
        Ms. White. There is no question that the sequestration has
    an impact in that particular space, some of the hiring we need
    to do to build out. And that was not a regulated market, or
    sets of market. It is a big one. It is a complicated one.
        We are not able to--because of sequestration, that hiring
    can't occur now at least. And so, that is a concern.
        Mr. Cleaver. Let me stay with sequestration for a minute.
    Your predecessor, Ms. Walter, in a speech sometime back at
    American University, was suggesting--she did not say--but was
    suggesting Elisse--is that right? How do you pronounce the
    name?
        Ms. White. ``Elisse.''
        Mr. Cleaver. ``Elisse''--that the SEC either wanted or had
    secured or was looking at some kind of technology that would
    allow you to study the markets quantitatively. Is that a
    reality now, or--
        Ms. White. I believe what she was referring to was the
    Midas system, which we are very excited about. And it will
    provide a lot of very useful information to the staff and the
    Commission on market structure. That is part of what our
    trading and markets group is analyzing, and including data from
    that informing the study we are doing of the equity market
    structure.
        Mr. Cleaver. Mr. Chairman, I yield back the balance of my
    time.
        Chairman Hensarling. The gentleman yields back the balance
    of his time.
        The Chair now recognizes the gentleman from North Carolina,
    Mr. McHenry, for 5 minutes.
        Mr. McHenry. Thank you, Mr. Chairman.
        There have been comments about the IRS in this hearing. And
    some are trying to make light of what is a rather serious
    breach, and has a huge chilling effect on average Americans,
    average, everyday nonpolitical Americans. And it is a very
    serious matter.
        Chairman White, thank you for your testimony. I know you
    have a very serious approach from your time as a U.S. Attorney,
    and you have carried that through now with your tenure at the
    SEC.
        I have said publicly, and I have said to you, I have very
    high hopes for your tenure at a very troubled agency, a
    troubled agency on the enforcement front, which you are front-
    and-center on. And we, again, have high hopes for how you are
    going to follow the rule of law, and ensure that the agency
    adheres to that.
        Likewise, we have some very important congressionally
    mandated rules. And I have expressed this to you directly as
    well. The JOBS Act was a bipartisan bill passed over a year ago
    and signed, one of the rare bipartisan bills that Congress was
    able to get through both the House and the Senate, and have the
    President sign.
        We talked about enthusiasm. You have mentioned enthusiasm
    for the JOBS Act. It is about getting capital to small
    businesses and moderate-sized businesses, and get to that other
    function of the SEC, which is to foster capital formation.
        So I ask you, Chairman White, where is the implementation?
    First, who sets the agenda at the Securities and Exchange
    Commission?
        Ms. White. I am told I do. So I am--
        Mr. McHenry. Fantastic. Where is the JOBS Act
    implementation on your agenda?
        Ms. White. The answer is that it could not be a higher
    priority with me. I know you are looking for a time. It will be
    done as quickly as possible.
        What I have done since I have arrived is to look at the
    work streams that were there, to make them more efficient and
    not overlapping, if I could, so that you didn't have the same
    people working on the same rules.
        They remain, along with the Dodd-Frank rulemaking that
    isn't finished, at the top of my priority list. And I am going
    to get them done--I am on a 5-person Commission, even though I
    set the agenda--as promptly as I can.
        Mr. McHenry. I respect that. We, on this side of the aisle,
    like the Commission's structure. But you set the agenda. I
    would like to know if Reg D, lifting the ban on general
    solicitation, is at the top of your agenda that you are
    setting?
        Ms. White. Certainly, I consider it to be the top. If we
    are saying there is one thing at the top, it is among the top
    things on my agenda.
        Mr. McHenry. What is higher?
        Ms. White. There is nothing higher. I am proceeding on--as
    I said I would try to do--parallel tracks, depending on the
    readiness to go forward.
        Mr. McHenry. We welcomed your announcement yesterday of a
    new Director of Corporation Finance, a permanent Director for
    Corporation Finance. You are reloading the staff there, and we
    encourage you to do that. That is where the JOBS Act
    regulations will be written.
        On Section 2, I have asked about that. On an enhanced Reg
    A, we passed a bill yesterday with wide bipartisan support in
    the House to direct the SEC to get an enhanced Reg A-plus done
    by October 31st. Do you foresee being able to achieve that?
        Ms. White. Certainly, we will do everything in our power to
    do that. There is not a rule proposed yet. As you know, almost
    always, we have, for good reason, a notice-and-comment process.
        I think it is a challenging date to actually have it done.
    Again, we are extremely focused on it. There are issues beyond
    just raising the amount that we need to be dealing with and are
    dealing with.
        Mr. McHenry. This has been a long time coming. We had one
    offering in 2011 under Reg A. There has been a complete
    abandonment, and no serious review of Reg A within the SEC. And
    it is high time. That is why we mandated it within the JOBS
    Act.
        Let us move to the crowdfunding. Where is crowdfunding on
    your agenda? That is a personal interest of mine, because that
    is a legislative priority that I have, and continue to have.
    And I want to see this capital flourish so we can get small
    businesses access to this capital.
        Ms. White. It is among those at the top. Nothing is higher
    in the sense that--I have several things at the top, and we are
    very focused on that. That is one where I know there has been
    both disappointment, and still excitement to get it done. So it
    is a very high priority to get it done as promptly as I can.
        Mr. McHenry. I urge you to set the agenda, to drive this
    train forward, and to make sure that we have full
    implementation of the JOBS Act. Thank you for your testimony.
        Chairman Hensarling. The gentleman yields back his 3
    seconds.
        The Chair now recognizes the gentlelady from Wisconsin, Ms.
    Moore.
        Ms. Moore. Thank you so much, Mr. Chairman.
        And let me join my other colleagues in congratulating you
    on your appointment. Your outstanding credentials precede you.
    And hopefully, it will ploy you in these hard times.
        Many on this committee, on both sides of the aisle, have
    asked you about your budget and about the sequester. So, I
    can't resist sort of pursuing that a little bit further.
        You seem to be a little bit reluctant to give us the--to
    discourage us about it. But I am very concerned, as some folks
    are, about how you will actually be able to carry out the new
    mandates under Dodd-Frank with the--not only the sequester, but
    operating under the current continuing resolution. And even
    though there are no taxpayer funds that are at risk here, you
    still are subject to the sequester.
        I think my colleague Mr. Green, in particular, laid out
    some of the challenges of oversight with regard to over-the-
    counter derivatives. But I am really curious about the amount
    of dark pooled trading that has occurred in the past couple of
    years. It has more than doubled.
        And so, I am wondering about your ability to have oversight
    over that. Also, the push for having the so-called office of
    investor advocate and the accredited investors--how we will
    provide the adequate oversight of an area like that?
        Ms. White. Let me correct a misimpression. I am not shy
    about what we need. I don't mean to be. I was asking--I think,
    answering a specific question about sequestration and what the
    specific impacts--
        Ms. Moore. Right.
        Ms. White. --of that are on us.
        We very much need what the President has asked for in this
    budget for Fiscal Year 2014. Again, the massiveness of our
    responsibilities is what sort of hit me between the eyes in the
    last month. And I am very concerned that if we don't get that
    appropriation, we cannot do our job. So, I don't want to be
    lacking in clarity there.
        In terms of the market structure issue and the dark pools,
    again, that is one of the issues--that set of issues, the
    market structure issues--that, as I was being briefed to come
    onto this job, struck me as one to which we must bring a sense
    of urgency to fully understand all those issues so that we can
    regulate wisely in that space.
        The data that is out there now is not conclusive--for
    example, high frequency traders have a speed advantage. But
    what the experts don't agree on is what the impact or harmful
    impact of that may be.
        So, that is an area where I am also concerned about getting
    more market expertise into the mix at the SEC. And certainly,
    if we don't get the funding that we are seeking, that could be
    compromised.
        Ms. Moore. Thank you for that answer, for your candor.
        We have been visited, I think, by companies that have
    indicated that they want to see--permit larger kick sizes for
    small companies in order to support secondary market research
    and market making. And, it makes sense in one sense. But I am
    wondering if the sequester and the C.R. are prohibiting the
    agency from studying that and moving that further.
        It is the same thing with really giving us the definition
    of an accredited investor. I don't see Representative Stivers
    in here today, and we just sent you a letter May 10th regarding
    publishing your final rules on municipal advisers. I know there
    is a lot on your plate.
        I was encouraged by your public remarks regarding the money
    market mutual funds, which kind of got politicized or something
    with the last Administration. So, I know I am asking a lot, but
    can you just tell me some of these things that are right on the
    precipice of being put out, what the time table is, what we can
    do here in Congress to help roll these things out a little bit
    faster?
        Ms. White. I appreciate the support, both in terms of our
    budget request and otherwise. Very much so. I think I have said
    publicly that I do expect in the near future on the further
    money market reforms, that will be keyed up by the staff for
    the Commissioners.
        I have--again, my highest priority is the other rulemakings
    to finish on--in terms of the spread, the tick sizes. That was
    the subject of our roundtable recently. I think it was in
    February.
        Under active discussion, we are sort of looking at whether
    there should be one or more pilot programs in order to further
    that, and that decision ought to be made pretty quickly, I
    think.
        Accredited investors--we are very focused on that, as well,
    in terms of what should be done there. Clearly, we try not to
    have any of our core mission compromised by budgetary concerns,
    but it is not realistic to say that they are not.
        Chairman Hensarling. The time of the gentlelady has
    expired.
        Ms. Moore. I thank the chairman.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from Michigan, Mr. Huizenga, for 5 minutes.
        Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
        And Madam Chairman, I appreciate you being here, as well.
        Neither one of us were around this institution when Dodd-
    Frank came into effect. But we are both dealing with the echo
    effects of it. And I want to explore that a little bit.
        I have to tell you, I was thrilled earlier, I think, in one
    of your responses to my colleague, Mr. Neugebauer, from Texas.
    You said--I believe the quote was, it is one of your highest
    priorities to ``simplify reporting requirements.''
        We have one of those solutions for you, myself and my
    colleague, Mr. Garrett from New Jersey. It is called H.R. 1135.
    It is dealing with pay ratio. And Section 953 of Dodd-Frank has
    been labeled by some a logistical nightmare because of all the
    different factors that are having to be put in place to
    consider calculating total compensation.
        And I am curious--there are a lot of questions out there on
    whether transit benefits or employee-paid health care costs
    should be a component of compensation. Should domestic and all
    multinational employees be a part of the calculation? And what
    about part-time employees or independent contractors?
        It seems to me that it is a vague statue, if you would
    agree or disagree with that. And what factors do you believe
    must be considered in determining this calculation? Have you
    looked at that at all?
        Ms. White. I have looked at that. And there are others who
    think very strongly that needs to be done as quickly as
    possible. The complication with that is in the definition of
    ``total compensation.''
        And there is a specific definition of that which applies to
    when you are disclosing your top executive's compensation. That
    is, the statutory definition that leads to all the other issues
    you have just teed up in terms of some of those complexities.
        Mr. Huizenga. I guess, ultimately, my question is, to what
    end? To what good? And that--when they sent around executive
    compensation and surveyed, they believe that is an estimate of
    3 months--in some cases longer--to calculate and gather all
    those pay ratios.
        And I am--I would love to know whether the Commission has--
    the staff has made any effort to identify the costs to business
    for this, when there is, in my view of it, absolutely no
    benefit to the health and well-being and safety and soundness
    of either a corporation or the investors in it.
        It seems to me that it is trying to turn it into a
    political football. And I am curious--and we can--love to
    submit these, as well, to get maybe a further, more full answer
    from you. But it seems to me, we need to find out from you
    whether you believe that the significant amounts of time and
    money that are going to be spent developing it are worthwhile.
        Ms. White. Very quickly. It is a mandated rulemaking for
    us. So, as a regulator--
        Mr. Huizenga. H.R. 1135 will take care of that. And we will
    alleviate you of that burden, so--the other thing I have is--we
    are working on some draft legislation regarding mergers and
    acquisitions, and earlier, you were talking about small
    businesses and trying to focus and concentrate on that.
        Our proposal is to right-size Federal regulation of M&A
    intermediaries and business brokers. And it has been one of the
    top recommendations for the Government Industry Forum on Small
    Business Capital Formation, which the SEC annually holds. It
    has been a recommendation in 2005, 2006, 2007, 2008, 2009,
    2010, and 2011.
        Do you see that this is an important small business capital
    formation concern? And under your leadership, what priority are
    you going to be giving to these small business issues?
        Ms. White. I certainly appreciate the concern of that
    issue. And I will give a very high priority to small business
    issues during my tenure.
        Mr. Huizenga. Okay. Just to clarify right now, presently,
    broker-dealer registration is a one-size-fits-all approach. And
    90 percent of the requirements are totally irrelevant to a
    broker-dealer engaging in a limited capital raising activities.
    This could be something as small as selling an LLC. Because it
    has membership shares and those kinds of things.
        And--
        Ms. White. I will commit to reviewing that specifically.
        Mr. Huizenga. --that is great, because I know staff has
    acknowledged that concern, but the SEC has not addressed it
    yet. And I look forward to that.
        Finally, on brokers, I just wanted to echo my friend, Mr.
    Meeks, as well. It seems that the SEC and the DOL are in a
    race. And one of those, in my opinion, shouldn't be in the
    race. It seems to me that we need to make sure that we are
    looking at that standard of care for retail accounts,
    especially when it is including those IRAs. And I am looking
    forward to an update from you on that.
        So, those are my three issues.
        Other than the last 10 seconds I have, we are talking
    budgets. According to my calculations, about $550 million of
    your budget goes to folks who make $100,000 or more on your
    staff. And I understand $100,000 in Washington, D.C., isn't the
    same as in Zeeland, Michigan. But you have 85.75 percent of
    your employees making $100,000 or more.
        I would like you to review that, as well.
        Ms. White. We do need the expertise, too, though.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Delaware, Mr.
    Carney, for 5 minutes.
        Mr. Carney. Thank you, Mr. Chairman.
        And thank you, Madam Chairman--if that is the appropriate
    title--for coming in today.
        Welcome.
        You sound like you are just what the doctor ordered for
    this position. And we wish you well.
        I don't think there is any risk that you are going to be
    bullied by anyone, as has been alluded to earlier. Anyone who
    has gone toe-to-toe with John Gotti and some of the folks that
    you prosecuted, I think we don't have to worry about being
    bullied.
        I think a greater concern is that we will distract you from
    your priorities here in Congress, or not give you the resources
    that you need to do the job.
        I support the request that you are making for your budget,
    as many of us here do. I hope, as our chairman emeritus said
    earlier, that we can come up with a bipartisan agreement on
    that.
        Your expenditures are covered by the fees charged, and so
    it doesn't add to the budget, as you say, and we ought to give
    you the resources you need to--we can't afford not to, frankly,
    as has been stated by so many others.
        Ms. White. Thank you for that.
        Mr. Carney. I would like to hear your opinion of H.R. 1256,
    the Swap Jurisdiction Certainty Act. I was a co-sponsor of that
    piece of legislation. The SEC came out with a proposed
    regulation, and in some ways, it mirrors the approach.
        Could you tell us a little bit about your thinking there?
    You addressed it a little bit with Mr. Royce and Mr. Garrett
    earlier today, but tell me about your thinking and the
    prospects for getting that done in these various markets.
        Ms. White. The cross-border aspect as well?
        Mr. Carney. Yes.
        Ms. White. Yes. It is a complex area. You obviously have a
    lot of regulators in the space in terms of--many of our
    proposals are consistent with our domestic counterpart the
    CFTC. We are working with them and the international
    regulators.
        Mr. Carney. You are working with them right now?
        Ms. White. Yes.
        Mr. Carney. So your hope is that you can have, as the
    legislation will require, a set of joint regulations. It
    doesn't make sense to us, I think, and I would be interested on
    your opinion, to have conflicting or different regulations
    there.
        Ms. White. I think the products are somewhat different
    between SWAPs and security-based SWAPs, so there can be
    differences, but clearly consistently is the objective--
        Mr. Carney. Right.
        Ms. White. It is a very global marketplace. I believe that
    in your bill, H.R. 1256, there is a presumption that the top
    nine--
        Mr. Carney. G8 plus Hong Kong is what it was.
        Ms. White. Yes. That is the only aspect that actually--not
    actually the only aspect, but that gives me some concern
    because I think what we have proposed is that the SEC make a
    judgment when requested about substituted compliance.
        Mr. Carney. Right.
        Ms. White. Some of these countries really don't have
    regulations in that space so if we have to kind of--when it
    comes out of the gate, we have to basically prove that the
    presumption doesn't apply, it takes a lot of resources but--
        Mr. Carney. But what should be clear is that you have the
    authority in the bill, and I would encourage you to use it. If
    those regulations are not what they ought to be from your
    perspective, then you can apply the SEC's regulations to those
    U.S. companies, U.S. persons as defined--
        Ms. White. I think our staffs are working on this aspect.
        Mr. Carney. Yes.
        Ms. White. So, okay.
        Mr. Carney. That is great. I think it is important that it
    get done that way, certainly that there is consistently and I
    think, as has been referenced earlier by others, the confusion
    and lack of clarity can create more problems than if you have a
    consistency there.
        So that is really all I have. I want to, again, welcome
    you. Thank you for your willingness to take on this very
    important position. I hope, after today's hearing, you don't
    have second thoughts and decide to do something else.
        Ms. White. I haven't left the room yet, at least.
        Mr. Carney. No, you haven't. You haven't left the room. You
    are still here and we wish you well. Thank you.
        Ms. White. Thank you very much.
        Chairman Hensarling. Nor are you allowed to for another 45
    minutes.
        Ms. White. I know that.
        [laughter]
        I knew that.
        Chairman Hensarling. The gentleman yields back.
        The Chair now recognizes the gentleman from Virginia, Mr.
    Hurt, for 5 minutes.
        Mr. Hurt. Thank you, Mr. Chairman.
        And let me, again, echo my thanks for your being here. As a
    former prosecutor, I especially appreciate your history and
    experience in enforcement of the laws of the United States.
        I certainly think that we would all agree that the firm and
    fair enforcement of the laws is very important to cultivating
    our capital markets and instilling confidence in them.
        I would also echo what has been said about the importance
    of implementing the JOBS Act. I come from a rural district in
    Virginia where we have places with unemployment at 10 percent,
    some places have been up to as high as 20 percent.
        We need jobs, and I believe capital formation will lead to
    that. One of the things that, in additional to enforcement, or
    one of thing--one of the responsibilities, in addition to
    enforcement, obviously is facilitating capital formation.
        It would seem to me that when you have 4,000 employees, and
    you look at the breakdown of economists versus lawyers, you
    have 59 economists, and you have 1,750 lawyers, I guess the
    question is, how do you facilitate capital markets when you
    have that ratio of enforcement versus market expertise that Mr.
    Royce talked about?
        Ms. White. I think first, we are, as you noted, a law
    enforcement agency and so certainly we have a significant
    number of lawyers in our enforcement division and our
    examination divisions to enforce the laws and to look for
    compliance in the laws.
        But in terms of the economists that we have, we do have 59.
    Now, one of our requests in this budget request is for another
    45 positions, I think 10 of them would actually be Ph.D.
    economists, but all have expertise--I don't know if they are
    all nonlawyers, but close to that for our risk strategy and
    financial innovation division, which is where we do that kind
    of analysis.
        We have experts elsewhere in the other divisions, too,
    particularly in enforcement now. We will always need to have a
    very significant complement of lawyers, but where you have seen
    the most growth, including this budget, is in the arena of the
    economists and experts to support them.
        So you have to get the right balance there, but a big part
    of what we do is law enforcement and that is going to lead to a
    lot of lawyers.
        Mr. Hurt. Thank you. With respect to the health of the
    capital markets in the United States, one has been offered that
    the best measure of that is, in fact, the number of IPOs that
    we see on an annual basis.
        We know that number had declined. In fact, the reason that
    we adopted the JOBS Act was to try to encourage more of that
    activity and try to take the burdens that we in Washington
    place on that activity, try to take them away at least
    temporarily.
        I wish we could do it permanently, but we have recognized,
    as a body, that we need to do that at least temporarily to help
    encourage this.
        It is particularly discouraging that those numbers wane
    when you consider the number of IPOs that you see in other
    countries. And so, I was wondering if you could speak to that?
    Does that concern you? And what specifically can we do in
    Washington to encourage more of that activity?
        Ms. White. I guess one just sort of data point, although I
    don't want to overstate this, is there has actually been an
    uptick in IPOs and the value of IPOs in this first quarter or
    so of this year.
        It doesn't mean that it lasts. Obviously, it is a matter of
    real concern. I think I mentioned before the capital formation
    study that the Corporation Finance Division in the SEC was
    doing before the JOBS Act was enacted; was partially directed
    at that.
        I think it is a complex set of factors. It is not easy to
    sort of say this will do it, but it is certainly something we
    are very focused on studying and to make a contribution to that
    analysis as to whether further legislation might help it, other
    things might help it--
        Mr. Hurt. And wouldn't you agree that those diminished
    numbers must be, at least in some part, a reflection of the
    policies that are adopted at the SEC and here in the United
    States Congress?
        Ms. White. You certainly focus on whether that is so,
    particularly for smaller businesses. But I think it is a very
    complex subject, so I don't have an answer for you on that, but
    you certainly focus on the question quite closely.
        Mr. Hurt. Thank you. I yield back my time.
        Chairman Hensarling. The gentleman yields back. Mrs. Beatty
    from Ohio is recognized for 5 minutes.
        Mrs. Beatty. Thank you, Chairman Hensarling, and Ranking
    Member Waters.
        And thank you, Madam Chairman, for being here, and I
    certainly join my colleagues in thanking you for sitting
    through all of this today. And certainly, as you stated in your
    testimony, the breadth of what you do there is vast.
        With that said, I have two questions. One, being an OMWI, I
    guess I could say, person because I am a minority and a female
    and being a small business owner, last month the SEC's Office
    of Minority and Women Inclusion submitted their annual report.
        And in the report, it talked about the percentage of
    contracts that went either to women or minorities and while
    there was a small increase, 21 percent, I believe, of the
    contracts went to either a minority or a female.
        But when they separated them and looked at them, there was
    a decrease in contracts going to minorities. I get a lot of
    questions, because I have been a small business owner for over
    20 years, from people who are female or minorities wanting to
    know with the Federal Government and, more specifically, with
    the SEC, how they can get engaged.
        So I guess my question to you is, can you discuss briefly
    how you would approach increasing the participation of
    minorities and women doing business with the Commission?
        Ms. White. Yes, and we are very focused on that, as is the
    head of our OMWI office. Part of what we are doing, and it will
    be enhanced as we go forward, is a lot of outreach to potential
    vendors and contractors with the SEC.
        So you can at least make the process clear? Is it
    available? How do you participate in that process? Actually, we
    were pleased with the results of those efforts so far, but we
    have obviously much further to go.
        But we are quite focused on--the outreach has been--efforts
    and they have been extensive and a lot of them and I think
    giving really clear instructions as to how best to compete for
    those contracts.
        But we need to do more in that space, no question.
        Mrs. Beatty. Okay, and my second question is, in 1982, an
    accredited investor was required to have at least a million
    dollars or $200,000 in cash.
        So here we are, 30-some years later, after inflation has
    cut the value of a dollar by almost two-thirds. Do you think an
    individual still should qualify as an accredited investor with
    those same dollar amounts?
        Ms. White. I think that is an issue, and I believe my
    predecessor actually testified before a subcommittee or this
    committee about it, which we are very focused on at the SEC and
    really considering what the range of factors should be. Not
    just the dollar amounts, but what else should go into an
    optimal definition of accredited investor as we sit here in
    2013. So, that is being worked on.
        Mrs. Beatty. Thank you. I yield back the rest of my time.
        Chairman Hensarling. The gentlelady yields back.
        I now recognize the gentleman from South Carolina, Mr.
    Mulvaney.
        Mr. Mulvaney. Thank you.
        Madam Chairman, I want to focus on my questions or at least
    with my questions on the SEC's mandate, which I have as to
    protect investors; maintain fair, orderly, and efficient
    markets; and facilitate capital formation.
        So on the facilitate capital formation, let us talk a
    little bit about the budget request that you bring to us for
    2014, $1.674 billion, which by the way, I think, if my math is
    correct, represents about a 26 percent increase over the 2012
    budget.
        And I guess, as a point of departure, is it fair to say
    your workload has gone up by 26 percent in the last 2 years?
    What is driving that? That is a fairly dramatic increase in a
    time when most folks are looking at reductions in their
    budgets. So, tell me a little bit about that.
        Ms. White. Okay. To start with that, I think it is--we
    obviously have new responsibilities we have talked about under
    Dodd-Frank, significant new responsibilities.
        Mr. Mulvaney. Right. But Dodd-Frank was before 2012.
        Ms. White. Yes. But the build-out of what you need--the
    regulations are still under consideration being proposed. The
    personnel that you need, and the structure that you need is
    basically coming now in order to build that. So, that is a part
    of it.
        I think the other part of it is--and part of our request,
    by the way, does go for additional positions in Corporation
    Finance, for example, which is dealing with the implementation
    of the JOBS Act, the amendments.
        Some of it is that we just haven't had the funding in the
    past to do our job. And I can't really say it any other way.
        Mr. Mulvaney. This comes out of the fees paid by folks who
    are using the services. Would you agree with me that every
    penny that goes to the SEC for its budget is money that is not
    available for capital formation?
        Ms. White. I wouldn't agree with that, actually, no.
    Because I think what we are focused on with really everything
    we do, including--in my mind, they don't sort of separate out
    investor protection, orderly and efficient markets, and capital
    formation.
        So when we essentially fund something that goes, let us
    say, predominantly to investor protection, as some people would
    see it, that also facilitates capital formation. So I don't see
    that as a--
        Mr. Mulvaney. So is it fair to say it is not available for
    capital formation? When you take it, you take it out of the
    market, and it is no longer available for capital formation?
        Ms. White. I would agree. I think it is $0.02 to $1,000.
        Mr. Mulvaney. Let us talk about the other portions of the
    mandate--protecting investors, and orderly and efficient
    markets. Help me understand which of those three mandates
    speaks to the conflict minerals rule.
        Ms. White. The conflict minerals rule is a congressionally
    mandated rulemaking. We obviously went through our process.
        Mr. Mulvaney. Is it fair to say that it doesn't--that none
    of the three mandates really speak directly to the conflict
    minerals rule? It may be our fault, and that is blaming you.
    But--
        Ms. White. No, no. I appreciate that. I have heard
    arguments that it advances one or more of our tripartite
    mission. But I take your point.
        Mr. Mulvaney. Is it fair to say that perhaps it is possible
    that other rules may be more in line with your mandate than the
    conflict minerals rule?
        Ms. White. It is under litigation. Certainly, part of our
    mandate is to do the rulemaking that is required of us by
    Congress.
        Mr. Mulvaney. Okay. Let us talk about that. Because you are
    right, and I can't disagree with that, because it is the law.
    But my point is that it looks like--and I know I am not alone
    in this--there are other rules from Dodd-Frank, so ones that
    are contemporaneous with the conflict minerals rule, that don't
    have rules yet, that are either late or haven't even started
    yet.
        In fact, I think that Commissioner Gallagher, in his speech
    back in September, gave a perfect example. He said, ``The
    mandate in Dodd-Frank, Section 939(a) for Federal agencies to
    remove references to credit ratings from the rule books may
    well be the clearest, most direct mandate we at the SEC have
    been given. It has the virtue of being responsive to one of the
    core problems underlying the financial crisis.''
        Yet, that rule went after--it is not even finished yet, I
    don't think--conflict minerals. Why is that? Why did the
    conflict minerals go before other rules that apparently at
    least one of your Commissioners thinks are much more in line
    with your mandate?
        Ms. White. At least as I see my space, there are a lot of
    mandated--there are lots of mandates that are quite clear from
    Congress.
        That is one where we have moved forward on some of our
    regulations and statutes. There are also discussions among the
    staff and the Commissioners on others. Again, I go back to--
        Mr. Mulvaney. Do you know why conflict minerals 1502, 1504,
    went before 939(a)?
        Ms. White. I don't know that. It precedes my time there. So
    I don't know. It is in a different division than the credit
    rating issues and rules. But I am not saying that is the
    explanation for it.
        Mr. Mulvaney. I yield back. Thank you, Mr. Chairman.
        Chairman Hensarling. The gentleman from Washington, Mr.
    Heck, is now recognized for 5 minutes.
        Mr. Heck. Thank you, Mr. Chairman.
        Chairman White, let me add my voice of congratulations, not
    just for your nomination, but for your successful confirmation.
        I have a couple of quick questions regarding H.R. 1062, if
    I may, please. We have discussed that briefly here this
    morning. To begin with, in your opinion, and with advanced
    apologies for my split infinitive, in your opinion, is passage
    of H.R. 1062 necessary in order for the SEC to successfully
    fulfill its statutory mission?
        Ms. White. I certainly--is it necessary to pass it to do
    that? Is that the question? I'm sorry. I didn't quite catch
    your question.
        Mr. Heck. Is passage of H.R. 1062 necessary in order for
    the SEC to successfully fulfill its statutory mission?
        Ms. White. I do not believe so. I am a firm believer in
    robust economic analysis, which is very much a part of our
    mission, and requirements that we assume, and that inform all
    of our rulemaking.
        But I am concerned that H.R. 1062 would layer on additional
    and different requirements that are not obviously presently
    required by law, and not necessary to our robust rulemaking.
    And I would worry that we couldn't carry out our mission as we
    do now.
        Mr. Heck. In that regard, would you then therefore
    characterize it as undesirable in your pursuit to successfully
    fulfill your statutory mission?
        Ms. White. I certainly would be very concerned about
    whether we could do our job if it passed.
        Mr. Heck. Lastly, given your reference to your avowed
    allegiance to robust economic analysis, including cost/benefit
    analysis, in your opinion, has the level of recent economic
    analysis, cost/benefit--presumably, including cost/benefit
    analysis by the SEC, been a material factor in impeding or
    inhibiting the facilitation of capital formation in the
    marketplace?
        Ms. White. The answer is, I think it is essential to good
    rulemaking. Let me just be very clear about that. Obviously, it
    takes time and resources, as do a lot of things that are
    difficult but important do.
        So I do think we need, at the agency, to be able to carry
    out that robust economic analysis to which I am firmly
    committed in a way that it doesn't impede our ability to
    promptly carry out our rulemaking mandates.
        Mr. Heck. I am not sure I understood how your answer was
    responsive to my question. So--
        Ms. White. I apologize.
        Mr. Heck. Let me ask again. In your opinion, has the recent
    level of economic analysis by the SEC been a material factor in
    impeding or inhibiting the facilitation of capital formation in
    the marketplace?
        Ms. White. I don't think--and I am not trying to be
    nonresponsive--I can answer that other than to say that all the
    work we do that takes time can obviously slow down a rulemaking
    that may facilitate capital formation.
        But I wouldn't single out economic analysis for that. And I
    do think it is very important to informing wise rulemaking.
        Mr. Heck. I was trying to be as objective as possible by
    asking it in terms of, at the level. But let me ask with kind
    of a more biased characterization.
        Has the absence of robust economic analysis and cost/
    benefit analysis been a material factor in impeding or
    inhibiting the facilitation of capital formation?
        Ms. White. I don't think at the SEC there is an absence of
    robust economic analysis. I do not think--
        Mr. Heck. Including cost/benefit analysis?
        Ms. White. Including cost/benefit analysis. And I think
    third parties have made that observation recently that we are
    doing a very good job at it.
        Mr. Heck. Is there any way I can reasonably or logically
    infer from your comments, other than that your view is H.R.
    1062 is both unnecessary and undesirable?
        Ms. White. I am troubled by H.R. 1062 for the reasons I
    have stated.
        Mr. Heck. Thank you, Madam Chairman.
        I yield back the balance of my time, Mr. Chairman.
        Chairman Hensarling. The gentleman yields back.
        Mr. Hultgren is recognized for 5 minutes.
        Mr. Hultgren. Thank you, Mr. Chairman.
        Chairman White, thank you so much for being here. I
    appreciate it, and I appreciate your service.
        I have a couple of questions for you. The agency that you
    now lead has had some challenges and some failures in the past
    years: it failed to prevent a taxpayer bailout of Bear Stearns;
    it failed to prevent the collapse of Lehman Brothers; it failed
    to do anything about the largest investment banks loading up on
    toxic assets; it failed to transfer employees to the now
    defunct Consolidated Supervised Entities Program, which oversaw
    the five independent investment banks, two of which failed
    spectacularly during the financial crisis; it failed to do
    anything about the credit rating agency oligopoly that bestowed
    AAA ratings on securities that later proved to be no better
    than junk; and it failed to uncover two multi-billion-dollar
    Ponzi schemes run by Allen Stanford and Bernie Madoff, despite
    multiple warnings by market professionals, resulting in untold
    economic harm to thousands of individual investors.
        Also, your agency has received a 300 percent increase in
    the last decade in your budget. Your agency has missed 70
    percent of Dodd-Frank rules and 100 percent of JOBS Act rules.
        With all of those failures, why should you and the SEC be
    rewarded with a $1.674 billion budget?
        Ms. White. I think the agency would not dispute that it has
    had challenges, and had some of the issues that you have
    identified. I think the SEC, before my arrival, has also done a
    great deal to remediate those issues.
        I think we have to--when we step back and look at sort of
    percentages of budget request increases, you also have to look
    at, so what are the responsibilities, what is the market that
    we regulate?
        And you have had an--obviously, a vast growth in the
    equities market. You have had a vast growth in the SEC's
    responsibilities to regulate. Assets under management have more
    than tripled.
        So I think if you sort of laid those side by side, those
    budget increases would make very good sense, but in my
    judgment, would not be sufficient for us to carry out what is
    on our plate today to fulfill our missions, including the
    congressionally mandated rulemaking, but really, all of our
    responsibilities over this marketplace. We have tried to
    pinpoint exactly what we need, and say why.
        Mr. Hultgren. I think that gets to some of the concerns I
    have heard from my colleagues as well, that with all these
    failures, and then with rules congressionally mandated
    activities that are being pushed off to do optional activities
    concerns us when there is a request for additional dollars.
        Let me shift gears, because I just have a short time. But
    Chairman White, I wonder if you could discuss the economic and
    cost/benefit analysis that FINRA is required to perform when it
    issues a new rule, a rule amendment, or an interpretation? And
    how does the SEC oversee that process?
        Ms. White. I think in terms of the SROs, they are not
    subject to the SEC guidance, per se, in terms of economic
    analysis and cost/benefit. The rules are put out for public
    comment. Often, the comments include comments about cost and
    cost benefits.
        The SEC, in its oversight role of the SROs, makes certain
    that those comments are taken into consideration. When we get a
    rulemaking from the SROs, for example, they do provide what
    they think the impact will be of their rules.
        Mr. Hultgren. Let me ask you this, does FINRA also consider
    cost/benefit and economic issues when administering its other
    operations, such as its exam and inspection programs?
        Ms. White. The answer is even as a formal matter, as a
    formal matter do they? I don't know the answer to that. I think
    they certainly do in a--I don't want to use the word
    ``holistic'' again, but I guess in a holistic sense. I may need
    to get back to you on that--
        Mr. Hultgren. If you could, that would be great. If you can
    give us some more information on it for the record, that would
    be terrific.

    [Additional information provided by Chairman White can be found
    on page 110 of the appendix.]

        Mr. Hultgren. Mandatory arbitration is hardwired in
    definitive rules. It compels broker-dealers to arbitrate
    disputes if the customer elects. If and when the SEC reviews
    whether broker-dealership had the same right to include
    arbitration clauses in their customer contracts, do you agree
    that customers and broker-dealers are entitled to fair and
    equal treatment with respect to mandatory arbitration, whether
    it is imposed through FINRA rules or by agreement of the
    parties in the customer contract?
        Ms. White. Certainly, to be fair and equal treatment, in
    terms of mandatory pre-dispute arbitration, I talked about that
    a little bit earlier, that the SEC has been given authority to
    deal with that, hasn't made a decision what, if anything,
    should be done about it.
        Mr. Hultgren. In my last remaining seconds, when does the
    SEC expect to finalize the risk retention rule mandated by
    Dodd-Frank?
        Ms. White. That is something that is preceding actively.
    That is one where we are required to do joint rulemaking with
    other regulators. So that is the process for that. But it is in
    quite active dialogue now, and is progressing.
        Chairman Hensarling. Time is--
        Mr. Hultgren. My hope is to finish up quickly.
        I yield back, Mr. Chairman. Thank you.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair recognizes the gentleman from Arkansas, Mr.
    Cotton, for 5 minutes.
        Mr. Cotton. Chairman White, thank you for your time today.
    Thank you for your distinguished service to our country and
    your willingness to come serve again.
        I would like to talk a little about the potential for a
    political expenditure disclosure rule. Your spokesman, John
    Nester, said earlier this week that the timing of such a
    rulemaking ``will be influenced by the ongoing workload of
    Dodd-Frank and JOBS Act rulemaking.''
        Can you tell us, where does the political expenditure
    disclosure rulemaking rank in SEC priorities?
        Ms. White. The status of that is that it is--the petitions
    we have received seeking that disclosure are being reviewed in
    the Division of Corporation Finance with a goal to determine
    whether or not to recommend the pursuit of any rulemaking.
        There is no proposed rulemaking being worked on now.
    Finally, the Division of Corporation Finance has a lot of these
    rules, mandated rules we have been talking about. And so, that
    is all I can say about the status.
        I haven't been given the results of that review. But no
    rule is being worked on.
        Mr. Cotton. Would such a rulemaking ever precede
    rulemakings on the dozens of rulemakings that have missed
    deadlines from the Dodd-Frank Act or the JOBS Act?
        Ms. White. The answer is that the focus is on the
    congressionally mandated rulemakings. We have to be able to
    engage--not speaking about this one in particular--but with
    important discretionary rulemaking.
        But the focus--again, I have said what the status of that
    is. The focus of Corporation Finance, which is the division
    that is reviewing these petitions, is on the mandated
    rulemakings.
        Mr. Cotton. You have, I know, many fine staff attorneys who
    are experts in corporation finance regulations and laws. I
    attended school with some, served with some who were hired by
    your agency because of their expertise.
        My legal skills were such that I left the law and joined
    the Army, and went to fight in Iraq and Afghanistan.
        Ms. White. Thank you for your service.
        Mr. Cotton. Thank you. How many experts in the mishmash of
    campaign finance laws do you have at your agency?
        Ms. White. I don't know who might have specific expertise
    in that. Sometimes people have expertise you don't know about.
    But obviously, you are familiar with kind of the profile of
    expertise that we have at the SEC and that we don't have at the
    SEC.
        Mr. Cotton. Yes. There are very complicated laws, because
    oftentimes they are simply complicated, incumbent protection
    rackets that politicians in both parties who like to stay in
    office have passed.
        Getting on to the substance of a potential rulemaking like
    that, would it apply to corporate spending only, or could it
    potentially reach the spending of directors and officers in
    their personal capacities as well?
        Ms. White. My understanding of what is being reviewed are
    the petitions. I think with the petitions have sought is the
    spending by the corporations. But I believe it is confined to
    that.
        Mr. Cotton. Do you think it would be appropriate to require
    a publicly traded company to disclose the private political
    activities of its officers, directors, or other employees and
    agents?
        Ms. White. Because that is at least part of the subject
    matter that is under review, not the precise subject matter, I
    don't think I should comment or prejudge until I have the
    benefit of the staff's review.
        Mr. Cotton. If you proceeded with the rulemaking, would
    that rulemaking be applied to labor unions?
        Ms. White. I don't want to speculate. Specific petitions
    are being reviewed. There is no recommendation. No one has
    reached a conclusion as to whether there should be any proposed
    rulemaking going forward. But I certainly can't talk about the
    dimensions of something that hasn't proceeded out of the review
    stage.
        Mr. Cotton. Do labor unions file any reports with your
    agency?
        Ms. White. Specifically, not that I am aware of.
        Mr. Cotton. Me, either. I must have been confused when I
    asked that question. They file reports with the Department of
    Labor, fill a form LM-1, 2, 3 and 4. Are you aware of any
    efforts by the Department of Labor to impose similar
    requirements on labor unions?
        Ms. White. I am not.
        Mr. Cotton. Would any rulemaking by your agency apply to
    nonprofit organizations such as MoveOn.org, or Organizing for
    America?
        Ms. White. I can't comment on what dimensions of something
    that I don't have the benefit of the review or any
    recommendation whether or not to proceed with any proposed
    rule.
        Mr. Cotton. I would assume that such a rulemaking would not
    apply to such nonprofits, since those are normally regulated by
    the Internal Revenue Service.
        Final question, are you concerned at all about partisans of
    the President and the left using your independent agency to
    help develop a political-enemies list of the President?
        Ms. White. I am not. I think the SEC is an independent
    agency, and I am a very independent chairman of that agency.
        Mr. Cotton. Yes, ma'am, you are, and I appreciate your
    service.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Pennsylvania,
    Mr. Rothfus, for 5 minutes.
        Mr. Rothfus. Thank you, Mr. Chairman.
        And again, let me echo Representative Cotton's commendation
    on your service, the distinguished career you have had in the
    prosecutions of terror in New York City. So, thank you for
    that.
        If I can just follow up a little bit on the disclosure of
    the political contributions rule, just an issue that occurs to
    me is, how far-reaching might this be, as your staff looks at
    that? For example, municipal bonds, we have issuers across the
    country, school boards or school districts issuing bonds. Are
    we going to get into the political contributions of school
    directors?
        Are we going to get into the political contributions of
    hospital administrators, as a hospital--the municipal bond
    market? Again, we have no idea what the contemplation is, the
    frustration is, that this is a discretionary effort, while we
    are waiting for mandatory regulations under the JOBS Act. So, I
    will just ask you to comment on that.
        Ms. White. The highest priority is the congressionally
    mandated rulemakings. Again, what the staff is reviewing are
    petitions submitted to the SEC. Obviously, they don't--they
    seek what they seek, right, which is narrower than the concerns
    of the Chair. But I take your points.
        Mr. Rothfus. Thank you. It seems to me that the only place
    in this country that is really booming is this town we are
    sitting in right here. And your arrival in Washington coincides
    with the tremendous growth of the wealth of this City.
        It has the highest per capita income in the country. Seven
    of the 10 richest counties in the country are right around
    Washington, D.C. And it seems that the bigger this town gets,
    the more negative impact it has on the rest of the country.
        In Fiscal Year 2010, when Congress and the White House were
    under unified Democrat control, and more than a year after the
    fiscal crisis that hit, the SEC's budget was $953 million. Four
    years later, the Administration is here looking for a $1.6
    billion allocation. That is a 70 percent increase in just 4
    years.
        We need to have the right tax and regulatory policies in
    place to get the rest of the country booming again. And getting
    these regulatory policies right means we need to think about
    the impacts of regulations, the burdens on business. We really
    need that cost/benefit analysis.
        How does the SEC measure the pros, and cons, and burdens,
    and benefits in its rulemakings?
        Ms. White. It is a very--I keep using the word, but it is a
    very robust process, where all those factors are taken into
    consideration. I think probably it was entered into the record
    the easiest place to sort of look at our process is to look at
    the guidance that was issued in March of 2012. But plainly, all
    of those impacts are considered.
        Mr. Rothfus. We are competing with the rest of the world in
    capital formation. And we want to attract businesses to this
    country, to invest in this country, and to raise capital in
    this country so we can get jobs going in this country.
        And it seems to me that we need to be cognizant of that
    marketplace, and making sure that our regulations aren't going
    to be driving businesses offshore.
        Ms. White. And I think those are obviously extremely
    important impacts.
        Mr. Rothfus. Thank you. I yield back.
        Chairman Hensarling. The gentleman yields back.
        The Chair recognizes recognizes the gentleman from
    Kentucky, Mr. Barr, for 5 minutes.
        Mr. Barr. Thank you, Mr. Chairman.
        Chairman White, thank you for your service. And
    congratulations on your appointment and confirmation.
        I wanted to explore, and continue to explore the issue of
    coordination between your agency and the CFTC, particularly
    with respect to implementation of Title VII of Dodd-Frank. Mr.
    Garrett, Mr. Royce, and Mr. Carney, during this hearing, have
    highlighted the divergence of some of the rulemakings or
    proposed rulemakings between the SEC and the CFTC.
        And an example of that is the cross-border application of
    derivative reforms, which has been very controversial, and
    potentially very disruptive. An example of this would be
    foreign regulators who have expressed concern, and even come to
    Congress to highlight the significant competitive disadvantage
    that U.S. actors would experience.
        For example, Masamichi Kono, a Japanese regulator, asserted
    that, ``There are firms outside the U.S. who have started to
    decline transactions with U.S. counterparties because of the
    uncertainties in the rules and also the apparent lack of
    coordination between regulators.''
        Likewise, Patrick Pearson, head of financial market
    infrastructure at the European Commission, concluded, ``We
    produce for regulators an 80-page comparison between 342 pages
    of European rules and all of the relevant rules in Title VII
    and the CFTC requirements. The message is, we have a problem.
    That is an objective fact.''
        Now, I would commend the SEC and your deliberative approach
    on this issue, unlike the CFTC, the proposed rule and comment
    that you all--that procedure that you all have followed. And my
    question would be, why did you all choose this approach?
        Could the deliberative approach alleviate the chaos around
    the CFTC's guidance of last October? And specifically, in
    reference to your response to Mr. Garrett when you said that
    you are committed to working with CFTC Chairman Gensler, can
    you address how you will deal with the need for coordination on
    this cross-border issue?
        Ms. White. Yes. First, I would say the Commission did
    unanimously propose the cross-border rule. We think it is a
    robust rule, but we also are cognizant of the global
    marketplace and other regulators in it.
        We are very concerned about preventing risk to the United
    States from securities-based swaps transactions, wherever they
    occur. Our model is the substituted compliance model, which we
    think is a step forward that carries out the statutory
    objectives, but takes account of the global marketplace.
        So we have gotten some positive feedback on that from our
    counterparts. We continue to discuss with the CFTC and our
    foreign regulators just how to do this best. Obviously, we have
    put out a proposed rule. We had the benefit of comments that
    the CFTC got before on what they did.
        We are continuing the dialogue. We will obviously take the
    comments that we get quite seriously. But I think what the
    regulators have to do in the United States and abroad is to
    solve it in an optimal way.
        Mr. Barr. Specifically, in terms of your interface with
    Chairman Gensler, the CFTC has exemptive relief on cross-border
    that is, I think, slated to expire on July 12th. And as I
    understand it, that is in the middle of your own comment period
    on the issue. Is your preference that the CFTC continue the
    exemptive order to allow consistency or to provide for
    consistency?
        Ms. White. I think, ultimately, the objective here--even
    though it is not mandated--is consistency. Plainly--and we hear
    it everywhere--I am sure you hear it everywhere--market
    certainty is awfully important everywhere, but particularly in
    this space, it is a heretofore totally unregulated space,
    basically. That is one of the problems that was being dealt
    with in Title VII. So I think we should and we are in
    continuous dialogue to try to try to come to consistency.
        Mr. Barr. Another example of perhaps divergence between SEC
    and other regulators, the SEC has proposed capital rules for
    nonbank security-based swap dealers that largely follow the
    capital rules for registered broker-dealers, even though these
    rules differ in significant ways from the capital rules for
    derivative dealers proposed by CFTC, my understanding is that
    the SEC's proposed capital rules for nonbank security-based
    swap dealers are generally more onerous than those that apply
    to CFTC-regulated swap dealers or banks that act as dealers, in
    particular because of the large capital deductions that apply
    only under the SEC's proposed rules.
        Again, a competitiveness issue. Could you comment?
        Ms. White. I would probably have to get back to you on the
    details of that, but plainly, a focus as we go through this
    includes competitive impact, but I would probably need to
    respond to you further.
        Mr. Barr. We can provide that in writing, and we appreciate
    your work to continue to facilitate coordination.
        Chairman Hensarling. The time of the gentleman has expired.
    There are no other Members in the queue. In recognition of
    Chairman White showing up early for the hearing, we will allow
    her to depart early from the hearing.
        The Chair notes that some Members may have additional
    questions for this witness, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to this witness and to place her responses in the record. Also,
    without objection, Members will have 5 legislative days to
    submit extraneous materials to the Chair for inclusion in the
    record.
        Again, I want to thank the Chairman for her testimony
    today. This hearing is adjourned.
        [Whereupon, at 12:53 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                  May 16, 2013

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