[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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