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








                     OVERSIGHT OF THE SEC'S AGENDA,
                        OPERATIONS, AND FY 2015
                             BUDGET REQUEST

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 29, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-75
                           
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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. VELAAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                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              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 29, 2014...............................................     1
Appendix:
    April 29, 2014...............................................    55

                               WITNESSES
                        Tuesday, April 29, 2014

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

                                APPENDIX

Prepared statements:
    White, Hon. Mary Jo..........................................    56

              Additional Material Submitted for the Record

Huizenga, Hon. Bill:
    United States Court of Appeals for the District of Columbia 
      Circuit, No. 13-5252, National Association of 
      Manufacturers, et al., v. Securities and Exchange 
      Commission, et al..........................................    81
    National Law Review article entitled, ``Federal Appeals Court 
      Holds Securities and Exchange Commission (SEC) Conflict 
      Minerals Rules Violate Free Speech''.......................   110
    Joint Statement on the Conflict Minerals Decision by SEC 
      Commissioners Daniel M. Gallagher and Michael S. Piwowar, 
      dated April 28, 2014.......................................   112
Lynch, Hon. Stephen:
    ``High-Frequency Trading: A Regulatory Strategy,'' by Charles 
      R. Korsmo, dated December 16, 2013.........................   114
Moore, Hon. Gwen:
    Letter to SEC Chair Mary Jo White from various Members of 
      Congress, dated April 21, 2014.............................   201
White, Hon. Mary Jo:
    Written responses to questions for the record submitted by 
      Representative Ellison.....................................   203
    Written responses to questions for the record submitted by 
      Representative Fitzpatrick.................................   213
    Written responses to questions for the record submitted by 
      Representative Garrett.....................................   214
    Written responses to questions for the record submitted by 
      Chairman Hensarling........................................   232
    Written responses to questions for the record submitted by 
      Representative Hurt........................................   238
    Written responses to questions for the record submitted by 
      Representative Murphy......................................   240
    Written responses to questions for the record submitted by 
      Representative Posey.......................................   243
    Written responses to questions for the record submitted by 
      Representative Sinema......................................   251
    Written responses to questions for the record submitted by 
      Representative Wagner......................................   252

 
                     OVERSIGHT OF THE SEC'S AGENDA,
                        OPERATIONS, AND FY 2015
                             BUDGET REQUEST

                              ----------                              


                        Tuesday, April 29, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Bachus, Royce, 
Capito, Garrett, Neugebauer, McHenry, Pearce, Posey, 
Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, 
Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, 
Barr, Cotton, Rothfus; Waters, Maloney, Velazquez, Sherman, 
Capuano, Lynch, Scott, Green, Cleaver, Moore, Perlmutter, 
Himes, Peters, Carney, Sewell, Foster, Kildee, Delaney, Sinema, 
Beatty, Heck, and Horsford.
    Chairman Hensarling. The committee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the committee at any time.
    Today's hearing is entitled, ``Oversight of the SEC's 
Agenda, Operations, and FY 2015 Budget Request.'' I now 
recognize myself for 5 minutes to give an opening statement.
    This morning, we welcome Securities and Exchange Commission 
Chair Mary Jo White back to the committee. I wish to note at 
the outset for the record, contrary to many, if not most 
Administration witnesses, she has been most accommodating with 
her schedule, and she is timely with the submission of her 
testimony, so Madam Chair, you are especially welcome before 
this committee. We appreciate your cooperation in the 
congressional oversight process.
    This committee is indeed committed to conducting vigorous 
oversight of the SEC, to make certain that it is accountable in 
fulfilling its mission of maintaining transparent and efficient 
capital markets, protecting investors, and promoting capital 
formation. By holding today's hearing, we hope to better 
understand the progress the Commission is making in fulfilling 
its statutory mission and to have a better understanding of 
Chair White's relative priorities.
    A number of members on this committee have maintained that 
the SEC has insufficient resources with which to carry out its 
mission. I will always have an open mind on the issue, but it 
is not an empty mind. The SEC's budget has grown substantially 
in recent years. In fact, the SEC's budget has increased by 80 
percent in the last 10 years and by nearly 300 percent since 
the year 2000. I again note that when my Democratic colleagues 
were in the Majority, even after the passage of the Dodd-Frank 
Act, they never called for the dramatic budget increases they 
are calling for now. Not many other agencies throughout the 
entirety of the Federal Government have seen such hefty budget 
increases during this same period of time, and I don't know 
many folks in Texas' 5th Congressional District, which I have 
the honor of representing, whose family budget has seen an 80 
percent increase in the last 10 years.
    In addition, as we see the national debt clock regrettably 
continue to turn at the pace that we have observed, this is 
something that must loom large over all of our budgetary 
decisions. I know that some have considered the placement of 
the clock to be ideological. I personally never knew that math 
was ideological. Many of us believe that the SEC has given 
short shrift historically to capital formation. The bipartisan 
JOBS Act was an attempt to help remedy past SEC inaction on 
capital formation initiatives.
    Even President Obama, with whom I rarely agree, called the 
law a game changer for entrepreneurs in capital formation. 
Regrettably, the SEC remains behind schedule in implementing 
the JOBS Act. It is important that the implementation of the 
JOBS Act go forward.
    Regrettably, we still live in an economy where 1 in 6 
people are on food stamps. We have the lowest labor force 
participation rate in a generation where 15 percent of our 
fellow country men are at the poverty level in median family 
income, having fallen every year in the Obama Administration. 
Clearly, we have millions of our fellow countrymen unemployed 
or underemployed, who could benefit from the full 
implementation of the JOBS Act.
    During the same period when SEC budgets increased so 
dramatically, regrettably, there were numerous examples of the 
agency's financial mismanagement, squandered resources, and 
mission failure. I hasten to add that almost all of these 
examples predate Chair White's tenure, but it does underscore 
that in Washington it is not always how much money you spend 
that counts, but how you spend the money.
    Even though the SEC, I believe, had ample resources and 
ample authority leading up to the 2000 crisis, clearly somebody 
was asleep at the switch. Whether it was the failure to 
properly administer the now defunct consolidated supervised 
entities program, regrettably not doing anything about the 
credit rating agency oligopoly and the role that played in the 
crisis, or the failure to uncover the Madoff and Stanford Ponzi 
schemes, notwithstanding the warnings received from multiple 
market professionals.
    In addition, regrettably, and notably for an agency that is 
entrusted with policing financial markets and enforcing 
accounting standards, the SEC has repeatedly failed audits of 
its own financial statements and internal controls conducted by 
the GAO, which begs the question, how will asking for more 
funding necessarily prevent future fumbles? How the SEC spends 
its budget is a legitimate concern, and so is how the SEC 
spends its time. According to one report, the SEC has finalized 
less than half of its required rulemakings under Dodd-Frank 
nearly 4 years after the law was enacted.
    We continue to need to hold Washington accountable. We need 
to ensure that Washington uses resources wisely and 
efficiently, and we need to ensure that we repeal any 
unnecessary, ill-conceived Washington regulations that hurt our 
economy and kill jobs.
    I look forward to listening to Chair White's testimony and 
continuing to hear about some of the pressing issues of the day 
concerning the SIFI designations of non-bank entities through 
FSOC, the fiduciary duty versus the suitability standards of 
broker-dealers, issues relating to market structure, and issues 
regarding whether the presence of a robust cost-benefit 
analysis will ultimately benefit some many of our Americans who 
remain unemployed and underemployed.
    I now recognize the ranking member for 4 minutes.
    Ms. Waters. Thank you, Mr. Chairman, for holding this 
important hearing this morning.
    And thank you to Chair White for appearing before the 
committee and offering your overview of the agenda and 
operations of the SEC.
    It has been nearly 4 years since the passage of the 
historic Dodd-Frank Wall Street Reform and Consumer Protection 
Act, and we have come a long way. The Commission has completed 
critical work, and we now have in place the registration of 
hedge fund and other private fund advisors, the appointment of 
an investor advocate, and the finalization of the Volcker Rule, 
among other accomplishments.
    Even in the face of near constant attempts by my friends on 
the opposite side of the aisle to roll back the Dodd-Frank 
reforms, not to mention the SEC's inadequate funding, the 
Commission is moving forward on this essential work, but much 
more remains to be completed. Most notably, the SEC still has 
to adapt final versions of most of the substantive swap rules 
under Dodd-Frank. Given the number of these rules still 
awaiting completion, as well as the legal challenges facing the 
Commodity Futures Trading Commission (CFTC), I remain very 
concerned that our swaps markets will remain a source of 
shadowy unregulated risk, and as it relates to the JOBS Act, I 
also urge the Commission to move expeditiously to finalize the 
amendments to Rule 506 offerings that they proposed in July of 
last year.
    Given that private offerings with general solicitation and 
advertising are currently taking place, we must also move to 
put in place reasonable investor protections that will guard 
against fraud. I am also going to hear from Chair White on her 
view of the SEC's Fiscal Year 2015 budget and how the 
Commission would use the additional resources they have 
requested.
    In particular, I agree with the Chair, who knows that there 
is an immediate and pressing need for significant additional 
resources to permit the SEC to increase its examination 
coverage of registered investment advisors. I hope that the 
Chair can further elaborate on this need and also weigh in on 
the Investor Advisory Committee's recommendation that Congress 
authorize the Commission to impose user fees on SEC-registered 
investment advisors in order to fund and enhance the 
examination program. This recommendation is consistent with my 
bill, H.R. 1627.
    Finally, I remain very interested in how the Enforcement 
Division at the Commission selects which cases to pursue, and 
how the Commission is responding to criticisms that it relies 
too heavily on deferred prosecution agreements, and neither-
admit-nor-deny settlement.
    The Chair came into this position at the SEC with a 
reputation as a tough litigator, and I would like to hear more 
about the Commission's enforcement program during her tenure.
    Obviously, the Commission has a lot on its plate, and I 
commend the Chair for taking on this important work and for 
being with us today, and I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, the chairman of our Capital Markets and GSEs 
Subcommittee, Mr. Garrett, for 3 minutes.
    Mr. Garrett. Thank you, Mr. Chairman, for holding this 
important oversight hearing.
    And thank you, Chair White, for joining us and for your 
testimony.
    Lately, there has been a lot of news attention surrounding 
the Nation's equity markets, and I want to thank you, Chair 
White, for prioritizing the examination of this issue long 
before the recent media outcry, and for you and your staff's 
work in this area as well. I believe that you and your staff 
are approaching the ongoing review of our equity markets in 
just the way that it should be, taking a look at the entire 
marketplace, examining how the rules require various market 
participants to interact, and using empirical data and robust 
analytical tools to drive any potential decision-making.
    It is critical that you and your agency do not fall into 
the trap of adopting some half-baked potential changes in order 
to publicly respond to sensationalized and overhyped media 
narratives. The SEC has to be the grownup in the room in this 
very important decision-making. So this committee now has been 
approaching this very important issue in the same manner. In 
June of 2012, we held the first of a series of events to more 
closely examine our Nation's equity markets and study how they 
operate, understand which rules govern them, and explore ways 
to make them function more efficiently and effectively.
    In May of 2013, Ranking Member Maloney and I hosted a 
roundtable in New York City with some of the most knowledgeable 
people in the country, including the SEC's new Director of 
Trading and Markets, to review the entire evolution of the 
statutory and regulatory history governing our equity markets. 
And most recently, at the end of February this committee held 
an extensive review of Reg NMS, which is the predominant SEC 
rule governing how the market centers and market orders are 
required to interact.
    This hearing raised important fundamental questions 
challenging some of the current assumptions that are taken for 
granted today. Now that this issue is gaining significantly 
more media attention, I welcome any other policymaker or 
commentator to jump on the bandwagon with us. There is still 
plenty of room, to be sure. But I do urge caution to the 
latecomers. This is a very complicated and multi-dimensional 
issue, and it does not lend itself to easy undertaking or quick 
fixes.
    I hope that everyone will do their homework as the SEC and 
this committee have, and continue to do so, instead of turning 
to simple sound bites. Another top priority of mine that I look 
forward to discussing in more detail with the Chair is the 
recent push by some of FSOC and other international regulators 
to expand the government's safety net and potential regulation 
approach to those in the asset management business. This is of 
grave concern, and I hope that this committee and all of its 
members will work together to send a strong message to FSOC to 
not go any further down this road.
    Now, FSOC has become an unaccountable and nontransparent 
black hole where potential regulators in the Executive Branch 
are trying to impose their will on supposed independent 
regulators. This committee must remain diligent in its 
oversight, and persistent in its commitment to rein in the 
FSOC.
    And finally, I want to publicly thank Chair White for 
posting the OFR's study on asset management on their Web site 
and allowing the more knowledgeable people around the country 
to correct many of their inaccuracies and their falsehoods as 
well.
    So I thank you for that, and I yield back.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from New York, the ranking member of our Capital 
Markets and Government Sponsored Enterprises Subcommittee, Mrs. 
Maloney, for 2 minutes.
    Mrs. Maloney. Thank you, Mr. Chairman.
    And I would like to particularly welcome Chair White, who 
is from the great City of New York, and I believe I speak for 
all New Yorkers when I say that we are so proud of you and your 
distinguished career.
    The SEC has an enormously important role in our economy 
because it is responsible for overseeing and regulating our 
Nation's capital markets. The SEC must simultaneously encourage 
capital formation by businesses that are seeking to grow; 
ensure that investors in these companies are adequately 
protected; and maintain fair, orderly, and efficient markets. 
Balancing all of these objectives is a difficult job, but I 
believe the SEC has performed admirably under Chair White.
    Importantly, just as the markets are constantly evolving 
and innovating, sometimes in response to new regulations, so 
must the SEC. In this respect, I am pleased that all five SEC 
Commissioners have publicly committed to a thorough review of 
market structure issues. I am also encouraged by the SEC's 
commitment to a data-driven approach on these complex market 
structure issues which is evidenced by their new market 
information data analysis known as MIDAS. This will allow the 
SEC to analyze trading data to determine where the problems are 
and what needs to be fixed.
    I would also like to note that trading volume in the equity 
markets has more than doubled to $71 trillion since 2001, and I 
would welcome any comments on how the SEC's budget for 
overseeing the equity markets, whether or not it has kept pace 
with this enormous, enormous increase in responsibility. I 
would also welcome any discussion on how the lack of resources 
has impacted the Commission's oversight in this area and other 
areas.
    You have an incredibly important job to do. I look forward 
to your comments on these issues and others. Welcome.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Virginia, the vice chairman of our Capital Markets and 
GSEs Subcommittee, Mr. Hurt, for 2 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for holding today's committee 
hearing on the SEC's agenda and Fiscal Year 2015 budget 
request.
    I firmly believe that one of the foremost responsibilities 
of this committee is to provide the appropriate oversight and 
scrutiny of the Federal agency budgets under our jurisdiction, 
especially at a time when our national debt surpasses $17 
trillion. Federal agencies must learn to work smarter and do 
more with less. I am, however, encouraged by Chair White's 
recent comments regarding several of the SEC's upcoming 
priorities, including the need to engage in comprehensive 
reviews of equity market structure and disclosure requirements.
    As she noted, the problem of disclosure overload is having 
a negative impact on investors, public companies, and the SEC 
itself. Streamlining our disclosure regime will lead to 
benefits for both businesses seeking capital in the public 
markets and investors seeking information to make informed 
decisions. In addition to these reviews, it is imperative that 
the SEC remember to advance its third and equally critical 
mission, which is facilitating capital formation.
    Congress has provided the SEC with broad discretion to 
amend and to improve securities laws and regulations without 
sacrificing key investor protections, and the SEC must take the 
lead in promoting capital formation that will spur growth and 
opportunity for our Nation and for the people I represent in 
Virginia's 5th District.
    I would like to thank our distinguished witness, Chair 
White, for appearing before this committee today, and I look 
forward to your testimony.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Georgia, Mr. Scott, for 1 minute.
    Mr. Scott. Thank you, Mr. Chairman.
    And welcome, Ms. White. I am over here. It is good to have 
you here.
    I hope that in your discussion, you will talk about market 
structure timeline. That is extraordinarily important because a 
lack of order competition under the current structure is a 
major concern of mine. I hope that we will deal with that and 
also examine what you feel are some of the present conditions 
that could lead to an excessive amount that would have and 
tends to have a rather negative impact on excessive 
competition. So it is sort of a delicate balancing act we have 
to reach. I look for your comments on that.
    And also, I am very interested in knowing how you and the 
CFTC are making progress on the harmonization, particularly in 
cross border, as you implement Title VII of Dodd-Frank.
    And then, there is the fiduciary rule that you and the 
Labor Department seem to be having some trouble with. I would 
certainly appreciate your comments on that.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Texas, the ranking member of our Oversight and 
Investigations Subcommittee, Mr. Green, for 2 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Mr. Chairman, the SEC, in my opinion, is not a burden to 
taxpayers; it is a benefit to taxpayers. And if we look at a 
true cost-benefit analysis, we can see that in recent years the 
SEC has taken almost twice as much in when you juxtapose that 
to its budget as it is budgeted, and these monies come in, in 
terms of fees, so the SEC is of great benefit to taxpayers. It 
oversees more than 25,000 market participants, including over 
11,000 investment advisors, approximately 10,000 mutual fund 
and exchange traded funds, approximately 4,500 broker-dealers, 
approximately 450 transfer agents, and approximately 18 
securities and exchanges.
    The SEC has responsibility for reviewing the disclosure and 
financial statements of approximately 9,000 reporting 
companies. It has new expanded responsibilities over 
derivatives, an additional 2,500 reporting advisors to hedge 
funds and other private funds. It has expanded responsibilities 
over nearly 1,000 mutual advisors, 10 registered credit card 
rating agencies, and 7 registered clearing agencies. The SEC 
plays a critical role in overseeing our capital markets and 
protecting our investors from fraud. I do not see it as a 
burden. I see it as one of the benefits that we have, and I 
think that what happened with Bernie Madoff is clear evidence 
that a better funded can make a greater difference. I am 
supportive of what is being done, and I support totally what 
the chairman is doing as well.
    I yield back.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from Ohio, Mrs. Beatty, for 1 minute.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Waters, and thank you, Chair White, for your testimony today.
    It has been nearly 6 years since the foreclosure crisis 
sparked a financial crisis that rocked our Nation. In the 
aftermath of the Great Recession, Congress passed comprehensive 
legislation to reform all aspects of the financial services 
industry. The Dodd-Frank Act, an important law, although not 
perfect, was designed to address the catastrophic failures that 
led to the Black Swan events of 2008.
    Adding in the JOBS Act, the SEC has been assigned more than 
100 new mandatory and discretionary rulemakings in the past 4 
years. All of these new regulatory and oversight 
responsibilities are critical to minimizing the risk of future 
financial market shock but cannot be properly exercised without 
appropriate funding for the SEC.
    I believe an adequate appropriation, even if increased, 
would not impact our Federal deficit in any way. I look forward 
to discussing with you some of the important new activities the 
Commission is undertaking as a result of the Dodd-Frank Act.
    Thank you, and I yield back.
    Chairman Hensarling. That concludes our opening statements. 
We will now turn to our witness. Today, we welcome the 
testimony of the Honorable Mary Jo White, Chair of the U.S. 
Securities and Exchange Commission. This is Chair White's third 
appearance before our committee, so I believe she needs no 
further introduction. Without objection, Chair White, your 
written statement will be made a part of the record. Chair 
White, again, welcome, and you are now recognized for your 
remarks.

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

    Ms. White. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee for inviting me to testify 
regarding the SEC's agenda, operations, and our fiscal 2015 
budget request.
    The agency's mission is critical to investors, the markets, 
and capital formation as well as our economy more broadly. Now, 
more than ever, we will need a strong, vigilant, and adequately 
resourced SEC. To put the SEC's extensive responsibilities and 
budget request into context, from fiscal 2001 to fiscal 2014, 
trading volume in the equity markets, as has been noted, more 
than doubled to a projected $71 trillion. The complexities of 
financial products and the speed with which they are traded 
increased exponentially. Assets under management of the mutual 
funds grew by 131 percent to $14.8 trillion, and assets under 
management of investment advisors jumped almost 200 percent to 
$55 trillion.
    Today there are, as has been noted, over 25,000 registrants 
overseen by the SEC, including broker-dealers, clearing agents, 
transfer agents, credit rating agencies, exchanges, and others. 
During this time of unprecedented growth and change, the SEC 
also has been given significant new responsibilities for over-
the-counter derivatives, private fund advisors, municipal 
advisors, crowdfunding portals, and more.
    The President's $1.7 billion budget request would enable 
the SEC to address our critical priorities. As you know, the 
SEC's funding is deficit-neutral, which means the amount 
Congress appropriates does not impact the deficit, the funding 
available for other agencies, or count against caps in the 
congressional budget framework. Nonetheless, I fully recognize 
Congress' oversight responsibilities and my duty to be an 
effective and prudent steward of the funds we are appropriated.
    I believe our accomplishments this past year and the 
improvements the agency has made should give Congress and the 
public the confidence that we will fulfill this responsibility. 
Since my arrival in April 2013, the Commission has adopted or 
proposed more than 20 significant rulemakings across the 
regulatory spectrum, including many mandated by the Dodd-Frank 
and JOBS Acts. We are more aggressively enforcing the 
securities laws, requiring for the first time admissions to 
hold wrongdoers more publicly accountable and obtaining orders 
for penalties and disgorgement of $3.4 billion in fiscal 2013 
alone, the highest in the agency's history.
    We have intensified our data-driven disciplined approach to 
analyzing and appropriately addressing complex market structure 
issues, including those relating to high-frequency trading and 
dark pools. We are now focused on completing the money market 
reform rulemaking we proposed last year to address redemption 
risk and resiliency concerns related to this important 
investment product. The Commission is also working to complete 
the rulemakings under the Dodd-Frank Act which were required in 
response to the financial crisis, and those under the JOBS Act 
which were designed to facilitate capital formation for smaller 
businesses.
    The staff has begun a comprehensive review of our public 
company disclosure rules in an effort to make them more 
effective for investors. Importantly, our budget request would 
permit the SEC to increase its examination coverage of 
investment advisors that everyday investors are increasingly 
turning to for investment assistance for retirement and family 
needs. While the SEC has made the most of its limited 
resources, we nevertheless were only able to examine 9 percent 
of registered investment advisors in fiscal 2013.
    In 2004, the SEC had 19 examiners per trillion dollars in 
investment advisor assets under management. Today, we have only 
eight. More coverage is clearly needed, as the industry itself 
has acknowledged. This budget request would also allow us to 
continue to strengthen our Division of Economic and Risk 
Analysis, our fastest growing division, by adding financial 
economists and other experts to assist with economic analysis 
and rulemaking, risk-based selection for investigations and 
examinations, and structure data initiatives. The agency has 
made great strides to enhance our technology, including 
developing tools that permit us to better understand and 
protect our markets and building the technological foundation 
for unified access to SEC information applications and data 
across the agency.
    We are at a critical point in the deployment of more 
sophisticated technology tools and platforms to assist in these 
efforts, and it is vital that we have the resources necessary 
to continue modernizing our IT systems and infrastructure. I am 
pleased with the agency's accomplishments, but much more 
remains to be done. I firmly believe that the funding we seek 
is justified by our progress and by our important and growing 
responsibilities to investors, companies, and the markets.
    Your continued support will allow us to build on the 
significant progress the agency has achieved, which I am 
committed to continuing and enhancing.
    I am happy to answer your questions. Thank you.
    [The prepared statement of Chair White can be found on page 
56 of the appendix.]
    Chairman Hensarling. Thank you, Madam Chair.
    The Chair now recognizes himself for 5 minutes for 
questions.
    I want to follow up on some comments made by the chairman 
of our Capital Markets Subcommittee. Many have called the asset 
management industry part of the shadow banking group, which is 
obviously a pejorative term. As Chair of the SEC, are asset 
managers regulated, from your vantage point?
    Ms. White. Yes, they are, and they have been for many 
years.
    Chairman Hensarling. So, they are regulated?
    Ms. White. They are regulated.
    Chairman Hensarling. In your opinion, does your Commission 
lack any authority that it needs to adequately regulate the 
asset management industry?
    Ms. White. Obviously, we are always looking to see whether 
that is the case, but I do not believe we lack that authority, 
Mr. Chairman. In other words, we have the authority we need.
    Chairman Hensarling. Okay. Madam Chair, one thing that you 
and I may have in common is that some people might accuse us of 
being vertically challenged. Notwithstanding that, you managed 
to poke your head way up to put out for comment the OFR asset 
management study when others would not. I want to thank you, 
along again with our chairman of our Capital Markets 
Subcommittee, for doing that.
    We know that FSOC has moved already on several non-bank 
SIFI designations on what I might call part of the shadow 
regulatory process, as FSOC continues to be a rather opaque 
organization, if you will, using a rather amorphous process. Be 
that as it may, from your perspective, how do asset managers 
differ from traditional--how are they different from 
traditional banks and bank holding companies?
    Ms. White. They are different in many ways. I think that 
the most fundamental difference is that they are an agent, and 
they, therefore, manage others' monies. You have to make 
certain to distinguish that when you are looking at any 
systemic risk issues. We are not talking about positions on the 
balance sheet, but we are talking about acting as agents in the 
spaces that they act in.
    Chairman Hensarling. We know that designating a firm as an 
SIFI imposes increased cost upon an entity or an organization, 
in this case, potentially this could be imposed upon investors 
in mutual funds, people who are saving for retirement, maybe a 
downpayment on a home, maybe to send their kids to college. Do 
you believe that the evaluation of asset managers for an SIFI 
designation should take into account the economic cost that 
ultimately could be borne by our Nation's hardworking 
investors?
    Ms. White. Without getting into discussions I can't because 
they are confidential when we deal with FSOC with any potential 
designation--
    Chairman Hensarling. Which may be part of the problem, but 
continue.
    Ms. White. FSOC is focused on the issue of transparency and 
enhancing transparency, I think, but it is also important to 
recognize that the discussions of potentially systemically 
important institutions contain a lot of confidential data as do 
some of the other discussions, which you would not want to be--
and I don't believe anyone would want to be--made public.
    I think that the primary focus and really the primary 
congressional mandate given to FSOC is to focus on identifying 
and addressing systemic risk to the broader financial system, 
and while any consideration of any decision an organization 
makes should take into account all facts and circumstances and 
impacts, we can't lose sight of the main mission.
    Chairman Hensarling. What do you see as the systemic threat 
specifically posed by the mutual fund industry?
    Ms. White. The answer--that has obviously been studied and 
is continuing to be studied by FSOC, of which I am a member. 
Clearly, the SEC also is the primary regulator of the mutual 
fund industry and asset managers, and I think our regulations 
do address, and frankly, increasingly, any potential systemic 
risk that that industry or any particular member of it might 
pose.
    Chairman Hensarling. What are the Dodd-Frank Act, non-bank 
SIFIs which potentially could be assessed to help pay for the 
resolution of a failing financial institution, which I believe 
could have the consequence, if you designate a mutual fund as 
an SIFI, it means that individual fund investors, many of whom 
have entrusted their retirement savings to a mutual fund, they 
could be on the hook for bailing out large financial 
institutions, is that your understanding, and do you think this 
is an appropriate consequence for moderate income mutual fund 
investors?
    Ms. White. I think it remains to be seen just how the 
designations play out, and indeed how even enhanced regulation 
is exercised if there is to be a designation. But plainly, the 
concerns that you note are real ones.
    Chairman Hensarling. The Chair now recognizes the ranking 
member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Chair White, you recently stated in a speech to the 
Consumer Federation of America that protecting investors 
underlies everything the SEC does, and I know that you and your 
colleagues are currently giving thoughtful consideration to a 
significant investor protection issue, namely the extension of 
a uniform fiduciary rule, to broker-dealers under Section 913 
of Dodd-Frank. The rulemaking enjoys broad support from 
investor advocates, advisor groups, and even the major broker-
dealer trade association.
    As I understand it, the SEC's Investor Advisory Committee 
submitted a unanimous recommendation to you that the Commission 
move forward with such a rulemaking. Can you provide me with a 
timeline of when you expect to be able to respond to the 
committee's recommendation?
    Ms. White. I can give you an approximate timeline. First 
let me say that, speaking for myself, I think this is an 
extraordinarily high priority for the Commission to decide, and 
under Dodd-Frank, we are given the authority to decide and then 
authority following that, depending upon our decision, whether 
to impose a uniform fiduciary duty standard on broker-dealers 
and investment advisors. What I have done is to prioritize that 
issue with the staff because of how important I think it is, 
and they have come back to me and I have gone back to them on 
the range of options and considerations. It is a priority of 
mine to have the Commission reach this very important issue 
this year.
    Ms. Waters. Thank you very much. On a similar point, I have 
a bill, H.R. 1627, the Investment Adviser Examination 
Improvement Act, which would authorize the SEC to levy user 
fees to cover the cost of an increase in the frequency of 
examinations of investment advisors. The Investor Advisory 
Committee of the Commission has endorsed this legislation, 
which was one of the recommendations that the SEC staffer 
originally provided in the study that was required in Section 
914 of Dodd-Frank.
    From your perspective as Chair, do user fees represent a 
scaleable and workable way for the Commission to improve 
investor protection?
    Ms. White. There is no question in my mind that one of the 
most significant resource investor protection issues we face is 
our examination function of investor advisors. Increasingly, 
retail investors in particular are making use of investment 
advisors. As I think I alluded to in my oral testimony--it is 
certainly in my written testimony--given the resources we have 
now, we are only able to cover 9 percent of those investment 
advisors last year, and that is using very smart risk-based 
methods to identify where we should be going based on risk.
    And this budget request prioritizes our receiving 
resources, I think 240 additional positions, which is as many 
we believe we could hire smartly and train very well, to deploy 
exactly in that space.
    So, with respect to the user fee proposals and other 
proposals that have been made in Congress, my priority is to 
have the funding to be able to carry out my job, which I do not 
have now.
    Ms. Waters. Thank you very much. Section 911 of the Dodd-
Frank Act provides that each time the Investor Advisory 
Committee submits a finding or recommendation to the 
Commission, the SEC shall promptly issue a public statement 
assessing the finding or recommendation of the committee and 
disclosing what action, if any, the SEC intends to take with 
respect to the recommendation. Does the Commission plan on 
responding to this recommendation from the Investor Advisory 
Committee?
    Ms. White. We have had a number of discussions with the 
Investor Advisory Committee about how best to respond, and 
essentially what Dodd-Frank calls for is a Commission response. 
We try to give as much information as we can even if the 
Commission hasn't reached a decision on an issue.
    So, as I mentioned before, it is a priority of mine to have 
the Commission reach a decision on what to do in this space. At 
times, the response, or the full response at least to the 
Investor Advisory Committee is based on what we go forward with 
or we don't go forward with, but I do try in other ways to 
inform the Investor Advisory Committee of the progress, the 
staff briefings that are occurring and that kind of thing on 
the way to a decision.
    Ms. Waters. Thank you very much. I think it is extremely 
important, and I am very pleased that you have reiterated that 
this is a high priority and your staff is very much involved 
with this recommendation, and I am pushing very hard for H.R. 
1627, so thank you very much.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, Mr. Garrett, the chairman of our Capital 
Markets and GSEs Subcommittee, for 5 minutes.
    Mr. Garrett. And again, thank you, Mr. Chairman.
    So, Chair White, you have heard all the stories in the 
paper and in the news. Can you tell us, are the markets rigged?
    Ms. White. The markets are not rigged. The U.S. markets are 
the strongest and most reliable in the world. That is not to 
say they are perfect, and obviously one of our continuing high 
priorities is to increase market quality.
    Mr. Garrett. So, just following along that line, I don't 
know if you have read it or not, but if you have seen stories 
on it, was there any factual or substantive information in 
those reports and in Michael Lewis' book that was new to you or 
new to the SEC? Or has your agency basically known that 
information, I will say, for years?
    Ms. White. I am not in a position to give a book review on 
it, but clearly the issues with respect to the greater speed in 
our markets, including those obviously employed by high-
frequency traders are issues that have been discussed for 
years, examined for years. We are obviously dealing with a 
marketplace that has changed dramatically over the last decade 
and the last 5 or 6 years, continuously evolves, and then one 
thing I think is important to keep in mind is when you say 
``high-frequency traders,'' which is where most of the 
discussion has occurred lately, that is not a single phenomenon 
as our new MIDAS Web site that has been alluded to makes very 
clear. There are very different kinds of strategies and 
approaches that are used by high-frequency traders, but these 
are issues that our experts in Trading and Markets and the 
Commission more broadly have been focused on really 
continuously as the market has developed.
    Mr. Garrett. Okay. And so part of that, I will say the 
allegation that deals with the issue of what you call inside 
information, so if there is a market impact because of a 
publicly executed trade, which is what trades are, is it using 
inside information to adjust your trade or your bid and offer 
across the market because of that executed trade?
    Ms. White. If we are talking about the legal concept of 
that--
    Mr. Garrett. Yes.
    Ms. White. At least as I understand your question.
    Mr. Garrett. Yes.
    Ms. White. It is not, as I understand the question--
    Mr. Garrett. Yes.
    Ms. White. And as it has been described, it is not unlawful 
insider trading. I think there has been some confusion, too, 
between do you have earlier access to order information, that 
is to say what the order is, versus, can you more quickly react 
to executing based on that public information. I think then 
there has been confusion about that.
    Mr. Garrett. Yes, and that sort of segues somewhat into my 
last question. Does the use of what you call exchange data 
feed, right, which is approved by the SEC to make changes to 
your bids, does that constitute insider trading?
    Ms. White. If properly used, no.
    Mr. Garrett. Right. Changing topics here to what the 
chairman was talking about with regard to FSOC and asset 
management and SIFI designation, if you look at a series of 
recent actions taken by FSOC, and I am going to run down them, 
and the bank of regulators, there seems to be a pattern here.
    First, you have FSOC intervene on money market fund reform; 
next you have the OFR release, which I talked about before, and 
a much maligned asset management report; then you have banking 
regulators put forth a liquidity coverage ratio (LCR) proposal 
that basically ignores the SEC's existing liquidity regime; and 
next, you have FSOC announce it is hosting an upcoming 
conference on systemic risk posed by, of all things, asset 
managers; and finally, last week there were reports that two 
asset managers advanced to FSOC's second stage of SIFI review.
    In all of these cases, you have banking-regulator-dominated 
entities proposing what I will call potential-like regulation 
and potentially extending their taxpayer safety net, which 
means all of us potentially can be on the hook and then 
therefore the subsidies on what? On security products and the 
firms, and so, as you can tell, I am concerned about this. So, 
as the head of the agency with expertise in this area and with 
authority in this area, are you concerned about it as well?
    Ms. White. I am very concerned. I think you distinguish, 
too, between FSOC's duties, authorities, most of which I think 
encompass the data points you just mentioned. And then 
separately, to some extent, the Fed's powers by virtue of the 
Bank Holding Company Act that touch on these issues, for 
example, the liquidity ratio regime. It is extraordinarily 
important for FSOC, which is charged under the statute, for 
identifying systemic risk and addressing them within their 
authorities, that they obviously carry that out.
    Mr. Garrett. But why would we want to extend the taxpayer 
subsidy and bailout safety net to capital markets and asset 
management?
    Ms. White. I am not suggesting for a moment that we 
should--
    Mr. Garrett. Okay.
    Ms. White. --do that. But what I do think is very important 
is for FSOC, as it carries out the duties given to it, that it 
has the expertise, listens to the expertise at the table, as 
well as drawing on external sources of expertise, particularly 
when FSOC gets beyond banking regulated space.
    Mr. Garrett. Yes, I saw that gavel coming, so thank you.
    Chairman Hensarling. The gavel did come. The time of the 
gentleman has expired.
    The Chair now recognizes the gentlelady from New York, the 
ranking member of our Capital Markets and GSEs Subcommittee, 
Mrs. Maloney, for 5 minutes.
    Mrs. Maloney. Thank you very much.
    Madam Chair, there has been a great deal of discussion 
about market structure issues recently and the fairness of the 
current market structure, in particular. One issue that stands 
out to me as a problem is that not everyone has equal access to 
market data at the same time, giving some an unfair advantage.
    Some market participants can buy access to private data 
feeds that are significantly faster than the data feeds that 
are available to the public, and even some of the big 
institutional investors have said that this ``tying gap'' 
creates an unlevel playing field, and have called for action to 
address it. Do you agree that these private data feeds create 
an unlevel playing field?
    Ms. White. I think the issue that you mentioned, and that 
has been discussed recently and obviously historically as well, 
is certainly one that we are looking at. I think it is 
important to point out that under the current regulatory 
regime, the SROs are required to provide to the proprietary 
feeds and the consolidated data feed the information at the 
same time. That doesn't answer the question how fast, 
therefore, can it be used and absorbed, obviously, and so some 
of the questions that have been raised about potential 
unlevelness of the existing playing field go to that area.
    But I think it is important to focus on the complexities in 
this, area, and one of the things we want to be sure that we 
maintain is that we are very data-driven and disciplined in 
deciding what to do with respect to any aspect of our current 
market structure which is, as a whole, I think, working quite 
well. That doesn't mean it is perfect by any means, but it is 
certainly one of the issues that we are looking very closely 
at.
    Mrs. Maloney. It really throws up a red flag when BlackRock 
and Goldman Sachs and some of these other large institutional 
investors are calling for some type of regulation to address 
the timing gap between the unlevel playing field that, in their 
materials, they talk about between the private data feed and 
the public getting access to it.
    So, would eliminating this timing gap between private and 
public data feeds lead to fair markets? I think it would. Don't 
you think eliminating that timing gap between private and 
public feeds and data would eliminate an advantage there to 
some?
    Ms. White. It is clearly, as I said before, an issue we are 
quite focused on. Let me be clear, I think you have had a 
number of different issues raised, and frankly, different 
people have different views on them in the public arena, too, 
in terms of what would increase market quality and both the 
fact and appearance of fairness in a level playing field, and 
they are both extraordinarily important.
    I think the issue you raise and others is extraordinarily 
important in and of itself, as well as any perception of 
unfairness, so that is certainly a priority issue for us.
    Mrs. Maloney. Has the SEC taken any actions to try to stop 
abusive practices or create a more level playing field?
    Ms. White. No question about that. I think one thing to be 
very clear about--
    Mrs. Maloney. But have you taken any actions? Have you done 
anything about it?
    Ms. White. I think we have done--
    Mrs. Maloney. Have you disciplined anybody? Have you done 
anything? Have you made any changes?
    Ms. White. I think we have done a number of things. 
Clearly, to the extent that there are unlawful inappropriate 
practices engaged in by whether it is high-frequency traders, 
dark pools, or any other market participant, our enforcement 
and our examination functions, in particular, have responded to 
those. I have said publicly--
    Mrs. Maloney. Can you give examples?
    Ms. White. I have said publicly before that we have a 
number of ongoing investigations as to practices by high-
frequency trading firms and dark pools. One example of 
enforcement action that we brought at the end of 2012 was 
actually I believe the first action where there was a penalty 
assessed. There was a $5 million penalty against the New York 
Stock Exchange based on precisely the issue of providing that 
market data first to the proprietary customers rather than the 
public consolidated feed. There is no question about the 
seriousness and significance of that issue. We brought a number 
of others similar to that as well.
    Mrs. Maloney. I would say that any practices which seek to 
manipulate the market or disadvantage investors is going to 
have a devastating effect on the markets. I know people now who 
don't want to trade in the markets because of the high-
frequency trading, and they don't feel they are treated fairly, 
that there is an advantage to the insiders, and I feel this is 
extremely important.
    My time has expired. Thank you for your service.
    Ms. White. And I agree with that. I think the appearance 
issue is also important, as well as the fact.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Alabama, our 
chairman emeritus, Mr. Bachus, for 5 minutes.
    Mr. Bachus. Thank you.
    I would assure Mrs. Maloney that there is very good staff 
at the SEC on market structure and they have been looking at 
this issue for some time, and it is rather complicated, but it 
is not something that they are not aware of and have not been 
addressing.
    Chair White, you gave up a job where you were compensated 
10 times more than you are now being compensated as a public 
servant, and I want to compliment you. I think you have shown 
your independence, you have stayed above politics. At times you 
have displeased both sides, but I think you have shown a 
balance, and it is in the best interest that we have an 
independent strong agency, and I think you have done a good 
job.
    You have toughened enforcement. You should be given credit 
for that. And you have addressed a backlog of regulatory 
issues, so I compliment you on that.
    One of the regulatory issues is the JOBS Act, and a 
bipartisan achievement of this committee during my tenure as 
chairman was the JOBS Act, and I think that this committee and 
its members can take a lot of credit for Steve Case, American 
Online cofounder, who published in the Washington Post earlier 
this month an article entitled, ``Hey, Washington, the JOBS Act 
you passed is working,'' and the SEC deserves credit for 
helping to translate many of the provisions of that Act into 
workable regulations.
    As you go forward, it is my hope that you won't become too 
prescriptive, so prescriptive that it discourages innovation 
that we are trying to inspire, and let me quote Steve Case: 
``Protections against fraud are important and safeguards should 
be put in place, but overprotection led to a stifling 
environment that slowed growth and limited opportunity. The 
JOBS Act reflects a more classical American acceptance of risk 
and its rewards.''
    Can you tell us how the SEC will approach the 
implementation of the remaining provisions of the JOBS Act to 
make sure it achieves its full potential?
    Ms. White. Yes, sir. And again, completing those JOBS Act 
rulemakings as well as the mandated Dodd-Frank ones remains a 
very high priority for me in this year's agenda. I think the 
provisions do vary as they were given to us by Congress. Some 
have built-in investor protections, I think, in terms of the 
crowdfunding intermediaries portals mechanism, for example. 
Others may not, for example, the lifting of the ban on general 
solicitation we talked about earlier.
    So our perspective on this is to plainly carry out the 
statutory mandates that we have been given in the optimal way 
we can, and by that I mean we want the rule to be workable. 
Obviously, we always have in mind investor protections.
    It is a balance that I think should not be inconsistent but 
nevertheless is one that we have to engage in. We clearly 
engage in economic analysis of the choices that we make. Some 
of the choices may be made for us in the statute, and obviously 
we need to be faithful to those, but we certainly want these 
rules to work. That is the point. In order to encourage that 
capital formation and JOBS, that is the intention of it.
    Always having in mind investor protection, one of the 
things I have done with the--not just the JOBS Act rulemakings, 
but frankly, we will do it even more broadly, is when the new 
marketplace opens, and I don't believe it will have any 
stifling effect, that we are really ready to kind of look at it 
in real time, is it working, is it not working, is there an 
uptick in fraud as some are concerned about? If so, we should 
be all over it, and I think that is investor protection, and I 
think it is also wise in terms of facilitating capital 
formation.
    Mr. Bachus. Thank you.
    I know that Ranking Member Waters mentioned this, but I 
have long had an interest in making sure that there is proper 
oversight of our registered investment advisors, and you have 
expressed a concern about that in your opening statement, and 
of course, for any of us who went through the Bernie Madoff 
case, that really came home to us. A lot of people were hurt.
    Last Congress, some of us worked on an SRO proposal, and 
that was just one approach, and I know Ms. Waters has 
reintroduced H.R. 1627, which is a user fee, and the investment 
advisor community seems to have embraced that.
    I would just urge you to continue to--I know your 
examinations--you are not examining but 9 percent of them, and 
I urge you to continue to keep this as a priority and that all 
of us will work together to resolve this so we get a more 
frequent schedule of examinations.
    Ms. White. Thank you very much, and I will.
    Mr. Bachus. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chair White, the Volcker Rule provided the financial 
industry with many exemptions, including on certain 
collateralized loan obligations (CLOs). However, some in the 
industry are asking for broader relief arguing that the current 
rule will restrict access to capital. Can you explain what 
risks non-exempt CLOs pose and how the rule has affected the 
CLO market so far?
    Ms. White. I think that is something we will continue to 
look at. The rule itself became--the Volcker Rule itself became 
effective, I think, on April 1st, but a lot of the 
effectiveness of it in terms of conformance period doesn't kick 
in for some time. On the CLO issue, I did concur and approve of 
what the Fed recently did, which was to extend the conformance 
period for CLOs that may hold securities, and that is kind of 
the key. If a CLO doesn't hold securities, then there is an 
exemption, but if not, the agency has determined that there was 
not, but what the Fed has done is to extend that conformance 
period to give a greater period of time to adjust to the rule 
requirements.
    Ms. Velazquez. So far, $32 billion in CLOs have been issued 
this year, so it looks like it hasn't slowed down.
    Ms. White. Yes, and what we are talking about now, the 
legacy CLOs, yes, and some of the CLO market is an active one, 
the current CLO market.
    Ms. Velazquez. Chair White, investing can be very risky, we 
all know that. Easing SEC reporting and registration 
requirements for crowdfunded security, as required under the 
JOBS Act, will therefore expose tens of thousands of investors 
to increased risk. How does the SEC plan to inform ordinary 
investors of the risks while not burdening small businesses and 
restricting capital access?
    Ms. White. On crowdfunding, we have made that proposal. I 
think the comment period closed, if I am remembering it right, 
in February. We have gotten a lot of comments. Some of the 
investor protection provisions, as I mentioned a little bit 
earlier, are built into the statute. Extraordinarily important 
to that is the intermediary structure of the funding portal or 
the broker where there are, either by statute or to some extent 
by our proposal, requirements to inform investors of the risks 
and make sure they are educated on exactly what the investments 
are about, not releasing the funds until the targeted amount is 
achieved.
    But we have gotten a lot of comments, frankly, from both 
sides, which is not unusual in terms of do we have enough 
investor protections built in, some thinking we have too many 
built in and therefore will stifle this means of raising 
capital that is prescribed by the statute, so we are very 
carefully considering those comments before we move to 
adoption.
    Ms. Velazquez. Thank you.
    Chair White, the SEC cost estimates for crowdfunding do not 
look promising for smaller issuers. Has the SEC investigated 
ways to reduce these costs without impacting investor 
protection?
    Ms. White. Certainly, an integral part of all of our 
rulemakings is intended to weigh impacts and weigh costs and 
cost-benefits. Again, within the framework we are given by a 
particular statute.
    The other method that I have tried to adopt on our 
rulemakings is to try as they come out the door frankly, to 
monitor the new marketplace in this instance that is created, 
so that we can see if it is working. If it is not, we would be 
in a position to make adjustments so that it would work without 
compromising investor protection.
    Ms. Velazquez. So, do you anticipate a way for new 
businesses jumping into the market once the JOBS Act is fully 
implemented?
    Ms. White. On the crowdfunding provision, certainly there 
remains a lot of excitement about doing just that. You can't 
really tell until it is actually activated, but certainly there 
is a lot of excitement about that.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from West Virginia, the chairwoman of our Financial 
Institutions Subcommittee, Mrs. Capito, for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman, and thank you, Chair 
White, for being with us today.
    I know you are very familiar with the reporting guides that 
the SEC requires for specific industries, and you actually made 
a speech, I think last year, talking about the importance of 
disclosure, which we certainly agree with and the need to keep 
these disclosure standards up to date. You mentioned also in 
that speech that the mining industry's guidelines have not been 
updated since 1982, and I was wondering if you have any plans 
to update those? They are quite short in the reporting 
document, and I was wondering what the holdup was and what your 
plans are for that?
    Ms. White. The industry guides in general are part of what 
we are doing as part of the comprehensive review of our 
disclosure program, and there are a number of them that I think 
fairly could be said to be outdated, and we are certainly 
looking very closely at those. I can't be more specific now, 
but I'm happy to report back when I have a better sense of what 
the status is, but clearly that is included in what we are 
reviewing.
    Mrs. Capito. Do you have any kind of timeline on that?
    Ms. White. It is, what we engaged in, and what I have 
instructed the staff to engage in is a comprehensive review, 
which I think is really quite important to our disclosure 
regimes which that is a part of.
    Mrs. Capito. Right.
    Ms. White. What that doesn't necessarily mean, however, is 
that as part of that review we will not do certain discrete 
things. We won't wait to do certain discrete things, but I 
don't really have a timeline on it for you as I sit here today.
    Mrs. Capito. I understand it is a problem in terms of 
international standards that we are sort of getting left behind 
there.
    Another question I have is on the pension fund issue, with 
MAP-21, and I am going to have to refer to my notes here 
because it is kind of in the weeds. It has a provision that 
allows companies to use average discount rates when calculating 
their pension differences. This is especially important in the 
current low interest rate environment. What steps do you see 
the SEC taking to work with FASB to ensure that these 
companies, if they are using this average, are in compliance 
with their financial reporting?
    I have written a letter to you and to others making sure 
that these companies know that they are accurate in their 
reporting and that it is reflective of whether it is 
overfunding or underfunding their pensions.
    Ms. White. What I can say to that at this point, and I may 
be able to say more later, and I know we do have I think a 
letter from you on this.
    Mrs. Capito. Right.
    Ms. White. Is that FASB is studying this, and I expect to 
receive a briefing in fairly short order from our chief 
accountant's office who works with them on this.
    Mrs. Capito. I think that provision probably will expire 
shortly, so I think that we--
    Ms. White. I'm aware of that.
    Mrs. Capito. Yes, thank you.
    I noticed--well, two quick questions. I have a bill out 
that says that before you can put a whole lot of rulemaking on, 
and Mr. Meeks and I are on this together, where you have to 
really look at what kind of duplicative efforts are already 
there, your old rules or regulations that are antiquated, 
instead of just piling on. You did mention cost-benefit 
analysis in your rulemaking; are you scrubbing this at the same 
time?
    Ms. White. Certainly with respect to any rulemaking we are 
focused on now, we certainly scrub what is out there, whether 
it is in our agency or other agencies to try to avoid that 
duplication. Frankly, there might not be a need, or there might 
be a different need based on that analysis.
    Mrs. Capito. Right.
    Ms. White. In terms of actually reviewing our rules, what I 
think is the most constructive way to do that rather than on a 
sort of project basis, we certainly do reviews of what is 
called retrospective review under the Reg Flex Act and so 
forth, and that is important, but I also think that as they 
come out the door, we should be and I think are, but I am 
trying to enhance this, we are really reviewing the impact of 
those rules as we go forward and making changes that we think 
we should make. We have also--
    Mrs. Capito. I think--
    Ms. White. I'm sorry--
    Mrs. Capito. I was going to say, because I think we are 
finding in some spaces that there can be conflicts there, too. 
You have a new rule that comes up that really conflicts with 
not an entire previous rule that may be a certain part of that 
rule. I am certain you are looking at that. It certainly would 
lead to confusion and could lead to litigation and other 
things.
    Ms. White. Certainly, that should not be occurring. I am 
not suggesting it doesn't occur obviously. One of the things we 
have encouraged our various advisory committees frankly to do 
is also to bring to our attention any examples that may be 
occurring or even if not a conflict where something is outdated 
or not optimal, but we encourage all constituencies to do that. 
And we get a lot of feedback. It is not as if once our rule 
goes out we don't--
    Mrs. Capito. I bet you do.
    Ms. White. --we don't hear back all right, so we do. We are 
trying to be more proactive in getting that feedback so.
    Mrs. Capito. Thank you. And just in conclusion, I would 
like to thank you for your service, and I thank you for your 
very crisp and concise answers. Thank you very much.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Massachusetts, the ranking member of our Housing and 
Insurance Subcommittee, Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    And thank you, Madam Chair, for being here.
    Madam Chair, 6 years ago we had a humongous financial 
crisis, the greatest in my lifetime, and hopefully the last in 
my lifetime but we will see. Five years ago, we passed a 
significant law to try to address some of the things that 
caused that crisis. Three years ago, the SEC passed some 
proposed regulations, adopted proposed regulations, relative to 
credit rating agencies that came out of that Dodd-Frank bill. 
Three years later, those rules are still not finalized.
    A few years ago, the Supreme Court made a ruling that 
corporations are people, and they can spend money anywhere they 
want in political stating which is fine. Many of us asked the 
SEC to address that issue to simply require corporations who 
make political donations to simply publicize them, and the SEC 
has now taken a walk on that request after several years of 
being asked.
    Recently you had one of your long-term attorneys, whom I 
understand is well-respected within the agency, retire. At his 
retirement party he basically criticized the SEC's approach 
over the last several years as being too timid relative to 
enforcement actions against some of the biggest names on Wall 
Street, therefore leading to an attitude on Wall Street of, 
``What is the big deal? We can get away with it. Maybe pay a 
small fine relative to the rewards we reap.''
    And now recently we have had a book comes out by a well-
respected author, whether you agree with all the details or 
not, it certainly raises questions, serious questions, as to 
whether the whole market is rigged, especially against small 
investors. Even if there is nothing illegal being done, I think 
certainly most people would think that when they push the 
button to make a trade, that is going to happen and nobody is 
going to interfere with that in a matter of a split millisecond 
between the time they push the button and the trade is actually 
executed.
    After all these things that the SEC really hasn't done much 
about, I will tell you that I understand full well that the SEC 
is understaffed, and I will tell you that I hope you recognize 
this, I have been one of the greatest supporters of fully 
staffing and adequately paying the employees of the SEC, and I 
think that you will find that most of that support is on this 
side of the aisle.
    We agree with that comment, but nonetheless, that is the 
fact. To me, that raises lots of questions about focus and 
priorities of what is left. Fully understanding you are 
understaffed, what are you going to have a limited staff do? 
And in my opinion, the SEC's most important function is 
providing confidence for investors in the general public, that 
there is a level playing field, that they will be protected 
from shysters, and that the market will be an honest and free 
market.
    In the last several months, lots of things have happened to 
raise that question, and I simply want to ask you, do you agree 
with the things I have commented about, not necessarily the 
details, but the seemingly constant erosion of confidence in 
the SEC to actually do the job, the main job it is required to 
do, not in the fact that you are doing in the details of this 
regulation or that, but the fact that whether we believe you 
are doing it enough?
    If we don't believe it, you may as well not exist, and it 
doesn't matter what your funding level is. And I will tell you 
that from my end of the table, that is certainly what I am 
starting to see, one drip at a time, and I would just like to 
hear your reaction to that concern.
    Ms. White. Plainly, it is a significant concern if that is 
your perception or anyone else's or more broadly the market's 
perception, and so it is something that I think we have to be 
very cognizant of. I think when I was answering the questions 
before on our work on the market structure issues, that even 
if, in fact, some piece of that may not be a problem but it is 
perceived to be even as unfair or creating an unlevel playing 
field, that, in and of itself, is a significant issue.
    I do think that the SEC and our experts in particular in 
trading and markets, are intensively and with great expertise 
and increasingly sophisticated use of data addressing those 
issues, but I recognize what is somewhat a separate issue of 
making certain that there is confidence in that work or any of 
those conclusions as well as we proceed.
    I think there are virtual consensuses out there but you 
still have the questions being raised which makes it a problem, 
is that the current market structure, including the advances of 
technology, have actually benefitted in particular the retail 
investor. I am not saying they haven't benefitted the 
institutional investor in terms of decreased costs and 
narrowing of the spreads and greater liquidity, but if the 
retail investors don't think that is the case, that is a 
problem. There is no question about that. I might note, and I 
don't want to overstate it, but you have actually had certainly 
in recent months, the recent past, more retail investors coming 
back into the markets, which I think is a very good thing; but 
we have a constant duty to ensure people that we are really on 
all those jobs that you have mentioned. I am happy to follow-up 
on the specifics.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, the chairman of our Housing and Insurance 
Subcommittee.
    Mr. Neugebauer. That you, Mr. Chairman. Chair White, thank 
you for being here this morning.
    As you know, the Financial Stability Oversight Council, 
FSOC, recently designated Prudential Financial as a non-bank 
SIFI that will be now subject to enhanced prudential standards. 
Unfortunately, this was over the strong objection of voting 
members who have insurance expertise, and one of those members, 
Director John Huff, a State Insurance Commissioner who actually 
regulates the businesses of insurance, stated, ``FSOC's 
misguided overreliance on banking concepts is no more apparent 
than in the FSOC's basis for the designation of Prudential 
Financial.'' He went on to say that, ``the basis for this 
designation was grounded in implausible and even absurd 
scenarios.'' What is your reaction to Mr. Huff's remarks?
    Ms. White. And this is on Prudential, I think I heard you 
say? That happens to be a case that I am actually recused on, 
so I don't want to talk about the specific case, but I think I 
can talk generically and be responsive which goes back to 
obviously there are 10 voting members of FSOC, so decisions 
when they are taken are taken by those votes, and it is 
extraordinarily important that before any decision is made, 
that FSOC have and listen to the expertise in the particular 
industry. I am not commenting on the specific decision at all, 
but I think that is critical.
    Mr. Neugebauer. I think, based on what you just said, then 
the people who were in the room when this decision was made, 
who actually had more expertise in insurance regulations, spoke 
in opposition to it. Should that be troubling to us that we are 
trying to let people who have not necessarily had experience in 
regulating insurance companies have such a large say in this 
issue?
    Ms. White. Again, obviously if FSOC was created as it was 
by statute, I do think FSOC, its primary purpose, which I think 
is an extraordinarily important and positive one, is to bring 
together the financial regulators from across market spaces, if 
I can call it that, so that you can sit in the same room I am 
seeing this, I am seeing that and react to it.
    But I also think again, that you want your decision-making 
to be optimal. It doesn't mean just because one particular 
expert who may be a voting member says X, therefore X is the 
right answer necessarily, but it does mean you should listen to 
that expertise, and and I am not suggesting that FSOC doesn't 
do this because it certainly does to a degree, bring in 
external sources of expertise as well. But get that expertise 
at the table, particularly when you are in areas beyond the 
members' particular expertise.
    Mr. Neugebauer. I do understand that you recused yourself 
because of your previous ties to Prudential, but now that the 
decision has been made, do you agree with that decision?
    Ms. White. Because I am recused, I don't think I should 
comment on the specific decision, and it is one that I would 
not have therefore studied either in obviously the same way.
    Mr. Neugebauer. I want to commend you and your fellow 
Commissioners for committing to a data-driven, holistic review 
of our U.S. equity markets structure. Can you kind of give a 
little snapshot of how you see this review proceeding and some 
of the next steps and timelines?
    Ms. White. And it has been proceeding. It is something, by 
the way, that even before I became Chair, and at my 
confirmation hearing, I identified as one of my three immediate 
priorities, in addition to completing the mandated rulemakings 
and enhancing the enforcement function, making certain that the 
SEC and its experts had the data they needed to fully 
understand all of the market structure issues and then respond 
appropriately if there is a need to respond.
    And so, I am very personally close to the work that is 
being done there, in really constant discussion with the senior 
folks in Trading and Markets, and we are proceeding in a data-
driven disciplined way. I think the knowledge base of the 
Commission has been enhanced significantly by being able to 
bring on the MIDAS technology, when the CAT technology comes on 
board even more so, and again that will help us, all of us, 
make certain that we fully understand all of those issues.
    But it is a very high priority. It is proceeding actively. 
I can't tell you specifically when you will see a particular 
product come out of that review, but I assure you that when it 
ought to come out, it will come out as we proceed with that 
review.
    Mr. Neugebauer. And you are committed to looking at the 
whole space, and nothing is off the table; is that correct?
    Ms. White. Without any question. And that includes our own 
regulations as well. All the issues of speed, disbursement, 
volatility, but including also, has NMS contributed in ways 
that were unintended, or over time they may have contributed in 
ways that are unintended? It is a comprehensive review where 
every issue is on the table.
    Mr. Neugebauer. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman, and thank you, Madam 
Chair, for your willingness to help the committee with its 
work.
    I want to go back to the point raised by Mrs. Maloney and 
also Mr. Capuano earlier. I am concerned about high-frequency 
trading, and there are a number of elements that have been 
raised in Mr. Lewis's book and also by some other writers, for 
example, Charles Korsmo, who wrote a very thoughtful article 
that I would like to ask unanimous consent to enter into the 
record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Lynch. Thank you.
    One of the red flags that I thought came out in Mr. Lewis's 
book was the fact that in many cases, these high-frequency 
traders are maintaining positions for just a matter of seconds, 
oftentimes less than a minute, and at the end of the day they 
are balancing out their trades. They don't maintain positions 
for very long, and there was one high-frequency trader, Virtual 
Financial, which publicly boasted that in 5\1/2\ years, they 
had one day of trading losses, and they attributed that to 
human error.
    So, when you say the market's not rigged, I just have to 
say that there seems to be a definite advantage for a firm that 
can operate for 5\1/2\ years with only one day of trading 
losses. It is incredible in itself, but I just think we need to 
go deeper on this, and I think that there are some major 
questions that have been raised here by Mr. Lewis's book and 
others. The Order Protection Rule and regulation NMS which 
significantly fragments liquidity and provides some slow market 
arbitrage opportunities for high-frequency traders, and are you 
looking at that?
    Ms. White. The answer is, we could not be doing a more 
intensive review of all the issues, and I agree that there are 
a number of questions that have been raised and not just 
recently or by a book. These are real questions that we are 
looking into and will respond appropriately when we have 
completed that review. I do think--
    Mr. Lynch. I sure hope so, and this is not on you. This is 
not on you, Madam Chair, because you are relatively new, but 
the co-location and technological strategies that allow 
computerized traders to front run trades by virtue of proximity 
and speed, that has been out there for a while.
    This firm has been doing this for 5\1/2\ years. So-called 
maker-taker policies at exchanges that distort market behavior 
by confusing trading activity with useful liquidity, 
discrepancies between how fast traders can trade and how 
quickly exchanges recognize those price changes across 
fragmented equity markets, and those are all concerns.
    And the other question I have is, what is going on in dark 
pools? At least the suggestion from the evidence provided by 
Mr. Lewis, that investors who are going to dark pools are also 
being taken advantage of, and I know that you have some 
authority, the SEC has some authority under ATS to look at 
those dark pools to tell us whether or not those trades are 
being made at an optimum advantage for those investors or 
whether they are being taken advantage of much in the same way 
some of these other trades are being front run. Do you have any 
intent of looking at these dark pools?
    Ms. White. No question about that. We are looking at the 
dark pools. I think I also mentioned that we, and I can't say 
more than this because of the nature of it, but we have 
investigations involving practices in dark pools on the 
enforcement and examination side, and each issue that you 
mentioned raised significant questions. For example, maker-
taker pricing. There are different views about whether they are 
benefitting market quality or they are deteriorating or 
diminishing market quality.
    Mr. Lynch. I appreciate that. I only have 8 seconds left. 
Have we prosecuted anybody for any of this, up to this point?
    Ms. White. We have certainly brought cases on the civil 
side. We don't prosecute in the criminal sense, but there have 
been some criminal actions as well. Certainly, front running is 
not allowed if appropriately described, and we have certainly 
brought front running cases, and we have brought cases 
involving really the spectrum of market participants.
    Mr. Lynch. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from California, Mr. 
Royce, the chairman of the House Foreign Affairs Committee, for 
5 minutes
    Mr. Royce. Thank you, Mr. Chairman.
    And thank you, Chair White, very much. Thank you for your 
testimony here today.
    You briefly described your view as the difference between 
asset managers versus banks and other financial institutions, 
and there was the OFR's report on the potential for SIFI 
designation, and as you explained this, it seems as though the 
SEC and the OFR were not necessarily on the same page in terms 
of the way you perceived it at the SEC.
    And I was going to ask you, was there collaboration between 
the OFR and your staff in preparing this or not in terms of the 
final report because you are the primary regulator, and so at 
the end of the day there should be, when you are not in 
concurrence with the view, some way to express that, maybe it 
would be to have a dissenting opinion in terms of the OFR 
position, but I was just going to ask you about that.
    Ms. White. I'm sorry, I guess the first point would be that 
actually nothing has been presented for any kind of decision 
yet to this point, and my understanding, and this does precede 
my time as Chair, but in I think late-ish at least 2012, FSOC 
actually commissioned, asked OFR--
    Mr. Royce. Right, originally.
    Ms. White. --which is its research arm, and obviously meant 
to well inform FSOC's deliberation to undertake this study in 
terms of the SEC's staff's participation, it is an OFR study. 
The Commission itself did not participate but the SEC staff did 
provide throughout the process of the report its technical 
expertise and comments. At the end of the day, some of those 
comments were taken and some of those were not taken, and 
essentially the staffs agreed to disagree. But in the end, it 
really is OFR's study. And in response to an earlier question, 
OFR actually publicized its own study, and I think everyone 
expected public reaction. What the SEC did was to open a page 
so that those comments could be collected there because I think 
anything is improved by getting input.
    Mr. Royce. Right. I recall you opening the page. But I just 
wondered on the asset management report if there might be a way 
to actually attach the views of the SEC, of the primary 
regulator, in a situation like this? It was just one idea.
    Ms. White. I appreciate the idea. I think it is their 
study, and that is clear. Obviously, the SEC is free to speak 
in other ways.
    Mr. Royce. Let me ask you another question. As you know, 
Section 165 of Dodd-Frank requires the Federal Reserve to 
tailor prudential rules for non-bank SIFIs to account for 
differing business models including insurers. However, the 
Federal Reserve says it is required to impose Basel bank-
centric rules on nonbank SIFIs. That is due to the Collins 
Amendment. Given that the Fed has taken the position now that 
Collins constrains their ability to tailor rules for nonbanks, 
would it not be prudent for FSOC to postpone further 
designations of insurers and other nonbanks until the Collins 
issue is resolved?
    Ms. White. Again, in terms of what I can discuss, that is 
certainly an issue about which there is awareness on the part 
of the FSOC members, and there has been discussion about that 
which I expect to continue.
    Mr. Royce. My last question is about the FSOC process and 
whether voting members meet with firms before or after a notice 
of proposed designation. It is my understanding that the 
process does not include an opportunity for a firm to make 
their case that they are not systemic to the voting members of 
FSOC. They can't make that case themselves prior to FSOC voting 
to designate the firm. It seems obvious to me that potential 
designated firms should have an audience either with FSOC 
members, or as a group. Can you think of any reason why you 
would not meet with a firm prior to voting on their notice of 
proposed designation?
    Ms. White. Again, those protocols were set before my time, 
but, there certainly is input, as I understand it. There 
certainly is input that the companies give in advance--
    Mr. Royce. To make their case.
    Ms. White. To the deputies who are actually doing the day-
to-day work.
    Mr. Royce. Yes, but not to those who are making the final 
decision, and, Chair White, that was the point I was going to 
make.
    And thank you very much, Mr. Chairman. I yield back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much, Mr. Chairman.
    Chair White, it is good to have you here, and I just 
commend you. You all have a very difficult job in having fair 
trading. You are sort of like the baseball umpire, but this 
year for the first time baseball umpires have what they call 
instant replay, causing quite a bit of consternation. But I 
want to ask you for an instant replay here. Do you or do you 
not at the SEC have an action plan for order competition in the 
market structure?
    Ms. White. Do we have an action plan?
    Mr. Scott. Yes, for a timeline?
    Ms. White. I'm sorry. In terms of our review of the market 
structure issues, including the order types and so forth?
    Mr. Scott. Right.
    Ms. White. The answer is we don't have a specific timeline, 
but since I became Chair, as I mentioned before, this set of 
issues was in my list of top three immediate priorities, and I 
have been driving the staff very hard on all of the market 
structure issues.
    Mr. Scott. May I take this as an opportunity to--
    Ms. White. And therefore I hope to move it quickly.
    Mr. Scott. --stress to you to please get an action 
timeline. Order competition, if we lose order competition and 
you have all of this excessive competition that comes in, that 
brings all of this complexity with it, and that is what leads 
us to the dark side, to these dark pools.
    If we allow our investment process to move into these dark 
pools, we are in serious trouble. And so, my concern is that a 
lack of this is very pressing, and this isn't the first time 
that I have brought this issue up. So I sense that you don't 
have a sense of urgency here. Do you? Am I going down a wrong 
hole here? Am I going down a dark hole? Don't you see a need 
for order competition, and if we don't have it, it will lead to 
these dark pools?
    Ms. White. There are a lot of issues in your question. 
First, we have a sense of urgency. I meant what I said that we 
are data-driven and disciplined, and we are doing a 
comprehensive review, which I think is the right way to do 
this. But that is not inconsistent with bringing a sense of 
urgency and intensity to all of these issues. In terms of the 
order types, they are, indeed, submitted by the SROs. If they 
have a new order type, they make a representation in terms of 
that in their judgment promote just and equitable principles of 
trade. Competition is one of the objectives of those order 
types. They are obviously reviewed by the SEC, and a finding 
needs to be made with respect to them. So these are things that 
are--and, again, that does not mean that one wants to make sure 
that the order as described, the objectives as they are given 
to improve market quality are, in fact, being used in that way 
and not in some other way. So, yes.
    Mr. Scott. Okay. Thank you.
    I just want to urge you to really move in that direction. 
But I do have a couple more questions. One is on this fiduciary 
rule. What is the problem here? My feeling has always been that 
that is under your jurisdiction as the Securities and Exchange 
Commission, so why is the Labor Department meddling in your 
bailiwick?
    Ms. White. There are two different statutory regimes where 
that issue--there are probably more than two, but certainly the 
Department of Labor under the ERISA statute has that issue 
before it with respect to what is under its jurisdiction. We 
obviously are focused on the issue from the perspective of 
whether a uniform fiduciary duty should be imposed on brokers 
and investment advisors in our space.
    Mr. Scott. Wait, one point. How close are you to working 
this out, because we have the business community that is in a 
state of limbo here?
    Ms. White. What I can say is--
    Mr. Scott. It is not fair to them.
    Ms. White. Yes, and again, at the end of the day I have to 
say there are two different agencies with two different 
statutory regimes. But having said that, I fully recognize the 
importance of notice to those who may be impacted and 
consistency.
    Mr. Scott. Okay. My final point I have to--
    Ms. White. I am in touch with Secretary Perez. Our staffs 
are in touch.
    Mr. Scott. I have to get this in about the CFTC and you and 
harmonization, but apparently I will not.
    But, thanks to the chairman.
    Chairman Hensarling. Hold that thought for the next 
hearing.
    The Chair now recognizes the gentleman from Michigan, the 
vice chairman of our Monetary Policy and Trade Subcommittee, 
Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman. And it is with great 
pleasure I get to not only welcome Chair White but my 13-year-
old daughter who is here with her mom and might be getting a 
little embarrassed right now. But I will do my best, sweetie--
not you. Sorry, Chair White. My sweetie in the back.
    Ms. White. That is okay.
    Mr. Huizenga. Sorry. Sweetie in the back. Now we are both 
embarrassed, all right, Allie.
    Chairman Hensarling. Do we need to strike anything from the 
record?
    Ms. White. It is the nicest thing I have been called in a 
long time.
    Mr. Huizenga. I know this is confusing and complicated and 
I will try to explain it later. But the truth is most people 
here don't understand everything that we are talking about 
either. So, this isn't the only reason why dad leaves home.
    But I do want to touch a little bit on conflict minerals, 
and I have a couple of things here. First, no one wants to see 
conflict in the central African area, especially the DRC, and 
we need to work towards stopping any of those atrocities.
    But my first question is, is does Section 1502 actually 
stop it? I have had a number of conversations with missionary 
contacts, NGOs, long-term business people in the area, who at 
best have mixed reviews about whether we are actually getting 
at the problem with Section 1502.
    My question is, is this a workable, practical way to attack 
the problem? And as I hear from manufacturers throughout 
Michigan and throughout the country, they are very concerned. 
The compliance costs are estimated on the low end, $3 billion 
to $16 billion according to NAM, and then in light of the 
ruling from the D.C. Court of Appeals, and Mr. Chairman, I 
would love to submit this for the record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Huizenga. Why not take Commissioners Gallagher and 
Piwowar's joint suggestion on staying that, and Mr. Chairman, I 
would like to put that into the record as well.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Huizenga. And while I am on a roll, can I do a third 
one? This is from the National Law Review about how the Federal 
Appeals Court holds Securities and Exchange Commission Conflict 
Minerals Rules--
    Chairman Hensarling. The gentleman is pressing his luck, 
but without objection, it is so ordered.
    Mr. Huizenga. All right. Thank you.
    What are your intentions, first of all? Are you still 
planning on moving ahead? The Wall Street Journal had a 
headline which basically stated that you are planning on moving 
ahead with everything other than maybe a narrow section which 
was identified out of the Court of Appeals, and I am curious 
why?
    Ms. White. In response to your earlier comments, obviously 
this is a rulemaking that was mandated for us to proceed with, 
so we proceeded with it. Recently the D.C. Circuit has--and I 
have studied this very, very carefully--upheld the vast 
majority of that rulemaking and really quite clearly so.
    They have invalidated the portion that in effect requires 
the disclosure that something is not non-DRC, I think it is, 
and so the intentions are, and I think the reason you saw the 
joint statement coming out yesterday from Commissioners 
Gallagher and Piwowar, and there probably will be guidance from 
the Division of Corporation Finance, whether today or tomorrow, 
that reporters under that set of regulations would be required 
to report as to the portions of that rule that have been 
clearly upheld by the Court's decision.
    As to the aspect that has not been upheld, clearly there 
would be no requirement to make those disclosures.
    Mr. Huizenga. My understanding though, and I have started 
my way through the ruling, but according to this National Law 
Review, there are certainly other areas and other directions 
this may be going, and while this is hanging out there and this 
major question that has huge economic impact is unanswered, why 
not hit the pause button?
    Ms. White. In my judgment, obviously, the Court went out of 
its way to uphold, and there is a severability provision in the 
regulation, so the fact they invalidated that one portion 
clearly did not invalidate and went out of their way to say 
they did not invalidate the other portions. Clearly, there may 
be other things going forward that affect the invalidated piece 
of that rulemaking, but the rest of it stands on its own.
    Mr. Huizenga. It sounds like it is a mixed view at best, 
and there are others--including this National Law Review 
article that I would actually encourage people to read--who 
seem to think that may not be the case, that there are going to 
be major parts.
    So with that, Mr. Chairman, I yield back. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Let me associate my comments with those earlier stated by 
my colleague, Mr. Capuano from Massachusetts, and I do 
understand that you are not in the criminal division of the 
Justice Department. However, it is troublesome that a 17-year-
old page a few years ago stole $12 worth of things out at 
Crystal City, was kicked out of the page program, went through 
the justice system, and there are institutions, in fact, one I 
am thinking of now that has been convicted of fraud twice.
    Now I am not one of the attorneys in this room, but it 
seems to me that fraud requires intentionality, that you didn't 
slip and do it. It is like the tongue; it is not an involuntary 
muscle. When you speak, even though people say I didn't mean 
what I said, the tongue pretty much says what we think. And so 
when you commit fraud, it is intentional. You were deceptive. 
You did criminal things, and yet nobody goes to jail. So what 
do you tell a 17-year-old kid who steals $13 worth of 
merchandise and his life is almost kicked to the curb while fat 
cat violators who almost sent this country over the cliff 
economically are guilty of billions and billions of dollars of 
fraud and nothing happens. They pay a fine, it is the cost of 
doing business. So it is one of those things that troubles me, 
and hopefully it troubles a lot of people.
    Can you go through your admission policy that you have in 
your statement on Page 4? You make reference to this in your 
comments?
    Ms. White. Yes, and essentially I agree with what you just 
said and very strongly so in fact. Obviously, we can't 
prosecute. We can't put anyone in jail at the SEC, but if the 
evidence is there, I think it is the responsibility of both 
prosecutors, which I used to be, and civil enforcers, or the 
civil authorities, to take the evidence as far as it leads up 
the chain and very aggressively so.
    And, again, one of my three immediate priorities when I 
first took this job was to make certain that we were being bold 
and unrelenting to the extent that we have the enforcement 
powers, and I think the SEC has actually a very strong record 
on the financial crisis cases in terms of CEOs and senior 
executives.
    One of the first things that I did when I got here was to 
change the SEC's no-admit no-deny settlement protocol in order 
to try to increase public accountability in certain cases. Now, 
we have specified a number of parameters, including 
egregiousness of the conduct, risk to the public, a particular 
need in a particular case for public accountability, and I 
think so far we have, in major cases actually, achieved 
admissions. I think in seven cases, both institutions and 
individuals. The no-admit no-deny settlement protocol used by 
all civil law enforcement agencies to actually very good ends 
including the SEC, no litigation risk, you get there faster, 
you get money back to harmed investors faster, will always be 
part of our arsenal.
    But I think it is enormously important that law enforcement 
have credibility as to its strength and the strength of its 
deterrent message, and that is why I changed that protocol, and 
I think it will continue to evolve.
    Mr. Cleaver. Okay. Because I only have 50 seconds left, the 
other issue I wanted to get into was your efforts on conforming 
and complying with the Office of Minority and Women Inclusion, 
and I don't think we have enough time.
    So I am going to yield back, Mr. Chairman, the remainder of 
my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from North Carolina, 
the chairman of our Oversight and Investigations Subcommittee, 
Mr. McHenry.
    Mr. McHenry. Chair White, thank you for being here today.
    Now, you put out the OFR Asset Manager Report for comment. 
What was your reason for putting out the proposal for comment?
    Ms. White. I think transparency, and I think that any 
study, any proposal, benefits tremendously by input from the 
public.
    Mr. McHenry. Yes, and I would say Congress has gained a 
tremendous amount through the comment process in the JOBS Act, 
and I have learned quite a bit in particular about the JOBS 
funding, sorry the crowdfunding section from industry leaders, 
and so I think it is important that we note the comment period.
    I also want to commend my colleagues on the other side of 
the aisle: Mrs. Maloney, for her work with the JOBS Act and 
crowdfunding; and Ms. Velazquez for her questions about the 
cost challenge within crowdfunding.
    So generally speaking, what is your view of the JOBS Act? 
Is this something you think is a wise and prudent change to 
securities law?
    Ms. White. That is a broad question. Certainly, I think the 
objective of the JOBS Act is one that we all should subscribe 
to, which is to facilitate capital formation by, in particular, 
smaller and to some degree start-up companies.
    I think one has to always have investor protections in mind 
when you do any kind of capital formation both for the sake of 
the investors, but also for the sake of the credibility of the 
method you are using to raise the capital. It won't be raised 
to the extent that you would like it to be if there is not 
credibility in the protections as well.
    Mr. McHenry. Did the SEC have the legislative authority? 
Did they have the authority in law to do basically what the 
JOBS Act legislated?
    Ms. White. You mean before the JOBS Act legislated it?
    Mr. McHenry. Yes.
    Ms. White. I think the answer--I would have to go back and 
actually look at it all. Certainly, in some of those spaces I 
would say, yes. In other spaces, no. I would have to go back 
and analyze it, though.
    Mr. McHenry. Right. So Reg D as well Reg A, those two 
things the SEC could have done unilaterally; right?
    Ms. White. I would have to get back to you on the legal 
authority to do--
    Mr. McHenry. Yes, the legal authority is there. In terms of 
this, your answer to Ms. Velazquez, you said that you are going 
to keep reviewing Title III, the crowdfunding portion, you are 
going to keep reviewing how the regs work in the marketplace; 
is that correct?
    Ms. White. Once it is a live market, yes.
    Mr. McHenry. Okay, now in your view, if you look at the 
legislative text, the law for crowdfunding, is this a workable 
law in your view?
    Ms. White. I think obviously our objective is to make it 
workable. I think to some extent you can't tell how workable 
things are until they are actually rolled out and work or don't 
work as well as you would like them to, which is one of the 
reasons that I am trying to set up the interdivisional working 
groups to look at these markets as they come out the door.
    Mr. McHenry. So in terms of comments that the SEC has 
gotten, I have read many of them, met with a lot of the folks, 
in the tech world, in the securities law world, and they say 
that the cost of it is a challenge. The cost structure is the 
challenge; do you concur?
    Ms. White. There is no question that there are some cost 
challenges and certainly a number of commenters have raised 
those, and we certainly are attending to those comments.
    Mr. McHenry. Which ones?
    Ms. White. All the comments frankly, but we are always 
going to be attending to those that raise--
    Mr. McHenry. What are the concerns in particular about the 
audited financials?
    Ms. White. Some commenters have actually commented on 
audited financials. There are comments on other aspects as 
well.
    Mr. McHenry. Do you concur with that?
    Ms. White. I have to study the comments.
    Mr. McHenry. We are 2 years in. We are 2 years in, and we 
passed the JOBS Act 2 years and 2 weeks ago. The President 
signed it into law. You have been now at the SEC for a full 
season, if you will. You have had plenty of time to take a look 
at this, and so that is why I am asking these questions.
    I have deep concerns, based on the comments, about the 
structure of the law, and with the over 690 pages of 
regulations the SEC has written. And additionally, I have a 
concern because, look, I know you want to take a pragmatic 
approach to this, and I just encourage you to do this and to 
follow-up with this so that it, and the rest of the JOBS Act, 
can be implemented faithfully as Congress directed.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Wisconsin, Ms. 
Moore.
    Ms. Moore. Thank you so much, Mr. Chairman, and thank you, 
Madam Chair, for all of your service.
    I have some clean-up duties to do here. Being so late in 
the questioning period, I would like to ask unanimous consent 
from the chairman to include in the record a letter to Chair 
White with regard to Section 1502 of Dodd-Frank which relates 
to conflict minerals.
    Chairman Hensarling. Without objection, it is so ordered.
    Ms. Moore. Thank you so very, very much.
    Also, I am asking you, Madam Chair, how you are doing given 
the $25 million of your reserve fund which was basically 
cancelled, and how has that shifted your priorities? My 
colleague here was about to ask where implementation of the 
Women and Minorities Provision was in your chain of priorities 
given the shortfall that you are experiencing through the 
appropriations process as well as this.
    Ms. White. Let me say as to our OMWI office, we have, it 
will be fully staffed and it is a priority, and I think there 
is some very good progress that is been made there, not enough 
and more to go with respect to that.
    With respect to the reserve fund, this is an 
extraordinarily important funding mechanism for our mission-
critical, long-term IT projects. That is what we have decided 
and in consultation with Congress to use it for, and we want to 
use it wisely.
    When you are dealing with long-term IT projects and really 
trying to keep pace with Wall Street and the markets, they are 
complex contracts with complex procurement rules, and you want 
to get it right, but you sure want the funding to be able to 
carry out this EDGAR modernization. It is all of our risk-based 
data tools, the enterprise data warehouse, which really brings 
all of the information the SEC has access to in one spot.
    Ms. Moore. Thank you so much, Madam Chair.
    Questions that several people have asked, including my good 
friend and colleague, Mr. Scott, with regard to implementation 
under Section 913, the Fiduciary Duty Rule, I was on a panel 
with one of your colleagues, Commissioner Daniel Gallagher, and 
I will ask you sort of the same questions I asked him. I 
understand the dual responsibility, but it seems to me the 
Labor Department is plowing ahead.
    It is my opinion that there is more expertise within the 
SEC for this final rule, and it ought to, of course, be 
harmonized. And I am wondering, do you want them to take the 
lead? Can you just tell us a little bit about your interaction 
with them that would reassure us that your expertise is not the 
tail wagging the dog?
    Ms. White. I think it was before I arrived, but certainly I 
can speak to after I arrived. This was an issue that I was 
obviously apprised of for the first time during my confirmation 
process, providing our expertise as to impacts on the broker 
model has been going on. It is critical to do. I have ratcheted 
up, if I can say it that way, the discussions between our 
staffs in providing that technical expertise to the Department 
of Labor. I have personally met with the Secretary, twice in 
person and once by phone, Secretary Perez, to try to make 
certain that the staff's expertise is being fully understood 
and brought to bear.
    Again, at the end of the day we are different agencies, but 
it is extraordinarily important that that expertise be 
understood, brought to bear, and that there be consistency.
    Ms. Moore. Thank you. I just have one more question. On 
Thursday, I read a story in the Wall Street Journal indicating 
that asset managers Fidelity and BlackRock were already at 
Stage 2 of SIFI designation, so there is a meeting on May 19th. 
What is the point and purpose of that meeting if you have 
already gone ahead, and what are the indicators that they ought 
to be designated as SIFIs without this analysis, prior to this 
analysis?
    Ms. White. I think, again, I can't comment on any 
particular company whether it is or isn't in the FSOC process. 
FSOC hasn't commented as well. I am aware of the media reports 
that you mentioned. There certainly is a process to gather 
information. I do believe the Treasury Department, when the OFR 
study came out, said that is a data point, but we are 
collecting more information about the industry.
    I actually welcome the conference on May 19th, which is a 
public conference, to get further input, and I hope it is a 
constructive conference.
    Ms. Moore. Thank you for your indulgence, Mr. Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Hurt, the vice chairman of our Capital Markets and GSEs 
Subcommittee.
    Mr. Hurt. Thank you, Mr. Chairman.
    And thank you again, Chair White, for joining us today.
    Before I ask a question, I wanted to say just following up 
on Mr. Cleaver's line of questioning, as a former prosecutor I 
certainly appreciate the perspective that you have brought with 
respect to the no-admit no-deny policy. I really do believe 
that is important to fostering public trust and public 
accountability in our markets.
    Your agency has been very helpful to Representative Delaney 
from Maryland and me in crafting the College Savings 
Enhancement Act. This legislation would update definitions for 
the accredited investors and qualified institutional buyers 
definitions to include State-run prepaid 529 plans. Obviously, 
they are very important to families who are saving for future 
college expenses, and I was wondering if you could comment on: 
first, whether you think it is important for us to encourage 
that college savings; and second, do you believe that these 
plans are suited to be considered QIBs and AIs, similar to 
other plans such as State-run pensions?
    Ms. White. Obviously, the objective is quite important. I 
share that. As part of our review, which is ongoing, of the 
definition of accredited investor, this is obviously part of 
that. I think our staff from the Division of Corporation 
Finance has actually met with several representatives of the 
Section 529 plans to discuss the idea, whether through guidance 
or rulemaking, but they are very focused on the issue.
    Mr. Hurt. Okay, thank you. Also, as I indicated in my 
opening remarks, I think that some of the comments that you 
have made relating to disclosure overload are so important, and 
you have indicated that obviously you are trying to review this 
regime and trying to come up with proposals that protect 
investors, don't overburden investors and confuse investors and 
also look for ways to reduce unnecessary costs for issuers.
    I guess my question is, how is that review proceeding, and 
are there specific things that you can think of that should be 
top priorities for the SEC in trying to scale disclosure 
requirements down the road?
    Ms. White. I think that in terms of the status of it, as 
you know, our SK report was filed at the end of last year which 
really does trace our entire disclosure regime and tees up the 
issues.
    Following that, I directed the Division of Corporation 
Finance to, again, make this a very high priority. I think our 
Director has recently given a speech on this to a gathering in 
terms of path forward. We are seeking views quite deliberately 
from all constituents, issuers, lawyers who deal with 
disclosure, and investors, to try to make sure we have maximum 
information.
    Obviously, you focus on intelligibility. You focus on 
unnecessary redundancies. You focus on whether we contributed 
to the issue by our comment process, which I think is 
enormously important for both issuers and investors to get good 
disclosure, but have we perpetuated some of the issues with 
redundant disclosure or unnecessary disclosure in a particular 
instance.
    The overall goal, I suppose there is more than one, but it 
is clear that to make the disclosure regime more effective, 
more effective for investors but obviously to do it in a way 
that does not create unnecessary cost for issuers.
    Mr. Hurt. Do you have a timeframe for--an aspirational 
timeframe here?
    Ms. White. It is a large project. Let me say that it is one 
that I really am committed to getting us through, and we have 
embarked on this before in the history of the agency, so I 
don't have an end time date for it, but I also believe there 
are things we can do along the way to finishing it, so I would 
hope to see some product coming out of it. I don't know if will 
be--I would hope it would be this year that you will see some 
product come out of it, but I can't guarantee that.
    Mr. Hurt. Excellent.
    I don't think I have time for another question, so I will 
yield back the balance of my time. Thank you.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    I was wondering if you believe that there may be some 
transparency initiatives that might increase investor 
confidence and allow the market to sort out a lot of these 
issues about which venues or brokers are providing the best 
deals for their customers? An example of this, for example, 
might be that when a trade is made public, along with the 
price, size and time stamp, that you actually make public the 
venue, which I take it is done in some countries. We do it I 
guess for exchange trades but not off-exchange trades. That 
might provide some transparency here.
    Another example might simply be to allow or mandate that a 
retail customer as part of their order confirmation gets a 
history of all the trades made in that thing that they bought 
or sold or was bought or sold on their behalf for a few seconds 
on either side of the time their order actually got executed, 
so they have some idea of whether their order was filled at 
somewhere near the midpoint of the market and if you are 
looking at transparency initiatives like this, that will 
hopefully allow the market to sort things out.
    Ms. White. We are certainly looking at the transparency and 
at ways to enhance that transparency in an optimal way.
    Again, we want to make sure we are doing what is optimal to 
do, but that clearly is an area that we are quite focused on, 
and not only to in fact enhance that transparency but also to 
deal with the investor, confidence in the markets, issues we 
were talking about earlier.
    Mr. Foster. And does the SEC or should the SEC take a 
position on the optimum balance between lit and unlit exchanges 
or markets? What do you personally think about this, and how do 
you think the SEC should get involved in this issue?
    Ms. White. The SEC, in a sense, is involved by being 
obviously the overseer of our equity market structure, and the 
idea is to have an optimal equities market that works fairly 
and efficiently and competitively for the marketplace and 
investors bringing together those who wish to raise capital and 
investors and making sure it is a safe place.
    I think the intent of NMS was to increase that competition, 
to increase market quality, and you have seen a fair amount of 
dispersion that has occurred. I think some of that was expected 
to occur, but it has obviously proceeded and has been fairly 
extensive, and so I think as part of our data-driven, very 
comprehensive review, we want to see whether there are any 
changes we should make from the regulatory side that might 
affect that or might not.
    But again, I think we have to be very carful that we are 
not fixing a problem that isn't or not optimally addressing a 
problem by a change in the rulemaking but very focused on all 
of the questions.
    Mr. Foster. Given the explosion in the number of venues, do 
you think there is adequate uniformity in the safety, 
soundness, volatility, and cybersecurity requirements that are 
placed on all of these?
    Just as a simple example, it is my understanding that there 
are fairly uniform circuit breaker requirements at all trading 
venues but not as uniform limit up and limit down type 
requirements.
    Ms. White. This is what I call the systems issues, which 
obviously include any cyber problems with that, and are 
extraordinarily important to the reliability and strength of 
our markets.
    The SEC has taken a number of actions already with respect 
to those issues, the limit up, limit down rules, the market 
access rules, all designed to make the marketplace more 
resilient. It is interconnected. It is obviously electronic and 
very high speed. Our proposed rule SCI would require even 
further enhancements of the system. It would apply beyond just 
the exchanges. It would also apply, if it is adopted as 
proposed, to ATS's of certain sizes in order to try to bring 
more into that regulatory regime which I think will enhance the 
markets.
    Mr. Foster. One of the effects, as you increase out things 
like very strict cybersecurity requirements, to make sure that 
you are robust against that, that is going to impose costs on 
all of the trading venues, and I think that ultimately that is 
probably going to be a force that drives toward consolidation 
for the same reason that small banks are faced with 
cybersecurity costs.
    It is one of the issues that they look at and one to see 
whether they should merge or be acquired. And you are going to 
be facing the same thing, and I imagine that may drive some 
consolidation in this business, and so I was wondering if 
that--how do you view and balance that when you are doing 
things that will impose almost a head cost, a capitation cost 
on these trading venues?
    Ms. White. It is interesting. Certainly with respect to the 
comments we have gotten on SCI, the proposed rule that I 
mentioned, those are among the kinds of costs that have been 
cited to us, consequences that have been cited to us. Our 
economic analysis and our economists look very closely at that. 
Obviously, you have proponents of having a less dispersed 
market, so you have to weigh the benefit of that as you go 
through it, so we look at all of those factors.
    Mr. Foster. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney, for 5 minutes.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Chair White, thank you for being here. I have a couple of 
different questions on a couple of different topics.
    Thank you, by the way, for making yourself so available. It 
does allow us sometimes to follow up on conversations we have 
had previously, and I want to do a little bit of that, but I 
want to start with a general question briefly about SEC 
investigations.
    When you all investigate a particular entity, I don't care 
who it is, is it part of your practice to contact the clients 
of that entity to tell them about the fact that you are 
investigating that entity?
    Ms. White. Not as a sort of invariable step. Now, you could 
have witnesses who are clients, so as part of your--
    Mr. Mulvaney. I am not worried about witnesses. Would it be 
unusual for you, if you are investigating Mr. Stutzman's 
company, to during the investigation, call all of his clients 
and say, by the way, we just want to let you know we are 
investigating Mr. Stutzman's company, that would not be 
ordinary course of business for you folks?
    Ms. White. That would not be, or it should not be ordinary 
course of business. It is not ordinary course of business if 
that is the purpose. Now, the caveat is there only because--and 
I think you excluded witnesses or people who might have 
relevant knowledge.
    Mr. Mulvaney. Sure.
    Ms. White. Because obviously that can happen as a result of 
that.
    Mr. Mulvaney. I want you to contact witnesses, obviously, 
we all would. So you are saying it is not ordinary course of 
business to reach out to regular clients and so forth?
    Ms. White. Not as you have described it.
    Mr. Mulvaney. And we recognize how damaging that could be, 
especially if the investigation turns up that no wrongdoing 
took place. Thank you for that.
    You were here, separate topic, back in February as part of 
a larger panel. We had you, we had Governor Tarullo, and some 
folks from the OCC, the CFTC and the FDIC, and I tried very 
hard to lay out a circumstance under the Volcker Rule to try 
and draw some attention to the possible overlap of 
jurisdiction, and I tried my best.
    I am not sure I got everybody in the example, but the 
example that I gave was a large broker-dealer who was also a 
bank, trading at interest rate swaps in its banking subsidiary, 
and I asked him who would have jurisdiction over that, and I 
think I got most everybody at least having some jurisdiction, 
but you took the position that as the SEC, you all would be 
first. You all would go first and have primary jurisdiction, 
and I believe Governor Tarullo agreed. In fact, what he said 
and I am going to read you his testimony, was that whoever--
    Ms. White. I wrote that down when he said it actually.
    Mr. Mulvaney. So did I, and so did a lot of other people, 
because I think it was news to a lot of folks. He said whoever 
is the primary regulator of that entity has, by congressional 
delegation, the regulatory authority over them. He went on to 
say that if it is a broker-dealer and the SEC is okay with what 
practice the broker-dealer is pursuing, then no, then we don't 
have, none of the rest of us has the authority under the 
Volcker Rule and the statute to say, no, that is incorrect. He 
went on to finally say there is not really shared jurisdiction 
over a particular trade.
    Is it your understanding that he was right in saying that? 
Are there limitations? Are there caveats? Are there exceptions 
to this, or is that the general policy of the SEC, the FSOC, 
the Treasury, and everybody?
    Ms. White. That is how it should work where it is clear who 
the primary regulator is, and I think it is in that example, 
the broker-dealers would be the SEC. What I actually did add, I 
guess I have to fess up, at the hearing, when you asked it 
before, though, is that you are clearly trying to also have 
consistency among the agencies as to some of the interpretive 
issues that may, in other situations, spill over to some other 
kind of entity where the primary regulator is someone else.
    Mr. Mulvaney. Right. But, and again, that is fine. There 
may be certain exceptions. I am painting with a broad brush 
now. If there are circumstances where everybody seems to agree 
that the SEC is the primary regulator and you say--you bless 
some practice, some security program, some software for your 
broker-dealers over how to deal with the Volcker Rule, the OCC 
or the CFTC can't come in later, in other words, and say no, 
that is not acceptable?
    Ms. White. That would certainly be my understanding.
    Mr. Mulvaney. Good. Thank you very much for that.
    Last one, and I am trying to go quickly because I only have 
a minute left. I want to follow up very briefly on a question 
that Ms. Moore asked before she left dealing with the ongoing 
analysis for the systemic classifications for asset managers, 
mutual fund companies, those types of things. I understand that 
BlackRock and Fidelity came under some scrutiny because of the 
size of some of their assets.
    Would you agree with me generally that by the nature of the 
business, asset managers will be less likely to pose systemic 
risks than large financial institutions and banks that do 
investment work?
    Ms. White. Again, I can't comment on what stage this 
analysis is--
    Mr. Mulvaney. I am not asking about this. I am talking 
about in general context.
    Ms. White. --with an FSOC, but I think it is an 
extraordinarily important difference that the asset managers 
are based on an agency model from the point of view of systemic 
risk.
    Mr. Mulvaney. Will your analysis of asset managers 
generally, not BlackRock and Fidelity specifically, but 
generally, will your analysis vary because of what you just 
said and your recognition that the risks that they face are 
different or less likely to pose risk than those of other 
financial institutions?
    Ms. White. It is certainly a highly relevant factor.
    Mr. Mulvaney. Have you all developed the metrics yet for 
doing the stage 3 analysis of asset managers?
    Chairman Hensarling. Quick answer, please.
    Ms. White. I really can't comment on that because of the 
FSOC--
    Mr. Mulvaney. Again, I am not asking about specifics. It 
was just general.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Kildee, for 5 minutes.
    Mr. Kildee. Thank you, Mr. Chairman, and thank you, Chair 
White, for your candor.
    I haven't been able to catch the entire hearing. I watched 
a lot of it on television, so hopefully some of the questions--
a couple of the questions that I might ask you, you may have 
answered in some form or another, but I would like to just 
focus on a couple of particular areas.
    One is somewhat more of an operational question but it does 
affect the mission. With some regularity here at this committee 
and at other places, the issue of whether the SEC has the 
necessary resources to support and carry out its regulatory and 
enforcement obligations does come up from time to time, 
especially after the 2008 crisis and the reforms that followed, 
we saw your responsibilities, your agency's responsibilities 
significantly increased, and while there may be legitimate 
disagreement over the question of your authority and what the 
legislation provides for, I think, I would hope that we would 
find more agreement on providing the necessary resources in 
order to execute whatever your mandate is.
    I know something about this, having been 25 years in local 
government in a very distressed community, I was the county 
treasury, I had to continually figure out ways to meet my 
obligations with fewer and fewer resources, so I have some 
empathy.
    And so I wonder if you could comment, as you consider the 
challenge of having to do more with less, can you talk about 
some of the choices, presumably realignments or other sort of 
judgments that you have had to make in order to meet your 
regulatory obligations in the period of this sort of post-
crisis world, and additionally, if you could comment on another 
aspect of your work, the enforcement function, particularly 
since it can, in some cases, generate revenue through punitive 
fines, whether additional resources would allow the SEC to 
investigate more quickly more allegations of wrongdoing within 
the securities field. If you could just sort of touch on the 
general subject of resources and how it affects your mission, 
that would be good.
    Ms. White. That bottom line is that I sincerely believe we 
are underresourced for the responsibilities that we have, and 
it is of great concern to me. I think on the enforcement side, 
which is our largest division, and I believe I cited the figure 
in my oral testimony of just last year the Enforcement 
Division's work actually yielded orders to return $3.4 billion 
in disgorgement or civil penalties, and our Fiscal Year 2014 
budget is $1.3 billion. Of that $3.4 billion, I think we have 
already collected almost $2 billion. That is just a metric, but 
it gives you some perspective on that.
    We didn't get--in our budget last year, we had sought 450 
additional positions for exam and enforcement. I have talked 
before and it is the one that just kind of hits you between the 
eyes of needing to adequately cover the examination of 
investment advisors, so important to all investors, and we just 
do not have the resources to do that.
    We are trying to be smarter about it. As I mentioned 
before, we are using risk-based tools to go to the places of 
greatest risk. If you think about doing things like moving 
resources, let's say, from the broker-dealer exam side over to 
the IA side, the problem there is you look at what we find when 
we go to the broker-dealers and we find deficiencies and 
problems almost everywhere we go, a lot of those broker-dealers 
are also migrating to the IA side.
    At least some would say because it is actually, we are not 
there as much, and the industry knows that, and as I say, you 
have very responsible members in the industry kind of saying 
the same thing. Our industry needs the SEC to have more 
resources in order to be able to make this industry safer and 
have more credibility with the investors.
    Mr. Kildee. So help me understand a little bit what that 
means, how that translates to the interest of a consumer, just 
to put it in plain language. What does that mean when you are 
not able to pursue some of cases that might come before you, 
what are the potential consequences that a consumer might face 
as a result?
    Ms. White. Frauds can go absolutely undetected, or on the 
exam side, again, when we actually go to the exam site, 
particularly when you are talking about investment advisors to 
retail, but we see it on the institutional investors, too.
    We find a large percentage of problems. Ponzi schemes, we 
find situations where fees have been misallocated. One benefit 
we get from, I think since Fiscal Year 2012, just because we 
were there, no action taken at all, we pointed out a problem, 
and $28 million was returned to investors. If we weren't there, 
that wouldn't have happened.
    Mr. Kildee. My time has nearly expired, so I will yield 
back my remaining 5 seconds.
    Thank you very much.
    Chairman Hensarling. The chairman will kindly take your 5 
seconds.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thank you, Chair White. We appreciate your testimony 
today.
    I would like to ask you, in a February speech you suggested 
that regulators should be distinguishing between prudential 
risk and other types of risk and that regulators should avoid 
taking a rigidly uniform regulatory approach based on the 
banking concept of safety and soundness. Could you kindly 
elaborate on these points?
    Ms. White. Yes. The concern that I have is, obviously, as a 
capital markets regulator, it is built on different structures. 
Our sense of what capital is needed, our net capital rule is 
built on making certain that if a broker does fail, that the 
customers' monies and securities are safeguarded, and I think 
when all of us, frankly, and the SEC is also addressing 
systemic risk, as we should be, we need to be very careful, 
also true of market structure issues, that one size doesn't 
necessarily fit all.
    And I think one thing we have to be very careful about as 
we do more of the systemic risk regulation is we are looking 
very closely at the impacts on the capital markets, for 
example, and on the liquidity of the markets and so forth, so 
that is what I meant by it.
    Mr. Pittenger. Thank you. Chair White, according to the SEC 
staff estimates I have read, the SEC employs 59 economists, at 
the same time it employs 1,750 attorneys. One measure that 
illustrates, in my perspective, the limitation of prioritizing 
economic analysis and the rulemaking is the ratio of economists 
versus lawyers at the SEC.
    It seems to me that the SEC should rely upon economic 
analysis to decide not to propose or adopt a regulation and to 
do so only after considering the costs and benefits. If 
empirical evidence, economic theory, and compliance cost data 
are essential to cost-benefit analysis, is it reasonable to 
expect that lawyers who are not trained in such matters should 
be responsible for carrying out the cost-benefit analysis of 
the agency's rulemaking?
    Ms. White. Our cost-benefit analysis is primarily done 
through our division of economic risk analysis, which is where 
our economists are and--
    Mr. Pittenger. Would you say, Madam Chair, that the use of 
economists would be a more prudent use and the likely source 
than the larger amount of attorneys that you have?
    Ms. White. I think you have to--again, the fastest growing 
division is our division of economic risk analysis where our 
economists are housed. They are enormously useful to the agency 
even beyond rulemaking. They really are.
    So I am all for increasing the number of economists we 
have, the number of other kinds of market experts we have. And 
by the way, we have, I think the Enforcement Division has over 
20 now who are market specialists, which I think is essential. 
You don't want just lawyers doing that, but we are also 
obviously a law enforcement agency charged with enforcing and 
assuring compliance with the Federal securities laws, and we 
review the financial filings of companies, and so naturally you 
are going to have a lot of--you are going to need a lot of 
lawyers in those spaces, but I take your point.
    Mr. Pittenger. A lot of attorneys.
    Ms. White. It is a lot of attorneys.
    Mr. Pittenger. Yes.
    Ms. White. Good ones.
    Mr. Pittenger. Madam Chair, does the SEC evaluate whether 
specific regulations tailored to impose the least burden on 
society, including market participants, individuals, different 
size businesses and other entities, including State and local 
governments?
    Ms. White. We certainly try with all of our regulations to 
have them be cost-effective. Obviously we have to--if we 
identify something we need to achieve, there may well be costs 
with respect to achieving that set of benefits, as we see it. 
But what you are clearly trying to do is do it in the most 
cost-effective way for all constituents.
    Mr. Pittenger. Thank you.
    I yield back my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. Thank you.
    The debt markets do a lot more to finance business 
enterprise than the stock market. A bond manager who doesn't 
get the highest rate of return with the bonds with the highest 
rating is going to be an ex-bond manager. So the key to the 
flow of many trillions of dollars that finance business and 
local government is the credit rating agency.
    In Dodd-Frank, there was the Frank and Sherman Amendment 
that dealt with the issue of the enormous conflict of interest, 
where the people selling the bonds, pick and pay the bond 
rating agency. And as I said here before, if I could pick and 
pay the umpire, I would have statistics better than Babe Ruth.
    So, the law requires that you either implement a system in 
which the SEC picks the umpire, the credit rating agency, or 
that you come up with something better. Where do you stand on 
that? What is the progress?
    Ms. White. First, I think it is an enormously important 
area to address. In terms of the conflicts of interest, I 
think, at least as we read this statute, we need to determine 
after our work if it is in the public interest and then we make 
the choice that you are indicating is there.
    One thing I will say on the credit rating agencies, alluded 
to earlier in a question, is the 2011 corporate governance, I 
will call them, proposals to enhance disclosure and other 
governance mechanisms surrounding conflicts. That is a 
rulemaking priority in 2014 but that is not what you are 
talking about.
    Mr. Sherman. I regard that all as window dressing. I am 
focusing--
    Ms. White. I hope it will be more than window dressing 
because I am spending a lot of time on it.
    Mr. Sherman. Let's focus on it for a--
    Ms. White. I am not avoiding your question at all, because 
I think it is enormously important. We had our roundtable last 
year. I met with the staff several times on this, and it is 
something that we are proceeding with, but I cannot tell you--
proceeding with meaning making a decision as to what we should 
do, what findings we should make. All I can tell you, as I sit 
here now, because it is still in discussion with the staff and 
my fellow Commissioners, is I think it is enormously important 
to address it effectively. I know that--
    Mr. Sherman. I will just tell you that the American and 
National Leagues have the league picking the umpires.
    Ms. White. I got you.
    Mr. Sherman. And it works better.
    Next issue, the Securities Exchange Act of 1934 has a 
provision where you are supposed to determine what is in 
financial statements, the format, et cetera. You have delegated 
that all to the FASB. You have outsourced that power, and maybe 
that is a good idea, but I don't think it relieves you of an 
obligation to at least look at what they are doing.
    I don't know if you focused on their proposal to capitalize 
all leases. The effect of that would be to add $2 trillion to 
the balance sheet of American businesses, $2 trillion in 
assets, and $2 trillion in liabilities. The effect of that 
would be to cause about half of all small businesses and 
medium-sized businesses to be in violation of their loan 
covenants because the ratio is not just assets to liabilities, 
the ratio is liabilities to owner's equity, so if you add 
trillions of dollars to balance sheets, everybody's ratio is 
off.
    The effect would be to penalize any business that signs a 
long-term lease. Normally, I would say what is the FASB should 
be left to the FASB, but the people in power, Congress, we 
empower you, and you have empowered a group in Norwalk, 
Connecticut, that nobody has ever heard of, and the effect this 
is going to have on our economy is enormous. I don't know if 
you would prefer to respond for the record or whether this is 
an issue you focused on.
    Ms. White. I am aware of the issue. I probably ought to 
give you a further response for the record, and I agree that we 
retain that ultimate responsibility also.
    Mr. Sherman. Given the effect this will have on small 
business and on real estate, please don't say, that is somebody 
else's responsibility. We delegated it to you, you are 
responsible.
    And finally, I have 11 seconds. I will yield them back.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Ohio, Mr. Stivers, for 5 minutes.
    Mr. Stivers. Thank you, Mr. Chairman.
    Chair White, thank you for being here. I appreciate all 
your time and your candor today.
    I am going to try to get to four topics, but we will see 
how that goes: asset managers; money markets; market structure; 
and municipal advisors. I will have to be quick.
    On the OFR report, it seems to me that the OFR failed to 
look at risk, or activities. They only looked at size of the 
money management industry, so I have some yes-or-no questions I 
wanted to run by you that would help me understand.
    Did the Securities and Exchange Commission interact or 
collaborate with the FEC on the asset management report?
    Ms. White. As I mentioned, we provided our technical 
expertise and provided some comments, some of which were taken, 
some of which were not.
    Mr. Stivers. So, some of the comments were taken, some were 
not. I guess that gives me a little bit of concern because the 
FSOC is dominated by banking regulators that have no real 
experience with asset managers, so my next question is, has the 
FSOC created a forum for the SEC that regulates money managers 
to educate the other FSOC members about money managers? I know 
they are having this May 19th half-day forum, but have they 
engaged you in any formal way to educate the other FSOC 
members?
    Ms. White. We certainly have done that at the deputies 
level, and that work does continue. OFR actually did this study 
and provided it to FSOC, all the members of FSOC, but that is 
on ongoing process.
    Mr. Stivers. So I know OFR is supposed to educate the FSOC 
or research for the FSOC, but if they don't do their research 
correctly, it impacts the outcome of the FSOC, and I am 
concerned. I know Ms. Moore talked about the May 19th forum. It 
concerns me that they moved forward with the designation 
process before they did their education. It seems to be a 
designate first, ask questions later mentality, and I hope you 
will go back to the FSOC and share my concern and the concern 
of many of us about that designate first and ask questions 
later mentality.
    Given that you only have one vote on the FSOC, do you think 
Congress should consider amending the FSOC structure so that 
independent regulators like yourselves and the SEC have a 
multifaceted voice?
    Ms. White. Again, I think that is ultimately Congress' 
judgment. I think it is enormously important that independent 
expertise be fully listened to, but I think that is Congress' 
judgment how to structure FSOC.
    Mr. Stivers. I appreciate it. And that leads me to my 
second question, because I do think that the FSOC is bullying 
some regulators and has a history of bullying the SEC, my 
example there is on money market mutual funds. And Commissioner 
Piwowar wrote a Wall Street Journal editorial on February 28th 
entitled, ``Give Investors Money Fund Choices,'' where he 
talked about a choice proposal. Have you looked at that, and do 
you think that would satisfy the FSOC's concerns about money 
markets and allow the SEC to have the independent jurisdiction 
it has currently and is given from Congress?
    Ms. White. Let me say the SEC is proceeding with its 
proposal independently, and we have an outstanding proposal.
    Comments have come in and we are in active discussion 
between the staff and the Commissioners. I am aware of 
Commissioner Piwowar's thinking on this, and obviously, 
everything will be discussed, but just as a bottom line, we 
believe our proposal was robust, I expect our final rule to be 
robust, and it is the SEC proceeding independently.
    Mr. Stivers. I hope you will take the choice proposal 
seriously because I think it allows for folks to run their 
businesses the way it makes sense, yet provides some structure. 
You don't need to comment on that, but I hope you will take 
that seriously.
    With regard to market structure, you said earlier to the 
chairman of our Capital Markets Subcommittee that the market is 
not rigged, but the market certainly does what it is told to 
do, and under Reg NMS from 2005 till today, it has forced 
behaviors in the markets, and I hope, and I guess I am asking, 
are you willing to open up Reg NMS and take a serious look at 
how that is driving behaviors in the marketplace and how it is 
affecting consumers and especially mom and pop consumers?
    Ms. White. The answer to that is yes, it is part of the 
comprehensive review in terms of all the impacts that 
regulation may have had.
    Mr. Stivers. I have 15 seconds left. My municipal advisors 
bill--I appreciate you enacting most of it by rule. We sent you 
a letter on January 9th asking for a few changes, and I hope 
you will take a serious look at those. I know you have 
responded, but I would ask you to take a serious look at 
completing your work so that we don't have to act.
    Thank you. I yield back my nonexistent time.
    Chairman Hensarling. The Chair recognizes the gentleman 
from Michigan, Mr. Peters, for 5 minutes.
    Mr. Peters. Thank you, Mr. Chairman.
    And Chair White, thank you for your testimony and for all 
your work implementing both the Dodd-Frank and the JOBS Acts.
    Today, I would like to ask about the Commission's authority 
to determine the standards of conduct for broker-dealers, and 
investment advisors. As you know, during the debate of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, I 
advocated for an approach that would reduce systemic risk and 
transparency and certainty in the markets. I believe that any 
new regulatory framework for broker-dealers, and investment 
advisors must protect the interest of retail investors, 
retirement plan participants, and sponsors from unfair and 
deceptive practices as they seek investment advice.
    While robust investor protections are critical, any new 
framework should be crafted very carefully to avoid limiting 
access to investment education and information for working 
families. This could ultimately result in worse investment 
decisions by participants and would in turn increase the cost 
of investment products, services, and advice that are 
absolutely critical parts of sound investment strategy for 
consumers.
    I believe that it is critical that any new fiduciary rules 
issued by any agency follow guidelines as were set forth in the 
Dodd-Frank Act. Those guidelines were carefully structured to 
ensure that working families continue to have access to 
investment assistance, and additionally, recognize the 
importance of having a single uniform fiduciary standard to 
avoid any potential investor confusion.
    As you know, I wrote to you earlier this year urging that 
the SEC move forward on this issue as intended under Dodd-
Frank, and ensure that any rulemaking is completely harmonized 
with efforts by any other regulators. And I appreciated your 
very timely response in which you mentioned that the Commission 
staff is coordinating with and providing technical assistance 
to the Department of Labor staff as they consider potential 
changes to the definition of fiduciary.
    My first question, ma'am, is beyond providing technical 
assistance to the Department of Labor, could you elaborate on 
other current efforts around this issue at the Commission 
currently?
    Ms. White. Yes. I think it is an extraordinarily important 
issue. I prioritized it for the staff for this Fiscal Year, and 
I think it is extremely important that the Commission get to a 
point of deciding how to proceed in that timeframe.
    In terms of--I am not sure if you are asking about the 
Department of Labor. I have actually increased, I think, our 
staff's providing of technical and expert assistance to the 
Department of Labor and have actually gotten personally 
involved in several discussions with the Secretary of Labor on 
that as well, but to ensure that our expertise is being 
understood and that there is no sort of mistranslation, I just 
want to make sure we are providing all the expertise we can. At 
the end of the day, obviously, they are a separate agency than 
we are, but we understand the consistency concern.
    Mr. Peters. Let me drill down a little bit on that comment, 
if I may. So in Dodd-Frank, Congress directed the SEC to study 
whether having different standards of care for broker-dealers 
and registered investment advisors could create some confusion 
for investors. So, if the Department of Labor moves forward 
with its new definition, there very likely will be very 
different standards for the care of an IRA versus non-
retirement retail accounts. Is there anyone at the Commission 
currently studying whether that would cause harmful confusion 
specifically?
    Ms. White. We certainly are looking at all of those issues 
and those potential impacts. I don't know--I would have to get 
back to you as to whether there was sort of a formal study of 
that. I am not sure it is a formal study, but obviously we have 
a lot of knowledge in that space.
    Mr. Peters. It would be nice if you could, if you would, 
ma'am, get back to us specifically if someone is working on 
that in particular, and also, on a follow-up, what about 
studying the economic interactions of the SEC project in the 
Department of Labor, how they may impact the economy?
    Ms. White. That is certainly part of the discussion, and we 
are also having our economist talk to their economist kind of 
about the broad range of possible impacts.
    Mr. Peters. Would you mind following up with me as well on 
specifics on that?
    Ms. White. I would be happy to do that.
    Mr. Peters. Great. Thank you so much. I yield back my time.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Illinois, Mr. Hultgren, for 5 
minutes.
    Mr. Hultgren. Thank you, Mr. Chairman. And Chair White, 
thank you so much for being here. I understand the SEC is close 
to finalizing new regulations on money market mutual funds 
which provide a unique and widely used municipal cash 
management product and help create liquidity in the municipal 
bond market through its purchases of municipal bonds. I am 
really concerned about the impact of a floating NAV and what 
that could have on municipal financing in a time when many 
State and local government budgets are already stressed. I am 
concerned because these bonds are a key lifeline to cities and 
towns, a tool that invests in the future and has a significant 
impact on State and local infrastructure.
    Your proposed rule would exempt Treasury and other 
government funds from the floating NAV under the rationale that 
these funds didn't exhibit major outflows during the financial 
crisis. But just as those funds were stable, municipal money 
market funds were very stable during the 2008 financial crisis 
as well and during other periods of market stress, is the 
Commission considering treating municipal funds the same as 
Treasury and other government funds, and have you adequately 
considered the impact of floating NAV on State and local 
governments?
    Ms. White. That is certainly one of the issues that we are 
acutely focused on. There were certainly a number of commenters 
who have discussed that in very useful and constructive ways, 
and we are quite focused on that. There is also, at least as 
proposed, if we were to go the floating NAV route, an exemption 
for retail which would not completely absorb that field but 
would, to some extent, but we are certainly focused on exactly 
the issue that you teed up.
    Mr. Hultgren. Thank you. Registered investment companies 
are highly regulated by the SEC and use little to no leverage 
and don't fail like other financial institutions, given the 
assets they manage are not on their balance sheets. They also 
are one of the most heavily regulated participants in the 
financial markets, subject to extensive regulation and 
supervision by the SEC. Yet, the Office of Financial Research's 
asset management report only briefly references the regulatory 
regime to which mutual funds and other asset managers are 
subject, and the FSOC has turned its sights to reviewing these 
registered investment companies for systemic designation.
    How significant a role is the SEC playing in the FSOC's 
review of asset managers, and shouldn't your agency's voice be 
paramount as the only securities regulator on the FSOC?
    Ms. White. The answer is that we are playing a very active 
role in the process--processes, I guess I should say, as they 
go forward, particularly at the deputy's level and specifically 
with respect to making certain that the full range of the 
existing regulatory regime is understood as we go forward. We 
are certainly trying, and really have from the beginning. It 
was decided by FSOC as a group that this is an industry that 
needed to be looked at. They asked OFR to do the study we have 
talked about before. I have explained what the SEC's role was 
in that, but as we go forward, we are continuing to provide 
really quite extensive input.
    Mr. Hultgren. Okay. I would also like to discuss Section 
913 which authorizes but does not require the SEC to extend the 
fiduciary standard of conduct applicable to investment advisors 
to broker-dealers when providing advice about securities to 
retail customers. I am concerned that imposing a fiduciary duty 
on broker-dealers could limit investor choices and restrict 
products and services that are available to customers. I know 
that the Department of Labor is also considering imposing a 
fiduciary standard that could impact broker-dealers and 
investment advisors. I wondered, should the SEC consult and 
coordinate with other Federal agencies and State regulators 
before deciding to move forward with rules--implement Section 
913? Do you believe that the Department of Labor should suspend 
its rulemaking until the SEC completes a Section 913 
rulemaking?
    Ms. White. Again, I don't think I can tell the Department 
of Labor what to do. I think there is a good constructive 
recognition by the Department of Labor and the SEC of how their 
rules could differ or may not differ, but the importance of 
consistency there. We certainly, with respect to our own 
judgment under Dodd-Frank, are trying to get maximum input from 
all constituents, and we did put out a request for information 
I think last--I want to say last March, it might have been--I 
think it was last March, we got a lot of very useful responses 
to that.
    Mr. Hultgren. Even if investors are confused about the 
differences between broker-dealers and investment advisors, is 
the only solution to impose a fiduciary standard of care on 
broker-dealers? Could investors be better served and better 
protected through additional disclosure?
    Ms. White. And that is one of the critical issues as to how 
far can disclosure go to deal with the issue as it is 
perceived, plainly part of the discussion, the thinking and 
thinking about alternatives as well.
    Mr. Hultgren. Thank you, Chair White. My time has expired. 
I yield back. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Washington, Mr. 
Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Madam Chair, thank you for your service. And thank you for 
your presence today. There have been a lot of questions about 
high-frequency trading. I especially appreciated Mr. Garrett's 
very direct question, is the game rigged?
    With just about anything in society, you are going to have 
those who believe thusly--a significant percentage of the 
population believes Elvis is still alive, but at least in that 
case, there wasn't anybody as reputable as Mr. Lewis writing 
what is seemingly a very well-researched book, so in all of the 
back and forth with all the questioners, I never heard you 
categorically state that the small investor is not at a 
competitive disadvantage.
    And so, I am asking, first, if you are willing to do that, 
and second, if you are, don't talk to us as if we are talking 
to the camera, to the small investor, say in terms they can 
understand that they are not at a competitive disadvantage and 
here is why.
    Ms. White. And I appreciate all those questions actually. I 
don't want to speak beyond where I should or can, but I want to 
be very clear that--and I think you have seen, including in the 
commentary after the book has come out by a number of different 
investor constituencies, that there are market metrics that 
most agree with that would suggest that the current market 
structure, which obviously includes the technology and the 
speed issues that have been talked about, redound to the 
benefit of the individual retail investor.
    Now, that doesn't necessarily tell you whether there are 
other things we might do to increase market quality even 
further for the individual retail investor, but I want to be 
very clear that the market metric suggests that the retail 
investor really is well-served, very well-served by the current 
market structure.
    Mr. Heck. So, on an unrelated topic, the Commission 
proposed a regulation in January including, I think, what could 
only be characterized as a sweeping preemption of State 
regulation for small issuers.
    It seems to me that State regulation of small issuers is 
kind of in their wheelhouse because it is a more intimate, as 
it were, face-to-face backyard kind of an endeavor, and I 
understand the concerns about 50 different rules, but as you 
know, they have entered into a memorandum of agreement to 
completely avoid that, and given what you have said about the 
resource constraint you are under, I do not understand why you 
would sweepingly preempt State regulators from, in effect, 
partnering with you to ensure appropriate practices in the 
market unless you are just completely opposed to any State 
regulation.
    So, where are you on that, Madam Chair?
    Ms. White. First of all, our State regulators are 
extraordinarily important partners of ours and are protectors 
of investors, so let me be very clear about that. In terms of 
what we call the Reg A-plus proposal, our goal, maybe their 
goal, is to make it a workable rule with strong investor 
protection, and so one of the things that we considered and 
continue to consider is there is a GAO report and other data 
which suggests that one of the reasons that the current Reg A 
exemption, it goes up to 5 million, is essentially not used, 
and it is not just the 50 States or the possibility of 50 
States review, but that is a significant factor in terms of why 
it isn't used.
    One of the things we did in that proposal was to tee up 
very clearly the coordinated State review, which I think we 
have made a lot of progress on. Our staffs are meeting about 
exactly where that stands, what that means, how we should 
consider that as we go forward. That is something that we would 
continue to watch closely to see whether that might not 
ameliorate some of these issues.
    Mr. Heck. Are you saying that you would consider walking 
back the sweeping preemption?
    Ms. White. Basically, we are considering all comments. That 
is obviously a very significant issue. One thing that should be 
clear--obviously, the States have their antifraud powers, they 
can require notice filing under the proposal as it exists now 
of anything filed with the SEC. Fees, filing fees can be 
charged on that, but what we are really talking about is that 
substantive review of offerings that could be in multiple 
States that have been shown not to be workable, but we are 
working on it.
    Mr. Heck. Thank you, Madam Chair.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Pennsylvania, Mr. 
Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman, and thank you, Chair 
White, for your attendance here today and for letting us have 
some time with you. Mr. Stivers and Mr. Ross touched on the 
money market fund. I just want to touch on that a little bit. 
Can you tell where the SEC stands right now with respect to the 
final rule, when we might be seeing that come out?
    Ms. White. I can tell you that it is in active discussion 
between the staff and the Commissioners in terms of a final 
rule. I would expect it to reach a final stage in the near 
term. I don't want to be more specific than that, but we are 
working very hard on it. It is an extraordinarily important 
rulemaking, and I expect it to be in the near term of the 
Fiscal Year.
    Mr. Rothfus. And you are not willing to define ``near 
term'' for us today?
    Ms. White. I am not willing to define any further than 
that. I am not sure I used that phrase with other things yet, 
but I would expect it to be in the next--I better leave it at 
near term.
    Mr. Rothfus. Can you tell us whether the Commission is 
taking into account the report language included in the recent 
omnibus that directs the SEC to consider how any proposal would 
impact borrowing costs on businesses and local governments and 
returns for investors?
    Ms. White. No question that this rule is taking into 
account those impacts or potential impacts, other costs, other 
benefits, obviously, but our economists have been working on 
this rule for a very long time, these sets of issues, and 
continue to do so. In fact, we put some recent studies into the 
comment folder.
    Mr. Rothfus. One of the things I read recently was that 
between 1985 and 2008, people who used money market funds, 
whether they be small businesses, pensions, counties, cities, 
or municipalities, in the aggregate have earned $450 billion 
more than they otherwise would have by virtue of having the 
money market funds there, and there is considerable concern 
with the floating NAV proposals, and I think you received 1,442 
comments on the proposal rule, and 1,387 were opposed. That is 
96 percent opposed to the floating NAV proposal. And I look 
back at an additional $450 billion that could have gone to 
investors, savers, counties, municipalities, and that, to me, 
that would be a concern, and I am wondering if the SEC shares 
those concerns?
    Ms. White. The SEC certainly is looking at and taking 
seriously all of those comments, all of the possible impacts 
from whatever final rule we agree upon. I think we study all 
the comments in every one of our rulemakings, but this is one 
the SEC has been studying for a very long time and very deeply, 
and we continue to do it.
    Mr. Rothfus. Mr. Pittenger talked a little bit about some 
cost-benefit analysis that the SEC may engage in, and I think 
he raised a point about different-sized entities, and I think 
you responded something to the effect that you are trying to be 
cost-effective, generally speaking. I guess my follow-up 
question to that is, does the SEC take a look at a regulation 
and analyze its impact on the ability for a large firm to 
comply, and then separately analyze the ability of a small firm 
to comply?
    Ms. White. We do. We do look at it in those ways, and we 
also look for ways in all of our other requirements, whether it 
be our disclosure regime, or as we think about possibly doing 
the tick-size pilot. We are constantly thinking in those 
directions.
    Mr. Rothfus. What about taking into account a particular 
regulation's impact on jobs and wages? Is there a specific 
analysis of that? And I am not talking about a job that might 
be created because somebody has to hire somebody to comply with 
the regulation.
    Ms. White. Yes. The answer is we look at all--I have to see 
how formalized those factors are, but we do look at all of the 
impacts from our rules. I probably ought to respond further 
with more specificity.
    Mr. Rothfus. I would be--specifically with respect to jobs 
and wages because we see insufficient job growth out there and 
insufficient wage growth. Also, the impact--I am wondering if 
you look at how a regulation may impact on investor choice and 
liquidity.
    Ms. White. We certainly do look at that.
    Mr. Rothfus. Okay. I thank you for being here, and I yield 
back my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the newest member of the 
committee, the gentleman from Nevada, Mr. Horsford, who is 
either moving very far or very fast to be in the ranking 
member's chair. It is very late in the proceeding today. The 
gentleman is recognized for 5 minutes.
    Mr. Horsford. Thank you very much, Mr. Chairman. Thank you 
for this informative session, and thank you, Chair White, for 
testifying before this committee. I want to touch on just three 
quick issues. The first is regarding cybersecurity. Before 
joining this committee, I served on the Homeland Security 
Committee's Subcommittee on Cybersecurity, and we know that a 
cyber attack on an exchange or other critical market 
participants could have broad consequences that impact a large 
number of public companies and their investors.
    So, besides hosting these important roundtable discussions 
that I understand that you had recently, can you talk about 
what the SEC is doing with regards to mitigating cybersecurity 
risk?
    Ms. White. Two sort of primary areas. One is in 2011, our 
Division of Corporation Finance put out a disclosure guideline 
in terms of what issuers ought to be attending to in terms of 
their disclosures of the risk factor of cyber events. With 
respect to the reg SCI proposal that is pending, that is a 
proposal essentially to require SROs and alternative trading 
systems and others to enhance their systems from possible 
disruptions really from any source but including specifically 
on the cyber side.
    One of the--by the way, I thought one of the purposes of 
our roundtable, and I think it may have succeeded in this, was 
to bring together people from different parts of the government 
so that it wouldn't be you are doing this and you are doing 
that but who actually has the ticket for certain things, so one 
of the issues that comes up in the disclosure space is that we 
basically require issuers to disclose what is material. They 
are worried about giving a roadmap to the next hacker, but that 
doesn't mean that information shouldn't go somewhere else, 
confidentially, and it also doesn't mean our government 
shouldn't be providing information to the private sector to 
better protect us all.
    Mr. Horsford. Thank you. My second question deals with the 
list of regulatory priorities for 2014. I noticed that a 
rulemaking requiring publicly traded companies to disclose 
information on political spending to its shareholders was not 
on the list. Can you discuss why this issue is not on the list 
of priorities for 2014?
    Ms. White. I think what you are referencing is the Reg Flex 
Agenda for this Fiscal Year. When I prepared that agenda, I put 
such items on the agenda that I thought the Commission could 
accomplish in that time period for the remainder of the Fiscal 
Year. A number of items, including the one you reference on 
political contributions, was taken off under that standard. If 
you look at our agenda, it is also--a large percentage are 
congressionally-mandated rulemakings, which I have prioritized 
at the Commission.
    Mr. Horsford. Okay. My final question deals with the SEC 
enforcement. As many of my colleagues have discussed today, 
there is a common perception that the SEC pursues lesser 
violations of the securities laws rather than major violations 
such as those that contributed to the financial crisis or more 
recent scandals. Recently, the SEC just yesterday, I guess, on 
a 3-2 vote granted a waiver so that a bank can continue to 
benefit from the well-known seasoned issuer (WKSI) status, 
despite that bank's involvement in Libor manipulation.
    Congress has passed numerous bad actor provisions intended 
to both serve as a deterrent to others as well as better 
protect investors, and yet as Commissioner Stein notes, the 
SEC's Web site is replete where waiver after waiver for the 
largest financial institutions and that some firms may just be 
``too big to bar.''
    Are you concerned at all that the Commission continues to 
grant these waivers, and are you concerned that it is easier 
for a large firm to receive these waivers than some smaller 
firms?
    Ms. White. First as to the SEC's record on--and during the 
financial crisis and the recent scandals, again, we can't put 
anyone in jail as I have said, but if you look at the record of 
enforcement, it is an extraordinarily impressive one, I think 
both in terms of the complexity of the cases, the names of the 
institutions, the largest banks being included in those, I 
think 70 CEOs and other senior executives, so I really think 
our enforcement program is extraordinarily strong and it is 
important that it be very strong. In terms of, sorry--
    Chairman Hensarling. Continue.
    Ms. White. Okay. So that is enforcement, on the enforcement 
side. I think what you are referencing with respect to the so-
called WKSI waiver, it is not an enforcement remedy, but it can 
be a consequence of an enforcement action whether by us at the 
SEC or of the Department of Justice. I can't talk about 
specific cases, but we apply the policies that pertain to that 
particular space and do it very faithfully and vigorously.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce.
    Mr. Pearce. Thank you, Mr. Chairman. And thank you, Chair 
White. I appreciate your straightforward and honest answers 
here. As I look at the appropriations bill coming out MILCOM, 
VA, vet funds, buildings, things to--quality of life for our 
soldiers and they are getting a 33 percent cut according to the 
President's budget, you are requesting a 30 percent increase to 
$1.9 billion. You think that is justified in the budget that we 
are facing seeing that our soldiers are probably going to have 
less facilities and less pay?
    Ms. White. I, of course, would advocate fully resourcing 
and taking care of our soldiers without any question about 
that. I do think our budget request is fully justified. 
Obviously, I have written the justification for it. I described 
earlier, I think, our extensive and really growing and new 
responsibilities to carry out what Congress has mandated we 
carry out for the market investors and capital formation. I 
think we need and we have been surgical about that request. We 
are deficit-neutral.
    Mr. Pearce. Okay. I appreciate that, and we could get into 
a very good discussion about if our soldiers were allowed to 
charge the customers they protect, they could be budget-
neutral. We could also say that if the Administration wasn't 
shutting down mines, the increase in oil production on Federal 
lands is only 6 percent, private land, 61 percent in last year, 
so we could have a very interesting discussion there, but that 
is not really where I want to go.
    During the time that we saw Bear Stearns, Lehman Brothers' 
collapse, Bernie Madoff, Allen Stanford, and MF Global, the 
charts show us that the SEC budget actually went up by almost 5 
times, and so during a period of tremendous budget growth, we 
are finding that the SEC was doing very little more in the 
first place.
    JPMorgan was just assessed 1.7 or 8 billion, billion 
dollars fine for not reporting Madoff. Was that justified?
    Ms. White. Again, that is a Department of Justice case. I 
am actually recused on JPMorgan cases, so I don't think I can 
appropriately comment on that.
    Mr. Pearce. I would like to make a comment that, so 
JPMorgan was fined a lot, and yet Perry Mecarpolis brought in 
to you, the SEC, in 2000--2001, 2005, he just reports it, and 
it wasn't like--and so we are talking budget. We are talking 
priorities, the same thing Mr. Capuano talked about. We are 
talking about the priorities. He said it took him literally 
minutes. They were trying to figure out how to pull away a 
customer, and he pulls up the prospectus for Madoff and says in 
minutes, so it doesn't require another billion dollars' worth 
of budget for more lawyers.
    In minutes, he said, I realized it couldn't be true. He 
said it actually took me 4 hours to realize they were going to 
have to sell more trades than existed that whole year, and yet 
no one in the SEC, during a time that they are increasing their 
budget by triple and quadruple and more, no one took the 4 
minutes to say, this can't be true. And in fact, it took 
multiple efforts to report Madoff and still they would just 
whisk it away. The same thing was going on with Mr. Stanford 
that--and one guy who used to work for the SEC was out stalling 
off the entire agency, a guy named Showbloom. He was out there 
advising, and he was able to stall you off for 20 years, and so 
how is a budget going to improve your performance when you have 
people like Mr. Barasch who says anytime the lower levels were 
pushing the investigation up on Stanford saying, no, we are not 
going to let at that go. How is it going to improve your 
performance to go 20 times your budget if you have a culture 
inside that turns and looks the other way?
    Ms. White. I don't think we have that culture inside at 
all. Obviously--
    Mr. Pearce. Then let me interrupt because you had people 
sitting in the room with Mr. Corzine as he allegedly, according 
to Ms. O'Brien says--Ms. O'Brien says that he gave the order 
for me to transfer $200 million. You had people sitting in the 
room, according to Mr. Robert Cook, his testimony in front of 
Congress says, yes, we were sitting in the room. We became 
alarmed at MF Global. We were sitting in the room and yet those 
things were allowed to occur.
    So, you say that the culture doesn't exist, but it was able 
to go on for 20 years with Mr. Stanford. It was able to go on 
with Mr. Madoff for even longer. Why do you say that no culture 
exists that it looks--
    Ms. White. I don't think there is that culture, but I 
certainly would not dispute that those raise serious issues and 
challenges at the SEC, before my time, but hopefully as I 
continue, we will have addressed those issues. One of the 
things in our budget--
    Mr. Pearce. If I could take the last second or two. You 
have already heard two, Mr. Cleaver and you heard Mr. Lynch say 
nobody goes to jail. Nobody in the agency is ever responsible. 
You haven't fired anybody. You haven't terminated anybody for 
their failures in these cases. These 65 billion on Madoff and--
in years and no one in the agency is ever responsible. You are 
hearing back and forth. Thank you, Mr. Chairman. You have been 
very gracious.
    Chairman Hensarling. Unless another Member walks into the 
room in the next 30 seconds, we will close the hearing. They 
better walk fast. If not, I would like to thank Chair White for 
her testimony today. I thank her for the seriousness with which 
she takes the congressional oversight process and for being 
accommodating with her schedule.
    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.
    This hearing stands adjourned.
    [Whereupon, at 1:00 p.m., the committee was adjourned.]
    
    
    
                            A P P E N D I X




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