[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE SEC'S AGENDA, OPERATIONS,
AND FISCAL YEAR 2018 BUDGET REQUEST
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 15, 2016
__________
Printed for the use of the Committee on Financial Services
Serial No. 114-110
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HOUSE COMMITTEE ON FINANCIAL SERVICES
JEB HENSARLING, Texas, Chairman
PATRICK T. McHENRY, North Carolina, MAXINE WATERS, California, Ranking
Vice Chairman Member
PETER T. KING, New York CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma BRAD SHERMAN, California
SCOTT GARRETT, New Jersey GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico RUBEN HINOJOSA, Texas
BILL POSEY, Florida WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK, STEPHEN F. LYNCH, Massachusetts
Pennsylvania DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin KEITH ELLISON, Minnesota
ROBERT HURT, Virginia ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina BILL FOSTER, Illinois
RANDY HULTGREN, Illinois DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania DENNY HECK, Washington
LUKE MESSER, Indiana JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas
TOM EMMER, Minnesota
Shannon McGahn, Staff Director
James H. Clinger, Chief Counsel
C O N T E N T S
----------
Page
Hearing held on:
November 15, 2016............................................ 1
Appendix:
November 15, 2016............................................ 53
WITNESSES
Tuesday, November 15, 2016
White, Hon. Mary Jo, Chair, U.S. Securities and Exchange
Commission..................................................... 6
APPENDIX
Prepared statements:
White, Hon. Mary Jo.......................................... 54
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Written statement of the National Association of REALTORS... 89
Article from The Washington Post entitled, ``Trump: A True
Story,'' dated August 10, 2016............................. 93
EXAMINING THE SEC'S AGENDA,
OPERATIONS, AND FISCAL YEAR 2018
BUDGET REQUEST
----------
Tuesday, November 15, 2016
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:06 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Royce, Lucas,
Garrett, Neugebauer, McHenry, Pearce, Posey, Luetkemeyer,
Huizenga, Duffy, Mulvaney, Hultgren, Ross, Pittenger, Wagner,
Barr, Rothfus, Messer, Schweikert, Tipton, Poliquin, Love,
Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Meeks, Clay,
Lynch, Scott, Green, Moore, Himes, Kildee, and Sinema.
Chairman Hensarling. The Financial Services 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, ``Examining the SEC's Agenda,
Operations, and Fiscal Year 2018 Budget Request.'' I now
recognize myself for 3 minutes to give an opening statement,
but I warn everybody I am going to take a lot longer because
there is unanticipated news.
First, before proceeding to the purpose of this hearing, I
do want to note for all my colleagues that as we begin this
hearing today, in room B318 of this very building, the Rayburn
building, our friend, our colleague, that great American hero
and patriot Sam Johnson, is being honored by having that very
room, B318, named after him.
I think we all know that he is a decorated war hero who
served his Nation with great courage, and great valor in Korea
and in Vietnam, and he spent 7 years enduring torture in the
infamous Hanoi Hilton.
But we also know him to be one of the kindest, most gentle
souls in this institution, and he has many distinguished
accomplishments for the people of his district and from his
position on the Ways and Means Committee. I personally look
forward to visiting the Sam Johnson Room soon, and I hope all
my colleagues look forward to that, as well.
This morning, we welcome Securities and Exchange Commission
Chair Mary Jo White. And I will take a little longer due to
news that we received last evening that the Chair intends to
step down at the end of the Obama Administration. I do wish to
acknowledge all that Chair White has now completed over 2
decades of distinguished public service as a U.S. Attorney, and
as Chair of the Securities and Exchange Commission. She has
brought an incredible amount of professionalism to her
position.
She is known for her independent judgment, which is greatly
admired and respected. I also want to personally thank her for
being one of the witnesses, one of the few witnesses from the
Administration who has never requested an artificial time limit
on her attendance at a hearing. She has always made herself
available to this committee, and she has always made herself
available to all subcommittees. She has, indeed, epitomized
what it means to be an accountable agency to Article I of the
Constitution, and she is to be commended for that.
Also, she has always, always submitted her testimony on a
timely basis. If there were cash and valuable prizes we could
award you, Madam Chair, for such an accomplishment, we would,
but I am sure we would breach a number of ethical and legal
considerations by doing so.
She has always made her division and office directors
available here, and also at the Capital Markets Subcommittee
hearings. And again, the accountability and transparency that
she has brought to this office is greatly, greatly admired. But
just in case you are lulled into a false sense of security,
Madam Chair, we still have some concerns and we still have some
disagreements.
So it has been almost a year since your last appearance
here, and there are many subjects we are eager to discuss.
Chief among them are the SEC's ongoing failure to develop a
capital formation agenda. Notwithstanding two very minor rule
changes approved last month, the SEC has done little to promote
capital formation since Congress passed the JOBS Act in 2012.
The failure by the SEC stems in part from the Commission's
refusal to act on recommendations made by its Small Business
Capital Formation Forum.
I encourage the SEC to review these recommendations and act
on those that will help small businesses to access the capital
markets so they can improve, grow, and provide economic
opportunities for all American workers.
Also languishing at the SEC is a directive passed by
Congress requiring the SEC to simplify its disclosure regime.
The FAST Act that became law nearly a year ago requires the SEC
to eliminate or reduce burdensome, duplicative, or outdated
disclosures.
Chair White, I also know that you are under enormous
pressure from those who are intent on politicizing the SEC's
disclosure regime. But you have an obligation to follow the law
and not appease extremists whose ideological objectives have
nothing to do with the SEC's core mission.
In addition, the SEC's failure to require the electronic
delivery of mutual fund documents is disappointing. How can the
SEC force public companies to engage in social, environmental
or sustainability disclosures while simultaneously promoting
the wasteful use of paper, the cost of which is ultimately
borne by investors? It is time for the SEC to move into the
21st Century and allow for the e-delivery of mutual fund
documents.
Finally, we need to discuss the SEC's budget request. As I
look at the disturbing national debt clock before me and to my
side, I see no need for the SEC to receive a prefunded escrow
account of more than $290 million for a potential move of its
headquarters. The SEC will have to increase its fees to prefund
the move, which is nothing less than a tax on capital
formation.
Furthermore, the claims that the SEC is underfunded are not
supported by the facts, since the SEC's budget has increased by
a whopping 325 percent since the year 2000, an increase that
the American people do not enjoy. However, the SEC's current
budget of $1.6 billion does not account for the money in its
reserve fund, which can include up to $100 million, plus
another $25 million in unused funds that carry over from the
previous fiscal year.
Finally, Chair White--and this is most important--whenever
there is a transfer of power from one Presidential
Administration to another, there is a temptation for Federal
agencies to rush pending rulemakings to completion as a way of
submitting the policy priorities of the outgoing
Administration.
But this type of midnight rulemaking is neither conducive
to sound policy nor consistent with principles of democratic
accountability. As there are currently two vacancies at the
Commission, absent an emergency, given your current reputation
and legacy, I would strongly urge you to respect the results of
last week's election and resist the temptation to finalize any
regulations, including Dodd-Frank Title VII regulations, in
deference to the right of the incoming Administration to set
its own priorities upon taking office in January.
I now yield 5 minutes to the ranking member.
Ms. Waters. Thank you very much, Mr. Chairman.
And thank you, Chair White, for being here today, I am
truly disheartened to hear that you will be stepping down,
Chair White, considering there is so much at stake and so much
to fight for.
But I am encouraged because of all of the kind words that
Chairman Hensarling had to say about you when he started his
testimony today. That is the nicest I have heard him be to you
and any of the others in our oversight agencies since we have
worked together here, so--
Chairman Hensarling. Will the gentlelady yield?
Ms. Waters. Yes, I will yield.
Chairman Hensarling. If anybody on your side of the aisle
wishes to depart, I will say very kind words about them.
[laughter]
Ms. Waters. Well, I am sure since you have said such kind
words about Chair White today, you will be asking her to please
stay, please don't go.
[laughter]
Also, I am appalled that the reaction on Wall Street to
Tuesday's election is record highs for bank stocks, as the
industry rallies on the news of a massive, destabilizing,
lawless agenda. But let me be clear--short-lived increases in
the stock market are not the same as real, hard-earned economic
growth. And the demise of the regulations that Wall Street is
cheering are the better regulations that have made our
consumers, investors, and economy safer and more resilient.
In fact, just yesterday, Wells Fargo stock closed at the
highest price this year, on the expectation that a Trump
Administration and Republican Congress will erase its
culpability. Indeed, we are facing uncertain times, and at the
forefront of that uncertainty is a President-elect who does not
have a coherent or consistent stance on anything.
We don't know if he is building a wall or just a fence. We
don't know if he is repealing Obamacare or cherry-picking some
provisions that he now seems to support. We don't know who he
is, what he stands for, or what kind of President he will be.
We cannot rely on anything he says because it changes from one
day to the next.
So when Mr. Trump talks about financial services reform and
dismantling the Dodd-Frank Act, what does he mean? Does he mean
letting the Wall Street banks he is so indebted to write their
own rules? Does he mean repealing the fair housing laws that
the Department of Justice sued him over decades ago? Does he
want to repeal investor protections and make it harder for the
SEC to go after bad actors? Does he want to gut the Consumer
Financial Protection Bureau despite the agency being the
strongest champion of everyday consumers?
Does he mean breaking up the banks by reinstating Glass-
Steagall? In that regard, I am sure we could find some common
ground.
Does he mean closing the carried interest loophole and
ensuring that private equity fund and hedge fund managers pay
the same taxes that everyday Americans pay? Will he pay the
same taxes that everyday Americans pay?
I am curious to see how Republicans in Congress react to
this wide-ranging, sometimes progressive agenda. Mr. Trump said
he is not beholden to Wall Street and other special interests.
Yet here he is with rumored appointments of Wall Street
insiders and their friends in Congress to run his
Administration.
Mr. Trump also said he wants urban renewal and to ensure
that African-Americans have access to loans to start small
businesses and get mortgages. Yet he appoints a leader of the
white nationalist movement as his chief strategist in the White
House, and he himself has made racist, misogynist, and
demagogic comments.
Chair White, even though you are about to leave I hope you
will share with this committee and the incoming Administration
the important role the SEC plays in our financial system. I
hope you will explain the importance of a well-funded cop on
the securities beat and strong investor protections.
The SEC has been the victim of woefully inadequate budgets
as a result of Republican obstructionism for years. Despite the
crucial role that the SEC plays policing our ever-expanding
financial markets, we are now at a crossroads where Wall Street
is poised to profit off of American consumers and investors.
If we enact these special interest wish lists or if the SEC
weakens its rules at the expense of the greater good, our
economy will go right back to the darkest days of the financial
crisis. I hope that common sense will prevail.
With that, I yield back the balance of my time.
And, Chair White, I apologize for not spending more time on
the SEC and a lot of time on Mr. Trump, but that is what I am
going to be doing for a long time to come.
I yield back the balance of my time.
Chairman Hensarling. The Chair now yields 2 minutes to the
chairman of our Capital Markets Subcommittee, the gentleman
from New Jersey, Mr. Garrett.
Mr. Garrett. Thank you, Mr. Chairman.
And welcome, once again, for the last time, Chair White, to
our committee. Before I begin, let me just echo many of the
positive sentiments expressed by Chairman Hensarling regarding
your tenure at the SEC.
Every SEC Chair receives criticism when they sit here and
around from both the left and the right about certain policy
positions that they take. But recently, you have had to endure,
I would say, an unprecedented level of attack from certain
groups and from individuals, as well, who have called out your
integrity and called out your professionalism and put them into
question.
They have even so gone so far as to call for you to break
the law, if you will, or be fired for your refusal to follow
their direction. Chair White, it is clear from these many
hearings that we have had that you and I disagree on certain
policy issues, on more than a few occasions.
But I can say this here, that I have never, ever questioned
your professionalism. I have never, ever questioned your
integrity and your devotion to doing the good in your work. It
is a difficult job that you had, and you have handled it very
well. And you have done so for all the right reasons.
So I just want to take this moment to say thank you for
your service and for your thoughtful approach with which you
have tackled a number of issues, in particular, the area that I
spend a lot of time on, the equity markets, which continues to
be an important priority for the SEC.
Now, having said all that, I did mention that we have
disagreed on certain policy issues a couple of times. So let me
highlight a couple of those before we go off.
Despite the SEC having an important mission to, as you
know, facilitate capital formation, the SEC, I believe, has
still not organically, within itself, developed a capital
formation agenda, and instead, really I believe has relied
almost exclusively on our committee and the full committee in
Congress, if you will, when it comes to trying to change some
of that and trying to modernize some of those areas of
securities laws for the benefit of the small and the medium-
sized enterprises. These are things that we have talked about.
This, despite the fact that, as the chairman was just
mentioning, the SEC's budget has not only continued to grow,
but the agency has again requested a substantial increase
without detailing how it will expand those on these missions.
And finally, I also want to remain concerned that the SEC
has not done an adequate job to assert its jurisdiction, this
is important, in expertise in the capital markets when other
regulators attempted to trample on your turf, whether it is the
Department of Labor or prudential regulators over at FSOC or at
the FSB.
So with that said, I hope that in your testimony today, as
you wrap things up, that you address both of these issues and
others to ensure that Congress and the SEC is actually prepared
to carry out its threefold mission before Congress decides
whether the agency deserves that increase in budget.
And with that, Mr. Chairman, I yield back.
Chairman Hensarling. The gentleman yields back.
Today, we welcome the testimony of the Honorable Mary Jo
White, Chair of the SEC. Chair White has previously testified
before this committee on many occasions, so I believe she needs
no further introduction, and she has received her deserved
accolades.
Without objection, Madam Chair, your written statement will
be made a part of the record, and you are now recognized for 5
minutes to give an oral presentation of your testimony.
STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIR, U.S.
SECURITIES AND EXCHANGE COMMISSION
Ms. White. Thank you very much, Chairman Hensarling,
Ranking Member Waters, and members of the committee. Thank you
all also for your kind remarks. I appreciate it very much. It
is my honor to serve.
And again, thank you for inviting me to testify today on
the current work and initiatives of the SEC, as well as on our
Fiscal Year 2018 preliminary authorization request.
As this committee knows well, the SEC is a critical,
independent agency that is charged with protecting millions of
investors and overseeing the strongest and safest markets in
the world. I am very proud of the Commission's hard work and
many accomplishments since I became Chair in April 2013. We
have achieved record numbers of enforcement actions and
examinations each year. We have completed dozens of
transformative rulemakings, including fundamental reforms to
money market funds, credit rating agencies, and the
securitization markets.
We have built important, new regulatory regimes for capital
raising, like critical market infrastructure and municipal
advisers. And we have put in place enduring frameworks for our
future work in areas that are central to the SEC mission: asset
management; equity market structure; and disclosure
effectiveness.
Our latest results in enforcement and examinations
exemplify the agency's high level of performance during this
time. In Fiscal Year 2016 alone, the Commission brought over
850 enforcement actions, an unprecedented number; secured over
$4 billion in orders directing the payment of penalties and
disgorgement; and performed approximately 2,400 exams, a 7-year
high that reflects a smarter, more efficient program.
The strength of our enforcement program can also be seen in
the kinds, complexity, and importance of our cases that span
the markets and the securities industry, including numerous
first-of-their-kind actions.
As this past year also shows, the Commission, with only
three Members, was able to continue to pursue a very
consequential set of policy measures designed to protect
investors, strengthen the markets, and open new avenues for
capital raising.
Since I last testified, the agency has, for example,
advanced major rules addressing important equity market
structure issues, including the transparency of ATS's and order
handling practices, while moving forward with a comprehensive
assessment of other fundamental structural questions.
And this afternoon, the Commission is scheduled to consider
in an open meeting approving a final plan for the critical,
consolidated audit trail. Over the last year, we have also
continued implementation of a series of proposals to address
the increasingly complex portfolios and operations of mutual
funds and exchange traded funds. We adopted final rules to
modernize the data reported by both funds and their advisers,
completed rules for enhanced liquidity management by funds, and
adopted a proposal for new controls on their use of
derivatives.
We also adopted new rules to better enable businesses to
raise capital through local and regional offerings and advanced
our comprehensive review of the effectiveness of our disclosure
regime, including through several detailed proposals, and along
with several other rules prescribed by statute, we finalized
critical components of the regulatory regime for security-based
swaps and established new standards for the clearing agencies
that stand at the center of our financial system.
In addition to our many discretionary initiatives, the
Commission has now adopted rules for nearly 80 percent of the
mandatory rulemaking provisions of the Dodd-Frank Act and all
of the rulemakings directed by the JOBS Act. We have also made
significant progress on the rulemakings required of us late
last year under the FAST Act.
While our enforcement and our rulemaking work are perhaps
the most prominent examples of the agency's achievements, the
imperatives of our mission are also carried forward by our
exceptional and diverse staff every day, from reviewing
thousands of filings each year, to assessing complex
submissions from exchanges and other SROs, to incisive,
economic analyses and publications. And as publicly reported
today, the Commission has, for the second year in a row,
received from GAO an unmodified audit report with no material
weaknesses or deficiencies on the SEC's financial statements.
The Commission today is, I believe, a stronger and more
effective agency, and I am honored to have led it during this
time of progress. But significant challenges remain if we are
to adequately address the growing size and complexity of the
securities markets and the ever more sophisticated financial
services industry.
And it is critical that the SEC have the resources required
to discharge its important responsibilities, the new ones, and
many others we have long held. I deeply appreciate that we must
be prudent stewards of the funds we are appropriated.
And we strive very hard to demonstrate how seriously we
take that obligation by the work we do. At the same time, our
resources are insufficient to fulfill our extensive
responsibilities to investors in our markets, and cuts to the
SEC's budget would seriously imperil the progress we have made
and diminish our ability to fulfill our mission.
While more remains to be done, the agency's accomplishments
in the last few years across the range of its vital
responsibilities have both been impressive and enormously
important to investors, the markets, and capital formation. For
that, I want to thank, first and foremost, the exceptional
staff of the SEC, as well as my fellow Commissioners, present
and past.
And I want to thank the chairman, the ranking member, and
this committee as a whole for your continued support which will
allow the SEC to fulfill its essential mission for the American
economy.
If I might, on a personal note, as the chairman has
indicated, I did formally announce yesterday that I would
complete my nearly 4-year tenure as Chair of the SEC at the end
of this Administration in January. It has been my high honor
and privilege to serve. And while I have not yet actually done
my David Letterman Top 10 list of what I will miss most, I am
sure my appearances before this committee will be somewhere on
it.
But more seriously, as an independent head of an
independent agency, it is to be expected that we have had areas
of agreement and areas of disagreement. But I very much
appreciate the professionalism and the courtesy of the
chairman, the ranking member, and the committee generally, as
we have together grappled with the challenges before the SEC
that are so important to the American public.
Thank you, and I am happy to answer your questions.
[The prepared statement of Chair White can be found on page
54 of the appendix.]
Chairman Hensarling. Thank you, Chair White.
And the Chair now yields himself 5 minutes for questions.
Chair White, as you know, significant tension has been
devoted recently to liquidity concerns in our U.S. and global
fixed-income markets. When you testified last year before us, I
asked you about the regulatory impact on bond market liquidity.
And at the time, you testified that while, ``No question,
there are concerns about the liquidity in the fixed-income
market,'' at that time, a year ago, you could not identify a
culprit.
Since your testimony of a year ago, we have had some news
and some evidence of the regulatory impacts on liquidity, and
they have become starker. On September 27th, former Treasury
Secretary Hank Paulson commented that, ``The Volcker Rule
solved the problem that was not a problem. We have much less
liquidity in the markets. It has become much harder for
financial institutions to provide liquidity.''
On September 16th, Douglas Cifu, CEO of Virtu, one of the
world's largest electronic market-makers, announced that his
firm would no longer invest in certain bond exchange traded
funds, certain ETFs because the underlying securities had
become too hard to trade, thereby eliminating sources of
liquidity as banks continued to reduce their roles as market-
makers.
On October 7th, the value of the British pound plummeted
from $1.26 to $1.18 in a matter of minutes. During trading in
Asia, with some electronic platforms recording trades as low as
$1.15, The Wall Street Journal attributed this extreme
volatility in part to a lack of currency traders in the foreign
exchange markets.
So since your last appearance, Chair White, have you been
able to determine whether regulations, such as the Volcker Rule
and Basel III capital and liquidity requirements, are a
contributing cause of the continuing decrease in liquidity in
the fixed-income markets, particularly the corporate bond
market?
Ms. White. The short answer to that is no, but we continue
to study it very, very carefully, really effectively globally.
And the SEC, as well, as you know, economists at the SEC from
our Division of Economic and Risk Analysis are charged by
Congress with actually studying and reporting to Congress on
the impact of regulation generally on market liquidity. I think
that report is actually due in May of 2017. But I know--
Chairman Hensarling. Well, Chair White, does the recent
data concern you? Because it has been a year, and it is
disappointing that there still are not conclusions.
Ms. White. The data does concern me. I think I said that at
my last testimony, as well. And the issue, the overall issue
also deeply concerns me. And it is something I will say that I
go back quite frequently to our staff to try to drill down on
what we are reporting to Congress, this committee, in
particular, each quarter is on corporate bond liquidity,
primary market, as well as secondary liquidity levels in the
bond markets. And that essentially, although some decrease
obviously in dealer inventories, but by most measures, there
has not been a deterioration. I will say--
Chairman Hensarling. I think you are aware, Chair White,
that many economists believe that, frankly, the next financial
crisis very well could be triggered by this bond market
illiquidity phenomenon.
So as you are soon to depart your stewardship and
chairmanship of the SEC, I would simply request that resources
be focused on this. Now, during your appearance before the
committee in March of 2015, I asked you and other Members of
the Financial Stability Oversight Council (FSOC) to conduct an
analysis to see what systemic risk could be posed by this
diminution, a significant diminution of liquidity in our bond
markets.
Since that time, has the SEC or FSOC, of which you are a
voting Member, conducted any analysis of the systemic risk that
could result from a lack of liquidity in the corporate bond
market?
Ms. White. Clearly, we are studying at the SEC--I have
mentioned our economists, as well as others on our staff. In
terms of FSOC, again, there have been working groups on the
staff of FSOC looking at that. But there is no definitive
conclusion there. I know some work is going on in different
working groups there.
Chairman Hensarling. Again, I would commend to you this is
an area that is deserving of laser-like focus, and I hope the
appropriate resources will be devoted. Again, it has been at
least over a year since these concerns have been brought to
your attention and the attention of FSOC.
One last question. During the adopting phase of the Volcker
Rule, five regulatory agencies had the ability to interpret,
examine, and enforce compliance with it. That has led to
overlapping and conflicting guidelines.
To what extent are the five adopting regulatory agencies
trying to coordinate efforts concerning the Volcker Rule?
Ms. White. We still have our working group that we have
talked about before that meets quite frequently both on
interpretations and also coordinating enforcement. As you know,
that is a sign to the different agencies. So we are working
very, very hard to try to coordinate and be as consistent as we
can possibly be.
Chairman Hensarling. The time of the chairman has expired.
I yield to the ranking member for 5 minutes.
Ms. Waters. Thank you very much, Mr. Chairman. I would like
unanimous consent to enter into the record a story from The
Washington Post from August 10th of 2016.
Chairman Hensarling. Without objection, it is so ordered.
Ms. Waters. This story, for those of you who are unfamiliar
with it, recounts a legal deposition, from late 2007. Donald
Trump has sued a New York Times reporter for defamation,
alleging that the reporter lied in his book about Trump's net
worth and his general lack of success in business, something we
know that Trump is very sensitive about.
Now, because Trump sued the reporter, it allowed the
reporter's lawyers to get access to Trump's business documents.
As the Post story documents, through the defamation trial of
this reporter, it became clear that it was Trump who was guilty
of the lying.
In fact, the reporter's lawyers caught him in lies 30
separate times. He lied about sales levels in his condo
buildings. He lied about how much it costs to join his golf
clubs. He lied about his amount of debt. He lied about his
number of employees. He lied about how much he was paid to give
a speech at the Learning Annex overstating the payment by 1\1/
2\ times.
He lied about borrowing money from his rich dad, and he
tried to pin the blame for some of the lies on a co-author of
one of his books. He lied about facts that were simple to
disprove, things easily verifiable by searching documents and
public records.
Now, this lawsuit that Trump leveled against the reporter
was thrown out by the judge and was denied an appeal, so there
was justice in this case. But this man is now, unfortunately,
our President-elect. And I expect him to continue with these
distortions.
Only now our Nation is at stake. And when he is this thin-
skinned bully, I hope he doesn't lash out on the freedom of the
press or on peaceful protesters. But we stand ready to protect
our sacred American freedoms and will hold him accountable
starting with this committee.
Chair White, I bring all of this up because you were the
lawyer in the 2007 case who had deposed Mr. Trump and exposed
all of these lies. This deposition I mentioned is part of the
public record. So is the Washington Post story true? Did Mr.
Trump really systemically misstate, invent, and lie about
business information? And was this lawsuit ultimately thrown
out by the judge on the case?
Ms. White. I don't think it would be appropriate--you are
correct, Ranking Member Waters, that I participated in the
defense of that reporter who wrote the book that you mentioned.
I actually argued the appeal myself. And the reporter prevailed
in that case. I don't think it would be appropriate to comment
on specific statements during the litigation.
Ms. Waters. Okay, so I just wanted to confirm and place in
the record that this case did take place and that you were part
of the deposition. So now you know firsthand, we all know
firsthand the character of the man who is going to be our next
President.
Mr. Chairman, now I understand why Chair White is stepping
down. Oh, he left. I can't tell him. I yield back the balance
of my time, Mr. Garrett.
Mr. Garrett [presiding]. The gentlelady yields back. Thank
you.
I recognize myself now for 5 minutes.
So, Chair White, you and I have both talked, but we also
had correspondence go back and forth about the SEC's
implementation of the FAST Act, which was to simplify and
modernize the disclosure requirements under Regulation S-K. And
as you know, there were a couple of deadlines for the SEC to
meet under the FAST Act. So the first was to propose simple
rules to eliminate outdates disclosure, right, which you have
done, thank you.
And the second deadline, which is due next month for
November and December, is for the SEC to issue a report to
Congress on further ideas to modernize disclosure. So in going
through the testimony today, on page 12 of your testimony you
say, ``Staff has also completed a study and report on how to
further modernize and simplify Regulation S-K as mandated under
Section''--and so forth, of the FAST Act.
Can you just apprise us of what report that you are
referring to and what report are you referencing? And I say
that because to the best of my knowledge, I have not received,
and our staff has not received a report or a study on that.
Ms. White. I noticed the same reference in the testimony
but there isn't a footnote cited to it. I believe that
reference is to the report that is due November 28th to
Congress. And the staff has completed certainly a draft of that
report that is with our Commission now for review. It is a
staff report, but as is customary under our procedures for most
staff reports that are provided to the Commission before they
are provided to Congress.
Mr. Garrett. Okay. So my next question, I guess, is the
easy follow-up then. Is this--so the deadline I didn't--is
established in the FAST Act of December--
Ms. White. I think November 28th, I believe--
Mr. Garrett. Yes. As far as you are concerned, that is
going to be met and so will be--
Ms. White. I certainly believe so, yes.
Mr. Garrett. Before you leave here for good, Congress will
have that report?
Ms. White. I hope long before I leave here. I hope it is to
you on November 28th.
Mr. Garrett. Okay, fine.
Moving on, the SEC, as you know, has the Equity Market
Structure Advisory Committee. That term for that committee
which has been around for--for a while now, right--is slated to
end in January of 2017, so next year.
So next question is, do you anticipate renewing that
committee for another term or is that something that you are
leaving to your successor to handle to renew?
Ms. White. I certainly think it should be renewed. I think
it has been very, very useful, and I think it will be useful
going forward.
Mr. Garrett. Right.
Ms. White. I will be discussing it with my Commissioners. I
think it is maybe a February 2017 date. But in order to renew
the charter, we need to deal with it now, so I will be
discussing that with my Commissioners.
Mr. Garrett. Okay, so for all intents and purposes, from
where you sit, yes, go forward with it?
Ms. White. It certainly--in my view, it certainly should go
forward.
Mr. Garrett. All right. And when it is done, are there
other industry representatives who are not there now who should
be, such as retail brokerage or anybody else?
Ms. White. There has been a lot of discussion about the
composition--the initial composition, I think there are 17
members was actually approved by the full Commission, when it
was a full Commission, actually, five members. And so you know,
obviously, our goal was to get balance and representation but
clearly, there are--retail brokerage is one area where I
think--it is represented there by virtue of knowledge of
members who are on the committee, but it is one area where I
think we have all sort of identified as maybe the one place we
would like to identify an actual member of the committee.
Mr. Garrett. Yes.
Ms. White. And then I think we have also had requests from
various other folks--NASDAQ, the New York Stock Exchange--to be
members. That is also up to the full Commission.
Mr. Garrett. Okay. And so that is something you are going
to throw out before you leave, as far as just--
Ms. White. I think we have the issue before us of the
renewal of the committee. Separate from that is the membership.
It is possible we would proceed by extending it and then
figuring out the membership in short order.
Mr. Garrett. Okay, moving on. The SEC--other topic--Rule
NMS, the SEC publishes list of rules that were reviewed
pursuant to the Regulatory Flexibility Act, which included Reg
NMS.
As such, do you believe that the SEC should continue to
examine the impact of that rule on the equity markets--which is
what I look at all the time--and the behavior of individual
market participants, as you indicated several years ago, back
in 2004, your speech on this topic and--yes?
Ms. White. I absolutely do, and I believe we are.
Mr. Garrett. In what sense?
Ms. White. As part of the--I sort of talk about our equity
market structure review, and we have certain proposals out
there on specific areas where we think we should act now. And
then, we have a comprehensive review of what I would call the
more fundamental structural issues. Reg NMS is clearly front
and center in that more comprehensive review. Our MSAC
committee is working on that.
Mr. Garrett. Yes. My time has expired; I have much more as
far as what I was talking about in my opening statements as far
as capital formation not being done, but again, thank you for
your service.
Ms. White. Thank you very much.
Mr. Garrett. The gentlelady from New York is now recognized
for 5 minutes.
Mrs. Maloney. Thank you very much, Mr. Chairman.
And Chair White, thank you for your public service. You
have been a trailblazer and a role model to many young boys and
girls. New Yorkers are very proud of your service to New York
and to the country, and we thank you so much for your
leadership and really, ground-breaking stellar career in so
many different areas.
My question to you is about a statement you made last month
when you gave a speech on the regulatory regime for the U.S.
Treasury market. You noted that under the Government Securities
Act, firms that act as dealers in Treasury securities are
required to register with the SEC as government securities
dealers.
But you also noted that the regulators' joint report on
Treasury market volatility had found that the most active
dealers in the interdealer Treasury market were high frequency
traders, principal trading firms, many of which are not
registered with the SEC as government securities dealers.
You stated, ``There is significant concern that this
activity indicates that certain principal trading firms are
acting as dealers, but without the appropriate registration and
regulation that is designed to protect investors and the
markets.''
So my basic question is, why has this been allowed to go on
for so long? You, yourself, admitted that some of these
principal trading firms for you are ``clearly engaged in dealer
activity'' without being registered as dealers.
If that is true, why hasn't the SEC brought in any
enforcement actions against firms that are acting as
unregistered dealers?
Ms. White. I think I indicated that the data from which I
drew those observations came out of that joint interagency
study of events of October 15, 2014, and raised questions about
whether some of those firms shouldn't be registered.
I believe I also mentioned in that speech--I know I have
elsewhere--that the staff is working on whether there needs to
be public guidance issued as to where the line between dealers
and traders is to take account of that phenomenon. It is sort
of interesting, the Treasury markets, I think what is happening
there is terrific, frankly, because you have great cooperation
among the various agencies, including Treasury, banking
regulators, the SEC, and the CFTC, working together.
We each have certain spheres of authority of the Treasury
markets, and I also indicated in that speech that I thought we
ought to apply some of the SEC's authority to create greater
transparency and, frankly, other protective measures in the
Treasury markets, as well as the equity markets.
Mrs. Maloney. Okay, thank you.
My second question is about the statements you have made
several times over the past years. You have suggested that the
SEC should rethink its 2009 diversity disclosure requirements
to provide more useful information on the diversity of boards
and their nominees.
And you directed your staff to review the existing
disclosures. At my request, the GAO reviewed these requirements
and found that the information provided by companies is
inadequate and unhelpful to investors. And I am wondering if
your staff reached the same conclusion.
And because of repeated studies that indicate more diverse
leadership helps companies avoid so-called group-think and make
better, strategic decisions many investors want access to data
on board diversity as they make investment decisions or
exercise their voting rights.
Leading institutional investors petitioned the Commission
in March of 2015 to revise the diversity disclosure. They
suggested that a simple matrix could make the disclosure
simpler for investors, issuers, while providing investors with
actionable data.
So do you think--where does this stand does and where are
you? I do want to say that in this GAO report, it showed that
women were 16 percent of boards, and if they upped their
activity significantly, it would be 2040 before there was any
gender balance.
The GAO report also provided research from private firms
that showed when there was gender diversity, the bottom line
was better for investors. And my office has received requests
from institutional investors, major, major investors, on
getting more accurate information on gender diversity.
I even went so far as to put in a bill that merely added
another line that said just disclose how many women are on your
board. It would not be in any way burdensome to industry. It is
just another check or another number that would be added.
And this is information that investors--significant
stakeholders and investors--are asking for. They are asking for
this information. So I wonder where this stands with the
activities--
Mr. Garrett. The gentlelady's time has expired, but if you
would like to answer that, Chair White?
Ms. White. I will be very brief. As you know, I am a very
strong proponent of diversity on boards, and I am aware of the
studies you indicate, which I think are quite telling. Where
that stands, as the staff has studied it, and they are
preparing a recommendation to give to the Commission. It is
pretty far along in that in terms of trying to provide more
meaningful disclosure along the lines you indicate.
Mrs. Maloney. Do you think you will receive this before
you--
Ms. White. I do not. Unfortunately, I do not. Will they
receive it before? They may well receive it before. I don't
think there will be a proposal before I leave.
Mrs. Maloney. Okay, thank you.
Mr. Garrett. The gentlelady's time has expired. Thank you
for your answer.
The gentleman from Texas is recognized for 5 minutes.
Mr. Neugebauer. Thank you, Mr. Chairman.
Chair White, you and I are kind of in the same situation.
This is probably my last hearing with you, and I want to thank
you for your service.
Yesterday, the SEC held its first-ever FinTech Forum, which
included panels on recent innovations and investment advisory
services, trading, settlements, and clearance, and investor
protection, and capital formation. So after this forum, what is
the next step for the SEC in the FinTech space?
Ms. White. First off, it was a very, very useful forum. We
have been quite active in that space in terms of doing
significant outreach. Some issues are sort of on our plate
right now; some are for the future.
I formed earlier this year, in effect, a FinTech Working
Group that I have directed to make quite targeted
recommendations, quite specific recommendations to the
Commission on what the next step should be at the SEC, both in
terms to some degree of regulations that we have now that may
apply to certain FinTech activity, how we can appropriately
foster innovation, but also obviously, protect investors in the
space.
The three topics we really discussed yesterday and the ones
we have been most focused on, obviously, the distributed ledger
technology generally and the settlement and clearing space, the
so-called robo-advisers--that is not the name they would like
to apply to that, but how automated providers of advice--and it
is not only automated often--can comply with their duties,
fiduciary duties on the Investor Advisers Act and Investment
Company Act.
And then marketplace lending, those are the three big areas
that we are focused on, although our folks in the Division of
Corporation Finance have also been reviewing and passing on
companies that, for example, would actually issue digitized
securities.
So we essentially will receive those recommendations, I
don't think imminently, but I think in the next few months, and
then decide what we need to do next in terms of concept
releases, rulemakings, or just giving more clarity to
entrepreneurs as to the spaces that they may be in and need to
comply with.
Mr. Neugebauer. So this working group that you have formed,
will the recommendations that were--that you heard yesterday,
will it be their responsibility to respond to and to--
Ms. White. Certainly what we heard at the forum will be
part of the analysis, part of the input of the analysis that
they are doing. The recommendations will come from that working
group to the Commission. They are doing much broader outreach
than just what we heard at the forum. But it was enormously
useful input for that set of recommendations that I expect to
receive.
Mr. Neugebauer. And in your response to my question, one of
the things that I think is a common theme that I think concerns
a lot of us about what is going on with the SEC is you
mentioned regulations, I think, 2 or 3 times when I mentioned
the FinTech space. And I think one of the things that we are
also looking for is facilitation from the SEC on how do we make
these markets better and not how we immediately--the first
thought that we have is how do we want to regulate these folks.
And so what I would hope is that the forum was a positive
step. What I would hope is that if you are going to put
together--or your successor--put together working groups, it
might be kind of handy to have people who are in the industry,
a part of that and spend some time focusing on how we
facilitate this, because as you know there are some exciting
things going on in that space and actually some things going on
that could revolutionize the way that we do some of these
functions.
Ms. White. And I essentially, agree with that. And I really
said that yesterday, I did some opening remarks, that you don't
necessarily jump to regulation.
We did put out also a concept release at the end of last
year, request for comment on the transfer agent space for
example, and asked questions just like that. So it is a matter
of, there are some exciting things going on out there that
really will improve the markets, improve things for investors.
We certainly don't want to be thwarting those, but
obviously, we have to make certain that investors are protected
in that space. The market lending space for example, to make
sure that, if in fact there are investors that are providing
that money through offerings, that they are being given the
information they need to have.
So I think it is a mixture of things, but certainly not
with a mindset of we have to regulate, regulate, regulate.
There may be some rules we need to do, there may be some
clarifying we need to do, but we certainly have the encouraging
innovation lens that we are applying to that, as well.
Mr. Neugebauer. Since most of these are non-depository
institutions, should the SEC be the primary point from a
regulatory perspective for these companies?
Ms. White. I think they range, in terms of the nature of
the institutions that are involved. But I certainly think we
should be taking a primary role, yes.
Mr. Neugebauer. Thank you, my time has expired.
Mr. Garrett. The gentleman's time has expired.
The gentleman from Massachusetts is recognized. Welcome
back.
Mr. Lynch. Thank you, Mr. Chairman, and Ranking Member
Waters. It is much appreciated.
Madam Chair, congratulations. Sorry to see you departing.
But thank you for your service to your country. I think you did
a remarkable job under the circumstances, and I have a feeling
that as far as your critics on this side of the aisle go, I
think they will miss you very shortly. I think we can all
expect that.
I know you are wrapping up, but on market structure, I had
proposed a Maker-Taker Conflict of Interest Reform Act of 2015
last year. And I know there was a competing proposal among
your--you have an equity market structure advisory committee--
they had a little different wrinkle on it. It didn't go as far
as what I had proposed. But it talked about lowering access
fees, which is a good thing. But I don't think it really got at
the issue of the routing, the conflict of interest in routing
certain trades.
Going forward, as you wrap up, is there anything
percolating that might actually come to fruition in your
closing months?
Ms. White. I don't know if it will come to fruition quite
in my closing months, although we are really in response--not
just in response--but including in response to that
recommendation that you referenced, which really is to do a
pretty comprehensive pilot. It may not do everything.
We also have an outstanding proposal on more transparency
in order routing too, which I think is a very important
proposal that is out there. The staff is working very hard on
it to--it will be the staff's recommendation to the Commission
as to the next step to take.
And clearly, we take very seriously and we think--I think
it is a good proposal that we have gotten from our Equity
Market Structure Committee. But obviously, we will be studying
that as to whether to do it in the first instance, although I
think you have a lot of support for doing such a pilot in that
space. And then what precisely the component should be. I can't
tell you that something will come out before I leave, but we
are still driving it.
Mr. Lynch. Okay. And the question of resources, over the
past while, at least over the last 6 or 8 years, we have had a
defunding or a lack of resources for your agency. Can you speak
to that a little bit about just the practical impact of that
defunding, and as the cop on the beat for our financial
markets, and also, morale-wise in terms of trying to retain the
best and brightest people at the SEC?
Ms. White. Just to go to the latter point first, it is so
important that we are able to retain the best people and
attract the best people with the expertise that you need to
protect investors and to be that strong cop.
I have said this before. The biggest challenge I have had
as Chair of the SEC--and there is no lack of challenges as the
Chair of the SEC--is just how significantly under-resourced we
are. And I appreciate we have gotten budget increases but look
at what our responsibilities are, how extensive they are, how
complex they are, how much they have been added to, look at the
volume in the equity markets.
Look at--for example, I think 10 years ago we had 17
examiners for every trillion dollars of assets under management
by registered investment advisers. We have eight now.
And I talk mostly in terms because it is so stark of our
investment--our responsibility to examine investment advisors.
And I have done everything I can and I appreciate the support
we have gotten when we get funding to really increase the
number of examiners smartly in that space, and I have done
that. I have actually increased the staffing in that area of
our OCIE program--National Exam Program--by 20 percent, between
transferring some from the broker-dealer side where we have
FINRA that is also operative, and some of the funding that we
have been given.
But we are still in the position, we are smarter, we use
risk analytics. But we examine 11 percent of those 12,500
registered advisors every year, 35 percent of the assets under
management, on the broker side, where we have FINRA, it is
about 50 percent. And so it is a big, big investor protection
issue. Of course it affects morale, because you have some of
the brightest, most dedicated staff in the world at the SEC.
And their lone star mission is to protect investors.
And when you can't examine those advisors who are dealing
with those investors and have a duty to those investors to act
in their best interests, you are not able to do the job that
you are assigned to do by Congress and so much want to do in
order to fulfill our mission.
Mr. Lynch. Thank you again. My time has expired. I just
want to thank you again for your service to your country, thank
you.
Ms. White. Thank you.
Mr. Garrett. Thank you. The gentleman's time has expired.
I recognize the gentleman from Missouri, Mr. Luetkemeyer.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Chair White, thank you. I want to add my kudos to those of
my colleagues for your service and your responsiveness to this
committee; it is very, very much appreciated. So we wish you
well in whatever endeavors you may pursue from here on out.
I just have a comment first, and I want to ask for you to
comment on it, if you would. I understand that you have
announced your departure, but you are still the SEC Chair, and
I want to raise one issue in hopes that you will give it some
thought. It is on credit agencies. I know the SEC has taken
steps to address the entrenchment of incumbent rating agencies,
but I think more needs to be done. We should facilitate broader
competition amongst credit agencies and encourage those acting
on behalf of U.S. investors to do the same.
I know Senators Scott and Franken, among others, have
raised this issue with you. And the SEC's own work has shown
that this lack of competition has the potential to harm
investors. It is your job to protect investors, and I hope you
will give this issue all due consideration.
I am certainly going to be in touch with your successor and
with SEC staff on this issue as we go down the line. I realize
that is a general statement, but if you would like to comment
on it, I would certainly offer you that opportunity.
Ms. White. Just briefly, clearly that is an area on which
we continue to focus. We have done a number of reforms in the
credit rating agency space that I think are very important to
have done, in terms of governance and transparency, and
conflicts of interests.
We have seen some improvement in competition, but it is
still a major issue. It is a very difficult one to come upon an
optimal solution for, I think, in both a cost-effective way,
but also in a way that actually deals with the issue that you
are trying to correct.
But it is something that our economists continue to study,
as well as our policy staff divisions.
Mr. Luetkemeyer. I don't know if you watched the movie,
``The Big Short,'' but it was very graphic on how the problems
were created, and what was going on. And obviously, this is a
point that we need to shore up with regards to allowing
investors to have confidence in our bonds and the ratings of
those. So certainly, I appreciate your consideration.
The chairman, a while ago, also mentioned something about
pending rules. I guess my question would be, do you have any
request for the Administration or does the SEC have any ideas
of--any midnight rules that you are getting ready to propose
that we need to be watchful for or that are going to come in
the backdoor here that we need to be thinking about?
Ms. White. Effectively, I set out our agenda for 2016 in
February of 2016 at the conference called SEC Speaks, which is
where the Chair usually talks about the agenda. We have
advanced a number of those priorities already. I said we would
do as many of them as we could, and we have also--we have
talked--we have basically set the agenda for the rest of the
year, and into January--
Mr. Luetkemeyer. And you don't see a divergence?
Ms. White. I don't see any last minute rushes to--I do
intend to carry out the agenda I outlined in February of 2016
as much as I can.
Mr. Luetkemeyer. Okay. In the Bloomberg report this
morning, there is a report--its headline says, ``U.S. Consumers
are Increasingly Defaulting on Loans Made Online.'' And the
story talks about how delinquencies and defaults are reaching
key levels known as triggers for at least four different sets
of bonds. Reaching those levels has forced lenders or
underwriters to start paying down bonds early. I guess my first
question is, are you aware of this with regards to the online
lending--loans that secure these bonds and are having some
problems?
Ms. White. I am certainly aware of the reports of those
issues. Obviously, our space is the investors in the space, not
the lenders, but obviously they become relevant in terms of
what are those assets underlying the investment.
Mr. Luetkemeyer. I would say they become very relevant,
very quickly.
Ms. White. Very relevant, I agree, I didn't mean to
minimize it at all.
[laughter]
Mr. Luetkemeyer. In the article, it talks about how
breaching these levels can force a company to divert cash flows
from assets to paying off bonds instead of making new loans,
which often means it has to find new, more expensive funding in
order to scale back its business.
They are going to force some of these bond folks to change
their business model. And to me, that it is very concerning.
Are you considering any actions to prop this up or to
investigate further, or are you just kind of watching from the
sidelines?
Ms. White. We are continually studying this space to the
extent it really impacts what we are doing and the offerings
made in effect to raise the money to provide the funds to lend.
Disclosures of--
Mr. Luetkemeyer. What kind of notices or disclosures are
required by these bonds when these things trigger? Do they have
to send these notes out to the investors, or--
Ms. White. Yes, when they are offerings, they do have to
make various disclosures. Sometimes they are public offerings,
and sometimes they are private offerings. But you have to make
material disclosures to investors.
And I think I mentioned that yesterday actually at the
FinTech Forum. That is very, very important information, to
talk about the underlying loans in a very accurate way.
Mr. Luetkemeyer. I am sure you are monitoring this if that
is the case, so where do you see this going? Do you see this as
a blip on the screen or is this a bubble getting ready to
burst? Or do you see this as a trend? What do you see?
Ms. White. I think, without putting sort of an umbrella
characterization on it, we have seen an increase in those
concerns in the last year. Now, that may be because more
information is available on it now. But it is something we are
watching very, very closely.
Mr. Luetkemeyer. Thank you.
Thank you, Mr. Chairman.
Mr. Garrett. The gentlelady from New York is now recognized
for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Chair White, I want to congratulate you for finalizing the
mutual funds data reporting rule. That rule will give the SEC
an important window into the fund industry while at the same
time preserving the ability of the industry to manage
portfolios in a manner that serves clients without prescriptive
constraints.
Given the vast amount of new information that the
Commission will be receiving, what special resources is the SEC
committing to protect the data from cyber criminals who will
want this proprietary investing information?
Ms. White. I think it has been in our budget request for
certainly, the last--the years since I have been here because I
have really prioritized our data security obligations, both
with respect to the new information we are going to be
receiving there, and the existing information we have. It is
also relevant in what we are doing this afternoon with respect
to the consolidated audit trail. So we are devoting significant
resources there. Our budget request for 2017, and when it is
finalized for 2018, you will see resource requests specifically
for that purpose.
Ms. Velazquez. Thank you. Yesterday, Commissioner Piwowar
said the SEC should take the lead on FinTech regulation. Last
year, I sent you a letter expressing my concern about
regulatory uncertainty in this area and to better understand
the needs of your agency now and in the future.
I know you are stepping down soon. Do you have any final
thoughts on this rapidly growing industry and the role you
envision the SEC playing in the next few years?
Ms. White. I agree with Commissioner Piwowar that the SEC,
in its spaces that FinTech touches--and there are a lot of
them--should certainly take the lead and be proactive. I think
we have been.
Some spaces and I think--if I remember, your letter
addressed at least in part, market-lending platforms. We are,
uniquely among the regulators that are actually involved in
those sets of issues, focused on the investors as I just
mentioned, if in fact that is how the funds are raised to lend.
Where we don't act is really in terms of the lending
standards or the actual loans that are made. But I see the SEC
playing a major, major role going forward in all the FinTech
spaces that we have any jurisdiction over.
Ms. Velazquez. I am glad to hear that, thank you.
You and your fellow regulators have spent years crafting
the Volcker Rule to balance the needs of market-makers and
underwriters with the mandate to eliminate proprietary trading
with federally-insured funds. What happens if the Volcker Rule
is eliminated and banking entities that have access to the
Federal safety net are once again allowed to make risky
proprietary trades?
Ms. White. I guess I would maybe answer that a little more
broadly, that I think the reforms that are contained in the
Dodd-Frank Act have been enormously important to strengthening
our financial system and for the protection of investors.
Obviously, the Volcker Rule is a significant component of
that. So I think we are much stronger and more resilient than
we were before the various reforms in the Dodd-Frank Act. And
so, I certainly would not want to see those rescinded or
repealed.
Ms. Velazquez. Thank you. And I was happy to hear about the
SEC's recently adopted rule regarding interstate security
offerings. This has the potential to cut red tape and help many
small businesses raise capital where they live and work.
Outside of interstate offerings, are there any other areas
the SEC is or should be looking at to streamline small business
capital formation?
Ms. White. As you know, we have fairly recently, under the
JOBS Act, reformed and really expanded Regulation A+; it is a
crowdfunding regulation. We have a proposal that is outstanding
on what the definition should be of a small reporting company
so that if there was an adoption of that, you would have more
smaller companies that we are able to scale disclosure.
Our disclosure effectiveness review tees up various issues
about scale disclosure for smaller businesses. We were very
pleased to recently adopt the interstate amendments to our
rules to make it easier for small businesses to do intrastate
offerings, including in the crowd-funding space.
But it is something--we have our annual forum coming up
this week, actually, and we will be talking about more avenues
to try to facilitate raising capital for smaller businesses.
Ms. Velazquez. Thank you, and thank you for your service.
Ms. White. Thank you very much.
Mr. Garrett. The gentlelady's time has expired.
Mr. Huizenga is recognized for 5 minutes.
Mr. Huizenga. Thank you, Mr. Chairman, I appreciate that,
and I too want to echo the sentiments of my colleagues, and
thank you for your service and your efforts in here. And I
think you have tried to come in and be as honest and forthright
as you possibly can within the constraints of what we are
dealing with.
I am concerned about something that has been brought up by
the much-cited Commissioner Piwowar, concerning activism really
overwriting market soundness and in some cases common sense
about how we regulate and make sure that good business
decisions and regulatory decisions are behind them.
We have tons of examples, but pay ratio and conflict
minerals, political spending disclosures, he talked about that,
so how do you guard against that in these closing days, is
really I guess kind of my question?
Ms. White. There are several things you have grouped in
there. A couple of them are congressional mandates. And I have
talked about that before when I have testified.
I do regard my job as the Chair in part to carry out
congressional mandates--they are passed by Congress, but we
carry them out. It is our obligation to, and we try to do it in
the most cost-effective way we can, as consistent with our
mission as we can, but they really come from Congress. And then
there are various things--
Mr. Huizenga. How about those things that don't come from
Congress?
Ms. White. Yes, and I was about to say, there are various
things we don't do also, because of the concerns that you
mentioned. I think it is--and as far as I am concerned, since I
have been Chair, we know what our mission is. I make a judgment
myself, as to what is the right thing to do. We obviously take
input from all constituencies about that, but then ultimately
make that decision based on our mission: protecting investors;
the markets; and capital formation.
Mr. Huizenga. Very specifically I guess, then, there are
two Commission seats currently open. Blaine Luetkemeyer, my
colleague, had started kind of going down this road and I guess
I would like to get as definitive of an answer--I would like to
get a definitive answer. I will stop, period, on that.
But there were reports that regulators are trying to ``rush
to finalize the incentive compensation rule'' prior to
President-elect Trump taking office. Will you commit to us,
here, that you will stay any Commission vote on that rule until
after the inauguration? Because this is a multi--
Ms. White. Yes, I understand. It is a multi-agency, it is--
and basically, I think the repurpose was issued by the agencies
in May of this past year. The staffs are clearly working
through the comments on that; it is not a new issue. So, I
can't commit, as I said here, what the timing will be on that
other than to say that--
Mr. Huizenga. Regardless of time--
Ms. White. But I hear what you are saying.
Mr. Huizenga. Yes, regardless of the timing, they may or
may not have it done. The reports are they are rushing to try
to get it done, and what I am asking for, I guess, is the
commitment from you that you will then not vote on this or not
allow a vote on this from the SEC to implement that before
there is a new President.
Ms. White. I would say two things, and I will be very
straight, and as clear as I can on this. I don't think any
rulemaking benefits from it being rushed. It is hard to do it
right, it is hard to do it optimally, and I have really tried,
even in joint rulemakings, to make sure that our economic
analysis comes into play and our expertise comes into play, and
I certainly will commit to do that. But I think I can't judge
in a vacuum the next 2\1/2\ months.
And I don't mean to--but as I sit here today, that is the
commitment I can give.
Mr. Huizenga. So if you were satisfied--we have another
minute and 15 seconds, so we can keep going back and forth, me
asking and you avoiding it, but--so if you are saying, if you
are satisfied that they have gone through and properly vetted
this, then you would have no problem moving ahead with that,
or--
Ms. White. Again, I don't know what is going to be in it. I
want to be satisfied--
Mr. Huizenga. They don't know, either. That is why we are
trying to understand--
Ms. White. No, no, no, but ``they'' is ``us,'' too,
``they'' is ``me,'' too, in the sense that I have to put it on
the agenda to vote. And obviously, what is always an issue
there is the content of the rule, obviously, in terms to be
satisfied with it, that I think it ought to go to the
Commission--
Mr. Huizenga. It is both content and context, correct? As
long as there is the content--
Ms. White. No, let me say it this way. I understand
completely the sensitivity that you are raising, in terms of
the time period that we are in. I will say that this is
something that has clearly been sort of proceeding apace all
year. It is not something that is all of a sudden proceeding
apace. But I am absolutely sensitive to what you are raising.
Mr. Huizenga. Okay, so--
Ms. White. That is as far as I can go.
Mr. Huizenga. --in 15 seconds, you are not--are you willing
to commit to not vote on this--
Ms. White. No, I can't give that commitment in a vacuum.
That I can't do. I think I have said all I can, but I would
hope--I think I have said all I can say.
Mr. Huizenga. And I guess I would like to hopefully
emphasize, your view that rushing into these things is a bad
path to go.
Ms. White. I think rushing into anything is, but certainly
I take your point on that.
Mr. Huizenga. Okay. With that, I gave it a shot.
All right, thanks, Mr. Chairman, I yield back.
Mr. Garrett. Okay, so we are going to rush over to the
other side, then.
Mr. Scott, you are now recognized.
Mr. Scott. All right, thank you very much, Mr. Chairman.
Chair White, I want you to know that I think that you have
been one of the very best Chairs of the Securities and Exchange
Commission in the whole history of the SEC. And we all want to
thank you for your service; you are so smart, and so tough.
And many people don't know, but as a former prosecutor you
showed that toughness when you took on John Gotti, the big
mafia boss, and brought him down. And you showed that toughness
when you dealt with the terrorists that attacked and bombed our
World Trade Center in New York.
And that same toughness you brought to the SEC, as you
really stood up and supported Dodd-Frank as our main instrument
to prevent any future taxpayer bailouts of the financial
sector. So I say congratulations on a job well done.
Let me just ask you something. About 6 weeks ago, this
committee had a hearing about Wells Fargo and the scandal. Now,
it is my understanding that almost 3 years ago the SEC did an
investigation regarding the aggressive cross-selling of Wells
Fargo. Is that true?
Ms. White. Again, I can't comment on any investigation we
did or we might be doing. But I think what you are referring
to, at least the reports that I have seen, and again I am just
commenting on the reports that I have seen, the media reports
that I have seen, refer to our Division of Corporation Finance
and their comment letters. That is not our enforcement staff,
it is--
Mr. Scott. I just wanted to get to the fact that a few
years ago, perhaps as many as 3 years ago, somebody informed
you about this cross-selling.
Ms. White. No, again, what the SEC looks at--the actual
cross-selling practices obviously is not in the SEC's
jurisdiction--
Mr. Scott. Right.
Ms. White. It is banking regulators. Disclosures are within
our jurisdiction, though, and I think that is--
Mr. Scott. Yes.
Ms. White. --where that is emanating from.
Mr. Scott. And now, we have a new report that the SEC is,
again, investigating Wells Fargo's cross-selling practices. Is
that true?
Ms. White. Again, I can't comment on whether and what we
are investigating. Our jurisdiction is to investigate--
Mr. Scott. All right, what I am trying to get at is, you
are doing your job, and I certainly respect your comments on
that. But I think it is very important to show that the SEC has
been on the case and has been dealing with this in the best
interests of the American people.
So could you just maybe tell us, tell the Financial
Services Committee, how the investigation is proceeding? What
can we expect? Any conclusion? Is there any input you could
give us as to--
Ms. White. I am afraid, again, I really cannot because we
don't comment on whether we are investigating something or what
we might be looking at if we are. I just can't do that in any
case, yes.
Mr. Scott. Okay, let me go to this one. I am the ranking
member on the Commodities Exchange and Derivatives Swap
Subcommittee, and I have been constantly assessing the numerous
rules surrounding derivatives in terms of equivalency on the
world stage.
My committee handles the jurisdiction of the CFTC. And of
course, you are involved in that, as well. Now, a major concern
I would raise is on the equivalency issue, particularly with
the European Union. I want to know what the status of that is
going forward from your knowledge. And I also want to get an
idea of how you feel this exit of the largest market within the
European Union, Great Britain's exit from the European Union,
impacts this issue of equivalency.
Ms. White. First, I think, as you know, the derivatives
markets are uniquely global. So obviously, that is why all the
regulators internationally have been dealing with these issues.
SEC's own cross-border proposal on the securities-based
swaps space is under the rubric of substituted compliance, when
can we and can we not accept other jurisdictions' rule to
satisfy our rules? Our staff is involved in those discussions.
The CFTC has been, as you know, more involved earlier, more
extensively in some of those discussions. And in terms of the
U.K., that is still sorting itself out, I think.
The concern is that it needs time-wise also to be put back
on track so those rules can actually work together and be
effective. But I guess we are in the stage now where everybody
is already focused on those priorities, but the discussions
still go on.
Mr. Scott. Thank you very much, Mr. Chairman. And best
wishes to you, Chair White.
Mr. Garrett. I now recognize Mr. Duffy.
Mr. Duffy. Thank you, Mr. Chairman. Chair White, welcome
again for your last appearance with us as the Chair of the SEC.
I want to join my colleagues--I have not been the biggest fan
of the Administration, how they have complied with Congress'
requests for information, how witnesses have come in and
testified before this committee I think has been obstructionary
at the least, but that has not been the way you have run the
SEC and you have been frank and honest and cooperative.
I think you have come in and tried to answer the questions
that we have asked to the best of your ability, and I think you
are a standout in how you have run the SEC and how you have
engaged with Congress.
I want to thank you for that. And I know that is probably
at risk of making your next 2 months more challenging that we
heap such great praise upon you, but I think it is a job well
done. And to be clear, we don't agree on everything and that is
understandable, but I think, again, you have done--
Ms. White. Thank you very much.
Mr. Duffy. --an outstanding job. I do want to drill into--
and you can pick up our concern with what is going to happen in
the next 2 months. And we always get concerned about the lame-
duck session of a Presidency and a rush to implement a whole
bunch of new rules. And I think the better practice would be to
wait and let the new Administration come in. We have kind of
done a little dance today as you have had questions, but what
rules do you want to see finalized?
Not the SEC, I am talking about you personally. What do you
want to see finalized in the next 2 months?
Ms. White. I think again, I mentioned it earlier. I am
not--we are not rushing, in my view, anything, so as far as
that is concerned, I did set out the agenda earlier in the
year, and frankly, our agenda for the rest of this year and
into early January has been set for some time.
I think the--other than this afternoon which has been
sunshine and publicly noticed when we will be considering--
approving the final consolidated audit trail plan, I think we
have publicly noticed the others that we have talked about
internally in terms of scheduling.
Some that I have mentioned in terms of sort of year-end
goals include the capital margins segregation rules under Title
VII, something, by the way, that all of my Commissioners have
firmly supported prioritizing, my current Commissioners and my
prior Commissioners and myself. So, that is one that I have
mentioned publicly. I mentioned, I think in my oral testimony,
that we do have an outstanding derivatives proposal in the
asset management space, and I have mentioned publicly before
that that is a priority.
We are also looking very carefully at what the chairman
mentioned in terms of 30-e3, in terms of the providing mutual
fund reports electronically. That is something that when we
adopted the reporting rule but for that, I said we were very
focused on trying to have the staff give us a final
recommendation as to what to do by year end. I think those are
the ones I have mentioned publicly.
Mr. Duffy. Okay, and I just--we have blown through most of
the timelines set out in Dodd-Frank. We are 6 years on. You are
now at year end basically to the statements that you made at
the start of the year, that we go 6 years and then the last 6
weeks I think would not be the best practice. I would like to
see you hold off as much as possible unless it is an emergency
for the next Administration, but that is just my opinion.
I only have a minute-and-a-half left. Quickly, I want to
thank you for your work on the Tick Size Pilot Program. We
worked on that in the House. You saw what happened here with an
outstanding vote in this committee and on the Floor, and you
took it upon yourself to implement this pilot program and we
are grateful for that. We want to give our small companies
greater access to capital.
But as you have heard, some participants worry that the
data will expose their trading strategies. You have heard that,
as I have heard that. Can you assure the committee that you
will ensure that the data that is provided will be protected?
And can you give those who participate that assurance?
Ms. White. The answer--I have heard those concerns raised.
The staff is all over those questions that have been raised.
And I think I said before in answer to another question that
the security of the data that should be secured couldn't be a
higher priority in every space including the Tick Size Pilot,
so the staff is very focused on it.
Mr. Duffy. Very quickly, I want to move over to shareholder
proposals. Shareholders only need to own $2,000 worth of stock
for 1 year to submit a shareholder proposal for inclusion in
proxy materials. In addition, a shareholder proposal need only
receive 3 percent of a vote cast the first time, and 6 percent
and 10 percent in subsequent years respectively, to qualify for
submission in the next year. This hasn't been updated for 50
years. Do you have any thoughts on whether we should be
updating these proxy submission rules?
Ms. White. I certainly think--and again, I think everyone
knows the sort of the press of our rulemaking agenda in the
last 3, 4, 5, 6 years. That has obviously been discussed for
several of those years.
I think it is very important for the staff to refresh what
their recommendations are in that space. I will say there are
very divergent views on that, for example, that the $2,000
threshold was originally put in deliberately small, so you
could allow the small shareholder to have that kind of
franchise participation, but as you say, that was set some time
ago, and I am also obviously aware of the issue on how many
times, and what vote do you get on a proposal.
So I think you will see the SEC returning to that, not that
they have left the study of that, but I don't think anything
will come out during my tenure.
Mr. Duffy. Okay, and again, my time has expired. I want to
thank you again for your great work and cooperation with
Congress. I yield back.
Ms. White. Thank you very much.
Mr. Garrett. The gentleman yields back. Mr. Green is
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. And thank you, Chair
White, for your outstanding service. It has been an honor to
work with you, and my hope and my prayers are that you will be
equally as successful in the next life as you have been in this
one. Thank you.
Madam Chair, without being specific, if a bank creates a
circumstance such that it gives the appearance of being in a
growth mode by engaging in some onerous tactics, by giving the
appearance that it has more customers than it actually has, you
are in the business of protecting investors. You are the
investor protector. If a bank is giving this false sense of
growth, is this the kind of thing that the SEC concerns itself
with?
Ms. White. And again, talking in the abstract as you
presented the question--
Mr. Green. Very general terms.
Ms. White. No, there is no question that is very much in--
the disclosures to public investors, we will phrase it that
way, or the accuracy of them is very much in the SEC's space.
We bring cases in our enforcement division on misleading
material disclosures all the time, in a lot of those cases.
And so, what you look at--and you mentioned kind of the--
was there growth or not growth, you obviously look at both
quantitative materiality and you can look at qualitative
materiality, so if instead of a profit, there is a loss, you
may have qualitative materiality issues even if it is not a big
amount. So, you certainly--you do apply those lenses at the SEC
to disclosures like that.
Mr. Green. And when these circumstances manifest
themselves, does it take a complaint from many investors or do
you do this on your own motion, on your own volition?
Ms. White. We very, very often do it on our own volition.
Obviously, we are constantly surveilling the marketplace and
the marketplace of public information. We have our own data
analytics, so often we do it ourselves, often, we will get a--
obviously, we have a very vibrant whistleblower program so we
get information there. We get it from all sources, but in
terms--we don't have to wait on a complaint to act. We are very
proactive.
Mr. Green. And when you do this on your own volition, is it
published that you are engaging in this process? Or is this
something that happens and then we are accorded the results as
opposed to an indication that the process has been engaged?
Ms. White. If we are talking, and I think we are, about an
investigation that we would be doing in our enforcement
division, for example, and I think that goes back to my
discussion with Congressman Scott, we do not disclose whether
we are investigating something or what we are finding. And so
you wouldn't see that until, if it did, resulted in an action.
Now, sometimes when we do open an investigation, the
companies, if they are public companies, will disclose the fact
that that investigation is ongoing. Again, that is their call
based on their read of what is required, what is prudent to do.
But you won't hear from us if it is an ongoing investigation
until there is a result typically.
Mr. Green. I am going to come back to this, but I would
like to go to another point, and I have time enough to do it.
Do you find that there is a conflict between what your agency
has as its responsibilities with the CFPB and its
responsibilities?
Ms. White. I have not found that during my time as Chair.
Obviously, we work cooperatively with all other civil and
criminal law enforcement agencies. So, could there be overlap
that could--conflict is a word--try to work any conflict you
have in these spaces. There is an awful lot of space to cover.
Different agencies and--
Mr. Green. You would not recommend the elimination of the
CFPB, I take it?
Ms. White. Clearly, it has been a very active enforcement
agency, and I think there is a need for a lot of active
enforcement agencies.
Mr. Green. Thank you.
My final comment will be this. Wells Fargo engaged in
conduct unbecoming a bank. They took advantage of people at the
entry-level in their business, such that it benefited the
people at the top of the business. As bad as that is, it also
caused people who were making what they thought were honest
investments based upon quality information, they allowed those
people to make those investments to their detriment.
My hope, without getting into what you will do, is that
Wells Fargo will be treated fairly and justly, and also those
investors will be treated fairly and justly. Thank you very
much.
Mr. Garrett. Thank you.
Mr. Pittenger is recognized for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman.
And thank you, Chair White, for being with us. I must say,
while we clearly have had disagreements, you have been very
respectful, you have been very straightforward, and you have
been professional in every manner. So I commend you for your
work.
Ms. White. Thank you very much.
Mr. Pittenger. I would like to say an anecdotal reference
is made to why you are leaving. Did you make the decision to
leave prior to the election?
Ms. White. I did. And I think in the last 50 years or so,
the Chair of the SEC has left when there is an election,
irrespective of which party is coming into power. I have served
for almost 4 years, so it is really a normal course decision.
In fact, I might have mentioned it somewhat later, but I was
actually coming in here today, so I thought clarity was a good
thing for coming in here today.
Mr. Pittenger. I appreciate you saying that. There was some
inference made that you left because of some individual who was
elected President.
Chair White, as you may know, I led an effort earlier this
year with 50 other Members of Congress relative to concerns of
the sale of the Chicago Stock Exchange to a Chinese government-
affiliated firm. As well, just 2 weeks ago, my staff met with
SEC Commissioner Piwowar on this matter, and he expressed some
of the same concerns regarding the corruption inside Chinese
firms, as well as their complacency and the lack of
transparency within them.
Given that China remains the number-one state sponsor of
corporate espionage and intellectual property theft and market
manipulation, we urge the CFIUS to conduct a rigorous review of
this transaction and block it if it is felt it was necessary.
Would you kindly comment on this in your opinion relative to
this transaction and your concerns of whether a Chinese
government-affiliated firm should buy the exchange, given that
it does put a more minor role in the markets, albeit it would
be a foothold into our markets?
Ms. White. I think the issues that you are referencing are
CFIUS issues, which is obviously not our bailiwick. We do have
a process that follows that, which hasn't begun yet, so I
wouldn't want to particularly comment on that or prejudge that.
Mr. Pittenger. I understand.
Chair White, you previously noted that ``in enhancing
market structure, we must focus closely on the particular needs
of smaller companies and their investors.'' What do you believe
are the most significant issues that smaller public companies
face in today's equity markets? For example, the reduced
liquidity. You have commented on this some, but I would like
you to elaborate on that.
Ms. White. I think one is obviously the availability or not
of secondary liquidity. I think our Tick Size Pilot is
obviously designed to see whether widening the spreads may help
that. I also--in the public spaces, I think we have to be very
focused on are any of our regulations such that, again, they
need to be there, they need to protect the markets and
investors, but are they unnecessarily inhibiting companies,
smaller companies from going public? That is something we are
focused on all the time.
Mr. Pittenger. Sure, thank you.
I would like to ask you, companies obtain capital through
borrowing or equity financing, which we have discussed some.
But do you agree that tightening of credit has made equity
financing all the more important as a means of providing small
companies with the capital they need to grow and to expand,
create jobs?
Ms. White. That seems to be what the data shows.
Mr. Pittenger. Thank you.
I yield back.
Mr. Garrett. The gentleman yields back. Mr. Clay is
recognized for 5 minutes.
Mr. Clay. Thank you so much, Mr. Chairman.
And thank you, Chair White, for being here. We are more
than 6 years out from the passage of the Dodd-Frank Act, and
far too many rulemakings have yet to be finalized, despite the
ample time that has been afforded to our regulatory agency. One
such rulemaking relates to Section 956 of Dodd-Frank. This
section imposes upon large financial institutions the
responsibility to institute clawback policies or policies that
would allow the financial institution to snatch incentive-based
compensation away from executives who engage in wrongdoing.
Democrats on this committee wrote to you last month asking
you to both work quickly to finalize the rule, and to
strengthen it. I am now hearing that this rulemaking may not be
finalized anytime soon. Indeed, as it relates to the SEC, there
are reports indicating that the sole Republican Commissioner of
the SEC has refused to grant a quorum for a Commission vote
when it comes to any rulemakings he objects to. That is right,
the Commissioner reportedly won't even show up and vote ``no,''
instead choosing to not attend the SEC meeting at all.
Is it correct that the Republican Commissioner has
threatened to deny a quorum and thereby prevent a Commission
vote on any particular rules, including the 956 clawback
proposal?
Ms. White. Every rule that I have put on the agenda we have
had a quorum for. So, the Republican and Democratic, I am only
three, but we have all showed up for those.
In terms of 956, the re-proposal that was in I think May of
this year, which is joint but it is us--SEC as well, we moved
that by seriatim, so there was no attempt to block that or not
to have a quorum.
Mr. Clay. Where is it now?
Ms. White. I mentioned before and I think it has been
publicly discussed by other regulators. All of the regulators,
and there are either five or six of us--it is a joint
regulation--are working through the comments and working on
that re-proposal.
Mr. Clay. Thank you for that.
Last month, Reuters reported that the SEC questioned Wells
Fargo over aggressive cross-selling practices in late 2014.
Quoting correspondence from the Commission's Division of
Corporation Finance, as you know, the bank's cross-selling
practices, as they related to deposit and credit accounts, as
well as online banking, were eventually found to be unfair,
deceptive, and abusive by the OCC, the CFPB, and the City of
Los Angeles, to the tune of a combined $185 million fine. Can
you tell the committee what prompted the SEC's inquiry into
Wells Fargo's cross-selling practices 2 years ago?
Ms. White. Again, in terms of the practices themselves,
that is obviously not in our jurisdiction at the SEC. I think
what you are referring to--and I had mentioned earlier--are
reports of our Division of Corporation Finance as part of their
annual review of financial filings of lots and lots of
companies, public companies, raising certain questions about
the disclosures.
But that is not--in terms of--that is not sort of the
content of the cross selling practices. That is not in our
jurisdiction. But I think what that is, is raising some
questions about--I can't go beyond whatever is in the public
record about the comments. But I think that is what that refers
to.
Mr. Clay. So that was just a routine inquiry on the part of
the Division of Corporation Finance?
Ms. White. Again, I can't say anything more specific than I
have. But it does appear to be part of that annual review
process of disclosures with just questions being raised, which
is a routine part of what we do, a very important part of what
we do but--
Mr. Clay. And what was the outcome on the Division's
inquiry?
Ms. White. Again, as I understand it, comments may have
been issued on the disclosure questions--really questions and
comments. I can't tell you what the outcome was in that sense
of the word.
Mr. Clay. Okay, and earlier this month, Wells Fargo
announced via a regulatory filing that the bank again was being
scrutinized by the Commission related to disclosures
surrounding its sales practices. How does this differ from the
2014 inquiry?
Ms. White. Again, I can't--again, they made the disclosures
they have. I can't comment on whether we are investigating or
what we are investigating. I did point out before that
obviously public company disclosures, if they are something
that we not only do we review them in our annual reviews, which
is what we were talking about before, but if we have some
questions about them, they come under investigation. But I
can't really say anything more than what the company itself has
said so far. And I really can't comment further.
Mr. Clay. Thank you for your responses. And my time is up.
Thank you.
Mr. Garrett. The gentlemen from California, Mr. Royce, is
recognized.
Mr. Royce. Thank you, Mr. Chairman. And I thank you, Chair
White. Thank you for your service. Thank you also for always
making your staff and yourself available.
The focus of the SEC originally was, and I think should
continue to be, the strength and resilience of our markets. And
I think that is critical to economic growth and to the jobs
that are created thereby.
But when it comes to capital markets lending, I have a
question about the last few years and maybe some reflection
that you would make, because we have had a lot of changes--
major regulatory changes such as risk retention. We have had
the accounting changes, we have had the prudential changes, and
new capital and liquidity rule, and new disclosure regimes, and
automated trading platforms. And all of this is occurring at
the same time.
European regulators have raised concerns about how these
new regulations fit together and that this is the crux of a
question here, because specifically on his way out the door,
E.U. Financial Services Chief Jonathan Hill concluded that,
whereas after 2008, the greatest threat to financial stability
had been the financial crisis, over time, the greater threat
had become the lack of growth itself. In other words, too
little risk itself--in his words--became a stability risk.
And then he went on to say that the crisis may have made
the scale and the pace of regulatory change inevitable, but the
various layers of regulation could have been better aligned.
That was his reflection, and I was just going to ask you
yours in terms of whether you agree with that sentiment. If we
step back and we reflect on the cumulative impact of all these
regulations and carefully understand what this means for growth
and lending before we move forward with major changes, what
would your observations be on that?
Ms. White. I think in terms of the impact of the--let me
back up to a threshold. Obviously--
Mr. Royce. Yes.
Ms. White. --the capital markets are--and innovation is
built on taking prudent risks with factors fully disclosed. So,
that is a very important driver of growth of the economy and
everything that is positive. Obviously, one has to worry
about--and we do--systemic risks that could destabilize the
system and cause tremendous harm--
Mr. Royce. Right.
Ms. White. --to investors.
I think in terms of the impact of regulations, I mentioned
a little bit earlier that our economists at the SEC are
studying--and will be reporting to Congress actually next
year--the impact of--cumulative impact of regulations on
capital formation as well as corporate bond liquidity. And it
is something we study all the time.
When we do our rules by the way, our economists do study
the economic impacts, and they do look at not just the
particular four corners of one rule and what you are changing
there, but you have these other nine rules out there, so when
you add this one, what is going to be the cumulative effect
upon all sorts of economic impacts. And it may be a benefit for
investors or it may not be. But what is the cost of it? And one
of the costs may be a cost to growth. So you want to be
concerned about that.
Mr. Royce. I understand that. I think Financial Services
Chief Jonathan Hill from the E.U. is just in retrospect looking
at this. But at a time where, as you know, there is still more
coming down the pipeline--we have discussions continuing on
Basel IV, and we have the proposals on the fundamental review
of the trading book.
So I assume you share sort of that overarching goal, which
I think he speaks to there, that we need to balance the goals
of market stability and safety and soundness with the needs of
market liquidity, efficiency, and of end users, and overall
economic growth.
Ms. White. I think that is--at least as I view it--part of
the cost-benefit analysis that we do. I think you have to think
more broadly, as I said before, when you do that. And that is
very much a part of it.
Mr. Royce. I appreciate your observations, and again your
service. And thank you very much.
Ms. White. Thank you very much. Thank you.
Mr. Royce. Thank you, Chairman.
Mr. Garrett. Mr. Meeks is now recognized.
Mr. Meeks. Thank you, Mr. Chairman. And thank you, Chair
White. Thank you for all of the hard work that you have done,
and I particularly want to thank you and I will ask a few
questions later in regards to making sure that our boards
become more diverse. And I want to get into few questions on
that.
But first, I want to ask you this question. I think I heard
my colleague Mr. Clay talk about it, and a few other members
dealing with this whole Wells Fargo issue, et cetera. What
concerns me about it is that--especially coming out of these
elections--and I heard both Democrats and Republicans preach
from north, from urban America, and rural America, they are
losing faith in the honesty at times of some of our financial
institutions.
Now, I know that our financial institutions are absolutely
essential to our well-being and our way of life. But the
common, everyday American is--the question that Mr. Royce
asked--they don't get into that to the in-depth-ness that I
think that you have to and what the SEC does.
But they ask me on a consistent basis, for example, how do
we find out that someone is doing something wrong before it has
the impact that it has had, whether it was on the employees or
the consumers of Wells Fargo. So, I would like to ask you as
you are outgoing, what kind of advice would you give Members of
Congress or your successor on what we can do? Because even the
Wells Fargo scenario, it was the--I am hearing this often. It
wasn't the SEC that discovered it initially, it was the L.A.
Times.
And so then it puts a question on where we go with
reference to our regulatory agencies and confidence in them
that they are going to in fact be there to protect the American
people and to make sure that banks are honest. What would you
say or how would you--
Ms. White. Yes. That is a very good question again. I can't
comment specifically on Wells Fargo other than to say that the
cross-selling practices themselves are not--they are in another
regulator's jurisdiction.
I am saying that just for clarity. But the broader issue
that you are raising, which is really in part a corporate
culture set of issues, it is in part a, how do we more strongly
deter also misconduct in our companies and our financial
institutions? That is a function of law enforcement.
I have spoken before, and I am going to speak again in a
few days, about things I think we need to really be
considering. One of them is enhanced penalty authority for the
SEC.
But more fundamentally, I think a question we have to be
focusing on is accountability at the senior executive level for
things that may occur on their watch, even if they are not
evolved in the misconduct. And how do you sort of infuse this
``do the right thing'' culture throughout a big company.
We have codes of conduct, and we have mandated those for
years, which works better in some companies than others, the
tone from the top in terms of what is said and even what is
done may be good. I read something recently that resonated with
me at least that when you want your employees to behave in a
certain way, you have to really focus on what you are
inspecting, not just what you are saying and what you are
rewarding and what you are punishing.
And so if you end up with the incentives misaligned, don't
be surprised when you get misconduct that is occurring.
In terms of earlier detection by the agencies, we are
working on that all the time. One of the things I am proudest
of at the SEC frankly is the use of data analytics and all of
the data that is available out there to make us smarter and
smarter earlier, about what may be problematic conduct.
I think that is a whole set of issues that we have to kind
of think about and I think Congress too has to think outside
the box about how to really raise that bar of culture and
compliance.
Mr. Meeks. That is one of the things that I get concerned
about, and that is why I appreciate the diversity initiative
that you have taken with the SEC. Because I think that when you
have more diverse boards, you have more diverse thinking and
more diverse watching at that level, because clearly that is
the best way.
If you have a great board, they are not going to allow
these kinds of things going on where they don't have self-
interest--that would be the hope. But in this scenario--in one
scenario, do you think that there is a conflict, that companies
can go when you have an individual who is both the CEO and the
Chair of the Board? It seems to be sometimes, there is no--the
Chair of the Board can check the CEO, the CEO makes--because
there is the balancing act and when you have both, it seems to
me that could lend itself to something unseemly.
Ms. White. Clearly, it raises all of those issues. I guess
I am--I think the SEC doesn't take a substantive policy
position on that. That is really a matter for the shareholders
and State law. I guess I am speaking for myself though, a bit
of a one size may not fit all situation. Clearly, there are
diverse--
Mr. Meeks. But it should be something that should be
considered--you look at--when you see that--that should raise a
flag saying, let's ask some questions about it to see if a red
flag presents itself that you know needs to be done further.
Mr. Garrett. The gentlemen's time has expired. Mr. Hultgren
is recognized for 5 minutes.
Mr. Hultgren. Thank you, Mr. Chairman. Chair White, thank
you very much. I echo much of what my colleagues have said and
I do appreciate your service very much and wish you all the
best.
Earlier in the hearing you answered some questions from
Congressman Garrett about the work of the equity market
structure advisory committee. As a follow up, can you tell me
what mechanism is in place to ensure the recommendations of the
advisory committee are included in policymaking in the
Commission? How can we be certain that the reports are not left
on the shelf to collect dust as so many are? And as you are
probably aware, the Dodd-Frank Act requires the Commission to
respond to recommendations made by the investor advisory
committee.
Ms. White. Yes--first of all, I was behind the formation of
the equity market structure committee and I think--we formed it
in early 2015, really bringing a lot of expertise points of
view to add to, what I also--reinvigorated I think--which is a
comprehensive view of the equity market structure. And so they
have been enormously helpful in keeping the focus, keeping
the--not that our feet really needed to be kept to the fire,
but we are all sort of in this laser-focused way to sort of get
to concrete changes if they need to be made.
So in terms of their recommendations, at the end of the day
it is really the SEC that has to decide, not the committee. But
essentially they are dealing with the issues that we are
dealing with, the most serious ones that are out there, and
everybody at the Commission, really, across the boards, I think
there is a lot of unanimity about this, wants to get to the
bottom of what enhancements should be made to one of the
strongest and most resilient markets in the world. So, there is
a lot of momentum to have these not sit on the shelf; that is
the whole purpose of that structure.
Mr. Hultgren. I hope that is the case. There is some
concern here that--
Ms. White. I understand.
Mr. Hultgren. Moving on to another question, earlier this
year Representative Meeks and I sent you a letter regarding the
reimbursement of Section 31 fees by the Commission that have
been overpaid by an SRO. In response, it was noted that in
January 2011, the SEC issued a reimbursement to NYSE Arca when
it was operating as the Pacific Exchange.
I wonder if you could explain why another exchange such as
Chicago or NASDAQ is not entitled to the same treatment under
the law. I know the Commission has maintained that the statute
requires clarification but it is clear that the Commission has
already established a precedent.
Ms. White. I think the earlier situation occurred before I
was here. The status is, we are still waiting on word, really,
from OMB and counsel as to what we can--if we can do this
without a legislative fix. In terms of what was done earlier, I
can't speak to what the analysis was there but the current
analysis is we are not certain we have the authority to return
those fees. I would like to have the authority to return those
fees.
Mr. Hultgren. That certainly seems like a precedent. Is
there--and at least here, where there is bipartisan support
of--
Ms. White. Understood.
Mr. Hultgren. --the--and, again, just a fairness issue and
is significant in some of these situations, not in the scheme
of things but again for--
Ms. White. No, absolutely. Absolutely.
Mr. Hultgren. --these--as it is, and so--again I would
appreciate your help in moving this forward and getting it
done.
Moving on, on March 25, 2015, the SEC proposed amendments
to rule 15b91 that would require additional firms to register
with FINRA. During a speech on September 14, 2016, you stated
that the rulemaking would be finalized in the near future.
While I share the Commission's goal for proper oversight of
the securities market, there are concerns that the rulemaking
does not adequately contemplate the impact on the option market
and its existing regulatory structure. I wonder if you could
provide an update on the status of the rulemaking? We are short
of time for this hearing but this is something I hope we can
continue to discuss.
Ms. White. What the status of that is that the staff is--
among the comments very carefully studying the impacts in all
areas on that. It is moving along in that analysis, but there
is not going to be--I don't think an imminent adoption.
Mr. Hultgren. Okay. Earlier in this hearing, you mentioned
to Congressmen Neugebauer when he had some questions in
discussion with you, that you had performed a working group
with the SEC to make recommendations to the Commission in
regards to some FinTech issues. Can you please tell me when
this working group will make recommendations to the Commission
and then what questions you have tasked them with answering?
Ms. White. I can't give you a precise time on that. We are
still doing--we have done extensive outreach--obviously, our
FinTech forum was an important part of that. But, we are still
doing really, still extensive outreach encouraging for example
the participants yesterday to continue to engage with us.
So, timing wise, again, I wouldn't call it imminent. And,
what I have tasked them to do is really across the FinTech
spaces that touch on SEC functioning to make recommendations as
to--concrete recommendations as to what the Commission needs to
do. Whether it is rulemaking--and I start there, but that is
not kind of the primary focus, if that is the answer that is
the answer on the recommendation.
So we need to clarify to entrepreneurs what they need to
do, having in mind the lens of--this innovation could really
help the markets and investors and we want to be encouraging of
that, obviously balancing the investor protection. So we could
have concept releases, we could have interpretations being
made, staff guidance being issued, conceivably a recommendation
for rulemaking, conceivably just messaging more clearly to
entrepreneurs what the existing requirements are.
At the end of the day we could end up saying we think our
existing system of regulation is adequate at least in part to
these issues, and so very exciting space, lots of potential,
and I think we are doing it the right way.
Mr. Hultgren. My time has expired, and again thanks for
your service. I would echo Congressman Neugebauer, and I do
think any future policy-making from the Commission certainly
would benefit from industry input, especially in the FinTech
area. With that, I yield back. Thank you, Mr. Chairman.
Mr. Garrett. The gentleman yields back. The gentleman from
California is now recognized for 5 minutes.
Mr. Sherman. Mr. Chairman, I have one request, and that is,
when we put up the $19.8 trillion graphic, we add below it,
plus $1 trillion for President-elect Trump's infrastructure
program. Madam Chair, on my request, I have one view. I
recognize your hard work. I can recognize you crossing off the
days until an extended and well-earned vacation.
The tradition is for the SEC Chair, as I understand it, to
resign when the new President takes over. But that tradition
was developed at a time when we had a more efficient Senate and
a more efficient Congress in general that could quickly confirm
your successor, and that tradition was developed before the
Chair sat on FSOC, which should not have an empty seat. So you
now have two very important seats, one at FSOC, and one at the
Commission, and I would urge you to consider staying on until
your successor is confirmed. I will just ask you to think about
it.
Turning to more immediate or rather more mundane business,
you still have proposed rule 38e-3. The only folks in the
financial services industry who can't provide information
electronically are the mutual funds. They promised me that if
you pass this rule you will save 2 million trees every year. On
behalf of those trees, can you move the rule?
Ms. White. I had indicated earlier--although, obviously I
have been talking about the agenda with both of my fellow
Commissioners as I always do, but that is one of the areas
where I had indicated that we would hope to get a
recommendation by year-end on that, so--
Mr. Sherman. Please inform me electronically of what you
are able to do.
Ms. White. Okay, I shall.
Mr. Sherman. Okay, as to small business investment
companies, the House Appropriations Committee has asked you to
reopen for comment your proposed rule in that area. Do you see
yourself reopening that comment?
Ms. White. Sorry, I didn't hear. What area?
Mr. Sherman. That is in the area of BDCs, small business
development companies.
Ms. White. In terms of that--again, the staff is sort of
constantly working on what should be done in that space to
modernize. But I don't think we--I don't know if we are
reopening a formal comment period on that.
I need to get back to you on that because I am not
precisely sure what you are targeting--
Mr. Sherman. As I seek--
Ms. White. And I have written about that issue, obviously.
Yes.
Mr. Sherman. As I seek money for things that are important
to my district, I look--
Ms. White. Fair enough.
Mr. Sherman. --forward to showing the Appropriations
Committee that I brought up their issue.
Ms. White. Understood.
Mr. Sherman. Final issue. Accounting and auditing consists
of defining the terms with generally accepted accounting
principles and then auditing the information. And we do a great
job of looking at numbers like revenue, expense, assets,
earnings per share.
So we have a whole system for those numbers. Now there are
a bunch of other important numbers. You--I will give for--it
might be the backlog of a manufacturing or aircraft
manufacturing company. It might be same-store sales.
And I wonder, in your closing days, or perhaps on the to-do
list for your successor, if we could have a project to do the
same thing that we do for the numbers in the financial
statements for the numbers in what I hope would be a
supplemental audited disclosure relevant to certain industries.
Because when I look at Macy's or Nordstrom, my most
important number might be earnings per share. Great job, clear
definition, they can't change the definition year to year
within the company, it is comparable between the two companies.
And then I look at same-store sales and it is as loosey-goosey
as it gets.
A hundred years ago, we developed the balance sheet and the
financial statement. Those were thought to be the most
important numbers then. Can we move forward to have industry-
specific, perhaps voluntary, perhaps required, supplemental
numerical disclosures with this generally accepted--which means
SEC or delegated by the SEC--defining and have the public
accounting companies that have spent 100 years just auditing
two or three pieces of paper audit a few of those numbers? Or
are we in this bizarre circumstance where some of the numbers
are audited and defined and some aren't?
Ms. White. To some degree, that is correct. Obviously, we
have done a lot of work on non-GAAP measures, as you know, that
are not currently audited. And we have given a lot of guidance
on that.
Same-store sales, as I understand it, would be auditable.
There isn't a consistent definition, there is no question about
that. I think, in terms of sort of adding it to something that
would be required to be audited, you would have to consider--as
you would in others the sort of cost benefit of that in terms
of those figures. But I think there clearly is not consistency
in that space. It is clearly a metric that people pay attention
to so--
Mr. Sherman. Thank you.
Ms. White. --it is a point well raised.
Mr. Garrett. The gentleman's time has expired. I now
recognize Mrs. Wagner
Mrs. Wagner. Thank you, Mr. Chairman. And Chair White,
thank you for appearing before us today to testify on the SEC's
operations, and also I want to lend my voice to the chorus
thanking you sincerely for your service as you prepare for
whatever comes next. And we wish you all the very, very best.
With the election results from last week, there has been a
lot of discussion and strategizing about the prospects of a
Department of Labor's fiduciary rule, one of my favorite
topics, as you well know. So I wanted to ask some questions
regarding that as we look forward to next year.
Earlier this month, Chair White, Merrill Lynch announced
that it would no longer allow its customers with Commission-
based IRAs to purchase mutual funds. Already, choices are being
taken away from customers. Are you at all concerned, ma'am, by
the impact on the retirement services market that the SEC
oversees and regulates?
Ms. White. I think we are probably all concerned about
anything that results in depriving retail investors of
reasonably priced reliable advice. I think we have had that
discussion before in terms of our own--thinking about a
fiduciary duty rule. So, markets do adjust to rules in ways
that sometimes have effects that are not desirable.
We are obviously talking to where we overlap various
effects of the Department of Labor rulemaking. And our job is
to coordinate as best as we can, provide relief if we have the
authority to and it makes to kind of minimize impacts. But that
is one of the impacts that--again the Department of Labor,
certainly they ask a lot of questions about--we have talked
about before.
Mrs. Wagner. Merrill Lynch certainly isn't the only company
to announce major changes to their business operations,
including even selling off of entire businesses. Are these
impacts of the DOL rule being considered by the staff at the
SEC as they develop a proposal to establish a uniform fiduciary
standard, ma'am?
Ms. White. The answer is, certainly that data will be
considered. The status of the SEC is that the staff has
provided a detailed outline of how it would approach what is a
very difficult thing to do, and certainly to do well, to the
Commissioners.
I don't expect that to--there is not--and as I think I have
said before, I am one vote on this. And so there is--I don't
think there is a consensus to move that forward in the current
Commission. But, it is definitely something that continues to
be studied, all impacts, and most especially impacts like that
are being considered.
Mrs. Wagner. And to that point, has the SEC undertaken a
specific analysis on the impact of the DOL's rule on
investments advisors registered with the SEC?
Ms. White. The answer is that is part of the analysis that
is done continuously. Actually, there is not a specific sort of
project for that. But clearly, before we would move towards a
proposal or a rule, it would be quite definitively studied. But
it is also being studied as it happens.
Mrs. Wagner. Earlier this year, before the Capital Markets
Subcommittee, David Grim, the Director of Investment
Management, stated that an analysis of the potential impacts of
a uniform fiduciary standard was ongoing in preparation to
draft a recommended rulemaking, but made clear that, ``Whether
a rule is ultimately proposed and adopted depends on further
analysis and action by the full Commission.'' Can you provide
the committee any update on the staff's--as I push towards this
analysis and some closure on this--of an analysis of the
proposal's impacts?
Ms. White. Again, I think analysis is ongoing all the time.
Obviously, everything is up to the full Commission eventually
as to what rule to do, if any, and what the contents would be.
Often, when we do rule proposals we do significant economic
analysis and then we do even more analysis before we decide
whether to move toward adoption. I don't know if that is what
he is referencing or not, but it is a continuous process and
you certainly complete that process before you would do any
final rule.
Mrs. Wagner. Any timeframe at all? I know that your tenure
is coming to a close, but where do you--
Ms. White. Again, as I have tried to make clear, we would
do this--if we did this under 913 of Dodd-Frank, it has certain
parameters in it. It is a really hard, complex rulemaking. I am
one vote, and I think it is very important to do. But it is
something that I don't expect there to be action on while I am
still the Chair. And I think in this current Commission, you
won't see that advanced. We are a Commission of three, so--
Mrs. Wagner. I understand. And--
Ms. White. Okay.
Mrs. Wagner. And certainly, I also agree that the
jurisdiction of the SEC in this space is what is very
preeminent and important vis-a-vis Section 913 of Dodd-Frank. I
would just encourage you as you come to an end of your tenure
that you make sure that the--in asking and imploring them that
the analysis be publicly shared.
And if not publicly, then certainly that it is shared with
this committee before there would be any proposal of a uniform
fiduciary standard. Thank you.
Ms. White. Thank you. And certainly we would come out with
a proposal if there was a proposal. Yes, but I hear what you
are saying.
Mrs. Wagner. Yes. Just to the analysis as we move forward.
So, I thank you, Mr. Chairman, I yield back.
Mr. Garrett. Thank you. The gentlelady has yielded back.
Mr. Himes is now recognized.
Mr. Himes. Thank you. Thank you, Mr. Chairman. And Chair
White, let me join my colleagues in congratulating you and
thanking you for your service chairing the Securities and
Exchange Commission at a challenging time.
There are two questions I wanted to ask you. As you will
recall, on July 15th, nine of us on this committee sent you and
the Chairman of FINRA a letter about the persistence of the
more or less 7 percent IPO gross spread, drawing on the work of
Professors Abrahamson, Jenkinson, and Jones, and asking both
the SEC and FINRA to undertake a study of the consistency of
this pricing.
It is relevant that we were all supporters of the JOBS Act,
and we were motivated because of course the JOBS Act, which you
certainly lived through, was estimated to save companies $1
million, $2 million a year in Sarbanes-Oxley compliance cost,
and of course the average IPO of roughly $100 million, 7
percent gross spread, that is $7 million right there. And a
remarkably consistent gross spread.
So, we have not heard back from either the SEC or FINRA,
and I am wondering if we can get a sense of whether this is of
interest to either and how we might proceed?
Ms. White. It is a point of significant interest, I think,
and frankly, you should be getting a letter soon. I had checked
on the status of it, so I think there are--I will say this much
as I understand it, and I--before you get the response--always
study it with the staff who have been studying it.
There is some complexity in some of the data, in terms of
some of the cost information that kind of makes it hard to use
it as sort of a straight line. It is 7 percent for reasons that
aren't necessarily apparent and may vary across those that
charge that 7 percent. Again, I don't want to get ahead of the
letter.
And so, there may be difficulty studying it, at least in a
simple way, in a straightforward way. You also have interacting
in all of the space--kind of the changes of the JOBS Act that
were made, whether it is the IPO ramp and some of the other
changes that have been made. So you have a lot of factors
interacting.
But I think you raise a very important point and concern.
So, we will be--we should be getting back to you, certainly in
my tenure but I think very shortly in my tenure.
Mr. Himes. Great, thank you, I appreciate that. At the end
of the day, we are just sort of asking for some scrutiny here.
It may turn out that--
Ms. White. Understood.
Mr. Himes. --an oddly consistent pricing in a free market.
Or it may turn out that it is not.
Ms. White. No, absolutely.
Mr. Himes. Great. My other question is, there were a number
of legislative proposals to define, finally, in statute insider
trading. I am partial to my own H.R. 1625. Responding,
obviously, to the Second Circuit's decision in the Newman case,
which, as you know, has led to any number of convictions being
overturned, and some uncertainty for prosecutors.
I have struggled to get either Justice or any of the
regulators or anybody to say that one simple way, of course, to
remove some of this ambiguity--and I fully understand and we
have talked about this--that there was a vast body of case law,
et cetera, et cetera.
But it does seem to me that clarifying the definition, at
least, of insider trading and giving our enforcement mechanisms
and the judiciary some clarity there would make some sense. But
I have struggled to get sort of an affirmative agreement from
either the SEC or from the Department of Justice on this. And
so, I am wondering if you can give me a perspective on that
question?
Ms. White. I can try. I know we have discussed this before.
And I think yours is a very thoughtful bill. I think one of the
concerns is the kind of various permutations of what the
courts, the SEC, certainly we consider to be illegal insider
trading and defining that precisely is a challenge.
Commissions tried to do it or thought about doing it
sometime ago by rule, as well. And again, I think we are in a
little bit different position than the Department of Justice
with respect to Newman, because it has less impact on our
program because we don't--we have a lower burden of proof on
that issue.
We are obviously watching very closely what happens in the
Salman case that is before the Supreme Court on personal
benefit. I think what I have indicated before is, we basically
have been arguing in our case is quite a robust insider trading
program, including in the Newman spaces that it impacts--
significant decision, but in narrowing Newman to its facts and
pretty successful so far. The Salman decision on personal
benefit, which is part of Newman, if that hopefully from the
enforcement point of view, that comes out in a way that does
provide a reaffirmation of what is required and not required to
prove that element.
But I think we revisit the question of either by regulation
or by statute, do we need a clear definition of it and then
what should that definition be? But I think right now we have
done well, I think. Again, it is a consequential decision in
our space, too, which we worry about in terms of Newman.
And then if Salman comes out in a way that reaffirms what
we expect it to, I think we think the state of insider trading
law is such that we can continue to vigorously enforce it.
Mr. Himes. Okay, great, thank you. And I yield back, Mr.
Chairman.
Mr. Garrett. The gentleman yields back. The gentleman from
Pennsylvania, Mr. Rothfus, is recognized.
Mr. Rothfus. Thank you, Mr. Chairman. And Chair White, I
think that exchange you just had with my colleague, Mr. Himes,
is a testament to your professionalism that you have had before
this committee and the knowledge base that you bring with you
that you have accumulated over your career. And I just want to
commend you for that and for your more than 20 years of public
service.
I want to do a little bit of retrospection. I know some of
my colleagues are focused on the next couple of months and
potential regulations coming down the pike. I want to take a
little bit of time to look at what FSOC has been doing. The
FSOC, with the backing of the SEC, has wisely taken an
activities-based approach to evaluating systemic risk in the
asset management industry. Many of us on the committee would
like to see this approach applied to the insurance industry, as
well.
Can you explain why the FSOC has applied an activities-
based approach for evaluating systemic risk to asset managers,
but not insurers?
Ms. White. Again, FSOC has the option to do either. And I
think that what has been said by FSOC on the asset management
space is that they don't rule out coming back to the
consideration of a designation of firms in that space. But I
did--clearly I think the pivot, as it is sort of referred to,
in the asset management space to activities made great good
sense in that space.
Lots of the analysis on the insurance industry actually
preceded my being on FSOC or at the Commission. It was very
thorough analysis in that space. And I think FSOC is--I am,
again, confident with respect to where it landed there.
But I fully understand the question and the argument that
is being made. But I think the lens through which they looked
at the insurance industry was under clear authority to look at
it in that particular way. And they were confident in their
analysis there.
So you might get it slightly--I think that is a pretty
accurate assessment of the thinking.
Mr. Rothfus. Also, with respect to insurance, I am a little
curious about the SEC's role as a member of both the FSB and
the FSOC. As you know, there are concerns about the extent to
which the FSB's systemic risk designation process for nonbanks
is separate and distinct from the process the FSOC uses to
designate non-bank SIFIs.
Fed Chair Yellen, who testified before this committee in
September, argued against any allegations of FSB front running
based on the assertion that G-SII SIFI designation timeline for
MetLife and Prudential was inconsistent with that narrative. Do
you recall whether it was the FSOC or the FSB that first
designated these non-banks as systemically important?
Ms. White. Again, this either precedes me or it happened
about the time I arrived. I will get back to you. I think there
was designation by the FSB earlier. But I am not sure of that.
I would have to get back to you on that. The prices are
separate. I was actually recused on some of the insurance
companies, so I am less familiar with it.
The SEC staff does participate extensively in FSB
committees. If the subject matter of what is being considered
by an FSB doesn't relate to the securities markets, we don't
actually participate actively in those workstreams at the FSB.
I can get back to you with what information we do have on it,
though.
Mr. Rothfus. You may want to follow up with that.
Ms. White. Sure.
Mr. Rothfus. In your role at the FSOC, have you felt any
pressure to enact FSB policies or designations domestically?
Ms. White. None whatsoever.
Mr. Rothfus. I yield back, Mr. Chairman. Thank you.
Mr. Garrett. The gentleman yields back. The gentlelady from
Wisconsin is recognized.
Ms. Moore. Thank you so much, Mr. Chairman, and thank you
for your service as well. And thank you, Honorable Mary Jo
White, for your service as well. And I wish you well in the
future, but you are still the Chair.
Ms. White. I certainly am.
Ms. Moore. So we want to make sure that you use every
single moment in your office to bring about the results that I
think American people--we have gone through some rough times in
this country, and one of those rough times was when our market
funds sort of broke the bank and there were rules floated,
rules promulgated to float the NAV.
And since then, we have seen $64 billion in lost funds
with--regarding that. And so, I am wondering if you sort of
changed your mind about the efficacy of--particularly with our
State and local governments not really having anywhere to put
these funds that they need to keep liquid that we are already
centralizing money in these large banks. And I am wondering if
you have had any further thoughts about floating NAV?
Ms. White. One answer, and it is a very important one, is
that we at the SEC continue to review the impact of all our
rules, and one of the things I have done since I have been
Chair is to, as they come out of the gates, not wait 2 years or
5 years to look at them and their impacts, so we have certainly
been following that very closely.
I will say that thus far the impacts that have occurred
were largely predicted in our economic analysis. For example,
the money market fund spaces in terms of in total is about the
same in terms of volume size, and dollar size, but a lot of
movement to government funds, which we predicted.
I think the diminution on the muni funds that qualify, they
may be subject to the retail exemption and therefore not
subject to the NAV and obviously they are not impacted. A lot
of that has to do with the low interest rate environment and I
think not the money market fund rule. Clearly, the really
significant movement has been in the prime institutional, where
it does apply.
And so, the answer, I think, to date--and again, we watch
it very closely--is that the benefit of the reforms that we
instituted we believe was the systemic risk issue that is
obviously a large one and of great concern.
And I think that is something that we are confident that we
have the--confident subject to further analysis that you needed
to have the floating NAV for. I think--possibly, watch it
closely, you will see some return of those funds to the prime
institutional space over time, but we have to see if that
happens.
Ms. Moore. Right now, it is not happening. The SEC put out
a report in 2012 on the municipal market that included a lot of
recommendations, including providing the SEC authority to
directly regulate muni bond disclosures.
Now, you have been supportive of this report in the past,
but in light of the MCDC initiative, where several issuers were
fined for disclosure violations, do you think we need to do
more in Congress to move on these recommendations?
Ms. White. I think it is a broader issue than the MCDC,
because that was really a continuing disclosure obligation, and
as we have obviously less direct authority in that space than
we do for the public company sector. I think the MCDC was
enormously effective and it obviously had--we try to carefully
calibrate that so that we were mainly aimed, particularly for
issuers, and really changing the conduct there and improving
the disclosures. And so we really tried to be very measured
there.
The underwriters measured also but obviously, there was a
different settlement paradigm for them. We have seen
improvement in those disclosures, but I would not conclude that
therefore obviates necessarily the need for greater authority
for the SEC, and that is something that I--the staff is, again,
it is a continuous process, but we will be looking at--and is
looking at sort of continuously. So there may be--we may speak
further on that in the future.
Ms. Moore. Thank you again, and thank you again for your
service, and I hope that you stay floating somewhere on the
fringes so that we can have someone to call.
Ms. White. Thank you very much. Thank you.
Ms. Moore. I yield back, Mr. Chairman.
Mr. Garrett. The gentlelady yields back. Mr. Tipton is
recognized for 5 minutes.
Mr. Tipton. Thank you, Mr. Chairman, and thank you for your
service as well, Chair White. Thank you for taking the time to
be here. I would like you to be able to expand maybe a bit, if
you would, on the sandbox regulatory framework in regards to
innovation being able to provide access to capital. And is it
your sense that the SEC should take the lead in developing
regulations for the financial technology center and encourage a
flexible regulatory structure to allow for experimentation and
innovation within the FinTech world?
Ms. White. There are several questions in that. I think I
am supportive of the SEC asserting its jurisdiction in spaces
that we are in. I think it is important to do that. We are
doing that in consultation, coordination, and cooperation in
the Treasury markets, as well. I think we do a good job in
those spaces, so I think we should be asserting our authority
there. I also think that where we come out is yet to be seen on
various issues which is as it should be, I think.
And I had mentioned earlier that I had set up a FinTech
working group some time ago to, among other things, task them
to come up with recommendations as to how the SEC should
proceed, clearly, having the lens of this innovation is
exciting and can yield tremendous benefits so we don't want to
be stifling in what we do. We obviously have to be concerned
about protecting investors in everything that we do, as well.
So, I think we have the right group working on it. I think we
have the right mindset working on it, so--
Mr. Tipton. Yes, I was a little concerned when Comptroller
Curry had made a few comments that seemed to indicate it is a
little more of a one-size-fits-all, so I was heartened to hear
your comments a few moments ago saying that one-size-fits-all
is not the best path, oftentimes--
Ms. White. Yes, again, just to be clear, at the end of the
day we have to make sure investors are protected in whatever we
do, but I think it is something that we have to really look at
with fresh and open eyes and an open mind.
Mr. Tipton. Going a little bit to some of the forums that
you held earlier, and understanding you're gathering the
recommendations from those forums, what was your sense of what
the big challenge is that small businesses are really facing?
Ms. White. There are a lot of challenges that small
businesses face, which I think all of the regulators need to be
very focused on, and I think we are at the SEC. You obviously
have a lot of startups in the spaces that we are looking at,
whether it be automated advice--I think one of the--well, I was
watching one of the panels--one of the predictions is that we
are going to have more consolidation of automated advice
givers, also known as robo-advisors, but they would like that
to drop from the lingo that is out there.
And you worry a bit about those smaller, maybe high-quality
advice-givers that may find it too difficult to really sort of
penetrate the market space. We clearly are of the view that
registered advisors, whether they are automated providers or in
part automated providers of advice, are subject to fiduciary
duty rule, and have to comply with those obligations.
But I think one of the things we are doing in our national
exam program, that is a priority for our exam program to see
sort of across the industry, how they are carrying out their
responsibilities. And what we try to do from that kind of exam
is then to share kind of the learning, frankly, and hopefully
that helps some of the smaller outfits, but you can't tell yet.
I think it is a little too early to predict.
Mr. Tipton. And you may not be able to fully speak to this
because I know you are reviewing the recommendations, but did
you have a sense coming back from the private sector that being
able to have flexibility to be able to streamline when we are
talking one-size-fits-all, the multiple costs that are
associated with redundancy and regulations, if that was
something that the private sector was really wanting to be able
to encourage?
Ms. White. I think the private sector encourages it. I
think whichever sector I am in, this makes sense. Sometimes
one-size-fits-all in a certain range, but most often, if you
have the ability to do it, you want to tailor regulation to the
particular problem.
Mr. Tipton. And just kind of a final--you wear a couple of
hats, but with the FSOC that you sit on, would you support the
Fed's attempt to usurp the SEC's jurisdiction as a regulatory
agency over the capital markets?
Ms. White. No, I would not, but I don't think they are
trying to do that, at least since I have been here.
Mr. Tipton. Okay. Great. Thank you so much, and thanks for
your service.
Thank you, Mr. Chairman. I yield back.
Mr. Garrett. Thank you. The gentleman yields back.
The gentleman from Maine. It is Maine, right?
Mr. Poliquin. Yes, Mr. Chairman, it is Maine.
Ms. White. I am coming to Maine. I am coming to Maine.
Mr. Garrett. Everyone is going to Maine after--
Ms. White. I knew he was going to ask me.
[laughter]
Mr. Garrett. We can restart the clock and give him an
additional 30 seconds to speak about Maine.
Mr. Poliquin. I would appreciate that very much, Mr.
Chairman. Thank you, and I thank Chair White very much for
being here. Your retirement from your great service to our
country, and thank you very much, also does provide an
opportunity for you to vacation more, and Maine, as you know,
is vacation land, and it is also a great place to buy a second
home, and we would love to invite you to be a taxpayer up
there, too, Chair White. So, either way would be just great
but--
Ms. White. Now you are going a little too far.
[laughter]
Mr. Poliquin. I did want to cover three issues very quickly
with you today, Chair White, if I can. And we have talked about
a couple of these already but of course, your mission that you
folks pursue over there very aggressively, and I appreciate it,
is to make sure our small investors have the information they
need to make the conscious decisions, the important decisions,
to prepare for their retirement nest egg or college savings or
what have you.
Now, you folks in rule 30e-3 made a decision not to move
forward with this rule and I am very grateful. Thank you very
much. And for two reasons in my case, Chair White. Number one,
we have a highly rural district in Maine's Second District, and
there are a lot of folks who are not connected to broadband. We
have a problem with cell phone coverage in many parts of our
district. Now, there are 60 million Americans who live in rural
districts. In addition to that, there are about 46 million who
are seniors 65 years and older who have a hard time navigating
the internet.
So it is critically important to make sure that our senior
savers, and savers and investors in rural districts, have the
information that is so critical to make the decisions they
need. Now, also, in full disclosure Chair White, we make that
paper in Maine. That very fine paper that these mutual fund
reports are printed on is made up at Twin Rivers and Madawaska,
way up along the Canadian border, 600 terrific jobs, and I
advocate for them all the time.
Now, I know a lot of the Wall Street firms want to forgo
the costs of buying paper and printing on the paper and sending
it out to investors. However, our investors need this
information if they have no other way to get it. So I am
pleased and grateful that you have not moved forward on rule
30e-3 that would make it more difficult for our seniors to
receive this information on paper.
So my question to you, Chair White, is why don't you just
redraw the rule?
Ms. White. What I said--we have discussed it, I know--at
the time was, we actually adopted the rest of the proposal for
investment company reporting was--that we got extensive
important comments along the lines that you have just made,
that I directed to the staff to study further, and then come
back to the Commission, basically targeting year-end to come
back to the Commission with a recommendation after that was
done.
We were looking at who is paying the bills, to try to get
better cost data. So that undertaking is quite actively
proceeding, and it is something that I think, again, the
comments were well taken, and needed further study. I can't
tell you where the Commission comes out ultimately or precisely
when.
Mr. Poliquin. The decision will be made, if I understand
you correctly, you expect by the end of the year before you
move on to your--
Ms. White. Again, I have spoken publicly--I did at the open
meetings, that we were targeting year-end for that.
Mr. Poliquin. Okay. Let's move on, if I can, to a separate
topic. We don't have a lot of time to deal with the role of
FSOC when it comes to asset managers, and I know a couple of
questions have already been asked about this, Chair White. You
and I may disagree on this, but if we both run pension
management firms and I say that my performance is better than
yours, then your clients will come to my shop, but the assets
are holdover here at French Hill's custodian bank. So, if your
firm gets in trouble, it represents no systemic risk to the
economy.
That being said, and also, Chair White, the fact that you
folks have already adopted a new more aggressive series of
rules to make sure you aggressively examine our asset
management community, and you folks are the primary regulator
for pension fund managers and folks who run college savings
plans, why don't you just recommend, if I may suggest to FSOC,
that you take the potential designation of asset managers as
too-big-to-fail just right off the table. Do you need it
anymore?
Ms. White. I do think this is enormously important to
safeguard our financial system, to have FSOC here, if not
continuously address risks, emerging risks, possible risks down
the pike. So, taking things off the table, you really are sort
of charged with continually looking at it.
Having said that, clearly there is a significant pivot to
activities which made sense. We have obviously done rulemaking
since then, but I think FSOC's effort says they certainly to
date are complementary of what we are doing at the SEC, not
contradictory.
Mr. Poliquin. That concern I have, Chair White, is that of
course, if any asset manager that represents no systemic risk
to the economy is so designated, there will be a whole layer
upon layer of new regulations that will drive up the cost and
drive down the rate of return of our small investors trying to
save for college or their retirement. So that is why it would
be terrific if we could use your influence during the last
couple of months you are with us to make sure they get the
message over there at FSOC, and I really appreciate it.
And again, congratulations, we will be looking forward to
welcoming you to Maine whenever you find that to be the right
time. Thank you, Mr. Chairman, I yield back my time.
Mr. Garrett. The gentleman yields back. Mr. Hill is now
recognized for 5 minutes.
Mr. Hill. I thank the Chair, and I thank you, Chairman
Garrett, for your service in this Congress as chairman of our
Capital Markets Subcommittee. You have done an outstanding job.
Chair White, it is a pleasure to see you, and as someone who
has testified before Congress before, I always thank you for
your forthright testimony. It is a relative statement compared
to many who come before us. Sometimes the bar is relatively low
to step over. But I really do appreciate your effort to be
responsive to the committee in a timely way.
The market structure topic, we have talked about that
before. And this is something in the first term I have had in
Congress over the past 2 years that has concerned me because we
have some 50 trading platforms and we have added recently a new
exchange. And when the Commission published its list of rules
that would be reviewed pursuant to the regulatory flexibility
act, it included Regulation NMS. And have you--where are you on
your commitment to fully vet and review that rule?
Ms. White. NMS, as I mentioned before, as least as I look
at our market structure work, it is both things that we know
now we think at least should be fixed, and it is a
comprehensive review of all the relevant issues. Obviously, one
of the biggest relevant issues is NMS itself, and that is
something that is both is something that is the subject of our
MSAC committee's work and also the SEC's comprehensive review.
There are a lot of pieces to that. One of the reasons we
want to be data-driven in the market structure work is that we
don't--sort of, we do have the safest, most reliable markets in
the world and strongest I think, and we don't want to do
something would have unintended consequences. But in terms of
examining NMS from the ground up, it is very much on the table
to do.
Mr. Hill. When do you think the Commission will review
their work and make a proposal there?
Ms. White. With respect to NMS itself? I can't really
predict the precise timing, I guess it may be up to somebody
besides me, but in terms of actually when it will be before the
Commission. But I am sure it will be--well, I shouldn't say I
am sure, but I would expect it to remain front and center going
forward.
Mr. Hill. So this issue between trading venues and
exchanges is a related topic. I think it all relates to us
having the most competitive markets and having the most
competitive particularity equity markets. I noted that former
Commissioner Gallagher gave a speech not long ago where he
talked about should exchanges remain self-regulatory
organizations, SROs, in your work, as you head out, have you
got and developed a personal view on that?
Ms. White. That is something, we continue to say, that is
also, I will say, in one of our subcommittees that is very
focused on it, we continue to do work on it, I haven't formed a
view on it, other than I think there are significant questions
raised.
Mr. Hill. I want to switch gears briefly, and it is
something that I think Congress has reaffirmed over the past
years, and certainly the Commission has, and that is the issue
that for equity research, one can use so-called soft dollar
Commissions to pay for investment research. Is that still the
position of the Commission? And under 20 AD, for example?
Ms. White. There is not a prohibition on that, right?
Mr. Hill. Yes. But I hear that in Europe, they are headed
in a different direction, under their 2014 proposal they put
out called markets and financial instruments directive.
Couldn't that create a real disparity for U.S. investment
banking and research firms for their clients in Europe versus
their clients in the United States?
Ms. White. It certainly has that potential. One of the
things that struck me, certainly in the first week I entered
the door, was just how much we need to be coordinating with
international regulators for--certainly among the reasons, the
ones you are just teeing up right now because, and it is
something we do consider when we decide our own policies as
well.
You are looking at, how do you coordinate two different
systems? Who is at an advantage and a disadvantage? And so, it
is something we continue to discuss with them in various forms,
actually.
Mr. Hill. Would it be something you would be willing to
write a letter to the European securities regulators and
caution them about? Because of the disparate treatment that our
investment research companies--
Ms. White. I think I would need a little further briefing
on that from the staff as to exactly, at least in their view,
how they sync together or don't. But certainly if I was of that
view, after that, I certainly wouldn't hesitate. I might not do
it by letter, but--
Mr. Hill. You have time. It doesn't take place until 2018.
Ms. White. I do have time.
Mr. Hill. But in 2017, you know how firms work well in
advance of deadlines, and I think it could put American
companies at severe disadvantage. Thanks for taking a look at
it for me. I yield back, Mr. Chairman.
Ms. White. Thank you.
Mr. Garrett. The gentlemen yields back.
And I think Mr. Barr is going to have the last word on this
entire matter.
Mr. Barr. I would like to join my colleagues in also
thanking our chairman of the Capital Markets Subcommittee for
his leadership. And, Chair White, thank you for your service as
head of the Commission and for sharing your expertise and your
insights in helping us with our oversight responsibilities over
the Commission, over these last several years.
I want to focus on the part of the Commission's statutory
mission to maintain fair, orderly, and efficient markets and
facilitate capital formation. Following up on the questions
from my colleague, Mr. Royce, regarding fixed-income markets,
as you know, significant attention has been devoted to
liquidity concerns in fixed-income markets, both in the U.S.
and globally.
And when you last testified, I believe, in front of our
committee and when you were asked about the regulatory impact
on liquidity and illiquidity that we are witnessing in fixed-
income markets, I think you testified that there is no question
that there are concerns about the liquidity in fixed-income
markets, but that you could not identify the culprit. And we
have heard similar testimony from the Treasury Secretary, who
denies that regulations, bulk or risk retention, Basel III can
be pinpointed to blame here.
And yet, we continue to see, since your last appearance in
front of our committee, evidence of regulatory impacts on
liquidity. On September 27th, former Treasury Secretary Hank
Paulson commented that the Volcker Rule solved a problem that
was not a problem. We have much less liquidity in the markets.
It has become much harder for financial institutions to provide
liquidity. That is his testimony.
And then you had a CEO of one of the world's largest
electronic market makers announcing that his firm would no
longer invest in certain bond exchange-traded funds because of
underlying securities that become too hard to trade. And then
on October 7th, the value of the British pound plummeted from
about $1.26 to $1.18 in a matter of minutes during trading in
Asia, with some electronic platforms recording trades below
$1.15. The Wall Street Journal attributed this extreme
volatility in part to a lack of currency traders in the foreign
exchange markets.
So given some of these more recent developments, have you
been able to determine whether regulations, the Volcker Rule,
risk retention, or Basel III are in fact impacting this
illiquidity?
Ms. White. The answer to that is, no, we don't have the
evidence to make that finding. I think there are also some
differences of opinion as to whether you have actually had the
deterioration in liquidity that you are basically--a number of
market participants are noting from the data that we have
available.
One of the things that--because I sort of constantly go
back to the staff and say, here is what the data looks like, we
report quarterly to this committee and several of us
regulators, primary liquidity, secondary liquidity, in the
corporate bond markets. And whereas you clearly have some
deterioration if you use the measure of dealer inventories, the
other measures really seem to be holding pretty constant.
We obviously had some impact from Brexit, but that seemed
to recover. And so one of the things that is possible in terms
of, why are there two different views out there is most of
liquidity measures are based on completed transactions. Now,
there can be transactions that don't get completed because you
don't have an available buyer or seller. And so it is kind of a
speculative thought, I suppose. But it could be that some of
what isn't being measured is actually transactions not being
consummated as opposed to ones that may take a while to
consummate.
So there still is a different--the bottom line is, no, we
don't see that impact in the data and we don't see the
deterioration that others see in the data that we have.
Mr. Barr. But there is evidence out there. So for example,
when the CEO of Blackstone says when they passed Volcker, there
were 25 firms making markets in junk-bonds, guess how many
there are now? Five. From twenty-five to five. Triumph? You
decide. What happens when things get difficult and the market
now just locks up? That is not healthy for capital markets, and
this is happening all over. It affects all markets and
liquidity is coming down because we mandated that to make the
world safer. But this does not make the world safer. This is
encouraging the world to be--this is not encouraging the world
to be safe, because when people need to sell and there isn't
liquidity, what happens? Your reaction to that?
Ms. White. I think that is the dealer inventory metric I
was just talking about. But under Volcker, you also have the
market maker exception, so that you can have banks basically
acting as market makers that still permit it. So that can be a
source of liquidity.
But look, just sort of stepping back, these are significant
concerns. And we study it globally, we are studying it
domestically, we are studying it getting all the available data
that we can and--and really staying on top of it. But our
economists at the SEC are actually directed to report to
Congress, I think in May of 2017, of the impact of regulations
collectively on corporate bond liquidity. That is part of what
they will be reporting on.
Mr. Barr. My time--
Ms. White. It is a hard thing to do, a hard thing to ferret
out also, and a hard thing to measure.
Mr. Barr. My time has expired, and you are exiting your
post, but I would encourage your successors at the SEC to
continue to evaluate that particularly in their role as a
member of FSOC.
Thank you. I yield back.
Mr. Garrett. There are a lot of other Members out in the
other chambers who are just waiting to come in at this last
minute.
[laughter]
Because I was that told you, unlike many other witnesses
who come before us, do not have a hard stop date. So it is just
going to keep--no, it is not.
Ms. White. I just might as well sleep here right now, if it
is okay.
Mr. Garrett. So that concludes today's hearing. And let me
once again say thank you for your service. Someone made the
comment, and I don't think it was meant to come out that way,
they said they thank you for your service and it is relative to
the others here. And it is very true that the bar for the other
people here is pretty low. But you certainly have greatly
exceeded that by the breadth of your expertise and your
dedication to public service in this position specifically.
So I personally thank you for what you have done, although
I will say at the very beginning with a ``but,'' but on those
areas that we disagree on.
Ms. White. I understand. And thank you for your service, as
well.
Mr. Garrett. Thank you.
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.
And with that, this hearing is adjourned.
[Whereupon, at 12:46 p.m., the hearing was adjourned.]
A P P E N D I X
November 15, 2016
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