[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]





                EXAMINING THE SEC'S AGENDA, OPERATIONS,
                       AND FY 2016 BUDGET REQUEST

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 24, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-10
                           
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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
ROBERT DOLD, Illinois
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas

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

                              ----------                              
                                                                   Page
Hearing held on:
    March 24, 2015...............................................     1
Appendix:
    March 24, 2015...............................................    67

                               WITNESSES
                        Tuesday, March 24, 2015

White, Hon. Mary Jo, Chair, U.S. Securities and Exchange 
  Commission.....................................................     4

                                APPENDIX

Prepared statements:
    White, Hon. Mary Jo..........................................    68

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    Letter to SEC Chair Mary Jo White, dated March 17, 2015......    95
White, Hon. Mary Jo:
    Written responses to questions for the record submitted by 
      Representative Fincher.....................................    99
    Written responses to questions for the record submitted by 
      Representative Heck........................................   101
    Written responses to questions for the record submitted by 
      Representative Huizenga....................................   102
    Written responses to questions for the record submitted by 
      Representative Luetkemeyer.................................   106
    Written responses to questions for the record submitted by 
      Representative Messer......................................   108
    Written responses to questions for the record submitted by 
      Representative Moore.......................................   109
    Written responses to questions for the record submitted by 
      Representative Royce.......................................   110
    Written responses to questions for the record submitted by 
      Representative Sinema......................................   113
    Written responses to questions for the record submitted by 
      Representative Waters......................................   114
    Written responses to questions for the record submitted by 
      Representative Sherman.....................................   120

 
                      EXAMINING THE SEC'S AGENDA,
                        OPERATIONS, AND FY 2016
                             BUDGET REQUEST

                              ----------                              


                        Tuesday, March 24, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:49 a.m., in 
room HVC-210, Capitol Visitor Center, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, King, Royce, 
Lucas, Garrett, Neugebauer, McHenry, Pearce, Posey, 
Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, 
Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross, 
Pittenger, Wagner, Barr, Rothfus, Schweikert, Dold, Guinta, 
Tipton, Williams, Poliquin, Love, Hill; Waters, Maloney, 
Velazquez, Sherman, Capuano, Lynch, Green, Cleaver, Moore, 
Ellison, Himes, Carney, Sewell, Kildee, Sinema, Beatty, Heck, 
and Vargas.
    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 FY 2016 Budget Request.'' I now recognize 
myself for 3 minutes for an opening statement.
    This morning we welcome Securities and Exchange Commission 
Chair Mary Jo White back to the committee. This committee is 
indeed committed to conducting vigorous oversight to make 
certain that the SEC is accountable in fulfilling its three-
part mission of protecting investors; maintaining fair, 
orderly, and efficient markets; and promoting capital 
formation. By holding today's hearing, we hope to better 
understand the progress the Commission is making in its 
priorities for the remainder of the year.
    Now, I have no doubt the hearing will serve as deja vu all 
over again for Members who argue that the SEC has inadequate 
resources with which to carry out its mission. However, the 
facts are that the SEC's budget has grown tremendously over the 
years. In fact, the SEC's current budget of $1.5 billion 
represents an increase of almost 35 percent since the passage 
of the Dodd-Frank Act not yet 5 years ago. And, in fact, over a 
20-year period, since 1995, the SEC's budget has increased 
nearly 400 percent, and that is 3 times greater--3 times 
greater--than our national defense budget has grown at a time 
when we have to fight the international war on terror. This 
growth in the SEC's budget considerably outstrips most other 
government agencies over the similar time period.
    Furthermore, as I look to the monitors to my left and my 
right which show the rapidly rising and unsustainable red ink 
of our national debt, a debt that threatens to bankrupt our 
Nation, I am reminded that the hardworking Texans of the Fifth 
District of Texas whom I represent have not had the privilege 
of seeing their family budgets increase fourfold, and they are 
the ones who ultimately will have to pay for this unsustainable 
debt, which again underscores that in Washington, it is not 
always how much money you spend that counts, it is how you 
spend the money. And that leads to the SEC's priorities and 
agenda for 2015.
    The bipartisan JOBS Act should be a priority, but 
regrettably it does not appear the SEC treats it as such. In a 
time when the American people continue to struggle with the 
slowest, weakest recovery of the postwar era, the SEC's neglect 
of this makes no sense. Even President Obama, with whom I 
rarely agree, has called the JOBS Act, ``a big bill,'' and a 
``potential game-changer that will help smaller companies take 
a major step towards expanding and hiring more workers.'' 
Surely we want companies on Main Street to hire more workers. 
So if the SEC will not finish the work on the JOBS Act, it is 
incumbent that Congress do it for them.
    Likewise, the SEC's delay in completing its Dodd-Frank 
mandates, particularly in the derivatives area, has caused 
unnecessary uncertainty and allowed the Commodity Futures 
Trading Commission (CFTC) to dictate outcomes that I believe 
most Members of Congress did not intend.
    So as we discuss the SEC's budget request today, our goal, 
as always, is accountability. It is this committee's duty to 
ensure that SEC resources are used wisely and efficiently and 
for the benefit of the American people.
    I now yield 2 minutes to the ranking member of our Capital 
Markets Subcommittee, the gentlelady from New York, Mrs. 
Maloney.
    Mrs. Maloney. Thank you so much, Mr. Chairman.
    And welcome, Chair White.
    The United States has by far the largest and deepest 
capital markets in the world. We also rely much more heavily on 
the capital markets as opposed to loans through commercial 
banks than any other developed country in the world. This makes 
the SEC, which is our primary capital markets regulator, one of 
the most important regulators in the world.
    Because of the breadth of activities that it regulates, the 
SEC must constantly evolve and adapt its regulations in order 
to respond to new innovations and trends in the markets. 
Sometimes this means modernizing a regulatory regime to take 
account of these new risks in the market. This is precisely 
what the SEC is doing in two of the most important areas of the 
markets: asset management; and equity market structure. Both of 
these areas have undergone significant change in recent years, 
and the SEC, under Chair White's leadership, has initiated 
ambitious efforts to update the regulations governing asset 
managers and equity markets.
    It is worth noting that both of these regulatory 
initiatives reflect a greater focus by the Commission on the 
issue of systemic risk, which is an important and welcomed 
development. I look forward to hearing an update on these 
important initiatives, as well as a potential timeline for 
moving these initiatives forward.
    Thank you. My time has expired.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, Mr. Garrett, chairman of our Capital Markets 
Subcommittee.
    Mr. Garrett. Thank you, Mr. Chairman.
    The SEC is responsible for regulating the equity and fixed 
income markets, which we all know are vital for economic growth 
and the well-being of millions of hardworking Americans who 
invest every single day in order to buy a home, pay for their 
kids' education, fund retirement.
    So I was encouraged, Madam Chair, when I read a statement 
you made earlier this year where you said, ``Even though I am a 
political appointee--as Chair of the SEC--politics really don't 
come with me.'' And I was hopeful that under your direction the 
Commission would finally be able to agree on a regulatory 
agenda that first and foremost advances only the agency's 
statutory mission.
    Unfortunately, as you know, some assert that the SEC is 
becoming a little more political and distracted from its core 
mission. For example, by my count, during your first 2 years as 
Chair, the Commission has already had 10 partisan 3-to-2 votes 
on major agency rulemakings, and according to a March 17th 
press report, ``Recent objections by Republican Commissioners 
to certain SEC enforcement actions are highlighting the 
increasing partisan divide when it comes to policing bad actors 
in the financial markets.''
    So over the last 2 years you have what some would consider 
``prioritized'' thousands of hours and millions of dollars 
completing some special interest rules, like the CEO pay ratio 
and the conflicts mineral disclosure rules, and the SEC also 
recently issued a rule proposed, not called for in the JOBS 
Act, that has and will continue to deincentivize Reg D. These 
rules are fundamentally at odds with and distract the SEC from 
fulfilling its statutory mission.
    To see this, one must look no further than the SEC's lack 
of meaningful progress on some critical activities such as 
reforming the structure of U.S. fixed income markets, 
finalizing the remaining provisions of the JOBS Act, conducting 
a comprehensive review to improve U.S. equity markets, and 
eliminating duplicative, outdated, or unnecessary disclosure 
requirements, particularly for these public companies.
    As your colleague Commissioner Dan Gallagher said, ``You 
are what you prioritize.'' So it is time for the SEC to 
prioritize its statutory ambition over the pet projects of some 
special interest groups and the political staff at the White 
House.
    With that, I yield back.
    Chairman Hensarling. The Chair now recognizes the ranking 
member for 3 minutes.
    Ms. Waters. Thank you, Mr. Chairman.
    And welcome, Chair White.
    Chair White, the SEC has a lot on its plate as it works to 
protect America's investors, young and old. That is why my 
Democratic colleagues and I support full funding for the 
Commission.
    Chair White, I am pleased that you support a harmonized 
fiduciary duty rule that will protect America's investors and 
retirees, but the devil is in the details, and we must take 
care not to weaken existing protections in pursuit of a uniform 
standard.
    I would also emphasize that while SEC and Department of 
Labor coordination is important, it is critical to recognize 
that the two agencies have different jurisdictions and 
mandates. I share your view that policing of fiduciary rule is 
vital. However, I support the approach endorsed by the former 
Republican chairman and Democrats of this committee, industry 
associations, and advocates to simply pay for more SEC 
examiners with a modest fee on advisers.
    Turning to another retail investor concern, tomorrow the 
SEC will vote on a rule allowing our small businesses to raise 
funds in a streamlined offering known as Reg A-Plus. I would 
like to reiterate that when Congress passed this provision, we 
rejected the preemption of State regulators, because they have 
vital expertise in policing these smaller issuances.
    Finally, as you and I have discussed, I am concerned with 
the SEC's seemingly reflexive process of granting waivers of 
bad actor disqualifications. Currently, every publicly 
available waiver application has been granted, with large 
financial firms receiving the vast majority.
    This morning I released a draft of my legislation to 
address this problem by requiring the SEC to implement a more 
rigorous and more public process for granting waivers. The Bad 
Actors Disqualification Act would no longer allow the SEC to 
consider waivers at the staff level, would provide the public a 
notice-and-comment period, and would require the SEC to keep 
complete public records. Already, labor, consumer, and 
financial reform groups have expressed their support for the 
measure.
    So, Chair White, I look forward to working with you on 
additional steps that the SEC can take to best deter bad actors 
in the marketplace, and I thank you for the conversations we 
have already begun. I look forward to working with you.
    I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    Today we welcome the testimony of the Honorable Mary Jo 
White, Chair of the SEC. Chair White has previously testified 
before our committee, thus I believe she needs no further 
introduction.
    Without objection, Chair White, your written statement will 
be made a part of the record, and you are now recognized to 
give an oral presentation of your testimony. Welcome.

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

    Ms. White. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. Again, thank you for 
inviting me to testify about the recent activities and ongoing 
initiatives of the SEC and our Fiscal Year 2016 budget request.
    As you know, and as the chairman said in his opening 
remarks, the agency's mission is critical to investors, our 
markets, and companies seeking to raise capital to support our 
economy. We take our extensive responsibilities very seriously 
at the SEC.
    The U.S. securities markets are high-speed and constantly 
evolving, and the industries within our jurisdiction are not 
static. From Fiscal Year 2001 to the start of this fiscal year, 
assets under management of SEC-registered advisers increased 
approximately 254 percent, from $17.5 trillion to approximately 
$62 trillion. Assets under management of mutual funds grew by 
143 percent, to $15.6 trillion, and trading volume in the 
equity markets more than doubled, to over $67 trillion, and the 
products traded have been become more sophisticated and 
complex.
    During this time the SEC's responsibilities have also 
dramatically increased with new or expanded jurisdiction over 
securities-based swaps, private fund advisers, credit rating 
agencies, municipal advisers, as well as others.
    Since I testified before this committee last, the SEC has 
accomplished a great deal. Informed by rigorous economic 
analysis, we have made substantial progress in implementing a 
number of very significant rules, many mandated by the Dodd-
Frank Act or the JOBS Act. These are detailed in my written 
testimony and include fundamental reforms of money market 
funds, securitizations, credit rating agencies, derivatives, 
and the integrity and resiliency of our equity markets.
    At my direction, the staff is also engaged in a number of 
very significant ongoing policy initiatives, including a broad 
equity market structure review focused on high-frequency 
trading and fairness, market transparency, trading venue 
regulation, mitigating broker conflicts, and critical market 
infrastructure, improvements to the market structure for 
trading fixed income securities, comprehensive measures for 
enhancing the asset management industry's risk monitoring and 
regulatory safeguards, and improvements to public company 
disclosures.
    We have continued to aggressively and fairly enforce the 
securities laws, requiring admissions in appropriate cases, 
filing 755 enforcement actions, and obtaining orders for more 
than $4.16 billion in disgorgement and penalties in Fiscal Year 
2014.
    We have made enhancements to make our examination program 
more efficient and effective, including adding industry 
experts, augmenting our data analytics capacities, and 
strengthening training programs.
    The agency's emphasis on technology is also continuing to 
pay dividends across the agency, improving efficiencies while 
allowing us to cover more regulatory ground.
    The SEC's Fiscal Year 2016 budget request seeks to address 
our current needs and the challenges we face by providing core 
resources. The SEC's funding mechanism is deficit-neutral, 
fully offset by matching collections of nominal securities 
transaction fees, and will not impact the funding available to 
other agencies.
    As I believe we have demonstrated, we respect congressional 
oversight of the agency and its budget and our responsibility 
to be good stewards of the funds we are appropriated.
    Specifically, this budget would permit us to further 
address the pressing need for additional examination coverage 
of registered investment advisers and investment companies to 
better protect investors and our securities markets. It would 
allow us to continue to increase our focus on robust economic 
risk analysis, to support rulemaking and oversight, and to 
further bolster our core enforcement functions to better 
detect, investigate, and prosecute wrongdoing. It would also 
permit us to continue our efforts to leverage technology, to 
improve agency programs, reduce filer burden, and enhance the 
security of the agency's information technology.
    Last year was a year of important accomplishments for the 
SEC, but more remains to be done. Completing our congressional 
mandates promptly and well remains an important priority. We 
are continuing all of our work with intensity. Ultimately, our 
objective is to implement and enforce rules that create a 
strong and effective regulatory framework that protects 
investors and our markets and stand the test of time in rapidly 
changing financial markets.
    This committee's support of the agency is very much 
appreciated. It allows us to build upon the significant 
progress we have achieved, which I am firmly committed to 
advancing and expanding. Thank you very much. I would be happy 
to take your questions.
    [The prepared statement of Chair White can be found on page 
68 of the appendix.]
    Chairman Hensarling. Thank you, Chair White.
    The Chair now yield himself 5 minutes for questioning.
    Chair White, in your individual capacity you are a member 
of FSOC, and then the SEC is a member of the G-20's FSB, 
correct?
    Ms. White. That is correct.
    Chairman Hensarling. I think it was approximately 18 months 
ago, give or take, that the FSB declared that any financial 
intermediary not regulated as a bank is part of the ``shadow 
banking system'' and must be regulated with bank-like 
prudential regulations.
    So your agency is the primary regulator of many of these 
entities, including asset managers, investment funds, and 
broker-dealers. Do you believe that the legislative framework 
is inadequate for the SEC to comprehensively and competently 
regulate these entities that the FSB apparently believes needs 
bank-like prudential regulations?
    Ms. White. Speaking for me and the SEC, I don't think that 
our regulatory framework is deficient. Clearly, if we saw a gap 
in what we needed to do and needed legislation to do it, we 
would be saying that.
    Chairman Hensarling. Chair White, when the FSB made this 
pronouncement, did the SEC object?
    Ms. White. Again, if I am thinking of the report in 
question correctly, what the process is within the SEC, the SEC 
has been a member of the FSB since 2009, and the staff is on 
various steering committees and working groups. To the extent 
that the subject matter pertains to things related to 
securities, let us say, a report on asset managers or whatever 
it may be--
    Chairman Hensarling. But this does relate to the securities 
market. So at some point didn't the SEC either have to consent 
or object?
    Ms. White. What I would need to confirm by getting back to 
you is the precise report. What we do at the SEC with the FSB 
final records, to the extent that they relate to anything to do 
with securities or--
    Chairman Hensarling. If you could get back to this 
committee, I would like to have--
    Ms. White. The Commission is asked to object or not. That 
is correct.
    Chairman Hensarling. Has the SEC conducted any type of 
analysis on the impact of bank-like prudential regulation on 
our capital markets?
    Ms. White. In connection with some of our rulemakings, some 
of our work that our economists do, there is some analysis of 
that. Clearly we also through the staff, and as you know, I 
am--
    Chairman Hensarling. And briefly, what is your takeaway 
from that analysis?
    Ms. White. I think there are several takeaways. Obviously, 
the set-up with FSOC is you can designate a non-bank as 
systemically significant so that it is subjected to prudential 
regulation. As part of that process, our staff does provide 
assistance to the committees of FSOC, but there are a lot of 
different analyses that are out there.
    Chairman Hensarling. Let me move on to the Volcker Rule. In 
January of last year, your Division of Investment Management 
released guidance that said, ``Primary dealer inventories of 
corporate bonds appear to be at an all-time low relative to 
market size.'' Late last year The Wall Street Journal reported, 
``The bond market plumbing is clogged. Investment banks have 
pulled back from market-making due to regulation.'' In February 
of this year Bloomberg reported, ``Bond traders are 
vanishing.'' They go on to say, ``New regulations since the 
financial crisis, including the Volcker Rule in the U.S., and 
Basel III in Europe, appear to be the causes.'' And last week 
The Wall Street Journal reported that the Bank for 
International Settlements warned that the bond market is 
becoming increasingly fragmented and fragile. Trading 
inventories of corporate bonds and other less liquid assets 
have fallen. This is partly a reaction to regulation.
    Do you agree that the Volcker Rule is a contributing 
factor, yes or no? And then I will give you a moment to provide 
context.
    Ms. White. That can't be answered at this stage.
    Chairman Hensarling. This has been around for a while. At 
what stage might it be answered? And what do you say to the 
weight of evidence that was just presented?
    Ms. White. I think there is no question that there are 
concerns about the liquidity in the fixed income markets. No 
question about that. No question about there being concerns on 
behalf of regulators, including the SEC, of whatever may be 
causing that, and then what to do if in fact there is an 
impact, for example, if interest rates rise.
    As you note, Chairman Hensarling, we do participate with 
the Fed, the OCC, and the FDIC in providing reports to your 
committee.
    Chairman Hensarling. So you agree the phenomena is taking 
place, but as of today you have not found a corporate culprit. 
Is that a correct assessment? Is that a fair assessment of your 
view?
    Ms. White. I think what we have not identified is the 
phenomena differs in different stratas of the fixed income 
markets. And I think there is no cause that can be pointed to 
at this point.
    Chairman Hensarling. My time has expired, but Chair White, 
I would certainly encourage you, as I know you have, to speak 
to the market participants, because an incredible number cite 
the Volcker Rule and Basel III as the root cause here. And I 
hope at some point you and other members of FSOC will conduct 
an analysis to see what systemic risk could be posed by this 
incredible diminution of liquidity in our bond markets.
    The Chair now recognizes the ranking member.
    Ms. White. Mr. Chairman, if I may just say, one of the 
things we do at the SEC, particularly our staff in Investment 
Management, but also in Trading and Markets, is we certainly 
are talking all the time to market participants. I just wanted 
to add that.
    Chairman Hensarling. The Chair now recognizes the ranking 
member.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I want to talk about investment adviser exams. As you are 
likely aware, I have long been concerned that the SEC is only 
able to examine investment advisers, on average, once every 10 
years. Last Congress a bipartisan group of Members, including 
former Chairman Bachus, sponsored legislation to authorize the 
SEC to impose a user fee on investment advisers to increase the 
frequency of examinations. You and your predecessor both 
supported this approach, as well as the SEC's Investor Advisory 
Committee, the SEC's Investor Advocate, the State securities 
regulators, and the industry itself through the Investment 
Adviser Association. Nevertheless, our committee did not even 
consider this issue in a hearing.
    In your testimony, you note that you are considering the 
use of third party exams as a means of supplementing SEC 
examinations. When the committee last considered the use of 
third party exams, such as through FINRA, the Boston Consulting 
Group concluded that the cost would be twice as expensive as 
imposing a user fee.
    Do you think that third party exams will be more expensive 
than if the SEC were to impose a fee?
    Ms. White. It is hard to judge that on sort of this side of 
doing it if we do proceed in that direction. I certainly share, 
and I have testified about it many times, the concern that I 
have about the gap in our examination coverage because of the 
lack of resources. That has been the situation at the SEC for a 
number of years, tens of years. And I think certainly the 
method, whether it is a user fee bill or some other method that 
would get us the funding to be able to close that gap, which I 
think is important to close.
    We are smarter about our use of resources, we have 
reallocated some. This past year we had I think a 20 percent 
increase in the number of investor adviser exams that we did, 
but still we have the 10 percent coverage and 30 percent assets 
under management coverage.
    And so as the head of the agency I look at what I think we 
need to be doing for investors and to fulfill our duties at the 
SEC, and then look again, as the Commission has in the past, in 
2003 and again in 2009, at the possibility of third party exams 
to supplement, complement our OCIE examiners. It is not an 
optimal place to go, but I think we really do need to 
complement our ability to cover those investment advisers. That 
is very important, particularly to retail investors, but really 
to the entire marketplace.
    It has had lots of issues with respect to figuring that 
out. Who should do it? What is the expertise? What are the 
criteria? What are the costs? Does it apply to all investment 
advisers? On what subjects? But I do think the time is now to 
act.
    Ms. Waters. How would the SEC mitigate conflicts of 
interest that may arise from such third party exams?
    Ms. White. Clearly, that is one of the issues that has to 
be addressed and resolved optimally. You have that issue that 
is very present in any schema like that, and so you have to 
apply criteria, as well as disclosure requirements.
    Ms. Waters. How much would it cost the SEC to oversee and 
examine these third party entities?
    Ms. White. Again, that can't be judged in a vacuum, but it 
is certainly something our economists will be studying.
    Ms. Waters. So would you repeat one more time what 
percentage of the industry you are able to oversee and how many 
years on average is it that you can actually do these 
examinations?
    Ms. White. It is a 10 percent coverage rate per year.
    Ms. Waters. Only 10 percent?
    Ms. White. Ten percent, and that is 30 percent of the 
assets under management. We obviously try to select where we go 
smartly, and we have gotten a lot better at that. And as I say, 
this past year we actually had a 20 percent uptick in the 
number of exams that we did, but it is still a 10 percent 
coverage, 30 percent assets under management coverage.
    Ms. Waters. What is the danger that we are causing our 
constituents and investors with such little oversight and 
examination?
    Ms. White. As an enforcement/compliance person for most of 
my career, I think you can't overstate the importance of what 
we call ``boots on the ground.'' If you are not present in a 
space, anything can be occurring in that space.
    We do, by the way, supplement what we do with boots on the 
ground by a lot more data analysis, what are called desk 
reviews of information that we receive. That is good, but it is 
not a substitute.
    Ms. Waters. Thank you.
    Recently the SEC's approach to waivers from automatic 
disqualifications triggered by enforcement actions has drawn 
some criticism, especially in cases involving the largest 
financial institutions where waivers have been granted by SEC, 
mostly staff we believe, on a seemingly reflexive basis.
    According to one study of well-known seasoned issuer and 
Regulations A and D waivers between July 2003 and December 
2014, large financial firms received 82 percent of waivers, the 
vast majority. And as you know, today I released a draft bill 
that would address this problem by requiring the SEC to 
implement a more rigorous and more public process for granting 
waivers.
    In your opinion, what additional steps could the SEC take 
to engage the public, as the Department of Labor has done, in 
its waiver process by seeking notice and comment on waiver 
applications and providing the opportunity for a public 
hearing?
    Ms. White. Let me just say I think my bottom line is, and I 
actually talked about this at some length about 10 days ago 
outside the context of a specific case, is to try to bring more 
transparency and clarity to what I think really is a very 
robust process.
    And in terms of the Commission or the staff, some of the 
types of disqualifications and waiver decisions are made 
directly by the Commission. Some have been delegated by the 
Commission to the staff to make, but are always subject to the 
Commission, one Commissioner even, calling them up for 
Commission consideration.
    It is an issue we are quite focused on across the 
Commission. So I think it is a robust process. We continue to 
examine it. We continue to also--okay. I will have to finish my 
answer, I guess, in a QFR.
    I do look forward, Ranking Member Waters, to a further 
conversation on this with you, as I indicated last week when we 
spoke on the phone.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee.
    Mr. Garrett. Again, thanks, Mr. Chairman.
    Chair White, I am going to run through several questions, 
so please answer as many as you can in 5 minutes.
    I am going to start where the chairman left off or started 
with the questions on the FSB. I am still trying to grasp how 
that all actually works in reality. First of all, do you 
personally attend those FSB meetings or do you send somebody 
else?
    Ms. White. I attend the Steering Committee meetings. I 
think I have attended every one since I have been Chair. The 
steering committee of the FSB is kind of the highest level of 
the--
    Mr. Garrett. You attend all those?
    Ms. White. I attend all those. And the staff, by and large, 
attends what is called the plenary. They are on various 
standing committees and workstreams. The staff covers those, in 
close contact with me as well as the other Commissioners.
    Mr. Garrett. And if the FSB comes up with something that 
you fundamentally disagree with, that is bad for our markets or 
the country in general, do you feel free to push back on that?
    Ms. White. Yes, I do feel free to push back.
    Mr. Garrett. And if they come up with a position that is--I 
will use the word ``antithetical''--not good for the United 
States, is that binding on you as far as your decision on FSOC? 
Has there ever been a case where they made a decision and you 
felt that way, and you pushed back? Have you pushed back at 
all? There are three questions, I guess.
    Ms. White. I am not a quiet person, so I certainly have 
spoken up on various issues. But I think it is important, and 
this is very important to me as carrying out my 
responsibilities and, frankly, the agency's responsibilities at 
FSB, that it is not binding. Even a report that we won't object 
to, to have it released publicly that has various--
    Mr. Garrett. You said something along that line that we 
never got from Secretary Lew at all, and we have asked him 100 
times. You said they specifically asked you whether you want to 
object or not, I think were your words. So they present it to 
you that way?
    Ms. White. I don't know that it is explicitly put that way, 
but when it is a final report it goes through the full 
Commission for our objection or non-objection to its being 
published.
    Mr. Garrett. Right.
    Ms. White. But what is in it, and certainly in my view and 
given the nature of the FSB organization, is not binding 
substantively on the Commission.
    Mr. Garrett. Right. He says it is a consensus-driven 
organization, but he could never give an example of when he has 
ever objected to it. Have you ever objected to the publishing 
of their decisions?
    Ms. White. The Commission has, I think, raised an objection 
on one or two of the reports, yes.
    Mr. Garrett. Okay.
    Ms. White. I think the objections were based on, frankly, 
not enough time for the Commissioners to consider the 
particular report rather than substance.
    Mr. Garrett. Now, the Chair was also getting into the issue 
of the cumulative effect of Volcker and other rules. That was 
the one example where Secretary Lew actually gave us a direct 
answer of yes or no. He was aware that there was a problem in 
the corporate bond market back in October, as you were, of 
course.
    We asked him whether or not he or the FSOC has done any 
analysis of all the rules and their impact upon the market. His 
answer was, ``No, but we could add up the cost if we wanted 
to.''
    Have you ever done a cumulative study of the effect of 
Volcker and the other rules on the corporate bond market or in 
general?
    Ms. White. Not in those terms, I think. Our economists are 
working on various studies. Obviously if the issue is relevant 
to a rulemaking we are engaged in, we are going to be engaging 
in that kind of analysis.
    Mr. Garrett. Right. And so you are more narrow, you might 
say, than the entirety of FSOC as far as your view on things. 
That is fair. So would you as a member of FSOC encourage FSOC 
to be doing what we were asking them to do, a thorough analysis 
of the cumulative effect both of Volcker and of their 
regulatory impact on the market?
    Ms. White. I think that is an important analysis to do.
    Mr. Garrett. But it hasn't been done, right?
    Ms. White. I think those issues are being looked at all of 
the time, but in the way you are articulating it, I don't think 
it has generated a report on that. I don't mean to be 
mysterious about it; I just think there are a lot of different 
workstreams going on.
    Mr. Garrett. I was sort of taken aback when he said that 
each agency is doing their own little thing, but if you guys 
want to do your own adding up of the numbers, we can do it. And 
I thought, well, gee, I thought that is what FSOC was all 
about, that you guys would be able to see across the entire 
horizon and would be requesting that. Will you request that 
FSOC do that?
    Ms. White. I will certainly consider doing that because I 
do think that all of those impacts ought to be being 
considered. I don't think it is for somebody to add them up.
    Mr. Garrett. Yes. And here is a quick question just 
offline, and that is, the Chair asked back in March, the middle 
of March, for follow-up responses to a letter from February 
concerning release of information with regard to an 
investigation by members of FOMC as far as insider trading and 
what have you, and I don't believe the committee has gotten any 
response to that letter from either March 13th or February 5th. 
I know you may not see all the letters, but are you aware of 
those letters? Can we get a timely response?
    Ms. White. I am not aware of those letters in particular, 
but I will certainly look into it and give you a response.
    Mr. Garrett. That would be great. Thanks a lot.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you.
    Chair White, last December you gave a much publicized 
speech in New York where you outlined a sweeping plan to update 
the regulatory regime for asset managers. And at the time you 
directed the staff of the SEC to come back with recommendations 
in three key areas: first, more data reporting requirements; 
second, enhanced risk management rules; and third, resolution 
plans for winding down asset managers.
    My question is, where do these initiatives stand? Has the 
staff come back with concrete recommendations? Have these 
recommendations been shared with Commissioners? Exactly where 
does it stand?
    Ms. White. Before I announce those initiatives, there was a 
great deal of discussion with my fellow Commissioners and the 
staff about what made sense for today's markets and the risks 
in them.
    In terms of those particular initiatives, they are all very 
actively in process. I think the data reporting initiative is 
probably further along formally to some degree. But all of 
those, I hope, will be acted upon this year.
    Mrs. Maloney. Do you have a timeline of when we might see 
some concrete results? Would you release the data first, since 
that is further along, and then the others? What is the 
timeframe for it?
    Ms. White. I think what you will see is, as they are ready 
and voted upon, they will be done in sequence of when they are 
ready, and I think you will see those beginning to come out in 
probably the third quarter of this year.
    Mrs. Maloney. Okay. Thank you.
    Following up on the asset management issue, in your 
December speech outlining the three asset management 
initiatives you said, and I quote, ``We must take steps to 
enhance assessment managers' risk management programs, 
particularly their liquidity management.'' But in your written 
testimony today, on page 12, you said that the SEC staff is 
``considering whether enhanced risk management programs should 
be required'' for assessment managers.
    Does this reflect a change of view, a change of focus? Do 
you think it is possible that enhanced risk management programs 
might not be required for asset managers?
    Ms. White. I think the language does not mean that really 
in the same place. The staff is working on such recommendations 
until those are actually presented and voted upon. Obviously 
they are not implemented at that point in time, but the wording 
difference does not suggest that.
    Mrs. Maloney. So are you committed to developing enhanced 
standards for liquidity risk?
    Ms. White. Yes. We do think that is a need and that is what 
the staff is working on. Again, until the Commission actually 
votes on the rules, they haven't been implemented. But, again, 
yes, we are firmly committed. I am firmly committed to that.
    Mrs. Maloney. And have you already started sharing this 
information with--
    Ms. White. The staff has briefed the Commissioners on all 
of these initiatives. The next phases become proposals for 
rulemakings.
    Mrs. Maloney. One of the main concerns of the businesses 
and financial institutions that I represent is cybersecurity 
concerns, and there have been some pretty high-profile attacks 
on companies like Target and Home Depot, but there have been 
many quiet attacks on financial institutions. What is the SEC's 
role in addressing or combating cybersecurity?
    Ms. White. Again, I think there could not be a higher 
priority for all of us, private sector, government sector, than 
to address these clearly long-term, very serious risks to our 
economy and really our Nation.
    The SEC's specific responsibilities in cyberspace relate to 
our registrants in terms of their own systems and making them 
resilient, and then if there is an incident, reporting them. 
Obviously, they report them publicly if they are material.
    The SCI rule that we adopted in November, which is a very 
important rulemaking to enhance the resiliency of the systems 
of our critical market infrastructures, to some degree deals 
with the cyber subset of that as well. We also participate in a 
number of other government bodies where we all try to get 
together to make sure that we are coordinated. FBIIC, that the 
Treasury chairs, is one of those groups.
    We held a roundtable in March with government people and 
non-government people, really to bring everybody together in 
the same space to make sure it wasn't like, you are doing this, 
and you are doing that, and then things are falling between the 
cracks.
    Mrs. Maloney. I would like more follow-up in writing 
because this is, I would say, a concern on both the Republican 
and Democratic sides.
    And lastly, what are the minimum actions that a public 
company should take to prevent a cyber attack?
    Ms. White. That is a big question. It depends on the 
company to some degree. But we have done, with respect to our 
registrants, one of the things we have also done is with our 
OCIE examiners, we have done a cyber risk initiative and looked 
at investment advisers and broker-dealers in terms of their 
preparedness. It varies by institution. There are certainly 
some common things that make sense to do. I could follow up on 
that as well.
    Mrs. Maloney. Thank you very much. My time has expired.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Chair White, a recent March 8th Financial Times report 
indicates that you have about 100 SEC staffers who watch over 
the U.S. equity market. But monitoring the debt market is a 
little bit different. We have municipal debt--for a $3.7 
trillion market, you have 6 people overseeing that. And in 
corporate bonds, the size of which, I think that market has 
grown 42 percent to $7.7 trillion, you have one employee who 
devotes his time to that.
    But when we look at your budget and what most of your 
increases that you call for are for enforcement examination, I 
think we all want to make sure that you have a strong, vigorous 
enforcement function at the SEC, but it kind of troubles me 
that you have so few people looking at a fairly large portion 
of our markets.
    First of all, why do you need so many more people for 
enforcement, basically for some of the rules from Dodd-Frank 
that haven't even been written yet, but yet you have allocated 
such a small allocation to these other markets?
    Ms. White. I have several responses to that. First, I think 
we always have to keep our enforcement function very strong. 
That was true before Dodd-Frank, and it is true after Dodd-
Frank.
    But I will say that one of the things that I did when I 
first came to the agency was sort of look at the staffing, 
particularly, frankly, in Trading and Markets, where they are 
shouldering very heavy rulemaking burdens, Volcker, for one, 
and Title VII derivatives for another. They oversee the 
markets, equity and fixed income. They are responsible for 
broker-dealer financial responsibility. And to really zero in 
on what more staffing or restructuring of the staffing makes 
sense to do, I have continuing dialogues with Steve Luparello, 
who is our Director of Trading and Markets, on that.
    On the fixed income point, per se, it isn't really 
organized in a way, and at least to this point Mr. Luparello 
thinks it is organized as it should be, in a dedicated, kind of 
stand-alone unit. But there are a number of people in Trading 
and Markets who are attending to the market, structural issues 
to the extent I have talked about some of those that we are 
working on to try to enhance that structure, increase the 
transparency, and also just the various issues that occur in 
those markets, whether it is with respect to broker-dealer or 
it is with respect to actually the trading practice rules. I 
could follow up on that if--
    Mr. Neugebauer. Those markets have grown exponentially, but 
as I look back, I don't see any SEC request over the years to 
beef up staffing in that area to keep up with a fairly 
substantial part of the market because the fixed income market 
has grown exponentially in the last few years.
    Ms. White. There is no question that it has grown 
exponentially. There is no question about its importance. I 
think it has also not gotten the attention over the years that 
the equity markets have. I think we are giving it that 
attention.
    In terms of the staffing, the budget requests do not come 
through as requests for dedicated positions because of how that 
is structured, as I mentioned. I could explain that in more 
detail as a follow-up.
    Mr. Neugebauer. I also want to follow up on something my 
other colleagues have mentioned as well, which is that I think 
there is a growing concern about the liquidity in the fixed 
income market. For example, I think some other articles have 
been quoted, but in today's Wall Street Journal, it indicates 
that an 84 percent increase since June 30th means that about 
$640 billion, or 1 in 5 dollars in bank security portfolios, 
now can't be sold because they are moving them from bonds that 
are for sale to bonds that are being held to maturity.
    And what we hear over and over again is that there is 
beginning to be or already is a liquidity problem. And so then 
the question with the Federal Reserve thinking about changing 
their interest rate policy and as they start to increase the 
interest rates, the question is, has anybody done an analysis 
of--again, pointing back--do you even have the staff to have 
people do an analysis of what the consequences would be if we 
begin to have higher interest rates and a lack of liquidity in 
the fixed income market?
    Ms. White. We for some time have been talking to market 
participants, talking to dealers. We put out guidance, I think 
last January, in terms of risk management of the potential 
risks that could flow, the liquidity risks that could flow from 
a rise in the interest rates. And other regulators are doing 
the same there.
    I think there was also a piece perhaps today in the 
Financial Times on the same subject as well, kind of different 
views in the marketplace as to what is likely to happen from 
our point of view as the regulators.
    We want to make sure everybody under our jurisdiction is 
acutely focused on those possibilities at least. And we really 
did come out, as I say, in January with well-received guidance 
on risk management for those particular kinds of risks, but 
don't understate the issue by any means.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chair White, it has been about a year and a half since the 
SEC first proposed rule for equity crowdfunding. From hearings 
we have conducted in the Small Business Committee, I know many 
firms are eager to begin using this new type of capital 
formation. Yet we have also heard the rules could make the 
process prohibitly expensive. When can we expect the final 
rules to be published, and how will you address the high cost 
for small businesses?
    Ms. White. The crowdfunding rules, and I have spoken about 
them before and had hoped to complete them actually last year, 
are a very high priority to complete for 2015. What we knew 
would be a very complex rulemaking has been even more complex 
to do to both carry out the statutory requirements and to make 
it workable and not cost-prohibitive.
    I actually coincidentally had a rather detailed meeting 
yesterday with the staff about this. It is advancing, but there 
are a number of issues that we are trying to solve optimally 
given both the statutory requirements, the costs, and making 
sure this works. Clearly there is a lot of excitement in that 
space.
    Ms. Velazquez. Do you anticipate a wave of new businesses 
jumping into the crowdfunding market?
    Ms. White. It is hard to predict that. You certainly have 
the excitement and the interest out there. The Reg A-Plus 
rulemaking we mentioned before is another expanded means of 
raising capital for smaller companies. There is certainly a lot 
of excitement out there, but I think it is one that is hard to 
predict until it is up and running and we see how workable and 
how costly it may be.
    Ms. Velazquez. Thank you.
    Chair White, you indicated that strengthening the SEC's 
enforcement function will be one of your top priorities and 
will review policies like neither admit nor deny in 
settlements. Have you completed that review and were changes 
made?
    Ms. White. Yes, shortly after I arrived at the Commission, 
and I did it in consultation with my fellow Commissioners as 
well as the Director of Enforcement and his supervisors. I 
think it was in June of 2013 we instituted a new policy to 
require admissions in certain kinds of cases, not permit a no 
admit, no deny settlement in a certain swath of cases where I 
thought, we thought, that public accountability was 
particularly important.
    We have set out some criteria for which cases that we sort 
of focus on for possible admissions. I think we have done 
approximately 20 cases in that vein. We still do the no admit, 
no deny for the bulk of cases, and like other civil law 
enforcement agencies do, you want to be able to do that because 
it is efficient, you don't have litigation risks, and you get 
money back to investors faster. But I do expect the cases where 
we require admissions to evolve and grow over time.
    Ms. Velazquez. And how do you expect such changes to impact 
the behavior of Wall Street firms?
    Ms. White. Again, it is one of the hardest issues to 
measure in law enforcement. I do think that having public 
accountability is an important element of deterrence, and I 
think that is why I made the change.
    Ms. Velazquez. Okay.
    Chair White, the Volcker Rule provided the financial 
industry with many exemptions, including on certain 
collateralized loan obligations. However, some in the industry 
are asking for broader relief, arguing the current rule will 
restrict access to capital for small businesses. I just would 
like to hear from you what type of business loans are packaged 
in CLOs.
    Ms. White. That can vary. As you know, the compliance date 
for those sets of issues the Fed has postponed to give 
businesses a longer period of time in order to adjust to the 
requirements when they apply. We know there are other issues 
that are still out there. But that is the state of play at this 
point.
    Ms. Velazquez. With the Nation's largest banks holding over 
95 percent of CLOs, is there any real risk to small business 
lending under this rule?
    Ms. White. It is hard to say there is no risk. I will say 
this. I think the regulators are very cognizant of those issues 
and that possible risk.
    Ms. Velazquez. However, we know that the largest share of 
small business loans are made by community banks, not the 
largest banks, and the data is there, the numbers are there. So 
that argument that it will impact small businesses, to me 
doesn't hold water.
    Thank you.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, chairman of our Housing and Insurance 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chair White, thanks for being here today. I just want to go 
down a little different road and talk a little bit about your 
job as a member, a voting member of FSOC. And as I Chair the 
insurance part of our responsibilities here in this Financial 
Services Committee, we have three insurance companies 
designated as SIFIs. Can you give me the reason that you 
support or that you came up with or you believe that they were 
designated as SIFIs? What are the criteria or standards on 
which you based that decision?
    Ms. White. As to those that I participated in, I was 
actually recused from one or two of them, I think. I was not 
recused in the MetLife matter. That, as you know, is a matter 
of litigation, but the FSOC put out the basis for that 
decision. It was made on what is called the first determination 
standard, which is basically material financial distress of 
this particular entity, if it occurred, and you assume under 
the statutes requirements--
    Mr. Luetkemeyer. There is no list of criteria. You just 
look at the entity and see once there is an analysis whether--
    Ms. White. No, there are also statutory factors that you 
consider. There are 10 statutory factors that FSOC considers 
under its interpretive guidance--actually, this was all done 
before I arrived as Chair, but it is existent still--these 
factors are considered in a framework of six categories. You 
look at size, interconnectedness, substitutability, leverage, 
liquidity. There are a number of factors that you look at 
before--
    Mr. Luetkemeyer. Chair White, do you realize I have asked 
that question of Chair Yellen, Director Cordray, and Secretary 
Lew, and you are the first one who actually answered the 
question? Congratulations.
    Ms. White. Well, it is a flaw, I guess, in my answer. I 
don't know. But I am going to keep it. I think I will keep that 
flaw.
    Mr. Luetkemeyer. Wonderful. But thank you for that.
    Ms. White. But it is laid out, seriously, it is laid out in 
the public--
    Mr. Luetkemeyer. Okay. Nobody else would actually give me 
that as an answer, but thank you for that.
    I assume, because it is laid out, apparently you have seen 
it someplace, there is a way to de-designate yourself, then, I 
take it, is that correct?
    Ms. White. There is a yearly review, if you seek it, that 
could result in that.
    Mr. Luetkemeyer. Wow. It is amazing. The three other ones 
couldn't even answer that question. Fantastic. Wow, we have 
made some progress this morning. This is almost earthshaking. 
But I will stop before I get too far ahead here.
    With regard to that, because of FSOC, they also designate 
bank SIFIs as well. And I know that I have asked this question 
of some other folks as well. Do you believe that we need to 
have some regulatory relief with regard to a threshold or a set 
of criteria as well that is designated to allow the banks who 
are not systemically important to not have to fall under this 
overzealous regulatory regime?
    Ms. White. There is certainly a lot of focus on that. 
Without any question, I think that, frankly, kind of across our 
spaces the impact on whether it is community banks or other 
small businesses.
    Mr. Luetkemeyer. The interesting part of this is one of the 
authors of the Dodd-Frank bill was sitting in front of us last 
summer, Mr. Frank, and he indicated it was never his intention 
or the intention of Congress to draw into their net of 
regulatory oversight all of the mid-size banks, the community 
banks, the credit unions, with regard to the SIFI situation, or 
insurance companies, for that matter, and yet we are going down 
that road.
    I guess my question is, would you support legislation, 
then, to rein in this apparent overzealousness of the 
Administration or anybody who is looking at this?
    Ms. White. I really can't comment on specific legislation. 
I do think it presents a set of issues that is very important 
to consider and appropriately address. I don't mean to be 
hedging on that, but I can't--
    Mr. Luetkemeyer. Well, doggone, we were doing so well here, 
because not only did Mr. Frank support that position, Mr. Lew 
supported that position, and Chair Yellen supported that 
position. So I am sure that if you think about it just a little 
bit more, I am sure, Ms. White, you would support that position 
as well, would you not?
    Ms. White. I don't know. I was off on the other questions. 
But, seriously, it is clearly an important issue to address 
correctly, and I really can't comment beyond that at this 
point.
    Mr. Luetkemeyer. Okay. Very quickly, I just have a couple--
I know some other folks want to talk to you about the fiduciary 
rule, and it is interesting that in your statement here you say 
that a significant study and consideration was done of the 
fiduciary standard.
    If you did the study, can you tell us what problem you 
found in the study that you need to go ahead and issue a 
fiduciary rule?
    Ms. White. I think the reference in the testimony to study 
is I have been studying all the data that is there and the 
studies that have been done.
    Mr. Luetkemeyer. Okay. Did you find a problem?
    Ms. White. I have. And this, by the way, is something that 
I, from before I was confirmed, was very concerned about 
because, as I said at I think my confirmation hearing, and 
certainly thereafter, any time you regulate essentially 
identical conduct differently, particularly in the space where 
retail investors may be harmed, you have to think very long and 
hard about that. And the SEC staff did a study with 
recommendations, I think in 2011.
    Mr. Luetkemeyer. This is a side comment, just I appreciate 
that also because the DOL is wanting to get into the space. 
Please don't cede your position to them. You should be the 
regulator of this, not them.
    Ms. White. We are separate agencies, and so I think each 
has to decide--
    Mr. Luetkemeyer. Yes, but don't let them overtake or 
regulate in your space. That is my comment.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the ranking member as well.
    And thank you, Madam Chair, for appearing today. I would 
like to visit with you very briefly about proxy access. As you 
know, the proxy is something that many shareholders, major 
shareholders, seek to have an opportunity to impact. The proxy 
would give shareholders an opportunity to nominate candidates. 
And I am concerned and interested, if you will, in where we are 
with proxy access currently.
    Ms. White. As you know, there was a rulemaking overturned 
by the D.C. Circuit. But what wasn't overturned by the D.C. 
Circuit was our Rule 14a-8, which permits shareholder proposals 
to be sought to be put on the ballot. And this season, we have 
had a great many of those. I think almost 100 actually have 
been submitted. So you have a lot of private ordering that is 
going on with respect to proxy access. There has been a fair 
amount of attention on it in this particular season I think 
because of a no-action ruling that the staff made. And then I 
directed them to review the issue more broadly. And we are not 
actually issuing decisions on that particular exclusion in this 
proxy season.
    But there has been a lot of what I call private ordering 
movement in the proxy access space. And we are very closely 
following that. There is not a mandatory rule. But there is a 
lot of private ordering going on.
    Mr. Green. Will you be moving forward to produce a rule 
that will cover these issues in the near future?
    Ms. White. I don't have any current intention to do that. 
As I say, there has been a lot of activity in the space that we 
are monitoring very carefully. A number of proposals have 
actually succeeded, whether by ballot or by way of negotiation 
with companies. So, before we would make any decision, we are 
watching that very closely and analyzing it.
    Mr. Green. Thank you. Let's move now to your real, your 
most meaningful, I suppose, responsibilities. You are, as it is 
often said, the cop on the beat. And currently you oversee 
11,500 investment advisers; 9,000 public companies; and over 
800 investment company complexes managing over 10,000 mutual 
funds. You manage about 4,400 broker-dealers, 450 transfer 
agents, 18 national security exchanges, 87 alternative trading 
systems, and 10 registered clearing agencies. That is a lot of 
responsibility. With all of that responsibility, you do need 
the cooperation of Congress. And you have so much as indicated 
today that you appreciate the support from this committee. What 
is it that you would like the committee to do to further 
support these efforts to maintain your position as a cop on the 
beat that is effective?
    Ms. White. I think, again, the issue that most concerns me 
is having the adequate resources to be that very strong cop on 
the beat. It is not the cop on the beat, it is the compliance 
examiner on the beat that is also so important to keeping that 
bar of compliance where it should be to protect investors and 
the markets. I have spoken earlier in response to other 
questions about the need, I feel, the compelling need to meet 
that gap in coverage at the examination level. But clearly that 
carries through to our enforcement function as well.
    Mr. Green. You have indicated, I believe, by way of the 
Administration that you are in need of $222 million as an 
increase for Fiscal Year 2015. How crucial is that $222 
million?
    Ms. White. It is critical to us. I spent a lot of time on 
reviewing this budget request for exactly where I think we need 
resources and could use those funds wisely in terms of being 
able to hire who we need to to meet our duties. And I 
appreciate the support we have gotten. We are in a position 
where we really need significant additional resources. We have 
tried to be very surgical about what we have asked for.
    Mr. Green. Let me thank you for your service. I know that 
you have a very tough job. But I do think that you are going 
about it in an appropriate manner. Thank you.
    And I yield back.
    Chairman Hensarling. The gentleman yields back.
    All Members are reminded that we request you to silence 
your electronic devices. And somebody please share with Mr. 
Cleaver he may have a message.
    Mr. Green. Thank you for exonerating me, Mr. Chairman.
    Chairman Hensarling. The gentleman from Texas, Mr. Green, 
was not the offending party.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you. Chair White, I want to quickly hit 
on three things: mergers and acquisitions; conflict minerals; 
and pay-ratio rule. I am tempted to lead off with something 
else that I saw crawling across one of the cable news shows 
this morning about the markets being rigged, question mark. I 
think it had to do with the release of a certain book in 
paperback today. But we will leave that for--
    Ms. White. These are timed by my hearings too.
    Mr. Huizenga. Yes. I wouldn't doubt it actually. So, 
quickly, mergers and acquisitions, last Congress I had a bill, 
H.R. 2274, that passed this committee and the body unanimously. 
Two weeks after it passed the House, the SEC Division of 
Trading and Markets staff issued a no-action letter addressed 
to six mergers and acquisitions lawyers dated January 31, 2014, 
providing M&A brokers with relief from the broker-dealer 
registration under the circumstances, similar as to what we had 
described in my legislation. There was a Senate bill as well. 
But, in effect, the SEC and my legislation had clarified some 
of that exemption.
    Unfortunately, the Senate did not take up either my bill or 
the Senate companion, S. 1923. I have reintroduced the bill as 
H.R. 686. So we are on the same page with that. I appreciate 
that. I do have a question, though. Does an SEC staff no-action 
letter giving relief from broker-dealer registration reflect 
the staff's judgment that covered activities do not warrant 
direct SEC oversight?
    Ms. White. I am not sure it is literally phrased that 
broadly. What it certainly means is--
    Mr. Huizenga. In essence?
    Ms. White. I would say substantially, yes.
    Mr. Huizenga. Okay. And part of that, there was no size 
limit of the privately owned businesses for which the no-action 
relief is available, is my understanding.
    Ms. White. I would have to confirm that.
    Mr. Huizenga. That is my understanding. Would the absence 
of a size limitation reflect the staff's judgment that business 
size is not particularly of concern to SEC?
    Ms. White. I couldn't go that far without actually looking 
into it specifically, which I didn't do before I came here 
today. But I am happy to get back to you on that.
    Mr. Huizenga. Is a staff no-action position typically 
reflective of the SEC's regulatory priorities and allocation of 
the resources and other regulated activities? In other words, 
if you are saying, hey, no-action letter, this is something we 
don't particularly want to deal with.
    Ms. White. It can mean different things. Obviously, there 
are no-action letters that are given kind of across our spaces. 
So it could be different things.
    Mr. Huizenga. Is a no-action letter legally binding on the 
Commission or the Commission views? Is that how the Commission 
views no-action?
    Ms. White. It is not legally binding.
    Mr. Huizenga. Not legally binding?
    Ms. White. No.
    Mr. Huizenga. Hence why I believe we need to pass H.R. 686. 
It looks like we are on the same page. And it makes sense to me 
that we need to fix this statutorily. So, quickly, if you have 
anything you would like to add on that?
    Ms. White. No. I may supplement in getting back to you on 
that.
    Mr. Huizenga. I do intend to follow up with some written 
questions as well.
    And then, really quickly, conflict minerals: In October of 
2013, you had a speech basically saying that this was not 
necessarily the territory that the SEC needs to be flying into, 
not that there aren't issues with that, but the SEC is not 
really set up to deal with these, crafting trade sanctions and 
articulating and enforcing human rights policies.
    A letter that myself, Chairman Hensarling, Chairman 
Garrett, and Chairman Royce sent you, you responded to very 
quickly, and we appreciate that. But you laid out that there 
have been approximately 21,000 hours of staff time that has 
been put into this, about $2.7 million of some precious few 
dollars that you have in an area where you don't have an 
expertise. So the D.C. Court of Appeals comes and vacates part 
of the rule and, for some reason, the SEC has decided to appeal 
that. Explain that.
    Ms. White. First, I have to begin with it is a 
congressional mandate. And my view on congressional mandates 
is, it is my obligation to carry them out in the most cost-
effective way we can, despite the numbers that you just quoted. 
It was actually a rule that was adopted before I arrived. The 
D.C. Court's decision came out largely validating the rule. The 
vast majority kind of went out of their way to say they were 
validating it. So we proceeded with enforcement on that. The 
one issue that they did not was on the naming part of what you 
can conclude in terms of whether you had conflict-free 
minerals.
    Mr. Huizenga. That is the shaming element.
    Ms. White. It has been referred to as that. As a First 
Amendment issue, at the time of that ruling, there was an en 
banc decision in another case, totally separate--I think it was 
a DOJ case actually--on the same issues. And so we sought a re-
hearing in defense of the rule that was mandated by Congress.
    Mr. Huizenga. Priorities as well, though. And I appreciate 
that.
    And I will follow up on the pay ratio. I have that same 
concern that the shaming element may be violating the First 
Amendment.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, the 
anxiously awaited Mr. Cleaver, ranking member of our Housing 
and Insurance Subcommittee.
    Mr. Cleaver. Mr. Chairman, I apologize for Ms. Moore's 
phone going off.
    Chairman Hensarling. The gentleman just earned himself an 
extra 15 seconds.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Madam Chair, thank you for being here. As you know, there 
is seemingly always, at least since I have been here, the 
bubbling up of interest in somehow reinstating the Glass-
Steagall provisions. And, actually, some of us at least 
struggled to try to get it inserted into Dodd-Frank--
unsuccessfully I might add--in Sections 20 and 32, which deal 
with the consumer protection component. But the argument has 
continued. And I am interested in your opinion, that some would 
say that the fact that we had the 2008 collapse was due in no 
small part to the failure to separate commercial banking from 
investment banking. And, by the way, as you probably know, 
there are bills pending now. There are bills that have been 
introduced.
    Ms. White. I think on that issue, that is a legislative 
judgment. It really is a legislative judgment to make. Clearly 
all the regulators since the crisis have been very focused on 
reforming the existing system with the tools that we have been 
given to use. And I think they have been used quite effectively 
in most cases and quite vigorously. But I think that judgment 
really is for the Congress.
    Mr. Cleaver. So the SEC obviously wouldn't have a position; 
it is a legislative issue as you said. But I am wondering, does 
it--I will ask it another way; I think I can predict your 
answer--but would the SEC find it easier to do its job if we 
had a separation between commercial and investment banking?
    Ms. White. It might depend on what else went with that, I 
suppose. I don't think I can really comment on that. I would 
like to see the precise parameters of it. I think all of our 
jobs are difficult and challenging. But I think, under any 
regime, they are.
    Mr. Cleaver. Thank you. And I appreciate your answer. I had 
hoped but didn't think I would get an answer. In October of 
2013, you elaborated on your approach in the SEC in terms of 
the enforcement program. You stated at the time that investors 
do not want someone who ignores minor violations and waits for 
the big ones that bring media attention. So, as a result of 
that, you announced that the SEC would be taking a broken 
windows approach--I am assuming taking that from the book that 
Mayor Giuliani wrote during the 1990s. However, in the 
securities law context, other scholars have criticized that 
such an approach inappropriately diverts Commission resources 
away from major fraud and towards small-time offenses. Do you 
agree?
    Ms. White. I don't agree. And I also think there has been a 
fair amount of misunderstanding from that speech as to what the 
program is. The broken windows comments was meant to be an 
analogy. I do think it is important not to neglect smaller 
offenses that affect our small retail investors, for example. I 
also think it is important--and this was really kind of the 
core of what I was saying--to raise the bar of compliance. So 
if you have important rules out there, they are not necessarily 
directed at fraudulent conduct, but the rule is meant to 
protect the markets and investors. If there is massive 
noncompliance, you might as well not have those rules unless 
you enforce them. So what we have done--and it is really a very 
small part of our program--is to target some of those areas 
very efficiently and send a very strong message that these 
rules are meant to be followed and they are important to 
follow. In my judgment, we have not diverted any resources from 
the Ponzi schemes, or the accounting fraud cases, which we have 
also emphasized. I think it is a piece of our program.
    Mr. Cleaver. I don't think we will have time for my other 
follow-up question.
    So thank you very much for being here. I appreciate it.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Oversight and Investigations 
Subcommittee.
    Mr. Duffy. Chair White, welcome.
    Quickly, I want to ask you about the Tick Size bill. You 
can only imagine; we bring it up every time we meet. This 
committee passed that without objection. It passed on the House 
Floor with only four dissenting votes. I know you have been 
working on it. I am wondering if you can give us an update as 
to where you are with regard to, are we on our way to a final 
rule or what other steps may come before that?
    Ms. White. Yes. The comment period on the Tick Size pilot 
has closed. I think, sometime in February, the staff, by virtue 
of its delegated authority, has given the Commission I think 
until May 6th to act. I think I heard Mr. Luparello testify at 
a subcommittee hearing that that is the date. The reason I 
think for exercising that delegated authority was because we 
have gotten a lot of comments in that are really--we want to 
make sure we get this right. It is a very important 
undertaking, I think, for the small cap companies.
    Mr. Duffy. I appreciate that. So we take a final rule on 
May 6th?
    Ms. White. That is our date to act. And I think we will 
keep to that.
    Mr. Duffy. Okay. I would just put one last plug in, do you 
think you can get good data in a short period of time? I think 
the pilot program that you have is a year. I would just note 
that the pilot program that passed out of our institution was 5 
years. And we want good data, but we also want good market 
participation. And I sent a letter to that effect. I would just 
reiterate that here today.
    Ms. White. And that is one of the significant comments that 
we are boring into.
    Mr. Duffy. Switching notes, still talking about capital 
formation, small businesses, venture exchanges, we have had a 
lot of conversations in the House. I know you have been 
somewhat supportive. Is there some form of a work stream on 
venture exchanges at the SEC? And, if so, could you give me an 
update on that?
    Ms. White. There is a work stream in the Trading and 
Markets Division. They are considering that there is no 
decision made in terms of whether there will be rulemaking in 
that space, but they are studying whether there should be 
rulemaking in that space in order to, obviously, increase 
liquidity, secondary liquidity for smaller companies. The SEC 
has approved venture exchanges before. So we obviously 
encourage those kinds of solutions and other kinds of solutions 
that may address those secondary liquidity issues. But there 
are also some legal issues with respect to some aspects of that 
that the Trading and Markets Division, along with our General 
Counsel, ultimately will let us know whether to proceed in a 
particular kind of way. We may need some legislative change.
    Mr. Duffy. Is the SEC aggressively working through the 
process of thinking through a venture exchange? Or are you 
saying right now you want Congress to start that action?
    Ms. White. We are basically very much actively in the midst 
of considering that and what the various issues are, what we 
might be able to do on our own, so to speak, with regulation, 
and what we might need legislation for. No ultimate decision 
has been made.
    Mr. Duffy. Let me quickly, I believe you are dealing with 
Reg A tomorrow; we have crowdfunding; we are dealing with Tick 
Size; and we are discussing venture exchanges. Anything else 
you are doing in regard to capital formation for small 
businesses?
    Ms. White. We do a lot. Our disclosure effectiveness review 
is devoted specifically not only to that but to small business 
company disclosures, whether there should be further scaling in 
that space. I reinstituted our Small Business and Emerging 
Companies Committee that has been quite active in the last 9 
months with recommendations and advising us on various issues. 
We have a dedicated unit in our Corporation Finance Division 
that is devoted solely to the small businesses issues.
    Mr. Duffy. We had Mr. Ceresney in last week in our Capital 
Markets Subcommittee. And we were asking him questions about 
the process used at the SEC, whether you are going with the 
administrative process or going into Federal courts. He 
indicated there was a process that you use at the SEC. We 
haven't seen that. If there is a process, we would like to see 
it. And if there isn't one, we think you should have a process 
published that everyone can see how you are making decisions as 
to whether you go before an ALJ or you go into Federal courts.
    Ms. White. Just briefly on that, obviously, the decision is 
made in each case. But it is subject to the Commission's 
approval where a case that is authorized is filed or a settled 
case may be filed. I think it is--
    Mr. Duffy. Not to interrupt you, and I apologize--
    Ms. White. Sure.
    Mr. Duffy. --but our concern is--I know you don't win 100 
percent every year, but last year you won 100 percent of your 
cases, picking the forum in which you play and in front of 
judges that you hire and who are paid through the SEC, with the 
rules that you make. It gives us concern, number one. But, 
number two, there should be a process that we can all look at 
that determines how you pick the forum in which you litigate 
these issues.
    And if I could just make one last point, we heard a lot of 
complaints about the discovery. When you go through the 
administrative process, you don't use the Federal procedure. I 
think it would be wonderful if you would adopt the same 
standards as the Federal courts in regard to discovery.
    With that, I yield back.
    Ms. White. Just really briefly, and I will get back to you 
on these issues, obviously, we don't even want the appearance 
out there that we are being arbitrary or unfair about anything 
we do. I do think--and obviously these AP cases come to the 
Commission. That really is a fair process. It is not identical 
to district court. But, for example, Brady and Jencks 
obligations apply in the administrative proceedings. 
Exculpatory evidence has to be provided. Witness statements 
have to be provided. You don't get that in district court. But 
I take your points.
    Mr. Duffy. There is a perception of unfairness.
    Ms. White. Understood.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Wisconsin, Ms. 
Moore, ranking member of our Monetary Policy and Trade 
Subcommittee, who looks no worse for wear for being thrown 
under the bus by the gentleman from Missouri.
    Ms. Moore. Thank you so very, very, very much, Mr. 
Chairman.
    We take turns throwing each other under the bus.
    Chair White, thank you so much for appearing. My first 
question to you is regarding any final fiduciary rule that 
would be promulgated. The SEC has been roundly criticized for 
not taking the lead on pushing this. Now that DOL has advanced 
its first draft, others are now telling you to stand down. And 
you have stated that Labor and SEC have ``different missions.'' 
So I was wondering if you see these different missions as being 
antagonistic to the goal of having a harmonized rule.
    Ms. White. I think, first, it is important to note that we 
really are at the beginning of this process. It is something we 
have been studying a lot, looking at the studies that are 
there. I have reached my own personal conclusion. But the next 
step is for me to be discussing in detail all the aspects of my 
thinking with my fellow Commissioners so that a decision is 
made. We are really at the beginning of that process. It is a 
long process. There are lots of complex issues. We are separate 
from the Labor Department. They have proceeded or are about to 
proceed--nothing has been finalized with a proposed rulemaking 
to OMB. And they have separate jurisdiction. They have 
important ERISA jurisdiction over retirement accounts. And the 
agencies can proceed separately and will presumably. We each 
have to decide what we need to do in our spaces. It doesn't 
mean we don't consult. We have and we will to try to avoid 
inconsistencies, but really separate agencies, separate 
jurisdictions, separate mandates.
    Ms. Moore. And so separate--is there going to be a rule 
that sort of harmonizes--
    Ms. White. My expectation is that we will soon see the 
publication of the Department of Labor's rule. It has been put 
out for notice and comment. And then they will, presumably, 
proceed on the basis of that. We are at the beginning of our 
process. So that is a separate process.
    Ms. Moore. Okay. Thank you for that. I would like to ask 
you a question about the municipal securities market. Although 
the SEC's reach within the municipal market is constrained, I 
understand that we have seen some renewed interest by the SEC 
with the MCDC enforcement program as an example. What 
additional steps do you think you will take to strengthen the 
municipal market?
    Ms. White. As you have indicated, we are more limited in 
our regulatory reach there. For example, we don't have direct, 
what I will call disclosure jurisdiction, over the municipal 
issue, which is an enormously important market. It is 
enormously important to retail investors who are heavily 
invested in that marketplace. The MCDC initiative, which is a 
voluntary self-reporting initiative, was very important to that 
marketplace. It dealt with continuing disclosure obligations. I 
think it has already sent a very strong message. This raised 
the bar in that space. We are also looking at just the 
structural issues in the muni area as well, working with the 
MSRB, whom we oversee, in terms of approving a best execution 
rule, for example. Also, we are looking at better disclosure on 
what is called riskless principal transactions. We have brought 
a number of enforcement actions to really hammer home the point 
of investor protection.
    Ms. Moore. I thank you so much. And, finally, forgive me if 
others have asked about the 7-percent increase in funding 
relative to your Fiscal Year 2015 budget for the enforcement 
program. Is there any particular activity that you are going to 
focus on with these extra resources?
    Ms. White. There are a number of areas, but those are 
really targeted to getting more market experts and litigation, 
trial lawyers. We have more trials now. We have to be prepared 
to have more trials as we now require admissions in certain 
cases. It may or may not lead on a permanent basis to more 
trials. Those are two of the areas, as well as data analytics 
in that space.
    Ms. Moore. Okay. Thank you so much.
    I yield back my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Chair White, as you are aware, in July of this year banks 
of all sizes, including community banks, are expected to be in 
compliance with the Volcker Rule. My question is related to 
covered funds and the legacy securities. As you may be aware, 
members of the financial industry have put forward a limited 
proposal to ease the compliance burden for banks of all sizes 
when it comes to the ability to invest in and make markets for 
certain securitized products.
    Basically, the proposal you should have received creates 
certain assumptions for legacy securitizations to determine 
whether they fall in or out of the covered fund definition. To 
me, it seems like a fairly straightforward proposal in order 
for the industry to comply with the Volcker regulations. Are 
you familiar with this proposal?
    Ms. White. I am aware that there is one. But I would have 
to get back to you on specific reactions to it.
    Mr. Pittenger. When do you think that there might be a 
response back to the industry that they submitted related to 
this Volcker compliance?
    Ms. White. I can't really answer that. But I can supply an 
answer to that question as well.
    Mr. Pittenger. Okay. It does seem to me that failure to 
ease these compliance burdens threatens to harm the liquidity 
associated with the securities. Would you agree with that?
    Ms. White. It certainly is a significant issue. I really 
can't go beyond that because, obviously, it is something before 
us.
    Mr. Pittenger. Sure. Chair White, do you expect that the 
SEC will issue a final pay-ratio rule in 2015?
    Ms. White. The pay-ratio rule is, as I alluded to earlier, 
a congressional mandate that we expect to proceed on I think in 
2015.
    Mr. Pittenger. Sure. Does the SEC evaluate whether a 
specific regulation is tailored to impose the least burden to 
our society, would you agree with that, including market 
participants, individuals, different sized businesses and other 
entities?
    Ms. White. We certainly are very sharply focused on that. 
Obviously, if we have a congressional mandate that is given to 
us, my responsibility, our responsibility is to carry that out 
but in the most cost-effective way we can.
    Mr. Pittenger. Does the analysis consider the cumulative 
cost of regulations in evaluating whether the regulation is 
inconsistent with or incompatible with or duplicative of other 
Federal agencies?
    Ms. White. We certainly include that as part of the 
analysis whenever the data is available.
    Mr. Pittenger. Do you consider the potential regulation or 
investor choice, market liquidity for small companies?
    Ms. White. We do.
    Mr. Pittenger. I would like to talk briefly about the SEC 
budget request that your agency recently submitted, the $1.7 
billion for Fiscal Year 2016. That is correct, you testified?
    Ms. White. Yes.
    Mr. Pittenger. Do you know what the SEC's current budget 
is?
    Ms. White. It is approximately $1.5 billion.
    Mr. Pittenger. Yes, ma'am. How much has it increased since 
2010, about 35 percent, is that correct?
    Ms. White. I can't give you the precise percentage, but 
there have been increases.
    Mr. Pittenger. Since 2000, what would that percentage be, 
do you know?
    Ms. White. I don't know the precise percentage. I think I 
said a little bit earlier, trying to match up the percentages 
and change in our marketplace and responsibility.
    Mr. Pittenger. It is 400 percent, to my understanding. The 
SEC also has about $75 million contained in its reserve fund, 
is that correct?
    Ms. White. Yes. And I think $52 million of it would be 
usable.
    Mr. Pittenger. And another $74 million in unused funds, is 
that correct as well? Did that carry over from the prior year?
    Ms. White. We have no-year funds at the SEC. I think we 
have been working on spending those balances as currently as we 
can. But they are part of the current budget planning, yes.
    Mr. Pittenger. Are you aware of the observations of many 
that there has just been a misuse of funds in recent years 
regarding office space and purchasing new computers and the 
like for nonexistent employees?
    Ms. White. Not precisely that, no.
    I am certainly aware that there have been prior issues that 
have been raised in terms of leasing space, which I think has 
been corrected some time ago. And we are very focused on 
reducing our footprint. In fact, one of our cost savings has 
come from our real estate initiative that we have done to 
really reduce our space requirements even more. I think it is 
about a $3 million savings annually in that one space.
    There have been issues in the past that I think the agency 
has worked very hard on and successfully--I am not going to say 
there are no issues in any agency.
    Mr. Pittenger. To the taxpayers that I represent, the gross 
increase in terms of the budget requirements--these are large 
numbers--and there is real concern in the accountability of how 
those dollars are spent.
    I yield back.
    Ms. White. I take that accountability very seriously.
    Chairman Hensarling. The time of the gentleman has now 
expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    And thank you, Madam Chair. Madam Chair, just a general 
question, if I owned a corporation, I had 100 shares of stock, 
and I sold them to 100 different people, who owns the 
corporation?
    Ms. White. The shareholders always own the corporation.
    Mr. Capuano. The shareholders own the corporation. So they 
own the corporation. I have two issues then with the SEC. If 
you believe that, which I am glad you do because I was afraid 
we were going to have an argument on that, could you talk to me 
about why, then, the shareholders have no right to know what 
their, the thing that they own, their money, could you talk to 
me about why they don't seem to have a right to find out what 
the thing they own is spending their money on politically? And 
could you also tell me why the SEC has been--you did something 
good to begin with, but you got pushed back and did nothing in 
5 years on proxy access. Why is it, if you own 3 percent of the 
stock and have owned it for 3 years, which I think is actually 
a pretty high bar, you still don't have the right to even 
nominate somebody to the board. If you own this company, why do 
you not have those rights? And why does the SEC not stand with 
the owners?
    Ms. White. I think the SEC does stand with the owners in 
many, many spaces. We talked a little bit earlier about the 
proxy access, where that sits after the reversal of the 
rulemaking. It didn't reverse--
    Mr. Capuano. That was 5 years ago.
    Ms. White. It didn't reverse the 14a-8 shareholder proposal 
piece of that, which is being very actively and I think 
successfully used by shareholders. This season is particularly 
active, and I think we have been impartial but supportive 
there. We have talked before about the political contributions 
issue. I appreciate the very strong views on that. And there is 
no specific disclosure requirement in that space unless, in the 
circumstances of a particular company, the matter is material. 
And so we have gotten a lot of letters on whether we should do 
a specific line-item disclosure requirement on that. There are 
very strongly held views on both sides. It is not currently--
and I know that is a frustration--on our agenda. We are very 
focused on our congressional mandates. And so the other 
priorities--
    Mr. Capuano. It is not a frustration. It makes me wonder 
whose side you are really on. The words are fine. I like 
everything you said. But the truth is, like everything else, I 
judge people on what they do, not on what they say. And if you 
say you are with the shareholders, then let the shareholders do 
what they do with their own stuff. I wouldn't come to your 
house and tell you what you should do with your money. Nor 
should you tell me what I should do with mine. And if I own 3 
percent for 3 years, why shouldn't I be able to nominate 
somebody to the board?
    Ms. White. Again, there are provisions that permit that to 
happen.
    Mr. Capuano. Why doesn't the SEC stand with the 
shareholders then?
    Ms. White. Again, we talked about the proxy access rule. 
But we also talked about the shareholder proposal avenue for 
presenting proxy access proposals.
    Mr. Capuano. I understand what can be done. But I would 
argue that the SEC, if you actually do believe that 
shareholders own the corporation, you should be pushing harder 
for the shareholders to actually act as if they own the 
corporation.
    And I understand what they can do. I understand that some 
people are doing it on their own. Congratulations to them.
    But there are others who would like to do it but can't get 
it done. And I would suggest that the SEC should stand with 
them, as opposed to stand by the side neutrally and say the 
right things but do nothing about it.
    Ms. White. I don't have a further response to that other 
than I think the shareholder proposal process is working very 
effectively. We are very closely monitoring that to see where 
it goes by way of private ordering.
    Mr. Capuano. So you are not willing to take an active part? 
You are just watching it? I had a lot of professors who did 
that. But they are not the Chair of the SEC.
    Ms. White. Certainly our Division of Corporation Finance is 
quite involved in every proxy season in terms of the 
shareholder proposals. But just to be clear, we are not, at 
this point, advancing a required disclosure rule in that space.
    Mr. Capuano. And here is the problem, most of my 
constituents, including people in the business, don't really 
think that the SEC has ever, certainly not now, stood with 
them. They think that you are captured by the people that you 
are supposed to regulate. And I think that these two aspects of 
it--simple things, I am not trying to turn the boat upside 
down. I am not trying to put an underlying shake in the 
American financial system. I am simply trying to say that 
people who own something should have some say on what the thing 
that they own does, at least have some knowledge. And I would 
also suggest that if you believe that, you should be standing 
with the shareholders giving them this much more confidence, 
not less. And my time is up.
    And I appreciate your answers.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Ohio, Mr. 
Stivers, and he takes notice that today is the gentleman's 50th 
birthday, I have been informed. He doesn't look a day over 55.
    Mr. Stivers. Thank you. Thank you, Mr. Chairman.
    Chair White, I am over here. It is good to have you here. 
Thanks for you what do.
    Really quickly, I want to hit proxy access, and then 
fiduciary rule, and then, if we have time, MCDC. With regard to 
shareholders, do shareholders get to approve or deny every 
proposal that comes up in every public corporation? And do they 
get a chance to either vote up or down every Director who comes 
up for a vote?
    Ms. White. If that is on the proxy, yes.
    Mr. Stivers. Yes. Thank you. That sounds like they are 
acting like owners to me.
    Can we quickly go through--the mission of the SEC says, 
from your Web site, that your mission is to protect investors; 
maintain fair, orderly, and efficient markets; and facilitate 
capital formation. Is that correct?
    Ms. White. Yes, it is.
    Mr. Stivers. And I want to talk about the fiduciary rule 
here for a second. The Commission did a study in 2011. In that 
Commission study on the fiduciary rule that was required under 
Dodd-Frank, did it look at the cost for investors, especially 
small retail investors?
    Ms. White. That is certainly one aspect of what we continue 
to study.
    Mr. Stivers. My understanding is it was not in the study in 
2011, am I wrong?
    Ms. White. You may not be wrong. I can't answer--
    Mr. Stivers. I just want to put something out there for 
your thoughtful consideration. I just met with three young, 
fairly new employees. And they participate in their company's 
401(k) plan. They put just a few dollars every paycheck away. 
If you change the standard for people like Linda and Mark, whom 
I just talked to, what could happen is they could be priced out 
of the market because the fees are going to eat up all their 
money. And they are not going to be able to form capital on 
their own. And I know capital formation is about business, but 
people form capital too. And they need to be able to save for 
their retirement. If you change to a standard that eats up all 
their cost with fees, it is going to kill them. And it is going 
to kill their chance to save for retirement. And these are 20- 
and 30-year-old folks I was just talking to. And we were 
talking about other stuff. But because I was getting ready to 
talk to you, I asked them about that. And all of them do 
participate in a 401(k) program.
    As you think through what you are going to do, I would hope 
you would think of folks like Linda and Mark and what your 
changes could mean to their ability to save for retirement 
because what happens when we make a standard that might work 
for big corporations and rich people is that it leaves the 
little guy out. And that is what I want to talk about on MCDC 
too. I just want you to think about that as you go through this 
because that is what could really happen. It is what we have 
done with too-big-to-fail. We have hurt our community banks by 
setting requirements for the big guys. It is what could happen 
in the fiduciary rule. And it is what I think is happening in 
the MCDC.
    So these fines that you are getting--and MCDC, I 
understand, you wanted to understand the disclosures of your 
municipal underwriting folks across the country. And for the 
big firms, the biggest firms, the fines that are about to be 
announced in three tranches for you are going to be a rounding 
error. But for little guys, it can put them out of business. 
And what we are doing by having a big government, through Dodd-
Frank and other things, is we are squeezing out little guys. We 
are squeezing out the new entrants to the market. I just really 
worry about it. And I want to ask you what you have learned 
from the MCDC process--it is new--that maybe you could use to 
make sure you don't create a system where you have to be big to 
be involved in municipal securities? What have you learned to 
make sure that the little municipal issuers aren't going to get 
squeezed out and pushed out by the fines and the liability and 
the things they didn't know? And I will give you a few minutes 
to answer that.
    Ms. White. Again, I think we saw a significant problem in 
that space. I do think the MCDC initiative has been, even to 
this point, quite successful in addressing that issue and 
scaled in terms of how one would deal with any outcomes, for 
example, issuers not being subjected to civil penalties. And, 
obviously, size matters in that. We will always have to be 
careful about that.
    On the fiduciary duty, I think it is important to act in 
that space. But it is really for the benefit of retail 
investors. If we are acting, that is who we are acting for. 
And, at the end of the day, and I think I said this publicly, 
if we end up basically depriving small investors of reasonably 
priced, reliable advice, we obviously would have failed. It is 
a complex undertaking.
    Mr. Stivers. It is. And the same thing with the MCDC. I 
have heard from the small issuers. And I have a lot of small 
towns that dot my district. And they will have problems getting 
access to capital if you do things like the MCDC wrong because 
little towns won't be able to issue municipal bonds. I'm sorry 
to go over, Mr. Chairman. Thank you.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison.
    Mr. Ellison. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    And I thank you, Chair White, for being here. You have 
already indicated that the SEC would issue a rule on CEO pay-
median worker ratio in 2015. Thanks for that. I would like to 
simply submit this letter for the record, without objection--
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Ellison. --that we sent to you, Chair White.
    Chair White, you have received this letter. And it is the 
will of at least 58 Members of this body and perhaps even more 
than that.
    And, again, I think it is relevant to a lot of people, not 
just the public at large but investors. I think research shows 
that higher ratios correspond to more risky investments. It is 
something that I regard as important and I appreciate your 
attention to it.
    Also, I wish you would comment on a few other matters 
regarding the fiduciary rule. Conflicted investment advice 
costs investors more than $17 billion a year. And I am very 
concerned that workers are sold IRAs with high fees and hidden 
commissions that damage their retirement security. And I am 
supportive of the Department of Labor's decision to move 
forward with the rulemaking to protect workers. I was wondering 
if you could comment on why you chose this month to announce 
that the SEC was going to move forward with its own fiduciary 
standard.
    Ms. White. There is no connection, if I understand the 
question, to the Department of Labor's announcement. This has 
been something that, as I mentioned earlier, I have been very 
focused on since before my confirmation. I think it is an 
enormously important area. I think the Department of Labor is 
addressing it in a very important area, their ERISA mandate 
over retirement accounts, with what they are doing. We are 
separate agencies. The SEC had been also studying this before I 
arrived. Obviously, there have been studies and reports that 
have been presented. I have spent an enormous amount of time 
with our staff dealing with really what are quite complex 
issues in order to be able to forward this. I think it is 
important to forward it. We are really in a sense at the 
beginning of our process. But I do think we should as a 
separate agency proceed with the rulemaking.
    Mr. Ellison. Yes. I noted that, I think you made your 
announcement at the Securities Industry and Financial Markets 
Association, which, as is its right--it is certainly its right 
to spend more than $7 million lobbying Congress in part to kill 
a rule that protects hard-earned retirement savings for 
workers. And that is where you made the comments that you made.
    Ms. White. I said what my position was when I knew what my 
position was. I think I had indicated at a prior conference at 
the end of the year, I don't know whether it was there or at a 
different conference, that I expected to be able to at least 
state my own personal position, which is all that I have 
stated, last year. In that particular audience, which has 
representatives of the investment adviser space as well as the 
broker-dealer space, both, I thought it was quite an 
appropriate place--since I was ready to say what my personal 
position was and people kept asking me for several months--to 
make that statement there.
    Mr. Ellison. Is there any coordination with the DOL 
rulemaking process? Or are you just kind of going forward on 
your own?
    Ms. White. Since their initial proposal, which was 
obviously long before I got to the SEC--I think their initial 
proposal was in 2010--the SEC staff has provided technical 
assistance and expertise to the Department of Labor in terms of 
how this market space works in terms of our registrants, what 
potential impacts we see on investors and the availability of 
investment advice if certain rule changes are made. I would 
expect us, as we go forward, to continue to consult, which I 
think is very important.
    Mr. Ellison. Do you think it makes any difference whether 
DOL goes first or your agency goes first?
    Ms. White. I think we are separate agencies. And we need to 
proceed separately when we think the time is right and we have 
something we think we should be advancing.
    Mr. Ellison. So that would be a yes? You do think--you said 
separate--
    Ms. White. There is no reason that--
    Mr. Ellison. Coordinate.
    Ms. White. No, no, I'm sorry. There is no reason to 
coordinate? No. I am saying we are separate agencies. And, 
therefore, I think each agency has to decide when to go 
forward. Clearly, you take cognizance of whatever other 
regulators do all the time in rulemakings if they go first. We 
have a similar situation with our Title VII rulemakings for the 
CFTC for the most part, who has gone first, as I alluded to.
    Mr. Ellison. I will have to follow up in writing because I 
am out of time. Thank you for your answers.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlewoman from Missouri, 
Mrs. Wagner.
    Mrs. Wagner. Thank you, Mr. Chairman.
    Chair White, thank you for joining us today. In talking 
about the SEC's agenda, you have had a very busy year so far. 
And I would like to start by bringing up a few things you said 
recently on the SEC moving forward with the uniform fiduciary 
rulemaking, my favorite topic. In a speech from February of 
this year, you stated that a priority for the SEC would be to 
determine whether to adopt a uniform fiduciary duty for broker-
dealers. And my heart soared, Chair White.
    And just a month later, you announced that it was your own 
personal view that the SEC should act under Section 913 of 
Dodd-Frank to implement a uniform fiduciary duty and that the 
SEC would, in fact, move to implement these rules. Now, this 
seems like a pretty quick turnaround on your part. Yet, in your 
speech, you didn't mention any kind of what I would call formal 
analysis performed by the SEC that maybe would have prompted 
this kind of sudden change. Chair White, I would like to ask, 
what exactly did change over the course of just one month?
    Ms. White. This isn't an abrupt event. But let me explain. 
Essentially, Dodd-Frank gives the SEC the authority to decide 
whether to impose a uniform fiduciary duty.
    Mrs. Wagner. Correct.
    Ms. White. So the decision for the Commission is whether to 
do that and then what form it would take. What I have done--
and, as I say, I have been very focused on this issue since 
before my confirmation. I have worked extensively with the 
staff on all of the many complexities, the data that is 
developed to date, and reached my own personal decision that I 
think the SEC should proceed with a rulemaking to impose a 
uniform fiduciary duty. Lots of challenges to that.
    The next steps--and this is not a quick undertaking--are to 
discuss in detail all aspects of this with my fellow 
Commissioners while the staff is working on--
    Mrs. Wagner. Following up with what Mr. Ellison was talking 
about, that this, in fact, didn't have anything to do 
necessarily with the Department of Labor announcement that they 
were moving forward on their own rulemaking in that time?
    Ms. White. That is correct.
    Mrs. Wagner. It has nothing to do with that?
    Ms. White. No. And I have said, long before the Labor 
Department announced this, that I was going to soon say what my 
own position was. That was last year. And I have been working 
very intensively on it.
    Mrs. Wagner. You mentioned that it was your personal 
opinion. Tell me about what kind of studies, analysis, some 
kind of empirical basis for moving forward with the rulemaking.
    Ms. White. You have a number of studies, some of them 
actually accompanied the 2011 report that the SEC staff made, 
that talks about, one issue is--and it is just one issue--talks 
about investor confusion. I think there is no question that the 
standards under which broker-dealers and investment advisers 
operate are different, one being a suitability standard, one 
being a uniform fiduciary duty standard, where the best 
interests of the client--
    Mrs. Wagner. Has there been any formal analysis done, any 
economic analysis done and presented for such a rule?
    Ms. White. There are studies on this. But part of what we 
will be doing with this undertaking is continuing to have our 
economists study all aspects of this.
    Mrs. Wagner. And you just mentioned it: Do you believe that 
a rule should demonstrate that there is actual harm, harm to 
the investors, rather than just confusion?
    Ms. White. I think confusion is not a good thing in and of 
itself. But one would regulate differently, if that was the 
only issue. I do think when you have two very different 
standards where financial professionals under the same rubric 
can make different decisions--one is having to make the 
decision in the best interest of the client irrespective of 
their own financial interest; the other doesn't have to do that 
if the investment is suitable--that has an effect.
    Mrs. Wagner. Being cognizant of my limited amount of time 
here, I would really encourage you, you said you would have 
your economists look at this, to actually, dealing with the 
area of harm versus the standard of care, as opposed to any 
other standard or confusion, true actual harm, has any study 
conducted by the SEC taken into account the potential for 
increased costs? I know that Representative Stivers mentioned 
this. You talked about both dealers, investment advisers and, 
more importantly, what I care mostly about, which is the retail 
investors, the Lindas and the Mikes and the Marks of whom he 
spoke.
    Ms. White. There is no question that is part of the 
analysis. It is in all our rulemakings, but it is particularly 
acute in this one.
    Mrs. Wagner. And just one other quick question. Many have 
argued that changes to disclosures, as well as simplifying the 
kinds of titles that can be used by financial advisers could 
help solve some of these issues. Has the SEC considered any 
such alternatives instead of a brand new, overarching new 
fiduciary standard?
    Ms. White. Well, the answer is yes. I don't think they are 
mutually exclusive though.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And, Madam Chair, thank you for your attendance. I really 
appreciate it. My favorite topic is actually market structure. 
And I am happy to see that, in your testimony, you raise some 
concerns that I share. I recently drafted a bill called the 
Maker-Taker Conflict of Interest Reform Act. What we are trying 
to do is we have a system now where exchanges are offering all 
kinds of incentives for order flow. They are offering co-
location for a fee. They are offering special order types that 
will allow traders, brokers to get to the top of the queue. And 
now they are offering significant rebates to brokers who will 
steer their order flow through their exchange. And the thing I 
worry about is that the brokers in some cases, not all cases, 
are chasing order flow and chasing those rebates instead of 
acting in the best interest of the investor. And I think that 
is very, very important for retail investors and pension funds, 
things like that.
    And so what I was trying to do is to figure out what the 
impact of these rebates really is. The least intrusive way I 
think to do it is to do a pilot program, to pick out 50 or so 
highly traded stocks and prohibit rebates to be offered on 
those stocks. So that we would see, obviously, if brokers are 
trying to chase rebates, we would see a lot of activity in the 
stocks that carry the rebate. And we would see far less 
activity in those that don't carry the rebate. I am wondering 
if the SEC is considering anything like that where we could try 
to realign the interest of the broker with the interest of the 
investor.
    Ms. White. Very much so. The maker-taker compensation model 
is very much in the core of what our market structure review 
folks are looking at. A pilot is a possibility to be able to 
come to grips with that issue. It is a very complex issue. We 
have our economists deeply involved, and in those discussions 
they have said, there really are a number of complexities if we 
were to proceed with a pilot, a study, that you need to control 
for. There is certain non-public information, for example, that 
really would need to be a part of that. Getting the right 
cross-section and a large enough one would be very much a part 
of that as well. And so our staff in Trading and Markets is 
actually preparing quite a detailed analysis of that in 
conjunction with our economists. It will undoubtedly be on an 
early agenda for our Market Structure Advisory Committee, which 
is a cross section of experts and perspectives to give their 
feedback on it. But we really do think--
    Mr. Lynch. Is that the Committee with the 17?
    Ms. White. I think it is 17. I think the first meeting is 
May 13th.
    Mr. Lynch. I would like to see some of the folks on that 
committee--I would like to see some of the folks who have been 
quite outspoken on this, Sal Arnuk, Joe Saluzzi, Haim Bodek, 
those are all real smart fellows who have been dealing with 
this high frequency, they probably don't want to serve on it. 
But I would just like to see some people who are publicly 
suspect of this whole, the high-frequency trading advantage.
    Ms. White. Clearly, our intent is to get that balance and 
those different perspectives. And, to the extent someone may 
not be on the committee who has perspectives and expertise--
there are more than 17 quite expert representatives. We intend 
to structure those meetings with a large group, perhaps a 
roundtable at each meeting, in order to obtain additional 
inputs at those meetings so that we can get broader 
participation from folks such as you mentioned. But it is 
something we are very focused on, very deeply studying. It is 
complex. And I am happy to have the staff follow up with you.
    Mr. Lynch. Yes, that would be great. I just want to say 
this, Madam Chair, this issue really affects the integrity of 
our markets. I know it is complex. Everything is complex. 
Sometimes I think complexity is an advantage for some people. 
And I just think, for the protection of our markets, we have to 
get a situation where a retail investor or a pension fund is 
not at a huge disadvantage to a high-frequency trader, who has 
a special order type and has co-location and has the advantages 
of speed. And, in some cases, there is an information advantage 
that they have as well.
    Ms. White. There are a lot of issues like that, I will say, 
in this space. You basically have the concern about the 
conflict of interest for the brokers as it may impact the 
investor. But you have to consider whether it is yielding 
better prices and less cost for those retail investors.
    Mr. Lynch. Thank you, Madam Chair.
    I appreciate the indulgence of the Chair. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Mr. Chairman.
    Madam Chairwoman, thank you for being here, especially for 
your cooperation and your testimony today.
    I want to go back to what the chairman alluded to in some 
of his earlier questioning, and that has to do predominantly 
with the imposition of prudential banking regulations on non-
bank financial institutions such as asset managers and life 
insurance companies.
    Shouldn't the FSOC's primary focus be on making sure that 
these entities that may have systemic risks, that those are 
addressed properly rather than turning them over to the Fed to 
just say, here is a bank-centered prudential banking regulator, 
you assess it? Wouldn't it be better to put them within the 
regulator that they already have?
    Ms. White. Certainly one of the strong components of FSOC 
is to have primary regulators there in the process.
    Mr. Ross. Right.
    Ms. White. Clearly FSOC, by statute, was given the power to 
designate non-banks that are systemically important, to subject 
them to--
    Mr. Ross. Correct. But it would be good to put them with 
their primary regulator for addressing their systemic risks.
    Ms. White. Although it is not how it is structured under 
the statute. But one of the things that is clearly at the 
moment where the asset manager review is sitting is to get more 
information on activities.
    Mr. Ross. Correct. And one thing I want to thank you for, I 
know that you mentioned back in December that you were going to 
help develop recommendations to address potential risks in the 
asset management industry. In fact, one of them is to improve, 
expand, and update the data and other information the SEC uses 
to draw conclusions about the risks of asset management 
industry and develop appropriate regulatory response. How is 
that coming?
    Ms. White. Actively and productively. A proposal is being 
produced by the staff.
    Mr. Ross. Let me ask you this. How did the asset management 
industry, if they did at all, contribute to the 2007-2008 
financial meltdown?
    Ms. White. I think everybody has different things that they 
point to, but I don't see a lot of fingers pointing to them.
    Mr. Ross. Yes, and they are really not. They manage other 
people's assets. And I appreciate that.
    Ms. White. It is an agency model predominantly.
    Mr. Ross. I appreciate that. And last month, for example, 
FSOC came out and said, we have some transparency regulations 
we are going to follow. And I think that is a good step in the 
right direction.
    How would you feel about codifying those transparency 
requirements?
    Ms. White. First, I think transparency is enormously 
important for FSOC as for any government agency. So I also 
applaud the steps that have been taken, and I think additional 
steps could be taken as well. I think one of the--
    Mr. Ross. For example?
    Ms. White. I was about to say one thing that I think is 
smart to do is, it is a relatively young organization and you 
want to make it stronger as you go. You don't want to sort of 
freeze it in place maybe with codification.
    Mr. Ross. And not only that, but also with the 
codification, you also don't subject yourself to the whim of 
different Administrations, regardless of who may be in charge. 
But also when you are looking at the designation of a 
systemically or significantly important financial institution, 
you want to be concerned, I think, at the very core of how they 
got there and to give them notice as to: one, that they are now 
being considered; and two, here is a path to get away from it. 
And if we were to codify some of this, I think it may give not 
only the entities themselves, but more comfort to the market.
    And so to that end I just wanted to make you aware of a 
particular bipartisan bill that I just introduced yesterday 
known as the Financial Stability Oversight Council Improvement 
Act of 2015. It codifies the transparency. It allows for the 
procedures for SIFI designation of non-bank financial 
institutions, it allows for the primary regulator to be 
provided the opportunity to address the systemic risks.
    So I just want to make you aware of this and I hope that 
you will take a look at this and have an opportunity to even, 
quite frankly, support it if you are in such a position.
    Also, earlier you talked about in your opening, you provide 
a robust economic risk analysis when looking at the market. 
Does this also include a cost-benefit analysis of the 
imposition of regulations?
    Ms. White. It does for our rulemakings, yes.
    Mr. Ross. And, for example, with regard to asset managers 
again, because I have been burying myself in this for a while, 
the American Action Forum did a study in 2014 that said that an 
asset manager of mutual funds designated as a SIFI could 
decrease investor returns by as much as 25 percent.
    When you look at a lot of investors that are utilizing 
asset managers to invest in retirement funds and college 
education funds, it almost becomes a cost prohibition to have 
this designation when, in fact, according to this study, an 
investor can lose as much as $100,000 over the life. So that is 
something I hope that you would, if you haven't already, take 
into consideration with regard to the imposition of these non-
bank-centered financial institutions.
    Ms. White. The only thing I would comment on is what you 
are looking at in that process is the systemic risk as part of 
that as well.
    Mr. Ross. Correct.
    Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes.
    Mr. Himes. Thank you, Mr. Chairman.
    And thank you, Madam Chair, for being with us and for the 
good work that you do.
    I want to reserve the bulk of my time to talk a little bit 
about insider trading, but I do want to weigh in on this active 
debate we have on the question of a unitary fiduciary standard.
    I would hope that most of us would want the nature of that 
fiduciary standard to prevent people from paying money for 
products that are sold in which the intent in selling those is 
more about making money than it is providing the best product.
    But setting aside the substance, and I understand that you 
are statutorily constrained by a system that was set up a long 
time ago when people had pensions that were managed by other 
people, of course today we live in a world where more and more 
people are running their own IRAs and their own 401(k)s.
    So my hope would be, and this is really a comment, not a 
question, that sensing as I do that the average retail investor 
doesn't really know the difference between an investment 
adviser and a broker or really note all that much difference 
between their IRA and their regular brokerage account, that you 
would help us think through how we could go to a place that 
just feels like a smart place to be, which is a fiduciary 
standard, and not have the need for retail investors to need to 
think that in this account this is what my broker can do, but 
in this account this is what my adviser can do. That just 
strikes me as complexity that we ought to statutorily do away 
with, and I suspect it is statutory.
    With respect to insider trading, Congressman Lynch and I 
have been working on efforts to address obviously the problem 
that arose as a result of the Second Circuit's Newman decision. 
As you know, the SEC and DOJ have been forced to operate in an 
environment where there is no explicit statutory prohibition on 
insider trading, leading to a body of common law that has I 
think created some odd characteristics in how one might go 
after insider traders.
    Mr. Lynch has submitted a bill. I have one that has similar 
intent but is slightly different in its mechanics. But I think 
this is important to get right. It is important to me because, 
unfortunately, my congressional district has been 
disproportionately a source of bad actors and alleged bad 
actors in this area. I am a day or two, I think, from dropping 
some legislation that I hope you will take a look at. But you 
made a comment about a similar Senate bill, and your comment 
was that it is critically important to investors and to our 
markets that we have strong insider trading laws.
    One question I would ask you, and then I have a slightly 
more technical question, is would it be optimal, if the goal 
here is to be very clear about prohibitions on insider trading 
and a fairly streamlined process to actually prosecute inside 
traders, should we, in fact, pursue an explicit statutory 
prohibition, or do you think that you can muddle by as you have 
under common law and the 1933 Act antifraud provisions?
    Ms. White. From 10b-5, and then the common law, is where we 
have our laws on insider trading, and I think it is a strong 
body of law. Obviously, we have the Newman decision that is 
there. I think it is challenging to codify. The Commission has 
also considered over its history whether it should actually 
write a rule as to the parameters of it.
    So, it is challenging. The bottom line, which I think you 
were quoting from me on, is that it is very important to have 
very strong insider trading laws.
    Now, what we are doing, as you mentioned, is we filed an 
amicus brief in the Second Circuit. We are continuing to bring 
insider trading cases, including in the Second Circuit, but 
clearly other circuits do not subscribe to what I think is the 
overly narrow view of the law that in some aspects the Second 
Circuit has held. We are proceeding with cases in the insider 
trading space. It is enormously important to do that, and we 
are seeing what that ruling is in the Second Circuit.
    In terms of statutes to define it, I think it is 
challenging to do it, but at the end of the day what I am for 
is the strongest insider trading law that we can have.
    Mr. Himes. But presumably if it can be defined in rules, as 
it is today, and in common law, it can be defined in statute. 
And presumably also, if we are talking about sending people to 
jail for long periods of time, it is probably better that we do 
that than administratively or regulatorily we do that. No?
    Ms. White. That is certainly an argument for doing that. As 
I say, I think the devil is in the details maybe is not quite 
the right expression to apply to this, but I think it is 
challenging to codify it clearly in a way that is both not too 
broad and retains the strength of the common law. But I would 
be happy to work and have the staff provide technical 
assistance on that, because it is enormously important to us as 
well, obviously, at the SEC.
    Mr. Himes. Yes. Thank you. I am almost out of time, so I am 
going to have to get your answer to this for the record.
    But this is not a legal question. This is really a question 
that gets to the heart of the Second Circuit's Newman decision, 
and I am struggling to understand why the point that case 
hinged on, which is whether a tipee has knowledge of a personal 
gain on the part of a tipper, whether that should in any way, 
shape, or form be relevant. I understand under current common 
law it is, but whether it should as a matter of right or wrong 
determine whether that tipee would be liable.
    And I am out of time. So we will pursue that subsequently. 
Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you very much, Mr. Chairman. I appreciate 
it.
    Chair White, I had a question for you, but first I would 
like to thank you for the transparency the SEC provided in 
opening up the Office of Financial Research's (OFR's) study on 
asset management and financial stability for public comment. 
And I would like to ask if you think in general that it is a 
good idea for the OFR to seek comments on public reports like 
this, and also do you think it is important for the OFR to 
consult with agencies or departments with expertise in 
regulating financial services, like your own, when they are 
preparing public reports?
    Ms. White. I think it is very important to bring to bear 
the expertise that is in the space in which anybody is acting. 
And I don't know that anyone would disagree with that. I can't 
tell another agency how they should handle their own reports. 
At the SEC not only are we bound by law certainly in our 
rulemakings to the APA notice and comment process, but we 
benefit enormously from those inputs.
    Mr. Royce. On a similar note, DOL has said that input from 
the SEC has resulted in what they call numerous changes to the 
proposed rule on fiduciary standards. Can you tell us exactly 
how many changes the DOL has made? And I am going now to the 
ones requested by the SEC, trying to figure out if they are 
taking those changes or not. And also, are there changes that 
were recommended by the SEC that were not incorporated by the 
DOL?
    Ms. White. I can't comment on specifics because we don't 
have a public proposal out there. I can say that our staff 
provided extensive technical assistance. We weren't in the role 
of a commenter, but rather a provider of expertise and market 
knowledge to them. As reported back to me, I think our staff 
found the Labor Department staff quite responsive and receptive 
to the assistance and the expertise we were providing. I can't 
kind of tally up precise responses on all of those discussions. 
It wasn't really in the nature of providing specific comments 
on a proposal but rather--
    Mr. Royce. It was a dialogue. But I was just trying to see 
if recommended changes were actually being made or not.
    Ms. White. My sense is that certainly to a degree, the 
staff reported they were quite responsive to what they were 
providing them.
    Mr. Royce. At a recent speech at Tulane University you 
mentioned a recent takeover bid where we saw a unique pairing 
of a strategic bidder and an activist hedge fund. And in the 
same speech you mentioned that highly sophisticated strategies 
have come to dominate proxy fights and takeover bids, but that 
it is time to step away from the gamesmanship and inflammatory 
rhetoric that can harm companies and shareholders alike. And 
that sounds like good advice to market participants.
    I was going to ask if you could expound on your comments. 
Specifically, I am interested in when the gamesmanship and 
rhetoric crosses the line into market manipulation.
    Ms. White. That is obviously a facts and circumstances 
situation. And again, I was obviously expressing my own 
personal view on this. I do think a step back from the rhetoric 
and the gamesmanship would serve everybody very well on all 
sides. I think that you have had at least, maybe even beyond 
the beginnings a very positive development in terms of 
companies engaging with their shareholders, including activist 
shareholders in some situations, which can be very 
constructive. I wasn't talking about any individual or 
situation, but that just sort of overlay I think is a very 
constructive one.
    Mr. Royce. Well, Chair Mary Jo White, I want to thank you 
again for your testimony here today.
    And, Mr. Chairman, I will yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney.
    Mr. Carney. Thank you, Mr. Chairman, and I thank the 
ranking member, as well.
    Madam Chairwoman, thanks for coming in today. I am always 
impressed with your testimony, your attempts to be very 
straight with us and frank, and we certainly appreciate it, I 
think on both sides of the aisle.
    Most of my questions have been addressed, but I would like 
to touch on a few of those if I can in my 5 minutes.
    Mr. Duffy and I, just to illustrate some of the 
bipartisanship here, worked together on the Tick Size Pilot, 
and we know you are moving along with that. You answered the 
questions that he asked. I would just like a brief update on 
when you think we could have that in place, number one, and 
what is the major concern. One of the things that we tried to 
work through in designing it and getting input was how to 
structure it so we got really good information. The objective 
of it, of course, is to get more attention to the smaller issue 
stocks.
    Ms. White. And, again, I think it is an enormously 
important pilot to proceed with. I mentioned before that I 
think May 6th is the date on which the Commission needs to act 
on it in terms of--
    Mr. Carney. When you say ``act,'' you mean approved to go 
forward with it?
    Ms. White. Yes, in whatever form is. Obviously, we have 
gotten comments on various features of it. Those comments are 
being studied very carefully. Two of the major areas of 
comment--there were many, frankly, or not many, but certainly 
several--one was the trade at feature where we got a lot of 
comments; the length that I was discussing with Congressman 
Duffy as well. But our goal is to get maximum information so we 
can actually gauge whether increasing these tick sizes will 
help--
    Mr. Carney. Yes, some of the commenters have kind of 
prejudged it, right, and said it is not going to be effective. 
Well, let's find out and get good information, as you said. So 
we would encourage you to move forward with that.
    We have also been working, just learning more about venture 
exchanges, and I have talked to constituents in my district, 
some of whom have expressed some concern about that. These 
would be people who work for large institutions, concerns about 
maybe fraud. They had some issues with that in Canada.
    What concerns would you have? Could you share those 
concerns with me as I continue to look at this issue?
    Ms. White. Yes, and I think the venture exchanges are also 
something we are seriously looking at. Obviously, no decision 
is made as to whether to proceed or how to proceed. We have 
approved prior venture exchange applications.
    But I think one of the reasons that at least is pointed to 
for the failure in Canada is, who are you actually having trade 
on those exchanges? Is it a race to the bottom, which you do 
not want?
    And so when you are setting your listing standards, even 
though they are not as high in some ways as on the major 
exchanges, you want to make sure that you are setting them 
where they ought to be set and you have the disclosures that 
you need so that you are not setting yourself up for failure 
and fraud, frankly. So those are issues that you do have to 
bore into when you are designing this.
    Mr. Carney. Great. So you have heard a lot on the fiduciary 
rule from various Members. I would like to associate myself 
with the comments that Mr. Himes made. What is your overall 
objective there in striking a balance between the various folks 
weighing in?
    Ms. White. And, again, as I say, it is a complex, 
challenging rulemaking. The objective is that if you are 
providing, whatever your title is, investment adviser, broker-
dealer, personalized securities advice to a retail investor, 
that you act in the best interest of that investor without 
regard to your own financial or other interests.
    Now, that is right out of Section 913 in Dodd-Frank. That 
is kind of the beginning of the rulemaking. You obviously have 
to specify how do you define that standard, what kind of 
standard is it, what does it require, how does it impact on 
current business practices.
    And clearly we get parameters in 913 that say that 
principal transactions and being compensated transactionally 
are not in and of themselves a violation of a fiduciary duty, 
and you want to be sensitive, and indeed Dodd-Frank directs you 
to be sensitive to the existing business models so, as I was 
mentioning before, you don't end up striking the wrong balance 
here.
    Mr. Carney. It strikes me that is the biggest challenge. Is 
that kind of your sense of it too, in terms of the existing 
business models out there? And it is one thing to have 
transparency--look, I know what I am getting into with this 
product or with that product--but that is, as Mr. Himes I think 
accurately pointed out, I don't know that we differentiate very 
well among the various products that are out there.
    Ms. White. There are a number of challenges, but I 
certainly think that is a primary one.
    Mr. Carney. And finally, I would just like to again 
associate myself with the remarks of Mr. Lynch and the 
seriousness with which you took his comments on, I think, very 
important issues. And you have a lot of important things on 
your plate. We appreciate your great work on each of them. 
Thanks.
    Ms. White. Thank you.
    Mr. Mulvaney [presiding]. The gentleman's time has expired.
    I am now in the uncomfortable situation, Madam Chair, of 
recognizing myself. I would like to assure all of my colleagues 
that before he stepped out, the chairman handed me the piece of 
paper that said I was up next.
    Mr. Schweikert, I am looking at you. It is not my fault.
    So I recognize myself for 5 minutes.
    Madam Chair, thanks again for doing this. I want to follow 
up on an exchange you had with Mr. Neugebauer from Texas 
earlier today. He asked you about concerns regarding liquidity 
in the bond markets, and you had indicated, rightly so, that 
you had recently issued guidance on that topic. I actually have 
the guidance, or at least I have guidance that the SEC issued 
in January 2014. I would like to read that to you. I'll take 
just a second.
    It says, ``While assets in bond market mutual funds and 
ETFs have grown rapidly in recent years, dealer capacity in the 
fixed income markets appears to have undergone fundamental 
changes. Primary dealer inventories of corporate bonds appear 
to be at an all-time low, relative to market size. This 
apparent reduction in market making capacity may be a 
persistent change, due to the extent it is resulting from 
broader structural changes, such as fewer proprietary trading 
desks at broker-dealers and increased regulatory capital 
requirements at the holding company level.''
    So given the fact that everybody seems to acknowledge there 
are concerns regarding liquidity in the bond markets, and given 
the fact that the SEC's own guidance, which you correctly 
pointed out to Mr. Neugebauer earlier today, names increased 
regulation as one of the causes of that liquidity concern, what 
are you doing to lessen that burden at the SEC?
    Ms. White. I think two points there. One is I don't think 
those were findings but clearly informed observations. I am not 
trying to split hairs, right?
    Mr. Mulvaney. I won't put words in your mouth. I will just 
tell you what the document is. It is the January 2014 SEC 
Division of Investment Management Guidance Update.
    Ms. White. Yes. Absolutely. I am familiar with the 
document. All I am saying is I don't think there were findings 
made as to precise causes, but nevertheless informed statements 
about what the current state of play is on the regulatory side 
and in the marketplace. So first, I think you have to identify 
what actually is the cause.
    Mr. Mulvaney. Let me ask you this then, and, again, I don't 
want to interrupt and I apologize, but do you agree with the 
guidance update that says that increased regulatory cap 
requirements at the holding company level contribute to 
liquidity shortages--not shortages, but lack of liquidity in 
the bond markets?
    Ms. White. I certainly think that is the working 
assumption, if I could say it that way.
    Mr. Mulvaney. Is it your working assumption?
    Ms. White. It is certainly a part of the working 
assumption. And, again, I wasn't trying to split hairs. We 
control some spaces of regulation and we don't control other 
spaces of regulation. That is point one.
    Point two is that there are various purposes and impacts in 
regulations. And so one has to decide, even if you come to 
identify a cause that is hampering liquidity, what are you 
gaining by that particular regulation.
    So, again, I hate to use the word ``complex'' again, but I 
think there are tradeoffs there, I guess is a better way to say 
it.
    Mr. Mulvaney. Everybody on this committee recognizes the 
fact that there are multiple layers of regulation and multiple 
layers of agencies that have oversight over various 
institutions. Have you shared that opinion and the opinion 
contained in the guidance update regarding the regulatory 
effects on liquidity in the bond markets with other the members 
of the FSOC?
    Ms. White. That has been discussed extensively at FSOC.
    Mr. Mulvaney. And can you give us an interpretation as to 
what is going on?
    Ms. White. What I would say is, and, again, FSOC's primary 
purpose, and it is a really important one, is to, obviously, be 
focused on risks that are emerging and addressing those risks, 
and I think across the regulatory space, this probably is 
internationally as well as domestically, there is a concern 
about liquidity and particularly, obviously, of interest rates.
    Mr. Mulvaney. Is there a concern about overregulation?
    Ms. White. I think there is certainly a concern about the 
effects of regulation in a number of ways. One of the risks 
that is identified in the FSOC annual report and has been, once 
you regulate it in one strata of the market, be it a bank, let 
us say, where does that activity migrate, is I guess, the 
operative word. And then what do you do about the risk that is 
there that is not controlled? There is certainly that kind of 
lens that is being applied.
    Mr. Mulvaney. Thank you for that. I want to take my last 45 
seconds and completely change topics on you, to something that 
was near and dear to my heart, something that many of us worked 
on not only in this committee, but in a couple of other 
committees over the last couple of years, which was the JOBS 
Act of about 3 years ago. A big part of it, something I was 
very excited about, was crowdfunding. You all still haven't 
done the rules. It has been 3 years. Can you tell us when--
    Ms. White. Yes. Can I tell you when? I can tell you that it 
is a high priority to get done this year. It has proved, as I 
mentioned a little bit earlier, more complex, even though we 
knew it would be complex, to get it done so it is workable and 
still carries out the statutory requirements.
    Mr. Mulvaney. There have been some public comments in the 
markets that perhaps crowdfunding is dead, crowdfunding is not 
going to proceed. Would you like to take this opportunity to 
assure folks that crowdfunding is very much alive?
    Ms. White. It is very much alive at the SEC. I had a very 
extensive meeting with the staff yesterday on that very 
subject.
    Mr. Mulvaney. Thank you, Madam Chair. I appreciate that.
    And I will yield back the balance of my time and recognize 
now the gentlelady from Ohio, Mrs. Beatty, for 5 minutes.
    Oh, I'm sorry. Mr. Sherman stepped in. I apologize.
    Mr. Sherman is recognized. Unless you want to give your 5 
minutes to Mrs. Beatty.
    Mr. Sherman. Chair White, thanks for being here. I am going 
to ask you about FASB and its lease accounting. I am going to 
ask you about the Frank and Sherman amendment. I did that last 
time you were here. Not pulling any punches, but not 
necessarily getting great.
    Okay. Last time I asked you, you said you were aware of the 
proposal still kicking around the Financial Accounting 
Standards Board to add $2 trillion to the balance sheets of 
American business and the terrible impact that would have not 
only on the companies that you regulate, but many private 
companies as well that would be in violation of their loan 
covenants.
    FASB is in effect empowered by the SEC, and you were 
courageous enough last time--courageous may be overstating it--
you stood up last time and said your agency has to take 
responsibility for what they do since you have empowered them. 
You also said at that time that you would provide a further 
response for the record. I don't have that one yet.
    But what has the SEC done since the last time we talked to 
see whether the power that you have delegated to the FASB won't 
come down like a ton of bricks on small companies and on real 
estate and on the many people engaged in construction?
    Ms. White. And if I owe you a response, I will figure out 
what it is and give it to you. I apologize for that.
    Mr. Sherman. You just owe me a clear statement to the FASB 
that if they go forward with this, you will find somebody else 
to empower with this authority.
    Ms. White. This is one, and I know we have had this aspect 
of the conversation before, where it was actually the SEC 
staff, I think in 2005, who suggested that FASB undertake this 
standard setting to capitalize leases.
    Mr. Sherman. That makes you even more responsible for the 
disaster that looms.
    Ms. White. I know. And, again, all the considerations that 
you voiced and continue to voice are things that we certainly 
have bored into. I have talked to our new Chief Accountant 
about them. But it is one we may not agree with each other on 
at the end of the day.
    Mr. Sherman. It is one thing to say, I checked with the 
Chief Accountant and he thinks that there might be some 
theoretical argument in favor of what they are doing. Do you 
have any economic studies that refute the ones that I brought 
to your attention that says this is an economic disaster in the 
making?
    Ms. White. Again, I haven't seen studies that refute that 
nor have I seen studies that set forth that thesis.
    Mr. Sherman. Oh, I have provided them to you and will 
provide them again.
    Ms. White. No, no, and I should respond to those on the 
record, and I will and promptly because we have--
    Mr. Sherman. Last time you didn't.
    Ms. White. No, no, we have bored into this quite a lot, and 
I think I want to make sure I have answered all the questions 
even if we at the end of the day don't agree on that analysis.
    Mr. Sherman. I would point out that while there may be some 
``angels dancing on a head of a pin'' theoretical reason for 
what they are doing--and I think they are wrong about how many 
angels can dance on the head of a pin; I am the only person 
here who actually enjoys accounting theory--the fact is that if 
you look at how they have treated research and development 
expenses, you see they don't stick to accounting theory except 
when they want to.
    And so they violate accounting theory to destroy one part 
of our economy--not destroy, but significantly hurt one part of 
our economy--and then we have to spend billions of dollars 
encouraging research through a tax credit because FASB departs 
from accounting theory and discourages research. And now in the 
name of an accounting theory that they are wrong on, they are 
going to have a devastating effect on two other segments of our 
economy.
    And you can't just say you will look into it, and the Chief 
Accountant assures you that he has bored into it and he likes 
what he is doing. We need to know that your agency will be a 
force for good in this area of our economy.
    Ms. White. What I can assure you is that the meetings I 
have are not, are you okay with it. I do bore into them.
    Mr. Sherman. Since you have bored into them, can you tell 
us why we should capitalize leases if that means that tens of 
thousands of businesses will be in violation of the loan 
covenants and hundreds of thousands of construction workers 
will lose their jobs?
    Ms. White. Again, I think there are different views on the 
extent of that impact. I also think there are transition 
periods that can be applied to minimize the impact.
    Mr. Sherman. The transition period is way too short for the 
small businesses, and the effect on construction is 
unchallenged by any other economic analysis.
    I will get you the studies again. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr.
    Mr. Barr. Thank you, Mr. Chairman.
    And thank you, Chair White, for your service and 
particularly your participation in prosecuting terrorists.
    Today, I would like to focus on the work of the Office of 
the Chief Accountant, to follow on the accounting theme, and 
then if we have time, get a little into the risk retention 
joint rulemaking.
    With respect to the Office of the Chief Accountant, I would 
like to focus on public remarks that you made and other SEC 
officials made suggesting that the SEC is considering requiring 
American companies to transition from GAAP accounting to 
International Financial Reporting Standards (IFRS). In 
particular, IFRS does not allow the use of last-in, first-out 
accounting, as you know, and in contrast the U.S. Tax Code 
requires the use of LIFO for financial reporting if it is used 
for tax purposes.
    My concern is that if U.S. businesses are required to use 
IFRS, they would be forced out of LIFO accounting and would be 
subject to a significant recapture tax that could drive them 
out of business or force them into debt in order to pay the 
tax. And this is of particular concern to industries like the 
bourbon distilling industry in my home State of Kentucky, and 
other inventory-intensive businesses. Effectively, the SEC here 
would be changing tax policy without congressional approval.
    So the question is, are you aware of this potential impact 
of moving toward IFRS? Has the SEC considered the costs of 
transitioning to these international standards for industries 
and businesses that use LIFO accounting?
    Ms. White. I am aware of the issue and clearly have 
considered I think the range of issues, including those cost 
issues and, frankly, the legal issue as well, because it is an 
IRS set of rules as well. But just to be clear, what I have 
said publicly about the broader issue, and I still believe this 
should occur, is the Commission should make a statement as to 
where it is with respect to domestic issuers and IFRS.
    Where are we in that sequence? The last time the Commission 
spoke on that was in 2010. I will speak for myself, and I have 
the overall objective of a single set of high-quality global 
standards. That is the objective. I did not mean to imply what 
the statement will be would be a movement in that direction.
    Mr. Barr. In your prepared remarks you do reference 
Commission staff continuing in Fiscal Year 2014 to monitor and 
support the activities of FASB and the IASB as they made 
progress to converge GAAP with IFRS.
    Ms. White. Yes, absolutely
    Mr. Barr. And so my question is, is this transition a 
priority? How much of a priority is it with the agency? And is 
a rulemaking forthcoming?
    Ms. White. I can't speak precisely to the rulemaking, our 
Chief Accountant, as you may know, on his own behalf, not on my 
behalf or the Commission's behalf, spoke on this subject, I 
think, in December at the IACPA just in terms of some thoughts 
he has that he may want to present to the Commission.
    But in terms of where we are with respect to the broader 
issue, we certainly do support the further convergence efforts 
of IASB. When I say ``we,'' I mean ``me,'' but I think the 
Commission supports the further convergence efforts that are 
going on. That is a different issue than do domestic issuers 
report in IFRS, which we have made no statement about at all.
    Mr. Barr. I would encourage you all to consider the LIFO 
impact on American businesses as you look at that issue.
    Really quickly, transitioning to the joint risk retention 
rulemaking, as you know, collateralized loan obligations are 
actively managed funds that invest in senior secured commercial 
and industrial loans to American companies. This is a $300 
billion market.
    As you consider the SEC's very important statutory mission 
to facilitate capital formation, I would be interested to hear 
your take on why the joint rulemaking did not carve out a safe 
harbor for qualified CLOs in the same way that regulators have 
carved out a safe harbor for qualified mortgages, especially 
considering that mortgages, mortgage-backed securities were the 
principal cause of the financial crisis? And we know that the 
cumulative impairment rate for CLOs experienced over the life 
of the asset for the last 17 years, according to Moody's, has 
been less than 1.5 percent. In fact, CLOs performed very, very 
well during the financial crisis.
    Why are regulators and the SEC in this rulemaking not 
taking that into account, especially as we talk about liquidity 
and capital markets and corporate bonds, CLO is another 
important source for financing? Why are the regulators not 
taking that into account?
    Ms. White. That is an issue we spent a lot of time on in 
the joint rulemaking. I think the conclusions are set forth in 
the release, but I can certainly expand on that and get it back 
to you.
    Mr. Barr. Thank you. I yield back the balance of my time.
    Chairman Hensarling. The gentleman's time has expired.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
Beatty.
    Mrs. Beatty. Thank you, Mr. Chairman.
    And thank you, Chair White, for being here today and 
answering a whole broad array of questions.
    My question will reference something that you mentioned not 
only in your written testimony, but earlier this morning, now 
afternoon, I think I can bring it up again, when you talked 
about advancing opportunities to small businesses to raise 
capital.
    Certainly, as we know, small businesses together produce a 
lot of the economic growth. While I hate to hone in on any one 
specific, I think if we don't, oftentimes when we represent 
those groups, others might not. So as people give examples from 
their districts or from letters or stories that they have 
received, I am going to focus in on women in particular. 
Certainly looking at your background, having many firsts prior 
to coming here, and being the only female sitting here on my 
side of the aisle today, and looking at my colleague, 
Congresswoman Love, being the only female on her side of the 
aisle, I think I might have something we can agree on here.
    So when you talk about advancing opportunities, and you 
also mentioned the SEC's government business form, I guess one 
of the questions I want to ask is, can you address what 
specific types of opportunities your office is doing for 
businesses in general and for women in particular?
    Another reason I am focusing on women is just this morning, 
I received some statistics. I am from Ohio, the 7th largest 
State in this Nation, and there are 16 of us in our delegation, 
and I have the largest number of females in my congressional 
district. So today I speak for them, and it happens to be the 
end of Women's History Month, so maybe you can help me out by 
giving us some information that we can use or help you with.
    Ms. White. First, I applaud everything you just said on 
behalf of women. One example I would give you where I am 
actually rather pleased with the results is through our Office 
of Minority and Women Inclusion (OMWI) office, where one of the 
charges OMWI has is with our own contracting dollars. It is 
$350 million a year or in that range. We are charged with 
making sure that we are making it possible for minority-owned 
businesses and women-owned businesses to participate in the 
process of the contracting that we do.
    In fact, I think I brought the number with me: I think 33 
percent of our contracting dollars actually went to minority- 
and women-owned businesses last year, which is a real uptick 
from all our outreach efforts. We try to also have, I think it 
is once a month, that our office actually has potential venders 
come in, potential businesses come in to kind of learn what 
they need to do to, in effect, to bid on those contracts, apply 
for those contracts, I think to broaden it out beyond that. But 
I think that is a good example of where I am pleased with the 
progress that we have made on it.
    When we are dealing with our small business committees, the 
office I mentioned earlier that is in our Division of 
Corporation Finance, is devoted solely, really, to the 
interests of small businesses. We certainly are very focused on 
encouraging women-owned businesses, and minority-owned 
businesses to participate. A lot of the questions that our 
staff answers, which they do, I don't know, 1,200 a year from 
small businesses, are questions put to us by minority- and 
women-owned businesses.
    So I don't know if that is responsive, but that is a couple 
of examples at least.
    Mrs. Beatty. Thank you. And thank you for the examples. 
Maybe we can pass some of those on to some of the other offices 
who aren't doing as well.
    Lastly, I met with some constituents who have expressed 
some concerns about the effects of applicability of the 
fiduciary standards being applied to broker-dealers. In your 
written testimony you stated that the Commission has provided 
technical assistance to the DOL staff as they consider 
potential changes to the definition of ``fiduciary'' under 
ERISA.
    How do you see the SEC interacting with the DOL to ensure 
that low-and middle-income individuals keep their access to 
broker assistance regarding investment of retirement savings?
    Ms. White. I think first with respect to the Department of 
Labor, what our staff has done really for several years is to 
provide technical assistance and expertise to the staff of the 
Department of Labor. And what is included in that is our 
judgment from our knowledge of the broker-dealer market spaces, 
in the retirement area in particular, how a change in the rule 
might impact investors or the availability of investment 
advice. Separately, and it really is separately, we are 
proceeding, or my personal view is that we should proceed with 
a rule to impose a uniform fiduciary duty. But very much in my 
mind in doing that are all the complexities and all the 
impacts, and what we don't want to do is end up with anything 
that would deprive retail investors of reliable, reasonably 
priced advice.
    Mrs. Beatty. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Arizona, Mr. 
Schweikert.
    Mr. Schweikert. Thank you, Mr. Chairman.
    And, Madam Chair, I go through the same thing. Many of the 
questions I wanted to ask have already been asked, but I want 
to go back to both Representatives Velazquez and Mulvaney. We 
asked you about crowdfunding. I was gone for 2 years, now I am 
back, and I am having the same conversation I had with you when 
you were kind enough to come talk to me when you very first 
were appointed in, what was that, April 2013? I would love a 
little bit of information to understand some of the rulemaking 
process, the political influence, the outside group influence. 
Why are we years behind on those rule sets from the JOBS Act, 
both for crowdfunding particularly and then the enhanced Reg A? 
We are what, 2-plus years behind the deadlines?
    Ms. White. Actually, Reg A didn't have a deadline, but it 
is a high priority and we may actually move on that as fast as 
tomorrow.
    Mr. Schweikert. But 2 years ago you used that exact same 
line with me that it was a high priority.
    Ms. White. Yes, I did, and it was and it is a high 
priority.
    Let me talk about crowdfunding. I talked a little bit 
earlier about that. I think one of the things I did when I 
first arrived, because we had not proposed the crowdfunding 
rule, we had not proposed the Reg A-Plus rules, so I 
prioritized having them proposed, then you have your comment 
period. We have gotten a lot of comments on the crowdfunding 
rules, I think over 500, most of them unique comments on all 
sides of the issue. You don't have enough investor protection 
in it; it is not workable; it is too costly.
    This is one where we knew it was going to be complex. We 
have the funding portal piece of that we are working very 
closely with FINRA on, but essentially in order to be as true 
as we must be to the statutory requirements, the costs, and the 
workability, it has proved more difficult and taken longer than 
we anticipated.
    I mentioned earlier that I actually had a meeting yesterday 
at some length with the staff--
    Mr. Schweikert. But, Madam Chair, to this point, would we 
help you help the public if we would be dramatically more 
prescriptive when we pass legislation? If we did self-executing 
deadlines and started to force these rule sets to actually 
happen, if you and your organization aren't able to finish 
their work we know where we are? Because right now we have how 
many States that are doing State-based ones. So you do have 
incubators and examples out there so you are not recreating the 
wheel. What am I not understanding?
    Ms. White. I think the challenges vary in terms of being 
less or more prescriptive. Some of the challenges for us are 
created by the prescriptions because if they are prescriptive 
we need to carry them out. So, as we have been calling it, more 
technical assistance before the legislation is passed is 
needed. I think that is on us to be more interactive about it 
as well. Because what we are trying to do, a baseline, I don't 
mean to use that in economic analysis terminology, but a 
baseline for us is to carry out the statutory mandates. But 
sometimes those mandates are hard to carry out.
    Mr. Schweikert. But you can understand from my side sitting 
here, in much of the rest of the world, or industrialized 
world, there are crowdfunding platforms. And for some reason 
from conception to today, I am, what, 3 years, and a couple of 
years behind in the rule sets. Because we hear lots of speeches 
around this place from many of us saying we need to be helping 
the little investor, we have income inequality, when actually 
what we seem to have is an opportunity gap. Oh, here is a way 
we are going to help that entry-level entrepreneur, and we sit 
here a couple of years later. So you can understand the 
frustration.
    One sort of side question: With the number of States that 
have gotten frustrated and just said they are going to do it on 
their own, will the SEC step in their path if Arizona decides 
to work with Texas and recognize each other's platforms? Will 
States be allowed to sort of set up State compacts?
    Ms. White. That is one set of issues that we now have 
because the States have proceeded, and that is not at all a 
critical remark. I think there--
    Mr. Schweikert. They didn't have a choice.
    Ms. White. No. Clearly, I think there is a benefit of a 
national rule, but once the States have moved constructively, 
as many of them have, what you want to try to do is accommodate 
as much of that as you can.
    Mr. Schweikert. Okay. Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Hampshire, Mr. Guinta.
    Mr. Guinta. Thank you, Mr. Chairman.
    And thank you, Madam Chair, for being here today.
    This line of questioning has been discussed in the last 
couple of hours, but I want to go back to it because I still 
didn't quite hear some of the answers that I was hoping to 
hear, and it goes back to the fiduciary duty on broker-dealers.
    I know it has been stated that back on February 20th at the 
SEC Speaks Conference, you noted that one of the priorities 
would be for the SEC to determine whether to adopt a uniform 
fiduciary duty for broker-dealers. And then approximately a 
month later, on March 17th, you had stated that it was your 
personal view that should be done.
    I am still trying to understand what happened in that 
period of time where it appeared that things changed. I was 
here for most of your testimony, but I didn't hear a very 
specific and clear answer.
    Ms. White. The answer is that nothing really changed other 
than I had another month of study. I have been studying this 
issue in great depth for many, many months.
    And it frankly is still a ``whether'' question because it 
is up to the Commission. I am one of five votes on that 
Commission. But we need to make a decision whether to proceed, 
and then obviously, if so, how to proceed.
    But this is an issue that grabbed my attention, for want of 
a better expression, before I was confirmed. Basically, and I 
said it earlier, when you have essentially identical conduct 
regulated differently, particularly in the retail investor 
space, you have to think long and hard about why that 
regulation shouldn't be the same.
    Mr. Guinta. You mentioned that there was some analysis you 
relied on. Can you tell me what specific analysis and study you 
relied on?
    Ms. White. It is really the body of analysis that has been 
done over the years at the SEC by various outside groups who 
have been studying this. Our economists continue to study it as 
well.
    Mr. Guinta. Would you provide those analyses to me and the 
committee?
    Ms. White. Sure.
    Mr. Guinta. And then can you tell me what specific analysis 
you can point to that predicts the impact of the uniform duty 
for low- and middle-income families?
    Ms. White. I can't cite the particular studies that touch 
on those issues. Clearly, there is more data that our 
economists are focusing on, on issues including that one. But I 
can certainly include in the list the ones that touch on that.
    Mr. Guinta. Okay. Do you know what analysis estimate, if 
they estimated the impact, would be on women and minority 
investors?
    Ms. White. Again, there are several analyses kind of 
running the gamut in terms of what methodology they use that 
talks about--
    Mr. Guinta. Did that go into your decision-making in that 
month here?
    Ms. White. All that I studied did. And just in terms of 
rulemaking, if we advance it, inputs from all sources, 
including our own economists, will go into that.
    Mr. Guinta. I think this is important because both sides 
have talked about it. Was there any analysis that you relied on 
that predicted what, if any, negative impacts there would be 
for investors that were valued under $50,000?
    Ms. White. There absolutely are studies, articles, and 
academic papers on that I have looked at.
    Mr. Guinta. But was there something specific that you 
relied on when you made this final decision?
    Ms. White. Essentially what I relied on in reaching the 
view that I have at this point, my personal view, is the full 
body of evidence that is before the SEC. It is not just the 
SEC's studies, although that is included in it as well.
    Mr. Guinta. So the potential increase of broker commissions 
as a result of this was a consideration?
    Ms. White. Anything that impacts on, are you depriving 
retail investors of reliable, reasonably priced advice is a 
very important consideration.
    Mr. Guinta. Was there anything specific about whether 
proprietary products would be continued to be offered to 
customers?
    Ms. White. Again, Dodd-Frank Section 913 specifies a number 
of parameters, including that one.
    Mr. Guinta. But I am trying to get to the analysis. The 
analysis that you utilized, that you said you utilized, were 
these items things that you specifically considered?
    Ms. White. I don't know how else to say it other than I--
    Mr. Guinta. I know that you are saying it exists generally, 
but I am trying to get to whether you specifically looked at 
these analyses and did they have a determining factor in moving 
forward with these rules.
    Ms. White. It is hard to say what moves you to your 
conclusions, I guess, but what I did was the deepest and 
broadest dive I could do before formulating my own personal 
view.
    Mr. Guinta. Okay. I have heard the ``broad.'' I need the 
``deep.'' That is what I am looking for.
    Ms. White. Okay. Again, I think I have to provide you with 
the sources, is the only way I know to answer that.
    Mr. Guinta. Would you be willing to provide communications 
that you had between February 20th and March 17th relative to 
this rule?
    Ms. White. Yes, but I don't think you will see anything. In 
terms of, you mean, like emails or something?
    Mr. Guinta. Written email, absolutely, yes.
    Ms. White. I will obviously take it back to the folks at 
the SEC. I am happy to provide whatever you need, frankly.
    Mr. Guinta. Okay. I would love to see those communications. 
That would be great.
    Ms. White. Okay.
    Mr. Guinta. Thank you.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Williams.
    Mr. Williams. Thank you, Mr. Chairman.
    And thank you, Chair White, for being here today.
    I am a small business owner. I live in Texas. Now, last 
year you testified that the markets are not rigged. In July of 
2014, a staff member from the Federal Reserve Bank of Chicago 
issued a research paper entitled, ``Recommendations for 
Equitable Allocation of Trades in High Frequency Trading 
Environments.''
    Now, first question, are you aware of this paper?
    Ms. White. I do recall the paper. It was approximately a 
year ago, right? Yes.
    Mr. Williams. My second question: Does the Federal Reserve 
Bank of Chicago have any regulatory responsibility for the 
conduct of equity markets?
    Ms. White. Not to my knowledge.
    Mr. Williams. Did you ask Chair Yellen or the President of 
the Federal Reserve Bank of Chicago to write this paper?
    Ms. White. No.
    Mr. Williams. Has the staff of the Division of Trading and 
Markets analyzed the paper's nine recommendations, and does the 
Division have concerns with any of the recommendations?
    Ms. White. The answer to that is certainly to a degree the 
staff analyzed it, because I asked the staff about it, and they 
had a number of comments about it. I can't give you the detail 
as I sit here right now, but certainly they have analyzed it.
    Mr. Williams. Do you have any concerns?
    Ms. White. About the study or about the--
    Mr. Williams. With some of the recommendations.
    Ms. White. I think the answer to that is yes, but I have to 
get back in and look at what that is so I can be more specific 
for you.
    Mr. Williams. I think we would like to hear what they are.
    Ms. White. I am happy to do it.
    Mr. Williams. All right. Just last year, you stated that 
the SEC owes a duty to Congress, the staff, and the American 
people to use the funds they are appropriated prudently and 
efficiently.
    Now, do you believe the SEC has a responsibility to 
demonstrate that it is a good steward of its current resources 
before it asks for additional funding? And I am always amazed 
as a private sector guy how we just have unlimited money up 
here, at the unlimited line of credit just drawing the people's 
money until it dies.
    So with that, before you answer that, I will note where I 
come from in Texas my constituents are not overly concerned 
about the rules, for instance, that we talked about earlier 
that deal with the CEO pay ratios, which the SEC spent over 
7,000 staff hours and $1.1 million in labor costs for a rule 
that we don't even have implemented yet.
    Ms. White. I think all I can say in response to that, and I 
alluded to it earlier I think as well, is that is a 
congressional mandate, as are many of other our rulemakings, 
that I do feel an obligation to carry out and carry out in the 
most cost-effective way given the statutory requirement. 
Clearly, there are costs and workability concerns in that 
rulemaking that require a lot of staff time in order to achieve 
that objective.
    So that is, I think, the explanation. It is the explanation 
for the resources that have been applied to that. It is a 
congressional mandate and we want to carry it out because it is 
our obligation to, but do it in the most cost-effective way we 
possibly can.
    Mr. Williams. Next question: Earlier this year JPMorgan 
Chase indicated it would cut back on its fixed income trading 
desk because of the regulatory requirements and capital costs 
following the lead of what other investment firms are doing. 
Are you concerned about these new regulations, that they are 
reducing liquidity in the U.S. fixed income market?
    Ms. White. I have a concern about all impacts, including 
those that are being occasioned by regulation.
    Mr. Williams. Regulations are killing small business, I 
will just tell you that. They are choking it to death.
    One more question: Last week, the SEC lost a case that it 
ran through its administrative hearing process. The 
administrative law judge called the SEC's claim wildly 
exaggerated.
    Will the SEC enforcement staff who did this, who received 
bonuses for bringing that case, have to pay them back? Because 
I have listened to your testimony today that you are short of 
funds to get the job done. If they paid that back, that would 
help your cash flow, wouldn't it?
    Ms. White. I guess I have to say at the outset that case 
may come to me on appeal. So I can't really talk about the 
specifics of it. We are also limited by various civil service 
rules and other things in terms of what we might be able to do 
in that space were we to make a decision to do that, but I am 
not commenting on the merits or demerits of that situation.
    Mr. Williams. Right now, it has been deemed wildly 
exaggerated.
    Ms. White. I heard that.
    Mr. Williams. Mr. Chairman, I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton.
    Mr. Tipton. Thank you, Mr. Chairman.
    And, Chair White, thank you for taking the time to be here. 
I think many of my questions have probably been answered. But 
just to follow up, quoting you, you just talked a little bit 
about how confusion is not a good thing, and that you think 
that you are doing good cost-benefit analysis. I would like you 
to expand on that for me. I understand your charge is obviously 
safety, soundness, making sure we have good markets that are 
moving forward. But talk to me a little bit about that cost-
benefit analysis, because right now we are seeing $2 trillion a 
year nationwide in terms of regulatory compliance in this 
country.
    I share common ground with my colleague out of Texas, Mr. 
Williams. I am a small businessman. We are seeing more small 
businesses shut down than there are new business startups. 
While we want to be able to have those cost benefits, let's 
look at outcomes. Is the economy really moving? We have the 
lowest labor participation rate in 37 years right now. Are we 
stimulating the economy, creating that opportunity for America 
to be able to succeed?
    Ms. White. We certainly want to be doing that. I will say, 
just in terms of the small business space, the small cap 
companies, as we would call them at the SEC, I really have 
tried virtually from the month I arrived here to focus on that 
space. One size doesn't fit all. And that probably applies 
across all kinds of spaces, including our equity market spaces. 
That is one of the reasons we are doing the Tick Size pilot. 
When it comes to cost benefit, we certainly do that analysis 
with respect to all of our rulemakings, including those that 
are mandated.
    Mr. Tipton. When you are talking about benefit, what do you 
perceive as benefit?
    Ms. White. There are a range of benefits: does it protect 
investors; does it facilitate capital formation; does it 
prevent the next financial crisis?
    Mr. Tipton. Have we succeeded in capital formation?
    Ms. White. We are certainly devoting a lot of effort to 
trying to succeed there. But, obviously, there are things in 
the marketplace that I think are impediments to that.
    Mr. Tipton. I just visited--when we are talking about some 
of the rules and regulations that are going on, some of the 
stress tests that are going on for banking institutions, last 
year one of the regional banks in the Western United States had 
7,000 pages to complete for the stress test that had been 
submitted. This year, it was 12,000 pages.
    Is that complexity, is that cost, is that impact--because 
obviously the bank has to be able to take that into 
consideration in terms of its ability to be able to have 
capital, to be able to issue loans to the small businesses that 
you are talking about wanting to be able to help, what is the 
thought process there?
    Ms. White. I can speak from the perspective of the SEC that 
one of the things that we really do bore into when we are doing 
our rulemakings is not only the Paperwork Reduction Act, but 
obviously the impact of administering whatever the rule is on 
who it is going to be imposed on. But I take your point 
obviously.
    Mr. Tipton. We haven't succeeded too well when we are going 
from 7,000 to 12,000 pages in paperwork reduction, obviously.
    I would like to shift gears. You are talking about the 
mission of the SEC, that under Dodd-Frank, it requires the FSOC 
to do an analysis before it determines that a particular 
financial institution becomes a SIFI. However, the SEC, 
Treasury, and the Federal Reserve are members of the Financial 
Stability Board. And you participated in the designation of 
insurers like Prudential and MetLife as SIFIs prior to 
considering the same issues under the Financial Stability 
Oversight Council. Presumably, a prior decision by the FSB 
would taint any decision that is going to be coming out of the 
FSOC. Could you explain to me how you are going to be able to 
avoid some sort of conflict of interest in terms of 
predesignating, if you will, when it goes to the FSB than to 
the FSOC and it happens?
    Ms. White. As I mentioned earlier, I didn't actually 
participate in all those decisions at FSOC, but I did with 
respect to MetLife, as I think I mentioned before. The SEC's 
role on the FSB, which has been in existence since 2009, along 
with Treasury and the Fed as the three U.S. representatives, 
our staff, basically, as a matter of practice, does not 
participate in work streams that are solely related to 
insurance or non-securities areas.
    Mr. Tipton. Actually my point, Chair White, is it seems 
like the FSB makes a pronouncement and it just flows down. I 
would like to be able to see some of the independence that is 
coming through. Can you speak to that?
    Ms. White. I can certainly speak on behalf of myself, and 
that I am totally independent, I think across-the-board, I 
hope, when it comes to any decision that I make. And certainly 
were the FSOC to take some action--again, this would be a space 
at the FSB I wouldn't be participating in. So it is not that 
kind of a direct connector. And it is up to the national 
authority, to be defined probably as to what we do 
domestically. But I feel like I am an independent decision-
maker.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin.
    Mr. Poliquin. Thank you, Mr. Chairman.
    And thank you, Chair White, for being here today. I 
appreciate very much you coming before us. We all know that 
America's free market, capitalist system has produced some 
tremendous lifestyles and standards of living for millions of 
Americans, generations past. It pulled so many people out of 
poverty going forward, not only in America but in different 
parts of the world. It also provides us with the tax revenues 
we need to defend ourselves and to take care of the poor who 
really need help.
    Now, the bloodline of our economy, as you well know, Chair 
White, is in part the financial services industry and the 
capital markets because if our small businesses are unable to 
raise capital to expand, then they have a problem being 
successful and hiring our people and providing better lives for 
everybody. Now, in the 2008 recession that hit, that was caused 
in great part by the collapse of the housing market, the result 
of that, in part, was a wide net, Dodd-Frank regulations that 
now has been expanded it seems like more and more over our 
entire financial services industry.
    And one of the results of Dodd-Frank, of course, as you 
know, is the Financial Stability Oversight Council, on which 
you sit. And you folks are responsible for designating which 
financial institutions here in our country are systemically 
important financial institutions or SIFIs. Now, a great concern 
I have, Chair White, is that in our mutual fund industry or 
pension investment industry, the money management business, I 
am very concerned that this wide net of Dodd-Frank is now about 
to engulf them and designate them as SIFI organizations. And 
here is why I am concerned. If there are 2 money managers and 
they are both managing, pick a number, $100 billion for their 
clients, and one manager has poor performance for a period of 
time and the other manager has better performance for a period 
of time, then the first manager is going to be fired and the 
clients are going to go over to the second manager. But all the 
assets that they run are housed at a trust department down the 
road somewhere. So there is clearly no systemic risk to the 
economy or to the capital markets by these investment 
management firms being designated and so regulated as SIFIs.
    So my concern is that if you have a middle-class family up 
in Ellsworth, Maine, that I represent in our Second District, 
and you have a paper maker from the Bangor area and his wife is 
a teacher, and they are putting aside $50 a week to save for 
their retirement, and they want to have a nest egg at the end 
of 20 or 30 or 40 years of working very hard in their 
professions. But, all of a sudden, if you have these investment 
companies that are helping their nest egg grow such that they 
can retire in dignity, without being dependent on the 
government, if we cast that net, Chair White, over these 
pension investment firms, these mutual fund companies that 
represent no risk to our capital markets, no risk to our 
economy, I am fearful that the products they will offer will 
shrink and the fees that they charge will go up. And then the 
rates of return that they generate for their clients who are 
trying to save for retirement will go down.
    In fact, Dennis Ross, a little bit earlier, mentioned a 
report by the former Director of the CBO, Mr. Holtz-Eakin, 
saying that, in fact, if that happens, you could see a 25 
percent reduction in the growth rate, the rate of return of 
these savings for college kids going to school or people trying 
to retire. So my plea to you, Chair White, is that you sit on 
FSOC, along with Treasury, along with the Federal Reserve, you 
have the authority, and I hope you will speak up, to make sure 
the pension fund business, the mutual fund business, those that 
are responsible for helping our families grow their nest eggs 
and retire in dignity won't be held under this umbrella because 
it will only hurt them. Do I have that commitment from you 
today?
    Ms. White. You certainly have my commitment that I will 
speak up on all those issues and others.
    Mr. Poliquin. I appreciate that. Thank you very much, Chair 
White. I would also like to encourage you to resist any 
temptation from the Federal Reserve or the Department of Labor 
or anybody else to take the authority that you have at the SEC 
to regulate non-bank financial institutions. You folks have 
been doing it for 80 years. You have the experience. You have 
the tools. And I am concerned that if these money management 
firms that are trying to provide savings, power, if you will, 
for our middle-class families, if they fall under regulations 
or under the regulatory authority of the Fed or the DOL that 
has no experience doing this, it will only hurt the people we 
are trying to help. So I would encourage you, please stand up 
and be heard--I know you will--and make sure that you regulate 
these money managers as you always have.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Utah, Mrs. 
Love.
    Mrs. Love. Thank you, Mr. Chairman.
    And thank you, Chair White, for being here today. Those of 
us who are freshman Members really appreciate you staying and 
answering some questions for us. So I want you to know I really 
appreciate it. I want to talk a little bit about Dodd-Frank and 
then try and get into capital formations if I can. Our time is 
limited. So I just wanted to get through these as quickly as 
possible.
    During the implementation or the development of the 
proposal to implement Section 619 of the Dodd-Frank Act, 
commonly known as the Volcker Rule, the banking regulators, led 
by the Federal Reserve, attempted to write a rule addressing 
trading and investment practices, activities that fall within 
the core competencies of the SEC. In your opinion, should the 
SEC have taken more of a leadership role in developing the 
Volcker Rule to ensure that the final rule was consistent with 
the SEC's mission and maintenance of robust capital markets?
    Ms. White. Again, the Volcker Rule provided some 
prescriptive steps and rules that were required under that 
rulemaking. It did not actually require the regulators to act 
jointly. It did require us to act in consultation. We ended up, 
which I think is a very good thing, acting jointly. From my 
perspective, I think the SEC was quite active; the staff was 
quite active; and I was quite active in providing inputs from 
our market-making, underwriting markets perspective.
    Mrs. Love. Okay. Would you agree that the final Volcker 
Rule makes it difficult for banks to buy or sell securities for 
their own inventory in anticipation of clients' demand because 
managing the inventory can look like proprietary trading?
    Ms. White. Certainly, that is an implementation challenge. 
But, obviously, there are prohibitions and there are 
exemptions. We tried to make the exemptions as workable as 
possible given those constraints.
    Mrs. Love. Okay. In 2009 and 2010, as Congress drafted the 
Dodd-Frank Act, it rejected proposals to strip the SEC of its 
market oversight authority and declined to transfer the 
registration of investment products to what ultimately became 
the Bureau of Consumer Financial Protection. Would you agree 
that the SEC regulates markets that are inherently risky?
    Ms. White. Yes. The markets are built on taking risk. That 
is what fuels innovation, the economy. You want it to be 
prudent risk. You want to have the disclosures you need to 
have, but yes.
    Mrs. Love. Would you also agree that the risks taken by 
investors are essential to capital allocation, which, in turn, 
is critical to economic growth?
    Ms. White. Again, I think the kind of risk I am talking 
about underlies our capital markets. You want to disclose to 
investors what they need to know.
    Mrs. Love. So, is that a yes?
    Ms. White. I think that is a yes.
    Mrs. Love. Okay. Does the bank-dominated FSOC reject your 
authority to propose and possibly adopt changes to oversight of 
asset managers?
    Ms. White. No. What FSOC is doing at the moment on the 
asset managers is requesting information on various activities 
of asset managers. SEC staff was very much a part of that. We 
have proceeded--as I think I said earlier, we are proceeding 
with a number of regulations in that asset management space. 
That is the SEC, not FSOC.
    Mrs. Love. Okay. I have just a little over a minute. And I 
wanted to really get back to this because this is obviously 
very important to this body. We are approaching the 3-year 
anniversary of the JOBS Act without several of the major 
components being effective. Can we expect the Commission to 
finalize the JOBS Act rulemaking for crowdfunding?
    Ms. White. The answer to that is yes.
    Mrs. Love. Okay. Will you commit to finalizing this rule by 
the end of Fiscal Year 2015?
    Ms. White. What I will say is it is a high priority for 
2015. And I had a huge meeting on it yesterday to move it 
forward.
    Mrs. Love. You are asking for $1.77 billion, and this is 
incredibly important.
    Ms. White. I agree that it is incredibly important.
    Mrs. Love. And I would like to know if you would commit to 
finalizing this rule before the end of Fiscal Year 2015?
    Ms. White. It is on our agenda to complete by then. And we 
are working very hard to make sure we can make good on that 
commitment.
    Mrs. Love. Okay. So no commitment to do that?
    Ms. White. My commitment is that we are according it the 
highest priority to get it done in 2015.
    Mrs. Love. Okay. I am out of time. Thank you.
    Chairman Hensarling. The gentlelady's time has expired.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill.
    Mr. Hill. Thank you, Mr. Chairman.
    Chair White, thank you for being here. Thank you for your 
long, wonderful service to our country. We appreciate your 
leadership.
    You made a comment a few minutes ago--you said you had 
pride in your independence, independent thought as it related 
to the FSOC. And I presume that you and your fellow 
Commissioners believe at the SEC that you are an independent 
regulatory agency?
    Ms. White. Yes, we do.
    Mr. Hill. And the fact that your budget comes to 
appropriation before the Congress doesn't in any way limit or 
cause you to feel less independent, I wouldn't think?
    Ms. White. No, it doesn't.
    Mr. Hill. Thank you. My friend Rick Ketchum over at FINRA 
has a proposal that I think you are familiar with, which is 
referred to by the acronym CARDS. I wonder what your view is on 
that?
    Ms. White. That is, again, by virtue of the regulatory 
structure, a rulemaking that will come to the SEC to pass on. 
So I can't really comment on the merits of it. I can say I am 
familiar with it. I am familiar with the many comments that 
have been made in response and I am familiar with the fact that 
FINRA is working through, taking very seriously those comments. 
Should they advance the rule, it will come to the SEC for 
approval, notice and comment and so forth.
    Mr. Hill. One thing that I think we have talked about, 
liquidity, and I think a lot of my fellow members of the 
committee were primarily talking about the government 
securities market and issues around the Volcker Rule, but I 
want to turn to the liquidity of another market that is 
extremely important to millions of investors and then all of 
our cities and towns, and that is in the municipal finance 
market. I am interested in your views on the MSRB's rule G-23, 
which limits the financial advisory arms of BDs from 
participating in anonymous auctions for municipal securities. 
Can you give me your views on that?
    Ms. White. I might have to come back in detail on that. It 
is one that the SEC has approved, I think at this point. So 
that is some indication of my position on it, although that is 
done by the staff and by delegated authority. One of the things 
that I mentioned at one of the two speeches I gave in June on 
some of these market structure issues is that I thought it was 
very important for the MSRB to advance the best execution rule. 
I also thought that it was very important for both FINRA and 
the MSRB to forward what is referred to as the riskless 
principal disclosure rules. That entire market I think bears 
the attention and priority that it is getting now. We, again, 
are more limited in that space from a regulatory point of view 
than we are in other spaces.
    Mr. Hill. It is my view, as somebody who has some 
familiarity with those markets for some period of time, that if 
one were to increase potential buyers in a competitive bid, an 
anonymous, competitive bid process, that you would increase 
liquidity and benefit the issuers, the public entities, and the 
revenue or GO market and, obviously by virtue of that, the 
investors that buy the issue at the offering price. From what I 
can tell from looking at the data, the rule, when you exclude 
that FA side of a BD's business, you are limiting market 
participants and, therefore, limiting competitive bids, maybe 
cutting them in half potentially. So I ask you to look at that 
from a competitive and liquidity point of view because in our 
capital markets and the public finance arena, we want more 
business. And our investors are benefited by having more 
bidders because these are mostly long-term, as you know, buy-
and-hold investors. And that improves best execution. So I 
would encourage you to look at that.
    The final topic I would like to raise with you today is 
this issue, again, on what I have sort of described as the war 
on savings. And I group all of those things together, the 529 
proposal that was withdrawn, the DOL proposal that is in 
discussion, the increasing capital gains taxation, the removing 
of stepped-up basis, the cap on IRA accounts. Back in the 
ancient history when I served at Treasury, we were demanded to 
increase savings and to create more ways to encourage Americans 
of all income levels to save and improve our capital markets 
that way. And I would like to talk to you a little bit about 
the fiduciary standard and just add my views. You have heard a 
lot about it today.
    I think that there are the suitability rules that we have, 
the know-your-customers rules that we have. The elaborate 
performance that brokers and financial advisers go through with 
their clients is more than sufficient to let the customer make 
a decision whether they want that fiduciary relationship or an 
agency relationship. And I want to add my weight of my 
comments, that I don't think there is an automatic benefit to 
the capital markets by going fiduciary only. And I really urge 
you to reconsider your thinking there. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    And thank you, Chair White. Not only are the freshman glad 
that you are sticking around, but this sophomore is glad as 
well. So, thank you. I read an article earlier this year from 
Gallup entitled, ``American Entrepreneurship: Dead or Alive.'' 
The article begins by saying that the United States ranks 12th 
in terms of business start-up activity when compared with other 
developed nations. This is a pretty troubling statistic at a 
time when we are trying to grow the economy and create more 
jobs. This is where I turn back to one component of the SEC's 
statutory mission: facilitating capital formation. I understand 
the SEC held its annual small business capital formation 
seminar this past November. Can we expect to see the SEC taking 
any action on its own to move forward with any ideas raised at 
that forum?
    Ms. White. There were a lot of ideas discussed at that 
forum, and as we speak, the staff is analyzing those for my 
benefit and the benefit of my fellow Commissioners.
    Mr. Rothfus. Will we be seeing any kind of public statement 
about it, taking those ideas and--
    Ms. White. I think we have to complete the review and 
analysis of them. But again, as I said earlier, I am certainly 
very focused, as are a number, if not all, of my fellow 
Commissioners on intensifying what we can do for capital 
formation by small businesses. The Tick Size pilot, and what we 
are doing in the disclosure effectiveness review, are examples 
of that. Some of those recommendations, by the way, came from 
that forum as well as our Small Business Committee.
    Mr. Rothfus. We have had some good success in Pittsburgh. 
It is one of the top cities attracting new technology companies 
in recent years. This sector is growing, thanks to venture 
capitalists, angel investors, and others. A large part of the 
positive progress is related to the top-notch educational 
institutions in our area and local firms that are willing to 
support the local startups. This growth is certainly welcome in 
western Pennsylvania. But we need to have this going across the 
country. That leads me to a question about what the SEC may be 
doing, if anything, with respect to looking at its rules and 
regulations and how you are keeping those updated. Has the 
Commission taken steps to consolidate or eliminate rules that 
are out-of-date or ineffective?
    Ms. White. We certainly do a retrospective review under the 
Reg Flex Act. And we also take input from all kinds of sources 
as to rules we ought to either consolidate or change in some 
way.
    Mr. Rothfus. Can you give some specific examples of some of 
the regulations you are taking a look at?
    Ms. White. We basically look at them periodically. If they 
are major rules, every year. It is sort of a rolling basis.
    Mr. Rothfus. Is there one or two that you could highlight?
    Ms. White. I can get back to you on some specifics and 
where we have moved on them.
    Mr. Rothfus. I would appreciate that. Looking at the 
topline summary of the SEC's budget justification, there is a 
significant emphasis on enforcement versus rulemaking. The 
Commission's request states that the top priority would be to 
hire 225 additional examiners. This is significantly higher 
than the proposed resources dedicated to economic and risk 
analysis and rulemaking. Why is the SEC making its top priority 
hiring 225 additional examiners instead of the SEC focusing on 
furthering the delayed rulemaking process?
    Ms. White. I think to go for the economic analysis, our 
DERA unit, if we can call it that, which houses our economists 
who obviously participate in the analysis, including cost-
benefit analysis of all the rulemaking, is our fastest growing 
division. They are one of the great success stories of the SEC, 
and we have sought additional resources for them as well. I 
think we now have 90-plus economists, up from about 40 just a 
few years ago. So you can only hire so many well and smartly. 
In terms of the examiners per se, and I spoke about this a 
little bit earlier as well, that is an area where I think we 
really have a responsibility to try to meet that gap in terms 
of our ability to cover exams. It is not enforcement but exams 
of investment advisers which are also for the benefit of the 
markets and the investors.
    Mr. Rothfus. Again, as has been said, we are concerned 
about the JOBS Act and getting those rulemakings done.
    Ms. White. Absolutely.
    Mr. Rothfus. You have noted previously that when disclosure 
gets to be too much or strays from its core purpose, it could 
lead to what some have called information overload. By allowing 
our disclosure regime to become the de facto vehicle for more 
and more human rights campaigns, do we run the risk of 
compounding the information overload problem that you 
previously highlighted?
    Ms. White. Again, as part of our disclosure effectiveness 
review, we are trying to deal with a number of those issues to 
make our disclosures more effective. It really is not reducing 
it, but making it more effective and more investor-friendly 
but--
    Mr. Rothfus. Would you agree that the information overload 
in SEC filings may actually be confusing and distracting to 
investors who are seeking to make informed investment decisions 
based on material information?
    Ms. White. The core of our disclosure powers should be 
directed to what is material to investment decisions and voting 
decisions. And certainly one of the things we look at is 
whether we have information in there that is distracting from 
that core purpose.
    Mr. Rothfus. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Illinois, Mr. Dold.
    Mr. Dold. Thank you, Mr. Chairman. Chair White, I certainly 
appreciate you sticking around.
    Thank you so much for your testimony and for being here, 
and thank you for your service to our country. This is I think 
the end, so a short little time here--at least for today, I 
hope.
    I want to associate my comments, first of all, with my 
colleague, Mr. Hill from Arkansas. And I certainly hope that we 
all are looking for ways to try to encourage more savings. And 
so his words, the war on savings, I hope that we are all 
looking to try to make sure that we can put policies in place 
that encourage more savings throughout our country at all 
different levels.
    I wanted to talk for a second about accredited investors. 
And certainly the definition of ``accredited investor'' purely 
on income or net worth, I think is somewhat antiquated and 
counterproductive. And, as I am sure you are aware, the United 
Kingdom added another mechanism and measurement really 
revolving around education so that they are actually able to go 
through and take a test to be able to be considered an 
accredited investor. So I just wanted to say, is the Division 
considering an educational component as you begin to update the 
definition of ``accredited investor?''
    Ms. White. The Division of Corporation Finance, together 
with our economists, is doing a very deep dive into an 
``accredited investor'' definition and considering all possible 
parameters, beyond net income, net worth, sophistication, 
licensing, education, and testing. The entire range is being 
considered.
    Mr. Dold. I certainly hope so. It seems odd to me that you 
could have a law degree, an MBA, have graduated from college, 
and just because you don't have the income or net worth, you 
are not going to be considered able to invest in certain 
securities.
    I wanted also to talk to you for a second about your 
written response in September of 2014 to Chairman Hensarling 
regarding the SEC's post-JOBS Act capital formation agenda, 
which really didn't have a whole lot of Commission-generated 
ideas to enhance capital formation beyond the congressionally 
mandated rulemakings and JOBS Act. What are some of the 
specifics that the Commission is looking at to improve capital 
formation?
    Ms. White. I guess I would mention three. I think there are 
more than that. And some of the JOBS Act provisions are also 
ones that both our advisory committees and the staff were 
working on as well. And they are obviously very important ones 
and important ones for us to finish also. The Tick Size pilot 
is one example, as well as the disclosure effectiveness review, 
and the consideration of venture exchanges. And then we do have 
our dedicated unit in Corporation Finance that really is 
focused in the rulemaking sense, and in the service sense 
exclusively on small businesses and what their needs are.
    Mr. Dold. I certainly appreciate that, being a small 
business owner. Small business is vital to Main Street and, 
frankly, for job creation.
    I wonder if I might be able to switch to Business 
Development Companies (BDCs). Business Development Companies 
have seen a fairly rapid increase in growth over the past few 
years, from about $4.7 billion in assets under management in 
2002 to about--at least my calculations are $73.1 billion in 
2014, providing loans to small and middle-market businesses, 
again, going back to that idea that most of the net new jobs 
are created by these small businesses. This growth stems from 
the demand capital that the BDCs are filling. So what is the 
SEC doing to help support the growth in this important 
industry? And, in particular, what efforts are under way to 
modernize the regulations?
    Ms. White. That is being looked at by our staff, in part in 
connection with one or more bills that I think were pending 
last session. So it is area where I think there are a number of 
ideas that are out there, some that might give us some concern, 
but it is clearly a very important segment of the economy.
    Mr. Dold. Okay. So there is nothing--
    Ms. White. There is nothing imminent, no. But I can, again, 
get back to you with sort of the outlines of what we are doing 
on that.
    Mr. Dold. In a letter you wrote to the committee in October 
of 2013 regarding some proposed BDC legislation, you indicated 
that a number of those provisions in a bill--and I do believe 
that one of my colleagues is going to also offer some 
legislation; if he doesn't, I will--posed no investor 
protection concerns. These also happen to be provisions that 
have not been updated for 30-plus years. And you have the 
authority right now to modernize and fix it. What have you done 
or what do you plan to do to help modernize these rules?
    Ms. White. Again, it is something that the staff is 
reviewing. We obviously have a very full agenda. I am not 
minimizing the importance of BDCs on that. But I think I would 
have to really probably follow up for the record in terms of 
where that fits into our planning.
    Mr. Dold. I would appreciate it if you would do so.
    My time has expired. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
There are no other Members in the queue. So I would like to 
thank the witness for her testimony and her patience today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
     This hearing stands adjourned.
    [Whereupon, at 1:34 p.m., the hearing was adjourned.]






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                             March 24, 2015




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