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







                      OVERSIGHT OF THE FINANCIAL
                     INDUSTRY REGULATORY AUTHORITY

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

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CAPITAL MARKETS AND
                    GOVERNMENT SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 1, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-20

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

95-064 PDF                     WASHINGTON : 2015 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Publishing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001




















                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking 
    Vice Chairman                        Member
PETER T. KING, New York              CAROLYN B. MALONEY, New York
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
BILL POSEY, Florida                  WM. LACY CLAY, Missouri
MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
    Pennsylvania                     DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
LUKE MESSER, Indiana                 JUAN VARGAS, California
DAVID SCHWEIKERT, Arizona
FRANK GUINTA, New Hampshire
SCOTT TIPTON, Colorado
ROGER WILLIAMS, Texas
BRUCE POLIQUIN, Maine
MIA LOVE, Utah
FRENCH HILL, Arkansas

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
  Subcommittee on Capital Markets and Government Sponsored Enterprises

                  SCOTT GARRETT, New Jersey, Chairman

ROBERT HURT, Virginia, Vice          CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              STEPHEN F. LYNCH, Massachusetts
PATRICK T. McHENRY, North Carolina   ED PERLMUTTER, Colorado
BILL HUIZENGA, Michigan              DAVID SCOTT, Georgia
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
STEVE STIVERS, Ohio                  KEITH ELLISON, Minnesota
STEPHEN LEE FINCHER, Tennessee       BILL FOSTER, Illinois
RANDY HULTGREN, Illinois             GREGORY W. MEEKS, New York
DENNIS A. ROSS, Florida              JOHN C. CARNEY, Jr., Delaware
ANN WAGNER, Missouri                 TERRI A. SEWELL, Alabama
LUKE MESSER, Indiana                 PATRICK MURPHY, Florida
DAVID SCHWEIKERT, Arizona
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas










                  C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 1, 2015..................................................     1
Appendix:
    May 1, 2015..................................................    29

                               WITNESSES
                          Friday, May 1, 2015

Ketchum, Richard G., Chairman and Chief Executive Officer, 
  Financial Industry Regulatory Authority (FINRA)................     5

                                APPENDIX

Prepared statements:
    Ketchum, Richard G...........................................    30

 
                       OVERSIGHT OF THE FINANCIAL
                     INDUSTRY REGULATORY AUTHORITY

                              ----------                              


                          Friday, May 1, 2015

             U.S. House of Representatives,
                Subcommittee on Capital Markets and
                  Government Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:48 a.m., in 
room HVC-210, Capitol Visitor Center, Hon. Scott Garrett 
[chairman of the subcommittee] presiding.
    Members present: Representatives Garrett, Hurt, Royce, 
Neugebauer, Huizenga, Hultgren, Poliquin, Hill; Maloney, 
Sherman, Lynch, and Himes.
    Chairman Garrett. Good morning. The Subcommittee on Capital 
Markets and Government Sponsored Enterprises will come to 
order. I appreciate everyone's indulgence for votes, for those 
important pieces of legislation.
    Today's hearing is entitled, ``Oversight of the Financial 
Industry Regulatory Authority.'' I will begin with opening 
statements and then turn to our panel.
    I now yield myself 3 minutes.
    Today we will hold, as I said, an important hearing, to 
provide for much-needed oversight of the Financial Industry 
Regulatory Authority (FINRA). But despite its status as a self-
regulatory organization (SRO), some would argue that it hardly 
resembles what would many call an SRO, and is what now appears 
to be more of a quasi-government regulator. Some even call it a 
deputy SEC.
    Indeed, its recent actions are closer to that of ever-
expanding Federal bureaucracies that we have become accustomed 
to now in Washington, that seek to go further into people's 
lives and businesses.
    And so, despite FINRA's enforcement of rules for the 
broker-dealer community that it regulates, it recently has come 
out in favor of the SEC moving forward with a uniform fiduciary 
standard, a sentiment shared by SEC Chair Mary Jo White.
    I should point out that when Chair White was before the 
full Financial Services Committee in March, she was unable to 
provide this committee with any studies or any other data, 
especially as it relates to the proposal's impact on low- and 
middle-income investors, which convinced her of the need for 
the new proposal in the first place.
    So I hope that Mr. Ketchum can elaborate today on the 
studies and any empirical data that he may have reviewed which 
has persuaded him and FINRA that the SEC should move forward on 
sweeping regulations and reconstruction of our security laws.
    As I previously noted elsewhere, and in other 
conversations, FINRA's comprehensive automated risk data 
system, also called CARDS, is a solution in search of a 
problem. Even after changes to the original proposal, I remain 
far from convinced that this costly, intrusive, and burdensome 
proposal is actually needed. The costs will far outweigh any 
potential benefits, and will further squeeze out small broker-
dealers who are already facing increased regulatory compliance 
costs.
    Additionally, CARDS would establish a new government 
database that would retain sensitive information about millions 
of Americans that can be, as we have been told, re-engineered 
to determine their personal identity. This, as some have said, 
amounts to the CARDS proposal being ``a few cards short of a 
full deck.''
    As FINRA is attempting to stand up CARDS, it is also 
bidding to become the operator of something called the 
consolidated audit trail (CAT). In bidding for CAT, FINRA is in 
a unique position to the other bidders on this proposal.
    Why is that? Because it sits on the SRO committee that will 
recommend a winner to the SEC. This would appear to be a 
blatant conflict of interest.
    But, notwithstanding that, I think having a single 
financial regulator with the data held by CAT and CARDS, should 
give every American some pause.
    In all, FINRA continues to step far beyond, I believe, the 
bounds of its originally intended jurisdiction and into 
personal investing decision-making of everyday Americans. It is 
this committee's duty to ensure that FINRA supplements, but 
does not supplant, the SEC. So, with that said, I want to thank 
the panel, which consists of one witness, Mr. Ketchum, for your 
appearance today at the hearing.
    The gentleman from Massachusetts is now recognized for 2 
minutes.
    Mr. Lynch. Thank you, Mr. Chairman. I appreciate your 
indulgence.
    I think there has been some recent activity that, indeed, 
does call into question FINRA's conduct. While some may suggest 
it is hyperactivity, I think that the events going back to the 
May 6, 2010, ``flash crash'' when the Dow Jones Industrial 
Average rapidly dropped about 600 points in 5 minutes before 
quickly rebounding, that event has brought further evidence to 
light.
    Recently, on April 21, 2015, the CFTC and the Department of 
Justice announced that the agencies were bringing civil and 
criminal charges, respectively, against Navinder Singh Sarao, a 
U.K. trader who had been manipulating the global financial 
markets from his home for years, for allegedly helping to cause 
the May 6, 2010, ``flash crash.''
    As reported in the New York Times, Mr. Sarao is accused of 
entering and withdrawing thousands of orders, worth tens of 
millions of dollars each, on hundreds of trading days, in an 
attempt to push down the price of futures contracts tied to the 
value of the Standard & Poor's 500, a practice known as 
``spoofing.''
    Once the price fell, Mr. Sarao would buy the contracts and 
reap the profits. However, on the day of the ``flash crash'' on 
May 6, 2010, prosecutors contend that Mr. Sarao placed large 
orders repeatedly over several hours, leaving the market 
vulnerable to big moves when another big trade came in from an 
investor in the United States.
    Reports indicate that the regulators completely missed Mr. 
Sarao's activity, because they weren't looking at complete 
data. As a result, it took regulators 5 years--5 years--to 
track down the actual culprit of the ``flash crash.''
    The equity markets have rapidly evolved. Now, there are 
thousands of stocks and over 1,000 exchange traded funds (ETFs) 
trading on 11 stock exchanges. There has been the introduction 
of over 40 dark pools.
    And I think what we would like to hear from the witness is 
whether the fragmentation of liquidity has hurt your cross-
market surveillance methods, and do you think there are too 
many venues in which to trade securities?
    FINRA is responsible for regulation in the securities 
industry, and can reach across securities markets centers to 
look for manipulative behavior. And I am just wondering with 
the evolution of the markets, does FINRA still have the ability 
to do that, to reach across asset classes, like futures and 
currencies.
    Since many strategies today employed by proprietary traders 
reach across various asset classes, do you think it would make 
sense for the CFTC and the SEC to work more closely together 
and share that information? Those are some of the questions 
that I think the ``flash crash'' investigation has raised. It 
will be interesting to hear the answers from our witness. And I 
yield back the balance of my time.
    Chairman Garrett. The gentleman's time has expired.
    Mr. Hurt is recognized for 2 minutes.
    Mr. Hurt. Thank you, Mr. Chairman. Mr. Chairman, I want to 
thank you for holding today's hearing. I am pleased that the 
subcommittee has taken the time to conduct oversight of the 
Financial Industry Regulatory Authority and its activities. 
Making sure that we have fair and effective regulation is vital 
to maintaining efficient capital markets, especially for 
smaller firms that are subject to FINRA's supervision.
    While a larger firm may be able to absorb FINRA's 
compliance costs, smaller broker-dealers are often hampered by 
them. FINRA's proposed CARDS initiative is one example of an 
idea that I believe is too costly and burdensome, particularly 
for smaller firms.
    Investors in both Virginia's Fifth District, my district, 
and across the country rely on FINRA to regulate broker-dealers 
in a responsible way. FINRA also has responsibility to operate 
in a fair, consistent, and transparent manner, given the 
authority that it exercises.
    FINRA must be mindful of the potential economic impacts its 
rules may have, particularly at a time when economic growth 
remains vitally important.
    I believe FINRA should focus on streamlining its 
duplicative systems and improving its operations, so as to 
better serve the broker-dealer community and their customers. I 
hope that today's hearing gives us an opportunity to examine 
the work that FINRA is doing and the ways in which we can 
ensure that broker-dealers continue to efficiently regulate and 
to remain vibrant for years to come.
    I look forward to the testimony of Mr. Ketchum, and I thank 
him for his appearance before the subcommittee today.
    And, Mr. Chairman, I yield back the balance of my time.
    Chairman Garrett. The gentleman yields back.
    The gentlelady from New York is recognized for 3 minutes.
    Mrs. Maloney. Thank you, Mr. Chairman, for holding this 
important hearing.
    We talk a lot about investor protection on this committee, 
and FINRA plays a central role in protecting investors in our 
securities markets. Investor protection takes many forms, but 
in general we focus on two main areas: first, ensuring that 
investors have enough information to make fully informed 
investment decisions; and second, making sure that investors 
are treated fairly by the securities professionals with whom 
they deal. These categories do overlap.
    Sometimes investors get their information about a security 
from their broker. In that case, ensuring fair treatment means 
making sure that the broker discloses all the pertinent 
information to the investor and it is in this second category 
of investor protection, ensuring fair treatment, that FINRA 
plays an enormously important role.
    Every broker and brokerage firm that sells securities to 
the investing public must be licensed and registered with 
FINRA. The regulation of broker conduct is extremely important 
because of the inherent informational advantage that brokers 
have over ordinary investors.
    Brokers by their very nature have access to a great deal of 
information that investors do not have. Most importantly, since 
brokers take orders from both buyers and sellers all day, they 
know which products are in demand.
    As a result, it is important that appropriate standards are 
in place to ensure that brokers don't use that informational 
advantage to the detriment of investors. That is where FINRA 
comes in. FINRA ensures that brokers don't mislead investors 
and that they don't sell investors products that are 
inappropriate for them or are deliberately designed to be too 
complex for them to understand.
    And while this is a critically important role, it is not 
the only role that FINRA plays in our markets. It also plays a 
key role in market surveillance by identifying red flags and 
trading patterns that suggest possible insider trading or 
fraud.
    For instance, if there is an unusual amount of buying in a 
particular stock right before a company announces it is being 
acquired, it is FINRA that usually detects that activity and 
refers it to the SEC's Enforcement Division.
    In 2014 alone, FINRA referred over 700 matters to the SEC 
for possible enforcement. So without these kinds of red flags 
and referrals from FINRA, the SEC would be significantly less 
effective.
    Also, it is an independent relationship and one that we 
should periodically examine to ensure that everything is 
working properly. That is why we are here today to conduct this 
necessary oversight of FINRA.
    So I look forward from hearing from our witness, and I 
yield back the balance of my time. Thank you for calling this 
hearing.
    Chairman Garrett. I thank the gentlelady.
    Now, we turn to our witness, Mr. Richard G. Ketchum, 
Chairman and CEO of FINRA. Thank you very much for your 
indulgence and your patience, and you are now recognized for 5 
minutes.
    You have been here before, so you know that your complete 
written testimony has already been submitted to the record. And 
you are recognized for 5 minutes.

 STATEMENT OF RICHARD G. KETCHUM, CHAIRMAN AND CHIEF EXECUTIVE 
    OFFICER, FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

    Mr. Ketchum. Chairman Garrett, Ranking Member Maloney, and 
members of the subcommittee, I am Richard Ketchum, Chairman and 
CEO of the Financial Industry Regulatory Authority, or FINRA.
    On behalf of FINRA, I would like to thank you for the 
opportunity to testify today.
    FINRA oversees approximately 4,000 brokerage firms and over 
600,000 registered brokers. FINRA's programs range from 
registering individuals to examining securities firms, writing 
rules, enforcing those rules and the securities laws, and 
educating the investing public.
    FINRA carries out this work under authority from Federal 
law and oversight by the SEC. Our work is informed by a board 
and advisory committee structure that incorporates both public 
and industry representation.
    In addition to regulating brokers and brokerage firms, 
FINRA monitors approximately 99 percent of all trading in U.S. 
listed equities markets, or nearly 6 billion shares traded each 
day. In fact, FINRA's market surveillance systems process 
approximately 30 billion market events each day to closely 
monitor trading activity in equity options and fixed-income 
markets in the United States.
    And I would note to the question raised earlier in the 
statements that FINRA has, for decades, looked at order 
information of surveillances, and for a period of 5 years, has 
had surveillances with respect to spoofing and layering that 
has resulted in multiple disciplinary actions.
    The programs we operate are continually evolving to improve 
and reflect relevant changes in industry operations and 
technology.
    In my written statement, I describe our rulemaking process, 
as well as the economic analysis we build in through our Office 
of the Chief Economist, as well as our retrospective rule 
review process, which has just resulted in the first set of 
rule changes approved by our board in April.
    Our examination program has shifted over the past few years 
to a far more risk-based system, one that is built on gathering 
information prior to examinations, evaluating the risk areas 
posed by an individual firm, and focusing resources on the 
areas where the most risk to investors lies.
    Alongside these efforts, however, we have maintained our 
commitment to regular on-site examinations, and we conduct 
these exams on cycles that range from annually to every 4 
years, depending on the firm.
    We have also enhanced programs such as our Office of Fraud 
Detection and Market Intelligence, and added new ones, such as 
our high-risk broker program, in an effort to develop new ways 
to quickly identify and address potentially harmful conduct.
    When we find this conduct and bring disciplinary actions, 
we focus not just on fines, but importantly, on restitution to 
harmed investors. Last year, we ordered over $32 million in 
restitution to customers. And cases brought by other 
authorities based on referrals from FINRA resulted in even more 
money returned to investors.
    In the market regulation area, the primary challenge is to 
ensure that regulation is effective in today's increasingly 
fragmented marketplace. Through our work for exchange clients, 
FINRA has been able to aggregate trading data across the 
markets to conduct comprehensive cross-market surveillance. 
This cross-market surveillance enables FINRA, in partnership 
with exchanges and the SEC, to better protect investors and 
promote market integrity.
    FINRA also is working to design surveillance programs that 
will span equities and options markets together to identify 
potentially manipulative conduct across products.
    And, of course, when the SEC's consolidated audit trail is 
functional, that will be the most complete picture of market 
activity and a vital tool for effective regulation.
    Complementing these regulatory and examination programs are 
efforts to enhance the information available to investors.
    FINRA created important transparency for the corporate bond 
market with the launch of our trade system over a decade ago, 
significantly reducing spreads in that market. We have now 
expanded trades to include agency debentures and many asset-
backed securities, with more to come over the next 12 to 18 
months.
    We also recently began collecting and making public 
reported volume and trade count information for all dark pools. 
Market participants, investors, regulators and academics are 
now able to see with unprecedented granularity volume 
information and trends regarding dark pool trading on a 
security by security basis.
    Finally, I would note that 10 years ago FINRA established 
the FINRA Investor Education Foundation to provide investors 
with useful information and tools. Since its inception, the 
FINRA Foundation has approved nearly $100 million in grants in 
targeted projects. And these efforts have led to tangible 
benefits for investors in all parts of the country.
    In all of these areas and others, FINRA remains committed 
to working closely with investor and industry representatives, 
fellow regulators, and our oversight committees, as we continue 
to carry out our mission of protecting investors and 
safeguarding market integrity.
    I appreciate the opportunity to testify today, and I would 
be happy to answer any questions you may have.
    [The prepared statement of Chairman Ketchum can be found on 
page 30 of the appendix.]
    Chairman Garrett. Great, thanks. I appreciate your 
testimony.
    I will now recognize myself for 5 minutes for some 
questions.
    So the predecessor of FINRA was the NASD. I would argue, 
and many would argue, that the NASD was a true self-regulatory 
agency. And I would argue that FINRA today is neither a true 
self-regulator, nor is it a government regulator. It acts more 
like a deputy of the SEC, than it does as a self-regulator.
    In the beginning of this year, a witness from the Mercatus 
Center, Hester Peirce, suggested several ways to look at this 
issue that I just laid out, and suggested several ways to 
improve--maybe to restore FINRA's structure, if you will, and 
to improve its accountability, and, as she put it, ``to reshape 
FINRA into a true self-regulatory organization.'' The 
regulators actually run by the industry it regulates and 
allowing the emergence of competing self-regulatory 
organizations.
    So I will give you a minute here to respond.
    Should the membership, if you will, of FINRA have a greater 
say in its operations, a greater say in its organization, a 
greater say in the policies that it proposes? A greater say in 
the rule proposals? A greater say in its agenda, than it does 
now? And I understand--and you laid out in your written 
testimony--the advisory committees and that sort of thing, that 
exist today. So I am asking, should there be greater say than 
what already exists as in the current structure?
    Mr. Ketchum. The short answer would be that I think the 
balance is correct today. I was honored to work and serve at 
the NASD throughout the 1990s.
    Chairman Garrett. Right.
    Mr. Ketchum. And I saw the evolution of the NASD into a 
balance that I think is very similar to FINRA in those 1990s.
    I think what is left is a board that has a majority of 
public members, but has industry members that reflect each of 
the segments of the industry to ensure that there is input with 
regard to any rules or questions with respect to our program.
    Chairman Garrett. So this--
    Mr. Ketchum. That is built across committees, both of small 
member firms, and I recognize the points made earlier that 
absolutely require our attention, as well as committees on a 
subject matter basis. So I believe what--
    Chairman Garrett. But those committees--and there are a 
whole slew of them. I understand that.
    Mr. Ketchum. Yes.
    Chairman Garrett. Would you honestly say that those 
committees are the ones that actually shape the policy and the 
rules that come out--that get proposed?
    Mr. Ketchum. Yes, I would say they have a great deal of 
input. The decisions are fundamentally decisions that have to 
be made by the staff and the board, which is absolutely the way 
it was at the NASD.
    Chairman Garrett. So where--
    Mr. Ketchum. But the input of those committees get directly 
communicated to the board.
    Chairman Garrett. Right, so where--
    Mr. Ketchum. Not something we do, but directly communicated 
to the board.
    Chairman Garrett. So since you were around both times, now 
and then, where today do the actual ideas or the proposals--
where do the actual proposals come from? Do the actual 
proposals come from the committees? Or, as you just said, the 
staff and the board? Does the staff say, ``Here is the idea. 
Here is the proposal,'' and then go to the committee and say, 
``Hey, give us your two cents on this?'' Or it is the other way 
around? Is it from the bottom up? Yes?
    Mr. Ketchum. Chairman Garrett, I think the answer is both. 
We get ideas from committees that lead to rulemaking. We get 
reaction to suggested proposed rules from committees that 
profoundly change and adjust what the rulemaking is because of 
the valuable input they provide--
    Chairman Garrett. And what--
    Mr. Ketchum. --as well as input from the standpoint of 
investors.
    Chairman Garrett. And so, to take a particular example, 
such as the CARDS idea, where did that come from? Did that come 
from the bottom up, from the small broker-dealer suggesting 
that? Or did that come from staff and the board?
    Mr. Ketchum. No, the CARDS proposal came from staff and its 
experience in using data analytics with respect to the exam 
program.
    Chairman Garrett. I'm sorry?
    Mr. Ketchum. It--
    Chairman Garrett. Wait, I just--
    Mr. Ketchum. --the CARDS proposal came from the staff as a 
result of our experience in using our data to analyze and try 
to target our exams, and looking to ways to do that more 
effectively from the standpoint of an early warning system.
    The proposal has consistently evolved as a result of 
comments made by folks in the industry.
    Chairman Garrett. And do the committees at the end of the 
day have a--I don't want to use the term ``veto,'' which is too 
strong of a term, but something akin to that when these things 
come down?
    Mr. Ketchum. No, and they should not. Fundamentally, FINRA 
should--and what FINRA provides should be an independent 
organization that is informed by the industry, that provides a 
level of formal and informal input that is dramatically 
different than government, but its decision should be 
independent.
    Chairman Garrett. So why do you think it is when I meet 
with a lot of the smaller guys, that they say that they feel 
that FINRA is something with which they have no communication, 
no contact, no influence? That it is just--my word, not 
theirs--``aloof, separate from them?'' Why do you think I get--
why do I hear that from the folks?
    Mr. Ketchum. I feel badly that you do get it from the 
folks. Small business--small broker-dealers have a challenging 
environment. We try to interact with them regularly. Both I and 
my staff meet with small firms around the country. And we have 
a small firm advisory board that regularly changes. It includes 
both members who are elected by small firms, as well as 
additional members who provide great value. So we try to get as 
much--and we have three representatives of small firms on our 
board as a matter of requirement at all times.
    So, I do believe small firms provide a lot of input into 
FINRA.
    Chairman Garrett. All right. My time has expired. And I 
also want to recognize Mr. Hill for his expertise and 
experience on these matters, and his advice to me on these 
issues going forward.
    Thank you, Mr. Hill.
    With that, I now recognize the gentlelady from New York, 
Mrs. Maloney.
    Mrs. Maloney. Thank you. And thank you, Mr. Ketchum, for 
your testimony. I would like you to comment on this article 
that was in The Financial Times earlier today. It said that 
U.S. banks push for a delay in reporting corporate bond trades. 
And, apparently, they are saying that there is a lack of 
liquidity in the bond market. And that if you delayed your 15-
minute requirement of reporting trades to the TRACE system, it 
would help the liquidity problem.
    So I would like you to comment on this proposal, and on 
whether or not you believe there is a lack of liquidity in the 
corporate bond market or municipal bond market. And do you 
think that a delay in the reporting time for large corporate 
bond trades would improve liquidity?
    Mr. Ketchum. We are reaching out to the industry. So it is 
an excellent question, Ranking Member Maloney. And we regularly 
have conversations over the impact of TRACE reporting.
    As you know, there have been dramatic changes with respect 
to the fixed-income market in recent years. Many of them come 
in the reaction of the failures and market impact coming out of 
the credit crisis.
    That has led to much higher capital requirements, the 
Volcker Rule that limits the ability for proprietary trading 
with respect to bank holding companies, a range of other issues 
that have all had significant impact from the standpoint of the 
liquidity of the fixed-income market.
    So we will--most of the comments we have heard focus on the 
least actively traded issues. We are going to do--I think they 
should be analyzed from a matter of data, and we are going to 
do additional analytical work to look at whether there has been 
a measurable change in liquidity with respect to those types of 
issues. And consider very closely several of the suggestions, 
most of which focus on the timing with regard to the reporting 
of larger trades.
    I will note the other side, though, and I know you are very 
familiar with this, which is TRACE has resulted in the dramatic 
reduction of spreads that, from the standpoint of the 
fundamental retail investor or those of us who invest 
indirectly through mutual funds, has dramatically reduced the 
cost of trading in the fixed-income market.
    That is not something we should want to lose anymore than 
the transparency TRACE provides to allow you to evaluate the 
quality of the execution you receive.
    But we take liquidity concerns seriously, and we will do 
both statistical analyses and reach out more to the industry.
    Mrs. Maloney. Thank you.
    I would also like to ask about the report that FINRA and 
the SEC recently published on the treatment of investors who 
are senior citizens. In that report, you found that some 
brokers are still making investment recommendations that are 
totally inappropriate for seniors. And as you know, we have had 
such a low interest rate return since 2008. And while I believe 
that this monetary stimulus has been necessary to lift the 
economy out of our deep recession, low interest rates mean low 
yields, and that has hurt the savings accounts and conservative 
investments of our seniors. And they usually rely on it.
    So my question is, do you think that this extended low-
interest rate environment is the main reason why broker-dealers 
have been recommending riskier and possibly unsuitable 
securities to our senior centers--in our senior centers and our 
senior citizens?
    Mr. Ketchum. It is an excellent question, and yes--
    Mrs. Maloney. And senior investors?
    Mr. Ketchum. I think it has been a contributing factor for 
exactly the reasons you so eloquently mentioned.
    Senior investors, who are often dependent on a fixed-income 
and very dependent on their investments, have been dramatically 
impacted with regard to low yields. The temptation to reach for 
higher yields with respect to a range of complex or less liquid 
investments is very real. And the temptation of the industry to 
sell them, even when they are not suitable, is something that 
we have a great concern of, and we have certainly seen in some 
instances.
    I would emphasize that generally speaking, the industry is 
very careful from that standpoint and has worked, I think, 
considerably harder from the standpoint of the quality of 
controls and disclosures they use.
    But the concerns are real, the abuses have happened, and 
our focus is very much on senior investors. And indeed, we 
just, with Susan Axelrod, who is sitting right behind me, her 
leadership opened up a senior help line to try to give seniors 
the opportunity to have a place to go to ask questions, whether 
about their accounts or otherwise.
    So, the concerns you raise are very real.
    Mrs. Maloney. Thank you.
    Chairman Garrett. Thank you.
    The vice chairman of the subcommittee, Mr. Hurt, is now 
recognized for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    Thank you, Mr. Ketchum, again, for appearing before our 
committee and for the contact that you have been in with us as 
we try to work through some of these issues.
    Obviously, from the big picture, when we look at proposals 
such as the CARDS proposal, the uniform fiduciary standard 
proposal, what we are trying to balance--and I know you are 
sensitive to this, but what you are trying to balance, it seems 
to me, is a regulatory scheme that is efficient and is 
necessary, on the one hand, and that, on the other hand, does 
not limit consumer choice and jack up consumer cost, because 
that is ultimately what happens, it seems to me, when you have 
over-regulation.
    Following up on Mrs. Maloney's questions, one thing I would 
point about the uniform fiduciary standard--and I ask you to 
comment on this--is that if there are abuses already under the 
suitable standard, it seems to me that you all already have the 
power to be able to go after folks who violate those standards.
    And if that is the case, then why would--and we all know 
broker-dealers have all kinds of requirements they have to live 
up to--we risk the possibility of higher costs and fewer 
choices by imposing a higher standard that is not necessary?
    Mr. Ketchum. Congressman, first, I want to say I think you 
set out the balance absolutely correctly, and I completely 
agree with the way you phrased it. I think that has to always 
be the way we look at each initiative, certainly from a 
rulemaking standpoint.
    On the fiduciary standard, I think some of the references 
here refer to my statements in a variety of conferences saying 
that I believe that the right way to move forward is with Chair 
White's leadership, for the Commission to look at the 
possibility of a balanced fiduciary standard across all 
products and that I regret the possibility of having different 
standards with regard to the Labor Department proposal and what 
exists in the securities market.
    I absolutely agree with you that the present regulatory 
structure is strong. We bring, as was noted, over 1,000 
enforcement cases each year. The rules, with respect to 
suitability and supervision that exist in the securities 
markets for broker-dealers, combined with regular examinations 
and oversight with regard to FINRA and the SEC are things that 
investors should feel very good about and result in strong 
protection.
    Mr. Hurt. Let me quickly ask you a couple of questions 
about the CARDS proposal, relating to a study that was 
mentioned in a Wall Street Journal piece this morning, 
something that has been referred to in the past, relating to 
the MIT study, that you can take--you don't need personally 
identifiable information if you have date, location, and four 
transactions.
    What is your opinion of that study, and how does that 
affect FINRA's thinking on the proposal?
    Mr. Ketchum. As we have said in the written statement, we 
absolutely are committed to take no steps with respect to 
creating a new centralized database where there is significant 
risk with respect to reengineering. One of the values of the 
comment process was it brought things to our attention and 
raised issues. We have stepped back very much to evaluate those 
things.
    And as I indicated in the statement, we don't plan to move 
forward with CARDS--
    Mr. Hurt. Until those concerns are addressed. But what does 
that mean? Can you--what can you share with us in terms of what 
that means when you say, ``our concerns are addressed?'' 
Because I think that we would like to know, to have some idea 
of what the timeline is and how you get to that place.
    What are the things that you are looking for in terms of 
addressing those concerns, specifically?
    Mr. Ketchum. Let me be, first, absolutely clear. I think 
the first step in the goal around CARDS, how it is delivered, 
is to create a more effective early-warning system so that we 
can identify serious frauds, serious sales-practice matters 
that we can step in and react more quickly to--
    Mr. Hurt. Got it.
    Mr. Ketchum. --before investors are hurt. We don't believe 
that account-level information is necessary for that, as we 
have reflected on it.
    So we are stepping back, having a number of conversations--
    Mr. Hurt. What are the security, because two issues are--it 
seems to me there are costs and the need for it, the cost-
benefit issue.
    But also, the security issue is significant. And how 
important is that?
    Mr. Ketchum. The security issue is absolutely critical. 
That is why I say anything we look towards doing from this 
standpoint will be done without account information. And we are 
looking at the alternative information that we already have in 
place, what information may come someday with respect to the 
consolidated audit trail and evaluating those as alternatives 
as well.
    Mr. Hurt. Thank you, Mr. Ketchum.
    I yield back my time.
    Chairman Garrett. The gentleman yields back.
    The gentleman from California is recognized.
    Mr. Sherman. I first want to pick up on the comments of the 
gentleman from Virginia and these Department of Labor 
standards.
    We have kind of a choice. We can provide the maximum 
protection to investors and, in that way, eliminate investment 
choices. You can only invest in plain vanilla.
    Or we can say, ``You get a little protection, and you get a 
little more freedom, and you can invest.''
    We now have a system in which we provide--some would say 
more protection, some would say less options to my IRA than to 
my widowed mother's life savings.
    Is there any reason why middle-class people controlling 
their brokerage accounts should have different protection 
standards, depending upon whether those accounts are IRAs? And 
if so, why would you provide--why are we developing a system to 
provide more of a straitjacket for me and less protection for 
my mother?
    Mr. Ketchum. First, I think it is a very fair question. I 
want to underline at the beginning, I am passionate from the 
standpoint of protecting investors, and I also agree with you 
that our system works because investors have a range of choice 
with respect to products built around a lot of requirements to 
ensure that what is provided to them is suitable.
    I do agree with, I think, your central premise. I think any 
of us, when we go about investing, don't think about investing 
with respect to tax-advantaged accounts differently than we 
think with respect to our other investments.
    And I think that a proper environment that properly 
protects investors builds the right level of disclosure 
requirements, the right focus with respect to the industry in 
managing their conflicts and ensuring those conflicts don't 
result in recommendations that harm investors, should look 
across products.
    And that is why I have tried to say that I believe the 
right direction forward here, with great confidence in Chair 
White, is for the SEC to look and reach its determinations as 
the Dodd-Frank Act provided the capability across all products.
    Mr. Sherman. I would hope that the agency that could 
provide the same level of logical protection and or options to 
both the IRA account and the widow's savings, would step 
forward.
    We have had some frauds. Often, these frauds are 
perpetrated by well-mannered, well-dressed gentlemen. And then 
we have rules that seem to work only if someone behaves as a 
``gentlemen'' in the standards of England a couple hundred 
years ago. For example, it is important that your--the broker-
dealers be audited.
    Do you make sure, when you get the audit report, that it 
was actually signed by the auditor by contacting the auditor? 
Or do you just need a good inkjet printer to forge the 
stationery?
    And second, do you make sure that the auditor is large 
enough to handle that size client? If that had been done, of 
course, Bernie Madoff never would have gotten away with it. Do 
you take those two very elementary steps, which would be 
unnecessary if everybody behaved like a gentleman or a lady?
    Mr. Ketchum. Audits are important. I think the exams we 
produced--
    Mr. Sherman. Do you do those two steps, those two simple 
steps?
    Mr. Ketchum. We do check with respect to the auditor. The 
PCAOB does have requirements as to what required levels of 
audits are and--register audits--auditors at this point.
    We don't have any rules that restrict size of auditors with 
respect to--
    Mr. Sherman. The accounting profession has a rule. It says 
you have to be independent, you have to be big enough to do the 
job, you have to be big enough to do the job without that job 
constituting 50 or 80 or 100 percent of your fees that you can 
generate in a year. So one person, a CPA firm, can't do it.
    So you make sure that the auditors sign the report? You 
don't just take a look at the piece of paper and think that is 
good enough?
    Mr. Ketchum. No, we don't go back to each auditor.
    Mr. Sherman. You don't bother. You trust everybody.
    Mr. Ketchum. If I can clarify, the PCAOB has a regular 
oversight coming out of Dodd-Frank with respect to all 
auditors.
    Mr. Sherman. Yes, but they don't make sure that the report 
was actually signed by the auditor. Just all you need to do is 
steal a piece of stationery. It shouldn't be that tough if your 
name is Madoff.
    But let me also ask you, you have this broker check system.
    Mr. Ketchum. Yes.
    Mr. Sherman. You have a lot of people you are asking about 
possible bankruptcies, criminal convictions, et cetera. When I 
have a tenant, I can spend $50 and use a commercial service to 
make sure that the person reporting to me is telling me about 
bankruptcies, unlawful detainers, criminal--do you use that or 
is it just--or do you just count on the broker to tell you 
about these matters?
    Mr. Ketchum. No, we do both. We--the Commission has now 
approved a rule that requires additional broker checks before--
by the broker at the time the employee comes in, and we do 
exactly those reviews and have just completed reviews of that 
across the entire broker check database.
    Mr. Sherman. And do you have an integrated system, since 
many of the people who are with broker-dealers are also 
involved in other investments like real estate, insurance, et 
cetera, do you have a centralized system of all those who have 
been disciplined by the various State regulatory bodies that 
deal with real estate agents, insurance agents, et cetera?
    Mr. Ketchum. Those disciplinary reports are required to be 
reported as part of the U4. We would love to have a unified 
system but we don't have the jurisdiction to do that.
    Mr. Sherman. Do you contact each State and get the data?
    Mr. Ketchum. We--the firms are required and the brokers are 
required to put it in. We would love to have it, and we have 
proposed it, but the States have been unwilling to have a 
uniform system.
    Chairman Garrett. The gentleman's time has greatly expired.
    The other gentleman from California?
    Mr. Royce. Thank you, Mr. Chairman.
    I would just like to follow up on Mr. Hurt's comments and 
some of your thoughts, again, on this risk-based surveillance 
and how your early warning system would work. And I take it 
from your comments--and by the way, I share his concern about 
the way the CARD program was going. From your comments it seems 
there is a--do you still feel there is a way to collect data in 
the aggregate that is going to allow you to go forward without 
putting individual account level data at risk?
    Could you explain a little bit more about the timing, how 
long this is going to take, and what you have in mind there?
    Mr. Ketchum. First and foremost, it will take whatever time 
it requires, and part of that whole decision is to whether we 
build a new system or not. One of the things we are doing, 
Congressman, is looking closely at the other information we 
have, the information we pulled down before exams and the 
information that is available from firms' financial reports to 
reach a decision.
    But if we do move forward with any proposal, it will go 
back to our board. It will be put out as a new notice to the 
industry and to other segments, investors and the like, and all 
of that will be done with a public comment period before we 
make a decision, before the board makes a decision as to 
whether to file the rule with the SEC.
    Mr. Royce. Thank you.
    Mr. Ketchum. I would say it would take a considerable 
amount of time.
    Mr. Royce. And then the short question, I was going to ask 
you here about this United Kingdom rule that was implemented 
there last year to ban commission payments from mutual funds to 
brokers, and some of the statistics on that, about 310,000 
clients stopped being served by their brokers because their 
wealth was too small for the broker to advise profitably. And 
then you had another 60,000 investors who were not accepted as 
new clients since then for that same reason.
    And I was going to ask you, are these statistics 
concerning? And do you believe that the Labor Department's 
fiduciary duty proposed rule could lead to similar impacts 
here?
    Mr. Ketchum. I think the statistics are certainly 
concerning and should be part of the review of the Labor 
Department's rule. We are still in the process of reviewing the 
rule. I think the Labor Department made significant strides in 
creating a more balanced rule, but there are parts of the 
release and the description of broker-dealer business that we 
don't think is accurate.
    So I completely agree with your premise that moving to an 
environment where fee-only advisory accounts are the only 
effective way to operate in the United States is a very bad 
step and that with respect to middle-class investors the 
availability of both--the choice between fee-only and 
commissions is important.
    And any steps taken should look carefully at ensuring that 
type of environment remains in the United States.
    Mr. Royce. And I would also ask you how you respond to 
criticism that SROs are becoming a fifth branch of government, 
and FINRA is starting to look a lot like a deputy SEC, as 
somebody said?
    Mr. Ketchum. I don't think we are anything like a deputy 
SEC. I do accept that FINRA has a unique position that is 
different than other self-regulatory organizations, and that--
and with the merger with New York Stock Exchange regulation and 
our responsibilities, that does deserve very careful oversight.
    FINRA is way different than a government agency. It has 
industry members on the board, it has the ability for informal 
access through committees and otherwise with regard to industry 
members. Those persons get the opportunity to look on an 
informal basis at any rule that we propose or are considering 
proposing. We respond to those comments and we also pass those 
comments onto our board.
    So I think FINRA is an independent organization that is 
informed in a very effective way from the standpoint of 
industry concerns.
    Mr. Royce. Let me ask you one last question. It appears 
that we are moving towards expansive quasi- or direct 
government regulation in retail securities markets. And I was 
going to ask if you think similar regulation is needed for 
private trading platforms known as dark pools or is there a 
difference, in your view, between regulation of retail markets 
and areas where sophisticated institutional investors are the 
market participants?
    Mr. Ketchum. That is an excellent question. I do believe 
there is need for greater transparency with respect to dark 
pools that are an integral part of the U.S. equity markets. And 
we, in fact, have had that occur from the standpoint of 
reporting requirements we have built in.
    I believe there is a necessity for effective and aggressive 
oversight. And we try to provide that. I do think dark pools 
have a role in the complicated and sophisticated marketplace 
that we have, and we should ensure that role continues to occur 
and provides competitive balance and choice that is valuable.
    But to your point, I think it is a good time and I am glad 
that the SEC has indicated their intention to step back overall 
and look at the equity market structure.
    Mr. Royce. Thank you, Mr. Ketchum.
    Thank you, Mr. Chairman.
    Chairman Garrett. The gentleman yields back.
    The gentleman from Massachusetts is recognized.
    Mr. Lynch. Thank you, Mr. Chairman.
    And thank you, Mr. Ketchum, for your willingness to testify 
and help the committee with its work.
    I realized--there is some friction here that is underlying 
some of the questions here and that is I think because some 
people see you as an SRO and as an organization that is meant 
to serve your broker members, your members, and then some of us 
think that your overriding mission is really to protect the 
investor.
    So let me posit something. Suppose you have brokers out 
there that are doing high-frequency trading. And they are 
chasing rebates and fees instead of pursuing best execution on 
behalf of the investors. Okay, so your members are chasing fees 
and rebates and the investor is being disserved by that 
practice.
    Where is FINRA's loyalty? Are you protecting your members 
or are you protecting the investing public? That is the 
question.
    Mr. Ketchum. Our statutory responsibilities and our passion 
is investor protection and market integrity. That always comes 
first. High-frequency trading is not one thing. Much of it is 
proprietary and doesn't involve customer accounts, but you are 
right, some of them do.
    Many are sophisticated, but the concerns around high-
frequency trading is a huge focus of our surveillance program. 
And while much high-frequency trading is effectively market 
making in the--
    Mr. Lynch. Let me--I don't have a lot of time--
    Let me just ask you that, though. You have raised a good 
point. In your current toolbox, are you able to properly 
surveil the conduct of high-frequency traders to make sure that 
in the course of executing those trades, the investor is 
getting the best execution?
    Mr. Ketchum. Where that manipulative activity would be 
occurring in either the equity market, fixed-income market, or 
options market, yes we do. And we have had for years 
surveillances particularly looking at things like spoofing, 
layering, marking the close, and wash sales and brought 
numerous cases.
    You raised in your opening statement, Congressman, a valid 
concern with respect to the fact that we do not have a common 
jurisdictional program and a common program with regard to 
interest rate swaps and with regard to futures.
    I would note for one thing it would be great if futures 
activity was included in the SEC's proposed consolidated audit 
trail.
    Mr. Lynch. Yes, let me just jump in here. This is--the SEC 
has stated that FINRA is unable to monitor the off-exchange 
market activity of non-member firms and detect potentially 
manipulative or other illegal behavior as efficiently or 
effectively as it can FINRA members. Do you agree with that?
    Mr. Ketchum. Yes. That relates to a recent SEC--
    Mr. Lynch. Are you operating with a full set of data?
    Mr. Ketchum. We would--where the consolidated audit trail 
goes, which includes customer information--
    Mr. Lynch. That is not up yet, though, right?
    Mr. Ketchum. No. The steps that the SEC is proposing--
    Mr. Lynch. I don't want to burn all my time here. I am just 
trying to get a sense of where you are at and where you might 
need help.
    Mr. Ketchum. Yes. The SEC has a proposed rule that 
addresses that and we support it.
    Mr. Lynch. Okay. And what is the timing on the consolidated 
audit trail? We have been doing this for several years and we 
are still some distance away, I imagine.
    Mr. Ketchum. I am on the other side of an information 
barrier. The exchanges and FINRA have filed a plan. The next 
step is for the SEC to publish it and that has not yet 
occurred.
    Mr. Lynch. Okay. In your recent brokerage inspections, 
FINRA found that some firms do not have active best execution 
committees. So I don't know if the firms themselves are 
actually paying as much attention as they should. Is there a 
way--now, you say we have some tools, although we are not 
acting--we are not operating with full or complete data. Is 
there a way currently where we can find out whether brokers are 
chasing the rebate and fees? Or--and that should show in a 
pattern or whether the preponderance of the brokers are 
actually providing best execution?
    Mr. Ketchum. One of the things we particularly look at is 
whether brokers can justify where they place most of their 
customer orders. As you know, they tend to route them often to 
a predominant market site and that is absolutely a concern of 
ours. Most firms do, but where firms don't, we look at the--at 
either changing behavior or enforcement actions.
    Mr. Lynch. Okay. Thank you. My time has expired. I yield 
back.
    Thank you, Mr. Chairman.
    Chairman Garrett. Thank you.
    Mr. Hultgren is recognized for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman. And thank you, 
Chairman Ketchum for being here today, as well. I would like to 
focus my comments and questions on the SEC and the Department 
of Labor, its effort to expand the definition of fiduciary 
which further extends Federal regulatory control into 
Americans' financial planning decisions. This move could 
restrict the number of investment products financial advisers 
could offer to their Main Street customers, making it harder 
for average Americans to invest. I have heard loud and clear 
from my constituents about the negative consequences of a 
fiduciary standard, including the tens of thousands of small 
investors throughout the district I represent, the 14th 
Congressional District of Illinois.
    They tell me that this change would not represent true 
consumer protection but would, instead, make it harder for 
Americans to plan for their future, put money away for their 
children's education and invest. While customers need enough 
information and options from their financial adviser to decide 
what products they need, I believe there is a danger that a 
fiduciary rule would strip their ability to get advice and 
help.
    This is why I co-sponsored the Retail Protection Investor 
Act, which delays the proposed rule until the Securities and 
Exchange Commission issues its own fiduciary rule and also 
requires the SEC to study alternatives to a uniform fiduciary 
standard and the impact of such a standard on everyday 
investors.
    Fiduciary proponents argue that a higher standard is needed 
because the current broker-dealer supervision regime is 
insufficient. Mr. Ketchum, my questions are really to that. 
Given that FINRA plays a significant role in broker-dealer 
supervision, can you describe the current regulatory and 
compliance regime with which FINRA-registered broker-dealers 
must comply?
    Mr. Ketchum. Yes, Congressman. We have a rigorous 
examination program in which all members, depending on their 
size and complexity, are examined between once every year or 4 
years. We regularly are oversighting from a surveillance 
standpoint to identify instances that suggest that there is a 
problem with respect to how they are operating.
    We bring over a thousand enforcement cases a year. As was 
noted earlier, we provide referrals to the SEC with respect to 
regulatory concerns that are outside of our jurisdiction and we 
bar over 400 persons each year who are operating 
inappropriately from the standpoint of their position as 
registered persons.
    We also have rules focusing on suitability and on 
supervision and on written supervisory procedures that provide 
a very strong environment for investor protection. I can't say 
that it couldn't be better, but I agree with you that the care 
has to be taken exactly as you describe, to--and it certainly 
would be preferable with my standpoint for the SEC to be the 
expert agency moving these type of issues forward.
    Mr. Hultgren. Let me dig a little deeper. What steps must 
broker-dealers take to ensure that their customers are not 
confused about broker-dealer services? Are broker-dealers 
required to disclose to the customers material information 
about potential conflicts of interest? Must they also refrain 
from engaging in certain transactions if potential conflicts 
are acute?
    Mr. Ketchum. Yes. The broker-dealers have an obligation to 
know their customers, evaluate their recommendations, ensure 
they are suitable and there are numerous obligations from the 
standpoint of disclosure, with respect to third-party payments 
or other issues from the standpoint that--where a conflict may 
exist, absolutely.
    Mr. Hultgren. Thank you. Even if investors are confused 
about the differences between broker-dealers and investment 
advisers, is the only solution to impose a fiduciary standard 
of care on broker-dealers? Would additional disclosure to 
investors better protect them? Are there other ways to improve 
disclosure without creating information overload or imposing 
unnecessary regulatory burdens?
    Mr. Ketchum. Yes. I think there are a number of ways. And I 
think it is a challenge for all of us from a regulatory 
standpoint to look for ways to increase the understandability 
of disclosure. And I think those are important points.
    I would note that a large part of the best interest 
standard should fundamentally be ensuring that firms manage 
their conflicts and provide proper disclosure. It should always 
have the balance that you describe from ensuring that it also 
doesn't impose unnecessary cost.
    Mr. Hultgren. Yes. Fiduciary advocates have argued that 
FINRA has a conflict of interest in their supervision of 
broker-dealers, which makes your supervision lenient. Can you 
respond to that?
    Mr. Ketchum. Yes. And it is just absolutely not true. We 
are funded--one of the upsides of FINRA is that we are not 
funded by taxpayer dollars. We are funded by user fees with 
respect to the industry. But industry members that do business 
with customers are required to be a member of a securities 
association. While they have the ability to start a new one, 
today there is only one, and that is FINRA.
    Mr. Hultgren. My time is almost up. I do appreciate your 
time here and bringing some clarity for me and for others 
hopefully here as well. As I do talk to advisers and broker-
dealers that I know in Illinois, they certainly don't feel 
underregulated. Sometimes, they complain maybe that it is too 
much. But I think it is important, again, for that confidence 
to be there. So my time has expired. But thank you very much 
for being here and thank you for your help on these questions.
    I yield back.
    Chairman Garrett. The gentleman yields back.
    Going down to the very first row, Mr. Poliquin is 
recognized for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman.
    Mr. Ketchum, thank you very much. I appreciate your 
willingness to be here today. Thank you.
    There are many of us on this committee, sir, and throughout 
Congress who are getting concerned about the expansion of 
regulators throughout our Federal Government. There are all 
kinds of examples of this, Mr. Ketchum, that are beyond the 
lines within which you operate.
    For example: the Internal Revenue Service intimidating 
taxpayers, law-abiding citizens because they share different 
political views; and the EPA is repeatedly overreaching, making 
it more difficult for some of our companies, our manufacturing 
businesses, to grow and hire more people.
    We had a fellow from the FDIC who was a regulator before 
our Committee about a month ago. And it was disclosed that the 
examiners at the FDIC are putting pressure on community banks 
to stop lending money to lawful businesses they deem 
undesirable, like firearms dealers or folks who sell tobacco.
    And now we have the FSOC group that seems to want to put 
more and more taxpayers at risk in the event that a significant 
financial institution goes under. So it is a real concern of 
mine. And I come from the general industry that you are 
involved in now, sir.
    Would you agree with me that when you increase regulations 
like this, you drive up fees, you drive up complexity, and 
those folks who are trying to save for their retirement and 
invest for their kids' college savings, that this could be an 
impediment to the choices they have with respect to the 
investment vehicles they want to have and the rates of return 
that they need to save for their kids' education and also plan 
for their retirement? Can we agree on that, sir?
    Mr. Ketchum. I can certainly agree on the goal. I can't 
speak to a--on a variety of other regulatory agencies, but I 
can tell you that is very much the goal from FINRA's 
standpoint. We don't want to take any regulatory action where 
the burden exceeds the cost. And that seems to be a serious 
concern.
    Mr. Poliquin. Good. And I also have a concern, Mr. Ketchum, 
that it looks like now the Department of Labor and the SEC are 
sort of competing over who in the heck is going to regulate the 
investment management community and the mutual fund industry. 
Why in the world would the Department of Labor want to get 
involved in that space where they have no experience regulating 
the investment business?
    And to that end, if I may, now we have this discussion 
about imposing fiduciary standards on brokers. The same 
fiduciary standards that maybe a pension fund manager who is 
running $50 billion. We had a fellow here from Rockland, Maine, 
just over the border--I represent Western, Central, down east.
    Mr. Ketchum. Rockland, Maine, is beautiful.
    Mr. Poliquin. Thank you, sir. I appreciate it. If you 
haven't been there recently, you ought to go back. And I 
appreciate that very much. But this gentleman came in. He is a 
broker in a small shop and he has about 200 customers. And his 
customers, they maybe move some snow in the wintertime. They do 
a little lobstering and they do a little bit of logging. And 
they are saving the best they can for their retirement.
    And this fellow is very concerned because if these 
regulations get too burdensome on him, he is going to stop 
meeting with this couple that he is helping plan for their 
retirement. And all of a sudden, that advice leaves this 
couple, and his clients may become more subject to scams that 
could hurt their nest egg going down the road and put this 
couple more at risk to become more dependent on the government.
    So don't you agree that it probably makes sense to have the 
folks at your organization who have the experience of 
regulating brokers--and I think you regulate 640,000 brokers 
across this country--don't you have the tools to continue to do 
this? Why do we need to have other folks like the DOL involved 
in doing something like this?
    Mr. Ketchum. Congressman, as I have indicated, I believe 
that this would be better if the SEC led and FINRA worked with 
them, to have a review across all products. And I think your 
concerns are very real and appropriate to be focused on. Of 
course, it is also important to look to where we can improve 
disclosures--
    Mr. Poliquin. Sure.
    Mr. Ketchum. --and where we can improve handling of 
conflicts. But I agree that there has to be a careful focus. 
And I believe the SEC is the right agency.
    Mr. Poliquin. Mr. Ketchum, will you commit today to me and 
to this committee that you will speak up loud and clear when it 
comes to other folks who want to go beyond their lines, such 
that the right people are making sure they regulate the right 
participants in this industry?
    Mr. Ketchum. I believe there should be a best interest 
standard, and I do believe the SEC should lead it. And 
everything I have said today, I have said earlier, and will 
continue to say.
    Mr. Poliquin. And do you believe that the 640,000 brokers 
that you folks regulate are fairly regulated?
    Mr. Ketchum. Yes, sir, I do.
    Mr. Poliquin. Okay. You don't think they need any 
additional fiduciary standards imposed upon them. Is that 
correct, sir?
    Mr. Ketchum. There are always opportunities to improve the 
regulatory structure--
    Mr. Poliquin. Have you looked at the proposed regulations? 
Have you looked at the proposed rules coming out of the DOL, do 
you agree with them?
    Mr. Ketchum. We are still reviewing them.
    Mr. Poliquin. And when will you make that decision?
    Mr. Ketchum. We certainly are considering the possibility 
of providing a comment letter to the Labor Department.
    Mr. Poliquin. Okay. And I am also assuming that every time 
you consider a new rule imposed on any market participants that 
are trying to help our families save for their retirement, that 
you look at what the cost will be in imposing that new rule? Is 
that correct?
    Mr. Ketchum. Yes, sir, as well as the alternatives that may 
be less costly.
    Mr. Poliquin. Great. Thank you very much for being here. I 
appreciate it.
    I yield back my time.
    Chairman Garrett. Thank you for your questioning and your 
advertisement for Maine.
    [laughter]
    Mr. Hill is now recognized for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. And, Mr. Ketchum, it is 
nice to see you before the committee. I have certainly enjoyed 
my over 2 decades of friendship with you.
    I want to associate myself with Mr. Poliquin's line of 
questioning. I thought it was excellent. Do you think that DOL 
has stepped outside their box? Their ball has landed outside 
the fairway in terms of the scope of what they are trying to 
do? In other words, they have the right to oversee a group 
retirement plan. No one argues with that, and they can set 
those standards. But what about the relationship between an 
individual investor in deciding to roll it into an IRA or what 
the composition of it is, and whether it is a fiduciary 
standard or not?
    Mr. Ketchum. My understanding is, they do have the 
jurisdictional ability to take that step. As I indicated 
earlier, I believe that while the investor protection issues 
around the decision to roll into an IRA are meaningful things 
that we have addressed, as you know, with respect to investor 
alerts and with respect to our exam and enforcement program, 
they are part of a wide range of issues for investors. And I 
think that there would be great value in looking at these 
issues from the standpoint of the SEC as the expert agency.
    Mr. Hill. Would you commit to write a letter to the 
committee that outlines all the existing rules and regulations 
that govern investor protection in the retirement arena now 
that brokers and financial advisers are already living by that 
protect investors? Because I think it is extensive. I think 
your work there has been exceptional.
    You were--FINRA was the first organization to lead a senior 
sweep effort of the financial industry. That was over a decade 
ago. And you have been focused on educating brokers and broker-
dealers and managers on this issue for years. And I think it 
has demonstrated the results.
    I think the committee needs to know that this is already 
being done, and that the DOL's effort is a redundant 
unnecessary exercise.
    Mr. Ketchum. Congressman, first, thanks for those words. 
And yes, we can certainly provide a description of all of our 
programs. I would be glad to.
    Mr. Hill. Thank you.
    I want to talk a little bit also about how small firms--of 
which you have many among your 4,000--have absorbed the Y2K 
hysteria process from FINRA. TRACE reporting, OATS and RTRS 
reporting. Mutual fund pre-sale planning, VA pre-sale planning, 
written whole documentation, which is the latest of the 
continuing hits from FINRA.
    How do you balance--despite your Small Firm's Advisory 
Committee, how do you balance this issue that we are losing 
small firms like we are losing small banks? I think 3 percent 
or 4 percent of the firms exit membership every year. How 
sensitive is the agency to that? And how sensitive is the SEC 
to that?
    Mr. Ketchum. While I can't speak for the SEC, it is 
certainly a focus from the standpoint of FINRA. We care very 
much about the burden of our rules. In fact, one of the areas 
where we are taking initiatives now is the retrospective rule 
review. We have just done it and taken an initial proposal with 
respect to a variety of amendments to our advertising rules in 
response to that.
    I think that we always have to keep analyzing the rules 
that are already in the books and determine whether they are 
imposing burdens across-the-board, particularly the small firms 
that could be less. We are going to do that with respect to our 
membership and change of business rules that you are very 
familiar with, I know, from your days in the industry--again, 
looking for ways to maintain the investor protection 
capability--benefits that come from those rules to reduce 
burdens.
    Mr. Hill. I was pleased to hear you talk about the 
difference between the agency business and the fiduciary 
business. And one of my concerns across the regulatory system 
has been that we ignore the customer here. Washington 
consistently ignores the customer.
    For 70 years, we have had a disclosure-based, caveat 
emptor, suitability, management-focused securities regulatory 
system, where the individual investors do have to take some 
responsibility for their own investments, wealthy or not 
wealthy. And some people want an agency-broker relationship, 
not a fee fiduciary relationship. They don't want it. They 
don't demand it. And yet, I feel like we are compelling and 
pushing the industry as if that is going to be a savior for 
something that I am not even sure what we are being saved from.
    Would you elaborate just for a minute on this issue between 
agency business and fee or fiduciary-oriented business?
    Mr. Ketchum. Certainly, there are a variety of 
characterizations of fiduciary--
    Mr. Hill. We want both, don't we, for our customers across 
the country--
    Mr. Ketchum. I think it is--
    Mr. Hill. --whether they are rich or poor or middle income?
    Mr. Ketchum. I certainly think it is important for 
customers to have choices. And I think it is important that no 
steps are taken that reduce the ability for customers to 
choose--particularly who are relatively inactive--to have 
access to commission-based accounts. I do believe there are 
ways to improve the disclosure and management of conflicts 
today. But yes, it is very important to make sure that is 
balanced in a way that continues to allow customers to have 
choices.
    Mr. Hill. I really think that it looks convenient to have a 
fee-based product for people, and that somehow commissions have 
this bad reputation. And yet, in many cases, I think if you 
were to analyze your account, the people on commission pay far 
less in managing their money on an annual basis potentially 
than someone who is on a--particularly, a small account--say 
under a half a million dollars would pay if they were in a fee 
account.
    Mr. Ketchum. I think that is a very real concern. And I 
think that for many customers, commission-based is--given the 
fact that they are maybe making a couple of transactions or 
investing in one mutual fund in a particular year--commission-
based is absolutely critical to--
    Mr. Hill. One final quick question. ETFs--when I was in the 
business, there were only maybe 100 funds and $100 billion. Now 
there are 1,600 funds and $1.6 trillion or so in exchange 
traded funds. Do you think it would be useful to have greater 
research--more access to research on exchange traded funds for 
retail investors?
    Mr. Ketchum. I know there is legislation that is put up 
there, and that has been a point made by a number of industry 
representatives. I do believe properly designed, an environment 
that encourages more research, addresses some of the Section 5 
offering issues with regard to ETFs, where that is not--the 
research is not designed to push the ETF, but to provide 
sector-based information that allows investors to make better 
and more knowledgeable choices. That is certainly an area we 
would be very glad to talk with your office about and look for 
solutions.
    Mr. Hill. Thank you, sir.
    I yield back.
    Chairman Garrett. The gentleman yields back.
    Mr. Messer, you are now recognized for 5 minutes.
    Mr. Messer. Thank you, Mr. Chairman. And thank you, 
Chairman Ketchum. I appreciate your testimony. I appreciate 
your stamina, as well.
    I wanted to take a moment or two and talk a little bit 
about the importance of arbitration and ask for your comments. 
As you know, arbitration of broker-dealer disputes has long 
been used as an alternative to the courts, because it is a 
prompt and inexpensive means of resolving often complicated 
issues.
    Broker-dealers advocate strongly for FINRA to continue its 
role as the primary forum for the resolution of consumer 
disputes in arbitration.
    Some have claimed, as I know you are well-aware, that 
mandatory securities arbitration is unfair, and prevents retail 
investors from exercising their rights to a jury trial to 
resolve disputes. But the broker-dealers that I hear from back 
in Indiana believe that FINRA's direct market knowledge and 
your real world experience make you the best suited to continue 
the role as the primary forum for the resolution of consumer 
disputes in arbitration.
    If the SEC--this is the question I want to get to--
exercises its authority in Section 921(a) of Dodd-Frank, and 
either restricts or eliminates arbitration agreements, do 
investors win? Or do lawyers win?
    Mr. Ketchum. Congressman, I am very proud of our 
arbitration and dispute resolution system. I think it has 
sought to continue to improve, to continue to provide the right 
balance with respect to public arbitrators. And I think that 
any system that did not ensure that investors had access to 
that arbitration system would be a very bad impact on 
particularly middle-class investors.
    Mr. Messer. Yes. Do you have any reason to believe that 
securities arbitration contributed to the financial crisis?
    Mr. Ketchum. No, I don't believe securities arbitration 
contributed to the financial crisis at all. No system is 
perfect from the standpoint of its performance. But I think 
securities arbitration is in many, many ways very different 
from the rules around it from consumer arbitration otherwise. 
And I think it provides an independent, balanced, and fair 
resolution of concerns in a quicker and lower-cost environment 
for investors.
    Mr. Messer. Yes. And could you comment on any specific 
improvements that you tried to make at FINRA to deal with the 
consumer experience in arbitrations?
    Mr. Ketchum. I would be glad to. We have taken steps to 
improve the--and to address concerns with respect to the motion 
to dismiss in the discovery process. We have provided the 
capability for either side to demand an all-public panel that 
does not include anybody with respect to industry background.
    We have also changed the definition of public arbitrator to 
ensure the absolute independence of those persons.
    I believe that the steps taken and the input from both the 
industry and plaintiffs' lawyers have been enormously valuable. 
And the steps taken have been true positive steps for 
investors.
    Mr. Messer. I appreciate that. In my final minute or 2 
here, some earlier testimony talked about the Equity Market 
Structure Advisory Committee. SEC Chair Mary Jo White has 
talked about trying to make that comprehensive and data-driven. 
I believe that you are a member--will be a participating member 
of that Structure Advisory Committee. Is that correct?
    Mr. Ketchum. That is correct.
    Mr. Messer. Starting on May 13th. And I think you already 
testified that you are looking forward to that, and believe it 
should be a holistic review of market structure.
    Mr. Ketchum. I am very much looking forward to it. And I 
think the regulatory steps the SEC has taken over the last 15 
years on the whole have provided real benefit for investors. 
But the markets have evolved in ways that raise real concerns.
    I was on an earlier advisory committee of the SEC and the 
CFTC when we made a number of suggestions to review, including 
on things like maker taker fees, often referred to as rebates. 
And I think this is a great time to step back and look at those 
issues, as well as look at the impact of SEC rules in the new 
market environment.
    So, yes, I am very much looking forward--
    Mr. Messer. And in the limited time I have, I just--in that 
spirit of some of the suggestions you made there, would ask you 
about regulation NMS, which of course, many believe may be an 
underlying factor behind increased market fragmentation, the 
proliferation of ending trading venues, fee models, complex 
order types, and advanced trading strategies, including high-
frequency trading.
    Could you comment at all as to your belief in the impact of 
regulation NMS?
    Mr. Ketchum. Regulation NMS had many positive impacts from 
ensuring best execution and encouraging competition. But it 
certainly has resulted in more fragmented markets and it 
doesn't distinguish between marketplaces that are very, very 
small and other markets. So I think this is a good time to step 
back and look at Reg NMS. And I congratulate Chair White in 
including that as a key early focus of the committee.
    Mr. Messer. Thank you.
    I yield back.
    Chairman Garrett. The gentleman yields back.
    It looks like all the Members have asked questions. We 
obviously had a smaller number of Members here, I think due to 
the votes.
    So, without objection, I would ask if a couple of other 
Members have any additional questions? No? No? No? I do. Just a 
couple.
    And it sorts of throws off of Mr. Lynch's reference to the 
approach to SROs in general. I will put words in his mouth, and 
he was saying something to the effect of how some people want 
SROs to be regulated or be controlled by the industry, and 
other people want it to be more of not SROs at all, just a 
regulator doing things. And I think the answer is obviously 
somewhere in the middle.
    So, two things. One, back at the end of last year, around 
October, the New York Exchange took back some of their 
authority--not their authority--took back some of the 
responsibilities that had been with FINRA since 2010, I guess 
it was, right?
    And they are now setting up their own--what? Surveillance 
system, I guess you would call it. So they are going to be 
doing it all in-house, if that is the right--
    Mr. Ketchum. No, they are not going to be doing it all. 
They haven't begun anything. They took back on a going-forward 
basis looking at their floor-related New York Stock Exchange-
only rules. We continue to do the cross-market surveillance for 
the New York Stock Exchange and all the markets. It allows us 
to look across markets to address and identify manipulative 
activity.
    Chairman Garrett. So exactly what are they taking back?
    Mr. Ketchum. They are taking back rules with respect to how 
orders are handled in the small amount of trading that occurs 
on the floor, and some of the New York-only rules that relate 
to how firms handle orders away from the floor.
    Chairman Garrett. So that is what they are doing now? So 
they are not--
    Mr. Ketchum. They are not doing anything now. We continue 
to do all of it now. They are in the process of building the 
surveillance capability to do that with respect to their own 
rules. Cross-market rules we will retain, and we are very 
grateful to New York that they have allowed us to do that.
    Chairman Garrett. Okay. And so they have no--because I am 
just going by press reports. The press reports seem to be more 
that they were going forward with more of a full surveillance 
system that they would be setting up eventually.
    Mr. Ketchum. The press reports overstated it. They will 
have a surveillance system for their own rules. It is not 
likely that will occur until the end of this year.
    Chairman Garrett. Okay. Ms. Peirce from the Mercatus 
Center, who was referenced earlier, discussed proposals to make 
SROs more shaped by, reflective of the industry, if you will--
my words, not theirs. And she has had a number of proposals in 
that respect. And I didn't go through all of her proposals.
    Are you familiar with that at all?
    Mr. Ketchum. I read Ms. Peirce's study some time ago, so I 
am not sure I am positive with respect to each one of them.
    Chairman Garrett. Okay. I am not going to go there at all.
    But part of it is the broad 30,000-foot level to allow 
for--and this sort of follows off my NYSE statement--additional 
third-party entities to be able to compete, if you will, with 
FINRA to allow for, if we go down the road to additional 
standards as far as the industry is concerned, independent 
entities to be able to perform the examinations, as opposed to 
FINRA.
    These are not new ideas. Can you just respond to those 
ideas?
    Mr. Ketchum. From the standpoint of market surveillance, 
obviously much of the responsibility--
    Chairman Garrett. Oh, not on the surveillance--
    Mr. Ketchum. Oh, but on examinations--
    Chairman Garrett. Examinations--right.
    Mr. Ketchum. --I think one person with respect to the lack 
of resources, the SEC and investor adviser side, Commissioner 
Gallagher has made I think very thoughtful suggestions about 
the part, and Chair White has indicated her interest and 
support about the possibility of third-party exams for 
investment advisers to deal with the fact that the SEC doesn't 
have the resources.
    The statute itself allows any group of firms to set up a 
separate National Securities Association if they wish to have 
an alternative to FINRA.
    Chairman Garrett. Okay, so that would be for investment 
advisers. That is what they are talking about. Is that a--
    Mr. Ketchum. At least the proposals I know about are for 
investor advisers.
    Chairman Garrett. Right. Is that a possibility if they can 
flesh that out? Is that a possibility, then, to expand that 
over to broker-dealers as well, so you have a competing 
network, but both are regulated as well in the broker-dealer 
realm?
    Mr. Ketchum. I would view a possibility of for-profit, 
third-party examiners that are paid by the firm to do the exam, 
as a least-good solution.
    Chairman Garrett. That is the same situation you would have 
if Chair White goes ahead with--
    Mr. Ketchum. If there aren't enough resources, which 
certainly exists with respect to investment advisers, it is 
certainly better than nothing. I think having firms who are 
paid directly by the entity to do exams is--speaking of 
conflict of interest--a larger conflict that I wouldn't choose. 
I think it is much better for firms if they are not happy with 
FINRA to create their own national securities association, 
which they have the right under the statute to do.
    Chairman Garrett. With that, I will yield to Mr. Hill.
    Mr. Hill. New Members of Congress get so little time to ask 
questions. I can't resist.
    Chairman Garrett. I yield the gentleman 30 minutes.
    [laughter]
    Mr. Hill. Plus, it is Friday. The staff has nowhere to go.
    Mr. Ketchum. We could do lunch if you want. I mean--
    Mr. Hill. Just to follow up on Mr. Messer's point about 
arbitration, in your aging of arbitration cases from start to 
finish, have you seen the length of time to come to a 
conclusion and issue a decision lengthen out? Could you supply 
me sort of--I use the word ``aging'' analysis in a business 
sense, because I have heard from constituents about one year 
and then 2 years, and we don't have a decision. And the concept 
of speedy trial, even for an adviser that has a serious matter, 
is of concern to me.
    Could you respond to that and provide some data on that?
    Mr. Ketchum. We would be glad to provide data. I think 
there was a challenge a few years after the credit crisis, I 
believe because of the good things about up-markets are there 
are less arbitrations. I don't think we have an aging problem 
now, but I can't speak confidently on that. We would be glad to 
provide you information.
    Mr. Hill. And then just one other thing on my favorite 
subject, CARDS, and you know my personal views on the CARDS 
proposal in detail. I won't burden the world with them here.
    But could you--it is my premise that FINRA can achieve the 
CARDS level intel with your existing authorities and your 
existing powers.
    And so, through sweeps and through access of clearing firm 
data, you can certainly satisfy your curiosity about looking 
for patterns and potential fraudulent activity with that data 
stream you have now.
    Isn't that accurate? At a big picture level, maybe not at 
the exact design level? And I am asking you as the CEO, not the 
IT director. So, even if your enforcement or IT people say it 
can be done--people told me that in my company all the time, 
but as chief executive officer, I didn't go along with them.
    So I am curious, can't you achieve your public policy 
objective in a different way, if you didn't have CARDS?
    Mr. Ketchum. We could certainly achieve a lot. We can 
achieve a lot by using the data we have and the data that may 
become available over time more effectively, you are absolutely 
right there.
    I would love to have more capability for an early warning 
capability to jump in on serious frauds and sales factor 
pieces. But, as I said in my written testimony, we are going to 
step back and look at all of that, because they are fair 
questions, and we should complete that analysis before making 
any decision.
    Mr. Hill. Thank you, sir.
    And thank you, Mr. Chairman.
    Chairman Garrett. Sure, thanks. So, that concludes today's 
hearing.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his 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.
    Mr. Ketchum. Thank you, Mr. Chairman.
    Chairman Garrett. Thank you very much.
    With that, the panel is excused, and Mr. Ketchum, thank 
you. And this hearing is adjourned.
    [Whereupon, at 12:10 p.m., the hearing was adjourned.]
    
    
    
    
    
    
    
    
    
    
    
                            A P P E N D I X



                              May 1, 2015
                              
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                  [all]