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


                      EXAMINING THE SEC'S AGENDA,
                        OPERATIONS, AND FY 2017
                             BUDGET REQUEST

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 18, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-62
                           
                           
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

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

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

                              ----------                              
                                                                   Page
Hearing held on:
    November 18, 2015............................................     1
Appendix:
    November 18, 2015............................................    63

                               WITNESSES
                      Wednesday, November 18, 2015

White, Hon. Mary Jo, Chair, U.S. Securities and Exchange 
  Commission.....................................................     5

                                APPENDIX

Prepared statements:
    White, Hon. Mary Jo..........................................    64

              Additional Material Submitted for the Record

White, Hon. Mary Jo:
    Responses to questions for the record submitted by 
      Representative Duffy.......................................    77
    Responses to questions for the record submitted by 
      Representative Ellison.....................................    83
    Responses to questions for the record submitted by 
      Representative Garrett.....................................    95
    Responses to questions for the record submitted by 
      Representative Hultgren....................................   109
    Responses to questions for the record submitted by 
      Representative Hurt........................................   113
    Responses to questions for the record submitted by 
      Representative Luetkemeyer.................................   121
    Responses to questions for the record submitted by 
      Representative Perlmutter..................................   124
    Responses to questions for the record submitted by 
      Representative Neugebauer..................................   125
    Responses to questions for the record submitted by 
      Representative Poliquin....................................   127
    Responses to questions for the record submitted by 
      Representative Tipton......................................   131
    Responses to questions for the record submitted by 
      Representative Royce.......................................   132
    Responses to questions for the record submitted by 
      Representative Wagner......................................   133

 
                      EXAMINING THE SEC'S AGENDA,
                        OPERATIONS, AND FY 2017
                             BUDGET REQUEST

                              ----------                              


                      Wednesday, November 18, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, 
Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, 
Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, 
Mulvaney, Hultgren, Pittenger, Wagner, Rothfus, Messer, 
Schweikert, Guinta, Tipton, Williams, Poliquin, Love, Hill; 
Waters, Maloney, Velazquez, Sherman, Capuano, Clay, Lynch, 
Scott, Green, Cleaver, Ellison, Himes, Sewell, Murphy, Delaney, 
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 2017 Budget Request.''
    I now recognize myself for 3 minutes to give an opening 
statement.
    This morning, we welcome back U.S. Securities and Exchange 
Commission Chair Mary Jo White. This committee is committed to 
conducting vigorous oversight of the SEC because the SEC's 
three-part mission is an important one as Americans continue to 
struggle through an economy that is underperforming.
    It is on their behalf that this committee acts to ensure 
that the SEC protects investors; maintains fair, orderly, and 
efficient markets; and promotes capital formation--all key 
ingredients to growing a healthy economy with opportunity for 
all.
    Vigorous oversight is also needed to ensure that the SEC is 
a good steward of its resources, both its time and its budget--
a budget that has increased dramatically by more than 64 
percent over the last 10 years, while the monitors to my left, 
right, and in front of me show the rapidly rising red ink of 
our national debt.
    Since Chair White's last appearance before our committee, 
we have seen both good news and bad news. First, the good news. 
The SEC finally completed the bipartisan JOBS Act rulemakings 
to implement the reg A+ and crowdfunding titles. This is 
noteworthy and commendable.
    Further, the SEC has now asserted its jurisdiction to 
hopefully stop the Financial Stability Oversight Council (FSOC) 
from regulating asset managers like banks. This, too, is 
commendable.
    Regrettably, there is more to discuss that is not so 
commendable. On a three to two partisan vote, a pay ratio rule 
was pushed through which may appease left-wing activists, but 
does nothing to protect investors or facilitate capital 
formation for small and medium-sized businesses; and does 
nothing to help struggling families get ahead.
    It is another example of the SEC squandering precious 
resources on rulemaking that, again, does nothing to protect 
investors or facilitate capital formation.
    Additionally, as much as left-wing activists may wish to 
drag the SEC into political advocacy, the Citizens United 
decision does not involve or implicate Federal securities laws.
    A political disclosure rulemaking is not within the SEC's 
core competency or, more importantly, it is not within its 
mission. It would simply create more opportunities for abuse 
and politicized enforcement, as we have seen with the IRS 
scandal, and further damage the SEC's credibility.
    The SEC should instead redouble efforts to simplify the 
disclosure regime and renew its commitment to the materiality 
doctrine articulated by the Supreme Court in 1976.
    Instead of modernizing our proxy system, the Chair's recent 
action to cut off staff guidance to public companies in the 
middle of this past proxy season was ill-advised. And the 
universal proxy ballot proposal favors special interests and 
short-termism rather than benefiting the vast majority of 
public company shareholders.
    Finally, the SEC does have an opportunity to act and stop 
the Labor Department from making financial advice and 
retirement planning less available and more expensive for 
Americans with low and moderate incomes. This, we hope, they 
will successfully do.
    Real investor protection comes from innovative capital 
markets that are vigorously policed for force, fraud, and 
deception. They allow capital formation to flourish, and give 
investors the freedom to make informed investment decisions 
free from government interference and control.
    I now yield 3 minutes to the ranking member for an opening 
statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Welcome back to the committee, Chair White. Today, we 
gather to discuss the SEC's work to oversee our capital 
markets. This work, however, is hampered by harmful Republican 
cuts to your budget request, which will make it harder for you 
to police these markets. Please know that Democrats are 
committed to full funding for the SEC because the Commission 
provides the first line of protection for investors.
    It has been 8 months since you were last here and more than 
5 years since Dodd-Frank was enacted. But the SEC still has yet 
to propose a uniform fiduciary standard. I am pleased to learn 
that certainly while the Department of Labor is doing its part 
to create a rule that works, that you are working toward this 
end, and that there should be something in the reasonable 
future dealing with this issue.
    Regarding the inadequate level of advisor exams, I join 
industry associations, advocates and members of this committee 
in calling for a modest fee on advisors and I am concerned 
about any costly third-party exams which your staff may be 
working on.
    I am also concerned--well, as we have discussed, I am 
deeply concerned about the continued seemingly reflected 
granting of waivers of bad actor disqualifications. These 
waivers allow some of the worst actors in our financial system 
to continue business as usual. And I look forward to your 
explanation of exactly how these decisions are made. In recent 
times, I have learned that they are made quite differently than 
I thought.
    Lastly, I received your letter concerning a bill we 
considered last week related to business development companies. 
While this isn't quite the bill I would have offered, we did 
craft a compromise that I believe addressed most of your 
earlier concerns with the legislation.
    I also offered an amendment with Ms. Velazquez to address 
your new concerns with BDCs owning investment advisors. We 
disagree relative to the modest increase in leverage, but I 
urge you to help us craft language to further improve this bill 
before it moves to the House Floor.
    Thank you, and I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee, for 2 
minutes.
    Mr. Garrett. I thank the chairman. And I thank Chair White. 
It is good to see you again.
    I may be echoing some of the comments that Chairman 
Hensarling has raised. And I do that because, frankly, the last 
time that you were here before the committee, I noted my 
concerns back then over the large number of 3-2 votes that the 
Commission has taken over the last several years, as well as 
the general perception that the SEC is becoming basically 
increasingly politicized.
    Since that time, really little has happened to relieve any 
of those concerns of myself or the Chair or that others have 
raised. In fact, in the last 6 months, the SEC has prioritized 
and completed the very partisan and politicized pay ratio rule 
and is right now in the process, as you know, of developing a 
universal proxy ballot rule. In essence, these are two 
priorities that may appease the special interests, but they 
really do very little to make our capital markets more 
competitive.
    So, while I am pleased that the SEC has at last finalized 
the crowdfunding provisions of the JOBS Act, I would note that 
this was also done along a partisan vote, 3 years after the 
congressional deadline.
    At the same time, the SEC's ongoing failure to develop what 
I might call a capital formation agenda remains one of the most 
serious deficiencies. It seems that the only time that the SEC 
actually modernizes its securities laws, to the benefit of the 
growing numbers of businesses, is when we here in Congress tell 
you to.
    Now, tomorrow, the SEC will host for the 34th year in a 
row, the Annual Government Business Forum on Small Business 
Capital Formation. That is good.
    As in previous years, I expect this forum to produce a 
number of valuable ideas that will help small enterprises get 
capital and grow.
    But as in previous years, I also expect that the majority 
of these recommendations will be basically ignored by the SEC.
    Finally, the SEC clearly has an important mission and role 
within our sector, the financial sector, but right now, it is 
up to the agency to get its priorities in order.
    And so, I look forward from hearing from you today on how 
the SEC can refocus on this threefold mission for the benefit 
of Americans's capital market.
    And I yield back.
    Chairman Hensarling. The gentlemen yields back.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee, 
for 2 minutes.
    Mrs. Maloney. I thank the chairman for holding this 
important hearing, and I welcome Chair White.
    Quite a bit has happened since Chair White last appeared 
before this committee in March. For starters, the SEC has 
finalized several rules, such as the CEO pay ratio rule, and 
two JOBS Act rules.
    Perhaps most importantly, the extreme volatility in the 
markets on August 24th was the first real-world test for many 
of the market safeguards that the SEC put in place after the 
flash crash of 2010.
    In particular, the automatic trading pauses for stocks that 
experience extreme volatility, known as the limit-up, limit-
down rules, were triggered nearly 1,300 times on August 24th. 
And a lot of the stocks that were halted that day were 
exchange-traded stocks, rather than stocks of individual 
companies.
    Many stocks that were temporarily halted had trouble 
opening up again, because when they opened back up for trading, 
their prices rose too quickly--which triggered another 
automatic pause.
    However, despite this widespread disruption, the market-
wide circuit breaks, which would have halted trading on the 
entire market for 15 minutes, were not triggered on August 
24th.
    So, I will be very interested in hearing Chair White's 
perspective on how these new safeguards performed. Did they 
work as intended? Or are there problems with the safeguards 
that need to be fixed?
    Thank you. I yield back, and I look forward to your 
testimony.
    Chairman Hensarling. The gentlelady yields back.
    Today, we welcome the testimony of the Honorable Mary Jo 
White, Chair of the U.S. Securities and Exchange Commission.
    Chair White has previously testified before this committee, 
as we all know, so 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 for 5 
minutes to give an oral presentation of your testimony.
    Thank you.

     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, first, thank you for inviting me to testify 
about the recent activities and current initiatives of the U.S. 
Securities and Exchange Commission.
    Since I last testified before this committee in March, the 
SEC has advanced significant rulemakings, continued to bring 
strong enforcement actions against wrongdoers, and made 
significant progress on our initiatives involving the asset 
management industry, equity market structure, and disclosure 
effectiveness.
    The Commission has adapted or proposed 17 substantive 
rulemakings in the past 8 months, including rules required by 
the Dodd-Frank and JOBS Acts, and these efforts have included 
final or proposed rules addressing: over-the-counter 
derivatives; new means for small businesses to access capital, 
including the final rules--as the chairman mentioned--both for 
updating and expanding Regulation A, and for allowing 
securities-based crowdfunding offerings; enhanced oversight of 
high frequency traders, and our supervision of investment 
advisors and mutual funds; amendments to the SEC rules 
governing its administrative proceedings; executive 
compensation disclosures; and removing references to credit 
ratings from our rules.
    The Commission also approved a proposal by the National 
Securities Exchanges and FINRA for a 2-year pilot program that 
would widen tick sizes for stocks of some smaller companies.
    Our enforcement program also continued to deliver very 
strong results, with the Commission bringing 807 enforcement 
actions, and obtaining monetary remedies of approximately $4.2 
billion in Fiscal Year 2015.
    Of the 807 enforcement actions filed, a record 507 were 
independent actions for violations of the Federal securities 
laws.
    More important, though, than the numbers, these actions 
addressed meaningful issues for investors and the markets, 
spanned the securities industry, and included a number of 
first-ever kinds of actions.
    Significantly, approximately two-thirds of our substantive 
actions in Fiscal Year 2015 included charges against 
individuals. The Commission also continued to seek admissions, 
including the first-ever admissions settlement with an auditing 
firm, and to pursue complex cases with criminal authorities, 
including a recent action charging dozens of defendants with a 
global scheme to profit from hacked, non-public information 
about corporate earnings announcements.
    Going forward, we plan to continue to focus on completing 
our mandatory rulemakings, while pursuing other initiatives 
that are critical to our mission, including those relating to 
asset manager oversight, equity market structure, and 
disclosure effectiveness.
    This afternoon, for example, the Commission is expected to 
consider new rules to enhance the transparency of equity 
alternative trading systems. We will also continue to 
strengthen our enforcement and examination programs, striving 
for high impact efforts that protect investors and preserve 
market integrity. And we will continue developing a number of 
ongoing initiatives designed to facilitate capital formation, 
particularly for small businesses.
    The agency's Fiscal Year 2017 budget request to the Office 
of Management and Budget reflects these priorities, focusing on 
the execution of our core programs and operations by seeking to 
hire individuals with the skill sets necessary to enhance the 
agency's oversight of increasing complex securities markets, 
striving to build the significant new oversight programs 
assigned to the SEC in recent years, and continuing to enhance 
our technology, including our ability to analyze and assess 
large volumes of data.
    As we continue to place a high priority on allocating our 
resources efficiently and effectively, I was very pleased that 
the Commission recently received an unmodified audit report, 
the agency's best ever audit opinion from the GAO, with no 
material weaknesses or significant deficiencies identified in 
Fiscal Year 2015.
    We plan to build on these improvements and continue to 
enhance the execution of our mission.
    The Commission's extensive work to protect investors, 
preserve market integrity, and promote capital formation is not 
limited to the initiatives I have just summarized today or in 
my written testimony. But I have tried, by example, both here 
and again in the written testimony, to convey the breadth and 
importance of the Commission's ongoing efforts, and provide a 
sense of our progress in the last few months.
    Thank you for your support for the agency's mission, and 
for inviting me to be here today. Your continued support will 
allow us to better protect investors and facilitate capital 
formation, and more effectively oversee the markets and 
entities we regulate.
    I will be happy to answer any of your questions.
    [The prepared statement of Chair White can be found on page 
64 of the appendix.]
    Chairman Hensarling. Thank you, Chair White.
    The Chair now yields himself 5 minutes for questions.
    Chair White, it was reported that you announced at a 
conference recently that the SEC is ``full out focused on 
developing its own fiduciary rule.'' I alluded to it in my 
opening statement.
    You were last here in March, and we have spoken about these 
matters both publicly and privately, but is it my understanding 
that the SEC staff has not yet performed an updated analysis of 
the potential impact of a uniform fiduciary standard on retail 
investors.
    Is that correct?
    Ms. White. The answer is there is not another 2011 study 
that has been done. As we proceed with this, the staff's 
recommendations, which are very much in process, actively in 
progress--
    Chairman Hensarling. Is there any work being done to update 
the 2011 study?
    Ms. White. Part of the rulemaking, as it advances, will be 
very deep economic analysis by our economists at the SEC, to 
judge impacts, as well as all relevant baselines, and its--
    Chairman Hensarling. Will that analysis be complete before 
the proposal of any uniform fiduciary standard?
    Ms. White. Certainly, there will be economic analysis that 
is complete before there is any proposal. There is always 
additional economic analysis, as there should be, before you 
proceed with any adoption. But certainly, that will be part of 
the proposal process.
    Chairman Hensarling. But not necessarily the complete 
analysis that the staff is--
    Ms. White. Not necessarily, but it really depends on how it 
is assessed as we go through that process, including with our 
economists.
    Chairman Hensarling. Will this analysis be shared with this 
committee and made public prior to the proposal of any uniform 
fiduciary standard?
    Ms. White. Typically, unless there is a paper produced 
separately, which happens from time to time from our DERA 
folks, it is part of the proposal and made public in that way.
    Chairman Hensarling. We would encourage you to do that.
    Chair White, I don't know if you share the concerns that 
many share on this committee in looking at the experience of a 
similar proposal in the U.K, but the public sources that I have 
been able to access show that when they imposed a similar 
fiduciary rule, 310,000 clients stopped being served by their 
brokers because their wealth was insufficient to advise 
profitably, and 60,000 investors were not accepted as new 
clients for the same reason.
    And in the year before the Commission ban went into effect, 
the number of advisors serving retail accounts plunged by 23 
percent. Does the experience in the U.K. concern you?
    Ms. White. I am familiar with several U.K. analyses. 
Clearly, a concern of this rulemaking is what impact does it 
have on the ability of retail investors to get reasonably 
priced, reliable advice.
    And as I think I have said before, part of this rulemaking 
process will be very much devoted to what impact it will have 
on precisely that.
    Chairman Hensarling. I would hope that the SEC would look 
very closely at the U.K. experience, and also look at--I hope 
you have received similar testimony that we have received, that 
the best interest contract exemption is, frankly, unworkable 
and not an exemption at all, meaning that the U.K. experience 
is most parallel.
    Switching subjects to bond market illiquidity, again, you 
last appeared before us in March. At that time, you 
acknowledged the concern about bond market illiquidity, and 
again, we have spoken about these matters publicly and 
privately. Since you testified that at that point, you did not 
see a link between the Volcker Rule, capital requirements, and 
reduced bond liquidity, it has been 8 months.
    In the intervening 8 months, on May 20th, The Wall Street 
Journal reported that the number one concern of financial 
professionals was lack of liquidity in the markets. In August 
of 2015, PricewaterhouseCoopers published a study that 
attributed ``the measurable reduction in financial market 
liquidity to multiple factors, including bank derisking, due to 
new regulatory frameworks.''
    Last week, The Wall Street Journal reported that U.S. firms 
are holding negative corporate bond inventories for the first 
time since the Fed began reporting this separate data.
    The Chair of FINRA has testified in this committee that, 
``There have been dramatic changes with respect to the fixed 
income market in recent years that has led to much higher 
capital requirements, the Volcker Rule, that limits the ability 
for proprietary trading with respect to bank holding companies, 
and a range of other issues that have all had significant 
impact from the standpoint of liquidity of the fixed income 
market.''
    So since it has been 8 months since you last appeared 
before us, there has been news. Have you been able to determine 
whether regulations like the Volcker Rule are a contributing 
cause to the dramatic decrease in liquidity in our fixed income 
markets?
    Ms. White. Let me say that it remains a concern of mine, as 
I testified 8 months ago. I think it does of all regulators. 
But the answer to your question--the direct answer to your 
question is no, as is reflected in the quarterly reports that 
we make actually to this committee on that subject with our 
fellow financial regulators.
    I think the most recent one reflects both levels of 
liquidity in the primary and secondary markets, as set forth 
there, and the conclusion that one cannot determine impact from 
the Volcker Rule. Obviously, there are a lot of factors 
including capital requirements and others that go on.
    I do note that at least recently, reports do indicate that 
dealer inventories have gone into negative territory, and that 
is something that obviously we will be looking very closely at 
before the final report for this year. I am not trying to get 
ahead of the report, but we will be looking very closely at 
that, both for its existence, its meaning, and whether impacts 
can be judged.
    Chairman Hensarling. My time has expired, but Chair White, 
the rest of the world is concluding otherwise. So I would hope 
the SEC would pay very careful attention.
    The Chair now recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Chair White, you will be asked today about your efforts on 
a number of issues, and I am appreciative for your response on 
the fiduciary duty rulemaking. But just for a second, would you 
please explain to us how a lack of adequate funding does not 
allow you to move as quickly as we would like you to move on 
some of these issues? Are you at all hampered by inadequate 
funding of the SEC?
    Ms. White. We clearly--and I have testified about this 
before--have responsibilities far beyond our resources, and so 
we obviously try to make the smartest decisions we can in core 
areas--in new areas we have been assigned since Dodd-Frank and 
the JOBS Act. But clearly, it becomes a zero sum game, as they 
say, at some point, and it does slow you down. Of course it 
does.
    Ms. Waters. Thank you very much. With that, I would like to 
just have you describe to us the SEC waiver process. The last 
time you testified, I expressed concern with the SEC's policy 
of providing waivers of disqualifications to bad actors on a 
seemingly reflective basis and I questioned the transparency of 
whether or not there should be public input.
    As you know, I have a proposal that I think would remedy 
this problem that would, among other things, require the 
process to be conducted and voted on by the Commission that 
will provide the public a notice-and-comment period and an 
opportunity to request a hearing, and require SEC staff to keep 
complete public records of all waiver requests and denials and 
create a public database of all disqualified bad actors.
    So here I am, even with a bill, talking about more work for 
you in this area. Before I go any further, because I know this 
is a little bit more complicated than most people think, would 
you explain to us a little bit about that process?
    Ms. White. Yes. First, I want to make it clear that the SEC 
very aggressively pursues financial institutions and senior 
corporate executives and our record bears that out during and 
after the financial crisis. So when it comes to 
disqualifications and waivers, it is very important to 
understand that those are not enforcement remedies. Those are 
separate provisions in the securities laws that are governed by 
their very separate rules, very separate guidances that the 
Commission and the Commission staff apply very vigorously, case 
by case.
    When an enforcement action of ours or someone else's may 
trigger a disqualification, and then if a party is seeking a 
waiver, and it is typically a waiver to be allowed to pursue or 
continue to pursue business in a totally unrelated area, than 
the enforcement action was about. The burden is on that party 
to show us that--to simplify it a little bit it would be in the 
public interest to grant that waiver.
    The staff, in order to increase transparency and 
robustness, has updated under my tenure and my direction, 
guidance on the WKSI waivers, as well as the bad actor waivers, 
and I think the Commission and the staff do very deep dives and 
apply those standards quite robustly before making those 
decisions.
    If a waiver is granted, it is made public on our website. 
If a waiver is not granted, typically, the party will withdraw 
the request for that, and it includes non-public information. I 
think if you look at only the public record, you would think we 
are granting routinely in all of them, and that is not the 
case. There are many, many that we do not grant.
    And so a challenge is preserving the privacy of non-public 
information, but yet, being able to provide publicly the 
information that shows that we are not granting these waivers 
as they are requested each time. It is a very robust process.
    Ms. Waters. I would like you to take a look at my 
legislation and see if there is anything that we could do with 
that legislation to help you improve the process, if you 
believe there is room for improvement.
    Lastly, on BDCs, you have written a letter to us with your 
concerns. I, and others, are concerned about support for small 
businesses and we want to make sure that we do everything to 
create resources. Can you help me understand what your concerns 
are a little bit better and what we can do to make the bill 
better?
    Ms. White. First, let me say that I think BDCs are designed 
to be an engine for economic growth, particularly for small 
businesses, and that is good for everybody and it is something 
that the staff and the Commission have been supportive of 
throughout the years, frankly, since they were set up.
    And I appreciate, by the way, that some of the concerns 
that I expressed a couple of years ago with the prior bill were 
addressed. I would be happy to talk about it further, but I did 
recently submit a letter to you and to the chairman expressing 
my concerns with certain aspects of the current bill, really 
investor protection concerns that are significant concerns 
which I felt I really must express.
    Obviously, it is up to Congress what they do, essentially 
in several areas, but primarily, the increase in leverage, as 
well as the reduction of rights if I can, again, oversimplify a 
little bit, in preferred stockholders kind of net net, you also 
end up under the proposed bill, allowing a BDC to invest 50 
percent of their assets in a financial institution.
    That is currently 30 percent. And the core objective for 
the BDCs is really to invest in operating companies and new 
operating companies that you want to give a boost to. And these 
are retail investors that we are talking about who own the vast 
majority of BDC shares, so that obviously heightens whatever 
investor concerns we have.
    Ms. Waters. Thank you very much, Mr. Chairman. And I hope 
you will work with us to improve the legislation.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, Mr. Garrett, chairman of our Capital Markets 
Subcommittee.
    Mr. Garrett. Thank you.
    Chair White, when you were here once before, I opened with 
the question, ``Are the markets rigged?'' Let me follow up now 
with, is SIPC rigged as far as the coverage that you get from 
there? And does the small investor actually know that he has no 
coverage under SIPC with his statement?
    Let give you a quick example. Years ago, I invested $2,000 
when I came out of college in the marketplace. In over 30 years 
now, the market has gone up, it has grown--I have gotten 
dividend payments out, I have gotten capital gains, I withdrew 
some money over the years to pay taxes and do--likewise. So 
over the last 30 years, my statement says it is going up and up 
in value. I have taken out that $2,000 that I initially 
invested.
    As I understand it, my SIPC coverage right now for my 
statement--which says I have well over that $2,000; I have 
about $5,000 or $6,000 in my account--is exactly zero. Is that 
correct?
    Ms. White. As I heard your scenario, that is correct 
because what SIPC is designed--
    Mr. Garrett. I have zero coverage, even though my statement 
is telling me I have like $5,000 in there, but there is a 
statement indication on the bottom of it that I have--SIPC 
coverage on a statement when I go to the broker dealer that his 
has a logo right there. Does anyone have an obligation to 
inform me that I have exactly zero coverage on my brokerage 
statement? Whose obligation is it to tell me that? Is that--
    Ms. White. First all of, your account statement should be 
accurate and obviously, what has sort of given rise to these 
concerns is a huge Ponzi scheme, where the account statements 
are--
    Mr. Garrett. But who should tell me that I have zero 
coverage right now?
    Ms. White. The broker should tell you, but the broker in 
question may be committing a massive Ponzi scheme, so you may 
not get that--
    Mr. Garrett. So it is a fiduciary duty of the broker to the 
investment advisor to tell me that I have zero coverage?
    Ms. White. I am not sure I could give you a legal opinion 
on that, but what I can say is that what SIPC covers is what 
securities and cash that the broker has custody of. So if, for 
example, in your example, when you put in your $2,000, you had 
invested in certain securities that had appreciated, so there 
were securities in the hands of that broker, they would be 
covered by SIPC.
    But if instead, what your broker did was essentially never 
engage in bona fide trades, it doesn't protect against fraud, 
which is really what we are talking about, I think.
    Mr. Garrett. We don't know exactly what is, but I am a 
simple investor. I think I have this much money. I find out 
that something went wrong, it is not the market issue, but in 
actuality, your answer to the first question is I have zero 
coverage. There is an obligation of someone, I guess the 
broker, to tell me this and at that point, the wise thing for 
me to do would be what? To move down the street to another 
brokerage account, because then my coverage would go back up. 
Is that not correct? The full amount that I have invested?
    Ms. White. If you put that amount in that broker's custody, 
it would be covered by SIPC.
    Mr. Garrett. Right. So investors should be told that the 
smart thing to do once you have withdrawn the initial 
investment, is to move to another company.
    Ms. White. But keep in mind, if you have withdrawn your 
$2,000, but it had appreciated with securities to $7,000 and 
the broker had those securities and then went under, you would 
be protected to that $7,000.
    Mr. Garrett. Not from SIPC, however. Not from--
    Ms. White. You would be protected by SIPC, if in fact you 
had invested that $2,000 at some point in securities and it was 
still with the broker. But what you are not covered for is 
essentially these Ponzi schemes that are reflected falsely on 
your account statements.
    Mr. Garrett. It depends on how the investments are made, in 
other words? So I as an investor now need to know when I get 
the statement, whether the investments are being done like in a 
Madoff situation, or whether the investments are being done 
some other way. So it really depends.
    How is the investor supposed to know that, whether he is 
really getting coverage or not then?
    Ms. White. Of course, the problem is in the Madoff, and it 
is a huge problem, obviously, in the Madoff situation is that 
investments weren't being made. And so you had a massive Ponzi 
scheme. So you were being defrauded kind of from beginning to 
end.
    Mr. Garrett. So the bottom line for me, as a simple 
investor--and that really describes me well in these things; I 
don't know how it is being done, and I really don't know 
whether SIPC is going to be there at the end of the day.
    I would like to move on to a bunch of other questions on 
regulation D and Rule 506 under the Dodd-Frank Act, really 
quickly here. So you have proposed some amendments to that? And 
the question is, what is the effect of those amendments on the 
marketplace? The SEC's Division of Economic Risk Analysis said 
that only 2 percent, or $33 billion, of the capital raised 
under reg D has come under 506 of the JOBS Act, which we did.
    That would sort of tell me that there is a suppression 
effect of your amendments just hanging out there. Can you 
withdraw those amendments so that we can actually get the full 
effect of the JOBS Act and 506(c) of Dodd-Frank?
    Ms. White. As you mention, there hasn't been consensus on 
those amendments, so they have not moved forward. I do think 
they are important however. I still believe they are important 
to give us greater information, greater clarity into how the 
markets are operating. Obviously, we have a year-and-a-half of 
operation now. We have had an interdivisional group looking at 
those markets.
    I have also inquired about, because I have obviously heard 
the concern that just the fact that regulation is proposed may 
be hampering those markets.
    Mr. Garrett. Exactly.
    Ms. White. The feedback that I have gotten, at least from 
our folks, is that they don't believe that is the case. That is 
not a definitive finding. But clearly, the 506(c) market has 
been used, but not as much as one might have anticipated and 
certainly not as much as the 506(b) market is being used.
    Mr. Garrett. Thank you.
    I yield back.
    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, recently it was reported that UBS was 
underwriting bonds for Puerto Rico's retirement system, and 
then placing the same bonds into mutual funds that were sold to 
customers on the island--something that would be prevented by 
the Investment Company Act of 1940.
    However, due to the high cost of air travel at the time the 
Act was passed, Puerto Rico and other U.S. territories at the 
time, including Hawaii, were exempted from the 1940 Act. I have 
recently introduced legislation, H.R. 3610, to close this 
loophole and ensure that Puerto Rico and other U.S. territories 
have the same protections as States do.
    Do you believe that this loophole should be closed?
    Ms. White. Let me say, I share your concern. I think when 
the exemption was put into law, it was many, many years ago 
when the thought was that just the practical and financial 
difficulties of being able to sort of enforce that law in the 
territories was just not there.
    Today is a very different world. So I share your concerns. 
I think the loophole should be closed.
    Ms. Velazquez. Thank you.
    In the ongoing financial crisis in Puerto Rico, hedge funds 
are playing a significant role. It is impossible, however, to 
fully understand the scope of their investments. Some 
disclosure requirements are only available to regulators, while 
others do not cover debt securities or derivatives.
    I recently introduced legislation, H.R. 3921, to close this 
loophole and increase disclosure requirements on hedge funds.
    Do you believe that further disclosure in this area will 
benefit investors and the public?
    Ms. White. I think I would have to study it further, the 
precise parameters of it. I can see pros and cons, frankly, to 
that approach. Clearly, registration and reporting are critical 
to increasing transparency and protecting investors in private 
funds. And this has been looked at very closely in connection 
with Dodd-Frank when we were given authority over private fund 
advisors.
    And there is a lot of information that is actually produced 
on Form PF by hedge funds and others.
    But the judgment was made then not to basically expose or--
expose more than was prescripted to be exposed, the actual 
holdings and strategies of private funds, whether hedge funds 
or not, because that could lead to front-running and other 
kinds of actions with respect to that kind of disclosure.
    So, there are pros and cons to that. I need to study it 
further.
    Ms. Velazquez. Okay. Thank you.
    And I hope that we can work with your office at least to 
hear some feedback regarding the legislation.
    Another issue that has come to our attention, and that I 
care about as ranking member on the House Small Business 
Committee, is that the small business online lending industry 
that has grown rapidly in the past 5 years, and experts are 
expecting double-digit growth through 2020.
    Last week, I sent a letter requesting information on your 
agency's involvement with small business online lending. Is 
there anything--any preliminary comments on my request?
    Ms. White. I have seen the letter. We will obviously be 
responding to it in due course. In terms of what our space is 
with respect to online lending, we don't regulate the loans 
themselves, the lenders, and the terms of the loans to 
borrowers. That is not in our space.
    However, we do regulate online lenders when they sell 
securities to investors that essentially fund these loans 
whether through notes or investment contracts. They may need to 
register the offerings. Some platforms, depending on how they 
do it, could have to register as broker-dealers. We have 
brought cases in the enforcement space on some of this. But our 
jurisdiction really relates to protecting investors if, in 
fact, their offering is made under the Federal securities laws.
    Ms. Velazquez. Thank you.
    I yield back.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    And thank you, Chair White, for being here today.
    I want to go back to the line of questioning that the 
chairman was talking about, something I have had a great deal 
of interest in, and that is the fixed-income market. Can you 
tell me exactly what resources at the SEC are dedicated to the 
fixed-income market?
    Ms. White. I think we may have had this discussion at our 
last hearing. Primarily, it clearly is not confined to our 
Trading and Markets Division. And it is not segregated out as a 
separate unit, which I think we did talk about before. And I 
have had conversations--but we have 15 to 20 Trading and 
Markets folks who primarily deal with the fixed-income markets. 
We clearly have the Office of Municipal Securities, which is a 
relatively small office within the municipal space, which deals 
exclusively with that area as well.
    And I have had several conversations with Steve Luparello, 
particularly, who is our Director of Trading and Markets, about 
the need for additional resources, perhaps a restructuring so 
that we make sure that the fixed-income markets are getting the 
attention that they deserve. And in his view now, and he has 
persuaded me, I think we are structured as we should be and 
resourced as we should be.
    Although I will note that in our budget request, I think it 
is for Fiscal Year 2016--we are obviously operating under the 
C.R. now--we sought an additional 15 positions in Trading and 
Markets and at least 2 of those will relate exclusively to a 
study assessment of the fixed-income markets.
    Mr. Neugebauer. And that is in the future. But today, there 
are how many people doing that?
    Ms. White. I would say in Trading and Markets, the last 
time I asked for that sort of number, it was about 16.
    Mr. Neugebauer. But just for corporate bonds.
    Ms. White. Yes, it is--not counting the municipal 
securities, about 16 was the last number I was given. It is a 
rough number, Congressman, if I may say, because it is not how 
it is structured, because there are other people who work in 
the space as well who don't devote the predominance of their 
time to fixed income issues.
    Mr. Neugebauer. Back in August, PricewaterhouseCoopers 
released a study on what they called the ``riddledness'' of the 
liquidity in certain asset classes. And the study's findings 
are of concern to me as it highlighted specific areas where 
liquidity had measurably declined, including difficulties in 
executing trades, reduction in market depth, increasing market 
volatility, and the bifurcation in liquidity. The study also 
notes that pending or future rules and regulations could have 
further significant impact on the market-making activities as 
we exit or a historic period of accommodative monetary policy.
    Are you aware of the Pricewaterhouse study? Have you read 
that and looked at it?
    Ms. White. The answer is, I have read a number of studies, 
and I believe that one as well, and certainly our staff has. 
And it is also something that really both in the Trading and 
Markets area and the Investment Management area that we have 
been very attuned to and in dialogue with market participants 
about those risks and those eventualities, particularly when 
interest rates go up.
    Mr. Neugebauer. So market liquidity is a pretty big deal, 
isn't it?
    Ms. White. It certainly is.
    Mr. Neugebauer. I think the concern that I have and I think 
others have is we are not sure that your agency is giving the 
attention to it. Because we hear from a lot of different market 
participants that the liquidity issue is a real deal.
    And so I would hope as you move forward, that if you are 
doing studies in that area, you would share some of the 
findings with this committee.
    I want to move to--in 2015, Commissioners Stein and Piwowar 
released a statement supporting proposals to shorten the trade 
settlement cycle for certain security transactions. Industry 
groups and the Commission's Investor Advisory Committee 
encouraged the Commission and market participants to move 
forward on reducing this settlement cycle, citing that it would 
improve investor protections and reduce systemic risk. 
Additionally, an industry-led committee of members across the 
securities industry issued a White Paper outlining the timeline 
in actions required to move from T-3 to T-2 settlement cycle 
for transactions in the United States in the third quarter of 
2016.
    Do you agree with moving to T-2?
    Ms. White. Yes, is the direct answer. We actually responded 
to a letter, I think it was from SIFMA and maybe others as 
well, to me. I think the letter was addressed to me, as to both 
the position that I took on it, and also asking for regulatory 
support to help bring that about.
    And so my letter was quite supportive. It is public. We can 
certainly provide that. And I think the only thing I wanted to 
be sure of is that it didn't foreclose possibly, down the road, 
an even shorter settlement period.
    Mr. Neugebauer. Why haven't you all acted on that?
    Ms. White. I think it is not timely to act on it. But we 
will act timely.
    Mr. Neugebauer. What is timely?
    Ms. White. Essentially we are--again, the letter reflects 
this. We are--because I think they have gotten traction. We are 
allowing the industry coalition, if I can call it that, to get 
to the place where their systems can actually accommodate the 
T+2, and so the regulation they need will be in place by the 
time that happens, so, 2016.
    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. I thank the chairman.
    Chair White, as I mentioned in my opening statement, I am 
interested in the events of August 24th, in the markets. The 
extreme volatility of that day meant that the SEC's automatic 
trading halts for individual stocks were triggered nearly 1,300 
times, and I know the SEC has said that it is collecting data 
as quickly as possible to analyze what happened, and to 
determine if there are any changes to the agency's rules that 
are necessary.
    Can you give us a sense of where this preliminary review--
what you have found in this review?
    Ms. White. Yes, it is well along, and I am expecting that 
we can share some initial results from that review in the near-
term. I think--and you are absolutely right as you commented 
earlier, we didn't invite the mini stress test on August 24th, 
but we had one. The markets did perform quite well, but clearly 
there were issues that came out of that, and one of the 
significant ones was obviously the market-wide circuit 
breakers, as you said, were not triggered, given the amount of 
volatility, the timing and so forth.
    But we did have a large number of limit up, limit downs 
trading pauses, and particularly, with ETFs. Most of them were 
in ETFs, although interestingly, not on all ETFs. And so, even 
with the same underlying security, it is a more complex issue, 
which we are studying. In part what we are looking at is the 
practical operation of our rules. Obviously, we have the limit 
up, limit down rules in place, which were put in place as a 
volatility moderator after the flash crash.
    It is on a pilot basis, and so, one of things that we are 
very, very interested in is the data that comes out of August 
24th, as to what modifications, if any, what calibrations 
should be made in the limit up, limit down rules. We are 
looking very closely at the opening of the markets as well, 
because that is when the majority of all this occurred, and 
there were somewhat delayed openings, particularly on the New 
York Stock Exchange.
    Mrs. Maloney. Will this information or this analysis be 
available before the end of the year?
    Ms. White. I hope it will be. I don't want to commit to it, 
but I would hope it would be.
    Mrs. Maloney. Last December, you outlined a comprehensive 
plan to update the regulatory regime for asset managers in 
order to account for the significant changes that this industry 
has undergone in recent years. The SEC has now proposed two of 
the rules that you promised: enhanced disclosures; and the 
liquidity management rules that you proposed in September.
    But we still haven't seen the third rule yet, which will 
require transition plans for winding down asset managers.
    Can you give us an update on this third rule, and when can 
we expect this rule to be proposed?
    Ms. White. I think the next in the series--and this 
obviously--it could change, but just in terms of the workflow, 
will probably be the rule on derivatives.
    And then, following that, would be the transition roles and 
also stress testing, which are--it is really--I think 
categorize it as three, but it is really sort of five separate 
areas.
    And so, in terms of the transition planning rules, which 
are essentially designed to have funds in the industry be able 
to deal with disruptions in their business in an optimal way.
    That will not be this year, I think in terms of a proposal, 
but I would hope it would be relatively early into next year.
    Mrs. Maloney. Okay. In terms of the stress test, would you 
expect the SEC to propose a stress test rule for large asset 
managers? And what are the challenges that you have encountered 
in developing stress tests for large asset managers? Why is it 
such a challenge?
    Ms. White. It is a challenge and it is also--it is probably 
the fifth in the five that I mentioned. And the staff is 
working on them all at the same time and working very hard on 
it.
    Asset managers are not banks, and so one first can't just 
transfer stress testing for banks into this space, and so to 
come up with a meaningful test for very different funds with 
different kinds of assets, different kinds of stresses that 
matter is a real challenge.
    But we are working very hard on it. It is actually a 
requirement under Dodd-Frank.
    Mrs. Maloney. Okay. Lastly, I would like to ask you about 
the SEC's use of administrative proceedings. And as you know, 
Dodd-Frank expanded the SEC's authority to try cases in an 
administrative forum where decisions are made by law judges 
rather than always having to go to Federal court, which is 
expensive and time-consuming.
    Some critics have claimed that the SEC's administrative 
proceedings amount to an unfair ``home court advantage''--and 
some have even claimed that they deprive defendants of due 
process. Can you speak to these issues? How do you feel about 
it? Do you think the SEC does get an unfair home court 
advantage when they are in the form of administrative law 
judges? And what protections are in place to ensure that 
defendants are still receiving their full due process?
    Ms. White. Administrative proceedings and administrative 
law judges have been used by the SEC for many, many years, as 
well as other Federal agencies. Congress obviously gave the SEC 
as well as other Federal agencies the ability to bring 
enforcement cases in either district court or administrative 
proceedings.
    With respect to the SEC, we have a lot of expertise in our 
administrative law judges. They deal with very technical kinds 
of issues.
    They are impartial and they have unique due process rights, 
not the same as a district court, but for example, unlike in 
district court, if you are a respondent in an administrative 
proceeding, you would provide Jencks and Brady material, which 
is essentially exculpatory information. That is not required in 
district court, we turn over all of our unprivileged 
investigative file.
    We have also proposed actually for notice and comment 
amendments to our rules of practice to provide additional 
rights for defendants.
    Chairman Hensarling. The time of the gentlelady has 
expired. 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, 
thank you for being here today. And I want to start off my 
questions with regards to designation of insurers, insurance 
companies as SIFIs. As chairman of the Insurance Subcommittee, 
it is concerning to me as we continue to discuss this issue 
with a lot of the insurance industry folks as well as those 
insurance companies that have been designated.
    Can you tell me the specific standards that you looked at 
whenever you voted in favor of designating two of our domestic 
companies as SIFIs over the objection of the insurance expert 
on FSOC?
    Ms. White. I think we may have talked about this in March 
as well. I participated, I think, in the AIG and the MetLife 
cases, not the others. Let me just--
    Mr. Luetkemeyer. I am aware of that. That is why I said 
just--
    Ms. White. That is why you said two. And the MetLife 
designation, as you know, is in litigation, so I am somewhat 
limited as what I can say. But what I can say, because the 
statutory criteria are in the statute in public, FSOC's 
guidance as to what it looks at is public. And then--
    Mr. Luetkemeyer. Okay. My question, though, is what 
standards did you look at that were different or more 
significant to you than what the insurance expert on FSOC said 
were not something that in his eyes rose to the level of 
designated as a SIFI?
    Ms. White. Well--
    Mr. Luetkemeyer. Where is the--to you the alarm or the--
    Ms. White. It is so hard to get into the--into granularity 
on that, I think, but obviously, we get very detailed 
presentations and analyses from the staff. We have a standard 
we are applying, and looking for certain criteria, I was 
satisfied that those were met in that instance.
    Mr. Luetkemeyer. Okay. One of the questions--
    Ms. White. Listen--I must say listening very carefully and 
respectfully and understanding the knowledge that the insurance 
representative brings to bear on this.
    Mr. Luetkemeyer. But you still went without--or went 
against--
    Ms. White. I made my independent decision, yes.
    Mr. Luetkemeyer. Okay. The other question that we always 
get is--our concern that we always get from insurance industry 
folks is we need an off-ramp, we need some way, some sort of 
mechanism or a delineation of things for them to do to become 
de-designated. Will you support something like that?
    Ms. White. It exists to a degree. It is important to know 
that because there is actually an annual review process of any 
company that is designated. I think what--
    Mr. Luetkemeyer. With all due respect, Madam Chair, that is 
not a delineation of things for them to do; that is just a 
report of where they are at. It doesn't tell you what--
    Ms. White. Well, yes. What a company that is designated 
will have received is a very detailed analysis of the basis of 
the decision of designation.
    Now in some cases, in many cases, you may have a situation 
where it is essentially the core business model, and how much 
leverage is used or the kind of derivatives that are used.
    And so there hasn't been a delineation. It could be 
difficult in many cases to do it, but the bottom line for me 
is, I think the clearer that we are in FSOC about what it is 
that could get you designated--
    Mr. Luetkemeyer. The concern that we have--
    Ms. White. --and de-designated is a good thing.
    Mr. Luetkemeyer. The concern that we have, though, is that 
there is a rubber stamp effect with FSOC with regards to 
insurance SIFIs. When you have the insurance expert on FSOC say 
no, it is not a problem, and yet everybody else goes along with 
the international designation versus what we think is good for 
our companies here in this country, it raises some questions 
and concerns.
    Ms. White. All I would say is I don't think--there is a not 
a rubber stamp; it is an independent decision in my view, 
clearly.
    Mr. Luetkemeyer. I appreciate the comment. I would venture 
to disagree with that at this point. Also, SIFI designation for 
asset managers seems to be headed down that same road, our 
asset managers being designated as SIFIs headed down that same 
road. We are very concerned about that as well. FSOC has 
decided to look at activities and products of asset managers. 
Does that concern you at all?
    Ms. White. Again, FSOC hasn't ruled out designations of 
asset managers, but I think the pivot, if I can call it that, 
to products and activities that may raise potential systemic 
risk makes sense.
    Mr. Luetkemeyer. Do you believe asset managers are 
systemically important?
    Ms. White. As phrased that way, I don't think the business 
model in general creates that. And it is not confined to asset 
managers. Securities lending is one of the activities being 
looked--
    Mr. Luetkemeyer. Okay. I guess my question is, do you 
believe the business model of asset managers can be 
systemically important?
    Ms. White. As a business model it is an agency model and 
therefore I think that it ordinarily would not be.
    Mr. Luetkemeyer. Interesting. I see my time is about up. I 
yield back. Thank you, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Massachusetts, Mr. Capuano, 
for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. And thank you, Madam 
Chair, for being here.
    Madam Chair, in the last, oh, I don't know, 20 years, do 
you know which issue at the SEC has received the most comments 
of any?
    Ms. White. You are probably going to tell me political 
contributions.
    [laughter]
    Mr. Capuano. I am not going to tell you anything--
    Ms. White. I don't know. I don't know the answer to that.
    Mr. Capuano. My understanding is political contributions 
has received over a million comments--
    Ms. White. It has received over a million, and I think 
2,000 of those are unique. So that is a lot of comments.
    Mr. Capuano. Right.
    Ms. White. No question.
    Mr. Capuano. And that being the case, again, I am asking do 
you plan on addressing that issue in the foreseeable future?
    Ms. White. Essentially, and I know we had this conversation 
last time as well, there are very strong views of both sides of 
this issue.
    I think I have three, actually three fairly recent 
outstanding letters from members of this committee, two 
different letters, and some Members of the Senate as well; I 
will be responding to those.
    But as I have said before, our focus is on, and our 
regulatory agenda focuses on congressional mandates and what I 
consider to be mission-critical initiatives. Asset management, 
I have mentioned the disclosure effectiveness initiative, and 
equity market structure--
    Mr. Capuano. Will the disclosure--
    Ms. White. But I want to make clear there are avenues 
through the SEC's rules, which is the shareholder proposal 
route to raise these issues. And they are raised quite actively 
and the staff--
    Mr. Capuano. They are raised, but--
    Ms. White. --essentially doesn't permit exclusion of them.
    Mr. Capuano. They are raised, but they are not required by 
the SEC.
    Ms. White. There is not a mandatory disclosure rule. No, 
sir.
    Mr. Capuano. So therefore, voluntary, which is great--there 
are some people who are good citizens who like to tell people 
what they are doing, but there are a lot who are not.
    Ms. White. And companies are voluntarily making those 
disclosures.
    Mr. Capuano. And I applaud those who have done it 
voluntarily. No regulation is done because everybody does it 
voluntarily. All regulations on every group are done because 
there is always a handful of people who are not good players.
    Regulations are not targeted to everybody because everybody 
is a bad player; all regulations, including SEC regulations, 
are targeted because there is always a handful of bad ones. The 
fact you have some voluntary compliers, that is good and I 
applaud them. Nonetheless, you have many that are not.
    And you say, obviously--and I appreciate the fact that you 
clarified that you are trying to focus on congressionally-
mandated one, but your disclosure effectiveness review 
generated I believe 64 comment letters--64 versus 1.2 million. 
And by the way, as I understand it, of those 64, 10 of them 
related to corporate political disclosures. So Madam Chair, I 
would suggest--
    Ms. White. We will undoubtedly get more comment letters as 
the disclosure effectiveness proceeds, but at least a couple of 
those letters that, you are right, were submitted on political 
contributions in connection with that initiative, also urge us 
to focus first on our congressional mandate.
    Mr. Capuano. Clearly, I think America has spoken in every 
capacity they can to you and to your organization that they 
want to prioritize this. It is not that difficult. And the fact 
that you refuse to do it just kind of raises lots of questions.
    But you also say you want to focus on congressionally-
mandated ones. What about Dodd-Frank Section 956(a)? You 
haven't focused on that.
    Ms. White. The incentive compensation rules.
    Mr. Capuano. Yes.
    Ms. White. The incentive compensation rule is a joint 
rulemaking with our fellow regulators and we are very active--
there had been a proposal sometime ago before I even got to the 
Commission.
    Mr. Capuano. In 2011.
    Ms. White. Correct. And we are all working on it very, very 
actively as we speak.
    Mr. Capuano. 2011, 2015, almost 2016, and you think that is 
active?
    Ms. White. I am describing the current state of affairs. We 
are working on it very actively. The SEC is participating in it 
very actively--
    Mr. Capuano. When do you think you might have a final 
response?
    Ms. White. We are working very hard to come together on 
that in the very near future.
    Mr. Capuano. In the very near--
    Ms. White. In the very near future.
    Mr. Capuano. Is your definition of ``very near future'' the 
same as mine?
    Ms. White. I don't know. But it is the very near future 
nevertheless.
    Mr. Capuano. Madam Chair, those are two issues, one of 
which is congressionally mandated, and by the way, it said 9 
months after passage. You did have a proposal, your predecessor 
had a proposal in 2011, as normal, and went back.
    Since 2014, the other regulators have come up with a 
conclusion, and it is the SEC that is holding this--
    Ms. White. No, actually, all of the regulators are working 
on this jointly, and we are covering sort of the entire swath 
of different registrants, different kinds of registrants. It is 
quite complicated, but it is all of us working on this 
together, it is not the SEC holding anything up.
    Mr. Capuano. --but, first of small, it is not complicated 
to simply require political spending to be disclosed. That is 
relatively simple. If you and your staff can't do it, let me 
know. I will have it for you in a week. It is relatively 
simple.
    As far as the compensation, I want to be really clear: It 
only applies to companies with assets over $1 billion. That is 
all it does. It doesn't say how much, pay anybody you want any 
amount you want, we simply want to make sure that the 
incentives don't encourage companies to endanger this economy 
again. That is all it is.
    Ms. White. Absolutely. That is all it is, although how you 
bring that about so it will be effective is not so easy.
    Mr. Capuano. I understand that, but something is always 
better than nothing. And my time has run out. Thank you, Mr. 
Chairman, and thank you, Madam Chair.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Right here, Chair White.
    Ms. White. I never can find you.
    Mr. Huizenga. Yes, I know. It is the new construction. We 
are about a mile away.
    So, a couple of things. Actually, the seat that you occupy 
today was filled yesterday by Minister Evode Imena, who is the 
minister of mines for Rwanda. And we had a hearing on conflict 
minerals, Section 1502, it was--he was accompanied by the 
ambassador, Mathilda Mukanatabana.
    I'm very concerned about the effects of conflict minerals 
in 1502, what effect it is having on Central Africa. And as you 
may recall, it is not just the Democratic Republic of the Congo 
(DRC), there are nine other countries that are covered by this.
    As he put it, it is not a conflict minerals boycott but 
rather an African boycott the way that 1502 has been 
implemented. And you had said so yourself; I will spare you the 
whole regurgitation of your own speech from October of 2013, 
but you said, ``but as the Chair of the SEC, I must question as 
a policy matter using the Federal securities laws and the SEC's 
powers of mandatory disclosure to accomplish these goals,'' 
referencing the goals which I think we all share, and certainly 
you and I do share, of making sure that the laudable goals of 
reducing conflict, keeping extortion out of the marketplace and 
those kinds of things is very true.
    There was a letter that I, along with Chairman Hensarling, 
Chairman Royce, and Chairman Garrett sent you on February 25th. 
Your response letter stated that in the time period of July of 
2010 through the middle of March of 2015, this year, the SEC 
had expended over 21,000 hours and spent approximately $2.7 
million on this particular provision, with which I think we 
agree the SEC has little or no experience.
    The hearing brought really two questions to mind for me. 
First and foremost, is 1502 really truly achieving the 
objectives that I think many of us agree on, of helping the 
people of central Africa, giving them a better life and a 
better opportunity?
    I will tell you that Minister Imena not does not believe 
that is the case, they are investing more money into compliance 
than what their entire budget is for going out and exploring 
new mining possibilities.
    The Washington Post had said that--they did a story on the 
conflict minerals rule, saying it is well-intentioned but ``set 
off a chain of events that has propelled millions of Congolese 
miners and their families deeper into poverty.'' So that is one 
issue.
    The second is, is the SEC the right agency to pursue and 
enforce these rules in light of all of the other important 
investor protection actions that do fall under your mandate?
    My friend--I see he has just left, but my colleague from 
Massachusetts who was just beating you up about 956(a) that has 
been awaiting action since 2011, resource extraction, CEO pay 
ratio disclosure rules, all of those other things that have had 
time and attention but are not doing anything to make sure that 
investors are protected.
    I just--I really am struggling with how this is an 
important element to you when we are seeing--and I understand 
you are being mandated to do these things, but we are seeing 
faster action on those that we are on 956(a) or on so many 
other areas that we need to have a regulation. So please help 
me understand.
    Ms. White. First, that rule was proposed before I got here, 
so some of those--
    Mr. Huizenga. I fully understand. You are implementing--
    Ms. White. I am not trying to--I am just saying--
    Mr. Huizenga. --you are implementing what has been given to 
you.
    Ms. White. --the early history I don't know, but I believe 
it contains also a deadline where some of the others may or may 
not, but that is just a fact.
    To some degree, kind of in both directions, I sometimes get 
at cross purposes because of my view of congressional mandates 
which is I do believe we have to carry them out and to do it in 
the most cost-effective ways we can.
    In terms of sort of what is in the queue when you can do 
some prioritizing, but it is also--what I did when I first got 
here was, because we had a lot in the queue, was to try to get 
separate work streams going. And so for example, the 956 
rulemaking is not done by the Corporation Finance Division as 
this one is, but separate work streams. And so as they are 
ready, we proceed with them, we do them as well as we can.
    Some of the time and dollars are really because we are--we 
have to be true to the statutory prescription and to do it as 
well as we can.
    Mr. Huizenga. I understand. And in my last remaining 5 
seconds, we have seen the SEC budget increase 35 percent since 
2010, 64 percent since 2005, and 300 percent since 2000. And I 
think, I hope you are hearing from me and my other colleagues 
on both sides of the aisle that we need to have priorities and 
we may not be having to increase budgets if we would focus in 
on what your core mandate is. And that is what I want to 
encourage you to do today.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, Mr. Clay, 
ranking member of our Financial Institutions Subcommittee.
    Mr. Clay. Thank you, Mr. Chairman. And thank you, Madam 
Chair, for attending today.
    And in fairness to the SEC's budget, it does not contribute 
to the deficit of this country, is that correct?
    Ms. White. That is correct. It is deficit-neutral.
    Mr. Clay. And let's stay on budget. The House and Senate 
appropriations committees marks for the SEC's Fiscal Year 2016 
budget represent level funding, ignoring yours and the 
President's request for substantial increases.
    Please describe what would be the effect of the SEC--of 
level funding in Fiscal Year 2016. What initiatives would you 
not be able to pursue?
    Ms. White. I think any number of initiatives. I think we 
are talking about budget in terms of budget increases over 
time. We also have to look at what happened to our spaces of 
responsibility, both the new spaces like crowdfunding and other 
areas but also the complexity of the markets and how much they 
have grown. And so what you see in our budget--and I do try to 
do this very carefully--is to prioritize our core mission.
    We have a lot of core missions because that is the nature 
of the SEC, so there are a number of things that we could not 
proceed with if under the current C.R., for example, we are 
essentially in a hiring freeze which means that just as we need 
to expand to cover crowdfunding, for example, you know, we 
can't get those skilled personnel who are so important to our 
initiative.
    It will hurt enforcement, it will hurt exams, it will hurt 
our IT development and enhancements, which is so critical to us 
being an effective regulator.
    Mr. Clay. And how does your budget compare to the industry 
you are regulating? Has it kept pace with the growth in the 
financial services industry?
    Ms. White. We are outmatched. No question about it. I think 
one metric that sort of makes the point very dramatically is 
that it has been reported that 6 of our largest registrants 
spend about $10 billion a year on technology.
    Our entire budget is $1.5 billion.
    Mr. Clay. And at this time--and you mentioned 
crowdfunding--do you expect to need additional resources to 
oversee these entities?
    Ms. White. Yes. We have to build up that entire regime as 
well as municipal advisors and others.
    Mr. Clay. Thank you, Madam Chair.
    And at this time, Mr. Chairman, I would like to yield the 
remainder of my time to the gentleman from Massachusetts.
    Mr. Lynch. Thank you. I thank the gentleman from Missouri.
    Madam Chair, thank you for being here. I know that the 
ranking member spoke earlier in the hearing about the well-
known seasoned issuer (WKSI) waivers and I know you made some 
comments recently regarding that.
    The idea, though--the basic idea, here, is that we would 
reward good behavior with the WKSI title or label, a well-known 
seasoned issuer and also allowing them off-the-shelf 
registration. And yet we would withdraw that--we would withdraw 
that privilege if we had felony conviction or securities fraud 
on the part of these companies.
    And so, what we have seen here repeatedly, I must say from 
the SEC, is that even though they are convicted of felonies, 
even though they are convicted of securities fraud, we let them 
have that privilege. We don't discourage bad behavior. And so, 
I am just asking you to try to explain that because I read your 
statement but it is confounding to me.
    Ms. White. Again, I have tried to lay this out and I made a 
speech like last March on this--
    Mr. Lynch. I read it.
    Ms. White. --to be as clear as one could be. But first of 
all, I think we are all about trying to punish bad behavior and 
particularly financial institutions and senior executives who 
have committed wrongdoing, and I think our record in 
enforcement is quite aggressive and quite impressive.
    In terms of WKSI, essentially, that was part of offering 
reform. That had a somewhat different more streamlined set of 
procedures--if I can call it that--for well-known seasoned 
issuers, not just financial institutions, manufacturing 
companies, et cetera.
    In addition to streamlining, it also provides more 
information real-time to investors. That is kind of the WKSI 
regime. In terms of, if a company is indicted or commits 
securities fraud or some other trigger for being disqualified 
as a WKSI.
    And, again, this is covered by regulation or statute with 
respect to all disqualifications.
    Then, what we also have covered by statute or regulation, 
is a procedure for granting a waiver, putting the burden on the 
party seeking the waiver. And in terms of the WKSI, what you 
are looking most closely at is, can you rely on the entity's 
disclosures going forward? The reliability of the disclosures.
    So if the trigger happens to be--
    Mr. Lynch. My time has expired. What I am saying is, a 
conviction for fraud--a conviction for a felony, that is reason 
to be less reliant--that hurts the reliability of these 
companies, and they should have that title withdrawn from them.
    That is my argument.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, chairman of our Oversight and Investigations 
Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    And welcome, Chair White. It is great to have you back.
    We talked privately, and I have seen the press release from 
the SEC in regards to the tick size pilot program. You have 
implemented a 5-month delay. We have talked about that. This is 
not going to be a death by 1,000 delays, is it? You are still 
committed to implementing the pilot program?
    Ms. White. We are totally committed to it. We want to get 
it right, though, so it will be meaningful, obviously. That is 
the goal.
    And we thought long and hard about it. We calibrated the 
extension so that we can get good reliable data so we get the 
results we are hoping for from the tick size pilot. We are 
totally committed to going forward with it.
    Mr. Duffy. And we want good data as well and to make sure 
the pilot program is set up correctly. A little more time isn't 
met with a big objection from us, just as long as you are still 
committed to implementing the pilot program.
    So, thank you for that. I want to follow up on the 
chairman's question in regard to the corporate bond liquidity 
and its relationship to the Volcker Rule. We think there is a 
great tie in to economic growth and job creation through the 
corporate bond market.
    And, I think, you indicated today and in your last 
testimony that you don't see a correlation between the Volcker 
Rule and the lack of liquidity in the corporate bond market.
    Is that correct?
    Ms. White. That has been the conclusion of each of our--the 
joint agencies, including ours--quarterly reports to this 
committee.
    In terms of not being able, certainly, to determine that it 
is, I think is a better way to say it perhaps.
    Mr. Duffy. Let me be clear first.
    You would agree there is a liquidity issue in the corporate 
bond market?
    Ms. White. I agree that there is a concern, yes. I think we 
try to give in each quarterly report exactly what we are seeing 
in the liquidity and sometimes it is quite strong and sometimes 
it is somewhat more volatile. I keep a close eye on it, and it 
is a concern.
    Mr. Duffy. So if not the Volcker Rule, then what? What is 
causing the lack of liquidity?
    You have to ask the question; it has to be a concern for 
you. What is causing it?
    Ms. White. Again, I think you have to look at whatever 
particular market we are talking about, and a particular point 
in time, and assess what is the liquidity? Because sometimes 
there will be--talk about the lack of liquidity and it is quite 
robust at that time. So that is why in those reports we do 
both--here is what we are seeing in the primary markets, here 
is what we are seeing in the secondary markets.
    And then, also try to analyze what is having an impact on 
that? Everybody is keeping a very close eye on the diminution 
of liquidity, which is of great concern to everybody.
    Mr. Duffy. And it would--
    Ms. White. But ferreting out impacts is not easy in that 
space.
    Mr. Duffy. There is great liquidity, but you hit a bump in 
the road, and all of a sudden liquidity vanishes. I think that 
is the cause for concern.
    And so, you can say, yes, sometimes there is great 
liquidity--that is true. But we care more about those little 
bumps that liquidity vanishes, and I think a lot of us would 
argue that the liquidity issue has arisen with Volcker and 
Basel and all the rules and regulations that have come to pass.
    And, I don't know if you don't want to share your personal 
opinion because it might be contrary to the position of FSOC--I 
get that, but--
    Ms. White. No, no. It is not that. I really do bore into 
this with our own staff too, because one thing that we do for 
every single rulemaking we do is to try to judge those 
impacts--
    Mr. Duffy. I would argue that there are people on the 
outside, per the questions by the chairman, who have some 
significant disagreement.
    I only have a little bit of time left. I want to make just 
a quick comment in regard to the corporate political spending.
    Obviously, I get a lot of letters, as well. I know that 
people rally. Folks around the country, whether they are on the 
right or the left, send me letters. I am sure you get the same 
and you know where those letters come from.
    There is a political agenda. But, for a corporate political 
spending disclosure--would that protect investors if you did a 
rule to that effect? Would that be material to decisions 
investors make?
    Ms. White. That may be, to some degree I suppose, in the 
eye of the beholder. But clearly if you are looking for what is 
material to investors under current law in the particular 
context of a particular company it could be a certain level of 
spending or something else unique about a company.
    If it is material now, it has to be disclosed. What is 
being sought is a mandatory disclosure rule across-the-board.
    Mr. Duffy. Right. This isn't material in regard to 
investment decisions that are made. This is politics.
    Politics are coming into play, and they are trying to send 
a whole bunch of letters to you so we can find out how 
corporations might give politically, and they can rally 
protests and sit-ins, and we know how the game works. But I 
would encourage you to push back and keep a sound, steady 
course.
    I want to quickly pivot. We had the Director of Investment 
Management, David Grimm, here before the committee. I don't 
know if you watched that testimony, but we talked to him about 
the systemic risk of asset managers and how FSOC had actually 
used your team and his team to get insight.
    And I didn't feel very confident that the expertise within 
the SEC has been tapped by FSOC, and it gives me concern that 
we have FSOC making decisions that are contrary to those 
experts in the field, say at the SEC with asset managers also 
as Mr. Luetkemeyer brought up, Mr. Woodall voted against 
MetLife and others.
    And those who don't have that expertise are voting to 
designate. So, we do have--and I know my time is up.
    Ms. White. I would just say that staff is providing 
extensive expertise that the FSOC on the subject of asset 
managers is, in terms of, for example, the request for 
information that went out in December. That is quite active, 
and it is very important that we do provide that expertise. I 
think it is being received.
    Mr. Duffy. I didn't feel very confident through--
    Chairman Hensarling. Time.
    Mr. Duffy. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Massachusetts, Mr. 
Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. And thank you again, 
Madam Chair, for being here.
    I would like to revisit a topic that Mrs. Maloney from New 
York raised earlier today, and that is going back to the August 
24th problems in the market. I realize at that time our 
markets, U.S. markets, were responding to a sell off of Chinese 
stocks earlier in the day. However, according to The Wall 
Street Journal, there were dozens of exchange traded funds that 
traded at shop discounts to their net asset value, or their 
component value, leading to outsize losses for investors.
    And I know your opinion was that the markets work very well 
but there are some retail investors here that are very upset. 
Do we have any sense of how much money retail investors lost on 
the 24th of August?
    Ms. White. Not as a net, net figure, I think. Because--and 
particularly if you are trying to tie it to--
    Mr. Lynch. Ballpark?
    Ms. White. I would have to get back to you with whatever we 
could do on that, but with respect to ETFs themselves, clearly, 
you worry about retail investors in whatever spaces they are 
in. And they are obviously in ETF spaces, and one of the 
interesting things that I think will come out in our initial 
results when they are made public is why some ETFs with kind of 
the same characteristics didn't have that phenomena occur and 
others did.
    Mr. Lynch. Right.
    Ms. White. Clearly, we are looking very closely at it.
    Mr. Lynch. Reclaiming my time.
    Ms. White. Sorry.
    Mr. Lynch. I know that we have a couple of indices here, I 
guess. The Vanguard Consumer Staples ETF and the $5.8 billion 
Vanguard Healthcare ETF both plunged 32 percent within the 
opening minutes of trading, and yet if you look at the 
component stocks within those baskets, they were only down 
about 9 percent.
    So what was also troubling, at the same time the VIX, the 
CBOE Volatility Index--went dark, so for that first half hour--
it didn't come on until 10 o'clock, and people didn't know how 
much fear was in the market, or what direction things were 
going in. So that was a problem.
    And this is all in a time when the Dow experienced its 
largest point drop in history. And so a couple of questions I 
have are this.
    Again, I ask you, how much was the loss for retail 
investors? And I appreciate if you can get back to me on that. 
But, given the fact that the whole idea of ETFs was to respond 
to the flash crash, and the lack of liquidity, so people could 
actually trade.
    We have examples of--in the first 37 minutes, there were, I 
think, 1,300 stops instituted on individual stocks, and--
    Ms. White. I think that number covers the ETFs as well.
    Mr. Lynch. Yes. Just, how can we prevent this problem? 
Because we are going to have sell-offs in China again, at some 
point.
    Ms. White. Again, not commenting on the cause or causes of 
August 24th. But what you are referencing now, at least 
primarily, I think, is the limit up/limit down mechanism put in 
after the flash crash, and that is precisely what we are 
studying, based on that data that was generated on August 24th, 
and how to recalibrate that to make it more effective.
    The circuit breakers actually weren't triggered--
    Mr. Lynch. Why the delta in the component stocks, versus 
the ETFs? Why?
    Ms. White. That is exactly what we are looking at. But it 
is not a simple analysis, because you will have other ETFs with 
the same characteristics that didn't experience those trading 
pauses. So why is that? And that is one of the things we are 
analyzing as well.
    And as I say, this will be an ongoing study. But I am 
hoping, in the pretty near future, we will be able to share 
some results that will answer some of the questions.
    Mr. Lynch. Yes. Do you know if in the beginning, in your 
talk about the opening, that was a real problem? Do you have 
any correlation--at least, evidence that high-frequency traders 
jumped on this in the early opening?
    Ms. White. Again, we should wait for the initial results, 
because we are analyzing everything, but that doesn't pop out.
    Mr. Lynch. Thank you.
    And I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Fitzpatrick.
    Mr. Fitzpatrick. I thank the Chair for the recognition.
    And, Madam Chair, thanks for your testimony here today.
    As Members of Congress, we listen to our constituents, we 
learn a lot about the economy, about what is holding it back, 
what the problems are with job growth in the country.
    And 4, 5, 6 years ago, what I used to hear about from my 
constituents was high health care costs, high taxes, and a lot 
of uncertainty in the Tax Code. I have to say that over the 
course of the last 2 years, the focus has shifted dramatically, 
and almost exclusively, to the cost of regulation.
    Last week, I was back home in Bucks County, Pennsylvania. I 
met with a constituent whose clients are banks, and he talked 
about this one particular new startup--about 10, 12 years old.
    I think there are less than 50 employees in the bank. He 
said eight of them were compliance individuals, complying with 
regulation. I have to say, even as much as we pay attention, I 
was shocked at the numbers.
    And those banks would tell us, these are individuals who 
are not able to be processing loans or meeting with customers. 
Last night, I met with a constituent not in the financial 
services industry, in a different industry, but with the same 
issue. He was emphatic about the cost of regulation and what it 
was doing to his particular industry.
    In my community, Bucks County, Pennsylvania, we have a lot 
of high-tech biotechnology firms, startups, investors taking 
big risks for them.
    About 3 years ago, one of my constituents from a 
pharmaceutical company--which employs many of my constituents--
named Jeff Hatfield testified before our Subcommittee on 
Capital Markets, and I have his testimony here.
    And what he was testifying on was the cost of regulatory 
compliance, the negative impact on research, hiring, and 
potential growth. Specifically, one remedy that he cited was 
the filing status classification 12b-2, to encourage growth, 
but also protect investors.
    As I am sure you are aware, biotech companies may research 
new therapies for years at a great cost without seeing an 
actual profit, despite a lot of market valuation.
    They are still required to comply with all of the 
regulatory requirements. He was talking about 12b-2, I think he 
also testified about 404(b), which is a section of Sarbanes-
Oxley that requires an awful lot of sort of external audits of 
internal controls.
    The SEC, I am sure, is looking at this. What are your 
thoughts on what Jeff Hatfield testified before the committee, 
and whether or not this cost is really dragging down innovation 
and hiring in the communities?
    Ms. White. What we do at the SEC is really quite vigorous 
cost-benefit analysis, and that is of all of our rules. I think 
one of the great success stories of the SEC, frankly, is our 
Division of Economic and Risk Analysis (DERA) unit, our 
economists who actually perform that work and a lot of other 
work at the SEC, a lot of studies to try to really calibrate 
both the baseline--where are we now, in terms of what are we 
trying to accomplish with the regulation, what is the benefit 
of that, where is the market now, and then, if we impose this 
regulation in this form, what is its cost going to be?
    And you clearly look at the size of a company when you do 
that, too. You look at different industries when you do that, 
too. Now, I can't tell you that the net comes out so that there 
is not some of those costs imposed, obviously.
    But what I can say is that the SEC really does a very 
thorough analysis of cost-benefit.
    Mr. Fitzpatrick. In terms of the size of the companies, a 
lot of the pharmaceutical and biotech companies don't have a 
lot of employees. They are highly compensated employees, and 
they may have a lot of market value, but they are not going to 
have any revenue for 10 years.
    It could take $1 billion in research to get a therapy to 
market, with no profit until that point in time.
    So what does the SEC cost-benefit analysis say about those 
companies, which are very important to my district, because 
they can't grow--they are spending money hiring external 
auditors, complying with a rule that I am sure was well-
intentioned, but not intended to be impacting firms like these.
    Ms. White. I don't know how to answer that other than to 
say that our economists try to look at it not just as, here are 
the compliance costs, but what does it do to competition, what 
does it do to the other economic impacts besides just--and I 
don't mean to minimize it--the compliance costs.
    But again, obviously, what is driving that analysis in the 
first place is a need--a perceived need, certainly, for some 
regulation to protect investors and the markets and to 
facilitate capital formation.
    But we should be doing as deep a dive as we can, no matter 
what the industry is, no matter what the complexity--or 
uniqueness, maybe, is a better word. And I appreciate that is 
how the pharmaceutical R&D works, in particular.
    Mr. Fitzpatrick. Thank you. I yield back.
    Mr. Duffy [presiding]. The gentleman yields back. The Chair 
now recognizes the gentleman from Georgia, Mr. Scott, for 5 
minutes.
    Mr. Scott. Thank you very much.
    Chair White, are you aware that when we wrote Dodd-Frank, 
in Section 913 we gave exclusive responsibility to the 
Securities and Exchange Commission if there came a time when we 
needed to put together a best interest standard for the 
fiduciary? You are aware of that, aren't you?
    Ms. White. I am certainly aware that 913 gives the SEC 
authority to proceed. It doesn't mandate it. Yes.
    Mr. Scott. Let me ask you this: why are you allowing the 
Labor Department to take over your territory that we put in 
Dodd-Frank, that was approved by the House, approved by the 
Senate, and signed by the President of the United States?
    Ms. White. I don't view it--and I have heard your comments 
before--that way. Again, we are separate agencies. They do have 
responsibility and statutory authority in the ERISA space. Even 
as we--
    Mr. Scott. Let me--
    Ms. White. --sit here now, brokers have to comply, if they 
are in the ERISA space, with the Department of Labor rules and 
ours.
    Mr. Scott. Let me respond to that, please. I was here. I 
helped write Section 913. There was a reason why the Securities 
and Exchange Commission came to set and let us do this--because 
they were the regulatory agency.
    Now, you mention ERISA. Not once--not one time--did the 
Labor Department come over and said, ``Hold on, let us handle 
the retirement.'' No. There was no discussion of that. That is 
just happening now.
    This is a critical issue, and if there ever was a time for 
the Securities and Exchange Commission to stand up and do its 
duty so that all of the American people can receive the proper 
financial advice to make those critical decisions--do you 
realize what the Labor Department is doing?
    Do you realize what position that is putting FINRA and you 
in as far as complying with these complexities? And if you 
allow that, and sit back and disavow the authority we put into 
913, that would be a very, very serious indictment on the 
Securities and Exchange Commission.
    So what I am asking you--and this is why--when you allow, 
and you pass a rule which says that instead of a Commission 
base, that now you have to pay up-front, fee-for-service, out-
of-pocket, before a financial investor can even talk to you 
about it, that has a clear, disproportionate impact on the 
lower income, the middle income, and especially African-
American investors and other minorities, because they are not 
going to--they don't have that much.
    And when you get to what they basically do--even if you get 
to the annuities, which is what they really utilize--but you 
have three different ones. You have the fixed annuity, the 
variable annuity, the indexed annuity. That in and of itself is 
enough to run most people away.
    And then, if they go through that, then they have to sign a 
contract. Now, I tell you, Chair White--I want to ask for you 
to get more aggressive here. And because you are going to be 
placed in the middle, FINRA is going to be placed in the 
middle.
    And if they had this unworkable best-interest contract 
exemption, it would result in low- and middle-income people 
being pushed from these less expensive Commission-based 
accounts to the more costly fee-based up-front out-of-pocket 
accounts.
    How do you see FINRA managing this conflicting compliance 
obligation? Because under current regulations, FINRA must find 
cost to be a pivotal issue when assessing and making the 
difference between what is best here.
    Our financial system is complex and complicated, and you 
are going to push out lower- and middle-income people from 
being able to invest with their retirement.
    I have great respect for you, and I want to make it plain: 
Seize your authority back on this fiduciary issue. The Labor 
Department should have said, if we got a retirement, it is 
written in the Dodd-Frank, that the SEC has this 
responsibility. The respectful thing for them to do is at least 
come to you and FINRA, and say, let's harmonize something to 
address this.
    This is not theirs alone, and I am speaking for an awful 
lot of very, very important people, the low income, the middle 
income and most African-Americans, they need you to stand up on 
this.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Westmoreland.
    Mr. Westmoreland. Thank you, Mr. Chairman. And thank you, 
Chair White, for being here.
    Chair White, you realize that one of the things that we are 
responsible for is trying to help our constituents solve 
problems, and I have one that I would very much like for you to 
address on behalf of my constituent.
    Do you know what a naked option stress analysis is? Or an 
NOSA?
    Ms. White. I do now, I believe.
    [laughter]
    I think your staff indicated you had this issue with a 
constituent.
    Mr. Westmoreland. Yes.
    Ms. White. I knew before, too, but I know more now than I 
knew before you had the question.
    Mr. Westmoreland. You and I both know more about it than 
what we used to. And my constituent is, very, very aware of it, 
and he has been quite successful in his career. And it is a--
the NOSA is a vehicle, created by Merrill Lynch to mitigate 
risk from naked options trade, and when it is triggered, the 
account holder must post an NOSA margin to cover potential 
losses.
    My constituent has contacted me, and we have been over and 
over and over it with the SEC and Merrill Lynch and others, 
trying to find out what triggered this call. And he has been 
unable to get that resolved, and even though he has asked 
Merrill Lynch on several occasions to give him that, they said 
that is a resource that they have trademarked.
    Now, do you think is necessary, do you think it is okay 
that a company like Merrill Lynch could patent something to use 
on their investors, and not be able to tell them what that is?
    Ms. White. I don't want to speak about the specifics until 
I know all of the specifics, but clearly there are a number of 
obligations with respect to this, disclosure obligations, 
suitability obligations. What I would suggest on this is that 
I--it sounds like you have been talking to the SEC, I don't 
know to whom at the SEC, but if I could have one of my senior 
staff people follow up with your staff member, let's see if we 
can get to the bottom of it.
    Mr. Westmoreland. I appreciate that, Chair White, and I 
have a pretty good file here that I will get to your staff 
before you go, but it would certainly be something good, 
because this gentleman has jumped through all the hoops, and 
done everything, he and his wife both, to get an answer and 
have been unable to do that.
    And so, any help that you could you give us as far as 
getting an answer or a conclusion of this, it would be much 
appreciated by me and Mr. and Mrs. Denny.
    So, thank you very, very much, and I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Texas, Mr. Green, ranking 
member of our Oversight and Investigations Subcommittee.
    Mr. Green. Thank you, Mr. Chairman, and thank you, Madam 
Chair, for appearing today.
    Madam Chair, I would like to get some things for the 
record; these are things that are of common knowledge to a 
certain extent. It is true that you are a member of FSOC, 
correct?
    Ms. White. Yes.
    Mr. Green. And that as a member of FSOC, you have voting 
privileges?
    Ms. White. Yes.
    Mr. Green. And that as a member of FSOC, which is a newly 
formed institution as a result of Dodd-Frank, you have the 
ability to look at the entire financial system, looking for 
risk that may be out there that can hurt the system, is that 
correct?
    Ms. White. Yes.
    Mr. Green. Simple terms.
    Now, in doing this, Madam Chair, would it be fair to say 
that if we had had FSOC prior to 2008, we all would have been 
more likely to see the risks that AIG posed, than less likely 
to see them? Is it fair to say that there is a greater 
likelihood we would have seen some of these concerns with AIG?
    Ms. White. It is always hard to judge that, obviously, and 
that you see what you see. But this is a mechanism that is 
enormously important to seeing risks as early as possible, 
because you have to bring all of the relevant financial 
regulators, or a good component of the financial regulators 
from different strata, in a room together, to talk about what 
they are seeing. And there is no real substitute for 
identifying a problem early than that, I think.
    Mr. Green. This is why I ask in terms of more likely or 
less likely. More likely to have seen it or less likely?
    Ms. White. Certainly in theory, it should be more likely.
    Mr. Green. And in reviewing entities such as AIG, which had 
this London office that was doing some things that we didn't 
find quite acceptable after the fact, in reviewing these 
things, do you spend an inordinate amount of time at entities 
that don't come under the $50 billion threshold as a trigger, 
or designation as a SIFI?
    Do you spend a lot of time before you cast that vote?
    Ms. White. You spend a lot of time before you cast a vote, 
a lot of time.
    Mr. Green. And do you have an office to help you with 
research, the Office of Financial Research (OFR), to help you 
with the research? People who provide expertise to the 
Treasury, and the Treasury can share its--
    Ms. White. And certainly, OFR does research on various 
issues. The FSOC staff, and the staffs of the member agencies 
also do a lot of work.
    Mr. Green. Thank you. And when you cast your vote, are you 
told how to vote? Or does someone say to you, you have to vote 
a certain way on these issues?
    Ms. White. No.
    Mr. Green. Is it your opinion that you have been a pretty 
independent person serving on this FSOC?
    Ms. White. Yes.
    Mr. Green. And as an independent person, you put your time 
in and you study things, and you come to final conclusions?
    Ms. White. Yes, and I studied it with, not only the FSOC 
staff, but our staff.
    Mr. Green. Now, I just looked at some of the information on 
some of the very large companies in this country. A good many 
of them have triggers that bring them under the auspices of the 
FSOC and the SIFI designation. If you have to study every one 
of them to ascertain whether or not it should be a SIFI, it 
would take a lot of time to do this, wouldn't it?
    Ms. White. No question.
    Mr. Green. Do you have the personnel, such that you can 
study all of these mega-corporations that are $50 billion and 
above, do you have the personnel to look at them with the kind 
of detail that you need, if you did not have the trigger to 
bring some of them under an umbrella?
    Ms. White. Obviously, the resources are finite. You try to 
prioritize the ones that pose, potentially, a systemic risk.
    Mr. Green. And do you find that it is beneficial to have a 
trigger, whether it is at $50 billion or some other amount, is 
it beneficial to have a trigger?
    Ms. White. That is a little hard to judge, because 
obviously, what we are presented with are those that have met 
that trigger. So you don't know what hasn't met that trigger, I 
guess, to some degree. But logically, yes.
    Mr. Green. And without the trigger, you find yourself 
having to answer a good many more MetLife questions and a good 
many more questions that relate to entities that you are trying 
to sift through and ascertain whether or not they are SIFIs?
    Ms. White. I think it would depend on what substitute 
methodology you had.
    Mr. Green. Okay, thank you very much. I yield back.
    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, and Chair 
White, thank you.
    If we look back to the collapse of Lehman Brothers, one of 
the lessons was the need to quickly understand the relationship 
of corporate entities to one another. And so, out of the ashes 
of Lehman's downfall, came the Financial Stability Board's 
(FSB's) concept--and this was actually the direction of the G-
20--this concept of legal entity identifiers, or LEIs, as we 
call them, where each entity has to register that unique 20-
digit code, and that makes their identity very clear when you 
are trying to unravel something in real time, in terms of all 
their financial transactions.
    So last month, this committee passed legislation, which I 
authored, requiring the Office of Financial Research to provide 
an annual update on the progress of adoption of these LEIs, 
here in the United States.
    Now the global adoption I think is at 400,000; 400,000 LEIs 
now in 180 countries. So if the OFR were to conduct its report 
today, I am afraid that the SEC would lag behind a bit in terms 
of the adoption in other countries. As we move towards more 
transparency, this obviously this is part of our mission, and I 
think the Commission did mandate the use of LEIs in its 
security-based swap rules.
    It didn't require it in other rules. So I guess I would 
ask, should we expect that the SEC is going to require greater 
use of this important risk management tool in the future?
    And is there anything holding you back in that regard?
    Ms. White. There is nothing holding us back. If it is 
appropriate to the space, you want to make sure it fits, right?
    But I think LEI is an enormously important tool.
    The SEC has been a very strong proponent in those global 
efforts that you mentioned, and we frankly look for--we are 
looking for opportunities to use it more, I guess is the way I 
would answer your question.
    Mr. Royce. But to get to that point, you might promulgate 
more rules in that direction in order to increase the adoption 
where appropriate.
    Ms. White. Essentially, as we are adopting whatever rules 
as we go forward, we would look for that opportunity.
    Mr. Royce. Right. Let me ask you another question, Chair 
White, which goes to the Financial Services Committee's focus 
here under the chairman. What we have been trying to do, under 
the chairman's leadership, is to take a strong interest in 
housing finance reform and see how we can move forward the 
concept of bringing more private sector credit risk sharing 
into the GSE's. We would like to get as many positive things 
done as we possibly can in this quarter.
    So real estate investment trusts are a logical investor in 
these transactions. We have seen the communication from the 
FHFA which says that it does not perceive any drawbacks from 
greater involvement by REITs in credit risk transfers. This 
might be an area that, sooner rather than later, we can move 
forward additional steps to get more private capital. Could you 
work with us to clarify that all of these risk transfer deals 
are viewed as good read assets that do not undermine investor 
protections?
    Ms. White. We certainly would be happy to work with you on 
that, and I think the staff may be working with you on that, 
but I will make sure that they are.
    Mr. Royce. I think that would be helpful. I think it is 
very clear that as the Federal Housing Finance Agency says, at 
the end of the day, there is a clear benefit in getting credit 
risk transfers to get more private capital back in here for 
this part of this equation and that REITs can do this, 
according to them, and according to us.
    We certainly see the benefit to this and it is--when you 
are looking at a significant source of private capital like 
this, it just doesn't make sense to, just because regulatory 
hurdles, prevent that capital from being deployed. So we would 
appreciate that assistance.
    Chairman Hensarling. Does the gentleman yield back?
    Mr. Royce. Thank you, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Washington, Mr. Heck.
    Mr. Heck. Thank you very much, Mr. Chairman. And Madam 
Chair, thank you so very much being here.
    I want to ask about the Volcker Rule, which I consider to 
be fairly important. Of course, the Rule is final, but it is 
not yet being enforced and is, at the end of the day, I guess 
rather a bit of an experiment. So I want to pick your brain a 
little bit about it as we await the time when it is actually 
implemented.
    What are you saying in terms of market behavior and 
anticipation of the effective date? How do you see the market 
changing? How do you see companies adapting to it? And do you 
yet perceive any change in the risk being taken in the risk to 
the financial system? Just talk generally about those kinds of 
things. Is that--
    Ms. White. Again, it is a little hard to judge at this 
juncture with certainly, with any definitiveness on that. We 
are basically just about now going into the exam for the 
compliance period, actually, and all the agencies are.
    We are coordinating well. We will learn more from that, but 
before that period actually kicked in, we were obviously 
talking to those subject to the rule to see if they were able 
to provide the metrics they needed to comply and really, they 
got a very--at least initial, positive read on that.
    Mr. Heck. What does positive read mean?
    Ms. White. Positive read, meaning that they should be able 
to comply in a timely way. Now obviously, there are exemptions 
in the Volcker Rule and there are prohibitions in the Volcker 
Rule. And compliance is really at the trading desk level, and 
so there is a lot to look at in terms of is this market-making, 
or is this something that is prohibited?
    I think we have to see what comes out of certainly this 
first wave of exams to see, is it working, is there good 
compliance, and then in terms of judging its effects, I think 
that is down the road a bit.
    Mr. Heck. But where you sit here today, based on what you 
know and given that it is limited, are you confident that it 
will in fact reduce risk to the financial system?
    Ms. White. That is certainly the objective, which is 
basically to not have these institutions that are connected 
elsewhere engage in proprietary transactions. But again, I am a 
person who likes to wait on the data, but I think that is 
certainly the purpose.
    Mr. Heck. It is the purpose. Are you confident that it will 
achieve the purpose in large part?
    Ms. White. I have to see the data. I am afraid on that.
    Mr. Heck. Okay. Subject two. You are also currently 
reviewing a change in definition for accredited investors. Your 
predecessor was pretty clear that it very much needed to be 
changed and updated. So I would like to ask you what the status 
of your review of the definition of accredited investor is, 
just a general timeline for you think that--where that work 
will end up, what you personally think the direction needs to 
be.
    Ms. White. Sorry.
    Mr. Heck. Go ahead.
    Ms. White. First, clearly it, for a while, needed a really 
deep dive look in terms of all the various criteria that needed 
to be considered, not just net worth and income levels, but 
including them.
    Our staff has been studying that quite intensively for some 
time and they really are coming to a conclusion of their work.
    And the next step--really quite in the last phases of that 
and the next step, which I think will be relatively soon, I 
know you will want me to define that next, but relatively soon 
to basically put out publicly what those findings are and what 
the analysis is.
    Mr. Heck. Is ``relatively soon'' something like 90 to 120 
days?
    Ms. White. I would think so.
    Mr. Heck. And do you personally believe that there is a 
definitive need to update?
    Ms. White. I do believe there is a definitive need to 
update. I can say that much. Yes.
    Mr. Heck. Can you give an example of the kind of change 
that you think--
    Ms. White. I don't want to get--again, we will have to 
decide this, so I don't want to get ahead of when we are a 
five-person Commission also. But clearly, what we are looking 
at beyond the traditional tests of net worth and income, are 
other kinds of sophistication, experience, qualifications that 
certainly many, many would argue should entitle you to be an 
accredited investor.
    And I think one wants to be sophisticated about and 
realistic about what those other criteria are that would meet 
any investor protection concerns, frankly. So we are looking 
quite broadly.
    Mr. Heck. Thank you. With that, I yield back the balance of 
my time, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Virginia, Mr. Hurt.
    Mr. Hurt. Thank you, Mr. Chairman, and I thank Chair White 
for appearing before us today.
    In your testimony, you touched on equity market structure. 
I wanted to highlight one of the things that you said. You said 
that you all had been proceeding, since your last visit here, 
with an ongoing assessment of the U.S. equity market structure 
to ensure that our markets remain the deepest and fairest in 
the world and optimally serve investors and companies of all 
sizes seeking to raise capital.
    I wanted to turn your attention to the national market 
system plans, NMS plans, that were created in 1975 as an 
amendment to the Securities Exchange Act 40 years ago, and 
obviously a lot of things have changed since that time. The 
U.S. equity exchanges at that time were not-for-profit; they 
were member-owned. Today, of course, they are publicly traded 
and they are for-profit. And so a lot has changed in the last 
40 years.
    When you talk about plans for the collection and 
dissemination of market data, I think that we would all agree 
that if you want to ensure the deepest and fairest markets in 
the world and optimally serve our investors, you have to have 
accurate market data, and that has to be collected and 
disseminated in a fair and accurate way.
    In the aftermath of the of the NASDAQ SIP outage in August 
2013, I think there were some concerns that were raised about 
the governance of these National Market System (NMS) plans. We 
know that the NMS plans--plan participants are exclusively 
representatives of the exchanges in FINRA with no industry 
representation, and that leads it--it has been argued, to two 
separate problems.
    One is that you don't have a broad-based representation 
among these participants in providing the best sort of 
leadership and vision for what needs to take place in making 
sure that these SIPs are the best they can be.
    And then two, and perhaps of greater concern, is the 
conflict of interest issue, and that, of course, has to do with 
the fact that because the way the revenue is shared, there is a 
disincentive to invest in the SIPs to make them good as they 
should be.
    And also, the secondary issue relating to a conflict of 
interest has to do with the fact that these exchanges have 
their own data feeds that compete the SIPs information.
    So I was wondering if you could talk a little bit about 
where you are, and what you think can and should be done as it 
relates to the reform in the governance of these NMS plans?
    Ms. White. This is one of the reasons that I correctly 
identified this very deep comprehensive review of NMS and 
equity market structure, even before I was confirmed, as one of 
the highest priorities, and we have proceeded on that really, 
in a sense, on two parallel tracks. One, there are some things 
that clearly would optimize the markets that we are proceeding 
on in terms of specific rulemaking.
    And then the other is really the more comprehensive review. 
That takes into account--and we have obviously spent a lot of 
time dealing specifically also with SIP governance and single 
point of failure and it is enormously important that the SIP 
provide its information quickly with the consolidated 
information.
    And we are--and I think you can see, from our work on the 
Market Structure Advisory Committee and the subcommittees that 
we just formed, that we are looking very much at that issue--
those issues, as well as just kind of the whole role of the 
exchanges in the equity market system. We are not--we haven't 
concluded on those things, but very much front attention.
    Mr. Hurt. Can you, as you sit here today, explain to me 
what resistance there is or why we should continue to have 
these participants that are exclusively from the SROs, without 
including anybody from industry?
    Ms. White. I am not sure I can provide that answer, other 
than to say that one of the things we need to make sure of as 
we are making the changes, is that the system continues to 
function. And I am not suggesting putting a representative of 
the industry on there; that would mean it didn't continue to 
function, but we are trying to sort of optimize every aspect as 
we go.
    So, I could probably provide you some further information 
on that.
    Mr. Hurt. I would appreciate it. And I do think that the 
conflict of interest issue is something that obviously goes to 
the fundamental fairness issue that I think that we all want to 
see in our markets.
    Thank you. I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Thank you.
    I bring up FASB's $2 trillion addition to the liabilities 
in assets on American balance sheets each time you are here. I 
want to commend you for stepping forward--and say yes, FASB 
gets their authority from the SEC, and you take responsibility 
for their decision to delegate that authority.
    They didn't follow the Administrative Procedure Act. They 
didn't listen to anybody in the construction field. They didn't 
do any cost-benefit analysis. And we are going to see a decline 
in construction employment as a result of this new rule.
    So I will just ask you: Do you take responsibility for all 
that?
    Ms. White. We have had this discussion before. And again, 
the SEC has ultimate responsibility for accounting standards. 
We have obviously, for many, many years, recognized the private 
sector, therefore FASB is the standard-setter. And the SEC has 
the power--
    Mr. Sherman. And if I can interrupt, the SEC hasn't 
required them to follow the Administrative Procedure Act. The 
SEC has done nothing with regard to their processes or their 
outcomes.
    Ms. White. I understand your point. From your point of 
view, they haven't followed their due process procedures. I 
certainly haven't received that information from any other 
quarter in terms of the process that they have followed.
    Mr. Sherman. You haven't received that information from 
whom?
    Ms. White. Among others, obviously people comment on their 
process publicly all the time, as well as our staff and the 
Chief Accountant's office.
    Mr. Sherman. The people who comment live in the world I 
used to live in--the world of accounting. They have barely 
heard of the Administrative Procedure Act. It is foreign to 
that world to let carpenters and pipefitters come before the 
agency and say, ``Please don't ruin my family and my job.'' And 
so they refuse to listen to any of those people.
    Ms. White. Again, information that is coming to me is that 
FASB--comments were received on this proposal obviously several 
times. And that they were responsive to some and not to others.
    Mr. Sherman. They wouldn't--that is why I am using the word 
``listen,'' rather than the word ``invite'' people to send e-
mails that will be thrown away. They wouldn't listen to anyone. 
They didn't do a cost-benefit analysis. We are going to see a 
decline in construction jobs. There is no benefit from this--
    Ms. White. Of course, the standard is meant obviously to 
convey the economic reality of the transaction. And I know we 
have had this conversation before, but it was actually in 2005 
that the SEC staff recommended that FASB undertake the, in 
effect, capitalization of--
    Mr. Sherman. Right, with no cost-benefit analysis; they 
never discussed it with anybody who showers after work rather 
than before work.
    Ms. White. And, again, in terms of where a cost-benefit 
analysis comes in or doesn't for an accounting standard, 
because the purpose--I know you are a CPA, and a very good one, 
but the purpose is really to convey the economic reality of the 
transaction. I know they put off the transition period. We are 
cognizant of--
    Mr. Sherman. Right. The transition--they don't convey 
economic reality in their discussions, which is why they have 
no defense for FASB number two, which also distorts the 
American economy by penalizing companies that engage in 
research.
    Every accounting--and I will ask your Chief Accountant to 
look at this because it is proof that they don't always do it 
on the basis of economic reality--theorist for decades has said 
that you capitalize research. They don't, because it is not 
convenient.
    And to come here and say, well, they just reflect 
accounting theory and economic reality, is a misstatement of 
what they do. And I know I have brought up with your people 
FASB number two, and they basically say, ``Look, we don't want 
to listen to reality; we don't care; we want to do what is 
convenient.''
    And this approach--if the same people who tell you that 
accounting theory--and it doesn't--requires leases to be 
capitalized, let them cite you any accounting theory which says 
that research should be written off and not capitalized. The 
accountant--you have empowered. You take responsibility for. 
They give you some talking points. These decisions are as 
important as any reached in Congress.
    They affect hundreds of thousands of lives. And the 
procedure and the outcome is not something that your agency can 
be proud of.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney.
    Mr. Mulvaney. I thank the chairman.
    And thank you, Chair White, for coming in today.
    A couple of minor deals, and I am going to talk more than I 
ordinarily do, just so we can have you understand where we are 
on a couple of different things.
    Thank you very much, by the way, for offering the proposed 
regulations on crowdfunding. The last time you and I spoke in 
March, you gave us your best efforts to get them done by the 
end of the year and we appreciate that. I understand they were 
published at the end of last month, the end of October, and 
they are out now for review.
    When can we expect those to be implemented on the JOBS Act, 
the crowdfunding portion of that?
    Ms. White. Essentially--I think they become effective in, I 
want to say October 2016. They are final rules now.
    Mr. Mulvaney. Right.
    Ms. White. So it is a matter of the effective date. I think 
it may be October, but it may be earlier.
    Mr. Mulvaney. Okay. So, October of next year or earlier.
    Ms. White. Yes, but I think it could be May. I will have to 
give you the exact date.
    Mr. Mulvaney. That is fine. That would be great.
    The only thing--when I got them, one of the questions I had 
was--I used to run a small business. They are almost 700 pages, 
which I suppose on the one hand is to be expected, given what 
we are doing here, which is going out to the retail public, 
small investors for the first time, so there are a lot of 
protections that need to be built in.
    One of my questions, though, on this is how do you all--
have you all talked about how you are going to handle de 
minimus violations? We have small mom-and-pop organizations--
that is who this is designed to help--now having to deal with 
700 pages full of regulations. Have you all given this much 
thought as to how you reconcile those two things?
    Ms. White. Look, the answer is we are not out there to get 
people on this. We want this marketplace to work; we obviously 
want investors protected in the marketplace. One of the things 
that I have done since I have been here on these new 
marketplaces that we are setting up, whether it is lifting the 
ban on general solicitation or A+ or crowdfunding, is to have 
an interdivisional working group all over it when it begins, as 
opposed to looking at it a year from now.
    Which means, as part of that, it is not just Enforcement or 
Examination, although it includes that clearly. But it is also 
Corporation Finance and Trading and Markets and people who can 
give guidance and help people conform to the regulations as we 
go. So hopefully, that will be helpful.
    Mr. Mulvaney. And lastly, and just--
    Ms. White. The effective date, I happen to have here.
    Mr. Mulvaney. Okay.
    Ms. White. Once in a while, I bring a piece of paper: May 
16, 2016.
    Mr. Mulvaney. Beautiful. Thank you for that.
    Lastly, you all changed the size of the investment for the 
small retail investors. You took it down to $2,000. Very 
briefly, could you tell us your thinking on that?
    Ms. White. What we were doing in the crowdfunding space was 
to try to address concerns. We got comments from both 
directions, such as, this is just not going to be workable; 
there is not enough capital. You are sort of shutting people 
out of the markets, too. We really are concerned about fraud, 
and people losing money.
    And so that was one of the adjustments we made in respect 
to comments we got--really, in direct response to comments we 
got.
    Mr. Mulvaney. Thank you. I encourage you to keep an open 
mind. If things work out as we hoped they would when we passed 
the bill, then we can review those limits as well as other 
things in the bill.
    I want to switch gears now to the Small Business Credit 
Availability Act that Ms. Waters mentioned in her comments. And 
I am going to speak more than I am going to ask here, just to 
let you know where we are coming from on a couple of different 
things that are in this bill.
    So, we are talking now about BDCs. We have your most recent 
letter from early November. We have gone through it. And we are 
very excited about working with you to get the SEC okay with 
it. I think you know that we have worked with your folks over 
the last 18 months to do exactly that.
    You raised a couple of things in your letter that we think 
are probably not entirely accurate, specifically dealing with 
preferred stock. In fact, we actually think that the bill does 
exactly what you say you want it to do. We look forward to 
sitting down with you on that.
    There are other places where we think that maybe your 
concerns are a little bit misplaced. You have concerns, for 
example, about leverage and the impact of that on a retail 
investor. And we thought we had mitigated that by having that 
cooling-off period, by having the BDC announce they were going 
to lever up in order to give folks time to get out of the 
investment if they were uncomfortable with that.
    So we think we have addressed some of the other things.
    Regarding the 1 year, I know you objected in your letter to 
only having 1 year to write the rules. Keep in mind, that grows 
a little bit, Chair White, out of our experience. As happy as I 
am that we now do have the JOBS Act crowdfunding things, they 
are almost 3 years late. And so we are sort of trying to hold 
your feet to the fire, as we do as Congress.
    Secondly, we do think that a lot of the changes that are 
contained in the bill are not going to require very dramatic 
changes in the rulemaking. It could be as simple as changing 
ratios or changing numbers and so forth without doing a 
wholesale of review. So we hope that when you sit down to do 
the rules, you will see that maybe it will be easier to write 
these rules than you anticipated in your letter.
    Finally, and this is the big one, I hope that--when you 
first looked at it back, I can't remember, it was October, you 
didn't have a problem with a couple of different sections, 
specifically section 60 of the bill, when you said, in your 
view, these provisions did not raise significant investor 
protection concerns. In the most recent letter, you say the 
exact opposite about the same section.
    So we do hope that when we do sit down, we won't have a 
circumstance where the goal posts moved, and we can simply work 
on it together.
    Ms. White. It was based on experience in between, but we 
are happy to work with you and your staff.
    Mr. Mulvaney. Thank you very much.
    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.
    Chair White, conflicted investment advice costs investors a 
lot of money. Some have said $17 billion a year. And I am very 
concerned that workers who are sold IRAs with high fees and 
hidden commissions damage their retirement security. And I am 
very supportive of the Department of Labor's decision to move 
forward with a rulemaking to protect workers.
    The SEC and the DOL have different jurisdictions, statutes, 
missions, and mandates. For example, the SEC does not have 
authority over insurance. I would prefer the SEC follow the 
lead of the Department of Labor in protecting the retirement 
accounts of workers.
    So can you respond to that? I would like to know what your 
thoughts are on this issue. Do you see there being a looming 
retirement crisis? And what role would a ``best interests of 
the consumer'' standard be, and what value would that be in 
terms of moving forward in this space?
    Ms. White. My own personal conclusion--as I think I surely 
have conveyed before--is that we should subject brokers and 
investment advisors to a uniform fiduciary duty based on the 
Section 913 recitation of best interests of the client, 
irrespective of your own financial interest.
    And that obviously applies to those classes of registrants. 
In terms of what the Department of Labor is doing, I have said 
before, they are a separate agency, they have separate 
statutory authority, and they are proceeding.
    Obviously, coordination is important. We do that with all 
kinds of agencies when there is some overlap. From our point of 
view--my point of view, and again, it is up to the entire 
Commission as to whether and what the parameters would be of 
our uniform fiduciary duty role--it would be done under Section 
913 of Dodd-Frank, which, as you know, provides some parameters 
to our uniform fiduciary duty that takes some specific 
cognizance of the broker model, I think.
    And so that is one of the things that we would obviously 
have to be considering as we proceed under that authority, 
which is different than Labor's authority.
    Mr. Ellison. Thanks.
    Also, when you were here in March, I urged you to finalize 
the CEO median worker pay ratio rule. I'm glad to see that the 
SEC has finalized that rule. Congratulations, and thank you.
    The gap between CEO and worker pay has grown substantially, 
as you know--from 20 to 1, back around 1980, to now 300 to 1, 
which is really remarkable.
    Now, most people come at this from a moral standpoint, and 
they say it is not right and it is not fair, and I agree that 
they are right. But I want to ask you about something a little 
different. Is it good for the economy at large?
    And so, I would like to direct your attention to a graphic 
that I have. Many argue that paying CEOs in stock options 
encourages them to prioritize their personal short-term benefit 
over long-term needs of workers, investors, and the firm.
    Many have called to eliminate the CEO performance pay 
loophole in Section 162(m), because stock options are 
considered performance-based under Section 162(m), the 
deductibility is unlimited. Do you have any thoughts about 
this?
    Ms. White. I speak as the Chair of the SEC here. I think 
one of the things that we have been very active in is 
disclosure of executive compensation.
    And indeed--we talked a little bit earlier about Section 
956 in the Dodd-Frank Act, that we and fellow regulators are 
working very hard on, which is basically incentive comp, to 
make sure that excessive risks aren't taken.
    I think I have to leave to others, the broader issue. So 
that is really not in our remit, as they say.
    Mr. Ellison. Yes, but do you agree that--I am sure you are 
well aware, when people talk about the disparity between CEO 
pay and median pay, a lot of times the argument is, is this 
right or not.
    Leaving that argument aside, do you have an opinion as to 
how a very wide disparity--say, going from, say, 20 to 1 in 
1980 to 300 to 1 like nowadays--how does that impact the 
functioning--the proper functioning of markets, of retirement, 
of consumer demand? Do you have any views on that?
    Ms. White. I think where we operate in that space--if we 
do, in particular--would be in the 956 space, which is 
basically to try to ensure that the incentive compensation of 
executives--oversimplifying a little bit--in financial 
institutions is not done in such a way as to encourage 
excessive risk-taking, which obviously--
    Mr. Ellison. That is what I am asking you. Do you think it 
does?
    Ms. White. We are going in our rulemaking with our fellow 
regulators, we try to deal with that.
    Mr. Ellison. I appreciate your answers.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from North Carolina, Mr. 
Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman. Good afternoon, 
Chair White.
    Chair White, in your opening statement, you clearly 
conveyed that you are committed to the three-pronged statuary 
mission--to protect investors, maintain fair and orderly and 
efficient markets, and facilitate capital formation.
    Included in that, do you read anything that would be 
considered social engineering?
    Ms. White. I wouldn't, no.
    Mr. Pittenger. Yes, ma'am.
    In that light, over the last 5 years, you have spent 
thousands of man-hours and millions of dollars to defend 
rulemakings that really don't address the crisis and, from our 
perspective, don't fit into the scope of your mission, whether 
you are dealing with the conflict minerals issues or the 
resource extraction or the CEO pay disclosure rules that were 
just discussed.
    How do you relate your role in these issues--it seems to me 
to be a diversion, whether--in terms of scope of mission. Is 
this an interest of yours? Is this something of the 
Administration that you feel compelled to carry? Why would you 
move away from what clearly is your scope of mission?
    You are coming and you are wanting to increase your budget 
by 25--at a billion and a half right now, to go to billion 
eight--.88. A significant amount of money, and it seems to me 
that it is expansion of your footprint. It is expansion of your 
role and expansion--the bureaucratic entrenchment of your 
agency.
    As we look at the Federal Government today, people are 
concerned--they see the overreach, they see the footprint of 
the Federal Government. They see the impact. Look at our 
economy. A very slow economic growth of 2 percent.
    Do you appreciate the fact that maybe this death by 1,000 
cuts in terms of overregulatory involvement of the engagement 
in so many of these unrelated efforts having an adverse effect 
that may be well intended, well designed by those who share 
those concerns, but killing the goose that laid the egg?
    In trying to protect everything, aren't you hurting the 
overall cause?
    Ms. White. First, I very much believe in furthering our 
core tripartite mission, and I think I have talked about that 
at some length, and it has several aspects to it.
    I think what you may be alluding to, at least primarily, 
are some of the congressional mandates that the SEC was charged 
by Congress--and it is Congress--to carry out.
    And what I said a little bit earlier is, I do believe, when 
I have a congressional mandate, that means I carry it out. We 
try as hard as we can to carry it out in as cost-effective a 
way--
    Mr. Pittenger. Do you feel as though--
    Ms. White. --and as consistent with our mission as we can.
    Mr. Pittenger. --Chair White, that fits into your scope of 
mission?
    Ms. White. It is part of the mission given to us by 
Congress.
    Mr. Pittenger. As you stated earlier, to protect investors; 
maintain fair, orderly, and efficient markets; and facilitate 
capital formation--do these extra additional forays really fit 
into that scope of mission?
    Ms. White. I think we can't talk about them as a group. We 
have obviously done a number of the mandates that you might put 
in that category, that we have certainly seen some investor 
advantage to. But again, if it is a congressional mandate, I 
think we have to--we have an obligation to carry it out in the 
best way we can.
    Mr. Pittenger. Let me ask you this in closing. If there are 
excessive disclosure requirements that hurt our capital 
markets, if that is true, and would you buy into that, that 
there could be?
    Ms. White. Part of what we are trying to do with the 
disclosure effectiveness review is to make the disclosures more 
meaningful for our investors and obviously not to create 
gratuitous--
    Mr. Pittenger. We are talking about an excessive amount. We 
hear from the market continually about the excessive burden of 
these disclosures. They increase the compliance cost, they make 
it more difficult to raise capital, all of these things have a 
combined effect to slow our markets and impact our economy. 
Would you agree that the reality is that these excessive 
burdens are really having an adverse effect?
    Ms. White. It is one of the reasons we do that very deep 
cost-benefit analysis I was describing before. We obviously 
want to look at--
    Mr. Pittenger. But let's look at the overall--
    Ms. White. Not burdening, but--
    Mr. Pittenger. Respectfully, I just have a few seconds 
left. Respectfully, can I say look at the results today, it is 
all about results. Can you say with all your good judgment, 
with all these disclosures, all these requirements, all these 
mandates, all these compliance issues have been healthy as it 
relates to growing and expanding our economy? Or has it 
honestly had an adverse effect?
    Ms. White. I don't think it is static; I think we have to 
be focused on as these rules go out that we think are important 
looking at exactly that.
    Mr. Pittenger. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Florida, Mr. 
Murphy.
    Mr. Murphy. Thank you, Mr. Chairman. And thank you, Chair 
White, for being here. It's good to see you.
    My first question, I think, was already somewhat asked by 
the gentleman from Massachusetts, Mr. Capuano, regarding 
Petition 4637 on the shareholder funds for political 
activities. Just to dive into that a little bit more, as far as 
timing for a response from that, where do you think we stand 
and what is the timing that you think we can expect to hear 
back from you?
    Ms. White. On the letter, you mean?
    Mr. Murphy. Yes.
    Ms. White. As I have said earlier, I have three relatively 
recent letters, some from members of this committee, another 
one from different members of this committee, and I am 
expecting to respond to them fairly shortly.
    As I have also said, though, we are focused on our mandated 
rulemakings and mission-critical initiatives that I have 
described.
    Mr. Murphy. And just to make sure--my understanding is when 
1.2 million comments put in that this is a record, I guess, 
just to make sure, you feel that is sufficient to move forward.
    Ms. White. There have been a lot of comments on this and 
very strong views on both sides. I think there are about 2,000 
unique comment letters. There is clearly intense interest on 
both sides of this issue.
    One of the things I mentioned before is that I watch what 
is happening in terms of companies--the shareholder petitions 
that are being filed, which is through our regulations that is 
made possible and the number of companies increasingly that 
voluntarily are making those disclosures. There is a recent 
survey out, I think, just in the last 2 or 3 days showing those 
numbers are up.
    Mr. Murphy. Okay. Thank you. And then as it relates to DOL 
and their moving forward on fiduciary duty, I know there have 
been some questions on that as well. Can you just elaborate a 
little bit more on the distinct responsibilities between SEC 
and DOL and how you plan on moving forward with this?
    Ms. White. Sure. Essentially two separate agencies, two 
separate statutory regimes. The Department of Labor obviously 
is responsible for the very important ERISA space and has been 
since 1974, I think.
    And again, I think I mentioned this a little bit earlier, 
but actually even as it exists now, brokers for example who are 
our registrants who are in the ERISA space or parts of the 
ERISA space are subject to different DOL rules and different 
rules under the securities laws and regulations. So I think 
each agency has to judge for itself how it is proceeding.
    With respect to the SEC, we don't have a mandate to proceed 
with the uniform fiduciary duty, but we have authority given to 
us by Dodd-Frank in Section 913 to do that. I personally, after 
lots and lots of study, made the judgment that I think we 
should proceed with analyzing a rulemaking to impose a uniform 
fiduciary duty consistent with Section 913. There is a lot of 
analysis to do on it, economic and otherwise, and it is complex 
and not a quick exercise.
    I think the Department of Labor's initial proposal on 
theirs was actually in 2009.
    Mr. Murphy. Yes. I think one of the concerns we all have on 
both sides of the aisle is duplication, and multiple, multiple 
agencies are looking at the same exact thing. I know you have 
had some meetings with Labor Secretary Perez and hopefully I am 
sure having these conversations is your way of staying in your 
lane, and who is doing what.
    I think we all want to get the bad actors out, but at the 
same time don't want duplication. We want taxpayer money spent 
as wisely as possible.
    Have you had that conversation? Where do you see that 
heading?
    Ms. White. What we have done--and I think this is again 
before I was here, but really from 2009 forward--and then 
obviously I am familiar with the more recent context--is the 
staff of the SEC--this is not the Commission, although I also 
participated in some meetings with Secretary Perez--provided 
technical assistance and expertise from our space to them, some 
of our economists met with them on a number of the issues.
    And I think, as you do in--frankly, any time you overlap 
with any other agency--take the CFTC on swaps and securities-
based swaps, you each have your authorities. They somewhat 
differ sometimes, but you try to be as consistent as you can 
because obviously it is not good for market participants if 
they have two sets of rules that they have to comply with. But 
often, there are different markets, different statutory 
obligations, and so there is not perfect consistency. But it is 
very important as you go forward on anything that overlaps that 
you talk and try to do what you can to conform.
    Mr. Murphy. I am running out of time. But quickly, can you 
just talk briefly about what you think the SEC's role is in 
cybersecurity? To me, that is one of the biggest threats that 
is--
    Ms. White. It is one of the biggest threats and risks we 
all have, full stop. The SEC has three areas of specific, I 
would say, jurisdiction. One is we did, I think, in November of 
last year, our regulation SCI, which is security, compliance, 
and integrity, which essentially is a rulemaking with respect 
to our critical market infrastructures to raise the bar on the 
resiliency of their systems and report incidents to us when 
they--and others when they actually have them. Part of that is 
cyber.
    We deal with the brokers and the investment advisors and 
their risks. We put out disclosure guidance and we stay as 
active in this spaces as we can. We also bring enforcement 
cases when people don't--
    Mr. Murphy. Thank you.
    Ms. White. --do what they are supposed to under our roles.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner.
    Mrs. Wagner. Thank you, Mr. Chairman. And welcome, Chair 
White. I wore my Kansas City Royals blue--
    Ms. White. I see it.
    Mrs. Wagner. --to make you feel welcome from your first 10 
years growing up with the world champion Royals.
    Ms. White. But I am a Yankees fan, as I told you.
    Mrs. Wagner. I know. I know. I am a Cardinals fan.
    Ms. White. Okay.
    Mrs. Wagner. In following up on some of the questions that 
have been asked about the DOL fiduciary rulemaking, I do want 
to associate myself with my friend, the gentleman from Georgia, 
Mr. Scott.
    In the SEC's absolute purview on anything having to do with 
the uniform fiduciary rule, and following up on what the 
chairman said, you talked at the last SIFMA annual meeting 
about this full out focus.
    So what does ``full out'' mean to you? When can we expect a 
rulemaking?
    Ms. White. I want to make clear at the outset, this is my 
view: It will ultimately be a Commission decision. I have 
obviously given staff direction, and they are very, very 
actively working on it. It is complex; it is not quick, but we 
are working toward--in the very short-term the--most of the 
details of what the proposal would be.
    Now that doesn't suggest that in 2 months, you are going to 
see a proposal. This is a long, complex exercise, and it has to 
involve the full Commission.
    Mrs. Wagner. It does, and I am glad to see that you are 
looking at a shorter-term rather than the longer-term, and 
obviously, you will need to come back before this committee and 
the Senate Banking Committee; you have to talk about 
alternative remedies to a uniform fiduciary standard that would 
address investor confusion, including simplifying of titles, 
and enhancing disclosure.
    All of these things are things that I hope are part of this 
ongoing analysis.
    David Grimm, with your Division of Investment Management, 
stated that further analysis still had to be done. What is the 
scope of analysis, and what do you anticipate is the timeline 
for completing it?
    Ms. White. Again, I cannot kind of overstate the complexity 
and the importance of getting this right, and part of that is 
clearly the very deep economic analysis that our economists 
will do as we are proceeding with that.
    So, in terms of impacts, in terms of--for example, I think 
have said this before, if we ended up at the end of the day 
with a rule that imposed uniform fiduciary duty, but we 
deprived retail investors of reliable, reasonably priced 
advice, we would not have succeeded, obviously.
    And so, our economists have a lot of work to do as we 
proceed with this.
    Mrs. Wagner. You are correct, we have to get it right, and 
I think the DOL proposal is 1,000 pages of wrong.
    Can you tell us about your analysis, including a study of 
the impact of the DOL's proposed rule on investment advisors 
registered with the SEC?
    Ms. White. It would have impact, I think, on investment 
advisors as well as broker-dealers. What we did with the DOL 
proposal, though, was essentially, as I mentioned before, 
provided technical assistance to them, which included--from our 
staff and it is our staff who are providing how it might impact 
on investors and how it might, what the lay of the land is now 
in terms of how brokers operate, how investment advisors 
operate.
    It really depends on--and obviously, the Department of 
Labor is taking in a lot of comments about impacts. And so it 
depends on how--
    Mrs. Wagner. Tens of thousands of comments. And in fact, we 
received a letter, I received a letter from Secretary Perez, 
stating that they were going to make no changes, no re-
proposals, even prior to the public comment period opening up.
    And I am very dissatisfied with this. I know you said that 
you are providing technical assistance, and in that quote 
before Senate Banking, you even talked about, particularly the 
lower end, which I care deeply about, in terms of customers' 
choice, access to products, and the cost of those products. I 
think that is absolutely key.
    Do you have any concerns that some U.S. investors could 
potentially suffer based on the new fiduciary definition that 
the DOL is proposing?
    Ms. White. I don't want to comment on that specifically, 
other than to say that I think the Department of Labor--and 
certainly, our technical assistance included that concern as 
you proceed with any rulemaking, and we have it in proceeding 
with ours.
    Mrs. Wagner. I am just looking at a couple of examples, 
here, on how the DOL, I think, conflicts with securities laws. 
And I understand that DOL's fiduciary duty rule will require 
financial advisors to provide 1, 5, and 10 year projections on 
investment returns as part of projecting investment costs under 
the best interest contract exemption.
    Does this potentially conflict with the Investment Advisers 
Act of 1940, especially its antifraud provisions?
    Ms. White. I would have to analyze that with my folks in 
the Investment Management Division, specifically. But what I 
indicated earlier is even now we have different roles in the 
ERISA space--it is different statutory authority that applies 
to our brokers, our registrants than the Federal securities 
laws require. But I am happy to get back to you on a specific 
one.
    Mrs. Wagner. I would like that--for you to take a look at 
that, and also just, with the indulgence of the chairman, take 
a look at the DOL definition and term on recommendation. It 
differs completely from the definition used by FINRA. So I am 
concerned about some of these differences and really reiterate 
that this is the FTC's purview through Section 913, and we 
would love for you to move as quickly as possible.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Colorado, 
Mr. Tipton.
    Mr. Tipton. Thank you Mr. Chairman. Chair White, thanks for 
taking time to be here today. You previously stated that the 
independence of the SEC should be respected, and noted your 
particular expertise in terms of dealing with a variety of 
issues. And, with that in mind, I believe it is important that 
we consider the Federal Reserve's work on mapping transactions 
within the capital markets, and many view this as an early 
stage to be able to have the Federal Reserve regulate much of 
the capital markets under the guides complex transactions.
    Are you fully committed to making sure that the SEC 
maintains its position as the regulatory body?
    Ms. White. Yes. I think one has to recognize, though, that 
after Dodd-Frank, there were some reassignments of some things, 
and so we end up doing more things in consultation with the 
Federal Reserve by statute.
    I am not saying that is bad, I am just saying--but the 
short answer to your question is yes.
    Mr. Tipton. Great. If the Fed does continue this policy 
with securities products and firms, if they are going to be 
regulated under bankcentric modes, what type of an impact will 
that have?
    Ms. White. It is hard to answer that in a vacuum, and I do 
think--and we have discussed in connection with asset managers 
and--our doing stress testing as we are required to under Dodd-
Frank. One has to recognize that asset managers are different 
than banks.
    And so that means that however you regulate, however you 
stress test, if you do it optimal is going to be different.
    Mr. Tipton. Yes, and I think that is actually part of the 
concern that we are seeing as some of this is being formulated, 
that we are going to see and that this seems to be the track 
that they are on. To be able to try and de-risk completely is 
going to impact some of the work that apparently you are trying 
to do in terms of being able to have some capital formation--
access to capital because that is one of the big issues that we 
are hearing in our communities, simply for small businesses to 
be able to actually--to be able to reach out.
    Do you believe it is important that the FSOC has decided to 
review activities and products in the asset management industry 
for systemic risk?
    Ms. White. Do I think it is important, you said?
    Mr. Tipton. Yes.
    Ms. White. I think it is a focus that makes sense. It 
really goes beyond asset management. I think I cited before the 
example of securities lending as one of those activities. 
Obviously, that is not just asset managers.
    FSOC really is charged with looking for systemic risks and 
addressing them in the system.
    They have certain authorities and--to deal with them if--
but I think the pivot, at least for the time being, from a firm 
focus to products and activities, makes sense the SEC staff has 
been quite active in, I should say, the December request for 
comment on those.
    I see their work as complementary to ours, but we obviously 
have been the primary regulator of the asset management 
industry for 75 years and we are proceeding with a regime of 
regulations that we think is important to do and makes sense to 
do, and that is completely independent from FSOC. I think what 
they are doing is complementary.
    Mr. Tipton. Okay. I appreciate your answer on that, but 
you--one comment that you just made in terms of going through 
and seeking comment. One of the concerns, obviously in my 
district and maybe nationwide, is small businesses. You have 
the Government-Business Forum on Small Business Capital 
Formation and the response from the forum comes out and you--
what do you believe are some of the most specific issues that 
small businesses are talking about right now?
    Ms. White. There are a number of them. We actually have 
that meeting tomorrow, by the way, our annual forum is tomorrow 
morning. It is enormously useful. If you look over the years, a 
number of the recommendations from that forum, I am not 
suggesting all of them--that we have actually proceeded with.
    Clearly, they result in a lot of interest in crowdfunding. 
There is a lot of interest in A-plus. One of the things we did, 
by the way, when we did crowdfunding, is that we also proposed 
to amend our Rule 147 and Rule 504, which really is addressed 
precisely at those small, in-State businesses that want more 
facility to raise capital.
    And so, that goes beyond the JOBS Act. That is not 
something mandated, that is something that we are very excited 
about, as were, frankly, the North American Securities 
Administrators Association (NASAA) State regulators.
    Mr. Tipton. Great. I do think it is worthy of note that 
Pepperdine University did conduct a study and it said that 53 
percent of the respondents--small businesses--believe that the 
current business financing environment is restricting growth 
opportunities, and 46 percent believe it is restricting their 
ability to be able to hire new employees.
    So I would encourage you, as you are holding those forums, 
not only to listen, but to actually hear what they are having 
to say because these impacts--cost benefit analysis that you 
have been speaking are having a real impact.
    And Mr. Chairman, I ask unanimous consent to submit a 
question for the record in regard to 10K filings on a lot of 
our mining industries and to be able to get a response from 
that.
    Chairman Hensarling. Without objection, it is so ordered. 
The time of the gentleman has expired. The Chair now recognizes 
the gentleman from Texas, Mr. Williams.
    Mr. Williams. Thank you, Chair White, for being here. You 
talk of your support for small business. I am a small business 
owner, and you support the International Financial Reporting 
Standards (IFRS), and as you know, the IFRS does not allow the 
use of last in and first out accounting.
    My concern is, if we transition from the current U.S. 
method of generally accepted accounting principles (GAAP) 
accounting to IFRS, the toll on U.S. businesses would be 
unsustainable, and frankly cause most of them to go out of 
business.
    I think the number to be recaptured is somewhere in the 
range of $100 billion. Now, you have publicly stated that 
considering whether to further incorporate IFRS into the U.S. 
financial reporting system is a priority of yours.
    The last time you were here, I believe you told my 
colleague, Mr. Barr, that your object was to get a single set 
of global standards. FASB and IASB have made attempts in the 
past to come to an agreement. Those efforts have always been 
unsuccessful.
    I saw in comments I believe he made yesterday, that the 
Chief Accountant, James Schnurr, urged supplemental use of 
global rules for U.S. companies. Yes or no, do you have any 
comments on how that would work?
    Do you agree with that? Do you agree that it should be 
supplemental?
    Ms. White. Mr. Stivers, actually, I think you said he made 
a recommendation to me--he also made a speech, I think last 
December, about that, and certainly I am quite interested in 
that.
    Just to be clear, what I have said, though, is that I think 
the Commission, if we can, should speak again on this issue.
    Mr. Williams. Okay.
    Ms. White. Just speak again. Not saying what that would be. 
And so, I think in terms of sort of the one high-quality global 
standards as a goal, I certainly favor that.
    That doesn't answer all the details along the way. It 
doesn't for a moment suggest what the position might be for 
further application of IFRS--they obviously apply to foreign 
private issuers. Now, that is very different.
    Mr. Williams. All right, thank you.
    Based on those comments--he, by the way, also said there is 
virtually little or no support among U.S. companies for a 
wholesale change--do you still consider incorporating IFRS as a 
priority of yours? Yes or no?
    Ms. White. Again, I don't think I ever stated that as a 
priority of mine. My priority was to get the Commission to say 
where we are.
    Mr. Williams. Okay. Is your inclination to adopt IFRS based 
on a desire to have one standard worldwide financial reporting 
system, or is it because you believe the IFRS standards are 
preferable to GAAP?
    Ms. White. That is not what I intended to convey. The SEC, 
some time ago, before I came in, by regulation, has allowed 
foreign private issuers to use IFRS without reconciliation.
    But plainly, the convergence projects have gone where they 
have gone and not gone where they have not gone.
    Mr. Williams. All right.
    Ms. White. And so, there are differences in the system.
    Mr. Williams. In the case of last-in first-out (LIFO) 
inventory reporting, IFRS does not allow the use of LIFO. In 
contrast, the U.S. tax code requires the use of LIFO for 
financial reporting if it is used for tax purposes.
    Effectively, then, the SEC would be making tax policy. Were 
you aware of this potential impact?
    Ms. White. I am aware of the impact, but I don't want to 
imply for a moment that I think it ought to be done, period.
    Mr. Williams. Yes.
    Ms. White. But clearly, it has IRS and IRC implications.
    Mr. Williams. Do you think you should be, effectively, 
setting tax policy?
    Ms. White. No.
    Mr. Williams. Okay. Do you have a substantive position on 
the use of the LIFO inventory method?
    Ms. White. I don't. Obviously, the method under GAAP is the 
one that applies.
    Mr. Williams. You realize, though, how destructive it would 
be to small businesses here?
    Ms. White. I am quite aware of the complexities of that 
issue, absolutely. All I want to make clear is that I think 
some of the positions that you are indicating were mine really 
are--I haven't concluded on any of that.
    My only priority is to get the Commission to say where it 
is on some of those issues, not suggesting for a moment where 
that would be.
    Mr. Williams. Have you consulted with the Treasury about 
this potentiality? And if so, is the Treasury comfortable with 
the SEC setting LIFO inventory--slash inventory tax policy?
    Ms. White. The answer is I haven't consulted with Treasury 
on this because it is not ripe at all to consult with them on 
it, not because it is not an important issue, if we were to 
reach it.
    Mr. Williams. LIFO is an important--
    Ms. White. Very important.
    Mr. Williams. --accounting method for small businesses.
    Ms. White. Absolutely.
    Mr. Williams. And the recapture of $100 billion, as I said 
earlier, could devastate small businesses. It could cost jobs. 
So I appreciate your following through on that.
    Ms. White. Absolutely.
    Mr. Williams. Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Maine, Mr. Poliquin.
    Mr. Poliquin. Thank you, Mr. Chairman, and thank you, Chair 
White. I appreciate it very much. I know you missed your 
opportunity to go to Maine this summer, but I know next year is 
another year, and you will make it--
    Ms. White. I am coming.
    Mr. Poliquin. --your vacation, and spend as much money as 
you can. I appreciate it.
    Chair White, the State of Maine has the oldest average age 
in the country. And Maine's second district, which I represent, 
comprising western central, northern and down east Maine, is 
likely the oldest district in the country.
    In addition to that, coast to coast, there are 40 million 
Americans who live in rural areas.
    Now in parts of Maine--and, I am sure, other parts of the 
country--when you are living in those areas, we often don't 
have internet conductivity. We have power outages all the time, 
even if we do have conductivity.
    In addition to that, 41 percent of our seniors in this 
country, regardless of where they live, don't use the internet. 
So, I know your mission, in part, is to make sure our investors 
receive all the information they can to make sure they are 
protected in decisions that they are able to make.
    Now, one of your own studies back in 2012, Chair White, 
indicated that 71 percent of investors, regardless of age, 
prefer to receive their reports from mutual funds and what have 
you, on paper. Right now, there is a proposed rule in your 
agency--30E-3--that you and I talked about back in August.
    Ms. White. Yes, we did.
    Mr. Poliquin. And in this rule, if I am not mistaken, a 
mutual fund company can simply send a letter to a senior or any 
other investor saying, you are no longer going to receive your 
quarterly statements or your portfolio holdings or whatever it 
might be unless you fill out this form and send it back to us 
saying that you want to continue to receive those reports in 
paper form.
    Now, what happens if the mail doesn't go through? Or what 
happens if you are on vacation in Florida and you live up in 
Madawaska, Maine, and the letter gets lost in a snowbank? Or 
what happens if you change locations and you are in between 
addresses, or for some other reason, you are away from home?
    This is just not fair, in my opinion, Chair White. It is 
just not right. So, I think when it comes to--with all due 
respect--the mission of the SEC, that I know you are 
responsible for upholding, it makes a lot of sense to make sure 
that our investors have the option of receiving their paper 
financial reports unless they opt out. Otherwise, it is much 
too confusing.
    Now, if someone decides to opt out, instead of opt in, that 
is all fine. So I am hopeful that you will commit to me today 
that you will retain this option, because that is--with all due 
respect--part of your mission.
    Ms. White. I can't commit to that, because we have an open 
period of comment until January on this. What I can say--and we 
talked about this to some degree on the phone--is that the 
proposal tries to address the concern. Although, again, we have 
a number of comments in the same vein as yours, which we are 
obviously weighing very seriously.
    But in the proposal we have tried--the staff has tried to 
build in, it is not just sort of one letter that gets lost in 
the mail. Which I understand is a risk, don't get me wrong. But 
also, it would periodically, again, be solicited on the 
issues--so some of the problems that have been identified in 
terms of receipt and choice the proposal tries to address.
    But I fully take your comment about switching the 
presumption, basically.
    Mr. Poliquin. Chair White, my mom, whom I love dearly, is 
87. She can barely use a cell phone--
    Ms. White. But again, she would have the option not to 
receive it by--she could get paper--but I fully take the 
concern. Yes.
    Mr. Poliquin. I appreciate that very much. I have a very 
short amount of time left. I would like to morph, if I can.
    Chair White, thank you very much. Our financial services 
industries is the envy of the world, and it gives all kinds of 
options to investors saving for their retirement or for the 
kids' education, and also, is the backbone liquidity to our 
economy that allows us to grow and raise capital and hire more 
workers.
    I am very concerned, and you and I talked about this a 
little bit this summer, I believe, also about asset managers 
and pension fund managers and mutual funds be designated as 
SIFIs. And in particular, I know there has been a movement 
through FSOC and also some of the other folks who come before 
us, that you are starting to look at activities instead of 
asset size.
    Now, I would like to ask you if I can right now, what 
activities are of concern to you, because if Mr. Hill and I 
manage a couple of different pension funds--mutual funds--and 
his performance is better than mine--
    Mr. Hill. It would be.
    Mr. Poliquin. It would be. Then my clients would go to his 
and the assets are not on our balance sheet anyway. They held 
it in the trust department down the street. So if something 
happens to me, it is no systemic risk to the economy or to the 
capital markets.
    Ms. White. And I think that is why you have seen the pivot 
to particular activities. One of the things we are dealing with 
in our separate, primary regulator space too, is liquidity risk 
management kinds of issues, just to make sure that--because in 
an open-end fund, you are entitled to get your money right 
away. Those kinds of risks.
    I mentioned before, securities lending, which asset 
managers and other people not even under the SEC's jurisdiction 
may use and does that pose any risk. But there are no answers 
there. It is really just asking questions and I think it is 
good to ask those questions.
    Mr. Poliquin. I will submit to you, Chair White, that there 
is no risk in the asset management business model to the 
economy and please look at that very carefully and make sure, 
with your position on the international regulatory bodies, that 
you make sure that we stand up for American asset managers when 
it comes to any regulatory issues with respect to your 
industry.
    Thank you very much. Have a wonderful Thanksgiving.
    Ms. White. Thank you, you too.
    Mr. Schweikert [presiding]. Thank you, Mr. Poliquin.
    I now recognize the gentleman from Arkansas, Mr. Hill.
    Mr. Hill. Thank you, Mr. Chairman. Madam Chair, thank you 
for being back before the committee and congratulations on a 
good GAO audit. I know that makes every management team smile 
when you get that. And also, congratulations on clearing up 
some of your 50 front burners; maybe you are down to 40 or so 
now.
    I would like to start out by talking about equity market 
structure. I thought SIFMA wrote a very thoughtful piece last 
July, I think, in 2014 about their suggestions on equity market 
structure challenges that we have seen over the course of the 
past few years, including some of the references to this 
summer.
    And you have now formed an Equity Market Structure Advisory 
Committee and a couple of comments about that I am concerned 
about. I would like to get your thoughts.
    I understand they have subcommittees meet in private 
without any transparency on their policy recommendations. I 
would like your thoughts on that. And then, I noted that the 
overall membership in the committee didn't include NASDAQ, it 
didn't include the New York Stock Exchange, it didn't include a 
big retail broker-dealer, and I come from the retail broker-
dealer space, so I am always concerned about the best 
execution, the promise that we make to do as our regulator to 
achieve best execution.
    So I am concerned those entities are not involved in your 
Market Structure Advisory Committee. Could you respond to that, 
please?
    Ms. White. Yes, I would be happy to respond to it. First, 
the Commission--and it is really all five of us on the 
Commission, went through a very lengthy process of vetting and 
of trying very hard to diversify points of view and expertise 
on the 17-person committee, which is what it is by charter. And 
so there is an exchange, obviously represented on the 
committee.
    There actually is, at it turns out, two other 
representatives who were formally actually at primary listing 
exchanges as well. There is a representative who represents the 
retail brokerage point of view, although we still keep looking 
at that. And we have clearly had requests for others to join.
    One of the things that we have done, and again, this is 
something you just keep looking at because you really want that 
diversity of perspectives, is to structure that committee so 
that we get input from others from every constituency, whether 
it is retail brokers or it is NASDAQ or it is the New York 
Stock Exchange.
    So each of the meetings, in effect, is a roundtable where 
we have NASDAQ, and the New York Stock Exchange, and so forth.
    And the subcommittees, that is something that the other 
advisory committees use to great effect to just get things 
done, but they don't decide anything, and they are also able to 
open at least parts of their meetings, if they choose, 
publicly.
    Mr. Hill. Let me urge you to open those meetings or parts 
of those meetings. I only urge you to make sure you get the 
full complement of those who want to participate in this 
process in the retail industry, and particularly, so you 
include exchanges, but to not have the two leading exchanges, 
NASDAQ and the New York Stock Exchange, represented strikes me 
as short-sighted.
    Let me switch gears. Generally, in your experience--I know 
you have an enforcement and legal background and I have an 
investment management background, do you believe that 
retirement fund managers have the principal obligation of 
maximizing long-term returns for their beneficiaries and their 
plans? Is that a general thing you bring to the table, is a 
belief that is their primary objective?
    Ms. White. Maybe it is because of that legal background and 
the SEC's jurisdiction, you want to serve the best interests of 
your client is what you want to do. That is what your fiduciary 
duty is.
    Mr. Hill. Yes, but I think if you have full discretion over 
an account and you are an investment manager, you have to act 
in their best economic interest, wouldn't you say?
    Ms. White. Yes.
    Mr. Hill. That causes me concern about a recent decision by 
the Department of Labor, not the fiduciary standard, but 
Secretary Perez has recently encouraged and has given guidance 
to institutional managers that environmental, social, and 
governance issues are equal to economic return issues. We live 
in a world of underperforming of defined benefit plans that 
aren't fully funded, and yet, we have direction from the guy 
who is in charge of ERISA to look at other things besides 
economic performance.
    Would you like to respond to that?
    Ms. White. Do I want to? Or--
    Mr. Hill. We will, it is really--
    Ms. White. --would you like me to?
    Mr. Hill. --so much fun to do it.
    Ms. White. I don't want to comment on his specific comment. 
I will say that I think what you, and it is a lot of my--but, 
yes. I think what you are trying to do is serve the best 
interest of your client. Obviously, you can have a client who 
says, ``Look, I care about this, this, this, and this as you 
invest for me.'' That is really up to your client.
    Mr. Hill. Yes, but economic return--we are not fully funded 
and economic returns are how we achieve that and I think the 
Department of Labor is way off track there.
    Last question, you have some vacancies on the Commission, 
and would you commit to this committee that you wouldn't bring 
controversial elements up if you don't have a fully functioning 
Commission that has bipartisan members on it?
    Ms. White. Anything can be controversial. I think what--
    Mr. Hill. True. But I mean any big, major issue follow on 
that we are working on. We are concerned that you are going to 
not have a fully functioning Commission with bipartisan 
appointees and we would like your commitment that you would be 
cautious about what you try to bring through the Commission 
without fully confirmed bipartisan appointees.
    Ms. White. I do think the work right now--there are four of 
us: one independent; one Republican; and two Democrats, and we 
are moving forward with our agenda. I think we can. I am going 
to take everything into account, but I do think we should 
proceed. I don't know how fast confirmations--assuming they 
occur, which I assume they will occur.
    But you obviously sort of read your agenda as you go along.
    Mr. Hill. Thank you. I yield back, Mr. Chairman.
    Mr. Schweikert. Thank you, Mr. Hill.
    I now recognize Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman. And thank you, Chair 
White, for being with us today.
    I just want to touch on the--some of the folks have been 
talking about the bond market--corporate bond markets. I wanted 
to ask a question about that.
    Has the FSOC, again, of which you are a voting member, ever 
conducted any analysis of the systemic risk that could result 
from a lack of liquidity in the corporate bond market due to 
regulatory initiatives like the Volcker Rule, in Basel III?
    Ms. White. I don't think, as phrased that way. Obviously, 
the four or five of us who report quarterly to this committee 
do that kind of assessment, at least in terms of the Volcker 
Rule.
    Mr. Rothfus. As you know, the chairman reached out to you 
at the beginning of the year for a status update on a number of 
initiatives that are designed to facilitate capital formation 
and ensure that the U.S. capital markets remain the leader, 
rather than focusing on politically divisive issues.
    For example, the chairman asked for the status of potential 
SEC efforts to modernize the rules governing transfer agents. 
This topic, although highly technical, is of interest to me 
because the rules have not been updated since the 1980's. I 
also think it is a rare occurrence when you have bipartisan 
support within the SEC, given that former Commissioner 
Gallagher and current Commissioner Aguilar--their statement in 
June of this year.
    In February 2015, you stated in your response letter to the 
chairman that the SEC staff is considering recommendations. I 
would like to follow up with the chairman's request for a 
status update as of today?
    Ms. White. We are actually quite actively focused on the 
transfer agent issues. I don't want to get ahead of what we are 
going to do or give you a specific date, but I think you will 
see something coming out quite soon. I don't want to say when, 
but I mean in the next couple of months.
    Mr. Rothfus. In what form would that be?
    Ms. White. I don't want to say that until it comes out, 
because one of the things that we are having to balance is that 
because we haven't updated these rules for 40 years, you need 
some data to inform yourselves in terms of some of the things 
that you might propose. There may be other things that you can 
tee up as a direction you think you are going in as part of 
that.
    So that is really what we are trying to balance, to be as 
pinpointed as we can, but also make sure we get the input we 
need by whatever form we put this out in, so--
    Mr. Rothfus. So you haven't made a determination whether it 
is going to be a concept release or some other release?
    Ms. White. We have not, although we are thinking about 
maybe some combination.
    Mr. Rothfus. Mr. Gallagher and Commissioner Aguilar said, 
``A lengthy delay in updating the Commission's transfer agent 
rules will be bad for the markets, investors, and issuers. A 
concept release may be warranted to gather additional 
information and viewpoints on certain topics, but there are 
critical reforms requiring immediate action that we can propose 
now.'' Would you agree with that?
    Ms. White. Yes, and not only do I agree with that, but I 
asked them to do it, in other words, to come back with areas of 
agreement. So I do agree with that.
    Mr. Rothfus. Let's see. You have questioned whether SEC 
disclosure powers are best used to address societal ills, 
noting in a speech that, ``Other mandates, which invoke the 
Commission's mandatory disclosure powers, seem more directed at 
exerting societal pressure on companies to change behavior, 
rather than to disclose financial information that primarily 
informs investment decisions.
    ``That is not to say that the goals of such mandates are 
not laudable, indeed most are. Seeking to improve safety in 
mines for workers or to end horrible human rights atrocities in 
the Democratic Republic of the Congo are compelling objectives, 
which as a citizen, I wholeheartedly share. But as the Chair of 
the SEC, I must question, as a policy matter, using the Federal 
securities laws and the SEC's powers of mandatory disclosure to 
accomplish these goals.''
    What is the cost to investors when there is an overemphasis 
on mandatory disclosure requirements that seem to be targeting 
societal ills, rather than what may be considered ``material'' 
by a company?
    Ms. White. It is hard to say what the cost is, obviously, 
and investors can see things differently.
    I think I went on in that speech to say, though, that if it 
is a congressional mandate, even if as described in the prior 
remarks, I do consider it our obligation to carry that out.
    Mr. Rothfus. As you know, last April the U.S. Court of 
Appeals found that the SEC's conflict minerals rule violated 
the First Amendment because it required companies to shame 
themselves. Given the political and shaming nature of the pay 
ratio rule, is it unreasonable to assume that the pay ratio 
rule will likely also violate the First Amendment?
    Ms. White. We certainly study that precise issue and we 
believe it comports with the First Amendment.
    Mr. Rothfus. This week, Commissioner Piwowar proclaimed 
that the SEC's corporate disclosure regime has been hijacked by 
social activists. Do you agree with Commissioner Piwowar that 
the SEC's disclosure rules are meant to serve investors, not 
special interests?
    Ms. White. I certainly agree that our disclosure regime is 
meant to serve investors. Again, I think that if they are 
mandated disclosure rules, we have an obligation to carry them 
out. It is the law.
    Mr. Rothfus. Can you explain how the SEC's pay ratio rule 
serves investors over special interests?
    Ms. White. I think--and again, it is in the release--what 
the pay ratio rule does is--and it is a mandated rulemaking 
obviously--to provide investors another data point in judging a 
CEO's compensation. That is the finding in the release.
    Mr. Rothfus. I yield back. Thank you.
    Mr. Schweikert. Thank you, Mr. Rothfus. It looks like it is 
just us.
    Ms. White. Okay.
    [laughter]
    Mr. Schweikert. A couple of things, Madam Chair. First off, 
you have always been very kind to me, and your staff has been 
terrific, and because of that, I am just going to yield myself 
as much time as I may consume because I have a lot of 
questions.
    Ms. White. Okay.
    Mr. Schweikert. You already hit the clock on me. Okay, this 
is--I am going to ask you for almost a narrative answer on 
this, and pretend no one is watching or listening. Being 
someone who was both, I think, intellectually and emotionally 
vested in crowdfunding, in the JOBS Act, in Reg A-plus, but 
let's use JOBS Act and the crowdfunding portion.
    Almost 4 years beyond when the rules should have been done, 
in something that from the IQ you have around you and yourself, 
should not have been very complicated. I beg of you, could you 
walk me through--
    Ms. White. Sure.
    Mr. Schweikert. --what happened.
    Ms. White. I don't think it was 4 years; I think it was 3 
years. Not that that is the answer here--
    Mr. Schweikert. Okay. It is 3-plus. I will give you--well, 
let's call it 3.
    Ms. White. Okay.
    Mr. Schweikert. Look, your staff and others were very kind 
to let us see some of the letters that were coming from certain 
union front groups and other groups that disparage 
crowdfunding. But help me understand, because as this hearing 
is supposed to be about resources, was this a resource issue, 
was this a political issue, was it an intellectual capital 
issue? Why so long?
    Ms. White. I have already described how our need for 
resources is really across-the-board, but this is one where--
and I believe I testified to this in March when I was here--we 
knew this rulemaking was going to be very complicated going 
into it because the statute is quite prescriptive in some 
areas, funding portals which are enormously important to 
investor protection is a complicated piece of that as well.
    And then, we did our proposal. I really tried to light a 
fire under the proposal. We got it out pretty quickly after I 
got here, I think. And then the comments came in, and we were 
trying--and again, we have to work within the statute when it 
is prescriptive--
    Mr. Schweikert. But--
    Ms. White. --but we try to make it--
    Mr. Schweikert. --but also the statute actually had some 
deadlines too.
    Ms. White. No, no, no. I am not--I am just saying we do 
need to observe those, obviously. Some places give us 
discretion, some places don't. And the goal is to make it 
workable and to safeguard investors in the new marketplace. And 
that proved to be very, very difficult.
    Mr. Schweikert. And what I was asking in my question 
design--and maybe I need to do this in writing because some of 
this is uncomfortable--is the power of certain activist groups 
to delay something at the same time both the right and the left 
here get behind these microphones and talk about the desperate 
need for economic growth and the new economy and the future 
that brings us, and then some of the things that we tell our 
constituents we are doing for them to grow the economy take 3 
years to get a rule set done.
    Ms. White. But again, I will give you my own perspective. 
We are talking in the context of crowdfunding. This was done 
purely on the merits to get it workable, to get it to protect 
investors. There is no politics, no activism, no anything.
    Mr. Schweikert. In that time, what, 2 dozen States actually 
did their own and produced their own rule sets and are up and 
running.
    Ms. White. Yes, but they also did not have the same 
statutory framework we had to work with, and it is not a 
Federal rule. And I mentioned it earlier, one of the really 
important, I think, exciting things we did the same day we did 
crowdfunding are these amendments to Rules 147 and 504, because 
that is really quite solicitous of those State crowdfunding 
statutes too. Obviously, it is a proposal at this point, but I 
think that is a good thing.
    Mr. Schweikert. If done robustly, there is actually an 
interconnectivity there that actually could be very helpful for 
the economy. And this is one of those--just because as I was 
walking out to grab a meeting, I thought I heard something in a 
previous question, I think with Representative Luetkemeyer. And 
it sounded like the regulatory or additional regulatory 
scrutiny when an investment organization will pledge their 
holdings up for shorts or a loan on their book. Did I pick up 
something there--
    Ms. White. I don't think so.
    Mr. Schweikert. All right. Last one, it is also important 
to us. We accept that your Commission, the Board right now is 
short one Republican. There is a certain nervousness out there 
that in the waning days of an Administration, the independence 
of the SEC--this is more of just a request for your greatest 
prudence as rules are being brought for a vote of yourself and 
your fellow Commissioners that you are shorthanded and 
something that would be controversial, have a cascade effect 
policywise, be dealt in that light that there is a voice 
missing.
    Ms. White. Again, I think literally and otherwise, I am 
extraordinarily independent. We try to do these rulemakings on 
the merits. Obviously, I think we have had an allusion to the 
3-2 votes that we have had. And that is sort of part of the 
landscape, I think at this point in time. We need to move 
forward with the agenda, but I certainly will be sensitive to 
all things.
    Mr. Schweikert. And because I have no one else waiting, I 
am going to give myself a couple of extra moments here. For the 
SEC and your team, how much interest and focus is there, shall 
we say, on the new economy? As we see Silicon Valley is 
spending lots and lots of resources trying to find ways to 
provide financial service-type products, lending products, 
crowdfunding platforms or other types of platforms, do you have 
someone on your team who actually now is specializing in trying 
to say, this is our future, this is coming at us, here is new 
technology--
    Ms. White. Yes, is the answer to that. One of the things 
that we have been doing for the last several years is to make 
sure that we have, I am going to call it the market expertise, 
but really, the points of view that would encompass the new 
products, the new innovations on--
    Mr. Schweikert. Are there some things--because this is one 
of the things in our lives that actually may be bipartisan--we 
can do as policymakers to provide you with tools or statutory 
mechanics to allow you to embrace and run with those ideas that 
are good and do it as fast as possible so we are not slowing 
down what many of us believe is our future of our economic 
growth, and that is the new economy?
    Ms. White. What really helps us is that outside expertise 
genius, that we make sure that we have in-house when we can. 
And we do try to do that.
    Mr. Schweikert. Okay. Chair White, thank you so kindly for 
your patience and the time you gave us today.
    Ms. White. Thank you very much. Thank you.
    Mr. Schweikert. I would like to thank our witness.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And with that, this hearing is adjourned.
    [Whereupon, at 1:09 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           November 18, 2015
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