[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]




 
                    OVERSIGHT OF THE U.S. SECURITIES

                        AND EXCHANGE COMMISSION

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 21, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-103
                           
                           
                           
                           
                           
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]         




                             _________ 

                 U.S. GOVERNMENT PUBLISHING OFFICE
                   
31-492 PDF                 WASHINGTON : 2018      

                           
                           

                 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
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
                     
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 21, 2018................................................     1
Appendix:
    June 21, 2018................................................    49

                               WITNESSES
                        Thursday, June 21, 2018

Clayton, Hon. Jay, Chairman, U.S. Securities and Exchange 
  Commission.....................................................     4

                                APPENDIX

Prepared statements:
    Clayton, Hon. Jay............................................    50

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    Report entitled, ``Rewarding or Hoarding? An Examination of 
      Pay Ratios Revealed by Dodd-Frank''........................    75
Clayton, Hon. Jay:
    Responses to questions for the record from Representatives 
      Beatty, Budd, Emmer, Luetkemeyer, Sherman, Tipton, and 
      Wagner.....................................................   101


                    OVERSIGHT OF THE U.S. SECURITIES



                        AND EXCHANGE COMMISSION

                              ----------                              


                        Thursday, June 21, 2018

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Present: Representatives Hensarling, Royce, Lucas, Posey, 
Luetkemeyer, Huizenga, Stivers, Hultgren, Pittenger, Wagner, 
Barr, Rothfus, Tipton, Williams, Poliquin, Love, Hill, Emmer, 
Zeldin, Trott, Loudermilk, Mooney, MacArthur, Davidson, Budd, 
Kustoff, Tenney, Hollingsworth, Waters, Maloney, Velazquez, 
Sherman, Meeks, Scott, Green, Cleaver, Ellison, Perlmutter, 
Himes, Foster, Delaney, Sinema, Beatty, Vargas, Gottheimer, 
Crist, and Kihuen.
    Chairman Hensarling. The committee will come to order. 
Members are asked to take their seats. Without objection, the 
Chair is authorized to declare a recess of the committee at any 
time. All members will have 5 legislative days within which to 
submit extraneous materials to the Chair for inclusion in the 
record.
    The hearing is entitled, ``Oversight of the U.S. Securities 
and Exchange Commission.'' I now recognize myself for 3-1/2 
minutes to give an opening statement.
    I think we all know that the SEC (U.S. Securities and 
Exchange Commission) has a well-established three-part mission 
to include investor protection, the maintenance of fair, 
orderly, and efficient markets, and the promotion of capital 
formation. Unfortunately, in the recent past, this latter 
aspect of the mission has received short shrift. That is why I 
am very grateful to Chairman Clayton for his leadership in 
devoting more time and attention to the capital formation 
mission.
    Although our economy is clearly red hot today, there are 
some worrisome signs that we must confront. Number one, as 
recently as 2016, entrepreneurship, the provision of startups, 
reached a 40-year low. We know that IPOs (initial public 
offering) have been on a slide downward. Although we have seen 
a gradual uptick, they are half of what they were 20 years ago.
    Although we passed a bipartisan banking bill, it is largely 
a community bank, credit union, and regional banking bill, when 
80 percent of our business debt comes from investors in our 
capital markets, not from lending officers in our banks.
    Small business represents 99 percent of all business 
enterprises and half of our U.S. jobs. Surely they are the job 
engine of America. When companies do go public, unfortunately, 
many are withering on the vine.
    We have a number of challenges. If these businesses cannot 
find adequate capital, it begs the question, where will the 
Amazons, the Googles, and the Apples of tomorrow come from? How 
can we sustain long-term 3 percent GDP (Gross Domestic Product) 
growth without ensuring that we have plenty of these startups 
in the pipeline?
    It also begs the question, how will we successfully compete 
with China, particularly ``Made in China 2025,'' unless we 
infuse more reforms into our capital markets because we know 
China is committed to dominating several different fields in 
high tech, including high tech, biotech, and artificial 
intelligence. We know they have a very healthy IPO market and 
currently produce about roughly a third of the world's IPOs, 
IPOs that I think we would much prefer to have in America.
    Another question that we have to ask ourselves and ask the 
SEC, how can Main Street investors have more opportunities to 
invest in their future? How can they invest in great companies, 
when we look at our IPO market and see that so many of our 
public companies are now older, they are bigger, they are 
fewer?
    When they go to the public markets, this is often at a 
billion dollar valuation when so much of the explosive growth 
took place as a private company that they were not allowed to 
invest in. Why was it only the wealthy that managed to invest 
on these companies on the way up and not our teachers, our 
barbers, our farmers, and our first responders? We too must 
act.
    We have an opportunity, since we know the Senate will be 
voting on a package of capital formation bills. Historically, 
this is something that has been done on a bipartisan basis in 
this committee. I note again when President Obama signed the 
first Jobs 1.0 Act into law, he said it was an important step 
on the journey to remove barriers of capital formation for 
entrepreneurs. That job must continue, both at the SEC and 
Congress. I look forward to hearing from our witness on the 
capital formation agenda of the SEC.
    I now turn to the Ranking Member for an opening statement 
for 3 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. Welcome 
back, Chairman Clayton.
    Mr. Chairman, given recent developments regarding the 
Volcker rule, I would like to offer a reminder that Congress 
put the Volcker rule into effect in order to stop banks from 
essentially gambling with taxpayer dollars. But earlier this 
year, the Office of the Comptroller of Currency, the Federal 
Reserve Board, the Federal Deposit Insurance Corporation, and 
the Commodity Futures Trading Commission (CFTC), and the 
Securities and Exchange Commission issued a proposal that 
appears to give banks a pass and allow them to continue what 
Congress clearly wanted to stop.
    Now the SEC's analysis of the proposed rules said, and I 
quote, ``We recognize that the proposed amendment would 
increase moral hazard risk related to proprietary trading by 
allowing dealers to take positions that are economically 
equivalent to positions they could have taken in the absence of 
the 2013 final rule,'' end quote.
    I am wondering why the SEC would be supporting changes to 
the Volcker rule that will increase moral hazard risk. I am 
also concerned about the SEC's regulation-based interest. In 
Dodd-Frank, Congress specifically gave the SEC the authority to 
impose a harmonized fiduciary standard for both brokers and 
investment advisers. But the SEC's proposal does not do that. I 
am going to urge Chairman Clayton to ensure that the SEC's 
final rules protect investors and retirement savers from 
unscrupulous actors.
    Mr. Chairman, it has been reported that you have a plan to 
advance a package of capital markets bills to the House floor. 
You and I have not talked about this, I have not been consulted 
on what might be included in such a package. But based on some 
of the bills the committee has marked up to date, I remain 
concerned that this package may contain bills that could weaken 
investor protections, given that any such legislation can make 
the SEC's job that much harder.
    I am looking forward to Chairman Clayton's ability to 
express his concerns to this committee about any measures that 
he views as potentially harmful to investors, and I look 
forward to hearing from him throughout this process. I thank 
you, and I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back. The Chair 
now recognizes the gentleman from Michigan, Mr. Huizenga, the 
Chairman of our Capital Markets Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman. While, Chairman 
Clayton, finally our economy is starting to fire on all 
cylinders, and while tax reform is strengthening our economy, 
increasing paychecks, it is also starting to deliver real 
results for hard-working middle-income families, not only in 
west Michigan, but across the country.
    I had an opportunity to meet with a number of NFIB members 
from Michigan yesterday, and they echoed that sentiment. But 
moving forward, it is my goal to build on the success of tax 
reform by continuing to promote policies that empower 
taxpayers, strengthen our economy, and provide more opportunity 
for American taxpayers to succeed.
    Signed into law the Economic Growth Regulatory Relief and 
Consumer Protection Act has begun to provide much needed relief 
to consumers and small businesses on Main Street, but that is 
just the beginning of unleashing American innovation, jobs, and 
capital, while supporting economic growth. We can all 
acknowledge that the United States has the strongest, deepest, 
most liquid markets in the world, but it is becoming more 
apparent that our capital markets are becoming less and less 
attractive, as well, to growing businesses due to the one-size-
fits-all securities regulations currently in place.
    For public companies, some of which are just a couple 
hundred million dollars, up to a number of massive companies 
knocking on the door of $1 trillion in value. Our capital 
markets are the envy of the world, but we have to keep it that 
way. We must jumpstart our capital markets to truly unleash 
American innovation and economic growth and provide greater 
investment opportunities for Mr. and Mrs. 401(k).
    Chairman Clayton, as we can work together, we can further 
our economy by building on the successes of the Bipartisan Jobs 
Act. Let's work together to reverse the negative decline in 
public companies by modernizing our Nation's securities 
regulatory structure to ensure the free flow of capital, job 
creation, and economic growth. I appreciate that.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, Ranking Member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you so much, Mr. Chairman. Welcome, 
Chairman Clayton.
    The SEC has been very active since you were here last 
October. In April, the Commission proposed a best interest rule 
for brokers who were giving recommendations to retail 
investors. We have known for a long time that retail investors 
do not distinguish between advice they get from investment 
advisors, who are already subject to the fiduciary rule, and 
sales recommendations they get from brokers. A best interest 
rule for brokers is long overdue.
    I have to say, I was somewhat disappointed that the SEC did 
not propose a uniform best interest standard for both 
investment advisors and brokers who were providing 
recommendations to retail investors. A uniform standard is 
exactly what the SEC staff recommended after conducting a 
lengthy study of this issue in 2011. I am concerned that the 
SEC's proposed best rule is not as strong as it should have 
been and is not as strong as the Department of Labor's 
fiduciary duty rule, so I look forward to hearing from Chairman 
Clayton on this.
    The SEC has also been quite active on cryptocurrencies and 
limited initial coin offerings. I think the SEC is right to be 
active in this space because there is a great number of retail 
investors who are getting hurt in cryptocurrencies. As Chairman 
Clayton has acknowledged, a lot of the digital tokens that have 
been issued in ICOs are in reality unregistered securities.
    I also look forward to hearing what the SEC is seeking to 
clarify the loan rule. My time is up. I look forward to your 
testimony. I yield back. Thank you.
    Chairman Hensarling. The gentlelady yields back.
    Today we welcome back to the Committee, for his second 
appearance before us, the Honorable Jay Clayton, Chairman of 
the U.S. Securities and Exchange Commission. He received a more 
thorough introduction in his first appearance, so in the 
interest of time, we won't say it again.
    Chairman Clayton, you are recognized for 5 minutes to give 
an oral presentation of your testimony. Again, welcome.

                STATEMENT OF THE HON. JAY CLAYTON

    Mr. Clayton. Chairman Hensarling, Ranking Member Waters, 
members of the Committee, thank you for the opportunity to 
testify before you today about the work of the SEC. I will 
attempt to be brief in my opening remarks and refer you to my 
written testimony, which details our work over the past year.
    On behalf of my fellow Commissioners and the 4,500 women 
and men at the SEC, I would like to thank this Committee for 
its support. Congress's recent Fiscal Year 2018 funding for the 
agency is enabling the SEC to make significant investments in 
furtherance of our efforts to modernize our information 
technology infrastructure, including improving our 
cybersecurity risk profile.
    Further, Congressional funding, including our current 
pending Fiscal Year 2019 requests, will allow us to hire 
experienced staff to improve our expertise relating to our 
markets, cybersecurity, capital formation, and protecting Main 
Street investors. We recognize the vote of confidence that 
Congress has shown in the SEC, and I am committed to ensuring 
that the agency is a prudent steward of our appropriations, and 
I know the SEC staff is committed to our mission.
    With regard to agency operations, I believe that the agency 
is running effectively. This is in large part due to the 
efforts of our senior leadership in our divisions and offices, 
including our 11 regional offices and their respective teams.
    We have many good teams at the SEC. My written testimony 
outlines many of our accomplishments over the past year, 
particularly as they relate to the long-term interests of our 
Main Street investors, including improving our standards of 
conduct for investment professionals, the integrity of our 
markets, and overall investor protection.
    Additionally, I am pleased that the Commission will meet 
next Thursday to adopt final amendments to the smaller 
reporting company definition, which will expand the number of 
public issuers eligible to provide scaled disclosure.
    I also want to bring to your attention the discussion of 
cybersecurity in my written testimony, including a discussion 
of our 2016 EDGAR intrusion. The testimony discusses the 
ongoing internal review of this matter that is being conducted 
by our Office of the General Counsel (OGC), including the 
remedial steps we are taking.
    Finally, I want to leave you with this. The women and men 
of the SEC are working hard each and every day, motivated by 
the fact that tens of millions of Americans are invested in our 
securities markets for the long term. The accomplishments 
detailed in my written testimony are because of the individual 
and collective efforts of these members of our SEC team.
    In closing, I would like to again thank the Committee for 
its continued support of the SEC, its mission, and its people. 
I look forward to answering any questions you may have.
    [The prepared statement of Mr. Clayton can be found on page 
50 of the appendix.]
    Chairman Hensarling. The Chair now yields to himself for 
questioning.
    Chairman Clayton, you heard my opening statement. Again, as 
you well know, there has been a 20-year decline in IPOs. We 
have roughly half the companies going public than we did 20 
years ago. How big of a problem is this? What investment 
opportunities are Main Street investors losing out on?
    Mr. Clayton. I think you broke that into two perspectives, 
both of which are important. The first is, from a capital 
formation perspective, are we impeding capital formation by not 
having as attractive a market for companies? I think the answer 
to that is yes. Are there alternatives in the private markets? 
Yes. But our public capital markets have been an incredible 
engine for capital formation in America, incredible competitive 
advantage. We want to keep that.
    The second part of your question, does it trouble me that 
the suite of opportunities that is available to ordinary 
investors is shrinking on a relative basis because our public 
capital markets are shrinking on a relative basis? Yes, it 
troubles me. I do believe that the quality of opportunities 
that you see in the public capital market space are not as good 
as the quality opportunities that are available to people with 
a great deal of capital in the private market space.
    Chairman Hensarling. In your opening statement, you mention 
that you have noticed an open meeting for Thursday, June 28th 
to include a number of items on smaller company reporting. Will 
there be any discussion of 404(b) of Sarbanes-Oxley at that 
time?
    Mr. Clayton. Yes, there will be. I expect there will be. 
The smaller reporting company thresholds are something we are 
going to be examining, providing more public companies with the 
opportunity to used scaled disclosure. There are thresholds for 
when 404(b) is applicable, when companies have to comply with 
it.
    I believe those thresholds should be examined, and I expect 
a discussion of that at our meeting.
    Chairman Hensarling. I must admit when I meet with a lot of 
entrepreneurs, venture capital startups, what I typically--and 
I ask the question. I just recently came back from a trip from 
Silicon Valley and one of the things I heard when I asked have 
you considered going public and one pithy answer was it costs 
too much and it is too big of a hassle.
    Of all the cost factors from particularly early growth 
stage companies is 404(b) of Sarbanes-Oxley. Looking at that 
on-ramp is something I would commend that you do.
    Speaking of commendations, the Treasury Department has 15 
different policy recommendations in the capital formation space 
that the Commission has yet to act on. Again, I applaud you for 
what you are doing. I wish it might be at a little quicker 
pace.
    I know this Committee has voted on a number of provisions, 
as has the full House, some of which the SEC could do on its 
own authority, including providing greater clarity for angel 
investors in updating the definition of accredited investor.
    How important is it that we do that? What is the Commission 
contemplating at the moment?
    Mr. Clayton. In the registered space, in the public capital 
market space, I believe in the process that the Jobs Act--I 
think, as you referred to it, JOBS Act 1.0--started, which is 
one-size-fits-all, doesn't make sense for our public companies. 
We have some at the top of the spectrum, which are incredibly 
sized companies--200 times, 300 times the size of some of our 
small- and medium-sized public companies. We are looking at 
that path provided by the JOBS Act in order to provide scaled 
disclosure, scaled requirements.
    Let me go back to your conversation with Silicon Valley. At 
what point is a company big enough where going public makes 
sense? Right now, I think that point is too high on average.
    Chairman Hensarling. Increasingly, it is a billion dollars, 
isn't it?
    Mr. Clayton. If you have to get to a billion dollars for it 
to make sense to access our public capital markets, that is 
probably too high. In the private space, and particularly what 
you are focused on is the private offering space that would be 
available to accredited investors, is looking at the accredited 
investor definition. I believe it needs to be modernized.
    Chairman Hensarling. My time has expired. I now recognize 
the Ranking Member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I have a 
question that I would like to propose. But before I do that, 
since you mentioned Silicon Valley, I too, was there recently. 
I was appalled at the lack of diversity.
    I know that there are a number of organizations, civil 
rights organizations that have been working very hard to 
increase participation of minorities and women in the Silicon 
Valley businesses. They have not done very well, and of course 
I would be anxious to be of assistance to them in making sure 
that we could reduce the costs and reduce the hassle of 
becoming IPOs.
    But we certainly must take into consideration whether or 
not these companies are developing, understanding that some of 
us are going to be focused on diversity in those companies.
    Having said that, let me go to my question on fiduciary. As 
we have discussed before, I am concerned that the SEC's 
proposed Regulation Best Interest does not apply a fiduciary 
standard to brokers that effectively function as investment 
advisers by providing retail investors with personalized 
investment recommendations.
    The best way to protect investors and reduce confusion is 
to treat all advisers, regardless of their titles, the same 
under a fiduciary standard that requires them to put their 
clients' interests first. Yet the proposal would only prohibit 
brokers from calling themselves adviser and fails to address 
the numerous other titles that may be used, like financial 
planner or wealth manager.
    Don't you agree that it would be far simpler and clearer 
for investors to subject any broker that holds himself out as 
providing investment advice or who engages in advisory services 
to the Advisers Act fiduciary duty and require them to put 
their clients' interests first?
    Mr. Clayton. Thank you for raising the question of our 
proposal to bring clarity to the broker-dealer space and the 
investment adviser space.
    If you will indulge me, I will explain what we are doing. 
There are two relationship models for retail investor advice in 
America. There is an investment adviser model and a broker-
dealer model. The investment adviser model is a portfolio-
based, holistic model where you come to me--I am your 
investment adviser--and I say tell me what your goals are: 
Education, retirement, what your risk tolerance is. I am going 
to help you go over your whole portfolio, monitor it, plan it, 
and I am going to charge you a fee for doing that. The fees 
vary, the types of fees vary, but I am going to charge you a 
fee. It may be a--we can go into that in more detail.
    A broker-dealer model is, you come to me for a 
recommendation in a specific area on an episodic basis. You 
say, ``Jay, I would like to get some exposure to telecom stocks 
and maybe some international stocks.'' I make you a 
recommendation. That is the relationship there.
    What we are doing in each case, I can't put my interests 
ahead of yours. We are bringing to the broker-dealer space that 
requirement. We are also bringing to the broker-dealer space 
care obligations, that in getting to the stocks that I will 
recommend to you, I have to go through a series of steps that 
ensure that those are right for you in your circumstances.
    That is what we are doing in the broker space. But more 
importantly, the conversation that I just had with you through 
our Form CRS, our client relationship summary, the customer 
needs to understand what I am doing in wearing either hat, how 
I am getting paid, and what my other incentives are. Most 
importantly, we are going to bring clarity to that space.
    You raised a very good point. Does the customer know how I 
am getting paid and what my motivations are and how I am 
mitigating the conflicts that creates? There is no conflict-
free relationship. There are conflicts in an investment adviser 
relationship and there are conflicts in a broker-dealer 
relationship. Disclosing them, mitigating them, making sure 
that everybody understands what the motivations are, that is 
what we are going to do in this space. Or I should say that is 
what I want to do in this space.
    Ms. Waters. I appreciate that. I would like to continue my 
conversation, my discussions with you on best interest, the 
client, the customer's best interest always being put first. I 
think we need to continue that conversation.
    Mr. Clayton. I am very happy to. But I want the American 
people to understand that, in the investment adviser space, the 
investment adviser fiduciary duty, the way that is applied is 
you, as the adviser, can't put your interests ahead of the 
customer.
    That is what we are going to do in the broker-dealer space. 
You as the broker-dealer can't put your interests ahead of the 
customer.
    So, and I look forward--we have a long comment period. I 
want to keep talking.
    Ms. Waters. All right. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Michigan, 
Mr. Huizenga, Chairman of our Capital Markets Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman, and welcome again, 
Chairman Clayton. We were starting to talk about this--or at 
least I was in my opening statement about how the SEC needs to 
take a path to make complex, obscure, outdated rules more 
relevant for today's investors and for our capital markets.
    I can't emphasize enough how strongly we need to do this. 
Many would argue we have a digital, fast-paced capital markets 
but we are dealing with analog and paper-based regulations, and 
we need to catch up.
    One of those--and I do want to say thank you for--to take a 
quick moment--is your recent proposed rule on what is commonly 
referred to as the loan rule, which was issued May 2nd. This is 
the type of thing I think will be helpful for us to do that. It 
will help clarify what for a long time has been a source of 
ambiguity and uncertainty in capital markets. Thank you for 
that.
    I do want to touch on Kokesh and disgorgement. Last month, 
SEC's Division of Enforcement co-directors testified in front 
of the Capital Markets Subcommittee that the SEC has been 
unable to recover $800 million in disgorgement since the 
Supreme Court's Kokesh decision.
    In your testimony, you stated, quote, ``allowing clever 
fraudsters to keep their ill-gotten gains at the expense of our 
Main Street investments, particularly those with fewer savings 
and more to lose, is inconsistent with basic fairness and 
undermines the confidence that our capital markets are fair, 
efficient, and provide Americans with opportunities for a 
better future,'' close quote.
    Since the Kokesh decision, many have called for extending 
the statute of limitations assigned to disgorgement, while 
others have said that giving the SEC the authority to pursue 
restitution would be counter to the SEC's core mission. I would 
like to hear from you what you believe Congress should be 
considering as we are looking at addressing the Kokesh issue.
    Mr. Clayton. Thank you. I think you described it very well. 
The Supreme Court in Kokesh determined that disgorgement was a 
penalty. Therefore, the 5-year statute of limitations that 
applies to penalties applies to disgorgement remedies.
    I believe in statutes of limitations. I think they serve a 
very important role. What does bother me about that decision 
from a practical point of view is the most well-concealed 
frauds may fall outside of that limitations period. I think the 
SEC should be in the business of getting money back for 
investors who are subject to fraud, a Ponzi scheme, whatnot. A 
possible way to do that is to give us restitution authority in 
those circumstances.
    Let me be very direct: I think we should have the authority 
to get people back their money in those cases. I do think we 
should bring cases quickly. Statute of limitations drive you to 
bring cases quickly. But in these very well-concealed 
situations, we should be able to get people their money back.
    Mr. Huizenga. I look forward to working with you on that 
because I know I want to ensure that the SEC has the necessary 
tools to protect those shareholders and investors.
    Let's talk briefly about capital markets modernization. As 
I mentioned in my opening statement, we do have the strongest, 
deepest, most liquid markets and the envy of the world, but 
that has been slipping. We know that.
    Today's equity markets have been shaped by the 1975 
amendments to the Securities and Exchange Act, which goes back 
to the 1930's. But obviously markets have dramatically changed 
over the last 40 years. Do you believe that the one-size-fits-
all approach to securities regulation is a competitive 
disadvantage to the United States as compared to our global 
competitors?
    Mr. Clayton. We have benefited greatly from our capital 
markets. We have 4.4 percent of the world's population. We have 
over 50 percent of the world's largest public companies. It is 
pretty amazing. That is largely because of our ability to 
create capital formation in our public capital markets.
    When I meet my regulatory brethren from around the world, 
they would like to replicate what we have. That is their goal. 
Now, capital formation around the world is good for all of us, 
but in the U.S we want to keep this going.
    Mr. Huizenga. Yes. We know that there are some things that 
are working well. What areas do you think we can improve?
    Mr. Clayton. I do think we can improve the requirements, 
the public company requirements, particularly of our smaller 
and medium-sized companies, to have access to capital. The 
rules that we have today are the product of history, just as 
you said.
    They are not the--if we sat down this afternoon, all of us, 
and tried to write rules, they would be different from the 
rules on the books because life has changed a great deal. Our 
Division of Corporation Finance has that perspective, and they 
are looking at recommending changes. We will have a release 
coming that cleans up a lot, but we need to continually do 
this.
    Mr. Huizenga. I look forward to working with you. Thanks, 
Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, Ranking Member of our Capital Markets Subcommittee.
    Mrs. Maloney. Thank you.
    Chairman Clayton, the last time you were here, I asked you 
whether the SEC's pilot program on access fees charged by 
exchanges was going to include a zero rebate bucket. You did 
mention that you were going to include a zero bucket, and thank 
you very much for that.
    My question is, when do you expect to finalize the access 
fee program, this year, this summer, this fall, this winter? 
When?
    Mr. Clayton. We are going through the Administrative 
Procedures Act process. We have proposed the rule. It is out 
for comment. I believe that comment period is coming to an end 
rather quickly. It is on my near-term agenda. If I had to sit 
here today, I would say sometime this fall.
    Mrs. Maloney. Thank you.
    Last month, Bloomberg reported on a very troubling meeting 
that one of your colleagues, Commissioner Piwowar had with 
Citigroup. In the wake of the Parkland shootings, Citi had just 
announced a new policy on guns in which Citi stated that it 
will require all the retailers that it does business with to 
adopt best practices on gun sales, such as limiting gun sales 
to people who are over 21 and have passed a background check 
and not selling so-called bump stocks.
    I think that Citi's new policy is very responsible, a very 
responsible decision. They weren't the only bank to do so. Bank 
of America also announced that it would restrict its business 
with gun manufacturers that make military-style guns for 
civilian use.
    But Commissioner Piwowar was apparently upset with Citi's 
new policy on guns when he met with a group of their executives 
in April. According to a press report in Bloomberg, Commission 
Piwowar, quote, ``castigated the Citi executives for,'' quote, 
``straying into social policy,'' end quote.
    The report also stated that he issued a thinly veiled 
threat to Citi, saying that their new gun policy would cause 
them to lose votes on SEC rules that Citi supported, even 
though the SEC has absolutely no role in setting firearms 
policy in the United States.
    My question is, do you think it was appropriate for 
Commissioner Piwowar to use his position at the SEC to try to 
influence a private company's policies on firearms or any 
private policy that doesn't affect the SEC?
    Mr. Clayton. I am not going to comment on the subject 
matter of those press reports. In a separate hearing over on 
the Senate side, this was raised, and the question of whether 
there should be an inspector general's inquiry was raised, and 
I am going to leave it at that.
    Mrs. Maloney. OK. Then let me ask you, since we are not 
talking about Piwowar now. But would you base your vote on the 
SEC rulemaking on whether the companies that support the rule 
do business with gun manufacturers?
    Mr. Clayton. I will tell you my perspective--
    Mrs. Maloney. That is not part of an IG report.
    Mr. Clayton. No, no, no and I will tell you what 
perspective I bring to this job, which is we have our mission. 
I pursue all of our rulemaking. We are all human beings. I hope 
I pursue all of our rulemaking and I pursue all of our 
enforcement cases with the idea of what is in the long-term 
interests of the people who put money in our market and leave 
it there. That is the perspective I bring.
    Mrs. Maloney. Social policy would not influence you? It is 
the markets and your job?
    Mr. Clayton. Yes.
    Mrs. Maloney. Thank you. The question also I would like 
clarification on your proposed best interest rule for broker-
dealers. The SEC proposed a rule that says, ``a broker can't 
put his own financial interests ahead of the interest of the 
retail customer,'' end quote. The proposed rule then goes on to 
imply that a broker will satisfy this obligation as long as the 
broker's interests aren't, quote, ``the predominant motivating 
factor behind the recommendations,'' end quote.
    Is this your intent? Do you really mean to equate these two 
things? In other words, under the proposed rule, as long as a 
broker's own interest wasn't the predominant motivating factor 
behind a recommendation, does that mean the broker 
automatically did not put his own interest ahead of his 
customers?
    Mr. Clayton. I think you are taking that language--let me 
be clear on what we are proposing. The broker cannot put their 
interests ahead of the customer's. I believe that language is a 
recognition of the fact that there is no conflict-free advice 
model. But we are absolutely clear that the broker can't put 
their financial or other interests ahead of the client's.
    Mrs. Maloney. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Missouri, 
Mr. Luetkemeyer, Chairman of our Financial Institutions 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Chairman Clayton, thanks for being here today. Last week, I 
sent a letter to you and other financial regulators outlining 
my concerns on guidance being treated by examiners as rules 
creating binding obligation on financial firms. This practice 
is fairly prolific in the banking space, but I am not sure your 
agency is immune from the trend. Essentially, examiners are 
treating guidance as rule without subjecting anything to the 
process outlined in the Congressional review process.
    Are you willing to communicate to your staff, and in the 
words of the Federal Reserve Chairman Jay Powell and Vice 
Chairman Randy Quarles, ``that rules are rules and guidance are 
guidance?''
    Mr. Clayton. I think that articulates my view of rules and 
guidance pretty well.
    Mr. Luetkemeyer. I know that in my discussion with Vice 
Chairman Quarles about this, about the letter he was 
receiving--I assume you received yours--he wants to be the 
individual who tries to bring all regulatory agencies together 
to have a common way of going about issuing guidance, even to 
the point of having a disclaimer in the guidance that says this 
is guidance, this is not a rule, and therefore punitive action 
will not be taken if you do not adhere to this guidance, 
because it is a suggestion, it is not a rule.
    As we have seen with the past Administration, especially 
with the CFPB, whenever they produce guidance, they suddenly 
believe that they have the authority to enforce that as a rule. 
It is very concerning to me. I don't know that your agency does 
a lot of it, but I am sure there is some. That is my reason for 
my concern this morning, and I hope that you will be willing to 
join us in this effort to try and clear up for your examiners 
to be able to know what are rules and what are guidance and 
appropriately adhere to those.
    Mr. Clayton. I very much agree with clarity in that area, 
and I very much agree with our system, which is to get to 
rules, you have to go through a process, and guidance is 
guidance.
    Mr. Luetkemeyer. Thank you for that.
    Also, I have spent a lot of time working on issues 
surrounding data security in the last several months here and 
breach notification. Along those lines, I am concerned about 
the Government's hypocrisy in setting standards for 
cybersecurity readiness and disclosure.
    The SEC intrusion that occurred in 2016, which you 
described in your written testimony, wasn't publicly disclosed 
until the fall of 2017, shortly after you got there. The SEC 
itself holds self-regulatory organizations, SROs, to an 
immediate standard for disclosure of cybersecurity incidents 
under regulation SCI. Public companies are held to a 
materiality standard for disclosure.
    My question is, should the SEC and other Federal agencies 
be held to the same standard which they hold with respect to 
supervised entities and SROs?
    Mr. Clayton. The short answer to that question is, based on 
my experience at the agency and with other agencies, I don't 
think it should be the same standard. There are governmental 
considerations that would go into whether to make a disclosure 
or not.
    Do the same principles apply when we decided to disclose 
our cyber incident? Was it on my mind that the American people 
should know and that they should know what we are doing about 
it? Absolutely. But I could see other circumstances, maybe not 
at the SEC, but at other agencies, where national security and 
other considerations weigh against immediate disclosure.
    I don't want to say, certainly for other agencies or make a 
blanket statement that the exact same standard should apply. 
But should we be thinking about what I consider our 
shareholders, the American people, as we disclose what happens? 
Absolutely. That is the approach that we took when we disclosed 
the cyber incident.
    Mr. Luetkemeyer. I know that the OGC is doing an internal 
review of the incident, and they are not done yet, according to 
your testimony this morning. We don't have some answers there. 
But, I am very concerned. We have discussed this before. It 
took a year for this disclosure to happen.
    I understand national security interest. I understand that 
law enforcement may want to try and find a way to track down 
the guys or gals or entities, whoever they are, who are trying 
to break in and do nefarious things here.
    But at the same time, as you just disclosed, you are the 
keeper of the private data of our citizens. The last time we 
talked about this, my question to you was, did you feel that 
the markets were manipulated by this event of people getting 
into your data? Your response was, we are not sure, I don't 
think so.
    Quite frankly Chairman, that answer is not good enough. We 
have to improve on that. I am hopeful that the report will give 
you the guidance it takes to make sure this doesn't happen 
again and, if it does, that there could be a more timely 
disclosure of this incident so that the people can take their 
own actions to protect themselves or that businesses can take 
their own actions to protect themselves, if the data is 
disclosed.
    I yield back. Thank you.
    Mr. Clayton. I agree.
    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. Mr. Clayton, 
welcome.
    Mr. Clayton. Thank you.
    Ms. Velazquez. Puerto Rico has been hit by two hurricanes, 
a financial crisis that entailed many actors, including 
government mismanagement, bondholders, hedge funds, vultures, 
and then Hurricane Maria. I offered legislation that was 
included in S. 2155, and that legislation is known as the U.S. 
Territories Investor Protection Act closes a huge loophole that 
allow UBS and other financial firms operating in Puerto Rico 
and in any other U.S. territory to rip off millions from 
ordinary investors.
    My question to you is, when can we expect the SEC to begin 
implementing this badly needed provision?
    Mr. Clayton. Thank you. This is the provision that removes 
the exemption from the 1940 Act for funds organized?
    Ms. Velazquez. Correct, yes.
    Mr. Clayton. I thank you for that legislation. We are going 
to move forward with that. I think you characterized it 
correctly. It does close what could be characterized as a 
loophole, and it should be done.
    Ms. Velazquez. OK. I am very excited to hear that. Mr. 
Clayton, I am also concerned that a position of advocate for 
small business capital formation has not been filled. Do you 
see any value in that position?
    Mr. Clayton. I am disappointed that we have not yet filled 
that position. We have employed a search firm to try and help 
us find the right person for that. More importantly to your 
question, why am I disappointed? I think that voice should be a 
permanent voice in the work we do at the SEC.
    Ms. Velazquez. When do you expect to fill that position?
    Mr. Clayton. I would like to fill it tomorrow. We have some 
candidates that we are vetting. This is a Commission decision, 
so I can't speak for my fellow Commissioners, but I would like 
to do it as quickly as possible.
    Ms. Velazquez. OK. Let me explain to you why I am so 
concerned about the fact that that position has not been filled 
since it was created in 2016. Earlier this year, language of my 
bill, 4792, the Small Business Access to Capital After a 
Natural Disaster Act, was enacted into law. The bill requires 
the SEC advocate for small business capital formation to issue 
a report to Congress on ways small businesses can access 
private capital following a hurricane or other natural 
disaster.
    This report cannot be issued until an advocate is hired. I 
hear that you are committed and that you will not come here 6 
months later and I will ask the same question to hear that it 
has not been filled.
    Mr. Clayton. I sure hope not.
    Ms. Velazquez. Will you be interviewing candidates with 
experience on capital formation issues after a natural 
disaster?
    Mr. Clayton. We are interviewing candidates. In the context 
of interviewing candidates, the interviews that I have had, I 
have not asked that question, but I will now.
    Ms. Velazquez. In terms of the specific language that was 
included into the bill, it requires someone to be able to issue 
a report related to capital formation, access to capital 
formation after a natural disaster.
    Earlier this week, the SEC imposed Bank of America's 
subsidiary Merrill Lynch with a $42 million civil penalty for 
misleading customers about how it handled their orders. While 
Merrill Lynch entered the scheme known as masking, in May 2013, 
the SEC order indicates that Merrill Lynch did not inform 
customers about its past practices, but rather took steps to 
hide the misconduct.
    This follows an SEC announcement earlier this month that 
Merrill Lynch will pay more than $15 million to settle charges. 
Can you tell us how the SEC determined the level of fines and 
payments against Merrill Lynch in each of these two instances?
    Mr. Clayton. I don't think it is appropriate for me to 
comment on the specific circumstances of a case. I can tell you 
that the way we operate is, our Division of Enforcement and the 
people tasked with bringing these cases, formulate a 
recommendation to the Commission, and the fine and the other 
sanctions are part of that recommendation, and that is what we 
vote on.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentlelady from Missouri, 
Mrs. Wagner, Chair of our Oversight and Investigations 
Subcommittee.
    Mrs. Wagner. Thank you, Chairman Hensarling. Welcome, 
Chairman Clayton. Breaking news: The Supreme Court just ruled 
that the SEC did not follow proper procedures prior to your 
moving into this space and into this job when appointing 
administrative law judges. In fact, it says that these 
administrative law judges appointed by the SEC and other 
Federal agencies are inferior officers, and many of these 
inferior officers have adversely affected a number of my 
constituents in Missouri's Second Congressional District, and 
that they are subject to the appointments clause of the 
Constitution.
    I think this is going to have broad ramifications now for 
an array of Federal agencies that employ in-house judges, 
including the SEC. I know this is breaking news, but I look 
forward to hearing how this will influence your practices at 
the SEC vis-a-vis the administrative law judges going forward. 
I just thought I would toss that out there.
    I want to start this morning by thanking you and your staff 
for their work on the proposed best interest standard rule. As 
many of my colleagues know, I have been an outspoken critic of 
the Department of Labor's misguided fiduciary rule, and I am 
happy to see that the SEC is finally taking the lead as Dodd-
Frank, frankly, asked them to do some 8 years ago.
    In testimony before the Committee last year, you identified 
key principles that you felt needed to guide the SEC's approach 
when seeking a new rule that is, in fact, a best interest 
standard for broker-dealers in these areas for clarity, 
consistency, and coordination.
    Let me start by asking you this: Do you believe the SEC has 
achieved this goal in their proposed rule?
    Mr. Clayton. I do. I want to say, we took those concepts 
and then we added an additional lens. This was a truly 
collaborative effort around the--
    Mrs. Wagner. With the Department of Labor, I hope, too.
    Mr. Clayton. With the Department of Labor. I am in contact 
with Secretary Acosta. Our staffs are in contact with each 
other. In fact, our inspection staff recently connected with 
the Department of Labor to show how we would inspect for 
compliance with this rule. We want to bring a common approach 
to this space.
    The other thing that came out of this drafting process and 
interactions was, let's align what investors expect from their 
professional with the law. Because if we are aligning 
expectations, it is a lot easier to get clarity.
    Mrs. Wagner. Agreed. I have several more questions. You 
talked about having investor testing. Has that process started? 
If not, are you still going to follow through with that part of 
the proposed rule?
    Mr. Clayton. Our Office of the Investor Advocate is doing 
investor testing, but that is not the only investor testing we 
are doing. We have scheduled six town halls around the country 
to go out and interact with investors, explain the rule to 
them, ask them what they think about it. I have participated in 
the first two; I plan to participate in two of the remaining 
four.
    Mrs. Wagner. Great.
    Mr. Clayton. That is actually really valuable.
    Mrs. Wagner. Are you willing to make this feedback that you 
get from the investor testing public, sir?
    Mr. Clayton. Investor testing feedback?
    Mrs. Wagner. Yes, are you willing to make this public, your 
findings through these investor testings? I know you are saying 
about a public town hall, so I assume that would be public.
    Mr. Clayton. That is all public. Comments are all public. I 
don't want to make a blanket statement, but I expect that the 
results of the investor testing will be publicly available in 
some form.
    Mrs. Wagner. In testimony before the Senate Appropriations 
Committee, you said, quote, ``I am not going to take forever,'' 
referring to completing the rule. I know the comment period 
ends the first week of August. Are you still on track, Chairman 
Clayton, to complete the comment period? Or do you think you 
are going to need to extend it?
    Mr. Clayton. I think I will see in August. But right now I 
think a good comment, good lengthy comment period of 90 days. 
This issue has been around for at least 10 years.
    Mrs. Wagner. Don't I know.
    Mr. Clayton. It is time for--people have been heard--
    Mrs. Wagner. Has the response from the industry been 
positive? Because it is the industry that actually represents 
the low- and middle-income investors and retail savers that we 
are trying to protect. Has it been positive, the feedback?
    Mr. Clayton. I think overall, I am very pleased with the 
feedback.
    Mrs. Wagner. So am I. I have preemption questions, Mr. 
Chairman, that I want to talk about, but I think I will submit 
those for the record, and I yield back the balance of my time, 
and I thank you for your tremendous work in this arena.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from 
California, Mr. Sherman.
    Mr. Sherman. Mr. Luetkemeyer and I and others have worked 
to try to have more information sent electronically with paper 
only being sent when requested. When you were here in October, 
I asked you about Rule 30e-3 and I want to thank you for moving 
forward with that rule, which will modernize the default 
delivery method for mutual fund disclosures from paper to 
electronic, while protecting a permanent right to paper for 
those who prefer it. You are going to save investors $2 
billion. You are going to save 2 million trees. Good work.
    Mr. Clayton. Thanks.
    Mr. Sherman. My question is, what more can the SEC do in 
terms of electronic delivery that can benefit investors and 
trees?
    Mr. Clayton. So that--30e-3 was a big step. I appreciate 
all the comments from this Committee and others. I think we 
landed in a good spot. But it is just a start. As has been 
discussed in many of the questions today, modernizing our 
rules, including our communications methods, is front of mind 
in our Division of Investment Management, our Division of 
Corporation Finance, and throughout the SEC. Next Thursday, I 
expect we will vote on XBRL and the inclusion of XBRL tagging, 
which, again, is aimed at modernizing our delivery of data to 
the investment community.
    Mr. Sherman. Let me move on. The SEC has pretty much left 
it to the FASB (Financial Accounting Standards Board), but 
accounting is what determines what happens to stock prices. 
Financial statements are based on a 100-year-old view as to 
what every company would disclose in terms of numerical 
information.
    But investors care. For example, if you are investing in 
retail stores, you want to know same store sales. I hope that 
the SEC would look toward either you or getting FASB to define 
the terms that are important to numerical information to 
investors in particular industries and to make sure that those 
numbers are audited, because right now Target has one 
definition of same store sales, Nordstrom has another, and both 
of them issue unaudited information. But I will ask you to 
respond to that for the record.
    I want to associate myself with the comments about 
cryptocurrencies--they are securities, as you pointed out to 
the Senate--and pick up on your current about accredited 
investor rules. When these rules came out, the definition was a 
million dollars in assets, $200,000 in income, and those were 
staggeringly high numbers in the 1980's.
    Now, in effect, those numbers represent one-third of the 
purchasing power, 10 times as many families fit into the 
category, which means 10 times as many families don't get the 
protection. One of my colleagues asked, why can't the average 
barber or teacher get all those great investments that seem to 
be reserved for--why can't anybody charge into the minefield? 
Why do we limit that just to explosive ordnance disposal 
experts?
    Will you revisit the accredited investor definition and 
index up those numbers? Because either they were wrong when the 
SEC issued them or they are wrong now.
    Mr. Clayton. There is a lot to--let me agree with you on 
the concept of an accredited investor definition, which is, no, 
we shouldn't just let people charge into the minefield, as you 
characterize it, without ascertaining to some extent whether 
they are capable of handling the private investment arena. 
Completely agree with that. We have chosen the accredited 
investor definition as that gatekeeping function to the private 
investor arena--
    Mr. Sherman. This doesn't mean that they can't make the 
investment. It just means that they need to get advice, and all 
those rich people who make these investments are getting advice 
and putting in effort.
    Mr. Clayton. Anyway, we can have a longer discussion about 
this.
    Mr. Sherman. Yes, because I--
    Mr. Clayton. It is a very complicated issue.
    Mr. Sherman. I want to sneak in one more question.
    Mr. Clayton. OK.
    Mr. Sherman. We had the meltdown in 2008 because the bond 
rating agencies gave AAA to Alt A. They gave buy ratings to bad 
bonds. We put into Dodd-Frank a provision, the Franken-Sherman 
Amendment, that would eliminate the system where the issuer 
selects the bond rating agency. We don't let the home team 
select the umpire, especially if the umpire makes a million 
dollars a game.
    I would hope--the SEC found a loophole in that requirement, 
issued a report and decided not to do it. That was your 
predecessor's mistake. I hope you will take a look at this and 
use the power you have to end the issuer selects rater system.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Kentucky, Mr. Barr, 
Chairman of our Monetary Policy and Trade Subcommittee.
    Mr. Barr. Thank you, Mr. Chairman.
    Chairman Clayton, good to see you again. Thanks for being 
with us. Some publicly traded firms, especially early stage bio 
firms, and some equity exchanges have expressed concern about 
the absence of a disclosure requirement for those who bet 
against a company by taking a large short position in that 
company's stock.
    They point out that there is a regulatory gap between long 
and short sellers since there are extensive disclosure 
obligations for investors who bet on a company by buying its 
stock or investing long. They have argued in favor of a short 
position disclosure regime, noting that long positions over 5 
percent of outstanding shares require public disclosure while 
equally large short positions have no comparable requirement.
    On the other side of this argument, there are those who 
will point out the critical liquidity provided by short 
selling. They make the point that short positions are by 
definition not related to corporate ownership and instead are a 
strategic trading tool. They don't share the view that stealth 
short positions are as big of an issue.
    Again, they make the point that short positions provide 
critical liquidity to public markets and that short sellers are 
responsible for a substantial portion of equity trading volume, 
and that short sellers, because they provide that heterogeneity 
of views in equity markets about future share prices, provide 
efficiency to the markets.
    The concern that they express with a disclosure regime 
would be that the reporting requirements would discourage 
institutional investors from taking short positions. Those 
reporting costs would then reduce overall short positions and, 
therefore, reduce market liquidity. I am just setting up the 
debate there.
    I would be interested--now, of course, there is a provision 
in Dodd-Frank that counsels the SEC in favor of a disclosure 
regime for short positions, large short positions. I am 
wondering if you or the Commission have a view on this issue 
and how would you approach that issue if asked to do so?
    Mr. Clayton. I don't have a definitive view on a particular 
rule as we sit here today or not a rule, but I think you framed 
it very well. If you don't mind, to try and give you my 
perspective, I will frame it as I look at it, which is, there 
are valid points in those arguments. The people who say that 
being able to go short and doing so as a fundamental view on 
the company adds liquidity, adds discipline, adds price 
transparency to the market. Great. I agree.
    There are people who say that there are people who use 
short selling not because of a fundamentally different view of 
the price of the company, not for liquidity, but to take 
advantage of trading opportunities that cause the company's 
quoted value to depart from what it otherwise might be. To the 
extent we can get at that type of behavior, if it exists, I 
don't know to the extent to which it exists, but if it exists, 
the extent to which it exists without affecting liquidity and 
the discipline, that is how you should look at that problem in 
my view.
    Mr. Barr. Yes, it is a balancing act for sure, and I 
appreciate your thoughts on that. In your last appearance 
before us, Mr. Chairman, you talked about the importance of 
reducing the reporting requirements for public companies to 
reduce some of the burdens that are maybe limiting IPOs. You 
did respond with respect to a question I had about disclosures 
for mining companies.
    I am just wondering--and the response that you sent to us 
on March 23rd indicated that you planned to finalize rules to 
modernize and clarify certain disclosure requirements for 
companies engaged in mining operations. Do you have any update 
on that?
    Mr. Clayton. We are working on a proposed rule. It is on 
our short-term agenda. I will just reiterate this. Our short-
term agenda that we publish and are required to publish is what 
we are trying to finish in this fiscal year.
    Mr. Barr. Finally, we recognize that getting the fiduciary 
rulemaking right is more important than rushing the process and 
getting it wrong, but as you know, many broker-dealers in 
anticipation of the DOL rule have invested a considerable 
amount of time and energy and resources in getting ready for 
that. Just curious about a timetable, because the uncertainty 
is creating some level of consternation.
    Mr. Clayton. The comment period ends in August. We will 
collect the comments, go through the process. I am not going to 
set a specific date, but we should not take forever.
    Mr. Barr. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman. I appreciate it. 
Welcome, Mr. Clayton. It is always good to have you.
    I have been at the front of the spear on this fiduciary 
rule since its very conception. You recall that when we put 
Dodd-Frank together, we required the SEC to come up with a rule 
that would raise the broker-dealer standard and would harmonize 
that standard with the obligations that investment advisers 
have to follow today.
    Now, here is the point. When we did that, we put that in 
Dodd-Frank, but we exclusively said that was the SEC's 
responsibility, not the Department of Labor. Now, the 
Department of Labor does have a piece in this, of course, with 
the retirement accounts, but you see where this is if we don't 
have the SEC at the leadership, being aggressive, to be able to 
set these standards the way they are.
    As I said, I have been dealing with this. I was the only 
Democrat to cross over and vote for this bill with Mrs. Wagner. 
We were able to increase that great bipartisanship when we got 
it to the floor with two more Democrats. We are growing this 
bipartisanship, but there is great concern on both sides of the 
aisle, but certainly on mine, as to confusion within this.
    For example, in terms of establishing the best interests 
that you have going forward, you have said that to do this we 
must meet several obligations. First, there is the disclosure 
obligation. Then we have the care obligation. Then we have the 
conflict of interest obligation.
    My concern and the concern of both the investment community 
as well as the investor is that these concerns, this complexity 
makes it difficult for the investment industry to discern what 
we need, which is a clear path to compliance. You have done a 
remarkable job in explaining this.
    But I want to ask you, do you believe that the Securities 
and Exchange Commission is the best suited place to come up 
with a standard that indeed can be harmonized across all 
investment categories and all types of investment adviser?
    Mr. Clayton. I firmly believe that.
    Mr. Scott. All right. Let me ask you this, also, because 
here is another major concern, and this is where I understand 
the Labor Department's retirement situation. We are faced with 
a horrendous retirement boom right now, because we have this 
baby boomer generation that really produced itself right after 
World War II that is coming.
    I wanted to know if you will commit to this committee today 
that your intention is to see this proposal through to the 
final rulemaking. Now, that question has been asked to you in a 
couple of different ways, but you haven't been clear. Are you 
going to be the man that is going to see this through to the 
end?
    Mr. Clayton. No one person can do this, but this is--
    Mr. Scott. Will you be the captain of the ship?
    Mr. Clayton. Yes.
    Mr. Scott. You said you will?
    Mr. Clayton. Yes.
    Mr. Scott. All right. Thank you.
    Mr. Clayton. Thank you.
    Mr. Scott. Glad you will be the captain of the ship.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Oklahoma, Mr. 
Lucas, former Chairman of the House Agricultural Committee.
    Mr. Lucas. Thank you, Mr. Chairman. I can't speak to the 
issue of who is captain of the ship, but in my time on this 
committee, I have always tried to be very pragmatic and very 
practical in my perspectives, my questions, and the focus.
    If you don't mind, Chairman Clayton, let's visit for a 
moment about some issues that impact a very large and 
substantially important job creator in my district. While 
everyone thinks about me as the ag guy, we have a major oil and 
gas industry in Oklahoma. As many of my colleagues know, the 
United States has experienced a rather remarkable growth in 
energy independence, and that has occurred primarily due to the 
increase in shale production in places like the Bakken and in 
the Marcellus formations.
    But I would like to focus on how the SEC treats proven, but 
undeveloped reserves, because it concerns me a bit. Currently 
domestic producers can report on their annual filings only 
those reserves they plan to recover within a 5-year window. 
This has been the policy since 2008.
    At that time, shale accounted for a much smaller percentage 
of oil and gas production than it does now, and I would suggest 
to you that this 5-year rule might not reflect the realities of 
the new American energy landscape. These shale formations are 
so vast and finite that a proper development plan will often 
exceed 5 years.
    Chairman Clayton, given this change in domestic energy 
production, have you and your staff given any thoughts to 
changing the 5-year rule for these reserves?
    Mr. Clayton. The short answer is yes, we have given 
thought--and let me make sure that, if you indulge me, make 
sure we are on the same page. It is in particular, yes, because 
I am concerned in this space that the way our rules require 
disclosure is inconsistent with the way investors value these 
companies. They are looking for additional disclosures, and we 
should make sure that our rules line up with what investors 
think is the material information.
    Mr. Lucas. Exactly. Because from my perspective, the 5-year 
rule may prevent a business from being able to disclose the 
full extent of its assets to investors.
    Mr. Clayton. I will actually just add to that, that when 
that is the case, you have information asymmetries, and that is 
not what we want.
    Mr. Lucas. I will leave on this particular question with 
one last thought, and that is 51 percent of all domestic crude 
oil and 63 percent, almost 64 percent of all domestic natural 
gas come from shale formations, and I think that is just an 
amazing statement about the advances in technology and 
utilization and all those things.
    Second, I noticed in your testimony that you expressed a 
commitment to working on the Commission's Title VII regulations 
surrounding security based swaps. I very much appreciate this, 
given my desire to see derivatives markets work for all 
participants and, quite frankly, the long delay in getting 
these regulations out the door.
    I also very much appreciate your testimony mentioned active 
engagement with the CFTC. Can you elaborate at all on some of 
that engagement with your colleagues at the other entity?
    Mr. Clayton. Yes. We have set up a bilateral process to get 
through the rules that we need to get through with the hope of 
ensuring that they are either harmonized or, if we can't 
harmonize them because of our different mandates and the 
different types, that they are at least not inconsistent or 
creating problems for each other. But we are working closely 
with the CFTC, and I want to say, I really appreciate the 
leadership of Chairman Giancarlo in that area.
    Mr. Lucas. I think he is a great leader, and you have 
touched on exactly the point that I was trying to make, whether 
it was Treasury reports last year calling for more 
harmonization or just the nature of the markets. I think it is 
critically important that everyone be able to utilize these 
tools in their businesses in the most cost-effective fashion 
possible.
    Therefore, Mr. Chairman, in that spirit of brevity and 
focus, I thank you for my time, and lo and behold, Mr. 
Chairman, I yield back.
    Chairman Hensarling. The gentleman from Oklahoma yields 
back. The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. Welcome, Commissioner 
Clayton. Now that I know that you are, in fact, the captain of 
the ship.
    Mr. Clayton. I knew that was going to get me in trouble. 
Thanks, Mr. Scott.
    Mr. Meeks. I want to follow up on some questions that I 
posed to one of your lieutenants, the director of the SEC's 
Division of Corporation and Finance in April. I asked him about 
the SEC's intention to either adopt or reject recommendations 
from the agency's Investor Advisory Committee.
    The committee recommended better disclosure rules around 
dual-class stock structures. The advisory committee also 
recommended creating a pilot program to monitor shareholder 
disputes arising out of such structures. These structures are 
common among Silicon Valley's tech giants, like Facebook.
    In fact, you may have seen where there was--I read in an 
article--an investors revolt against Mark Zuckerberg at the 
annual shareholders' meeting, because they can create a system 
where the average investors, including teachers and 
firefighters and the like, have less power to hold CEOs and 
board directors accountable. We see when we can't, things can 
happen.
    My question to you is, A, what is your personal opinion on 
the potential investor harm posed by dual-class stock 
structures? And, B, what is the status of the investor 
advisory's recommendations at the SEC?
    Mr. Clayton. OK. Let me, if you don't mind, I will take 
those in reverse order. The Investor Advisory Committee 
recommendation regarding making sure that the disclosure around 
governance and what dual-class structures mean to governance, 
in particular to your point, what it means to investors in 
terms of their ability to participate in governance, I 100 
percent agree that that disclosure needs to be clear and 
accessible.
    To the extent it is murky, it should not be. Your rights as 
a shareholder, whether they are one share, one vote or whether 
there is a super vote stock that dilutes your voting ownership, 
you should be able to know that clearly from the disclosure. I 
believe that.
    Now, my personal views on corporate governance, I am not a 
one-size-fits-all corporate governance person. My experience 
across our markets and across the globe is that trying to 
dictate a one-size-fits-all governance model for public 
companies does not make sense. I do recognize that there are 
models that are so extreme that they cause problems.
    Mr. Meeks. These dual-class stock structures you are saying 
in some places they may fit and in some places they may not? Is 
that what you are saying?
    Mr. Clayton. I think, yes, to the extent you take a dual-
class structure to an extreme--let me give you an example. 
Somebody has complete voting ownership over a company, but has 
no economic stake in the game. As a person who looks at 
investments, that kind of outcome troubles me. Does it trouble 
me to say that a founding group of people who want to take 
their company public but don't want to be subject to the 
vagaries of short-termism should have some control over it? 
That absolutely resonates with me, as well.
    Mr. Meeks. Thank you. That is clear.
    Let me also ask you, Commissioner Clayton, and I have asked 
you this before, about the SEC's intentions to go beyond merely 
monitoring its board diversity rule and to actually improving 
the board diversity rule. Investors and the SEC's advisory 
committee on small and emerging companies have found the 
current board diversity rule to be unhelpful in determining the 
race, gender, and ethnicity of board directors.
    In April, your director of corporate finance mentioned to 
me that the board diversity rule is back on the SEC's 
rulemaking agenda. Is this the case? After monitoring 
compliance with the board diversity rule for some months, have 
you come to a conclusion on whether or not the rule should be 
enhanced so that investors could have more complete information 
on the composition of their boards?
    Mr. Clayton. Yes, it is the case. The dialog that Director 
Hinman and his colleagues have had with companies around this, 
two of the issues that you raised has, I would say, raised some 
additional considerations about what companies think is 
appropriate and what the individual directors think is the 
appropriate type of disclosure. But I expect that we are going 
to move forward in some form. I don't want to--I never want to 
overpromise--but some form with this rule. It is on our 
rulemaking agenda, and we are going to do something.
    Mr. Meeks. Thank you.
    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. Chairman Clayton, 
thanks for being with us today. I sure appreciate your hard 
work at the SEC over this year, I really commend you, as well, 
for your regulation in the best interest for broker-dealers, 
and thanks for seeing that through. I think it will be clearly 
important to protect investors and preserve their choices in 
the future.
    Chairman Clayton, tell me your impressions of FIMSAC, the 
Fixed Income Market Structure Advisory Committee, and after 6 
months and its first meeting, are you satisfied with where they 
are headed and what is the focus of their agenda moving 
forward?
    Mr. Clayton. Look, it is early days. But if you ask me to 
give them a grade, I give them an A. This is a group of people 
who are giving up their time--it is a very diverse group of 
people in terms of perspectives, participation in the market. 
We have people who are in the public sector.
    I won't go into all of that, but they are looking at how 
the fixed-income market is evolving, and the fixed-income 
market is evolving toward electronification. Products are 
changing, and they are trying to come up with recommendations 
that make sense to make the market better, including around 
trading and transparency. We are going to benefit from their 
work.
    Mr. Pittenger. At the end of the day, what will be the best 
outcome? What do you think can be achieved as a result of their 
input?
    Mr. Clayton. Adding liquidity to the market. People 
understanding where there may not be the liquidity that they 
think there is. Making sure that trading is efficient.
    Mr. Pittenger. As it relates to corporate bond 
transactions, the block trades, do you intend to move forward 
with FIMSAC's advisory board recommendations?
    Mr. Clayton. That is a recommendation that has to go to 
FINRA in the first place, but I am encouraging FINRA to take 
that recommendation very seriously.
    Mr. Pittenger. On another point, what legislative action do 
you think would be most helpful to support capital raising by 
new and small businesses?
    Mr. Clayton. Most helpful for small businesses?
    Mr. Pittenger. New and small, sure.
    Mr. Clayton. Here is the conundrum for new and small 
businesses in terms of raising capital. Raising capital from a 
single source or several sources is not that costly, 
relatively. When you try to raise capital as a small business 
from multiple sources, the transactions costs are high. What we 
are looking at is ways to bring those transactions costs down 
without hurting investor protection. That is what we are trying 
to do.
    Mr. Pittenger. Yes, sir. We certainly see the impediments 
have been there in the past, and any efforts that can be made 
there to allow greater capital investment would be--
    Mr. Clayton. I think modernizing the definition of 
accredited investor is one of those steps, to be clear.
    Mr. Pittenger. Thank you. Would you also speak to what the 
SEC is doing to ensure that small businesses remain the 
backbone of our economy? But what do you foresee in terms of 
your role to ensure that small businesses have the central role 
in the backbone?
    Mr. Clayton. Small businesses are so important to our 
economy. We talked about capital raising for small businesses 
and access to capital, and the SEC has a role in that, just as 
our banking regulators and other regulators do, because they 
get capital in other ways.
    I am hopeful that the way we are approaching the covered 
funds issue in Volcker will free up some capital for small 
businesses, particularly in areas of the country where there is 
not a large venture capital community. That is one of the 
things I am hopeful for.
    Another thing for small businesses is to continue that path 
from being a small business--some small businesses just stay 
small businesses and that is a very important part of our 
economy. But keeping that path from small businesses to become 
a bit larger, a bit larger, and having access to capital 
throughout the lifecycle, that is an important part of our job.
    Mr. Pittenger. You have seen in the past decade there has 
been a real limit and restriction in terms of the emergence of 
small business. Of course that in itself to me has been the 
biggest concern that I have had on the ongoing growth of our 
economy, because without the infusion of the needed capital, 
the access to credit, and the ability for small businesses to 
emerge, our economy floundered. That was my gravest concern, is 
what would happen in the future long-term if this wasn't 
addressed.
    Mr. Clayton. Can I add to that?
    Mr. Pittenger. Yes, sir.
    Mr. Clayton. Just as a citizen, the connection between 
growing businesses and small businesses should not be lost. 
Lots of businesses that move from small, medium size to large 
drive the creation of small businesses.
    Mr. Pittenger. Yes, sir.
    Mr. Clayton. We need to continue both of those things.
    Mr. Pittenger. Thank you. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Colorado, Mr. 
Perlmutter.
    Mr. Perlmutter. Mr. Chairman, thanks for being here. We 
look forward to your visit to Colorado in a couple weeks.
    I have three areas I want to talk to you about, marijuana, 
cybersecurity, and cryptocurrencies. I will start with 
marijuana. We have the Controlled Substances Act, which is at 
odds with now 47 States and the District of Columbia that have 
some level of marijuana use, whether it is cannabis oil for 
seizures, medical marijuana, or fully legalized commercial 
sale.
    Canada, a couple days ago just legalized marijuana, and we 
were talking earlier about IPOs and where have all the IPOs 
gone. Many of them have gone, for a variety of reasons, to the 
Canadian exchanges. We know American marijuana businesses have 
gone public by holding IPOs on the Canadian securities 
exchange, the Toronto exchange, and the TSX exchange.
    I am curious, sir, whether you have seen any effort on our 
exchanges, either for marijuana businesses, direct marijuana 
businesses, or the ancillary businesses to marijuana, whether 
you have had any issues from an enforcement point of view or 
from a regulatory point of view in dealing with businesses here 
in the United States that publicly trade and are related to the 
marijuana business?
    Mr. Clayton. Nothing specific that comes to mind. I think 
what you said, are we seeing impediments?
    Mr. Perlmutter. Yes. Have you had any cases where you as a 
regulator or an enforcer of the law have had to say you can't 
take this company public, it violates the Controlled Substances 
Act? That would be one question. Another question is, if it is 
a company that the primary part of their business is to supply 
electric lighting or nursery things to marijuana grow 
operations, is that something you would require as part of a 
disclosure?
    Mr. Clayton. Let's go back to the touchstone, which is 
materiality. If there is something material to investors in 
making the investment decision in connection with, for example, 
an IPO--and to use the industry you are talking about--is 
regulatory uncertainty or regulatory--likelihood of additional 
regulatory developments, something that should be disclosed to 
investors. My position--I have to be careful about any specific 
type of thing--but, yes, that is the type of disclosure you 
would expect to see in an industry subject to regulation and 
particularly an industry that is in flux.
    Mr. Perlmutter. Has it come to your attention whether there 
has been an impediment, to use your word, or some limitation to 
companies that may want to go public related to a marijuana 
business or in supplying the marijuana businesses?
    Mr. Clayton. No, I think--would an investor take into 
account the regulatory situation and whether they are going to 
invest or not? Would they pay less if there is regulatory 
uncertainty? That is possible.
    Mr. Perlmutter. I am asking a speculative question. I guess 
I will just ask it more directly. Have you personally run into 
any issues concerning the public offering of a marijuana 
business?
    Mr. Clayton. Not that I recall, no.
    Mr. Perlmutter. All right. Let's just broaden it now. 
Forget about marijuana. Is there any competition between the 
Canadian exchanges and the U.S. exchanges? Has that been where 
some of these IPOs have gone that the Chairman was concerned 
about?
    Mr. Clayton. There is--to be clear--there is competition 
now around the world for listings. Where are you going to raise 
capital and where are you going to list your securities is a 
competitive business now. I don't know, but I would expect 
there would be competitive pressures in that industry.
    Mr. Perlmutter. In your position, do you take a look at the 
limitations that say Canada may place on its public offerings 
versus what the U.S. does versus an Australian exchange?
    Mr. Clayton. I do look at those, and it is a competitive 
question. But there is also--I am going to go in a direction 
that is slightly different. The investor protection regimes in 
other countries can be substantially different from what they 
are here, and I think a lot of times our investors look at if 
it is traded on XYZ Exchange and they think the investor 
protection is the same as if it is traded on one of our 
exchanges, and often it is not.
    Mr. Perlmutter. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Chairman. Chairman Clayton, thank 
you so much for being here. I really do appreciate your work.
    I want to begin by briefly thanking you for proposing a 
rule for independence with respect to certain loans or debtor-
creditor relationships. As participation in the capital markets 
has expanded and as technology has changed business models, the 
opportunity to update regulations to reflect these changes is 
essential. I want to thank you for your movement on the loan 
rule and your willingness to provide clarification. Thank you 
so much for that. We look forward to working with you on that, 
as well.
    CFTC Chairman Giancarlo has testified before the House that 
we have, and I quote, he said, ``We have some anecdotal 
information that shows that during the recent market volatility 
the supplemental leverage ratio impacted larger market makers' 
ability to take on certain positions, thus exacerbating market 
volatility. The SLR is not specifically mandated in Title VII 
of Dodd-Frank and it has had the opposite effect intended, 
pushing trades away from central clearing,'' end quote.
    The Treasury Department's October 2017 report on capital 
markets also acknowledged the issue. I wonder, do you share 
similar concerns for the equities options market? Have you 
shared these concerns about options market liquidity with 
banking regulators, given that they have rulemaking authority 
for the risk and leverage-based capital rules?
    Mr. Clayton. The issue that you bring up is an important 
one. Our cash markets, the stock market, as is familiar to 
American investors, is actually connected to the options 
market. People who provide liquidity in our cash market use the 
options markets as part of their business. To the extent that 
liquidity drives up in the options market, it can cause a 
knock-on effect into the cash market.
    This issue has been raised. I know that my fellow Federal 
financial regulators are aware of it, and I think we should 
continue to look at it.
    Mr. Hultgren. Great. Thanks. I am sure you heard, but the 
Committee unanimously reported legislation just last week that 
would direct our banking regulators to address the issue. 
Again, it was bipartisan, worked through and got unanimous 
support. Again, thank you, and just would encourage the SEC to 
continue to work with bank regulators, as well, on that.
    I sent a letter last week to you raising concerns with 
FINRA rule 4210. In short, I am concerned that the margin 
requirements will push small to medium-sized dealers out of 
trading covered securities because of the competitive 
advantages to commercial banks and similar intermediaries that 
are not FINRA members. This is something we corresponded about 
last year, as well. I appreciate you providing a delay in the 
compliance date to spring of 2019.
    However, I am continuing to hear serious concerns about the 
unlevel playing field that this would create. I wanted to ask, 
in general, do you believe FINRA has the authority to regulate 
credit markets? It seems to be what is happening with the new 
margin requirements on certain mortgage transactions covered 
under 4210. Then also, will the Commission consider changes to 
the rule or working more closely with the Fed to address 
unlevel playing fields between FINRA members and non-FINRA 
members?
    Mr. Clayton. The last part of your question is the part I 
can give a direct answer to, which is, yes, I think we should. 
If there is an asymmetry in the costs of providing a service to 
clients, depending on whether you are in a bank or you are a 
standalone broker-dealer, we need to look at that.
    Your other question, I do think FINRA has the authority to 
regulate broker-dealer conduct. To the extent margin 
requirements go into that, knock-on effects, et cetera, are a 
larger debate, but I will leave it at that.
    Mr. Hultgren. OK, thank you. In general, as my time is 
running down, I am interested in your views about the 
independence of the Financial Accounting Standards Board. It 
seems that the standard-setting body has drifted beyond the 
focus of the Commission and its staff in recent years.
    I wonder, do you believe the SEC is exercising sufficient 
oversight over the FASB to ensure that accounting standards 
meet the needs of investors in the financial market? Is FASB 
conducting a rigorous and transparent view of new or modified 
accounting standards to make sure that there would be no 
detrimental impact on financial markets? For example, is a 
quantitative cost-benefit analysis of the standards conducted?
    Mr. Clayton. I believe that high-quality financial 
statements--it is a combination of accounting standards and 
auditing standards that we have in this country--have been 
fundamental to the great capital markets that we have.
    It is extremely important to me, it is extremely important 
to Wes Bricker, the head of the Office of the Chief Accountant, 
our Chief Accountant at the SEC. This is a focus not only 
inside the United States, but as U.S. investors have greater 
and greater exposure to non-U.S. companies, ensuring that those 
financial statements and those audits are on a level with ours. 
We are participating both nationally and internationally in 
that debate.
    Mr. Hultgren. Thanks, Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Illinois, Mr. 
Foster.
    Mr. Foster. Thank you, Chairman Clayton for being here. 
When we were discussing, prior to the start of your testimony, 
we discussed our shared enthusiasm for getting the consolidated 
audit trail implemented quickly and effectively.
    I have a searing memory of, roughly 8 years ago in this 
room. Four days after the flash crash, we had testimony from 
the CFTC, which described that the evening after the flash 
crash they had 30 people in a room looking over all the trade 
records and knowing exactly who did what when.
    On the other hand, 4 days after the flash crash, the SEC 
was still in the process of collecting the data, which to my 
mind made something like the consolidated audit trail an 
emergency. Here we are 8 years later, the consolidated audit 
trail, as you note in your testimony, was supposed to be at 
least initially operating in November 2017, and obviously that 
deadline was blown.
    I was just wondering if you could describe where you think 
this is going and what you think Congress can expect as 
intermediate-term milestones in getting this thing operating as 
I think we both believe it should?
    Mr. Clayton. Your question has embedded in it exactly what 
we have been trying to do since it became readily apparent that 
this was not going to be delivered on time or on spec, which is 
to require a work plan with milestones and goals. We now have a 
draft work plan from the SROs in front of us. It is long 
overdue. But we are now making progress with milestones.
    Mr. Foster. Will you be able to share that work plan with 
Congress? Or at least a high-level summary of it in a memo?
    Mr. Clayton. Yes, I think we can.
    Mr. Foster. Milestones at least.
    Mr. Clayton. I think we can find a way--look, I never like 
to answer a legal question without consulting. That is a bad 
habit I have--or a good habit--but I can find a way to give you 
a sense of the milestones.
    Mr. Foster. Yes, milestones that Congress can track, so 
that we know whether we are just going to have another 8 years 
of little action.
    Mr. Clayton. I have no problem with that kind of oversight.
    Mr. Foster. OK. One of the trickiest parts of this is the 
beneficial owner behind each trade in the consolidated audit 
trail. From your testimony, you have had a lot of internal 
discussions about exactly what that should consist of and how 
it gets implemented. Can you describe your thinking on that? 
Particularly in view of the fact that a lot of the issues here 
are now international that you have correlated markets across 
the world and a lot of manipulation that you are worried about 
can happen internationally.
    Mr. Clayton. Yes. We are talking about the two different 
functions of an audit trail. Going to the trading and the flash 
crash, having order types and the types of information that is 
contemplated by the consolidated audit trail is exactly what 
you would want from a market integrity, surveillance, 
functioning point of view.
    When you turn to bad behavior and the ability to get at bad 
behavior, whether it is insider trading or manipulation and 
what you bring up is, are there things going on in some market 
outside of our purview that, when you connect them with things 
here, they revealed behavior that is bad when it would 
otherwise look fine? I think that is what you are--
    Mr. Foster. That is one of the often cited dangers of the 
international markets we have.
    Mr. Clayton. Yes, and the way we conduct this today is we 
see something that we don't like and then we inquire to get 
further information on who is behind those trades. The 
consolidated audit trail would make that process easier.
    Mr. Foster. What is the status of international 
discussions, getting comparable information--well, are there 
comparable efforts fully internationally here? Are there big 
holes in that international cooperation that you would like to 
see patched? How do you see the international aspects of this 
going?
    Mr. Clayton. International cooperation--here is my sense, 
no study, but my sense, a little over a year into the job, is 
international cooperation around what we will call manipulative 
or insider trading has increased significantly.
    I will tell you that the legislation in Europe and here, it 
is--I have no problem with it--around information protection, 
individual information protection, GDPR in the E.U. and what we 
do here, getting through that in terms of cooperation around 
enforcement and surveillance is a task before us.
    Mr. Foster. All right. Thank you, and my time is up.
    Chairman Hensarling. The gentleman yields back. The Chair 
wishes to inform members there are two votes pending on the 
floor. I will yield to one more member, and then we will recess 
and reconvene at the conclusion of floor votes.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, Chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman. When we are looking at 
the proxy advisory industry, we have a stranglehold there, from 
my standpoint, we have two firms holding 97 percent of the 
market. What do you think the main causes of this lack of 
competition are? Is it good for the voting process? Is there 
anything the SEC can do in order to help jumpstart some 
competition in this industry?
    Mr. Clayton. Let me say this, why only two firms? Just my 
knowledge of economics, economies of scale. The core function 
of those firms is aggregating data, crunching and producing 
data reports. You can see economies of scale coming to that.
    Mr. Royce. I can see that it could lead to that outcome, 
but I do not know that it is in investors' interests not to 
have wider competition in the system. I do wonder if there are 
things we could do that might make it more likely that it would 
be a more competitive environment.
    Mr. Clayton. The role that proxy advisory firms play is 
something we are looking at.
    Mr. Royce. Yes. That is what I would suggest. I will ask 
you some other questions, as well, but just to have that on the 
table for your purview is important.
    Mr. Clayton. They have a very important role in our 
regulatory ecosystem, and, therefore, we have to look at them.
    Mr. Royce. Very good. Here is another question, Chairman, 
that I would raise to you. Earlier this year, this committee 
here passed legislation that would reverse a previous SEC rule 
requiring that certain money market funds float the NAV. Now, I 
certainly remember when the reserve fund in the industry broke 
the buck back in 2008. I remember the massive backstop that the 
U.S. taxpayers provided to restart the process for the entire 
market. This is not the only thing that caused that meltdown, 
but it was a factor after the overleverage of the GSEs and the 
overleverage in the investment banks.
    The fact is that the value of the underlying assets of 
these products fluctuate. They go up and down. As I said in 
opposition to the bill at the time, if we learned anything from 
the financial crisis, it should be that price should reflect 
risk.
    Six months have passed, yet the bill still seems to have 
some life. Do you stand by your comments from last year? Let me 
just ask you, has anything changed in your estimation from the 
comments that you made on this subject?
    Mr. Clayton. No.
    Mr. Royce. OK. That is good news, as far as I am concerned. 
Chairman, let me ask you, also--I Chair the Foreign Affairs 
Committee here--I have witnessed firsthand that we have state-
sponsored agents now, actors that are looking to do our 
companies and our country harm through cyberattacks. The 
Commission clearly recognizes the problem with the updated 
interpretive guidance you have provided. We thank you for that.
    Undoubtedly, companies have a duty to disclose when a 
material cyber security event has occurred. But what more 
should they be telling shareholders about cybersecurity risks? 
I think that is something that has to go into the equation. 
Have you noticed an uptick in the number of companies 
disclosing these risks or disclosing the attacks?
    Mr. Clayton. I have, in my time focusing on this, I have 
noticed what I would consider to be--I will just say the word 
``improvement'' in disclosure about the risk profile of 
companies and the types of risks they face from cyber 
intrusions. I think we are starting to see what I would say is 
more measured, and incident disclosure is more thoughtful. I 
hope our guidance is helping companies with that. I want to 
continue to work with companies and the investing public on how 
we should be approaching this issue.
    Mr. Royce. My time has expired. Thank you, Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
Pending conclusion of two votes on the floor, this committee 
stands in recess.
    [Recess.]
    Chairman Hensarling. The committee will come to order. The 
Chair now recognizes the gentleman from Pennsylvania, Mr. 
Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman. Welcome, Chairman 
Clayton. Thank you for taking the pause and the recess. Before 
I begin, I want to take a moment to address some of the 
comments that Congressman Royce made prior to the recess.
    From my perspective, the problems caused by the SEC's rule 
changes respecting money markets remain an issue, because the 
problems they caused are still apparent. This rule 
discriminated against municipal and corporate debt and, in 
doing so, prompted the dislocation of a trillion dollars. This 
led to increased borrowing costs and caused an outcry in the 
municipal finance world.
    That is why my bipartisan legislation attracted broad 
support from over 70 co-sponsors, many of whom sit on this 
committee, and the endorsement of over 300 National, State, and 
local organizations and public leaders. Nothing in my bill 
would undo the helpful 2010 SEC reforms that improved 
liquidity, increased credit quality, and shortened maturities. 
What it would do is restore the level playing field between 
prime, tax-exempt, and government funds.
    This issue remains relevant and will continue to be 
relevant until the problem is fixed. I understand the Senate is 
actually going to be taking another look at this, this week.
    But with that, I wanted to talk for a moment about your 
testimony. As you discussed in your testimony, there are still 
significant barriers that prevent companies from going public 
and staying public. The JOBS Act and successor legislation 
helped address some of these issues, but clearly there is more 
work that needs to be done.
    I have a bill that we will mark up later day that would 
extend certain disclosure exemptions for emerging growth 
companies, or EGCs, that would remain EGC, but for the current 
5-year limit. As you know, EGCs accounted for more than 90 
percent of all IPOs over the last 2 years. Can you discuss some 
of the ways that we can help companies go public and stay 
public?
    Mr. Clayton. Yes. Let me give you a general response to 
that question, which is, I do think the JOBS Act and the 
creation of the EGC concept for scaled disclosure and an on-
ramp to being a public company was and remains a very good 
idea. I would love to see that on-ramp be modernized to reflect 
the markets we have today.
    Specifically, are the thresholds where you have the benefit 
of being an EGC set in the appropriate place or should they 
reflect the markets of today and our experience with the JOBS 
Act? I think we should look at those thresholds. Happy to work 
with you and other members of this committee on setting them in 
the appropriate place.
    Another thing that I just want to make sure I comment on, 
trading. Part of the attraction of going public is trading. To 
the extent that we can facilitate better trading, more liquid 
trading in our small- and medium-sized companies, I think we 
should be looking to do so.
    Mr. Rothfus. Chairman Hensarling touched a little bit on 
Sarbanes-Oxley with his opening round. This legislation was 
enacted 15 years ago in response to Enron and WorldCom and the 
scandals that they had. In your opinion, has Sarbanes-Oxley 
been effective?
    Mr. Clayton. It is interesting. A sweeping piece of 
legislation--to come to a single statement about any sweeping 
piece of legislation from a markets point of view is very 
difficult. There are aspects of Sarbanes-Oxley that I think 
investors got a significant bang for the buck. Independent 
audit committees, the focus on high-quality financial 
statements, that is a big bang for the buck. Some other things, 
good, but not as significant as those.
    Mr. Rothfus. What components of Sarbanes-Oxley represent 
the biggest cost and/or compliance challenges for companies?
    Mr. Clayton. I do think that from a--let me give you an 
example. We are going to be looking at 404, OK? 404 applied to 
a large company and 404 applied to a smaller company, the 
relative burden on the smaller company has been higher. I have 
seen improvements in the area of application of 404. But I do 
think that we should look at that relative cost to the size of 
smaller companies and intend to do so.
    Mr. Rothfus. What is the timeframe for your review of 404? 
It is already started?
    Mr. Clayton. Our staff is looking at 404 now. We are going 
to be discussing it--at least plans for discussion--at next 
Thursday's open meeting.
    Mr. Rothfus. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin.
    Mr. Poliquin. Thank you, Mr. Chairman, very much.
    Chairman Clayton, I am glad you could find me in this room. 
There are so many other people here now. But I am sure--this is 
only your second time before us, but I want to let you know, as 
Mr. Chairman knows, that he always saves the toughest questions 
for the end, but I am sure you and I can get through this, so I 
appreciate very much you being here.
    I noticed that you folks over at the SEC have finalized 
Rule 30e-3, and I am very grateful, sir, that you and I had a 
back-and-forth many times on this, and you are going to be 
looking out for the interests of small savers and investors 
throughout the State of Maine and throughout rural America. I 
will be closely following this as the SEC implements its rule. 
But thank you very much for listening to my concerns.
    You folks are the primary regulator, Mr. Clayton, for non-
bank financial institutions like pension advisers. I worry a 
lot about our small businesses and our small savers and 
investors up in the State of Maine. On FSOC, you are one of 10 
votes, and you are the individual as the regulator that has the 
most influence, I would believe, on FSOC because your space is 
the asset manager space when it comes to FSOC.
    Now, what I am concerned about, Mr. Clayton, is that when a 
non-bank financial institution like a pension adviser or mutual 
fund company is designated FSOC or if it would be designated 
FSOC, we all know the studies that regs costs will go up, rates 
of return will go down. I think Doug Holtz-Eakin concluded that 
something like a 25 percent reduction over time is the result 
of being designated in a SIFI.
    What drives me batty about this, sir, is that if you are in 
the asset management community, the assets that you are 
running, the assets that you have under management are not in 
your balance sheet. You are an agent for the customer. There is 
no systemic risk to the economy if something goes wrong, 
because it means that if my performance is better than yours, 
your clients will go from you to me and life goes on.
    All I am asking you, sir, is to take a hard look at Ross-
Delaney that passed this Congress on the floor, a big 
bipartisan vote, and obviously out of the Committee. It 
establishes transparency and clear guidelines such that a fund 
company or an asset manager, if they are concerned about being 
designated a SIFI and going through these additional 
regulations and costs, and the investors get hurt, because of 
those additional costs that are unnecessary, that there is an 
off-ramp, there is a set of guidelines that says, if I do this, 
I can get underneath this regulatory regime that is 
unnecessary.
    Can I get a commitment from you today, Mr. Clayton, that 
you are going to be looking really hard making sure that there 
is transparency and clear guidelines when it comes to non-bank 
financial institutions being designated or not as SIFIs?
    Mr. Clayton. I am not going to commit my other members of 
FSOC to a particular process--
    Mr. Poliquin. No, but you have the most influence when it 
comes to this space on FSOC, I would argue.
    Mr. Clayton. What I can say is I understand the comments 
you are making, I understand the concerns, and I am certain 
that those concerns and comments will be discussed by that 
group.
    Mr. Poliquin. I would encourage you to discuss them in the 
most energetic and passionate way on behalf of those that 
should not be designated SIFIs. Thank you, sir.
    Moving on to another issue, the last time the SEC updated 
its rules on promotion and advertisement when it comes to asset 
managers was--I think it was 1961. In 1961, Roger and I were 
just kids. I don't think, if I am not mistaken, the Internet 
and social media hadn't even been invented yet.
    Will you take a look, sir, and commit today to the people 
listening that you will commit to taking another look at social 
media and the use of the Internet for asset managers to do what 
other companies do in this world, which is promote what they 
are selling?
    Mr. Clayton. We are, and when we rolled out 30e-3, we also 
rolled out investor experience questions. We are looking at 
enhancing our communications with investors, and in particular, 
to make sure that investor communications reflect the 
communication technologies of today.
    Mr. Poliquin. I hear that as a lean yes. Thank you very 
much, Mr. Clayton.
    Last, in my remaining time here, Rule 14a-8, dealing with 
shareholder proposals, last time you were here, sir, we 
discussed this a little bit. Look, every shareholder has the 
opportunity to weigh in with management when it comes to how 
the company is being run, products offered and so forth and so 
on.
    But a $2,000 threshold, owning that for 1 year gives you an 
opportunity to express your views, I understand that. But it 
also drives up the costs, drives up what Mr. Hensarling said a 
short time ago about the hassles about going public, and I 
worry about every other small investor in Maine and in America 
that wants the opportunity to own part of America. Are you 
going to be looking at 14a-8, also, sir?
    Mr. Clayton. I want to look at the whole proxy process, 
including 14a-8.
    Mr. Poliquin. Thank you for that commitment, Mr. Chairman. 
Appreciate it.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Williams.
    Mr. Williams. Thank you, Mr. Chairman. The last time you 
were here before this committee, you and I had a productive 
discussion about retail and affinity fraud. You mentioned that 
it was important to think creatively about ways that we can 
structure our behavior so that it is more difficult to commit 
fraud.
    I am encouraged to hear that you have turned your attention 
to Main Street businesses that play such a critical role in our 
economy and in our local communities. My question, Mr. 
Chairman, since your last visit, can you provide any updates on 
retail fraud or any related tasks that your teams may be 
undertaking to target and prevent future fraud?
    Mr. Clayton. We did form a Retail Fraud Strategy Task 
Force. I shouldn't say we. Our Division of Enforcement did. I 
appreciate that they have done that to focus on this. A group 
of people dedicated to rooting out retail fraud.
    More importantly, there are a number of Ponzi schemes where 
we have identified them, brought asset freezes, and brought 
them to a halt, I would like to think as quickly as we could 
because the longer they go on, the more money that goes away, 
and the less money we can get back for investors. That has been 
a focus of ours.
    The ICO space--let me preface this by saying like I do, the 
distributed ledger technology and blockchain technology, 
whatever you want to call it, has promise. But the ICO space 
has a great deal of retail fraud. I am very pleased that our 
Enforcement Division has pivoted to addressing that issue.
    Mr. Williams. Thank you. Now, you yourself have rightly 
recognized that a vibrant IPO market allows Main Street 
investors to be able to participate in crucial growth process 
of growing. Can you touch on the role of the small business 
capital formation advocate office and what steps it will take 
to allow for growth in Main Street investor participation?
    Mr. Clayton. Thanks for that question. Obviously, that 
office is new and will be--as any new office, it will find its 
way. It has some directions from Congress. What I really want, 
and when I am talking to candidates for that, I want somebody 
who when we are making rules or a policy, says, ``Hey, this is 
how this is going to affect the small business, so think about 
it when you do this.''
    In particular, ``You know what? This is too costly to apply 
to a small business.'' Or, ``This won't help a small business. 
Here is how we could adjust the rule without adversely 
affecting investor protection or transparency.'' It will be 
good to have somebody in the building where that is their job.
    Mr. Williams. Last, you have a unique vantage point in your 
current role, one that requires you to work across several 
industries and countless stakeholders. If possible, can you 
give this committee your personal assessment on the health of 
the economy and what we should be concerned about or excited 
about?
    Mr. Clayton. Health of the economy, that is out of my lane.
    Mr. Williams. But it is good, I will tell you that.
    Mr. Clayton. It is good.
    Our job is to make sure that the markets function as well 
as they can to support our economy. There is always room for 
improvement in that. We come to work--not just me, we come to 
work every day looking to improve the functioning of our 
markets so the economy can be as good as it possibly can be.
    Mr. Williams. Thank you. I have some time left. I yield 
back to the chairman.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from North Carolina, Mr. Budd.
    Mr. Budd. Thank you, Mr. Chairman and also Chairman 
Clayton. We are fortunate to have you at the helm. I guess that 
makes you captain of the ship, as we heard earlier, so we 
appreciate you being here and being our captain.
    I wanted to get your views on some recent legislation that 
the Committee approved that would raise thresholds for 
shareholder resubmissions. It seems pretty straightforward in 
the simple proposal for the SEC to enact, and I think Mr. 
Duffy's legislation offers a much more reasonable threshold 
that allows shareholders to have a voice, while not burdening 
public companies with proposals supported by a very, very small 
group of shareholders. While I strongly support this 
legislation moving forward, what can the SEC do to make these 
changes in the meantime?
    Mr. Clayton. We can look at the proxy process, and I intend 
to look at that as part of an overall assessment of the proxy 
process. I think, if you don't mind, I will take a minute.
    Mr. Budd. Please do.
    Mr. Clayton. The ordinary investor, the retail investor, 
the Main Street investor, the people we think about, I think 
they should understand that corporate governance in America has 
changed substantially in the last decade as a result of various 
changes and that the ability of shareholders to directly 
influence the actions of management has increased.
    Now, that has benefits. But it has been a change. We should 
be looking at that change and how it has changed the way 
corporations behave and, I think, communicate with American 
investors on what that change means.
    Mr. Budd. You mentioned looking at the proxy process. What 
timeline would you anticipate for the SEC looking at that 
process?
    Mr. Clayton. We had an open comment period in the past. I 
am contemplating opening that again to get updates on this 
issue and other issues that are around the proxy process.
    Mr. Budd. Thank you.
    Mr. Clayton. Including the plumbing. Do we have the right 
plumbing in light of--with the theme of modernization, do we 
have the right plumbing for the proxy process?
    Mr. Budd. Very good questions. I look forward to hearing 
the results on that.
    Further, I want to switch over to virtual currencies for a 
moment, and it tag teams a little bit with Mr. Williams, my 
colleague, about investor fraud. Can you just tell me what 
criteria the SEC is using to determine which token projects 
should be targeted for enforcement actions? Then further, is 
that criteria focused on promises made by the developers of 
those token projects or is it focused on the expectations of 
purchasers, irrespective of any promises or marketing materials 
made by the developers of these projects, or some combination?
    Mr. Clayton. Let me say what I am not going to do. I am not 
going to discuss allocations of enforcement resources to one 
particular type of bad activity versus another. If you are 
behaving badly in this market, we don't want you to do that.
    In terms of what I would like people in this market to 
understand is that there is a way to raise capital that is 
compliant with the law. I want people in this space to 
recognize that and do that. If after a year of this dialog that 
we have been having people aren't moving to that, I have a 
problem with that.
    Mr. Budd. Noted. Thank you for your time, Mr. Chairman.
    Chairman, I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentlelady from New York, Ms. Tenney.
    Ms. Tenney. Thank you, Mr. Chairman. Thank you, sir.
    I am always last in line, so hopefully I am not going to be 
too repetitive. I just have a couple of quick ideas. Obviously, 
in my region there has been this vilification of anyone who 
operates a so-called corporation or entity that seeks to look 
like a corporation, whether it is an S corp, a C corp, an LLC.
    But in that realm, we have had a number of issues trying to 
get into the initial public offering space, and we appreciate 
your efforts in trying to move us more to an entrepreneurial 
ability and providing more capital formation and chances.
    What do you think are the key steps that you are looking to 
take in addition to what you--I missed some of your testimony--
what you may have said to getting us to get the smaller 
businesses and to assist the formation of capital and growth in 
an area, for example, where I am from in upstate New York, 
where we don't have the city next to us. We have small banks. 
We have fintech and others. How is SEC going to impact us, your 
new rules on helping us get there with some of our new 
businesses?
    Mr. Clayton. I talked before about providing a path to 
being a larger company. Let's just stay in the smaller company 
space, I would like to see us modernize the accredited investor 
definition to make it easier for more people to participate in 
funding small businesses. I would like us to use technology to 
eliminate some of the unnecessary frictions that go into 
raising capital on a smaller scale. Those are things that we 
are looking at.
    In terms of availability of funds in different parts of the 
country outside of places that have a great deal of venture 
funding, I am hopeful that some of the things that we are doing 
in Volcker or proposed to be doing in Volcker will free some 
more local capital.
    Ms. Tenney. Have you seen any of that happening yet in any 
of the initiatives you have taken? Because I know, in my prior 
life before I got involved in this job in Congress, I had a lot 
of trouble getting some of my entrepreneurs to find investors, 
and they feared the IPO space a little bit because of just the 
rules, the regulations, and the SEC.
    Can you identify a couple of things you are doing to 
simplify that and also if you have seen progress, if you have 
seen more IPOs coming forward in the small business space, is 
that something you have data on or something you can provide us 
with? Because I would love to know if what you are doing is 
actually helping. Are we actually moving more people into the 
space with data of some kind?
    Mr. Clayton. Let me say this, I think a year is too early 
to tell. One of the issues about measuring success in this 
space is sometimes it takes a fair amount of time. The IPO 
process itself, from the time a company thinks about a public 
offering until they actually achieve a float, it starts long 
before they contact us, and it takes a while. That is a long-
winded way of saying, I don't want to take credit for any 
uptick in IPOs, I don't want to say we are unsuccessful. I 
think we are doing the right things.
    Ms. Tenney. Yes, I believe you. I have been in the 
situation where I have taken my clients to other areas to try 
to find ways of getting them resources and getting them 
funding. I think that now it looks like we are in a better 
space than we were. I just was wondering if there is any 
demonstrable change.
    Mr. Clayton. I think that we are in a better space than we 
were. It feels like we are in a better space. The activity that 
I am seeing, I like. Do I want to say, absolutely, here is some 
demonstrable evidence?
    Ms. Tenney. Next year you will have some more data for us 
when we get to that.
    Mr. Clayton. I hope so.
    Ms. Tenney. I just want to jump to the whole 
cryptocurrency, bitcoin, everything, that is the excitement of 
the day, and what the SEC is doing about that. What are we 
going to be looking at as this becomes very popular and more 
and more investors and people are getting involved in the 
cryptocurrency? What is the SEC's reaction? Maybe if you could 
point out one or two things in the last 30 seconds about what 
you are doing in that, because I am running out of time.
    Mr. Clayton. OK. In the pure cryptocurrency space, the 
examples that people cite are bitcoin or Ethereum. That is not 
in our direct jurisdiction, although there are issues with 
those crypto assets, including in the trading and what people 
use.
    I want to be clear, to the extent that somebody is bringing 
those assets to a regulated entity of ours, that regulated 
entity needs to go through the same KYC, AML procedures. In the 
same token space, I think we have raised the consciousness for 
people to understand that these are securities, and they need 
to follow our rules. I do think this technology has a lot of 
promise, and it can eliminate costs. I would focus on that. I 
am sorry.
    Ms. Tenney. Thank you. I am sorry, my time has expired. 
Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Minnesota, 
Mr. Ellison.
    Mr. Ellison. Yes, thank you, sir, for joining us today, Mr. 
Chairman. Appreciate it.
    Last year, Congress passed a multi-trillion dollar tax cut 
for--as you are well aware--and I think the theory behind it is 
as reported in the press and by some of my colleagues was that 
it would spur investment and thereby increase hiring for 
working people.
    But some of the data has really come in, and according to 
the Bureau of Labor Statistics, wages for most workers, by 80 
percent, are actually down since the tax cut passed. What are 
the companies doing with the windfall? I guess one of the 
things that the popular press indicates is that there has been 
a lot of stock buybacks. How do you react to that assessment?
    Mr. Clayton. I don't have the data, but if what you are 
asking me, to be direct, is companies that have repatriated 
capital and are holding cash, what are they using that cash 
for?
    Mr. Ellison. Yes.
    Mr. Clayton. To the extent they are using it for stock 
buybacks, what do I think about that? Is that--
    Mr. Ellison. I suppose that is what I am--yes.
    Mr. Clayton. Stock buybacks are an efficient means to 
return capital to shareholders. They are more tax efficient 
than a dividend, for example.
    Mr. Ellison. OK.
    Mr. Clayton. That is probably going into the judgment.
    Mr. Ellison. That is a policy that you support?
    Mr. Clayton. Like I said--
    Mr. Ellison. You think it is a legitimate way to operate in 
light of--
    Mr. Clayton. Here is what I think. If a company decides to 
do that, they should be telling the shareholders what they are 
doing with their money and do it in the most responsible way.
    Mr. Ellison. OK. In the first quarter of 2018 alone, 
corporations bought back a record $178 billion in stock. 
According to a survey of major corporations, CEOs say that the 
stock buybacks are their number one use of capital. Instead of 
spending the money on wages or investment in research and 
development, they are going big into these stock buybacks, as 
you indicated.
    I guess my question for you is, last week, your colleague, 
Commissioner Jackson, called on the SEC to revisit its stock 
buyback rule, which hasn't been revised in 15 years. Do you 
agree? Or how do you react to the suggestion that Commissioner 
Jackson made? Do you think it is a good time to open up for 
public comment the rule on stock buybacks?
    Mr. Clayton. I asked Mr. Jackson what he meant because I 
think our rule around stock buybacks doesn't go to the decision 
of whether you should do a buyback or not. In fact, it doesn't 
really go to the--we have rules that go to the disclosure of 
stock buybacks. I don't think he was talking about that.
    I do think disclosure of stock buybacks is important. 
People who are shareholders should know whether you are buying 
back stock or using it for other things. But our rule goes to 
how you actually effect it in the market.
    Mr. Ellison. Given the time is wasting, I hope you will 
forgive me for cutting in.
    Mr. Clayton. No problem.
    Mr. Ellison. Do you agree with Commissioner Jackson that 
the huge surge in stock buyback activity can lead to problems, 
particularly since the research shows that a substantial number 
of CEOs use buybacks to cash out their own shares?
    Mr. Clayton. What is interesting is, executives sell stock 
on a regular basis, and they have to tell us. They have to file 
forms when they are selling stock. I am not sure about a 
connection between stock buybacks and executive selling, but 
what I want to make clear is that activity, it has to be 
disclosed to the marketplace so that we can look at it to see 
if there is any connection.
    Mr. Ellison. OK. Let me just tell you this. There is a 
report my office just recently drafted. I would like to share 
this with you and submit one for the record, without objection.
    Mr. Hill [presiding]. Without objection.
    Mr. Ellison. Just so you know, in 1968, the average CEO 
made about 20 to 1, about 1980, about 34 to 1, now it is 339 to 
1, but that hides a few facts there, Mr. Chairman. One, Mattel 
has nearly 5,000 to 1. McDonald's, 3,100 to 1, the Gap, 2,900 
to 1, Walmart, 1,100 to 1. Are you concerned by those numbers?
    Does that level of executive compensation create 
instability in the market? Isn't at least part of our income 
inequality problem because of the dramatic shift in how people 
are compensated?
    Mr. Hill. The gentleman's time is expired. Quickly, you can 
respond.
    Mr. Clayton. Quickly respond? I want to make sure that 
shareholders understand how people are being compensated and 
the criteria that go into making those decisions. How is the 
comp committee making those decisions? That is an important 
part of shareholder communications.
    Mr. Ellison. Thank you, sir.
    Mr. Clayton. Thank you.
    Mr. Hill. The gentleman yields back. The Chairman 
recognizes himself for 5 minutes.
    Chairman Clayton, glad to have you before the Committee 
today. Thanks for your incredible stamina for being here today. 
We are glad to have your answers to all of our questions.
    I wanted to start and talk about a FINRA rule, Rule 4210, 
which I have concerns about in terms of the fairness issue 
between bank-owned broker-dealers and nonbank-owned broker-
dealers that relates to the agency's security market and 
posting margin for that. I won't debate with you today whether 
or not the SEC has the authority to impose margin requirements, 
thinking that perhaps the Reserve Act governs that.
    But would you agree that we don't want to have public 
policy that on the face of it discriminates by organizational 
entity? In other words, in this example, bank-owned versus 
nonbank-owned broker-dealers?
    Mr. Clayton. I agree.
    Mr. Hill. Mr. Quarles when he was here representing the 
Federal Reserve, he agrees, as well. Would you be willing to 
work with the Federal Reserve to create a commonsense solution 
here that is fair to the brokerage community at large?
    Mr. Clayton. Yes.
    Mr. Hill. Thank you. I appreciate that.
    Also, I have introduced a bill, H.R. 6021, which is of 
interest also to the brokerage community. This goes back to my 
days in the industry as an independent broker-dealer and a bank 
broker-dealer, as well, as it relates to small, privately held 
dealers that don't hold customer funds and are purely 
introducing brokers under the rules.
    This goes all the way back to Sarbanes-Oxley, where all 
brokerage firms were required to have a public accounting 
oversight board qualified auditor, no matter their size or 
complexity. This bill, and Senator Cotton has introduced a 
companion in the Senate, would permanently waive that for 
small, private, noncustodial broker-dealers, something we got 
waivers for along the way between 2002 and recent years.
    Is that something you think the Commission could support, 
knowing that they still fully comply with SEC rules, FINRA 
rules on audited financial statements in accordance with GAAP 
(generally accepted accounting principles)? Because the other 
thing I have learned in this process in the ensuing years is 
the number of qualified firms has dropped, something that I 
personally had not known until I started studying this issue.
    Mr. Clayton. The short answer is yes. The longer answer is 
I like the criteria that you cited in terms of who we are 
talking about, and we have actually raised this issue with the 
PCAOB to get their views. I don't want to get ahead of them, 
but I expect their views would be that this is an area where we 
should question whether this is a necessary step. Particularly 
in light of the criteria you cited.
    Mr. Hill. Thanks for that constructive nature. This 
hearing, this committee hears testimony all the time about 
tailoring regulations for community banks. It is weekly for 8 
years, at least. We don't always pay attention to tailoring our 
rules through FINRA and through the Commission for our very 
small entrepreneurial broker-dealers, and yet the burden shift 
is very similar, so I appreciate your--
    Mr. Clayton. Particularly those, like you said, that don't 
hold customer assets.
    Mr. Hill. Correct. Yes, and let's be clear, again, just for 
our viewers, these are privately held companies that are 
introducing brokers, which means they clear all their 
securities through a clearing agent, and so they are not 
holding customer funds, because we are all sensitive to making 
sure that you oversee these entities in a safe and sound 
manner.
    Mr. Clayton. Thank you for doing that because I just want 
to make clear, because that is a distinction that is very 
important to me.
    Mr. Hill. It is. It is important to these members, but you 
would be--I don't think in any way--what I have seen is just 
audit fees have gone from maybe $5,000 to $8,000 a year for a 
typical GAAP small introducing broker that is overseen by FINRA 
at your direction, and some of those have tripled as the number 
of compliant accounting firms drops and the complexity of doing 
that exam goes up. I am not sure the Commission is getting 
concomitant big safety and soundness gains. Thank you for that.
    Last topic I want to just introduce is one of my favorites, 
and that is how the Federal Government is trying to interpret 
the Volcker rule. The SEC has recently participated in the 
release of a Volcker 2.0. A lot of us up here found it very 
complex; I am not sure you made a big improvement there. Not 
you personally, but the collective agencies did. Are you going 
to be very diligent in looking at the comments for the Volcker 
rule re-proposal?
    Mr. Clayton. Certainly, around the commentary, certainly. I 
think this is an area where the comments are going to be 
illuminating.
    Mr. Hill. Thank you. I appreciate that. The chairman's time 
has more than expired.
    I am going to now recognize the gentleman from West 
Virginia for 5 minutes, Mr. Mooney.
    Mr. Mooney. Thank you, Mr. Chairman. Chairman Clayton, 
thank you for coming here and taking all these questions and 
the good work you are doing there.
    I wanted to make a comment and then a question. I want to 
add my appreciation for your leadership in proposing an 
expansive loan rule aperture. As private equity's role in the 
capital markets has expanded and as technology has changed 
business models, the opportunity to update regulations to 
reflect these changes is long overdue. Current regulatory 
impediments, they deter capital formation, they limit 
competition and decrease efficiencies. Just thank you for 
addressing this. That is very important.
    I am from a rural area, West Virginia, and I think there is 
a misconception out there that investing in business startups 
and a lot of things we need in this country are for people in 
big cities or people with large bank accounts, but they are for 
people in rural areas, too. I would like for you to tell me the 
importance of capital formation to investments in workers in 
rural areas.
    Mr. Clayton. All I can say is, I agree with you. The 
availability of capital, whether it is through investment or 
through credit, is essential to starting a business. That is 
just all there is to it. I agree.
    Mr. Mooney. I was at a fair about a year ago, and a young 
lady there had found a way in West Virginia to get syrup from 
trees. She started a small business to make this syrup and sell 
it. She was at a craft fair and she was showing her display 
there. She had the hardest time finding anyone to give her an 
initial startup loan to invest in this product. Went to banks, 
went to administrations, just couldn't find anybody to do it.
    These regulations and restrictions, I think they are well 
intended by the other side, but they are hurting the people 
that need these investment startup dollars. This is a family 
that had a dream in my district, and they can make it come 
true. It was a great product. I tasted it. They just couldn't 
find anyone to invest.
    I just want to encourage you to continue this deregulation, 
get these impediments out of the way for Americans in rural 
areas, as well as cities, so they can have their dream of 
owning their own business come true.
    With that, Mr. Chairman, I will go ahead and yield back the 
balance of my time.
    Mr. Hill. The gentleman from West Virginia yields back the 
balance of his time.
    The gentleman from Georgia, Mr. Loudermilk, is recognized 
for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. Looks like maybe I 
am batting cleanup here today. I will try to keep this as brief 
as possible.
    Thank you, Mr. Chairman, for being here, and taking this 
amount of time. It is very encouraging. I also want to thank 
you for your work in the best interest standard for brokers. I 
can tell you, every time I would be at home after the 
Department of Labor's fiduciary rule, I was inundated with 
brokers and those advisers with the confusion and the 
difficulty that this provided them. It was a significant 
impact, and I thank you for the work that you have done there.
    Now, you stated that the slow pace of initial public 
offerings is a significant problem. With what I would call 
mind-boggling growth of our economy--GDP is up 3 percent, 
knocking at the door of 4 percent possibly. Wages are 
increasing. Consumer confidence is growing. Every statistic is 
way beyond anything that anyone ever anticipated we would be at 
2 years ago. We are all celebrating that, or at least most of 
us are.
    Because of all that growth, it may not be clear why the 
slow pace of IPOs is a problem. Can you explain why we're not 
seeing new initial public offerings in the light of a robust 
economy is a real concern?
    Mr. Clayton. We just talked about the capital being 
essential to growth. The availability of capital is strong. We 
have private capital markets that are as strong as they have 
ever been, the availability of private capital to finance 
growth.
    That said, it still does trouble me that our public capital 
markets are less attractive. I don't want to do anything to 
impede capital. I don't want to do anything to the private 
capital market in order to make the public capital market 
relatively better. This is a good thing, let's not do anything 
to it.
    But broad participation in capital formation and investment 
in America is a good thing, and I want to make sure we continue 
to have broad participation, and the public capital markets are 
the most efficient way for ordinary Americans to get access to 
investment opportunities.
    Mr. Loudermilk. I do agree with you. I just think there is 
a confusion with a lot of folks in that. How does this interact 
with the anticipated increase of mergers and acquisitions we 
are expecting?
    Mr. Clayton. The number of companies in our public capital 
markets can be reduced for a number of reasons. People go 
private, they merge, things like that. To the extent that 
pipeline isn't being filled, you have fewer choices. Now, when 
two public companies merge, you have a larger--
    Mr. Loudermilk. Right.
    Mr. Clayton. You don't lose capital in the public markets, 
but you do lose the numbers.
    Mr. Loudermilk. OK. Let's move on to another topic, 
cryptocurrency, something I have been following for a while 
with an IT background. I agree that we have seen 
cryptocurrencies being used for nefarious purposes, money 
laundering, terrorism financing, human trafficking, drugs.
    However, I believe the underlying technology of blockchain 
is something that we should pay close attention to, and I think 
we need to divest the cryptocurrency from the underlying 
technology. I have been advocating for us to look at the 
blockchain technology as a potential technology to resolve some 
of our cybersecurity concerns and issues. I just wanted to get 
your thoughts on that.
    Mr. Clayton. I agree with you.
    Mr. Loudermilk. OK. Thank you. Mr. Chairman, I yield back.
    Mr. Hill. The gentleman from Georgia yields back. Now it is 
my pleasure to recognize my good friend from Connecticut, Mr. 
Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman.
    Chairman Clayton, it is great to see you. Thank you for 
being here. I think I may be the last here, although you never 
know who is going to appear. But great to see you here.
    I really want to just start by commending you. I read the 
testimony here, and this emphasis on Main Street investors and 
all that gives them confidence. I think that is a great 
approach. I really appreciate your intense focus on ICOs. To 
me, the frenzy in that space feels a lot like what I remember 
in 1999 and 2000 around the Internet space, and I think there 
is a real opportunity for people to get hurt, and so I really 
appreciate your focus and aggressive attention to that.
    I want to bring up two topics, neither of which will 
surprise you, both of which I think are consistent with Main 
Street confidence, one indirectly, which is something I know we 
have talked about before, but my ongoing obsession with what I 
think is questionable behavior in the charging of fees and 
initial public offerings and the absolute perfect consistency 
of the 7 percent growth spread.
    The reason I care about that, maybe it is not so much Main 
Street investors, but you tout the JOBS Act, and we are working 
on Jobs 2.0, and we are talking about saving young companies $1 
million, $2 million, $3 million max in their early stages, and 
an IPO of $200 million with 7 percent growth spread, that is 
$14 million. We are talking about very real money that comes at 
a very sensitive time for young companies.
    Since we last talked about this, I have sent you a letter 
noting that one of your fellow Commissioners has taken an 
interest in this, and Mr. Eggers, who was before us, agreed 
with me that it didn't feel like competitive behavior.
    Anyway, I sent you a letter and very much hope--I am not--
again, I am not prejudging this, but I am saying there is 
enough there that we and FINRA and you need to take a look and 
make sure that we have good, competitive market capitalism 
operating in IPO pricing. There is no question there, but--
    Mr. Clayton. You and I share a passion for competitive 
markets.
    Mr. Himes. The letter makes a specific ask that you and 
FINRA study it. I am not going to hold you to that right now 
because I suspect you probably have just gotten the letter and 
are looking at it, but I do think it is important to young 
companies.
    More to, again, consistent with Main Street investors--and 
this is really about Main Street confidence. I continue to be 
very concerned about what I regard as the legal ambiguity and 
mess around insider trading. I continue to be troubled by the 
fact that it looks like we have inconsistent, unpredictable, 
fuzzy law around insider trading, driven largely by decisions, 
some of which go with each other and some of which don't in the 
Second Circuit.
    I would like to--there actually is a question attached to 
this speech--which is I would like to just hear you for a 
minute or 2 on whether you think the time is right for Congress 
to finally in statute define the crime of insider trading.
    Mr. Clayton. You and I have talked about this. I have 
talked about it with people who are very experienced, including 
judges, people who hear the cases. There are arguments both 
ways on this. Bringing more certainty to the space eliminates 
some of the behavior that troubles you that you feel is not 
caught. I think if I am--I don't want to assume that you are--
you are troubled by the fact that there is probably some 
behavior that you think should be sanctioned and isn't?
    Mr. Himes. Yes, but I am actually--in the spirit of Main 
Street--look, I am not a lawyer and I am not an expert on a lot 
of things, but I am an expert on public sentiment because that 
is what I do, and there is just a general sense out there with 
all the reversals of convictions and with all the activity in 
the Second Circuit in particular that we really have no idea 
what insider trading is, and somebody gets convicted and the 
conviction gets overturned. That in the aggregate is a huge 
source of uncertainty and therefore risk in the minds of 
individual investors who say, why should I play if I am at a 
disadvantage because I am doing this honestly?
    Mr. Clayton. I understand that. I am not sure that a 
statutory approach would bring any more clarity. That is my 
issue. I am very happy to discuss it, look at it, but when you 
look at jurisdictions that do have a statutory approach, I am 
not sure that there is any greater clarity regarding behavior.
    I can tell you--and, look, you know how I feel about this--
I may be biased. When people bring me, when I was in the 
private sector, fact patterns, and would say, ``Hey, what do 
you think about this activity,'' it wasn't very hard to say I 
don't like that.
    Mr. Himes. OK, to be continued. Thank you very much, Mr. 
Chairman.
    Chairman, I yield back the balance of my time.
    Mr. Hill. The gentleman from Connecticut yields back. The 
gentleman from Ohio, Mr. Davidson, is recognized for 5 minutes.
    Mr. Davidson. Chairman, thank you so much for being here, 
and thanks for the work you and your team are doing at the SEC 
to make sure our capital markets stay the world's best. I 
especially appreciate the work you are doing on ICOs, and we 
will spend a lot of time on that, hopefully, or what little 
time I have, with one sidebar.
    Earlier this year, I introduced the Due Process Restoration 
Act, earlier this Congress. It relates to the SEC's use of 
administrative law judges. As you now know, the Supreme Court 
has ruled that this practice is unlawful, unconstitutional, and 
should not proceed. Could you give us any guidance or reaction 
to that decision?
    Mr. Clayton. No, because I haven't read it.
    Mr. Davidson. Fair point. I look forward to working with 
the SEC on how to move forward and how might our existing law 
or bill, really, fit with the path forward.
    Toward that end, our office is building what we hope to be 
the first ICO body of law in terms of clarity around the 
regulatory framework for ICOs, because I think a light-touch 
regulatory framework can do for our capital markets with ICOs 
what it has done on so many other things, provide certainty, 
provide clarity, and provide security, not just national 
security, but for protections against fraud.
    I have been concerned that the disparate set of court 
opinions might not be as coherent as we would like or, frankly, 
the SEC would like, consumers would like, and in particular, 
investors would like. If the U.S. is going to truly be a world 
leader in this critical distributed ledger technology, I think 
we need to get this regulatory certainty.
    To use an example of folks that have tried to do this, 
Ripple is just one of many digital assets that come to mind. I 
am aware there are numerous court cases regarding this company. 
Do you think it is prudent for Congress or the SEC to lead the 
way in clarifying what is a security or commodity, instead of 
waiting for the courts?
    Mr. Clayton. I think, as regulators of the securities 
market, it is important for us to bring clarity to those 
markets. I do. But I think we are doing that.
    We have turned to this space. We have issued guidance. The 
space is developing. But all of that guidance and our 
enforcement actions are rooted in a very well-tested approach 
to the raising of capital in the United States. I can't be more 
clear about this. I am not going to advocate for any 
fundamental changes in the way we raise capital to accommodate 
the technology. Now, the technology can make what we do more 
efficient, but I am not going to change the rules because we 
have a new technology.
    Mr. Davidson. Yes, fair point. The Howey test has been 
there, and I appreciate, frankly, Director Hinman last week 
clarifying that Ether is not viewed as a security. There had 
been some concern after some of your remarks that everything 
looks like it fits with the Howey test and--
    Mr. Clayton. When you are raising capital for a project--
    Mr. Davidson. Right. As I think you and I agree, certainly 
many companies have essentially engaged in regulatory arbitrage 
and used white papers to raise more capital than they could 
through the existing framework. However, some companies--for 
securities. That body of law, I think you guys have taken an 
effective approach.
    Mr. Clayton. We want to help people. Look, I am not saying 
do it, then--we want to help people--
    Mr. Davidson. You set up an office to be able to do that 
and equipped it with resources, so I appreciate that. One 
example, though, of people that have tried to follow like the 
Reg A+, that has a 90-day period where they are supposed to 
receive feedback, but there are companies that have gone well 
past 90 days at this point and they are waiting for a decision. 
Is that decision delayed because Reg A+ decisions are normally 
delayed? Or is that because we are going through a certain set 
of scrutiny for ICO-type companies?
    Mr. Clayton. I am not aware of any specific facts, but I 
can tell you that the Reg A process, if somebody submits a 
deficient filing, is going to take longer than the usual period 
of time because you have to send it back to them and have them 
resubmit, as if it doesn't have financial statements.
    Mr. Davidson. Correct. It could be specific things, but I 
just want to highlight, you guys have made a way forward for 
people to comply with existing securities laws, and you have 
done good enforcement actions. I look forward to seeing how you 
move forward and look forward to continuing to cooperate to 
launch this legislative certainty.
    My time is expired and I yield, chairman.
    Mr. Clayton. Thank you.
    Mr. Hill. The gentleman's time has expired. Now the 
gentleman from Nevada is recognized for 5 minutes.
    Mr. Kihuen. Thank you, Mr. Chairman, and thank you, 
Chairman Clayton, for being here this afternoon.
    As you are aware, Las Vegas suffered the worst mass 
shooting in modern history last October 1st. Las Vegas is my 
hometown. I represent part of Las Vegas. Fifty-eight people 
lost their lives and over 500 people were injured.
    My community, as you can imagine, is still trying to heal 
from this tragedy. Now, given Congress's refusal to take any 
efforts to prevent gun violence, we have seen many corporations 
step up, from Dick's Sporting Goods to Delta Air Lines. CEOs 
are rejecting those who say there is nothing we can do. I 
applaud them for leading corporate social responsibility and to 
help save lives and prevent gun violence in the future.
    Now, like Congresswoman Maloney mentioned earlier, I would 
also like to talk a little bit about Citigroup. After the 
tragedy at Parkland a few weeks ago, Citi announced the new gun 
policies for their financial partners to require background 
checks and prohibit guns for teenagers. I know that you are 
familiar with those guidelines.
    It is reported that in April, a Republican member of the 
SEC, Michael Piwowar, threatened Citigroup, saying that because 
of their private gun policies, the bank lacked support for 
their agenda at the SEC. Now, Republicans and Democrats can 
agree that no regulated entity like Citibank should be punished 
at the SEC.
    I have a couple of questions, Mr. Chairman. Have you ever 
been contacted by anyone at the NRA about Citi or Bank of 
America gun policies?
    Mr. Clayton. No.
    Mr. Kihuen. Never?
    Mr. Clayton. I have been contacted--well, let me--
    Mr. Kihuen. In regards to this specific policy, that 
somebody will be punished if they follow background checks on 
their policies.
    Mr. Clayton. No.
    Mr. Kihuen. OK. Have you ever spoken with Citigroup or Bank 
of America about their gun policies?
    Mr. Clayton. No.
    Mr. Kihuen. OK. Have you ever discussed any company's gun 
policies with the SEC staff?
    Mr. Clayton. Not that I recall.
    Mr. Kihuen. You have never had any conversation in regards 
to any gun policies with any of these entities?
    Mr. Clayton. No, I am thinking because people have 
disclosures, they make disclosures, but have I--are you asking, 
like, gun policy in terms of SEC policy vis-a-vis gun policy?
    Mr. Kihuen. Absolutely, yes.
    Mr. Clayton. No. No.
    Mr. Kihuen. Again, as I stated before, a Republican member 
of the SEC, Michael Piwowar, threatened Citigroup. This is back 
in April, saying that because of their private gun policies, 
that the bank lacked support for their agenda at the SEC. Not 
only is that unethical, that is illegal. I am asking you, as a 
chairman if you have ever had that type of conversation?
    Mr. Clayton. That specific--that report and that incident, 
I am not going to discuss that. That has been a subject raised 
before, and as I said, the question of whether there should be 
an investigation is on the table, and it is inappropriate for 
me to discuss anything related to that subject. But as far as 
your other questions to me--
    Mr. Kihuen. Let me ask you this, are you aware of the gun 
policies?
    Mr. Clayton. Yes.
    Mr. Kihuen. The new implemented gun policies?
    Mr. Clayton. I mean, the--
    Mr. Kihuen. OK.
    Mr. Clayton. When you say the gun policies, you mean the 
policies that private companies have adopted?
    Mr. Kihuen. Correct.
    Mr. Clayton. Yes. Yes, I am aware of them.
    Mr. Kihuen. OK. Now, do you believe that Commissioners and 
staff should require greater ethics training to prevent this 
type of conflict of interest from happening in the future?
    Mr. Clayton. I think that touches on what we talked about. 
I am not going to comment on that in this forum at this time.
    Mr. Kihuen. OK. Now, I understand that an IG investigation 
has been requested. Will you agree to fully cooperate with this 
investigation?
    Mr. Clayton. I always cooperate with the IG investigations.
    Mr. Kihuen. Thank you, Mr. Chairman.
    Last, I just want to, again, thank you for being here. 
Thank you for being so patient with all of us. I hope that this 
is addressed and that our regulatory agencies, including the 
SEC, are not threatening private companies on behalf of the NRA 
or any other special interest group, because again, as I said, 
it is not only unethical, but it is also illegal.
    Thank you, Mr. Chairman. I yield the remaining balance of 
my time.
    Mr. Hill. The gentleman from Nevada yields the balance of 
his time. That concludes our hearing.
    I want to thank the patience, as the gentleman from Nevada 
noted, of our witness, and appreciate his testimony today. The 
Chair notes that some Members may have additional questions for 
this panel, 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 
these witnesses and to place their 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.
    [Whereupon, at 1:24 p.m., the committee was adjourned.]
    

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               June 21, 2018
                             
                             
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