[Senate Hearing 115-9]
[From the U.S. Government Publishing Office]





                                                          S. Hrg. 115-9

 
                       NOMINATION OF JAY CLAYTON

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                   ON

   THE NOMINATION OF JAY CLAYTON, OF NEW YORK, TO BE A MEMBER OF THE 
                   SECURITIES AND EXCHANGE COMMISSION

                               __________

                             MARCH 23, 2017

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban Affairs
  
  
  
  
  
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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                Brandon Beall, Professional Staff Member

                Graham Steele, Democratic Chief Counsel

            Laura Swanson, Democratic Deputy Staff Director

                 Elisha Tuku, Democratic Senior Counsel

                       Dawn Ratliff, Chief Clerk

                      Shelvin Simmons, IT Director

                     Cameron Ricker, Hearing Clerk

                          Jim Crowell, Editor

                                  (ii)
                                  


                            C O N T E N T S

                              ----------                              

                        THURSDAY, MARCH 23, 2017

                                                                   Page

Opening statement of Chairman Crapo..............................     1
    Prepared statement...........................................    45

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2
    Senator Warner
        Prepared statement.......................................    45

                                NOMINEE

Jay Clayton, of New York, to be a member of the Securities and 
  Exchange Commission............................................     4
    Prepared statement...........................................    46
    Biographical sketch of nominee...............................    48
    Responses to written questions of:
        Senator Heller...........................................    64
        Senator Sasse............................................    66
        Senator Cotton...........................................    75
        Senator Perdue...........................................    76
        Senator Tillis...........................................    78
        Senator Brown............................................    82
        Senator Reed.............................................    90
        Senator Menendez.........................................    92
        Senator Tester...........................................    99
        Senator Warner...........................................   102
        Senator Warren...........................................   107
        Senator Donnelly.........................................   112
        Senator Schatz...........................................   113
        Senator Van Hollen.......................................   115
        Senator Cortez Masto.....................................   117
        Senators Heitkamp and Heller.............................   124
        Senators Heitkamp, Tester, and Donnelly..................   125

              Additional Material Supplied for the Record

SEC Settlement Order for Trump Hotels & Casino Resorts, Inc., 
  dated January 16, 2002.........................................   127
Correspondence from The Trump Organization to The Honorable 
  Harvey L. Pitt, The Honorable Isaac C. Hunt, Jr., and The 
  Honorable Laura S. Unger, dated December 14, 2001..............   136
Correspondence from The Trump Organization to The Honorable 
  Harvey L. Pitt, dated January 28, 2002.........................   137

                                 (iii)


     NOMINATION OF JAY CLAYTON, OF NEW YORK, TO BE A MEMBER OF THE 
                   SECURITIES AND EXCHANGE COMMISSION

                              ----------                              


                        THURSDAY, MARCH 23, 2017

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 9:33 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    This morning, we will hear testimony on the nomination of 
Jay Clayton to be Chairman of the United States Securities and 
Exchange Commission.
    Mr. Clayton has extensive expertise in our financial 
markets as a highly regarded securities lawyer. For decades he 
has helped companies access our capital markets, increase their 
ability to invest in the United States, and grow and create 
jobs.
    One area on which Mr. Clayton has already indicated he will 
focus is capital formation. Capital markets drive innovation 
and job creation, and access is the lifeblood of our economy.
    The JOBS Act helped revitalize the primary markets, and 
both Congress and the SEC should continue to find ways to help 
companies go public and allow their investors to share in their 
success.
    Recently, this Committee marked up several bipartisan 
securities bills, and we encourage you, Mr. Clayton, if 
confirmed, to help us identify other securities areas which 
could use legislative improvement.
    The SEC has an important three-part mission: protect 
investors; maintain fair, orderly, and efficient markets; and 
facilitate capital formation. Each part of the mission is 
equally important and should not come at the expense of 
another. I raise this because the SEC's mission is critical to 
every U.S. citizen and retiree. Investors should be able to 
participate in our markets, on fair footing, so that they can 
pay for life events such as college and save for retirement.
    We also need to help investors make sure they have material 
information to make informed investment decisions. I have 
repeatedly stressed the need for the U.S. financial system and 
its markets to remain the preferred destination for investors 
throughout the world, and the SEC has an important role to that 
end. I look forward to hearing more from you on how we can help 
companies grow, Americans get hired, and investors share in the 
wealth creation by these companies.
    Another important issue that the SEC is tasked with is 
ensuring that the stock market rules and regulations are still 
appropriate, given that most of them were promulgated in a time 
where technology was much less advanced. It is imperative that 
these rules serve the needs of companies and investors.
    In that vein, it is important for the SEC to do 
retrospective reviews of its own regulations to ensure they are 
working out as intended and are still acceptable. This is in 
line with the President's own Executive orders on regulation.
    Other regulators are subject to EGRPRA, the Economic Growth 
and Regulatory Paperwork Reduction Act, which statutorily 
mandates a review and an evaluation of existing regulations in 
order to identify which are outdated, unnecessary, or unduly 
burdensome.
    While technically the SEC is not subject to EGRPRA, your 
predecessor, Chair White, indicated before this Committee that 
she was ``very much committed to reviewing [the SEC's] rules in 
that fashion.'' A commitment like that is one that many would 
like to see continue.
    Additionally, it is important for the SEC to have robust 
cost-benefit analysis. I have long stated this position, and 
our President recently echoed the importance of cost-benefit 
analysis in an Executive order.
    I look forward to hearing from you, Mr. Clayton, today on 
these issues, as well as what you hope to prioritize when you 
are at the SEC.
    Congratulations on your nomination, and thank you and your 
family for your willingness to serve.
    I now turn it over to Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman.
    Congratulations, Mr. Clayton, on your nomination to be the 
Chair of the United States Securities and Exchange Commission. 
I appreciate your willingness to enter public service. All of 
us know some of the demands that puts on you and on your 
beautiful family, so thank you for your willingness to stand up 
and be here.
    As in past SEC nominee hearings, we have discussed a number 
of points that are still relevant today, even if technology, as 
the Chairman said, has changed how the markets work. For 
example, how do we improve investor protection? How do we 
strengthen accounting rules and reliable financial statements? 
How do we better enforce violations of law and bring real 
accountability for misconduct?
    Candidate Trump certainly understood that the American 
people are tired of the continual news of misbehavior on Wall 
Street with far too often minimal consequences or 
accountability. About a year ago, Candidate Trump went to 
Ottumwa, Iowa, site of a ``Stand up for the Little Guy'' speech 
by Teddy Roosevelt, and also the home of Radar, who my staff 
told me nobody under the age of 50 will know what I am talking 
about. You do? Are you over 50? You are over 50, OK.
    Candidate Trump promised the people of Ottumwa that he, 
quote, knew Wall Street, that he knew the people on Wall 
Street, and that he would not let Wall Street get away with 
murder. That was Candidate Trump. I bet the audience at that 
speech would be surprised to learn that the President has 
picked Goldman Sachs alumni to run the National Economic 
Council, to occupy the top two jobs at Treasury, and that he 
has turned to Goldman Sachs outside counsel to run the SEC.
    As Candidate Trump knew, as Americans sacrifice and save 
for retirement, college bills, or a downpayment on a home, they 
are more skeptical and less trusting of the market. Whether it 
is another flash crash, a $1 billion Ponzi scheme, a $1 
trillion financial crisis, people worry about trusting the 
market with their hard-earned savings. That is what you walk 
into, Mr. Clayton. Americans worry that the financial system is 
rigged against them. At a time when we are actually debating 
whether retirement advisers should put their clients' interests 
first--think of that; we debate here whether retirement 
advisers should put their clients' interests first--it is hard 
not to see why people feel that way.
    If ordinary fears were not enough, in recent years we have 
learned and witnessed the significant financial risks of 
hacking and cyber crime as well as climate change. It seems as 
the list of concerns grows longer, the insistence--the 
insistence--for removing protections against fraud and abuse 
grows louder and more sweeping as amnesia, collective amnesia, 
swept across this body. I hope we do not spend the next 2 hours 
discussing issues that you agree are important, only to see 
those issues ignored if you are confirmed.
    You spent your career protecting some of the biggest names 
on Wall Street, and those relationships pose a host of 
conflicts for this position. I am concerned you may need to 
recuse yourself too often at a time when we need a strong, 
independent SEC Chair on the front line of enforcement, not 
watching from the sidelines. Your record representing banks and 
bankers and hedge funds and executives speaks for itself. But 
those people are already well represented among the President's 
friends, supporters, advisers, and far too many people in all 
three branches of Government.
    I want to hear today what you will do to represent glass 
workers in Lancaster, Ohio, auto workers in Warren Ohio, steel 
workers in Canton, Ohio. In some cases, private equity or a 
hedge fund took control of their company and hastily shipped 
factory jobs overseas. The people who still have jobs continue 
to scrape by as incomes are stagnant, as their paychecks and 
benefits have grown smaller over the years because management 
cared more about pleasing Wall Street and padding their profits 
and their bottom lines than doing right by working people.
    Meanwhile, executive pay keeps going up and up and up. 
Workers nearing retirement have had their pension and health 
care benefits slashed. That is why the pay ratio rule, the 
disclosure of corporate political spending, the fiduciary rule, 
the anticorruption efforts around natural resources and mining 
industries--I could go on and on and on and on about the 
special interest influence in this body and in the 
Administration. That is why all of those rules are so 
important.
    There is a lot of ground to cover. If I do not get through 
all my questions here--and I know colleagues will do the same--
I will submit them separately for the record.
    Mr. Chairman, thank you, and, Mr. Clayton, thank you again 
for your willingness to serve.
    Chairman Crapo. Thank you very much, Senator Brown.
    Mr. Clayton, will you now please rise and raise your right 
hand? Do you swear or affirm that the testimony you are about 
to give is the truth, the whole truth, and nothing but the 
truth, so help you God?
    Mr. Clayton. I do.
    Chairman Crapo. Thank you. And one more question. Do you 
agree to appear and testify before any duly constituted 
committee of the Senate?
    Mr. Clayton. I do.
    Chairman Crapo. Thank you. You may take your seat.
    Your written statement will be made a part of the record in 
its entirety. Again, I give you my congratulations on your 
nomination. And before you begin your statement to the 
Committee, you may, if you choose, introduce the members of 
your family. I see you have a beautiful family here with you.
    Mr. Clayton. Great. I will do that. Thank you, Senator. I 
will start at this end: My father, Walter Clayton; my mother, 
Kathi Clayton; my wife, Gretchen; my daughters Haley and 
Jasper; my son, Wyatt; my youngest brother, Andrew; and his 
wife, Michelle, are all here for me today.
    Chairman Crapo. Well, thank you. You are very fortunate to 
have such a beautiful family and have them here with you.
    Mr. Clayton, you may proceed.

 STATEMENT OF JAY CLAYTON, OF NEW YORK, TO BE A MEMBER OF THE 
               SECURITIES AND EXCHANGE COMMISSION

    Mr. Clayton. Thank you very much, Senator.
    Chairman Crapo, Ranking Member Brown, and Members of the 
Committee, I am honored to appear before you today as President 
Trump's nominee to chair the Securities and Exchange 
Commission. I want to thank you and your staff for the time you 
have spent with me. I have enjoyed, and learned from, our 
meetings.
    Our capital markets have far-reaching and profound effects 
for every American. Making sure our markets are fair, open, 
orderly, and efficient--and ensuring that investors are 
protected--is the fundamental responsibility of the SEC. If 
confirmed, I will take up this responsibility with energy and 
purpose. I pledge to work with my fellow Commissioners, the SEC 
staff, this Committee, and the many others who support and 
defend our capital markets.
    The importance of Government service was instilled in me 
from a young age. Six weeks after I was born, my father shipped 
out to Vietnam as a second lieutenant, and my mother, 20 at the 
time, and I moved to her childhood home in Lykens, 
Pennsylvania. We lived with her parents and her four younger 
brothers.
    Lucky for me, my grandfather, Pat Kerwin, the eighth and 
last child of coal miners, a small-town lawyer and perpetual 
public servant, both in title and action, took a strong 
interest in me. We were great friends for 20 years. Remarkably, 
for as far back as I can remember, he took me to township 
meetings, real estate closings, and estate sales. These 
experiences, much more Main Street than Wall Street, made a 
deep and lasting impression on me.
    When I entered the ninth grade, we moved as a family for 
the last time to Delaware County, Pennsylvania. I met new 
friends, mostly through sports. One of those friends, who has 
long been my best friend, is my wife, Gretchen. We met 36 years 
ago and have been married for 25 years. I want to specifically 
thank Gretchen for her encouragement, love, and support. As 
Chair of the SEC, I will be mindful of my responsibility to my 
children and their generation.
    During the course of my 20-plus-year career as a 
transactional lawyer, it has been my privilege to work with 
leaders in the public and private sector, including on landmark 
transactions, such as the world's largest IPO, as well as 
important transactions during the dark days of the financial 
crisis. From my 5 years living and working in Europe--where I 
worked on matters involving the laws and markets of no fewer 
than a dozen countries, including France, Sweden, Turkey, 
Switzerland, Italy, England, Greece, and Germany--I learned 
that the world's capital markets are very interconnected and, 
more broadly, that America is, indeed, the greatest country.
    My work has included counseling a number of small 
businesses and individuals. During my college and postgraduate 
years, my mother and father operated a small warehousing and 
logistics business. I worked with them on various projects, 
including lease negotiations, inventory system design, and 
establishing a 401(k) plan for employees. There were ups and 
downs, and I learned firsthand the many challenges that small 
and medium-sized businesses face as well as their importance to 
our economy.
    Based on all of my experiences, nationally and 
internationally, on Wall Street and Main Street, I firmly 
believe that:
    One, well-functioning capital markets are important to 
every American;
    Two, all Americans should have the opportunity to 
participate in, and benefit from, our capital markets on a fair 
basis, including being provided accurate information about what 
they are buying when they invest; and
    Three, there is zero room for bad actors in our capital 
markets.
    I am 100 percent committed to rooting out any fraud and 
shady practices in our financial system. I recognize that bad 
actors undermine the hard-earned confidence that is essential 
to the efficient operation of our capital markets. I pledge to 
you and to the American people that I will show no favoritism 
to anyone.
    One last comment: For over 70 years, the U.S. capital 
markets have been the envy of the world. Our markets have 
allowed our businesses to grow and create jobs. Our markets 
have provided a broad cross-section of America with the 
opportunity to invest in that growth, including through pension 
funds and retirement assets. In recent years, our markets have 
faced growing competition from abroad. U.S. listings by non-
U.S. companies have slowed dramatically. More significantly, it 
is clear that our public capital markets are less attractive to 
business than in the past. As a result of these developments, 
investment opportunities for Main Street investors are more 
limited. Here I see meaningful room for improvement.
    I am excited to work with you, my fellow Commissioners, and 
the SEC staff to pursue those improvements, and in doing so, I 
will always be vigilant to ensure that the Commission is 
steadfast in protecting investors.
    Thank you for this opportunity. I look forward to receiving 
your advice and answering your questions.
    Chairman Crapo. Thank you for your statement, Mr. Clayton.
    And before I begin my questions, I would just like to 
remind the Members of the Committee that we will be working on 
a 5-minute timeframe for each segment, and I encourage Members 
to honor that so that all of our colleagues can have an 
opportunity to get their questioning in.
    And as Senators are prone to do, you may get a question 
right at the end of the 5 minutes, Mr. Clayton. If that 
happens, I will allow you to answer the question, but I 
encourage you to be brief in those answers.
    First, you are a highly regarded attorney who has received 
recognition for your expertise in the securities field. Some 
have raised concerns that your success and your former clients 
will create conflicts for you. Frankly, could you quickly 
provide us your thoughts on this issue?
    Mr. Clayton. Yes, Senator, and I will try to be brief. I 
have been fortunate to have a diverse experience as a 
transactional lawyer and a securities lawyer dealing with a 
number of participants in our capital markets, both nationally 
and internationally, in a number of different settings--
securities offerings, private capital raisings, mergers and 
acquisitions, regulatory matters, et cetera. I believe that 
that is a strength. I also believe that the types of matters I 
have worked on, which involved problem solving, is a strength.
    As far as the extent of my practice and whether the 
recusals that would be required and the potential conflicts 
will impair my ability to act as Chair of the Securities and 
Exchange Commission, I do not believe they will do so. I have 
discussed this at length with the SEC Ethics Office, with the 
Office of Government Ethics. This is not a new issue. There is 
a protocol in place for dealing with those matters. Most 
importantly, I believe that if I am recused, that my fellow 
Commissioners will be able to handle the matters ably and to 
good effect.
    Chairman Crapo. Thank you very much. And I agree with your 
observation. It seems a little surprising to me that a person's 
success in a field in which we are asking them to now lead an 
agency could be a criticism. So I appreciate your commitment to 
assure that conflicts will not arise and that you will fairly 
and impartially administer the agency.
    Mr. Clayton, in your opening statement, you discussed the 
dearth of initial public offerings and the need to keep our 
capital markets robust, serving as engines for our economy. Can 
you please let us know any particular thoughts on how the SEC 
can aid in this process?
    Mr. Clayton. Yes, I very much--I am looking at this from 
the outside. I very much look forward to discussing this with 
my fellow Commissioners and with the SEC staff. But I will note 
that easing the on ramp to the public capital market process--
and when I say ``easing the on ramp,'' I do not mean easing the 
important regulations that public companies face. I mean making 
it less costly up front to become a public company has had an 
effect on the market.
    When I go to meetings where a company is considering 
whether to go public or not, one of the first questions that is 
asked is: Is this an emerging growth company? Because that has 
made it easier for companies to become registered public 
companies in this country.
    Chairman Crapo. Thank you.
    The equity markets have seen a lot of change in the past 
few decades, including in terms of companies and products 
listed as well as the technology behind it and the investors 
participating in it. Your predecessor as well as the current 
Acting Chairman and other former Commissioners have stated that 
there is a need to review the current equity market structure, 
and such a review should be disciplined and conducted in a 
data-driven manner.
    What are your thoughts on continuing the SEC's review of 
market structure? And what steps does the SEC still need to do?
    Mr. Clayton. Senator, I think it is very apparent that 
technology continues to change our markets, and that is 
something that will continue unabated. The markets respond, 
technology responds. I believe that we need to engage in a 
virtually constant assessment of whether our markets are 
operating efficiently and for all investors.
    As far as the specifics of the market structure analysis 
that the Commission has going on now, I do believe that they 
should continue. I have become, thanks to some of the 
questioning from you and your staff, more familiar with that, 
and I do believe that we should continue examining market 
structure going forward.
    Chairman Crapo. Well, thank you. I would just let you know 
at the conclusion of my 5 minutes that this is a very important 
issue to us, and we look forward to receiving the input from 
the SEC from its analysis and deliberations. So I encourage you 
to pursue that very aggressively.
    Mr. Clayton. Thank you.
    Chairman Crapo. I will yield back 15 seconds out of my 5 
minutes. Senator Brown.
    Senator Brown. I will take it. Thank you.
    Chairman Crapo. You will take it.
    [Laughter.]
    Senator Brown. Thank you, Mr. Chairman.
    Given this Administration's unprecedented business in 
commercial entanglements and demonstrated lack of transparency, 
lack of interest in transparency, we must focus on the 
potential conflicts of interest that this creates for people 
like you, for the Administration's nominees. In the case of the 
SEC, this is not hypothetical. In 2002, President Trump's 
casino business settled an SEC enforcement action over the use 
of non-GAAP financial data. Before the case settled, he sent a 
letter to the entire Commission asking for leniency. Following 
the settlement, he sent a thank you note to then Chair Harvey 
Pitt for personally talking to him and ``being fair.''
    Mr. Chairman, I want to submit those documents for the 
record.
    Chairman Crapo. Without objection.
    Senator Brown. My question is this: In an Administration 
replete with billionaires, many of whom, as we learned in 
confirmation hearings, had multiple conflicts of interest and 
ethical lapses, how will you ensure the SEC's independence in 
matters that affect his personal business, the President's, and 
other Administration officials' businesses?
    Mr. Clayton. Senator, as I said in my opening statement and 
I will repeat, if I am lucky enough to be confirmed, I am 
committed to showing no favoritism to anyone in this position.
    Senator Brown. OK. What members of the Trump administration 
or its transition team did you communicate with prior to being 
selected by the President as his nominee?
    Mr. Clayton. Members of the current Trump administration or 
transition team. I was asked by the transition team--how I got 
introduced to this process, Senator, was I was asked by the 
transition team for my thoughts on the capital markets and 
things that could be done to improve capital formation. I met 
with several members of the transition team to do that. I did 
not think that I would be sitting here today when I met with 
them. The possibility of me going into public service was 
raised. I then met with members of the transition team who 
screened candidates, and then I met with now President Trump, 
Mr. Priebus, and Mr. Bannon to be interviewed for the job, and 
was later nominated.
    Senator Brown. Would you reconstruct, not right now but 
submit to the Committee, the names of people that you can 
reconstruct and look at your notes that you met with in the 
first round, if you would possibly do that?
    Mr. Clayton. Yes.
    Senator Brown. Do you know if anyone you spoke with has 
businesses regulated by the SEC?
    Mr. Clayton. I do not, but I would expect they do.
    Senator Brown. Would you submit that to us also?
    Mr. Clayton. Yes. To the extent I can, yes.
    Senator Brown. OK. Thank you.
    The President signed an Executive order directing the 
review of financial regulations and stated that he planned ``to 
do a big number on Dodd-Frank.'' Gary Cohn, former president of 
Goldman Sachs and now National Economic Council Director, 
declared, ``We are going to attack all aspects of Dodd-Frank.'' 
What aspects of Dodd-Frank will you be attacking?
    Mr. Clayton. I do not have any specific plans for attack, 
Senator. I do believe that Dodd-Frank should be looked at, in 
particular, rules that have been in place as to whether they 
are achieving their objectives effectively. But I have no 
specific plans for attacking a particular provision of Dodd-
Frank, Senator.
    Senator Brown. Has anyone whom you met with talked to you, 
anyone from the transition or the Administration you have 
talked to made suggestions and questioned--did they question 
the efficacy and the fairness of Dodd-Frank and suggested to 
you that it needs reform or change or repeal?
    Mr. Clayton. As a general matter, the question of whether 
Dodd-Frank has been effective is a question that is on the 
minds of people in the Administration based on my interaction 
with them, yes. Have I had specific discussions with them about 
a particular aspect of it? No. My interaction with the 
Administration since I was nominated has been quite limited.
    Senator Brown. Do you see your job to help the 
Administration, as they said they want to, deregulate Wall 
Street? Or do you see your job following the law and to finish 
writing the rules mandated by Congress?
    Mr. Clayton. Senator, I see my mission as very much the 
tri-part mission of the SEC: investor protection, capital 
formation, and efficient markets.
    Senator Brown. OK.
    Mr. Clayton. Thank you.
    Senator Brown. Thanks.
    Chairman Crapo. Thank you.
    Senator Shelby.
    Senator Shelby. Thank you. Welcome, Mr. Clayton.
    I believe that the nominee before us today represents what 
we once valued in this country: an individual who rises from 
modest means to the pinnacle of his profession and then answers 
the call of public service--a good dead that I can assure you 
will not go unpunished here.
    Instead of applauding such achievement, some will seek to 
minimize your accomplishments and impugn your motivation or 
ability to serve. I wished it were not true.
    Following the crash of the U.S. housing market in 2007, the 
near collapse of the worldwide financial system, we had a 
unique opportunity here to closely study the causes of the 
crisis and develop a rational and targeted legislative 
response. Regrettably, that did not happen.
    As an attorney, you act as an adviser, advocate, and 
negotiator. We should all realize this. In so doing, you 
represent the clients' best interests consistent with their own 
ethical obligations and yours.
    I believe attorneys should never be judged by the parties 
that they represent but, rather, by the quality of the 
representation that they provide. In this particular nominee, I 
believe we are fortunate to have one of our Nation's very best 
legal practitioners. He understands corporate structure, 
capital markets, and capital formation, as well as the 
statutory and regulatory requirements that govern those 
disciplines.
    The mission, as I understand it from many years on the 
Committee, 31 years here, of the U.S. Securities and Exchange 
Commission is to protect investors, maintain fair, orderly, and 
efficient markets, and facilitate capital formation that is 
absolutely necessary to promote and sustain economic growth in 
this country. I believe your background, your education, and 
experience make you particularly well qualified and suited to 
be Chairman of the Securities and Exchange Commission, and I 
look forward to supporting your nomination.
    Having said that, I have one question. I have long 
advocated here the need for comprehensive cost-benefit analysis 
for all agency rulemakings, not just the SEC. If the benefit of 
a rule or regulation cannot be shown to outweigh its cost, I 
believe it should not be brought forth.
    Would you share your views, if you have thought about 
this--and I am sure you have--on the role of cost-benefit 
analysis in the rulemaking process which you will be confronted 
with?
    Mr. Clayton. Thank you. Thank you for your comments, and, 
yes, I will. I do believe that the economic impact of rules and 
regulations that are promulgated--I am going to focus 
specifically on the Securities and Exchange Commission--is very 
important, not only quantitatively but qualitatively. I think 
that we are often looking back after a decade or two decades 
and saying, ``Wow, that had profound effects that we did not 
realize,'' and some of them turn out to be more costly than we 
would have imagined.
    I think rigorously examining the effects of rules, and, in 
particular, some of their far-reaching costs, is a very 
important aspect of the Commission's work.
    Senator Shelby. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman. And welcome to 
you and to your beautiful family. You know, you will have to 
sit through a whole lot of boring questions, and so we 
apologize for that. But the position that your father and your 
husband and your son has been nominated for is incredibly 
important to the functioning capitalism that we have in this 
country. And I think that it is critically important that we 
understand exactly how you intend to administer and participate 
in that job.
    I want to just make a couple quick points that relate to 
some projects that I have been involved in and that I have been 
working on, and that is, how the SEC relates to small business. 
The vast majority of North Dakota business is small business. 
Many of our startups find challenges in getting startup 
capital, and we want to make sure that a bill that Senator 
Heller and myself were able to get passed last time would 
require the Commission to appoint at least ten individuals 
across the country to serve on a new small business capital 
formation advisory committee. I want your commitment that you 
will make this one of your top priorities if you are confirmed. 
Say yes.
    [Laughter.]
    Mr. Clayton. I appreciate the assistance. Capital for small 
business is very important.
    Senator Heitkamp. OK. And I want to make sure that when you 
are making these appointments and looking at this that you find 
people with rural experience. And by rural, I do not mean a 
community of a half a million people. That is not rural. I want 
you to take a look at, as we look at rural economic 
development, bringing in broadband. We are going to have more 
and more opportunities.
    We also are working on another bill with Senator Heller, 
Supporting American Innovators Act, which would raise the 
number of investors who could participate from 100 to 250. We 
received unanimous approval out of this Committee a couple 
weeks ago or last week, and I just want your commitment that 
you will work with us to implement that if we are able to get 
it across the threshold here.
    Mr. Clayton. I am very happy to work with you on anything 
in the area of small business and recognize your comment about 
rural being really rural, not quasi-rural.
    Senator Heitkamp. Finally, I only have time for just one 
more issue that I want to raise, and I think that we can all 
agree that one of the great frustrations that the American 
people had after the collapse of 2008 is no one went to jail. 
No one seemed to be criminally responsible for what seemed like 
a criminal act. And most people would say, ``If I did that, I 
would be in jail. If I did that, I would be investigated 
criminally.'' And so I think we need to have a clearer 
understanding. As you have said, there is zero room for bad 
actors, but I think we continue to see difficulties in 
prosecuting folks in the white-collar area.
    I want to ask just one simple question--and it is not 
simple, but it is really important. Do you believe that 
executives who act recklessly but not knowingly and as a result 
cause significant harm to our financial system should be held 
criminally liable for financial crimes?
    Mr. Clayton. Senator, let me say this: That is kind of a 
question for the courts and for the legislature, Congress.
    Senator Heitkamp. Oh, we can legislate. I am just 
wondering, what is your position on changing the mens rea 
standard for executives who, in fact, act recklessly even 
though we might not be able to prove that they act knowingly?
    Mr. Clayton. If that is where the law is, I will vigorously 
enforce the law.
    Senator Heitkamp. Well, you do understand that the SEC in 
the past has weighed in on this and has done a number of 
speeches and discussions about how do you interject a criminal 
deterrent. Those of us on this dais who have been prosecutors 
understand that one of the best areas for deterrence in America 
is white-collar crime, and I think way too often you can hide 
behind the knowing. You know, it is hard to prove someone 
actually knew. But it is not hard to prove that someone 
actually should have known or acted recklessly moving forward. 
And I think we could apply that criminal standard, and we would 
like you guys to be thought leaders on this.
    Mr. Clayton. I am happy to engage on that topic with my 
fellow Commissioners. I also want to tell you I agree with you. 
I think that individual prosecution, particularly in the white-
collar area, has a significant effect on behavior.
    Senator Heitkamp. But the difficulty we have is achieving, 
you know, the level of criminal intent, and I think there is a 
way that we can rectify that by lowering the standard but still 
having the deterrent.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Corker.
    Senator Corker. Thank you, sir.
    Mr. Clayton, thank you for your desire to serve in the 
public, and I appreciate the meeting we had in our office. And 
welcome to your family, since I come from a smaller unit, your 
tribe who are with you today. We welcome them and glad they are 
participating.
    We talked a little bit about public companies and the fact 
that there are not many companies, there are not near as many 
companies going public today as used to be the case. I wonder 
if you would expand on that and share why you believe that is 
the way it is today.
    Mr. Clayton. Thank you, and I am more of a picture person 
than a written person, so I am going to use my hands. I hope 
that is OK. But the life cycle of a company is it kind of gets 
started, people have a good idea, are committed to it, picks up 
and grows and kind of goes like this, and this is the growth 
phase of a public company where you are getting capital, you 
are adding employees, you are doing things, and over time you 
get up here, success.
    My experience is that 20 years ago companies at about this 
stage would view our U.S. public capital markets, becoming a 
public company, listing on the stock exchange, as an attractive 
way to raise capital to grow. For a variety of reasons, 
including very robust private capital markets, but also the 
costs of going public, the choice to go public here is a very 
hard one. Many companies do not do this anymore. We see it 
with--I am hesitate to use examples, but it is one everybody 
knows. Uber is a very growing company that is still a private 
company all through this phase. And then up here, you know, 
they may be becoming a public company, but oftentimes that is 
not to raise capital; the company is already mature.
    My view of the world is that I would like to see more 
companies going public here, so more people have a chance to 
participate in that growth as investors.
    Senator Corker. And they are not doing it, again, just to 
crystallize that, they are not doing it because?
    Mr. Clayton. They are not doing it for a variety of 
reasons, including that it is too costly at this stage to 
become a public company.
    Senator Corker. I agree there are numbers of reasons. 
Having served on some public company boards, I cannot imagine 
desiring to go public as a first choice. But I know that has 
changed dramatically over time, especially over the last decade 
or so.
    Let me ask you this question: The SEC, unfortunately, has 
functioned in a very partisan way. It seems like everything 
ends up being voted on down a party line. It was not that way 
many, many years ago. As Chairman, I am sure you do not want to 
operate that way. Can you observe why it has been that way and 
tell me what you plan to do as Chairman to try to get things 
decided along the basis of what is good for the country, what 
is good for the SEC, what is good for all of us who you are 
protecting, instead of just sort of ideology?
    Mr. Clayton. Yeah, I do not want to speculate about why it 
has been that way. I have seen it. I agree with you that----
    Senator Corker. Well, we want you to speculate, though.
    Mr. Clayton. OK.
    Senator Corker. OK.
    Mr. Clayton. People have fundamental disagreements, but my 
job has been--my job for 20 years has been to reach consensus. 
People do not do transactions unless they agree to do 
transactions. I believe in consensus. I would very much like as 
Chair to have unanimous votes on important matters.
    Senator Corker. But what is it that has caused it to be the 
way that it is right now? You know you are going into it. What 
is it, seriously, that has caused it to function along party 
lines?
    Mr. Clayton. You know what, Senator? I will speculate, and 
that is, I think that there is a--it is not just at the 
Commission, but there has been--you know, partisanship is 
pretty strong right now in Washington. I am new to Washington, 
but I very much get that sense. But I do believe, having talked 
to a lot of people, that the mission of the Commission does not 
have to be a partisan mission.
    Senator Corker. Well, what happens when it functions that 
way is we have a lack of consistency, right? I mean, every time 
there is a swing in the balance of power, the SEC and the 
direction that it takes swings and, therefore, you know, 
probably keeps people, even more people from wanting to go 
public. So I am glad you have observed that. I hope that you 
are going to change that when you become Chairman.
    I just want to close with this, Mr. Chairman. I know there 
has been some criticism of the type of people that Mr. Clayton 
has represented. I used to build shopping centers around the 
country and feel like I know the business pretty well and think 
if this body decided there was going to be some shopping center 
regulatory body, I think that would be really good.
    [Laughter.]
    Senator Corker. Because I know the business. And, look, I 
know that you have represented numbers of large clients, and my 
guess is some of them were jerks. OK? And you watched--
seriously, you watched some of your clients do some really 
jerky things. And then you watched some of them do some really 
great things. And my sense is that someone like you who has 
represented the broad array of people that you have represented 
really knows the good actors from the bad actors more so than 
people who come from the outside. I know we had some folks last 
time that were academics, and I have nothing against academics, 
but my sense is you bring a lot of real-life experience. I am 
glad you are willing to do this, and I look forward to your 
service.
    Mr. Clayton. Thank you very much.
    Chairman Crapo. Thank you.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank you, Mr. 
Clayton, for being here.
    There was some talk earlier in this hearing about efforts 
to repeal or dramatically scale back Dodd-Frank. I think it is 
important to remember that Dodd-Frank was a response to the 
financial meltdown and a lot of bad practices that went on that 
helped precipitate that and left a lot of people around this 
country in foreclosure and holding the bag.
    As you know, last year Goldman Sachs agreed to a $5 billion 
settlement in a lawsuit that arose out of what happened during 
the financial meltdown. The Acting Associate Attorney General 
of the Justice Department at the time said, and I quote, ``This 
resolution''--referring to the settlement agreement--``hold 
Goldman Sachs accountable for its serious misconduct in falsely 
assuring investors that securities it sold were backed by sound 
mortgages when it knew that they were full of mortgages that 
were likely to fail.''
    This was a very serious breach of trust with respect to 
Goldman's clients. You mentioned at the outset that you wanted 
to put an end to shady practices. Would you agree that what 
Goldman did during that period in falsely assuring investors 
that securities it sold were backed by sound mortgages when it 
knew they were not was a shady practice?
    Mr. Clayton. Senator, I think that settlement speaks for 
itself. I am not familiar with all of the facts of that matter, 
but I think the settlement speaks for itself.
    Senator Van Hollen. Well, let me ask you, you represented 
Goldman Sachs, right?
    Mr. Clayton. I have, yes.
    Senator Van Hollen. Did you represent Goldman Sachs in any 
of the transactions that were the basis of the Justice 
Department finding of misconduct?
    Mr. Clayton. My understanding is that was a mortgage--the 
case of selling mortgage securities. I can tell you that I did 
not work on any mortgage securities deals for any client that I 
can--I am very--any mortgage security deal for any client prior 
to the financial crisis. It was not part of my practice.
    Senator Van Hollen. Got it. And so you were not involved in 
advising some of the investors with respect to the financial 
instruments that were the subject of the settlement.
    Mr. Clayton. I want to be very clear. After the financial 
crisis, I did become familiar with mortgage-backed securities 
and how they worked. I spent a lot of time trying to understand 
how they worked. And after the crisis, I have advised a number 
of people on how those securities were designed to function. 
But prior to the crisis, mortgage-backed securities were not 
part of my practice.
    Senator Van Hollen. All right. Well, just to pick up on 
what Senator Heitkamp said--and I have heard my Republican 
colleagues say it many times--we think that a lot of these 
settlement agreements where nobody was actually held personally 
accountable and personally liable actually do not create the 
kind of deterrence that we want. So I hope going forward the 
American public will see people not just using their investors' 
money to pay off settlements but actually be held personally 
accountable.
    Let me ask you this, because there are some disagreements 
with respect to what has happened at the SEC and its role. Do 
you think that a stockholder would have an interest in knowing 
if the company they are invested in is spending $5 million to 
elect Hillary Clinton or Donald Trump? Do you think that that 
is something that would be of interest to a stockholder? After 
all, my understanding is disclosure agreements to the public 
include things like the salaries that are paid to the top 
managers, potential conflict of interest between folks, matters 
of the company, and others. Do you believe that that is 
something that stockholders should have information about?
    Mr. Clayton. The touchstone for stockholder information is 
materiality. What would a reasonable investor making an 
investment decision, what should they know? This issue of 
political spending disclosure has been talked about in this 
Committee and for a while, and I think where it stands now is 
there are a number of companies who make that disclosure, 
making the judgment that it is material to investors or that it 
may be, and they put it in. Shareholders have access through 
the shareholder resolution and proxy process to require it if 
they want. The question of whether it should be mandated is one 
that I am happy to think about, but, again, my touchstone for 
these things is materiality.
    Senator Van Hollen. Well, thank you, Mr. Chairman. I would 
just say I believe there is a reputational risk to a company if 
it is disclosed, if people find out through other means that 
they may have spent a whole lot of money supporting one 
political candidate or another. And that is something that 
investors should know up front so they can take into account 
the possibility of that information. So I look forward to 
continuing that conversation because, as you know, there are a 
number of things that are mandated by the SEC, and it is my 
view that that is something that would be important to 
investors. But we can follow up on that conversation.
    Mr. Clayton. Thank you.
    Chairman Crapo. Thank you.
    Senator Toomey.
    Senator Toomey. Thanks very much, Mr. Chairman.
    Mr. Clayton, I just want to say I am delighted that you are 
willing to serve. I think you are an outstanding choice based 
on your background, your expertise, the knowledge. We had a 
great conversation in my office, and I appreciate it. I am 
particularly pleased that you have some experience overseas. It 
gives you a comparative basis to help inform your judgment 
about our regulations. And I am not saying all that because you 
are Pennsylvanian, but it does not hurt. OK?
    You mentioned earlier--and I think we all know--that for 
decades the U.S. capital markets have been the envy of the 
world, the deepest, broadest, most accessible markets anywhere 
ever, but that our lead is diminishing. There is no question, 
by any number of metrics, our lead is diminishing.
    You suggested that it is because at sort of this point in 
the growth cycle it has become too costly for many companies to 
go public, to become public issuers of securities. I just want 
to drill down a little bit. Isn't it really too costly--where 
does the cost come from? The cost is complying with the 
regulations. Isn't that the principal cost?
    Mr. Clayton. Yes, Senator, I believe that regulations 
broadly is the principal cost.
    Senator Toomey. All right. So that is what has changed. 
Certainly it has changed. And we see a corresponding reduction 
in public issuance, big IPOs, I would argue other--adoption of 
new technologies as well. So I really hope that you are going 
to focus on that, and I know you are.
    I want to make another point. Isn't it also the case that 
over the last certainly number of decades we have had a 
dramatic transformation of the ownership of American companies, 
a democratization, if you will? If you go back 50 or 60 or 
certainly 80 years, I am pretty sure it is true that a very 
small percentage of wealthy Americans owned all of our 
companies. If you look today, our companies, the people who own 
the stock in our big companies, are very often very ordinary 
Americans who own it through their pensions, their 401(k) 
plans, their 529 plans, their IRA plans, the universities they 
send their kids to have it in their endowments, and that those 
categories now are a huge, huge share of ownership. Isn't that 
true?
    Mr. Clayton. That is true, and it is changing the 
shareholder-company dynamic.
    Senator Toomey. Right. And if a company decides it has got 
excess cash and it does not believe it can generate a market 
return on that cash, isn't it a very reasonable thing for the 
company to consider returning some of that cash to these 
ordinary Americans who own this company in the form of dividend 
or stock buybacks? Isn't that a perfectly reasonable 
consideration?
    Mr. Clayton. Senator, it is a perfectly reasonable 
consideration, yes, and I think some of our greatest investors, 
most respected investors, say if you cannot use the cash 
wisely, give it back.
    Senator Toomey. Right, which is actually good for the 
ordinary Americans who own those stocks.
    One of my criticisms of the SEC in recent years is that it 
has not done a good job on the capital formation portion of its 
mission. And I think we have passed some good legislation at 
times--the JOBS Act being one such case--and I think the SEC 
has implemented some of these legislative changes with rules 
that are way too cumbersome. I am thinking of our crowdfunding. 
I am thinking of Reg A, Reg A-plus now, a very simple reform 
that got very complex in the regulations. I look at how little 
American companies are using some of these new technologies, 
new opportunities. I attribute it to the regulations.
    What I would just ask, would you be willing to work with us 
to review some of the rules implementing the legislation with 
an eye toward facilitating the use of these reforms as it was 
intended by Congress?
    Mr. Clayton. Yes, Senator, I am--I know it is difficult to 
write a regulation and, as we talked about, know all of its 
effects. And sometimes I think it takes too long because you 
worry about all of those effects. At some point you have to 
move forward. After you move forward, you have to examine 
whether you got it right. And that is the way I look at these 
things. It is not I am done, out the door. We tried to do it as 
well as we could. Let us look back and see if we got it right.
    Senator Toomey. I think that is a very sensible approach. I 
look forward to working with you on it, and I think I finished 
within my time limit.
    Chairman Crapo. You did. Thank you very much.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chair and Ranking 
Member.
    Mr. Clayton, good to see you again, and let me just say 
thank you so much for taking the time to visit with me and your 
candor in our conversation. I so appreciate it. It is wonderful 
to see your family here with you as well.
    During our conversation, if you recall, we talked about the 
fact that I am from Nevada and at the time of the foreclosure 
crisis was the Attorney General, and so I took a number of 
enforcement actions to protect the homeowners in my State. And 
you were very candid during that time, and when we met we 
talked about this, and you specifically dismissed the 
effectiveness of enforcement actions against companies on the 
grounds that prosecutors unfairly take money from shareholders 
without holding individuals responsible. I want to just follow 
up on those comments, and I have some questions as well.
    In fact, in a speech just before he left the Department of 
Justice, Attorney General Holder described current law, saying, 
``The buck still stops nowhere. Responsibility remains so 
diffuse and top executives so insulated that any misconduct 
could again be considered more a symptom of the institution's 
culture.''
    And so my question to you is: Do we need to change the law 
to ensure that individuals you want to go after are not 
insulated from accountability?
    Mr. Clayton. OK. Thank you. And just on my view on company 
accountability and individual accountability, I want to be 
clear. Companies should be held accountable. If they make 
illicit profits, those profits should be disgorged. There 
should be deterrence at the company level. But, you know, 
shareholders do bear those costs, and we have to keep that in 
mind.
    I also said to you, which I firmly believe, that individual 
accountability drives behavior more than corporate 
accountability. And as we work, all of us work together, that 
will be in my mind.
    Senator Cortez Masto. And so then I appreciate that, and 
that goes back to, I think, what my colleague Senator Heitkamp 
was getting to when she was talking about mens rea. So let me 
put it in different terms, and I will talk about strict 
liability. And, again, it was Attorney General Holder who 
suggested that Congress change the law to provide for strict 
liability for financial service executives. In other words, 
executives should be liable for misconduct that occurs under 
their watch, whether or not they had intent or knowledge of the 
wrongdoing. Do you agree with that proposal?
    Mr. Clayton. Again, it is not for me to make the law. It is 
for me to enforce law. I do not understand the exact contours 
of that proposal. If that--can you say it again?
    Senator Cortez Masto. Sure, and I think this is what we 
talked about, and this is a new realm, and I absolutely get it. 
You are stepping into a different role here as an enforcer. 
This is an enforcement mechanism that you are going to have 
authority over, and these are decisions you are going to have 
to make. So it just comes down to the issue of strict 
liability. In other words, can executives--or do you believe 
executives should be held liable for misconduct that occurs 
under their watch, whether or not they had the initial intent 
to do it or knowledge of wrongdoing? In other words, whether it 
was just reckless, whether they intentionally did it or whether 
it was just reckless disregard, do you agree with this proposal 
that there should still be strict liability and they should be 
held accountable?
    Mr. Clayton. Strict criminal liability without mens rea, I 
am not--you know, I am not sure about that. Not something I 
have really thought about, but it strikes me as a big step.
    Senator Cortez Masto. OK. Is this something that you intend 
to look into and really--I guess my concern is the enforcement 
side of this and your lack of ability or familiarity with it. 
And as you step into this position, that is a key piece of 
oversight, and I am just curious your thoughts on how you 
intend to pursue or familiarize yourself with the enforcement 
side of the job.
    Mr. Clayton. Let me try and answer your question as quickly 
as I can. In all aspects of this job, if confirmed, I am going 
to have to rely extensively on the very good people at the SEC, 
both the Division Directors and the staff. I have a lot of 
respect for the people at the SEC that I have interacted with, 
including on the enforcement staff. And I do have more 
familiarity with prosecutors, working with prosecutors, and, in 
particular, investigations than most transactional lawyers, and 
I hope to bring that experience to bear.
    Senator Cortez Masto. Thank you. Mr. Clayton, I see my time 
is up. I look forward to additional questions if there is time, 
Mr. Chair. Thank you again. I appreciate your willingness to 
step up for public service.
    Mr. Clayton. Thank you.
    Chairman Crapo. Thank you.
    Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman.
    Mr. Clayton, how are you?
    Mr. Clayton. Well, thank you.
    Senator Kennedy. I am over here in the cheap seats.
    [Laughter.]
    Senator Kennedy. I am in the cheap seats. You went to Penn?
    Mr. Clayton. I did.
    Senator Kennedy. Undergrad?
    Mr. Clayton. Undergrad.
    Senator Kennedy. And law school?
    Mr. Clayton. And law school.
    Senator Kennedy. And you went to Cambridge?
    Mr. Clayton. I did.
    Senator Kennedy. That would be Cambridge in England, right?
    Mr. Clayton. Cambridge in England, yes.
    Senator Kennedy. What did you study there?
    Mr. Clayton. I studied economics.
    Senator Kennedy. OK. All right. Are these your three 
children? I think I met Wyatt. I shook hands when I came in. I 
was late.
    Mr. Clayton. Did he look you in the eye?
    Senator Kennedy. Yeah.
    [Laughter.]
    Mr. Clayton. Good.
    Ms. Jasper Clayton. I am Jasper.
    Senator Kennedy. OK.
    Ms. Haley Clayton. I am Haley.
    Senator Kennedy. All right. Did they give you instructions 
about how to behave and not make faces and stuff today? You do 
not have to answer that.
    [Laughter.]
    Senator Kennedy. Let me ask you about Sullivan & Cromwell. 
It is a big place, blue-chip clients, you know, one of the 
premier firms in the world. You do not get to pick your 
clients, do you? I mean, if you are a lawyer there and a client 
comes in and says, ``I am in trouble, and I need help,'' you do 
not say, ``Well, I do not like the color of your suit, go 
away''?
    Mr. Clayton. Generally not.
    [Laughter.]
    Senator Kennedy. How long have you been at Sullivan & 
Cromwell?
    Mr. Clayton. Over 20 years.
    Senator Kennedy. Would you consider yourself a securities 
expert?
    Mr. Clayton. If anyone can be, I think----
    Senator Kennedy. Well, I am kind of like Senator Corker. 
Since you are going to be running the SEC, I would like you to 
know something about securities law.
    I want to ask you about a matter that is important to many 
States but also Louisiana. Are you familiar with a gentleman by 
the name of Allen Stanford, the Ponzi scheme?
    Mr. Clayton. I am.
    Senator Kennedy. Yeah, he at one point in 2008 was listed 
on the Forbes top 400, or whatever. He had a net worth of $2.2 
billion. Now he has got another number. He has got a prison 
number. It is 35017183. He defrauded in a Ponzi scheme about 
7,800 investors. Two thousands of them were from Louisiana, 
their life savings. The Securities Investor Protection 
Corporation, SIPC, denied coverage of them. SEC sued the SIPC. 
I think a Federal judge threw it out. Obviously, I was 
disappointed in that.
    Here is my question. I wrote it out so I would be precise. 
What do you intend to do to ensure that investors who lose cash 
and securities in a failed brokerage or are victims of a Ponzi 
scheme like this financial scheme, the one I just talked about, 
receive fair treatment in the event they have to turn to the 
SIPC for help, which was created to help them?
    Mr. Clayton. Senator, I am familiar with the Stanford 
matter, and people like Allen Stanford and other fraudsters who 
we can name need to be dealt with sternly, severely, et cetera.
    As far as their victims and the SIPC, I am familiar with 
this issue and that there is a line where the SIPC has denied 
coverage, and in particular, in the instances of fraud, its 
coverage does not extend that far.
    I am familiar with that being an issue. I look forward to 
working with you and others on what we do about the victims of 
people like Allen Stanford.
    Senator Kennedy. OK. That is fair enough.
    Let me just use my last minute to make an observation. I 
think this is a really important nomination. I am impressed 
with your credentials. I think the President has chosen well. I 
think there is a lot of anger in my State and in this country. 
I hear from middle-class Americans every day that the problem 
as they see it is that we have got too many undeserving people 
at the top getting bailouts and we have got too many 
undeserving people at the bottom getting handouts, and the 
folks in the middle get stuck with the bill, and they cannot 
pay it anymore because their health insurance has gone up and 
their kids' tuition has gone up and their taxes have gone up. 
But I will tell you, what has not gone up is their income.
    I believe in efficient markets. I believe in supporting 
capital formation, but I also have lived long enough to 
understand human nature. Some people cheat. They cheat in all 
walks of life, and they cheat in all professions. But when 
people cheat in securities matters, a lot of people get hurt. I 
hope you will be mindful of that, and I know you will be. I am 
out of time.
    Mr. Clayton. Thank you.
    Senator Kennedy. It was nice to meet you, Wyatt.
    Chairman Crapo. Thank you, Senator.
    Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman.
    We are honored to have you here, and to your whole family, 
thank you for being here.
    I was fortunate--we met in my office, and I just want to 
read you a little bit about an article in the IndyStar, the 
Indianapolis Star, recently about a Rexnord worker who is 
losing his job. The jobs are going to Mexico. He did his job 
great. He is presently training what is called ``Team 
Monterrey,'' and what Team Monterrey is are the Mexican workers 
who have come to Indiana to learn the skills to take the jobs 
away. And let me tell you about John Feltner, who is the 
individual here.
    John's 21-year-old son, Austin, because he knows dad is 
going to lose his job, his 21-year-old son has taken off time 
from studying criminal justice at IV Tech, Indiana Vocational 
Technical School, to manage a pizza shop so that they can raise 
a few more bucks for the family.
    His 19-year-old daughter, Emily, is still in school at 
Indiana State. Her plans were to become a vet. It is an 8-year 
track. She has looked up--she has said at this point this is 
not doable. She has now gone to a 4-year program in nursing, 
which is still a great thing, but like your dream was to become 
a lawyer and you had a wonderful granddad who took you around, 
her dream was to be a vet, and that is over now, because she is 
trying to help keep the family together.
    This is the real-world consequence of what happens on Wall 
Street and of what you are going to be responsible to try to 
make sure it does not happen. My State, in my town of Kokomo, 
at the time there was the economic collapse, the transmission 
plant there went from 5,000 people to less than 100. 
Unemployment in Elkhart County went to 22 percent, and that is 
countywide. That is not one town or this town. That was 
countywide. That is the real-world effect of what happens. And 
I have got 2,100 workers who have just been fired from Carrier 
to pay for a stock buyback, a $16 billion stock buyback, and 
they fired these workers and shipped the jobs to Mexico because 
that 3 bucks an hour wage would help them make a few more 
pennies to pay for the stock buyback. The real world is 2,100 
families who have no idea how they are going to cover their 
mortgage next month or send their kids to school.
    So, you know, we talked about all those things, and I want 
to know your general insight and experience advising and 
counseling clients on stock buybacks.
    Mr. Clayton. And, Senator, as we talked about in your 
office, I am not familiar with Indiana, but there are----
    Senator Donnelly. Pennsylvania is just like a cousin to us.
    Mr. Clayton. Yes. Reading, PA, is a place I am very 
familiar with. Look, the issue of jobs going overseas and how 
that is related to the operation of a company, what choices the 
management makes, is a difficult--I do not like these results 
any more than you do. I do not like it at all.
    Stock buybacks, there are times when stock buybacks make 
sense. That is clear. A company has excess cash. They do not 
know what to do with it. They do not have a good place to put 
it. They should return it to their shareholders. As far as 
whether that is always the case and whether they are using the 
money in a way that we would like to see them use the money, I 
agree with you. There are a range of outcomes, and there area 
range of consequences, and there are a lot that as a citizen I 
do not like. As far as the SEC goes, I am happy to talk about 
that.
    Senator Donnelly. And I wish I had an hour with you. I 
really do. We had some good time before. But this was clearly 
not a case of excess cash. This was firing workers to pick up 
the difference in their wage from going to Mexico so they could 
give it to the Wall Street hedge fund speculators. That is what 
this was. And what happened in 2008 and 2009 was credit rating 
agencies that abandoned ship and sold their reputation for a 
few extra bucks, ridiculous, insane, collateralized debt 
obligations and all of these things, that it was all allowed to 
go on. And if it was stopped, those 5,000 people at the 
Chrysler transmission plant would not have lost their jobs. And 
so you are the sheriff. Besides being a great dad, you now have 
the opportunity to be a sheriff. And we are very, very hopeful 
you can fill that role.
    Mr. Clayton. Thank you. And as I----
    Senator Donnelly. My families are counting on you to do 
that.
    Mr. Clayton. As I said to you, I very much believe that if 
growth looks like this in America, that is a lot better than 
growth in America looking like this, because this is really bad 
for everyday Americans.
    Senator Donnelly. And what you do will help to determine 
that.
    Mr. Clayton. Thank you.
    Senator Donnelly. Thank you.
    Chairman Crapo. Thank you.
    Senator Heller.
    Senator Heller. Mr. Chairman, thank you, and thanks for 
holding the hearing. And good to see you. I welcome your family 
also. It is good to see everybody here. And, by the way, 
congratulations on the nomination and this process.
    Mr. Clayton. Thank you.
    Senator Heller. I worked in the securities industry for a 
few years, got my securities license. I worked on the Pacific 
Stock Exchange, became an institutional broker. I worked in the 
third market. But subsequently, a few years later, I became 
Secretary of State in Nevada and ended up regulating the 
securities industry for our State. And I had real working 
relationships with the industry and saw some real bad players. 
I think Senator Kennedy talked about a few of them, and my 
colleague from Indiana talked about a few of them. And it is 
usually the States that really dig up some of these issues and 
some of the problems, even if it is a major trading firm like 
Merrill Lynch and I think Pru--back when I was Secretary of 
State.
    I guess my question for you is your commitment to working 
with these States. Not all securities regulators are in a 
particular office. I think there are only half a dozen or so in 
Secretary of State's office, but every State does have 
regulators. And there is kind of a bit of back and forth. I 
just want to get your feel for working with these States on 
some of these issues and helping regulate their industries.
    Mr. Clayton. I am very interested in working with the State 
securities commissions and the many others who have 
jurisdiction over the securities markets, including State law 
enforcement, the Department of Justice, you know, the SEC.
    To your point, it is also my experience that the bad 
actors, they have been bad for a long time until they are 
caught. And, you know, early on detection would be much better 
than later. And where that comes from, if it comes from the 
States or it comes from self-regulatory organizations, if it 
comes from, you know, State law enforcement, I am all for it.
    Senator Heller. The word that comes to mind is 
``restitution.'' The earlier you get there, first of all, the 
less damage, but the larger the chance of restoring these 
individuals that have been defrauded. Do you have any views on 
that?
    Mr. Clayton. Yes, I do. It has been--you know, it is very 
disappointing when you have these types of individuals that the 
people who bear the brunt of it are ordinary investors, if you 
have an Allen Stanford like we talked about or a Bernard 
Madoff.
    I do think some of the reforms that we have seen around 
custody and tracing will help prevent that, so that is my view, 
and we should be looking--to a point made earlier, we should be 
looking with technology at better and more efficient ways to 
monitor those individual financial advisers and brokers.
    Senator Heller. In my office, when we were chatting back in 
January, I talked about a new regulation called ``Industry 
Guide 7'', that is, proposed new regulations that would affect 
the mining industry in the State of Nevada. I am appreciative 
of Chairman Crapo and Senator Tester also working with me on 
this particular issue. All we are trying to do is align the 
disclosure requirements with global standards so that our 
domestic mines have economic competitiveness, and we are afraid 
that we are going to lose that.
    What all I am asking from you is if I could get your 
commitment that you will work with this Committee, that you 
will work with my office as we take a look at some of these new 
regulations, make the necessary changes that I think are needed 
to keep our mining industries across this country competitive.
    Mr. Clayton. Yes, Senator, I do look forward to working 
with this Committee and the staff on disclosure, and the 
disclosure has followed where the market is. The mining 
industry makes sense. I think the staff just put out for 
comment another industry guide that had not been updated in 
some time, so I understand the point and look forward to 
working with you.
    Senator Heller. Mr. Clayton, thank you. My time has run 
out. Thank you for being here.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator.
    Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. It is good to see 
you again, Mr. Clayton.
    A big part of the job of the Chairman of the SEC is 
enforcement, a cop on the beat on Wall Street. And you have 
said in your testimony today that you intend to enforce the law 
strictly, and I very much agree with that goal. But I am 
concerned that you will not be able to achieve it.
    It is clear that the SEC will play a critical role in 
deciding--the SEC Chair will play a critical role in deciding 
what the enforcement position of the SEC will be. And in recent 
history, Republican Commissioners on the SEC have favored 
weaker enforcement while Democratic Commissioners have sought 
tougher enforcement.
    The Chair is often the deciding vote. And, of course, if 
the Chair cannot vote and the remaining SEC Commissioners split 
along party lines, then major enforcement actions do not go 
forward, and serious wrongdoing may go unpunished. So it is 
important to think about how often the SEC could be caught in 
such a deadlock.
    Under the President's Executive order for ethics, the first 
2 years of your tenure as SEC Chairman you would have to recuse 
yourself from participating in any enforcement matter involving 
a former client of yours. That is about half of your term as 
Chair.
    So based on your personal client disclosures then, for half 
of your tenure as SEC Chair, you would not be able to vote to 
enforce the law against several big banks, including Goldman 
Sachs, Deutsche Bank, Barclays, and UBS. Is that right?
    Mr. Clayton. Yes, Senator. The way----
    Senator Warren. Thank you. Those banks have repeatedly 
violated securities laws in the past few years, but if they 
violate securities laws again, in your first 2 years as SEC 
Chairman you cannot vote to punish them, and I think that is a 
problem. But it is just the tip of the iceberg.
    Your recusals would not be limited just to your own former 
clients. The ethics Executive order also requires you to recuse 
yourself for 2 years from any matter in which your former law 
firm, Sullivan & Cromwell, represents a party. Now, Sullivan & 
Cromwell is a leading New York law firm with a very long list 
of Wall Street clients. So for half of your term as SEC Chair, 
you would not be able to vote to punish any corporation or bank 
that uses Sullivan & Cromwell as their lawyer. Is that right?
    Mr. Clayton. I believe that is a fair summary, Senator, 
yes.
    Senator Warren. Thank you. More potential cases with a 
deadlock and no enforcement, and that is a problem.
    And even beyond Sullivan & Cromwell's already long list of 
Wall Street clients, any reasonably strategic company that 
wanted to try to avoid an SEC enforcement action could simply 
hire Sullivan & Cromwell to represent them before the agency, 
and then you could not vote for enforcement against that 
company. Is that right, Mr. Clayton?
    Mr. Clayton. I am not sure about that, Senator.
    Senator Warren. Well, you do know the rule that if they are 
represented by Sullivan & Cromwell in front of the agency, then 
you are going to be banned from being able to vote against 
them.
    Mr. Clayton. If they are represented by Sullivan & Cromwell 
in front of the agency, I would not be able to participate----
    Senator Warren. That was my point.
    Mr. Clayton. ----but that does not mean that it would not 
be----
    Senator Warren. So more cases--more cases potentially that 
you cannot participate in, meaning more cases potentially here 
with a deadlock and no enforcement. I think that is another 
problem.
    So it is important to think about how often as we go 
through this, if President Trump wanted to make sure that the 
SEC would have a hard time in going after his Wall Street 
friends, it seems to me you would be the perfect SEC Chair. You 
cannot vote to punish some of the biggest names on Wall Street. 
That means those cases would be at least more likely to end up 
in deadlock, which means those companies could skate free.
    And I just want to point out this is not a theoretical 
problem. Recusals were a very big issue for the outgoing SEC 
Chair, Mary Jo White. Like you, she came from a major Wall 
Street law firm, and according to the New York Times, in her 
short time heading up the SEC, she had to recuse herself in at 
least 48 enforcement matters because of conflicts involving her 
former clients, her former law firm, and her husband's clients 
and law firm--at least 48 cases in which she could not vote to 
punish a big company. Because the other Commissioners were 
often split on enforcement matters, Chair White's recusals led 
the Commission to deadlock time and time again, which meant 
that corporations that may have broken the law were able to get 
off easier.
    Your recusal problems seem to be even more severe than 
Chair White's. With you as SEC Chair, it looks like Wall Street 
can breathe a little easier knowing that you will not be voting 
against them. And there is likely to be weaker enforcement.
    So here is my question: Can you explain why out of all the 
people who could have been selected to head the SEC you are the 
right person for this job?
    Mr. Clayton. Thank you. I want to say that the question of 
whether I am recused from a matter does not mean that there 
will be deadlock. I do believe that the current Commissioners--
--
    Senator Warren. Mr. Clayton, I do not quite understand 
that. If there is not a majority to go forward on an 
enforcement action, if the other Commissioners split 2-2, that 
is a deadlock. And if you are recused, that leaves four 
Commissioners--two Democrats, two Republicans. Republicans have 
consistently gone for weaker enforcement, Democrats for strong 
enforcement. You come here today and say, ``I am going to go 
for stronger enforcement.'' You are not going for stronger 
enforcement if you cannot vote.
    Mr. Clayton. I am not sure about that characterization, but 
I do know that----
    Senator Warren. The characterization of a deadlock?
    Mr. Clayton. No. The characterization of who goes for more 
enforcement.
    Senator Warren. Well, take a look at the data on that.
    Mr. Clayton. OK. But what I would like to say is that I 
believe that on enforcement matters--on enforcement matters--
the Commission is almost always unanimous on enforcement 
matters.
    Senator Warren. I think you want to check your numbers on 
that, Mr. Clayton.
    Mr. Clayton. OK.
    Senator Warren. And you want to check what has just 
happened. We have experience on this. I am going to yield 
because I recognize the Chair has been very indulgent in 
letting me go over. But I just want to underline the point that 
holding Wall Street firms accountable is a major job of the 
SEC's mission, and the SEC Chair needs to be able to 
participate in those enforcement actions, to be the cop on the 
beat for the American people, not on the sidelines when former 
clients and Wall Street firms are able to skate free. And I 
think that raises a very serious concern about your nomination 
to be----
    Chairman Crapo. Senator Rounds.
    Senator Warren. Thank you.
    Senator Rounds. Thank you, Mr. Chairman.
    Sir, I would like to just begin by--I would like to just 
kind of follow up on the questioning here just a little bit 
about some of the questions that were being asked that required 
a little bit longer answer than just a yes or a no. I would 
like to give you an opportunity to perhaps elaborate a little 
bit.
    With regard to the issue of a split vote, a split vote in 
the case of an enforcement action could possibly come as the 
result as to whether or not there should be an enforcement 
action in the first place. Would that be a fair statement?
    Mr. Clayton. Yes.
    Senator Rounds. In that particular case then, it would be a 
matter of making a determination yes or no, and in this country 
in most cases we do not decide on a split vote whether they are 
guilty or not and then make the assumption that they are simply 
guilty because there is a split vote involved in it. Fair 
enough?
    Mr. Clayton. I think that is fair, Senator.
    Senator Rounds. How much time do you think, as the Chairman 
of the Securities and Exchange Commission, you would spend in 
terms of breaking ties on the determination of right or wrong 
on the part of a company who is being brought before, compared 
to the rest of the job?
    Mr. Clayton. I would not expect that it would be any 
meaningful amount of time, Senator.
    Senator Rounds. If there were parts of the--and recognizing 
that we are all limited by the amount of time that we have to 
share, if there were parts of the previous questions that were 
asked to you that you did not feel like you had the opportunity 
because of the time constraints, would you like to share a 
little bit of information to perhaps clarify or expand on your 
answers?
    Mr. Clayton. Thank you. As I said in my opening statement, 
I have zero tolerance for bad actors. I am not only saying that 
here. I will say it to the enforcement staff at the SEC. I will 
say it to my fellow Commissioners. I do believe, as I have said 
before, that individual accountability is extremely important 
not only to get rid of bad actors, but it sets a tone for the 
industry.
    Much of the enforcement activity of the Commission, as I 
understand it, is driven by the Enforcement Division and the 
oversight of the Enforcement Division. I have every confidence 
that that will continue, and that any recusals that I have to 
do will not impact that.
    Senator Rounds. Are you a Republican?
    Mr. Clayton. No. I am an Independent, sir.
    Senator Rounds. It seems to me that the suggestion was that 
Republicans are lax on enforcement. As an Independent, would 
you see Republicans as being lax on enforcement?
    Mr. Clayton. No, that was--I do not see it that way. I 
think sometimes people of different parties may have different 
enforcement priorities, but I would not say that Republicans 
are lax on enforcement.
    Senator Rounds. Would you see your role in terms of being 
an Independent and being nominated for this particular position 
to be an arbiter perhaps in terms of finding common ground with 
regards to issues of enforcement and in the layout of penalties 
that are appropriate for organizations that are found to be in 
violation of the law or the rules?
    Mr. Clayton. Yes, Senator, and if I wanted to say what I 
thought my--if I had to pick a single strength that I believe I 
would bring to this position in that regard, it does go back to 
what I said at the beginning. Being a transactional lawyer, 
building a consensus is what your job is. People have different 
views. They want to get to a place that is happy for everyone, 
and that is very much what my job has been, and I want to 
continue to do that if I am confirmed.
    Senator Rounds. Thank you. Anything else you wanted to add 
to that at all?
    Mr. Clayton. No. I really thank you for the time.
    Senator Rounds. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Clayton, congratulations on your nomination. Since you 
and I met in February, there has certainly been quite a bit of 
activity at the SEC. Of particular concern to me is Acting 
Chair Piwowar's efforts to scale back the authority of the 
Commission's Enforcement Division. He unilaterally reopened the 
comment period on a congressionally mandated rulemaking, 
disclosure of CEO-to-worker pay ratio, so I want to focus first 
on the enforcement, and then I will turn to the other matter.
    In 2009, former SEC Chair Schapiro gave enforcement staff 
subpoena power. Before this, only the Commission had the power. 
This empowered senior enforcement analyst to quickly escalate 
informal inquiries to formal investigations, ultimately 
strengthening the Commission's ability to investigate corporate 
misconduct.
    When we met and discussed enforcement issues, you said that 
bad actors have cost this country billions, and I could not 
agree more with you. In my view, the SEC functions best with a 
strong Enforcement Division that stays ahead of the markets.
    Unfortunately, Acting Chair Piwowar has taken steps to curb 
the Enforcement Division's authority by revoking the subpoena 
authority from 20 enforcement officials and limiting it only to 
the Enforcement Division Director. That is a major reversal 
from post-crisis policy designed to assist the Commission in 
initiating investigations and going after bad actors that 
ravaged investors and our economy at large. So I just want to 
get some quick answers to these questions.
    In your opinion, do you think that the SEC's enforcement 
staff has abused its authority since the delegation of subpoena 
authority in 2009?
    Mr. Clayton. Senator, I have no idea whether they have 
abused their subpoena authority or not.
    Senator Menendez. Well, you are a practitioner before them. 
Do you have a sense that they have abused their authority for 
the last 8 years?
    Mr. Clayton. Senator, in my experience, which as far as--
you know, on the defense side, is very limited, so take it with 
that. I have not seen an abuse of subpoena authority by the 
SEC.
    Senator Menendez. Were you consulted at all on these policy 
changes as the potential new Chair?
    Mr. Clayton. No, I was not.
    Senator Menendez. Do you agree with this policy change?
    Mr. Clayton. I do not know. I will have to discuss this 
with both Commissioners and with the enforcement staff, if I am 
confirmed.
    Senator Menendez. Well, let me ask you this: Does taking 
away subpoena power from senior enforcement attorneys better 
protect investors and deter misconduct?
    Mr. Clayton. That is--I do not know the answer to that 
question.
    Senator Menendez. Really?
    Mr. Clayton. No, I do not because the subpoena----
    Senator Menendez. In the abstract--forgetting about--just 
the proposition that taking away subpoena powers from those 
line entities that are engaged in investigating misconduct and 
limiting it to only one person and then having to go through a 
whole process, it seems to me that we are going to largely 
deter and delay investigations.
    Mr. Clayton. I think those are good questions.
    Senator Menendez. Well, the question--I am looking for good 
answers.
    Mr. Clayton. Yeah, I----
    Senator Menendez. My good questions do not mean that much 
if I do not get good answers. I would hope to hear from you 
that what was happening before in terms of spreading that 
authority was the better process of making sure that we build 
on the successes of empowerment at the SEC's enforcement staff. 
At the end of the day, we need an SEC and a Chair who is going 
to be a cop on the beat, because what we had at one time is 
they were asleep at the switch, and that gave us the excesses 
that all Americans had to pay for.
    Let me ask you, I have another concern about Acting Chair 
Piwowar's unilateral decision--unilateral decision--to open a 
new public comment period on the rule requiring public 
companies to disclose the ratio of their total CEO compensation 
to median worker pay, a rule adopted by the Commission nearly 
18 months ago, a year-and-a-half ago.
    In addition to obstructing the implementation of a 
congressionally mandated rule, one that I authored in Dodd-
Frank, and diverting staff resources and time seemingly only to 
justify the personal ideological views of one person, this 
action actively ignores the tens of thousands of comments from 
investors and investment managers expressing the view that this 
information is material and important to shareholders' 
evaluation of executive compensation.
    In fact, yesterday a coalition of 100 investors and 
investor organizations representing $3 trillion in assets under 
management wrote to the Acting Chair expressing support for the 
CEO-to-worker pay ratio rule and urged the SEC to maintain the 
current effective date for disclosure.
    So my question is: Do you agree with the Acting Chair's 
unilateral decision to open a new public comment period on the 
rule? And if so, why?
    Mr. Clayton. Senator, Acting Chair Piwowar is the Acting 
Chair. That is a decision for him to make.
    Senator Menendez. Yeah, but you are going to be, if 
confirmed, the new Chair. I want to know, do you think--would 
you do that? Would you have done that?
    Mr. Clayton. I do not know enough about the issue.
    Senator Menendez. Well, that is not acceptable. What do you 
mean you do not know? You do not know about CEO pay and 
worker--this is a major issue that has been debated out there 
for some time.
    Mr. Clayton. It has been debated for some time----
    Senator Menendez. And it is a congressionally mandated 
provision.
    Mr. Clayton. It is a congressionally----
    Senator Menendez. One that has for 18 months already been a 
rule, so an arbitrary and capricious decision of the Chair--you 
will be the next Chair if confirmed--to ultimately undo that 
seems to me--to tell me you do not know, you do not know is not 
acceptable.
    Mr. Clayton. That is not what I am saying, Senator. I am 
saying that I do not know what motivated Chairman Piwowar----
    Senator Menendez. I am asking you what you would do. Would 
you have done that? If you were the Chair sitting there right 
now, would you have done that?
    Mr. Clayton. I cannot answer that question because I do not 
have the benefit of the interaction with the staff that 
Chairman Piwowar had and the history with the rule that he had.
    Senator Menendez. The history of the rule is it has already 
been done for 18 months. I am sorry, Mr. Clayton, but those 
answers are not acceptable.
    Thank you, Mr. Chairman.
    Mr. Clayton. Thank you.
    Senator Shelby [presiding]. Senator Tillis.
    Senator Tillis. Thank you, Mr. Chair. Mr. Clayton, thank 
you for being here.
    I sometimes go into these committees, and it reminds me of 
a ``Far Side'' comic. The caption read, ``The floggings will 
continue until morale improves.'' So I thank you for your 
patience.
    I want to ask you a question. You know, the primary mission 
for the SEC is protecting investors--that is more or less 
enforcement--maintain fair and orderly and efficient markets, 
and to facilitate capital formation. Do you have any sense over 
how well the SEC has done over the last 8 years or the last 20 
years? You pick your time horizon.
    Mr. Clayton. Senator, I think on the--let me focus on the 
question of capital formation, if you do not mind. I do believe 
that over the last 20 years, particularly in the area of our 
public capital markets, we could have done better. We could 
have done better.
    Senator Tillis. Tell me a little bit, because that spans a 
couple of Administrations. What were the highs and lows? Just 
briefly, because I want to keep to my time, and I have got a 
couple other questions I want to ask.
    Mr. Clayton. In particular, I believe, for medium-sized 
companies, companies that are in their growth phase, we have 
made it more difficult and less relatively attractive for them 
to be public companies. I think that almost all----
    Senator Tillis. What do we have to do to get on a positive 
trajectory?
    Mr. Clayton. You know what? We have to reduce the burdens 
of becoming a public company so that it is more attractive----
    Senator Tillis. Well, that was going to be another question 
I would ask you. Why do you think it is we have--I was trying 
to get the number in front of me so that I am accurate. But 
just comparing--hold on 1 second. There are one-third fewer 
public companies today than 20 years ago. Is that healthy or 
unhealthy?
    Mr. Clayton. I believe that that statistic should be 
telling us something, and I think it is----
    Senator Tillis. What is it telling us?
    Mr. Clayton. I think it is telling us that our public 
capital markets are less attractive, and our public capital 
markets, I believe, are a much--they are much more effective 
for the Main Street investor than other forms of investing----
    Senator Tillis. Is it fair to say that if we do not come up 
with a way to--with proper regulatory oversight--and I worked 
in the banking industry. I was a partner at 
PricewaterhouseCoopers. I have worked with a number of 
different financial institutions, Bank of America probably 
being the one I spent the most time with. But is it fair to say 
that if we do not come up with a way to improve capital 
formation, we are hurting the little guy? Because capital 
formation creates jobs. Is that right?
    Mr. Clayton. I agree with that, Senator.
    Senator Tillis. At every level.
    Mr. Clayton. At every level.
    Senator Tillis. I know the one thing--so, you know, it is 
not a matter of going willy-nilly. I was a partner at PW back 
in the 1990s. I saw the bust. I saw the very real regulatory 
exposure that Enron gave light to. It had to be fixed. I am not 
against all regulations. I am against regulations that prevent 
the little guy from getting a job. And I think if we do not 
form capital, we do not create jobs, and we do not grow our 
economy, and we do not reduce the tax burden. There is a right 
size to regulations, just like there is lean manufacturing 
techniques and lean process techniques that the private sector 
uses. And I hope that you will go in there and look at this 
organization and right-size the regulations, come up with 
schemes that promote responsible capital formation.
    You know, there is something else that--I feel like 
sometimes I am living a reality TV version of ``Atlas 
Shrugged.'' There are a lot of people in this Congress that 
want to just beat down job creators and employers. And I just 
decided just on the fly--and I am glad my staff was able to 
respond to my random request, but just take a look at Goldman 
Sachs. People want to demonize Goldman Sachs. That is an easy 
thing to do, right? Just beat up on a financial services 
institution, an institution that is committed to--let me look 
at the general numbers here. They have 36,500 employees. There 
are probably a lot of little guys in there. They have 
contributed billions of dollars to nonprofits. They have a 
commitment to investing or financing $150 billion--am I 
right?--in the clean energy sector by 2025. Demonizing 
employers that employ the little guy is not looking out for the 
little guy. And I have heard a marketing department recently 
using ``looking out for the little guy.'' Look, I was a little 
guy. When I was 19 years old, I was not in college. We have got 
to look out for the little guy, and we have got to stop 
demonizing businesses that have to be held accountable.
    You find a bad actor--everybody thinks that I like 
pharmaceuticals. I like pharmaceuticals who are responsible. 
Ones who are bad, like Turing, I would like to see them go to 
jail. Any financial services executive or anybody in a 
financial services business that acts badly needs to suffer the 
consequences. But if we just let the American people think that 
they are all bad, you are hurting the little guy. And I hope 
you will go to the SEC and promote responsible capital 
formation and do a good job. And I think that you will.
    And, Jasper and Wyatt and Haley, I think your dad is going 
to do a great job.
    Mr. Clayton. Thank you.
    Chairman Crapo [presiding]. Thank you, Senator.
    Senator Schatz.
    Senator Schatz. Thank you, Mr. Chairman.
    Mr. Clayton, there are 20 regulations mandated by Dodd-
Frank that the SEC has not yet drafted or finalized. That is 
more than 20 percent of the law which was passed 7 years ago. 
The Acting Chairman has publicly stated that the SEC will halt 
all work on Dodd-Frank-related rules. What would be the legal 
basis for not finalizing rules that are required under a 
statute?
    Mr. Clayton. Rules required under a statute? Rules required 
under a statute, rulemaking should go forward with respect to 
rules required under a statute.
    Senator Schatz. And at what point does a delay become a 
refusal to implement the law?
    Mr. Clayton. I think that depends on the context, Senator. 
I do not think there is a specific----
    Senator Schatz. Well, I am giving you this context, a 7-
year-old law, 20 percent of the rules not yet implemented, the 
Acting Chairman refusing to move forward on implementation of 
the rules. That sounds like a refusal to implement the law as 
opposed to the normal sort of Administrative Procedures Act 
stumbling and bumbling.
    Mr. Clayton. I am not sure I would characterize it that 
way, but I understand your point.
    Senator Schatz. But I am asking what you think?
    Mr. Clayton. Again, as I said with Senator Menendez, in 
terms of a specific rulemaking, I do not have the benefit of 
the interaction with the staff and the comment letters and what 
the--but when--and I hope I do--I become Chairman, assessing 
the rulemaking calendar, prioritizing and moving forward is 
something I very much intend to do.
    Senator Schatz. Do you think the SEC has the authority to 
refuse to implement a rule required by the law?
    Mr. Clayton. I think a rule required--a rulemaking required 
by law should go forward.
    Senator Schatz. Thank you.
    I want to ask sort of an uncomfortable question, and you 
and I had a good conversation. I also have young kids. We are 
both in public service. There is a lot of travel. We appreciate 
it. Your dad is doing fine. You guys are doing better than he 
is because I am sure this is a little boring for you.
    Mr. Clayton. They always do.
    Senator Schatz. Yeah. But thank you for that. But I 
appreciate the conversation that you had with Senator Warren 
regarding recusals and conflicts of interest. But there is 
another aspect of this. Take Mary Jo White's situation, who 
recently returned to the firm she left to join the SEC. While 
at the SEC she had to recuse herself from dozens of SEC 
actions, as you would. This made it harder for the SEC to carry 
out its mission. But now that she is back at her old firm, it 
raises questions that she never really severed ties to former 
colleagues, friends, and clients, and that is not because she 
is doing anything nefarious. It is because of human nature. It 
is only human to think that it is--it is only human to think 
about the next phase of your career, and naturally we know that 
future options are shaped by current actions. And for a 
financial regulator, it is especially problematical.
    This leads me to a sort of challenging question to ask, and 
I in no way mean to impugn your personal integrity, but I have 
to ask: Is it fair to say that you have friends and colleagues 
at companies and institutions that are subject to the SEC's 
oversight?
    Mr. Clayton. Yes. And it is a fair question, and, yes, I 
do.
    Senator Schatz. Is it fair to say that you will consider 
returning to Sullivan & Cromwell after your term is finished?
    Mr. Clayton. On that, this is a huge change for me and my 
family, and I am committed to doing this. As far as, you know, 
whether my term is hopefully a full term, a lot is going to 
change if that is the case. Even if it is--I mean, your whole 
life changes when you do something like this. I am severing all 
ties to the firm. I am divesting myself of all the financial 
assets. You know, and I know, having done some changes in my 
life, that when you do a change, your perspective on just about 
everything changes. Maybe some a little bit, maybe some a lot.
    Senator Schatz. I guess what I am hearing is you do not 
preclude the possibility of any professional opportunity that 
may present itself after you serve as Chair of the Commission.
    Mr. Clayton. I am not going to preclude it. I do not think 
that is an appropriate precedent to set. You know, that said, I 
am committed to this job.
    Senator Schatz. Sure. I understand. And I think from the 
standpoint of not this panel or the people in this audience or 
even the people watching on C-SPAN, but from the standpoint of 
the regular person, it is not unreasonable to worry about 
someone who comes from industry, whose social network, whose 
professional network, whose friendship are within that industry 
to be put in charge of being the cop on the beat; it is not 
purely a matter of whether there is a square conflict and 
whether you do the recusals properly, but whether those 
relationships infuse all of your thinking about your own life 
and about the decisions before you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman. And, Mr. Clayton, 
thank you for your forbearance and your willingness to step out 
in mid-career to do something like this.
    As a past public company CEO, I have had a personal 
relationship with the SEC, and I find it on balance to be a 
very supportive and constructive agency, so let us put that on 
the record.
    Having said that, I am very concerned that the economic 
miracle of our lifetime, the last 70 years, in my humble 
opinion has been based on innovation, capital formation, and 
the rule of law. And I think we outcompete everybody in the 
world with regard to the totality of what that means. I am 
concerned that right now in the last--since 2000, we had 8 
years of a Republican President and 8 years of a Democratic 
President, so this is not a partisan question. But our number 
of IPOs, initial public offerings, has decreased somewhere 
between--well, it has gone from an average of around 450 in the 
decade before to somewhere under 200 now, close to 150. And 
that is a significant change over a long period of time. It 
seems to me systemic. It represents, I think, some things that 
are troubling with regard to our current financial situation. 
This is my second question I want to come back to, to your USA 
10-K. Can you speak to the fact that this reduction in public 
offerings and also to the number of public companies we have 
today, what is causing that? What do you think the SEC can do 
to help us become more competitive with the rest of the world?
    Mr. Clayton. Yes, Senator, and I agree with you. I believe 
that a reduction in the number of public companies, which is a 
function of fewer companies becoming public, is a problem for 
our capital markets.
    The ability to invest in a public company is one of the 
most efficient ways for a Main Street investor to invest. The 
price is there. Our equity markets have become very efficient. 
You can invest. You can divest very easily. It is very 
important. Who chooses to become a public company? The 
management of the company. When they come to make that choice 
as to where they are going to raise capital or how they are 
going to incentivize their employees or other things that are 
important when you make these decisions, they look at the 
landscape now and very often say, ``It is just too 
burdensome.'' And I think that is a problem.
    Senator Perdue. Do you think that puts us at a competitive 
disadvantage with other countries?
    Mr. Clayton. I think it puts us at a competitive 
disadvantage with other countries, and in particular, it puts 
us at a competitive disadvantage in terms of something uniquely 
American: the participation in the capital markets.
    Senator Perdue. What I am concerned about, the private 
markets are also a very efficient way to raise money, but it 
only allows a certain percentage of investors to play because 
the blocks of investment are so much larger, the risk per 
dollar of investment is so much greater, and, frankly, it is 
not as liquid. People cannot get in and out as quickly as they 
can in the public markets.
    So I am one that is paying attention to this as having run 
a public company and a private company. I am very concerned 
about that imbalance right now, particularly with regard to 
global investment and the flow of capital around the world.
    In my time remaining, I have one quick question. You wrote 
an article--I think you co-wrote it. It is ``USA 10-K.'' In 
there, you make a lot of comments. One that really speaks to my 
heart, though, as one of the reasons I got involved in running 
for the Senate is I am concerned about our current financial 
situation. And you talk about complexity risk and the current 
state of regulatory affairs. Can you just speak to that 
briefly?
    Mr. Clayton. I have a problem with regulations that are 
unnecessarily complex, a real problem with it, because it leads 
to a lot of things. One is it is very costly to address them up 
front. The second is it creates loopholes. No one wants 
loopholes. Complexity allows for that. And, third, it creates 
an opportunity for ``gotcha.'' That is not what we meant. We 
meant this: My view on regulation is, to the extent 
practicable--and you cannot do this in all cases, but to the 
extent practicable, reducing complexity, clarity are very 
important. If people know the rules, they can operate more 
efficiently.
    Senator Perdue. Thank you, Mr. Chairman. You know, the 
number one thing that I am looking for in this nomination is 
somebody who can help the SEC create and maintain a level 
playing field. And I think with your background, I think you 
have all the skills and personal integrity to do just that. And 
I applaud you again for being willing to step out and take on 
this responsibility.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Mr. Clayton. Thank you.
    Chairman Crapo. Senator Warner.
    Senator Warner. Good morning, Mr. Clayton. I have got a 
couple areas I want to bounce around here, so I will try to be 
fast in my questions, if you could try to be somewhat fast in 
your answers.
    I have been very interested in the emerging challenges 
around cybersecurity. To me, it was fairly remarkable that 
Yahoo, for example, had a 500 million user breach and yet did 
not feel that was material enough to file in their quarterly 
SEC filing.
    Now, I do not want to just pick on Yahoo. The remarkable 
stat is there are 9,000 publicly traded companies. Less than 
100 over the last decade-plus have ever reported any kind of 
cyber breach or violation as material information.
    As more and more companies get more and more often 
threatened by this type of activity and more of their 
intellectual property is subject to this kind of attack, do you 
think the SEC ought to take a fresh look at reporting around 
the whole threat of cybersecurity?
    Mr. Clayton. Senator, let me give you my personal view, and 
I think it answers your question. I do not think that the 
American public--we can whittle that down to the American 
investing public, particularly outside of--particularly the 
ordinary investor, has as great an appreciate for the cyber 
risks that our businesses face today.
    Senator Warner. Well, I would just hope, though, that--you 
know, we have got some bipartisan legislation that would at 
least require someone on the board to have some level of cyber 
experience. But to me, the whole question of materiality, if 
Yahoo had 500 million, then there was some question that the 
breach actually exceeded 1 billion, how that is not material is 
just beyond belief.
    Mr. Clayton. I think it would be inappropriate for me to 
comment on a specific case or a specific matter, but what I 
want to say is as I look across the landscape of discussion and 
understanding of cyber threats and their possible impact on 
companies, I question whether the disclosure is where it should 
be.
    Senator Warner. I appreciate that.
    At one of the hearings Senator Crapo and I had one time--
and I think he may have touched on this--RBC Capital brought in 
a chart that showed--this is around equity market structure. 
They showed 839 different fee schedules that were composed of 
3,722 separate fee variables. In effect, there was an ability 
for the market makers, through kind of bespoke transactions, to 
really gear toward people who were going to make the biggest 
commission off of this. It was not by any means a level playing 
field, in answer to Senator Perdue's questions.
    One of the things that we pushed very hard, the former 
Chair, but we have really not seen it, is to move forward on a 
maker-taker pilot so that we can try to bring more clarity to 
make sure that all bidders in a market are going to get a fair 
shake. If confirmed, would you pledge to continue to work with 
us on that type of pilot?
    Mr. Clayton. Yeah. In my opening remarks, I noted that in 
our interactions--and I was really glad to meet with you--I 
learned things. This is a case where I have learned something 
in the interim thanks to your questions. The Equity Market 
Structure working group at the Commission is doing--you know, I 
think is doing a good job of bringing the fact that there is a 
great deal of complexity. We do not know whether it is as 
efficient as it should be or as fair as it should be. And I do 
want to work on this going forward.
    Senator Warner. I would like that because to me, seeing 
that structure, seeing this chart, to me it looked like it was 
a total ability to game the system that really allowed market 
makers to give to a preferred broker and, frankly, was by no 
means--it was by no means the kind of level playing field that 
I think we all want.
    I want to get in my last question here. I know that you 
have represented Valeant and Pershing Square. There was 
potential insider trading in conjunction with the Allergan bid 
back in 2014. As a matter of fact, a Federal judge in 
California ordered both Pershing Square and Valeant to make 
additional disclosures on their shareholder documents. In a 
sense, it seemed like they were almost begging the SEC to take 
on a case around this issue around insider trading. I also 
believe that one of the challenges--I think Senator Donnelly 
raised this issue around, you know, long term versus short 
term. One of the challenges, there is a role for activist 
investors, but in the United States, we still have under 13D 
what I think is a very antiquated 10-day reporting period, so 
somebody can aggregate that 5 percent of the stock, report it 
after they got that 10 days, then you get another 10 days for 
somebody else to be able to, in alliance as kind of co-
investors, aggregate stock without the level of disclosure 
that--you know, the U.K. is down to you have got to report this 
within 2 days. Hong Kong I think has got a requirement of 
instantaneous disclosure. To me, 13D and the ability for these 
investors to kind of aggregate shares and then provide kind of 
an aggressive activist type, you know, sometimes play well, but 
I do not think we are serving our market or serving the Western 
investors well. Do you have any comments on 13D and how we 
might be able to get this kind of information faster out? And 
then also this notion of whether you think the SEC ought to 
take a look at the judge's decision in the Pershing Square 
case. I tried to get a lot in there. I am over time.
    Mr. Clayton. Yes, that is a lot.
    Chairman Crapo. Quickly, please.
    Mr. Clayton. On the question of activist investors and the 
benefits that they bring to the market and some of the 
questions that people have raised about their activities, you 
know, that is going to be an ongoing debate. I understand the 
contours of the debate, and I look forward to working on it.
    Senator Warner. 13D?
    Mr. Clayton. 13D, I also understand that debate in terms of 
you want to incentivize people who see something wrong with the 
company to come in and say, you know, you are not doing a good 
job. On the other hand, you do not want to give them an unfair 
advantage. And, in particular, I understand your question about 
whatever we want to call it, the domino effect, the group 
effect.
    Chairman Crapo. Thank you.
    Senator Reed.
    Senator Reed. Well, thank you very much, Mr. Chairman. And 
I apologize for my tardiness. I was leading, along with Senator 
McCain, a hearing simultaneously with the Supreme Allied 
Commander in Europe, General Scaparrotti, so I am sorry.
    Mr. Clayton. It is probably more important.
    Senator Reed. No, it is not. It is not. Welcome to you. 
Welcome to your family. I particularly want to salute your 
father's service in Vietnam. Thank you, sir, very much.
    You have said in your public statement, ``There is zero 
room for bad actors in our capital markets. I am 100 percent 
committed to rooting out any fraud and shady practices in our 
financial system.''
    One of your potential predecessors, Mary Schapiro, in 2011 
wrote that one of the reasons why there are some inhibitions in 
doing this is because ``the authority to obtain civil monetary 
penalties with appropriate deterrent effect is limited,'' i.e., 
they are capped at a relatively low level given some of the 
behaviors and some of the resources. Would you be sympathetic 
to statutorily raising these penalty thresholds? Senator 
Grassley and I are working on such a proposal.
    Mr. Clayton. Senator, actually I have to confess this is 
the first time I have been asked the question about the 
penalties, so I am very willing to take a look at the issue and 
work with you and give you my views after I have been better 
educated on it.
    Senator Reed. Well, one of the things that most people--and 
you do not have to be a financial analyst, just somebody back 
in Rhode Island reading the newspaper--when you have a company 
that settles, or admits no right or wrong, they did not do 
anything wrong and they settle for money which is a fraction of 
what was suggested they got through these behaviors, people get 
a little cynical and skeptical. So I would urge you very much 
to look at that.
    Following up on Senator Warner's question about 
cybersecurity, we also have a proposal--Senator Collins, 
myself, and Senator Warner have a legislative proposal that 
will require a publicly traded board to have at least one 
person on the board who is a cybersecurity expert, and if not, 
then in their disclosures, explain why they do not need it 
because of steps they have taken. And let me emphasize it does 
not require companies to take any actions other than just 
provide this disclosure. Would you be sympathetic with that 
legislation?
    Mr. Clayton. Senator, as I said, I believe in materiality 
being the touchstone. That said, there are areas where I 
believe guidance to corporations in terms of what their 
disclosures should be is appropriate. I think cybersecurity is 
an area where I have said previously I do not think there is 
enough disclosure. In terms of whether there is oversight at 
the board level that has a comprehension for cybersecurity 
issues, il that is something that investors should know, 
whether companies have thought about the issues, whether it is 
a particular expertise of the board or not, but I agree that 
that is something companies should know. It is a very important 
part of operating a significant company. Any significant 
company has cyber risk issues.
    Senator Reed. And that is not just the traditional sort of 
financial company nowadays or any company, because the ability 
to interfere with operations through the Internet is 
significant.
    Mr. Clayton. Yes.
    Senator Reed. Let me ask a question about climate change. 
It is interesting. BlackRock, which is one of the world's 
largest asset managers, has just indicated that it would expect 
companies such as oil producers, miners, or real estate 
companies to have a demonstrated fluency in how climate risk 
affects their business and how a given company will address it, 
which raises, again, a similar issue. Should these companies 
that are exposed to climate risk specifically be required to 
make their disclosures in their publicly filed documents?
    Mr. Clayton. I know that the SEC has issued guidance in 
this area, in particular, not on the impact of climate change 
itself on businesses, but potential regulations and other 
activities. And let me say this: Public companies should be 
very mindful of that guidance as they are crafting their 
disclosure.
    Senator Reed. I will just say this, and this is more of a 
footnote than anything else. It is an interesting time when the 
Secretary of Defense seems to be the most fervent believer in 
climate change and the Director of the Environmental Protection 
Agency does not seem to believe it at all, placing companies in 
an awkward position of who do you believe. But I tend to 
believe the Secretary of Defense, so let us stop there.
    A final point we talked about in my office, which is 
intentions are one thing, resources are another, and resources 
will affect your behavior. And as I observed, one of the 
impressions I had in the run-up to the collapse in 2007 and 
2008 was the SEC had very good intentions, but they did not 
have the budget to go out there, and Wall Street knew it. And 
so they knew that there were a lot of behaviors that might have 
been in that murky area, but the likelihood of, one, being 
discovered, two, being prosecuted or anyone held accountable 
was virtually nil because the resources were not available.
    Right now the SEC is operating on a CR of about $1.6 
billion. They have asked for $1.7 billion. But looking at the 
skinny budget, domestic agencies are being decimated. So what 
happens when you are presented with a budget which you think is 
absolutely inadequate for the technology, for the enforcement 
personnel, et cetera, and I think that will translate very 
quickly on Wall Street, generically speaking, into the sense 
that there is no sheriff?
    Mr. Clayton. Well, in terms of using resources, I am very 
interested in using resources as effectively as possible. In 
the area of enforcement, as I have said--and I do look forward 
to discussing this with the staff at the SEC, and the 
prosecutors who, I know, and will, if confirmed, cooperate 
with, I do believe that individual accountability has a greater 
deterrent effect across the system than corporate 
accountability. And I look forward to pursuing that.
    On the question of budget and resources, I know lots of 
instances where new CEOs have had to go into a particular 
situation. They wish they had more money; they wish they had 
less money. One of the things that I would have to do here is 
get up to speed very quickly on the areas of acute need versus 
less need and act accordingly. That is what I can tell you.
    Senator Reed. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Reed.
    Mr. Clayton, that concludes our first round. We have had 
just a couple of Senators ask for a second round, and so we 
will do that. I think we have three Senators who have asked to 
do so. And I will forgo my second round, although I will 
probably make some wrap-up comments at the end, but let us 
start the second round right now with Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. I appreciate your 
indulgence, and I know Senator Warren does and Senator Cortez 
Masto does. I have to go to Agriculture after this for the 
confirmation for the Secretary designee there.
    Again, thank you for answering the questions that you have 
so far. You have clearly thought a lot about the Foreign 
Corrupt Practices Act. As a lawyer in private practice, how 
would you advise a client interested in complying with the act 
if that client was weighing going into business in Azerbaijan 
with a politically connected family known to be corrupt and 
tied to the Iranian Revolutionary Guard? And you know that is 
not just a ``what if.'' That is a real case.
    Mr. Clayton. No, I think that is a real case, and I am 
going to not comment on a real case, but I am going to comment 
on the question of how do you advise a client who is subject to 
the Foreign Corrupt Practices Act who may be entering into a 
business in a country that is well known for corruption. I 
think you have to tell that client to think long and hard about 
whether you want to have the potential exposure to--and not 
just the Foreign Corrupt Practices Act, but thankfully now, 
which was not the case 5, 7 years ago, similar oversight and 
enforcement from other OECD countries. And, in fact, there are 
some jurisdictions where in the vast majority of the cases, it 
may make sense just not to participate.
    Senator Brown. I am sure you know that the President was 
involved in that situation. In 2012, he said that the FCPA is a 
horrible law that should be changed because it puts U.S. 
business at a huge disadvantage. I am not asking you--I know 
you have had some similar kinds of thoughts, but I think all of 
us want you to understand how important it is with a President 
like no other in terms of family investments, in terms of the 
President's family has gone overseas to do more investing while 
U.S. taxpayers have paid to protect his family when they are 
overseas and how those raise questions not for this hearing but 
that you need to be particularly vigilant because he is your 
boss. I understand you have a fixed term, but he is your boss, 
and he continues to appear to be making money from around the 
world. And I am hopeful that the standard will be high. We 
should send the message that American businesses--we should not 
be sending the message American businesses can be so successful 
partnering with corrupt entities. It is bad for our moral 
standing in the world. It is bad for a developing country. It 
is bad for investors. But I would just ask to make that 
statement.
    Let me ask another question. I do not think I have heard 
anybody in Main Street, Ohio, complain about the lack of IPOs 
crimping their investment choices. What they really want to 
know is that we are doing what we can to prevent the busts that 
can endanger their savings and retirement and to make sure the 
system is not rigged against them.
    I have been troubled for the last 3 or 4 years by the 
collective amnesia on this Committee and in this Senate about 
what happened in 2007, 2008, and 2009, and I think most 
Americans share that concern and wonder about the collective 
amnesia of too many of our policy holders.
    So my question is this, Mr. Clayton: What do you tell 
people saving and investing about a market where companies can 
stay private for longer, can limit shareholder voting rights--
we are seeing that in a number of very prominent U.S. 
companies--and where they can make it harder for even large 
institutions to submit proposals for shareholder votes?
    Mr. Clayton. Let me try and take those. In terms of--let me 
go back to your first statement. In terms of whether having 
fewer public companies, I do think it is--again, I do think it 
is a problem, and I do think it is a problem that is not well 
known because if you have fewer public companies getting on the 
growth phase, and these are all here, that is fewer returns for 
people who participate in the public markets. People who 
participate in the private markets are capturing those returns. 
I do want to see more public companies.
    In terms of, you know, your other questions around amnesia, 
I can tell you that I do not have amnesia. I worry about where 
the risks are today. Now, the risks in 2007, 2008 were in one 
aspect of our economy, and it got away from us, very much got 
away from us, and we did not--I worry about where those risks 
are housed today and making sure that we do not have a repeat 
of that type of situation.
    Senator Brown. Go back to the--thank you for answering the 
collective amnesia part of it, but we talked, and you said you 
want companies to be--when I said they stay private for longer, 
you answered that well enough, but more and more companies are 
limiting shareholder voting rights, more and more companies are 
not really particularly welcoming of submitting resolutions by 
even major institutional shareholders.
    Mr. Clayton. On the voting rights and governance issue of 
companies, you know, two things. It is well disclosed and well 
understood. That is where we are. The ability of companies to 
come to the market with governance structures like that is a 
function of does it make sense. I also believe it is a function 
of what is the supply of public companies coming to the market. 
My sense--and I could be completely off on this because I have 
not tested it with experts and things like that. But my sense 
is that the ability of--there is so much thirst for public 
companies that it is easier for a company to set a particular 
set of governance requirements than it may have been in the 
past.
    Senator Brown. And that is not a good thing?
    Mr. Clayton. I do not know if it is a good thing or a bad 
thing, but I think that is a change in the balance.
    Chairman Crapo. Thank you.
    Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chairman. Thank you 
for the indulgence.
    And to Mr. Clayton, I know it has been a long morning, so I 
appreciate you being here and the answers to the questions. I 
have two quick ones for you.
    One has to do with the forced arbitration clauses. In 
particular, Dodd-Frank gave the SEC the authority to rein in 
the use of forced arbitration clauses. Unfortunately, the SEC 
never so much as studied the issue.
    So my question to you is: If confirmed, will you commit to 
reining in the use of forced arbitration clauses?
    Mr. Clayton. I am not going to prejudge and commit to that 
issue. It is actually--I will tell you it is an issue that I do 
not know a great deal about, but I will say that I will commit 
to working with you and working with the staff to learn more 
about it.
    Senator Cortez Masto. Thank you.
    Second question. A number of my colleagues today have 
covered how your substantial recusals may impede the work of 
the SEC. My specific interest, though, is in transparency. I 
believe that Government does not do enough of being transparent 
enough to the taxpayer to understand what is taking place, in 
Commission hearings, in any type of process or procedure. And 
while I certainly do not want market-moving information to be 
disclosed before it is ripe, I think the public should know 
when you or any Commissioner has recused yourself once an 
enforcement matter is settled.
    Will you commit to report to the public instances when you 
have recused yourself and what triggered the recusal once that 
enforcement matter has been settled?
    Mr. Clayton. I think there are two parts to your question--
well, let me say there are three parts to your question. I do 
agree with transparency. There are situations, as you know as a 
prosecutor, where, you know, for example, you do not disclose 
an ongoing investigation until it is over.
    In terms of recusals, I think the Commission has a policy 
for disclosure of recusals, and I look forward to working on 
that.
    As far as the particular reason for recusal, if it is not--
I will need to look into it, but there are--it is the first 
time I have thought about it. There are things going through my 
mind like, you know, what is the duty to a client, et cetera, 
those types of things. But I will look into whether the 
specific reasons for recusal is something that should be 
disclosed.
    Senator Cortez Masto. Thank you. And let me just couch 
this. Most States, and particularly Nevada, have open-meeting 
laws, and they require any type of action taken by a 
commissioner to be put on the record for the public to 
understand. And I completely agree with you that during a 
pending investigation, you want to protect the integrity of 
that investigation, whether it is civil or criminal.
    My question to you, though, was: At the end of the 
enforcement matter, once it is settled and done, at that point 
in time would you be willing to even change a policy if it is 
different than what I am asking you to identify if you recused 
yourself on that particular matter, and then why you had to 
recuse yourself?
    Mr. Clayton. I am very open to having that dialog with the 
SEC Ethics Officer and the people at the SEC who have 
experience with this--it is not a new issue--finding out what 
has been done in the past, and discussing it with you.
    Senator Cortez Masto. Thank you. I appreciate that. Thank 
you for the answers to the questions today.
    Mr. Clayton. Thank you.
    Chairman Crapo. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman, and thank you very 
much for letting us have an extra round here.
    Mr. Clayton, last December, President-elect Trump's 
transition team announced that Carl Icahn would be serving as 
special adviser to the President on issues related to 
regulatory reform. Now, as you know, Mr. Icahn is a long-time 
activist investor with holdings of more than $16 billion. He 
has massive holdings in public companies like CVR Energy, an 
oil refinery, and Herbalife, a medical supplement manufacturer. 
And as far as we can tell, he has not divested any of these 
investments despite his role in this Administration shaping 
regulatory policy that affects the companies that he is 
invested in.
    Now, about 2 weeks after Mr. Icahn was named to this 
position, you were nominated to lead the SEC, and according to 
news reports, Mr. Icahn helped President-elect Trump choose 
you. That is troubling for a number of reasons, especially 
considering that the SEC is actively investigating Herbalife, 
one of Mr. Icahn's largest investments.
    So, Mr. Clayton, have you had any conversations or other 
communications with Mr. Icahn since the election on November 
8th?
    Mr. Clayton. The news reports that Carl Icahn had--I do not 
know--I have no knowledge of----
    Senator Warren. I just asked----
    Mr. Clayton. No, but--thank you. After I was--after my 
nomination was announced--I had a bit of a heads up that it was 
going to be announced, but after it was announced, I got a call 
to ask me to meet with Carl Icahn, and I met with him.
    Senator Warren. So you met with Carl Icahn not before you 
were nominated but after you were nominated?
    Mr. Clayton. Correct.
    Senator Warren. And can you tell us what you talked about?
    Mr. Clayton. We talked about Mr. Icahn's view on the 
importance of activist investors and how they, through their 
methods, drive performance of public companies.
    Senator Warren. And let me guess. He thinks activist 
investors are a good thing and should be encouraged in the 
marketplace.
    Mr. Clayton. I think he thinks they do well for markets.
    Senator Warren. Yeah. Did he talk about any of his 
investments?
    Mr. Clayton. No.
    Senator Warren. All right. So he just talked generally 
about his view and talked about his view about how the SEC 
should----
    Mr. Clayton. No. No real specifics on----
    Senator Warren. So he just wanted to give you his general 
view on activist investors, knowing that you were the SEC Chair 
nominee.
    Mr. Clayton. Correct.
    Senator Warren. And that was the only conversation you had 
with him----
    Mr. Clayton. No, we----
    Senator Warren. ----or with any of his people?
    Mr. Clayton. No, we talked--oh, you mean that conversation?
    Senator Warren. Yes.
    Mr. Clayton. That was the only time I have spoken with Mr. 
Icahn or his people before or after, during----
    Senator Warren. And that was the only topic of the 
conversation when you met, the two of you?
    Mr. Clayton. He congratulated me. We talked----
    Senator Warren. Fair enough.
    Mr. Clayton. ----about people we knew in common, that kind 
of things. That is the first time I met him.
    Senator Warren. OK. If you are confirmed, do you agree that 
it would be inappropriate for you to have any conversations 
with Mr. Icahn about the SEC's regulatory or enforcement plans, 
especially given his massive financial interests in various SEC 
decisions?
    Mr. Clayton. If I am confirmed and I am in the seat of the 
Chairman of the SEC, I think it is important to talk to 
participants in the markets of all types.
    Senator Warren. Including those that there are massive 
ongoing investigations?
    Mr. Clayton. That is something that needs to be navigated 
very carefully. If there is a massive ongoing investigation, 
that is why we have counsel and protocol, and it may be that it 
is completely inappropriate to talk to somebody. But what I 
want to say is receiving information about what participants in 
our capital markets think about them from all different types 
of people is an important part of the job. But to your point, 
Senator, I agree with you. If there is an ongoing investigation 
and there would be the appearance of impropriety or--you know, 
even the appearance of impropriety, it may be inappropriate to 
have that kind of----
    Senator Warren. I would like you to upgrade that ``may be 
inappropriate'' to you believe it is inappropriate.
    Mr. Clayton. I am not going to--I am not going to totally 
prejudge it, but I totally--I totally get your point.
    Senator Warren. I would feel totally a lot happier if you 
would totally prejudge that this is inappropriate.
    [Laughter.]
    Senator Warren. So let me go on from there just a little 
bit.
    Mr. Clayton. OK.
    Senator Warren. In February, Mr. Icahn purchased a 
significant stake in Bristol-Myers Squibb, the massive 
multinational drug company. And to be clear, he purchased this 
stake months after he was appointed as a special adviser to the 
President for regulatory policy. So let me do this as quickly 
as I can.
    Mr. Clayton, I just want to ask you generally, can the 
Federal Government's regulatory decisions affect the value of 
holdings in a drug company like Bristol-Myers Squibb?
    Mr. Clayton. Yes, Senator.
    Senator Warren. Yes, good. And can the value of those 
shares be affected by FDA policies?
    Mr. Clayton. Yes.
    Senator Warren. Good. And patent decisions?
    Mr. Clayton. Yes.
    Senator Warren. And Medicare and Medicaid decisions?
    Mr. Clayton. Yeah.
    Senator Warren. Good. Because, of course, they could. And 
Mr. Icahn is helping dictate Trump administration policy at the 
same time that he is buying stock in this company. It is almost 
impossible to imagine how he would not have some inside 
information about how these policies would affect a company 
like Bristol-Myers.
    So, Mr. Clayton, if Mr. Icahn had inside information about 
Federal regulatory policy affecting Bristol-Myers and he chose 
to purchase shares in the company based on that information, is 
that potentially a violation of securities laws?
    Mr. Clayton. As we both know----
    Senator Warren. In general.
    Mr. Clayton. OK. As we both know, the question of the scope 
of the securities laws around insider trading, et cetera, is--
it is a very facts and circumstances analysis.
    Senator Warren. If he had inside information----
    Mr. Clayton. But it depends--it depends on where it came 
from, what duty, those types of things.
    Senator Warren. How about it came from the fact that he was 
appointed by the President to get this information and actually 
to create this inside information?
    Mr. Clayton. I think we are assuming a lot.
    Senator Warren. I do not think we are assuming a lot, Mr. 
Clayton. And I appreciate that you want to be fair here. I know 
I need to stop because I am over my time, and the Chair has 
been very indulgent here. But we are talking about an 
Administration that just has conflicts everywhere, and it is 
very difficult to determine whether someone is actually working 
in the interests of the American people or they are just lining 
their own pockets or doing some secret blend of the two. The 
American people should not be on guess about that. And when 
Carl Icahn is influencing policy that will affect companies and 
then he is investing in those companies, buying and selling in 
those companies, that creates a conflict of interest that 
just--is just beyond what we are even talking about everywhere 
else.
    I just want to make the point that we are going to have to 
count on you, the American people are going to have to count on 
you, and I want to hear that you are clear that this is not 
right, that this will be investigated, that there is not going 
to be chummy conversations, and that we will see some real 
enforcement of the law on insider trading. I do not understand 
how we can have someone who continues to trade in a market and 
is influencing regulatory policy simultaneously, and I want to 
hear the Chair of the SEC say he is going to look into this and 
I hope put a stop to it.
    So I will stop there. Thank you, Mr. Chairman.
    Chairman Crapo. Thank you, Senator Warren.
    Mr. Clayton. Thank you.
    Chairman Crapo. And, Mr. Clayton, that concludes the 
questioning. I do want to make a couple of comments and 
supplement the record on one issue, and I am glad you are still 
here, Senator Warren, because it relates to something you said 
earlier that I want to supplement.
    In your first round of questioning, you indicated that you 
believe that the Republican Commissioners were more lenient in 
enforcement actions than the Democratic appointees to the 
Commission. And I just have some information here from two 
articles back in October of 2016 in which Reuters in one case 
and Law360 in another case analyzed all of the enforcement 
actions of the SEC from Mary Jo White's tenure--it was about a 
3-year period of time. There were 1,400 defendants, over 400 
cases. And the conclusion of that lay was that over that 3-year 
period of time, the Commission was unanimous in virtually all 
of them. There were 4 of those 414 cases in which there was a 
single negative vote from one Commissioner. And so I just 
wanted to make it clear--I did not want to let your allegation 
that Republican nominees are lenient stand without at least a 
response, and I am glad that you--I know you would like to make 
a response now as well, and you are welcome to do so.
    Senator Warren. That is right, and I have not prepared for 
this, but I do want to say I think we have a New York Times 
analysis showing in the 48 cases where Mary Jo White recused 
herself that the Republicans wanted less enforcement.
    Chairman Crapo. I am not familiar with that article, but 
you are welcome to----
    Senator Warren. And the Democrats wanted more enforcement.
    Chairman Crapo. ----present it.
    Senator Warren. But we can continue to talk about this 
issue.
    Chairman Crapo. We will do so.
    Mr. Clayton, thank you again for your willingness to serve 
and your coming and participating in this hearing here today.
    I have just one announcement for our Members, and that is 
that the questions for the record--which will be submitted, and 
we ask you to respond to promptly, Mr. Clayton--are due by the 
end of business on Monday.
    And, once again, thank you for being here. That concludes 
our business. The hearing is adjourned.
    Mr. Clayton. Thank you, Senator.
    [Whereupon, at 11:55 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketch of nominee, 
responses to written questions, and additional material 
supplied for the record follow:]
               PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
                             March 23, 2017
    This hearing will come to order.
    This morning, we will hear testimony on the nomination of Jay 
Clayton to be the Chairman of the United States Securities and Exchange 
Commission.
    Mr. Clayton has extensive expertise in our financial markets as a 
highly regarded securities lawyer.
    For decades he has helped companies access our capital markets, 
increase their ability to invest in the U.S., and grow and create jobs.
    One area on which Mr. Clayton has already indicated he will focus 
is capital formation.
    Capital markets drive innovation and job creation, and access is 
the lifeblood of our economy.
    The JOBS Act helped revitalize the primary markets, and both 
Congress and the SEC should continue to find ways to help companies go 
public and allow investors to share in their success.
    Recently, this Committee marked up several bipartisan securities 
bills and we encourage you, if confirmed, to help us identify other 
securities areas which could use legislative improvement.
    The SEC has an important three part mission: protect investors; 
maintain fair, orderly, and efficient markets; and facilitate capital 
formation.
    Each part of the mission is equally important and should not come 
at the expense of another.
    I raise this because the SEC's mission is critical to every U.S. 
citizen and retiree.
    Investors should be able to participate in our markets, on fair 
footing, so that they can pay for life events such as college and save 
for retirement.
    We also need to help investors make sure they have material 
information to make informed investment decisions.
    I have repeatedly stressed the need for the U.S. financial system 
and markets to remain the preferred destination for investors 
throughout the world, and the SEC has an important role to that end.
    I look forward to hearing more from you on how we can help 
companies grow, Americans get hired, and investors share in the wealth 
creation by these companies.
    Another important issue that the SEC is tasked with is ensuring 
that the stock market rules and regulations are still appropriate, 
given that most of them were promulgated in a time where technology was 
much less advanced.
    It is imperative that these rules serve the needs of companies and 
investors.
    In that vein, it is important for the SEC to do retrospective 
reviews of its own regulations to ensure they are working out as 
intended and are still appropriate. This is in line with the 
President's own executive orders on regulation.
    Other regulators are subject to EGRPRA, the Economic Growth and 
Regulatory Paperwork Reduction Act, which statutorily mandates a review 
and evaluation of existing regulations in order to identify which are 
outdated, unnecessary, or unduly burdensome.
    While technically the SEC is not subject to EGRPRA, your 
predecessor, Chair White, indicated before this Committee that she was 
``very much committed to reviewing [the SEC's] rules in that fashion.'' 
A commitment that many would like to see continue.
    Additionally, it is important for the SEC to have robust cost 
benefit analysis. I have long stated this position and our President 
recently echoed the importance of cost-benefit analysis in an executive 
order.
    I look forward to hearing from you today on these issues, as well 
as what you hope to prioritize when you are at the SEC.
    Congratulations on your nomination, and thank you and your family 
for your willingness to serve.
                                 ______
                                 
              PREPARED STATEMENT OF SENATOR MARK R. WARNER
                             March 23, 2017
    Mr. Clayton, I appreciated the opportunity to meet with you prior 
to today's hearing to discuss your nomination to lead the Securities 
and Exchange Commission (SEC).
    America has the deepest, most liquid markets in the world. If 
confirmed, you will have the responsibility of protecting investors 
against fraud while preserving a system that fosters capital formation 
and ensures fair and efficient markets.
    One area that I have been passionate about is equity market 
structure and ensuring our markets operate efficiently and on behalf of 
all investors. Over the past few decades, we have seen remarkable 
technological progress and innovation in our securities markets, 
coupled with substantial regulatory reform. Some of these advances and 
reforms, including decimalization, have brought considerable rewards 
for individual investors by narrowing spreads and increasing liquidity. 
Most trades today can happen within fractions of a second, providing 
good prices and counterparties for those seeking to buy equities around 
the world.
    But at the same time, we have seen increased volatility and 
periodic dislocations. These include a Flash Crash in 2010, ``Mini'' 
flash crashes in individual equities, a Flash Freeze at the NASDAQ in 
2013 that halted trading for hours, a glitch at the NYSE in July 2015, 
and numerous allegations (resulting in settlements) of misbehavior at 
dark pools. Such events do little to engender confidence, and indeed 
may hinder investment in the stock market, adversely affecting the 
broader economy.
    As a result, I have been a vocal proponent of market structure 
reforms that will improve the resiliency and efficiency of markets, and 
protect retail investors. Specifically, I have, on a bipartisan basis 
with Chairman Crapo, called for the SEC to implement a maker-taker or 
access fee pilot that will help shed light on order routing. I also 
supported a tick-size pilot, which will provide data on whether 
improvements can be made to help foster capital formation and improve 
secondary market trading. Chair White had announced she would implement 
a maker-taker pilot while also conducting a holistic review of market 
structure, and I hope that you will move forward on both--without 
letting the latter impede pilots that can offer valuable data in the 
interim.
    In ensuring fair and efficient markets and protecting investors, I 
also hope that you will take an aggressive stance towards insider 
trading. As you know, there have been prominent cases in recent years 
where federal judges have practically begged the SEC to bring an 
enforcement action for suspect illicit behavior, and yet the SEC has 
failed to do so. A key test of your chairmanship will involve whether 
you will take a more pro-investor, pro-market stance by aggressively 
pursuing such violations.
    Capital markets exist to help foster capital formation that can be 
used to expand the investment, hire workers, and grow the economy--not 
to allow machines to arbitrage fractions of pennies or to allow 
participants to drive a company towards short-term maximization of 
profits at the expense of the longer-term value creation and, often, 
the viability of the firm. And so I believe the SEC, in carrying out 
its function in promoting capital formation, should encourage 
companies, through its regulatory process, to adopt policies that 
foster longer-term growth and investment, as opposed to the more recent 
and disturbing trend of short-termism.
    I look forward to hearing your views on these topics.
                                 ______
                                 
                   PREPARED STATEMENT OF JAY CLAYTON
        To be Chairman of the Securities and Exchange Commission
                             March 23, 2017
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
I am honored to appear before you today as President Trump's nominee to 
Chair the Securities and Exchange Commission. I want to thank you and 
your staff for the time you have spent with me. I have enjoyed, and 
learned from, our meetings.
    Our capital markets have far-reaching and profound effects for 
every American. Making sure our markets are fair, open, orderly, and 
efficient--and ensuring that investors are protected--is the 
fundamental responsibility of the SEC. If confirmed, I will take up 
this responsibility with energy and purpose. I pledge to work with my 
fellow Commissioners, the SEC Staff, this Committee, and the many 
others who support and defend our capital markets.
    The importance of Government service was instilled in me from a 
young age. Six weeks after I was born, my father shipped out to Vietnam 
as a Second Lieutenant and my mother, 20 at the time, and I moved to 
her childhood home in Lykens, Pennsylvania. We lived with her parents 
and her four younger brothers.
    My grandfather, Pat Kerwin, the 8th and last child of coal miners, 
a small town lawyer, and perpetual public servant, both in title and 
action, took a strong interest in me. We were great friends for 20 
years. Remarkably, for as far back as I can remember, he took me with 
him to township meetings, real estate closings, and estate auctions. 
Those experiences, much more Main Street than Wall Street, made a deep 
and lasting impression on me.
    My parents, Kathi and Walt Clayton, are here today along with my 
youngest brother Andrew. I thank them for a lifetime of support.
    When I entered the 9th grade, we moved as a family for the last 
time to Delaware County, Pennsylvania. I met new friends, mostly 
through sports. One of those friends, who has long been my best friend, 
is my wife Gretchen. We met 36 years ago and have been married for 25 
years. I want to specifically thank Gretchen for her encouragement, 
love, and support. We are also joined here today by our three 
children--Jasper, age 14, Wyatt, age 13, and Haley, age 12. As Chair of 
the SEC, I will be mindful of my responsibility to their generation.
    During the course of my 20+ year career as a transactional lawyer, 
it has been my privilege to work with leaders in the public and private 
sector, including on landmark transactions, such as the world's largest 
IPO, as well as important transactions during the dark days of the 
financial crisis. From my 5 years in Europe--where I worked on matters 
involving the laws and markets of no fewer than a dozen countries, 
including France, Sweden, Turkey, Switzerland, Italy, England, Greece, 
and Germany--I learned that the world's capital markets are very 
interconnected and, more broadly, that America is, indeed, the greatest 
country.
    My work has included counseling to a number of small private 
businesses and individuals. During my college and post-graduate years, 
my mother and father operated a small warehousing and logistics 
business. I worked with them on various projects, including lease 
negotiations, inventory system design and establishing a 401(k) plan 
for employees. There were ups and downs, and I learned first-hand the 
many challenges small- and medium-sized businesses face as well as 
their importance to our economy.
    Based on all of my experiences, nationally and internationally and 
on Wall Street and Main Street, I firmly believe that:

  1.  Well-functioning capital markets are important to every American;

  2.  All Americans should have the opportunity to participate in, and 
        benefit from, our capital markets on a fair basis, including 
        being provided accurate information about what they are buying 
        when they invest; and

  3.  There is zero room for bad actors in our capital markets.

    I am 100 percent committed to rooting out any fraud and shady 
practices in our financial system. I recognize that bad actors 
undermine the hard-earned confidence that is essential to the efficient 
operation of our capital markets. I pledge to you and the American 
people that I will show no favoritism to anyone.
    One last comment: For over 70 years, the U.S. capital markets have 
been the envy of the world. Our markets have allowed our businesses to 
grow and create jobs. Our markets have provided a broad cross-section 
of America the opportunity to invest in that growth, including through 
pension funds and other retirement assets. In recent years, our markets 
have faced growing competition from abroad. U.S.-listed IPOs by non-
U.S. companies have slowed dramatically. More significantly, it is 
clear that our public capital markets are less attractive to business 
than in the past. As a result, investment opportunities for Main Street 
investors are more limited. \1\ Here, I see meaningful room for 
improvement. I am excited to work with you, my fellow Commissioners and 
the SEC staff to pursue those improvements and, in doing so, will 
always be vigilant to ensure that the Commission is steadfast in 
protecting investors.
---------------------------------------------------------------------------
    \1\ Today, the number of U.S.-listed public companies is down over 
35 percent from 1997. In 1996, there were approximately 845 U.S. IPOs, 
while in 2016, there were approximately 128. See, e.g., Anne VanderMey, 
Fortune.com, ``IPOs Are Dwindling, So Is the Number of Public 
Companies'' (Jan. 20, 2017), available at http://fortune.com/2017/01/
20/public-companies-ipo-financial-markets/. WilmerHale 2016 IPO Report 
(March 24, 2016), available at https://launch.wilmerhale.com/
uploadedFiles/Shared_Content/Editorial/Publications/Documents/2016-
WilmerHale-IPO-Report.pdf.
---------------------------------------------------------------------------
    Thank you for this opportunity. I look forward to receiving your 
advice and answering your questions.


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        RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER
                        FROM JAY CLAYTON

Q.1. Do you believe the Securities and Exchange Commission 
should be a merit-based regulator picking individual winners 
and losers, or do believe that the Securities and Exchange 
Commission should be a disclosure-based securities regulator 
and let investors make investment decisions with accurate 
information?

A.1. I believe that the Commission's efforts should focus on 
advancing its tri-partite mission of protecting investors, 
maintaining fair, orderly and efficient markets, and 
facilitating capital formation. In this regard, I believe that 
the disclosure-based regulatory framework governing our public 
markets and companies has been and remains fundamentally 
important and, based on my experience with, and understanding 
of, the establishment, operation and evolution of various 
regulatory systems in other countries and regions, has proven 
to be superior to merit-based systems.

Q.2. Under your leadership how will the Securities and Exchange 
Commission help encourage more initial public offerings in 
order to drive future job growth?

A.2. Small and large businesses rely on our capital markets to 
raise the capital they need to buy equipment, expand their 
operations, and, importantly, hire American workers. In my 
experience, in the past two decades, a number of factors have 
developed or have become more relevant that may discourage a 
private company from accessing our public markets to raise 
capital. These factors include various immediate one-time costs 
and ongoing incremental costs compared with remaining a private 
company. In my view, we should examine whether these costs can 
be addressed in a manner such that more companies choose to go 
public--which would help them access capital they need to drive 
job growth--without lessening, and with an eye toward 
enhancing, investor protection.

Q.3. How can the Securities and Exchange Commission better 
ensure that the perspective of all stakeholders are better 
incorporated into the Commission's policymaking process in 
order to promote more job growth?

A.3. As I stated at my nomination hearing, I strongly believe 
it is important for the Commission to engage with market 
participants of all types. Receiving information about what 
participants in our capital markets think about various issues 
before the SEC, and the funding of our markets more generally, 
is an important part of the job, and I look forward to engaging 
with those participants if I am confirmed. This would include 
engaging with issuers, investors and other market participants 
who rely on our capital markets to access the capital they need 
to create jobs.

Q.4. One of the main duties of the Securities and Exchange 
Commission is to facilitate capital formation that is necessary 
to sustain economic growth. What will be your priorities at the 
Securities and Exchange Commission to promote more capital 
formation for businesses and help create jobs in Nevada? Do you 
support legislative initiatives that would spur more capital 
formation for small- to mid-sized businesses?

A.4. Capital formation is a critical element of the SEC's tri-
partite mission. Without commenting on any particular 
legislative proposal, I generally support initiatives that 
would spur capital formation for small- to mid-sized businesses 
while maintaining or enhancing protection for investors. I 
understand that the SEC is already taking steps to ``stand up'' 
the new Office of the Advocate for Small Business Capital 
Formation and to begin the search for the new Small Business 
Advocate. If confirmed, I look forward to working with the 
staff and my fellow Commissioners to continue this effort, and 
to explore ways in which we can promote capital formation for 
small- to mid-sized businesses and help them access and 
navigate our public and private capital markets.

Q.5. Last Congress, Chairman Crapo and I held a hearing looking 
at changes in the fixed-income markets and there are early 
signs that fixed-income markets are becoming more fragile and 
less liquid than they used to be. Do you recognize the changes 
occurring in the fixed-income markets and do you believe 
regulations are affecting liquidity?

A.5. Fixed income markets have become increasingly important to 
investors, including retirees with self-directed retirement 
assets. I understand that Erik Sirri, former Director of the 
SEC Division of Trading and Markets, and a co-author, recently 
delivered a paper where they argued that `` . . . the domestic 
fixed income markets are both larger and more in need of market 
structure reform than their equity counterparts. Whereas the 
market capitalization of listed equity markets is about $26.5 
billion, the corporate asset-backed, mortgage, treasury, agency 
and municipal bond market in aggregate totaled $37.1 billion.'' 
\1\ I believe the Commission and other regulators should be 
mindful of whether these markets are as efficient and resilient 
as we would expect them to be and whether regulatory and market 
developments have had adverse impacts.
---------------------------------------------------------------------------
     \1\ Ryan Davies and Erik Sirri, ``The Economics and Regulation of 
Secondary Trading Activities'' (Draft of March 16, 2017), at 70-71, 
available at http://www.law.columbia.edu/sites/default/files/
microsites/capital-markets/davies_sirri_economics-of-trading-
markets.pdf.

Q.6. Each year, institutional investors cast millions of votes 
that determine corporate governance policies at thousands of 
publicly traded U.S. companies. Many institutions outsource the 
analysis and process of developing voting recommendations to 
proxy advisory firms. Today, two firms dominate the proxy 
advisory industry. There has been serious allegations of 
conflicts of interest, lack of transparency, and errors in 
reports by these firms. Do you have any concerns about proxy 
advisory firms and would you address these issues at the 
---------------------------------------------------------------------------
Securities and Exchange Commission?

A.6. I believe that this is an evolving industry that has seen 
change, including in response to staff guidance to various 
participants as well as industry commentary and industry 
engagement, including with proxy advisors. I believe the area 
requires continued scrutiny, including in light of the 
importance and influence of these firms. By way of example, I 
understand that, following the release of the 2014 staff 
guidance, the SEC's Office of Compliance Inspections and 
Examinations listed as a priority the examination of proxy 
advisory firms with respect to their process for making voting 
recommendations and how they address potential conflicts of 
interest. If confirmed, I look forward to studying these and 
other issues, including the results of OCIE's efforts, and 
discussing them with the staff and my fellow Commissioners.

Q.7. Given the rapidly changing nature of the global securities 
markets, will you commit to working to promote more market 
innovations while ensuring proper investor safeguards?

A.7. I believe that market innovations are relevant to all 
three elements of the SEC's tri-partite mission. They can be an 
important driver of capital formation, market efficiency and 
investor protection, including through various efforts designed 
to drive more efficient and effective monitoring and reporting 
such as the Consolidated Audit Trail. If confirmed, I look 
forward to working with the staff and my fellow Commissioners 
to continue to explore ways in which innovations can advance 
the SEC's mission, including through engagement with investors 
and other industry participants, while being mindful of related 
risks, including, for example, cybersecurity risks.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                        FROM JAY CLAYTON

Q.1. How can the SEC better define the scope of lawful trading-
related activity defined in its rulemakings? Where is clarity 
most necessary? Will you commit to taking concrete action to 
this end within 6 months of your confirmation?

A.1. This is in response to Questions 1 and 2. I recognize that 
this is an issue that has received attention, particularly in 
light of recent high-profile court cases, which have created 
some uncertainty regarding the contours of various aspects of 
insider trading and market manipulation under our securities 
laws. As a general matter, I believe that clarity should be a 
goal of regulation and that appropriate guidance is one method 
to foster clarity. If confirmed, I look forward to engaging 
with my fellow Commissioners, the SEC staff and the many other 
regulatory and enforcement officials with interests in this 
area to explore whether and, if so, by what means, further 
clarity should be pursued.

Q.2. How can the SEC increase its use of informal guidance to 
provide better clarity about the scope of unlawful trading-
related activities? Where is clarity most necessary? Will you 
commit to taking concrete action to this end within 6 months of 
your confirmation?

A.2. Please see my response to Question 1 above.

Q.3. I'd like to learn more about your approach to securities 
regulations.
    Is there a risk that regulations can give large incumbent 
firms a competitive advantage over smaller farms? If so, what 
can be done to mitigate this risk?

A.3. In my experience, many costs associated with regulatory 
compliance are more ``fixed'' than variable and, as a result, 
may in some circumstances, have a greater effect on smaller- 
and medium-sized companies as compared with ``large cap'' 
companies. I believe we should be mindful of the effects that 
regulations can have on all businesses and, in particular, 
smaller businesses in this regard. If confirmed, the 
Commission's tri-partite mission is paramount and will be at 
the front of my mind. I agree with the fundamental principles 
of our disclosure-based regulatory system. I agree that 
securities trading markets should be fair, efficient, and deep. 
I believe in the importance of capital formation to our 
markets, our economy, and our society more generally. I also 
agree that there is no place for ``bad actors'' in our markets.
    At a more granular level, I believe that regulators should 
recognize risks and limitations of rulemaking and other 
actions, including that certain actions may unnecessarily 
impair competition, have unforeseen costs and other 
consequences, and otherwise not be as beneficial or effective 
as expected. In this regard, the notice-and-comment rulemaking 
process and economic analysis can be very helpful, and, to 
address unforeseen consequences, retrospective review may be 
appropriate and, in this regard, the Commission has exemptive 
authority. At a more general level, if confirmed, I intend to 
assess the actions of the Commission through the lens of what 
is in the interest of Main Street investors.

Q.4. Is it appropriate--in the words of former Chair Mary Jo 
White--to ``effectuate social policy or political change 
through the SEC's powers of mandatory disclosure''?

A.4. As I stated at the hearing, I believe that materiality is 
the touchstone with respect to disclosure. In that regard, I 
believe that the SEC's core mission is best served when the 
Commission's efforts with respect to mandatory disclosure 
requirements are focused on ensuring that investors have access 
to material information in an effective and efficient manner, 
without regard to unrelated facts. If confirmed, I look forward 
to engaging with my fellow Commissioners and the staff to 
advance the SEC's core mission of protecting investors, 
maintaining fair, orderly and efficient markets, and 
facilitating capital formation.

Q.5. Is there a danger that disclosure requirements become so 
voluminous that they become unhelpful to investors? If so, what 
can be done to avoid this problem?

A.5. I firmly believe in our disclosure-based regulatory system 
for public companies and the general approach that we have 
followed for the past eighty-plus years. Public companies 
should provide core required disclosures, and those core 
disclosures should be supplemented by other information 
material to investors, in each case reflecting Commission and 
staff guidance that has been reviewed and updated to ensure 
that our disclosure requirements are achieving their important 
investor protection objectives in an effective and efficient 
manner.
    In this regard, I recognize that investors also bear the 
costs of disclosure mandates. If I am confirmed, I look forward 
to working with my fellow Commissioners and the SEC staff on 
this topic, including engaging with them on the Disclosure 
Effectiveness Initiative.

Q.6. In light of the SEC's mission to ``protect investors, 
maintain fair, orderly, and efficient markets, and facilitate 
capital formation,'' I'd like to ask you about the SEC's 
rulemaking schedule.
    What factors should dictate the SEC's rulemaking schedule?
    Does the SEC's rulemaking schedule reflect the right 
balance between focusing on these three missions? If not, how 
would you change it?

A.6. Rulemaking, both mandatory and discretionary, is a 
critical function of the SEC. I believe it should, among other 
things, reflect the Commission's tri-partite mandate, include 
effective economic analysis, seek clarity over complexity 
wherever practicable, reflect input from a diverse array of 
affected parties and market participants and proceed as 
efficiently as practicable. The rulemaking process is 
important, and in many cases demands significant resources. The 
Commission's resources are limited and, accordingly, the 
overall approach to rulemaking should reflect the Commission's 
mandate and be the product of consultation among the 
Commissioners, the staff and, in the case of multi-agency 
rulemaking, other authorities, being mindful of the obligation 
to proceed with mandatory rulemaking at a reasonable pace and 
also being responsive to market developments. Because I have 
not yet had the opportunity to discuss the rulemaking schedule 
with the Commissioners and the staff, it would be premature for 
me to make an assessment as to whether the schedule properly 
balances the SEC's tri-partite mission and reflects the 
principles outlined above and any other important factors. If 
confirmed, I look forward to engaging with my fellow 
Commissioners and the staff regarding the current rulemaking 
calendar and outlook, including any necessary or advisable 
changes.

Q.7. During your confirmation hearing, you rightly spoke of the 
importance of helping more firms go public.
    What is the role for private capital markets in a high-
functioning economy, particularly given the prominent role you 
envision for public markets?
    Are the private capital markets high-functioning at the 
moment?

A.7. Based on my experience, I believe that over the past 
several decades, private capital markets have grown 
substantially and, as a result, have increased the availability 
of private capital (including to medium- and larger-sized 
companies). These markets also appear to have experienced 
greater competition and appear to have become more efficient 
providers of capital. I believe the private capital markets 
hold a significant place in our economy and have significant 
effects on our capital markets generally. In light of this 
importance and interconnectivity, if confirmed, I look forward 
to engaging with the SEC staff and my fellow Commissioners on 
these issues with an eye toward ensuring that the Commission's 
approach to the regulation of the private capital markets 
reflects the Commission's tri-partite mandate.

Q.8. In 2014, former SEC Commissioner Dan Gallagher said that 
``issues specific to small business capital formation too often 
remain on the proverbial back burner. This lack of attention 
doesn't just harm small business; it also harms investors and 
the public at large.''
    Do you agree?
    If so, as SEC Chair how will you work to improve small 
business capital formation and respond to our economy's near-
historic low levels of firm creation?
    The SEC Small Business Advocate Act of 2016 created the 
Office of the Advocate for Small Business Capital Formation. If 
confirmed as Chair, will you work closely with this advocate 
and seriously consider the Office's recommendations?
    The SEC Small Business Advocate Act of 2016 also created 
the Small Business Capital Formation Advisory Committee, which 
will issue recommendations on improving small business capital 
formation. Unfortunately, the SEC has traditionally largely 
ignored these sort of recommendations, such as those of the 
annual Government-Business Forum on Small Business Capital 
Formation. While the SEC is required to respond to the 
recommendations of the Advisory Committee, it is are not 
required to follow them. If confirmed as Chair, will you 
strongly consider supporting the recommendations of the 
Advisory Committee?

A.8. As I stated at the hearing, availability of capital for 
small business is very important. I also agree with 
Commissioner Gallagher that addressing issues specific to small 
business capital formation can yield benefits for small 
businesses, investors, and the public at large.
    I understand that the SEC is already taking steps to 
``stand up'' the new Office of the Advocate for Small Business 
Capital Formation and to begin the search for the new Advocate. 
\1\ If confirmed, I look forward to working with the staff and 
my fellow Commissioners to continue this effort, and to explore 
ways in which we can promote capital formation for small 
businesses and help them access and navigate both our public 
and private capital markets.
---------------------------------------------------------------------------
     \1\ Opening Remarks of SEC Acting Chairman Michael Piwowar before 
the SEC Advisory Committee on Small and Emerging Companies (Feb. 15, 
2017), available at https://www.sec.gov/news/statement/piwowar-opening-
remarks-acsec-021517.html.
---------------------------------------------------------------------------
    With respect to the Small Business Capital Formation 
Advisory Committee, it would be premature for me to take a 
position on a potential recommendation without further 
exploring the issue. However, if I am confirmed, I look forward 
to engaging with my fellow Commissioners, the SEC staff, the 
Advisory Committee and other interested parties regarding the 
Advisory Committee's recommendations on improving small 
business capital formation.

Q.9. Some have criticized proposals to increase investment 
options to the public because it would be allegedly risky for 
investors. This has particular relevance for debates about Reg. 
D and crowdfunding.
    What role, if any, does the SEC have as a prudential 
regulator?

A.9. As a general matter, I believe we should be exploring 
means to increase the number and type of investment options 
available to the public, including through various forms of 
private placements. I also recognize the concerns of many that 
these types of investments can involve more investment risk and 
more risk of fraud than more familiar public market 
investments, and agree that these are important considerations. 
If confirmed, I am interested in identifying and acting on 
opportunities, including in connection with current rulemaking 
and in response to technological and other advancements and 
changes, to increase investor choice while preserving investor 
protections.

Q.10. Is it ever appropriate for the SEC to engage in the 
``merit review'' of investment choices, where the SEC would 
elevate its evaluation of a particular investment over the 
evaluation of a private investor?

A.10. As a general matter, I do not believe that the Commission 
should elevate its evaluation of a particular investment over 
the evaluation of that investment by a private investor. In 
this regard, I believe that the disclosure-based regulatory 
framework governing our public markets and companies has been 
and remains very important.

Q.11. How would you strike the balance between investor 
protection and investor freedom when it comes to the definition 
of accredited investor?

A.11. I believe investor protection and investor freedom are, 
in many circumstances, complementary. In my experience, this 
positive dynamic depends on other factors, including reasonable 
disclosure requirements and enforcement of anti-fraud laws, and 
is not without limit. With regard to the definition of 
accredited investor, I believe that the Commission should 
assess whether changes in the definition will affect, among 
other things, market protocols that have developed in response 
to the current definition, the size and composition of the pool 
of accredited investors, and, significantly, investor 
protections. If confirmed, I look forward to reviewing these 
issues with my fellow Commissioners and the staff.

Q.12. Would you support expanding the definition of 
``accredited investor'' beyond income and assets to also 
include investor expertise, such as possessing a graduate 
degree in a related field, or passing a test for investor 
sophistication?
    Does it trouble you that according to some reports, roughly 
90 percent of Americans cannot invest in Regulation D 
securities? \2\
---------------------------------------------------------------------------
     \2\ https://www.mercatus.org/system/files/
peirce_reframing_ch11.pdf, p. 278.
---------------------------------------------------------------------------
    Would you consider withdrawing the two Reg. D amendments 
proposed in July of 2013? \3\
---------------------------------------------------------------------------
     \3\ See Securities and Exchange Commission, ``Proposed Rule: 
Amendments to Regulation D, Form D and Rule 156'', Federal Register, 
Vol. 78, No. 142 (July 24, 2013), pp. 44806-44855.

A.12. I understand that the SEC has been examining these 
issues, and that the staff recently issued a report that 
analyzed, among other things, the feasibility of using 
qualification metrics other than wealth or income. If 
confirmed, I look forward to reviewing this issue further and 
working with SEC staff and my fellow Commissioners in 
revisiting the accredited investor standard more generally, 
including considering whether the metrics should be adjusted 
and/or expanded beyond income and net worth, as well as the 
status of current rule proposals.
    With respect to the 90 percent figure cited above, as I 
discussed at the hearing, it is of concern to me that certain 
types of investment opportunities for Main Street investors may 
be more limited than they reasonably could be.

Q.13. How would you strike the balance between investor 
protection and investor freedom when it comes to evaluating 
proposals to expand or improve upon federal crowdfunding 
regulations?
    Are Federal crowdfunding regulations workable?

A.13. If confirmed, I intend to consult with the staff, my 
fellow Commissioners and other market participants on these and 
other crowdfunding-related issues. For example, I understand 
that the SEC staff has been collecting data on crowdfunding 
efforts since the SEC's Regulation Crowdfunding became 
effective. I look forward to hearing more about the staff's 
analysis of that data and how it may inform the Commission's 
approach going forward.

Q.14. Last Congress, Rep. Emmer introduced H.R. 4850, the 
``Micro Offering Safe Harbor Act'', the original version of 
which would have allowed an issuer to sell up to $500,000 worth 
of securities, upon certain conditions. How would you evaluate 
a legislative proposal to introduce a safe harbor for small 
equity raises?

A.14. If confirmed, I look forward to working with Congress on 
important legislative proposals that affect our markets. Before 
taking a position on a particular proposal relating to the 
introduction of a safe harbor for small equity raises, I would, 
if confirmed, want to engage with my fellow Commissioners and 
the SEC staff to review the details and consider the potential 
impacts, positive or negative, of such a proposal. As a general 
matter, I am supportive of efforts focused on capital formation 
for small businesses and recognize that there should not be a 
one-size-fits-all approach to securities regulation.

Q.15. Many argue that despite the JOBS Act, Reg. A+ is still 
prohibitively costly for smaller firms. Only around 44 firms 
qualified for Reg. A+ during its first year, \4\ compared to 
33,429 who used Reg. D in 2014. \5\ I've been told that few if 
any investors in my State find it worthwhile to use Reg. A+.
---------------------------------------------------------------------------
     \4\ https://www.crowdfundinsider.com/2016/07/87745-looking-
regulation-one-year-later/ (cited by https://www.mercatus.org/system/
files/peirce_reframing_ch11.pdf, p. 278.
     \5\ https://www.mercatus.org/system/files/
peirce_reframing_ch11.pdf, p. 278. See also https://
www.nextgencrowdfunding.com/static/uploads/2016/10/03/
NextGenCrowdfundingRegA+WhitePaper_October62016.pdf.
---------------------------------------------------------------------------
    Is Reg. A+ currently workable for most smaller firms?
    As SEC Chair, will you examine how the SEC can make Reg. A+ 
easier to use for smaller firms, and advocate for such changes?

A.15. I have not yet had the opportunity to engage with the 
Commissioners and the SEC staff regarding Regulation A+, but if 
confirmed as Chair, I look forward to studying this issue, 
including the potential impacts of any potential reform 
options. As a general matter, I believe we should be looking 
for means to increase the number and type of investment options 
available to the public, including through various forms of 
private placements. I also recognize the concerns that these 
types of investments can involve more investment risk and more 
risk of fraud than more familiar public market investments.

Q.16. The marketplace online lending ecosystem has grown 
significantly as of late.
    How would you approach this field?
    My understanding is that SEC regulations require online 
marketplace lenders such as Proper and Lending Tree to update 
their regulatory filings with the SEC every week or so. Do you 
believe this is the most effective way to regulate these firms?

A.16. While I have not yet had an opportunity to engage with 
the Commissioners or the staff regarding regulatory issues 
related to online marketplace lending, I do have some 
experience with these types of businesses as a practitioner and 
recognize that their operations, and the operations of other 
participants in the marketplace, involve, or potentially 
involve, various regulatory regimes and agencies, including the 
SEC. I also recognize that this industry is growing and 
changing. In this regard, if confirmed, I would expect to work 
with my fellow Commissioners, the staff, other regulators, 
market participants and other interested parties to understand 
the current and evolving practices in this area and to consider 
the effectiveness and adequacy of existing regulation, 
including the timing and content of the SEC filings you 
identify. I also recognize the importance of coordination and 
discussion with other agencies involved in regulating 
marketplace online lending, and, if confirmed, would encourage 
the SEC staff to pursue such coordination and discussion.

Q.17. Under what circumstances is it appropriate for the SEC to 
send cases to Administrative Law Judges?

A.17. I understand that certain matters involving the 
Commission's Administrative Law Judges are subject to current 
court proceedings, and as such, it would not be appropriate for 
me to comment on those matters. As a general matter, I 
recognize that Congress has authorized the SEC to use 
Administrative Law Judges in a number of circumstances, and 
that some commentators have questioned the scope of the 
Commission's use of Administrative Law Judges as well as its 
exercise of discretion, including on due process grounds. If 
confirmed, I would expect to engage with the staff and my 
fellow Commissioners on these issues, including with respect to 
any potential impacts the pending matters could reasonably be 
expected to have on the operations of the Commission.

Q.18. Does anything need to be done to improve the use of cost-
benefit analysis at the SEC? If so, will you commit to 
advocating for these steps?

A.18. I believe economic analysis--including assessing the 
expected relevant costs as well as the relevant benefits of a 
proposed regulation--is an integral part of the rulemaking 
process. In my experience, in most cases, the initial analysis 
is reasonably designed, but history has shown that, over time, 
rules can have wide-ranging effects, and that those effects can 
be under- or over-estimated at the time a rule is initially 
adopted, or even missed entirely. History also has shown that 
recurring costs, including compliance costs, often grow faster 
than expected, including because yesterday's ``state of the 
art'' becomes today's expectation. As the market changes, which 
it inevitably does, the divergence between expectations and 
reality can grow over time; accordingly, a rule that may have 
seemed reasonable from an economic perspective at the time it 
was adopted may later be viewed differently. For this reason, I 
believe retrospective review can be appropriate and important, 
and certain rules may merit re-evaluation over time.
    I also believe that it can be important to reassess not 
only the subject of a prior analysis but also the prior 
analysis itself, with an eye toward improving future efforts. 
If confirmed, I look forward to discussing this issue--what has 
been learned from past economic assessment exercises that can 
inform future efforts--with the staff and my fellow 
Commissioners.

Q.19. Some have criticized the SEC's treatment of machine-
readable, open data, including for its implementation of a 
dual-filing requirement for both XBRL and old fashioned 
documents, and a slow transition toward allowing the filing of 
inline XBRL, which is both human-readable and machine-readable. 
By one estimate, more than 600 of the SEC's various forms are 
still document-based. As you know, a recently proposed SEC 
rulemaking would require public firms to file their financial 
statements in Inline XBRL. Should the SEC work to modernize its 
treatment of Government data and transition toward open-data? 
If so, how would you support this transition as SEC Chair?

A.19. As a general matter, I believe that the Commission should 
be actively looking for ways to improve efficiency at the 
Commission and for the markets as a whole, including through 
technology. I have not yet had an opportunity to engage with 
the Commissioners or the SEC staff regarding the proposed rules 
addressing the technical formatting of SEC filings, but I look 
forward to doing so if I am confirmed.

Q.20. Australia has created a Standard Business Reporting 
regime (SBR) that allows a firm to complete one filing to 
comply with multiple regulatory disclosure requirements. This 
has extensively reduced the amount of required data fields, 
saving the Australian economy more than A$1.1 billion annually 
by one estimate. \6\
---------------------------------------------------------------------------
     \6\ See https://www.xbrl.org/sbr-savings-in-australia-soar/.
---------------------------------------------------------------------------
    As SEC Chair, would you examine if a similar SBR system 
would be possible in the United States?
    If so, would you work with other regulatory agencies to 
make this vision a reality?

A.20. As a general matter, it is my expectation that, due to 
advances in technology, there is room for improvement in 
regulatory coordination with respect to reporting and 
information gathering. If confirmed as Chair, I look forward to 
consulting with my fellow Commissioners, SEC staff, other 
regulators, including but not limited to the CFTC, and other 
interested parties to identify specific areas for potential 
improvement and to explore possible reform options.

Q.21. I'd like to ask about the SEC's 2005 adoption of 
Regulation NMS.
    What have been the most significant changes--technological 
and otherwise--to securities market since the adoption of 
Regulation NMS? For example, has the market become more complex 
since the adoption of Reg. NMS?
    Were any of these changes unexpected?
    Do you think there have been any unintended consequences 
that have resulted from these changes, specifically from how 
the Reg. NMS rules were expected to impact the market?
    Do the aforementioned changes and unintended consequences 
merit a comprehensive review of Regulation NMS, such as one 
that is ``part of formal rulemaking'' as former SEC 
Commissioner Paul Atkins has called for?

A.21. As a general matter, I agree that the public equity 
trading markets have become more complex over the last decade, 
and that the factors contributing to this increased complexity 
include, but are not limited to, technological developments. 
While I do not know with specificity the scope and contours of 
expectations at the time Regulation NMS was adopted, I believe 
it is almost certainly true that there have been unexpected 
developments and changes, some of which have been significant.
    Promoting fairness and efficiency in our markets is a core 
element of the SEC's tri-partite mission, and I recognize that 
important concerns have been raised, including with respect to 
transparency, fee structures, and potential conflicts of 
interest. I understand that the SEC staff has been reviewing 
structural market issues, and that the Equity Market Structure 
Advisory Committee and its Regulation NMS Subcommittee have 
proposed a framework for an access fee (or maker-taker) pilot 
and made other significant recommendations. For example, I 
understand that Regulation NMS is on the current list of rules 
to be reviewed pursuant to the Regulatory Flexibility Act, and, 
if confirmed, I look forward to reviewing the public comments 
on the regulation and engaging with my fellow Commissioners and 
the staff.
    As a general matter, I also believe that retrospective 
review of existing rules and regulations can be appropriate and 
important. If confirmed, I look forward to discussing the 
status of the current review of equity market structure with my 
fellow Commissioners and the SEC staff, with an eye toward 
ensuring that the Commission is pursuing its mandate 
effectively in the area of market structure.

Q.22. I'd like to ask about the Securities Information 
Processor (SIP).
    Should policymakers be concerned about the public SIP as a 
single point of failure?
    In terms of market efficiency, how much should policymakers 
be concerned about latency between the public SIP and private 
data feeds, including any potential for arbitrage between 
exchanges?
    Does the centralized nature of public SIP limit the ability 
of technical improvements to the SIP to reduce latency?

A.22. I am not in a position to comment meaningfully on 
specific aspects of the SIP, including the types and severity 
of risks. I do, however, recognize the general risks associated 
with core systems, and, as an example, I am focused on 
cybersecurity risks. I expect that, if confirmed, I will study 
these issues, along with market structure issues, with my 
fellow Commissioners and SEC staff.

Q.23. Within a reasonable timeframe of your confirmation, will 
you promise to provide the Senate Banking Committee with an 
evaluation of the SEC's policies and procedures to protect 
sensitive information about markets and participants, along 
with any recommendations for improvement?

A.23. If confirmed, I look forward to engaging with the Staff 
and my fellow Commissioners to learn more about the SEC's 
policies and practices regarding the protection of sensitive 
market-related information, as well as any potential areas for 
improvement. I agree that protection of this type of sensitive 
information is an important issue, and, if confirmed, I look 
forward to working with you and other Members of the Committee 
to address these policies and procedures, including seeking to 
identify areas where improvement is needed or advisable.

Q.24. Should the SEC be allowed to ask for nonpublic, sensitive 
information about investment strategies from regulated 
entities? If so, when? What kind of protections should exist to 
protect the proprietary information?

A.24. I am aware that, in connection with various functions, 
the SEC requests and reviews material, nonpublic information, 
including in the mergers and acquisitions space. In my 
experience, the Commission and the staff have taken the 
responsibilities that come with receipt of this type of 
information seriously and, to my knowledge, have acted 
responsibly. It also is my experience that the staff has not 
requested more information in this area than would be 
reasonably necessary to effectively carry out the Commission's 
mandate. If confirmed, I look forward to engaging with my 
fellow Commissioners and the staff on this issue, and intend to 
discuss with them whether the Commission brings a similar 
perspective to receipt of the type of information that you 
cite, recognizing that the contexts are different.
    With regard to protections and in particular protections 
from cyber and other forms of theft, if confirmed, I look 
forward to engaging with my fellow Commissioners and the staff 
on this issue as well.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR COTTON
                        FROM JAY CLAYTON

Q.1. Since FINRA's launch in 2007, the number of broker-dealers 
has declined by 23 percent. Does this decline concern you, and 
what can the SEC do to address it?

A.1. I believe that investors of all types should have 
reasonable access to investment advice and an appropriate range 
of investment options, and declines in the availability of 
advice and investment options would concern me. I also believe 
that, on balance, having more broker-dealers in the industry 
would be likely to promote competition, which is beneficial to 
the industry as a general matter and investors specifically. If 
confirmed, I look forward to consulting with the staff, my 
fellow Commissioners, FINRA and other market participants on 
the state of the market, including the decline in the number of 
broker-dealers, any resulting adverse effects on the market 
and, if so, what should be done to address them.

Q.2. As SEC Chair, how will you evaluate FINRA rules to make 
sure the rulemaking is not unnecessarily burdening competition?

A.2. In reviewing SRO rulemaking proposals, the SEC is required 
to determine whether the proposal is consistent with the 
requirements of the Exchange Act and the applicable rules and 
regulations thereunder. \1\ Among other things, I understand 
this review generally includes consideration of the effects of 
the proposed rule on efficiency, competition, and capital 
formation, including a consideration of whether any resulting 
burden on competition is necessary or appropriate. \2\ If 
confirmed, I look forward to working with FINRA on rulemaking 
proposals, and with the staff and my fellow Commissioners, as 
well as other interested parties, to ensure the SEC fulfills 
its statutory requirements.
---------------------------------------------------------------------------
     \1\ 15 U.S.C.  78s(b)(2)(C)(i). See also id.  78c(f); 78o-
3(b)(6), (9).
     \2\ In addition, Section 23(a)(2) of the Exchange Act prohibits 
the Commission itself from adopting any rule under the Exchange Act 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. 15 U.S.C.  
78w(a)(2).

Q.3. How can the SEC ensure that political activists don't 
---------------------------------------------------------------------------
abuse the shareholder proposal-submission process?

A.3. If confirmed, I intend to enforce the SEC's rules 
governing permissible shareholder proposals. I understand that 
opinions differ on the shareholder proposal process, including, 
for example, the requirements that a shareholder should be 
required to satisfy in order to submit a proposal for inclusion 
in the company's proxy and a shareholder vote. I also 
understand that this is an issue that has been previously 
reviewed by the Commission and that market practices are 
continuing to evolve. If confirmed, I would want to work with 
the staff and my fellow Commissioners, as well as investors and 
issuers, to review the current state of the market and the 
details of any particular recommendations on this issue. In 
doing so, I would pay particular attention to the potential 
effects on capital formation, investor protection and the 
maintenance of fair and efficient markets.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
                        FROM JAY CLAYTON

Q.1. Shareholder Communications: Mr. Clayton, the SEC's 
shareholder communications and proxy voting rules have not been 
updated since 1985. In 2010, the SEC issued a wide-ranging and 
comprehensive Concept Release on the U.S. Proxy System. Will 
you support making the modernization of the SEC's shareholder 
communications and proxy rules a high priority at the 
Commission? Would you be inclined to update proxy rules with 
the view towards ensuring quicker and cheaper communications 
both between companies and their shareholders as well as 
between shareholders?

A.1. I am aware of the Concept Release and that it discussed a 
number of issues related to the mechanics of shareholder 
communications and proxy voting. As a general matter, I believe 
it is important that investors, particularly retail investors, 
have access to information that will enable them to make 
informed voting decisions, and that they are able in practice 
to cast their ballots. I also recognize that various changes in 
the market, including changes in communications and investor 
services, as well as the concentration of holdings in certain 
companies, have affected the issuer-shareholder communications 
and voting dynamic. If confirmed, I look forward to discussing 
the Concept Release and subsequent efforts and developments in 
this area with the staff and my fellow Commissioners. I also 
look forward to exploring with them ways in which we may be 
able to improve the efficiency of these processes as well as 
efficient and informed retail shareholder participation in the 
proxy process.

Q.2. Investment Disclosure Rules: Mr. Clayton, I know that you 
are familiar with the SEC Form 13F and more importantly that it 
has not been substantively updated since 1979. Since 1979, the 
ownership of publicly listed companies have dramatically 
shifted from individuals to institutions and therefore 
increases the importance of these disclosure forms. Before the 
widespread adoption of the internet, I understand the need for 
a 45 days buffer after the end of a quarter to report 
investment holdings. However, the unintended consequence means 
that most of the ownership information in these filings is no 
longer accurate by the time it reaches the market. Without an 
update, these rules inhibit the ability of public companies to 
identify and engage with their shareholders and accommodate 
shareholder demands for greater board accountability. Would you 
support an SEC initiative to modernize the 13(f) rules, so that 
all market participants would receive more timely information?

A.2. I understand that opinions differ on the length of time 
that should be permitted to pass before an institutional 
investor is required to report its holdings on Form 13F. I also 
recognize that, while there are various important factors to 
consider, the Commission generally has an interest in promoting 
the public availability of data, thereby increasing investor 
confidence in the integrity of the U.S. securities markets, and 
for issuers to know in a timely manner who is holding their 
stock, including to promote shareholder engagement. I also 
understand there is an interest for institutional investors to 
protect their investment allocation decisions and proprietary 
investment ideas, including against ``free-riding'' and 
``front-running'' of their proprietary investment ideas by 
other investors. There have been petitions to the Commission 
with respect to this issue, \1\ and it would be inappropriate 
for me to pre-judge it or make a policy recommendation at this 
time, but, if confirmed, I would look forward to discussing the 
matter further with the staff and my fellow Commissioners, as 
well as receiving the views of market participants, including 
issuers and institutional investors.
---------------------------------------------------------------------------
     \1\ See Petition for Rulemaking Under Section 13(f) of the 
Securities Exchange Act of 1934, submitted by NYSE Euronext, Society of 
Corporate Secretaries and Governance Professionals, and the National 
Investor Relations Institute, File No. 4-659 (Feb. 1, 2013), available 
at https://www.sec.gov/rules/petitions/2013/petn4-659.pdf.

Q.3. SEC Cybersecurity: Mr. Clayton, cybersecurity and the 
protection of personally identifiable information of Americans 
has risen to the forefront of Congress's priorities. The cyber-
breaches at Yahoo, OPM, and others have highlighted just how 
vulnerable the personally identifiable information of average 
Americans are to a cyber-intrusion. Therefore, I raise my 
concern with a potential vulnerability in the National Market 
System Plan to implement a Consolidated Audit Trail (CAT NMS 
Plan). Although I agree that the consolidation of all market 
activity in a central repository would facilitate regulators' 
ability to oversee the securities market and help create 
greater confidence in the system, I have deep reservations with 
the fact that SEC staff do not have to abide by the same 
stringent security protocols that all other users of CAT data 
must abide by. GAO has previously identified several weaknesses 
related to the SEC's cybersecurity protocols that the SEC has 
yet to address. Would you take active measures to ensure that 
the SEC adopt the same security safeguards required of all 
---------------------------------------------------------------------------
other CAT participants under the NMS Plan?

A.3. As a general matter, I place great importance on 
cybersecurity, both for entities regulated by the SEC as well 
as at the SEC itself. I recognize that cyber-risks, including 
denial of service threats and data thefts, raise fundamental 
risks for organizations of all types, as well as systemic 
risks. If confirmed, I intend to prioritize cybersecurity 
efforts at the SEC, including with respect to the CAT NMS Plan. 
I recognize that it will be important regularly to discuss 
those efforts with the staff, my fellow Commissioners and this 
Committee.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                        FROM JAY CLAYTON

Q.1. In recent years, the SEC has spent a disproportionate 
amount of its time and resources pursuing enforcement actions, 
and as everyone knows, enforcement is merely one facet of the 
SEC's three-part mission. How do you plan on restoring the 
balance of the SEC's mission, and how does doing so ensure that 
we have a system that enables robust enforcement?

A.1. If confirmed, each aspect of the Commission's tri-partite 
mission will be at the front of my mind. I agree with the 
fundamental principles of our disclosure-based regulatory 
system, including the focus on information material to an 
investment decision. I agree that securities trading markets 
should be fair, efficient, and deep. I believe in the 
importance of capital formation to our markets, our economy, 
and our society more generally. I also agree that there is no 
place for ``bad actors'' in our markets. If confirmed, all of 
these principles will be important to me in the context of 
balancing the SEC's agenda.

Q.2. What is your plan for identifying and addressing some of 
the operational inefficiencies that exist at the SEC?

A.2. If confirmed, I also would look forward to discussing with 
the staff and my fellow Commissioners the operational 
efficiency of the SEC, and whether there are ways in which it 
may be improved to enable us to more efficiently promote the 
SEC's mission. I do not believe I am in a position to identify 
specific areas for potential improvement without the input of 
the staff. While I expect my areas of inquiry will change as I 
learn more, I am interested in learning from the staff about 
the SEC's coordination with other agencies and authorities, as 
well as its coordination across offices.

Q.3. There has been increased attention to market structure 
reform efforts after the 2008 crisis. Some have argued that our 
market structure systems have become increasingly complex and 
that the layered regulations have created incentives to game 
the system. Can you help me understand your views on reforming 
our domestic market structure and can you commit to working 
with the Committee in addressing some of the languishing issues 
that have been pervasive in market structure over the last 10+ 
years? I am interested in your general thoughts as well as on 
Reg. NMS, venture exchanges, and anything else you find 
pertinent.
    Can you give me your short- and medium-term assessments of 
challenges and risks in our equity market structure, and can 
you commit to this body that you will take a comprehensive 
approach to reviewing US equity market structure?

A.3. Promoting fairness and efficiency in our markets is a core 
element of the SEC's tri-partite mission, and I recognize 
concerns have been expressed with respect to aspects of market 
structure. I understand that the SEC staff has put forth 
certain initiatives to assess market structure issues. For 
example, I understand that Regulation NMS is on the current 
list of rules to be reviewed pursuant to the Regulatory 
Flexibility Act, and, if confirmed, I look forward to reviewing 
the public comments on the regulation and engaging with the 
staff, my fellow Commissioners and the Committee. I also 
understand that the Equity Market Structure Advisory Committee 
and its Regulation NMS Subcommittee have proposed a framework 
for an access fee (or maker-taker) pilot and made other 
significant recommendations.
    If confirmed, I look forward to discussing the status of 
these issues and efforts, and other important matters related 
to equity market structure, with the staff, my fellow 
Commissioners, and this Committee to ensure that the Commission 
is pursuing its mandate effectively in this area.

Q.4. What are the short-and medium-term risks for the domestic 
capital markets?

A.4. Risks to the markets generally are of concern to me, along 
with the related issues of responsiveness, mitigation, and 
resiliency. I believe we need to be vigilant in identifying and 
assessing risks, recognizing that the risk landscape is 
changing. By way of general illustration, I believe that the 
potential short- and medium-term risks for the domestic capital 
markets that the Commission should consider monitoring include, 
but are not limited to: (1) market risks, such as the types of 
risks we have seen in the past, including in the financial 
crisis, where consequences are severe and confidence is 
undermined on a systemic basis; (2) shocks, where market 
confidence is undermined for exogenous reasons, such as an 
extra-jurisdictional event; (3) system failure, with 
cybersecurity issues being front of mind for me; and (4) fraud, 
which, as we have seen, does direct damage to many individuals, 
undermines market confidence and has lasting effects. I 
recognize that the SEC and other regulators are monitoring 
these and other risks and, if confirmed, I look forward to 
engaging with my colleagues in this regard.
    I also believe that the risks facing the domestic capital 
markets include risks that have not yet been identified. If 
confirmed, I would want to work with the staff, my fellow 
Commissioners, this Committee and others to be proactive in 
connection with the identification, assessment, and mitigation 
of risk.

Q.5. What are the biggest impediments that you see to companies 
going public in the U.S., and can you commit to working with my 
office on legislative solutions to address these issues?

A.5. In my experience, a number of factors may discourage a 
private company from becoming a public company, including but 
not limited to various immediate one-time costs and ongoing 
incremental costs compared with remaining a private company. We 
should examine whether these costs can be addressed so that 
more companies choose to go public without lessening, and with 
an eye toward enhancing, investor protection.
    Audited financial statements form a key basis of our 
disclosure regime and, along with clear disclosure of the 
issuer's business and financial condition, are a fundamental 
and important aspect of our investor protection framework. In 
addition to the cost of preparing such financial statements and 
important financial and business disclosures, today, companies 
that transition to public status must also establish and 
maintain a system of reporting and compliance controls and 
procedures, and comply with various additional ongoing 
disclosure, compliance and other requirements that comparable, 
well-run private companies may determine are not in the best 
interests of shareholders. Other significant incremental costs 
typically include those relating to the retention of internal 
and outside professionals and advisors, including auditors, 
accountants, attorneys, investor relations personnel, and 
others. Companies preparing to go public also often need to 
retain additional experienced executives and board members and, 
relatedly, secure substantially increased insurance coverage.
    In my experience, certain companies view the operational 
and other pressures inherent in quarterly earnings as costly, 
including because they detract from long-term planning and 
strategic initiatives. In addition, companies considering going 
public must consider, and in my experience put substantial 
weight on, the greater risks and potential costs, including the 
diversion of management attention, associated with the risk of 
public and private litigation and regulatory proceedings.
    Many of these costs go beyond out-of-pocket costs and the 
direct costs of regulation and are more ``fixed'' than variable 
and, as a result, may in some circumstances, have a greater 
effect on smaller and medium-sized companies as compared with 
``large cap'' companies.
    I believe strongly in our disclosure-based public market 
regulatory regime and, in particular, the value of well-
prepared SEC registration statements and Exchange Act reports, 
but also believe we should be examining this situation with an 
eye toward identifying less burdensome means to achieving 
effective regulation of newly public companies that encourages 
well-run companies to participate in our public capital 
markets, while always being mindful of investor protection. If 
confirmed, I look forward to working with you and your office, 
as well as with my fellow Commissioners and the SEC staff, to 
address these issues.

Q.6. Private funds are extremely important to the U.S. and 
North Carolina economy, and I am concerned that the current 
regime and rule structure under the Investment Advisers Act of 
1940 is outdated and has placed a large burden on advisers to 
private funds. Can you commit to working with me on addressing 
issues with the Advisers Act of 1940, and on ensuring that it 
is appropriately structured for our modern economy?

A.6. I understand that this is an issue that has been raised, 
particularly with respect to smaller, private funds. If 
confirmed, I look forward to working with you and your office, 
as well as my fellow Commissioners and the SEC staff, to 
explore the issue further.

Q.7. Given your experience as a transactional attorney, what 
value does a strong SEC enforcement program play in ensuring 
that investors and issuers feel comfortable using our capital 
markets to invest and raise money?

A.7. I believe that the enforcement of our securities laws has 
significant value in promoting investor confidence in American 
markets. Market participants need to know that regulators are 
seeking to punish and exclude ``bad actors.'' At the same time, 
it is important that investors and regulated entities alike are 
confident that we are enforcing our laws vigorously and doing 
so fairly.

Q.8. Cybersecurity is an area of great concern for companies 
that the SEC regulates. What will you bring from the expertise 
you developed in advising companies about cybersecurity to your 
role at the SEC? How do you plan on addressing cybersecurity 
concerns in our public and private capital markets?

A.8. As a general matter, I place great importance on 
cybersecurity, both in the context of the entities regulated by 
the SEC as well as at the SEC itself. I recognize that cyber-
risks, including denial of service threats and data thefts, 
raise fundamental risks for organizations of all types, as well 
as systemic risks. I believe that my experience advising public 
companies on cybersecurity matters will be beneficial in 
considering these issues. For example, 2 years ago, I co-
organized an educational cybersecurity conference for public 
company directors and other decision makers to discuss 
practical solutions and tools for more effective and efficient 
management through all stages of cyber-risk prevention, 
response and recovery. Since then, I have advised companies on 
a number of cybersecurity matters and recognize that 
effectively dealing with these matters generally requires 
information technology and cybersecurity expertise and 
coordination across an organization. If I am confirmed, I 
believe these experiences will be helpful in my work with the 
SEC staff, my fellow Commissioners, market participants and 
this Committee as we consider cybersecurity concerns going 
forward.

Q.9. Financial institutions, due to their size and complexity, 
are more at risk of cybersecurity breaches than ever before. 
There is a robust body of guidance that exists domestically and 
internationally to assist financial services entities with 
developing a cybersecurity risk management strategy. Given 
these entities are already tasked with implementing a number of 
regulations to ensure safety and soundness, the common sense 
approach for U.S. financial regulators would be to leverage 
cyber-risk management guiding principles over prescriptive, 
onerous requirements. What approach do you think would be best?

A.9. Although I have not yet formed a view on a principles- vs. 
rules-based approach in this context, I believe as a general 
matter that we should be mindful that cybersecurity risks are 
continuously evolving, and regulation in this area should take 
into account its dynamic nature including that, in such 
circumstances, specific requirements may be appropriate but 
also have the risk of becoming outdated. If confirmed, I look 
forward to exploring potential options in this area with the 
staff, my fellow Commissioners, market participants and this 
Committee.

Q.10. IT modernization enables financial services firms to 
protect constituent financial information. In an environment of 
increasing cybersecurity threats, how will you use your role at 
the SEC to promote IT modernization across the financial 
services sector and at the SEC? How will you ensure that 
regulations set by the SEC do not impede progress on IT 
modernization?

A.10. I believe that the Commission should be actively looking 
for ways to promote IT modernization and improve efficiency, 
resiliency, and security in financial services firms. The 
Commission should also be aware of these objectives, where 
appropriate, when promulgating new regulations.

Q.11. I am interested in creating a formalized process for the 
SEC to conduct a retrospective review of its existing rules and 
regulations. As I am sure you are aware, President Obama issued 
two executive orders directing independent agencies to conduct 
such reviews, but the SEC's previous efforts failed to produce 
meaningful results. Can you commit to working with me and my 
office in creating a system, like EGRPRA, for the SEC?

A.11. I believe that, as a general matter, it is appropriate to 
consider whether rules and regulations have had their intended 
effects and whether actual effects, both intended and 
unintended, are consistent with expectations. History has shown 
that many expected effects can be under- or over-estimated at 
the time a rule is initially adopted.
    For these reasons, I agree that retrospective review of 
existing rules and regulations can be appropriate and 
important. I understand that the SEC reviews certain rules 
under the Regulatory Flexibility Act. If confirmed, I look 
forward to working with you and your office, as well as with my 
fellow Commissioners and the SEC staff, to explore potential 
additional approaches to retrospective review.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                        FROM JAY CLAYTON

Q.1. Chair White expanded SEC policy to seek admissions from 
defendants in enforcement proceedings. Under her leadership, 
she required enforcement staff to seek admissions in a larger 
universe of cases.
    In your view, did Chair White's admissions policy go far 
enough? What changes would you need to make in order for the 
SEC to start seeking admissions from all, or more, defendants 
in enforcement actions?

A.1. I have a great deal of respect for Chair White, and, 
accordingly, if confirmed, I will be mindful of her comments 
regarding the SEC, particularly in the enforcement area. I also 
agree that pursuing admissions from defendants in enforcement 
proceedings should be a key consideration for the Commission. 
As I stated at my nomination hearing, I strongly believe in the 
deterrent effect of enforcement proceedings that include 
individual accountability. However, I also understand the SEC's 
interest in avoiding, where appropriate, drawn-out proceedings 
that strain the staff's resources and lengthen the time it 
would take for resolution, including for investors to receive 
restitution. I believe each matter should be decided based on 
its own facts and circumstances, including analysis of whether 
the added deterrent effect of securing admissions will be 
offset by other relevant factors. It would be premature for me 
to make a general policy recommendation in this regard without 
the benefit of consulting with the staff and my fellow 
Commissioners.

Q.2. In 2009, under Chair Schapiro, the SEC's Enforcement 
Division was empowered to pursue investigations without a 
Commission vote. Chair White expanded some of those powers. In 
February, however, Acting Chair Piwowar withdrew those powers 
authority from senior Enforcement Division staff.
    Do you commit to restoring those powers to the senior 
enforcement staff, or even expanding them? If not, how does 
limiting the authority of the enforcement staff help you 
attract the best prosecutors?
    During your confirmation hearing, you stated ``I have zero 
tolerance for bad actors. I'm not only saying that here, I will 
say it to the enforcement staff at the SEC.''
    Do you believe the Enforcement Division will be able to 
achieve a ``zero tolerance'' policy if investigatory powers 
continue to be limited?

A.2. In my view, a key element of effective management is 
empowerment. I believe most people do their best work if they 
have clarity on their objectives and sufficient autonomy and 
support to pursue them. I also believe effective empowerment 
and functioning of the Enforcement Division are very important 
to the fair and efficient functioning of our markets and the 
protection of investors. I am also mindful that even the 
commencement of an investigation can have significant adverse 
impacts on respondents, particularly public companies and their 
shareholders. If confirmed, I am committed to consulting with 
my fellow Commissioners and the senior members of the 
Enforcement Division staff on organizational matters, including 
the appropriate and most effective delegation of authority 
within the Enforcement Division, including subpoena authority, 
and I will work to promote the effectiveness of the Division 
and its personnel.

Q.3. On January 17, 2017, two days before she left the 
Commission, Mary Jo White gave a speech titled ``The SEC After 
the Financial Crisis: Protecting Investors, Preserving 
Markets.'' \1\ In that speech, former Chair White expressed 
serious concern that the SEC's independence was being 
compromised.
---------------------------------------------------------------------------
     \1\ https://www.sec.gov/news/speech/the-sec-after-the-financial-
crisis.html
---------------------------------------------------------------------------
    She said:

        In short, the environment necessary for independent 
        agencies to be able to do the jobs you all want us to 
        do is not getting better. Indeed, recent trends have 
        even raised the question of whether or not the 
        independence of the SEC can be preserved at all.

    Does her opinion concern you?

A.3. I have great respect for Chair White. Independence is 
fundamental to the tri-partite mission of the SEC. If 
confirmed, I will be mindful of protecting the Commission's 
independence, and I believe that focusing on its core tri-
partite mission should facilitate that objective.

Q.4. In that speech, Chair White also cited a bill \2\ that 
passed the House of Representatives this January that imposes 
additional cost-benefit analysis on the SEC.
---------------------------------------------------------------------------
     \2\ SEC Regulatory Accountability Act, H.R. 78, available at 
https://www.congress.gov/115/bills/hr78/BILLS-115hr78eh.pdf.
---------------------------------------------------------------------------
    In your practice you have read the very detailed, often 
hundreds of pages long rules issued in recent years by the SEC 
that contain extensive economic analysis. In what ways have you 
found them to be deficient?

A.4. I believe economic analysis--including assessing the 
expected relevant costs as well as the relevant benefits of a 
proposed regulation--is an integral part of the rulemaking 
process. In my experience, in most cases, the initial analysis 
is reasonably designed, but history has shown that, over time, 
rules can have wide-ranging effects, and that those effects can 
be under- or over-estimated at the time a rule is initially 
adopted, or even missed entirely.
    History also has shown that recurring costs, including 
compliance costs, often grow faster than expected, including 
because yesterday's ``state of the art'' becomes today's 
expectation. As the market changes, which it inevitably does, 
the divergence between expectations and reality can grow over 
time; accordingly, a rule that may have seemed reasonable from 
an economic perspective at the time it was adopted may later be 
viewed differently. For this reason, I believe retrospective 
review can be appropriate and important, and certain rules may 
merit re-evaluation over time.

Q.5. During the financial crisis, you saw first-hand banks that 
were on the verge of collapse or that failed.
    Did the incentive system lead to excessive risk-taking? 
Have we learned any lessons from those excesses? What would 
have happened if the Treasury and Federal Reserve were not able 
to step in either with the TARP program or federal backstops? 
Where can the SEC do more to improve financial stability and 
support the other financial regulators?

A.5. I believe a number of factors contributed to the financial 
crisis, some of which were also hallmarks of past crises such 
as new, more risky forms of credit that, in the end, had 
various unforeseen detrimental effects on our market, including 
driving a bubble in asset prices. I also agree that misguided 
incentive compensation programs can contribute to excessive 
risk taking. We should remain mindful of those and other 
factors as we monitor our capital markets. I cannot speculate 
on what would have happened if the Treasury and Federal Reserve 
had acted differently.
    The SEC has an important role in safeguarding the stability 
of our securities and capital markets and coordinating with 
other financial regulators, including, without limitation, in 
monitoring the compliance of broker-dealers with capital and 
other requirements. Another more general way the SEC can do 
this is through effective pursuit of its tri-partite mission, 
including promoting fair and efficient markets that are well 
understood by market participants and others who depend on 
those markets.

Q.6. In 2009, the SEC amended Item 407 of Regulation S-K to 
require companies to disclose in proxy statements whether a 
nominating committee considers diversity in identifying 
nominees for the company's board of directors and, if it is 
considered, how it is considered. The rule also requires that 
if the company has a policy with regard to the consideration of 
diversity in identifying director nominees, how that policy is 
implemented and how its effectiveness is assessed.
    In 2015, several leading public fund administrators 
submitted a petition for rulemaking that would require new 
disclosures related to nominees for board seats in order to 
provide investors with the information they need to make 
informed voting decisions. In a July 2016 speech, former Chair 
White recognized the importance of diversity on corporate 
boards and the interest investors have in diversity disclosure 
about board members and nominees. \3\ She further added that 
the SEC's 2009 rule change had resulted in vague reporting and 
investors were not satisfied with the disclosures. \4\ 
Accordingly, she directed SEC staff to review the rule and 
prepare a recommendation to propose an amended rule to require 
companies to include more meaningful board diversity disclosure 
on their board members and nominees. \5\
---------------------------------------------------------------------------
     \3\ https://www.sec.gov/news/speech/chair-white-icgn-speech.html
     \4\ Id.
     \5\ Id.
---------------------------------------------------------------------------
    In February 2017, the SEC's Advisory Committee on Small and 
Emerging Companies (ACSEC) submitted the following 
recommendation regarding corporate board diversity disclosure 
to the Commission:

        The Commission amend Item 407(c)(2) of Regulation S-K 
        to require issuers to describe, in addition to their 
        policy with respect to diversity, if any, the extent to 
        which their boards are diverse. While, generally, the 
        definition of diversity should be up to each issuer, 
        issuers should include disclosure regarding race, 
        gender, and ethnicity of each member/nominee as self-
        identified by the individual. \6\
---------------------------------------------------------------------------
     \6\ https://www.sec.gov/info/smallbus/acsec/acsec-recommendation-
021617-coporate-board-diversity.pdf

    If confirmed, will you continue former Chair White's 
efforts to enhance diversity disclosure for board nominees and 
work to advance rulemaking based on the recommendation from the 
---------------------------------------------------------------------------
ACSEC?

A.6. I believe diversity has value, including at public 
companies and their boards. I have witnessed this first hand 
and I know that many experienced investors share this view. I 
understand that there has been meaningful and ongoing 
engagement on this issue between companies and their 
shareholders, including institutional investors, and that 
disclosure practices are evolving as a result. If confirmed, I 
will work with my fellow Commissioners, the staff (including 
the Office of Minority and Women Inclusion) and the ACSEC to 
monitor this issue and compliance with Item 407 of Regulation 
S-K.

Q.7. In February 2016, a group of Chinese investors led by the 
Chongqing Casin Enterprise Group announced its intention to 
acquire the Chicago Stock Exchange (CHX).
    If confirmed, will you commit to review the CHX acquisition 
for compliance with SEC rules and requirements, in particular 
with respect to limits applicable to beneficial ownership and 
voting rights?

A.7. It would not be appropriate for me to comment on a 
specific pending proposal. If confirmed, one of my goals will 
be to hold non-U.S. acquirers to the same standards as U.S. 
acquirers, including disclosure standards. If confirmed, I will 
work with the staff and my fellow Commissioners to review this 
and any other proposal for consistency with the standards set 
forth in our securities laws.

Q.8. During your confirmation hearing you stated, ``[w]e have 
to reduce the burdens of becoming a public company, so that 
it's more attractive.'' Additionally, you stated, ``[f]or a 
variety of reasons, including very robust private capital 
markets, but also the costs of going public, the choice to go 
public here is a very hard one.'' Please detail the ``variety 
of reasons'' other than costs or regulations that you believe 
discourage companies from going public and describe whether 
those factors will have less impact if costs or regulations are 
reduced.

A.8. In my experience, a number of factors may discourage a 
private company from becoming a public company, including but 
not limited to various immediate one-time costs and ongoing 
incremental costs compared with remaining a private company. We 
should examine whether these costs can be addressed so that 
more companies choose to go public without lessening, and with 
an eye toward enhancing, investor protection.
    Audited financial statements form a key basis of our 
disclosure regime and, along with clear disclosure of the 
issuer's business and financial condition, are a fundamental 
and important aspect of our investor protection framework. In 
addition to the cost of preparing such financial statements and 
important financial and business disclosures, today, companies 
that transition to public status must also establish and 
maintain a system of reporting and compliance controls and 
procedures, and comply with various additional ongoing 
disclosure, compliance and other requirements that comparable, 
well-run private companies may determine are not in the best 
interests of shareholders. Other significant incremental costs 
typically include those relating to the retention of internal 
and outside professionals and advisors, including auditors, 
accountants, attorneys, investor relations personnel, and 
others. Companies preparing to go public also often need to 
retain additional experienced executives and board members and, 
relatedly, secure substantially increased insurance coverage.
    In my experience, certain companies view the operational 
and other pressures inherent in quarterly earnings as costly, 
including because they detract from long-term planning and 
strategic initiatives. In addition, companies considering going 
public must consider, and in my experience put substantial 
weight on, the greater risk and potential costs, including the 
diversion of management attention, associated with the risk of 
public and private litigation and regulatory proceedings.
    Many of these costs go beyond out-of-pocket costs and the 
direct costs of regulation and are more ``fixed'' than variable 
and, as a result, may in some circumstances, have a greater 
effect on smaller- and medium-sized companies as compared with 
``large cap'' companies.
    I believe we should be examining this situation with an eye 
toward identifying less burdensome means to achieving effective 
regulation of newly public companies. We should encourage well-
run companies to participate in our public capital markets, 
while always being mindful of investor protection.

Q.9. The JOBS Act amended the Securities Act of 1933 to 
facilitate initial public offerings (IPOs) and the Securities 
Exchange Act of 1934 to expand the number of security holders a 
private company may have without registering with the SEC. 
Previously, companies would consider an IPO as they approached 
the old limit of 500 investors--notably Google in 2004 and 
Facebook in 2012. To what extent did the JOBS Act's expansion 
of the allowable number of security holders at private 
companies negatively impact the number of IPOs?

A.9. The JOBS Act did expand the allowable number of security 
holders at private companies. However, at this time I cannot 
state for certain its significance in the decision of whether 
or not to become a public company.

Q.10. Which specific regulations do you believe are hindering 
IPOs? How may they be revised in ways that do not weaken 
investor protection?

A.10. I believe the disclosure-based regulatory framework 
governing our public markets and companies has been and remains 
very important--for example, I believe in the value of well-
prepared SEC registration statements and Exchange Act reports. 
In connection with efforts to encourage more well-run companies 
to access the public capital markets, as an example, an avenue 
I would consider exploring is comparing the reporting and 
control environments at respected private companies with public 
company requirements and practices. If confirmed, I look 
forward to working with my fellow Commissioners and the staff, 
and consulting with market participants, regarding such an 
exercise or other means through which we can identify measures 
that will facilitate access to our public markets while 
maintaining or enhancing protections for investors.

Q.11. If regulations are rolled back in the hopes of promoting 
more IPOs, what are the measures by which you would determine 
or define success? Specifically, is success achieved by 
increasing the number of IPOs in a year? What if IPOs increase, 
but more companies delist anyway, resulting in a decrease in 
the aggregate number of listed companies?

A.11. The focus on increasing the attractiveness of our public 
capital markets is driven by the three-part mandate of the 
Commission. I believe our public equity markets have, over 
time, proven to be an efficient and fair means for investors, 
particularly Main Street investors, to participate in the 
growth of the American economy. Success should be defined by 
whether the Commission is addressing its mandate, including 
whether Main Street investors have efficient means to 
participate in investment opportunities with appropriate 
investor protection.
    I also am very open to exploring other avenues to achieve 
this objective and, if confirmed, look forward to discussing 
this issue with the staff and my fellow Commissioners and this 
Committee.

Q.12. According to a recent report by Credit Suisse, concurrent 
with the decline in IPOs since the peak in 1996, there has been 
substantial increase in the volume of mergers and acquisitions 
(M&A) activity and the assets managed by venture capital funds 
(nearly 7x higher) and buyout funds (over 10x higher). If IPOs 
increase, do you expect a commensurate decrease in M&A activity 
or the size of venture capital and buyout funds? If so, are 
IPOs preferred to M&A activity or private fund investments? If 
not, what would prevent such a decrease?

A.12. There are a variety of factors that drive M&A activity, 
both in the public and private markets, and private investment 
activity. It is not clear to me that there is a correlation 
between IPOs and M&A activity and I cannot predict the effect 
that an increase in IPOs would have on public M&A activity or 
the size of venture capital and buyout funds.

Q.13. Among the significant differences between public and 
private companies are required disclosures by public companies 
and transferable shares that generally confer voting rights and 
allow input on governance matters. If the burdens of being a 
public company, including these, are to be reduced to encourage 
more IPOs, please explain how limiting either or both of these 
elements would be positive for transparency or shareholder 
rights.

A.13. I believe the disclosure-based regulatory framework 
governing our public markets and companies has been and remains 
very important and, in this regard, I believe transparency and 
shareholder rights have substantial value. I believe that any 
efforts to make our public markets more attractive to companies 
should take into account these fundamental principles, 
recognizing that many factors drive decisions around governance 
structures.

Q.14. In February, I joined the other Democratic Members of the 
Senate Finance Committee in a letter to Chairman Hatch 
requesting that then Department of Health and Human Services 
Secretary nominee Tom Price provide accurate and complete 
responses regarding his answers to questions about privileged 
and discounted access to a private placement of stock by an 
Australian biomedical company. In addition, other Members of 
Congress questioned the numerous stock transactions by Mr. 
Price while he was Chairman of the House Budget Committee and a 
member of the House Ways and Means Subcommittee on Health. Mr. 
Price's financial disclosures show that he engaged in 
transactions involving the stock of 40 different companies in 
the health care sector. Given his prior positions, Mr. Price 
potentially had access to information that could impact the 
companies he invested in and that was not available to the 
public. Please confirm that the Division of Enforcement staff 
will have your full support to consider the issues raised by 
Mr. Price's investments and the applicability of the STOCK Act 
and that all appropriate regulatory actions will be pursued.

A.14. As I noted at my nomination hearing, matters such as 
these are highly dependent on the facts and circumstances and 
it would not be appropriate for me to comment on any specific 
matter at this time. As a general matter, however, if 
confirmed, I will actively support the staff in investigating 
violations of the securities laws and pursuing enforcement 
actions and can assure you that no individual will be above the 
securities laws.

Q.15. At your confirmation hearing, you agreed to provide the 
names of current Trump administration officials, or its 
transition team, that you communicated with prior to being 
selected by the President as his nominee, and if you know 
whether any of those individuals have businesses regulated by 
the SEC. Accordingly, please provide that information for the 
record.

A.15. Based on my recollection, I communicated on a substantive 
basis with the following current Trump administration officials 
or former transition team members prior to being selected by 
the President as his nominee to Chair the Commission: President 
Donald J. Trump, Reince Priebus, Stephen Bannon, Ambassador 
Martin Silverstein, Ira Greenstein, Darren Blanton, Peter 
Thiel, and Rebekah Mercer. While I have not specifically looked 
into it, I believe it is fair to presume that one or more of 
these individuals may be affiliated with one or more public 
companies or other companies that are regulated by the SEC. 
Also, on January 4th, after my nomination had been publicly 
announced, I met with Carl Icahn. On December 24th, following 
press reports of my meeting with then President-elect Trump 
earlier in the week, Mr. Icahn's office contacted me to request 
a meeting on a to-be-determined date. That meeting was not set 
until several days after I received word that I would be 
nominated.

Q.16. Please describe examples of steps you plan to take to 
improve investor protection. How will an Ohioan saving for 
retirement or to send her kids to college know you are working 
to protect her?

A.16. Investor protection, particularly the protection of Main 
Street investors, is a critical element of the SEC's tri-
partite mission, and it is very important to me. If confirmed, 
I intend to make this aspect of the SEC's mandate clear both in 
word and deed. I will make it clear that protection of Main 
Street investors is a touchstone for our rulemaking, 
enforcement, and other related activities.

Q.17. The Foreign Corrupt Practices Act (FCPA) forbids U.S. 
companies and their subsidiaries from paying foreign Government 
officials to obtain or retain business. What is your specific 
plan for enforcement of the FCPA?

A.17. Bribery and corruption have no place in society. 
Moreover, they often go hand-in-hand with many other societal 
ills, including inequality and poverty, and have anti-
competitive effects, including disadvantaging honest 
businesses. Accordingly, combating corruption is an important 
governmental mission.
    U.S. authorities, including the SEC, other financial 
regulators, and law enforcement agencies, both at home and 
abroad, play an important role in combating Government 
corruption. I believe the FCPA can be a powerful and effective 
means to effect this objective. I also believe that 
international anti-corruption efforts are much more effective 
at combating corruption if non-U.S. authorities are similarly 
committed and seek to coordinate. Fortunately, international 
enforcement efforts appear to be more prevalent than they were 
a decade ago. If confirmed, I look forward to working with my 
fellow Commissioners, Enforcement Division staff, and other 
authorities in the U.S. and abroad to coordinate enforcement of 
the FCPA and other anti-corruption laws. In particular, I 
believe that coordination with the Department of Justice is 
integral to effective enforcement of the FCPA.
                                ------                                


         RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
                        FROM JAY CLAYTON

Q.1. The Securities and Exchange Commission still has not 
finalized all of the rules required under Title VII of the Dodd 
Frank Wall Street Reform and Consumer Protection Act. Will you 
give us your commitment that the Commission, if you are 
confirmed, will finalize these derivatives rules before your 
term is complete? If so, how will you sequence the completion 
of these remaining rules so that they are all complete by the 
end of your term?

A.1. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law and that such rulemakings should be pursued on a basis that 
is timely and feasible. The rulemaking process is important, 
and in many cases demands significant resources. The 
Commission's resources are limited and, accordingly, the 
overall approach to rulemaking should reflect the Commission's 
mandate and be the product of consultation among the 
Commissioners, the staff and, in the case of multi-agency 
rulemaking, other authorities, being mindful of the obligation 
to proceed with mandatory rulemaking at a reasonable pace and 
also being responsive to market developments. If confirmed, I 
look forward to engaging with my fellow Commissioners and the 
staff regarding these issues and working to carry out the 
statutorily mandated rulemakings.

Q.2. The Public Company Accounting Oversight Board (PCAOB) was 
created in the wake of a series of corporate accounting 
scandals, such as Enron and WorldCom, which cost investors 
billions of dollars and hurt the U.S. economy. But the 2002 
Sarbanes-Oxley law creating the Board also required PCAOB's 
disciplinary proceedings to be kept confidential through 
charging, hearings, initial decision, and appeal. For example, 
an accounting firm that was subject to a disciplinary 
proceeding continued to issue no fewer than 29 additional audit 
reports on public companies without any of those companies 
knowing about its PCAOB disciplinary proceedings. PCAOB's 
closed proceedings run counter to the public enforcement 
proceedings of other regulators, including the Commission you 
have been nominated to chair, the Securities and Exchange 
Commission, as well as the Department of Labor, the Federal 
Deposit Insurance Corporation (FDIC), the Commodity Futures 
Trading Commission (CFTC), the Financial Industry Regulatory 
Authority (FINRA), and others. Since you are ``100 percent 
committed to rooting out any fraud and shady practices in our 
financial system,'' would you agree that the PCAOB's 
disciplinary proceedings should be made transparent?

A.2. As a general matter, I believe that effective enforcement 
and oversight are critical to the fair and efficient 
functioning of our markets and the protection of investors. I 
also firmly believe in our disclosure-based approach to 
regulation. I am also mindful that the disclosure of an 
investigation related to a public company can have significant 
adverse impacts on the company and its shareholders, even if 
the investigation is of an accounting firm and does not relate 
to conduct by the company or its personnel and would not be 
expected to affect the company's performance. I am also mindful 
that the scope of the PCAOB's disciplinary authority was set 
forth by Congress in the Sarbanes-Oxley Act of 2002.
    If confirmed, I would want to study this issue in more 
detail with my fellow Commissioners and the SEC staff, 
including with the benefit of the PCAOB's experience with this 
issue over the past decade, keeping in mind the principles and 
considerations discussed above, including the value of 
transparency.

Q.3. During your hearing, there was some discussion regarding 
why fewer companies may be choosing to go public. Is it 
possible that the JOBS Act itself through its expansion of 
exempt offerings might have contributed to fewer initial public 
offerings? If you believe otherwise, how have you arrived at 
this conclusion?

A.3. The JOBS Act did expand the allowable number of security 
holders at private companies. However, at this time I cannot 
state for certain its significance in the decision of whether 
or not to become a public company.
    If confirmed, I would expect to study these issues in more 
detail, including with the SEC staff, to determine whether my 
experience is consistent with the views and experience of the 
staff and market participants.

Q.4. Also during the hearing, I asked about my bipartisan 
legislation with Senator Grassley that would increase the SEC's 
authority to obtain civil monetary penalties. You stated that 
you would appreciate a moment to look at the issue and that you 
would provide your views after you had looked at the issue. Now 
that you have had time to reflect on this issue, I would 
appreciate knowing your views. To restate the question, in 2011 
former SEC Chair Mary L. Schapiro explained that ``the 
Commission's statutory authority to obtain civil monetary 
penalties with appropriate deterrent effect is limited in many 
circumstances.'' Do you agree with former Chair Schapiro?

A.4. As a general matter, I believe that the effective 
empowerment and functioning of the SEC Enforcement Division are 
fundamental to the fair and efficient functioning of our 
markets and the protection of investors. Under existing law, 
the Commission has the authority to seek civil monetary 
penalties in a number of circumstances. I would not want the 
Division or the Commission to be unnecessarily or 
inappropriately constrained in pursuing civil monetary 
penalties, which can serve an important deterrent effect in 
appropriate circumstances. If confirmed as Chair, I will work 
with my fellow Commissioners and the Enforcement Division staff 
to enforce the law as it is written, including with respect to 
civil monetary penalties. I also would be willing to engage 
with Congress regarding any changes to the SEC's statutory 
authority to seek monetary penalties that Congress deems 
appropriate.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR MENENDEZ FROM JAY CLAYTON

Q.1. Mr. Clayton, as we discussed during your confirmation 
hearing, in 2009, former SEC Chair Mary Schapiro gave subpoena 
authority to the Commission's enforcement staff. Prior to then, 
only the Commission itself could authorize subpoenas. This 
change empowered senior enforcement attorneys to quickly 
escalate informal inquiries to formal investigations, 
ultimately strengthening the Commission's ability to 
investigate corporate misconduct.
    Unfortunately, Acting Chair Piwowar has taken steps to rein 
in the enforcement division by revoking subpoena authority from 
20 enforcement officials and limiting it to the enforcement 
division director. This is a major reversal from post-crisis 
policy designed to assist the Commission in initiating 
investigations into bad actors that ravaged investors and our 
economy.
    During the hearing, you were unable to answer any questions 
on this topic. Now that you have had time to research and 
develop an opinion, please answer the following questions.
    Do you agree with this policy change?
    In your opinion, does taking away subpoena authority from 
senior enforcement attorneys better protect investors and deter 
misconduct?
    If confirmed, do you plan to continue this policy?
    What specific actions will you take to empower the SEC's 
enforcement division?

A.1. I believe that effective and appropriate empowerment and 
functioning of the Enforcement Division are very important to 
the fair and efficient functioning of our markets and the 
protection of investors. I am also mindful that even the 
commencement of an investigation can have significant adverse 
impacts on respondents, particularly public companies and their 
shareholders.
    If confirmed, I am committed to consulting with my fellow 
Commissioners and the senior members of the Enforcement 
Division staff on organizational matters, including the 
appropriate and most effective delegation of authority within 
the Enforcement Division, including subpoena authority, and I 
will work to promote the effectiveness of the Division and its 
personnel.

Q.2. Mr. Clayton, as we discussed during your confirmation 
hearing, Acting Chair Piwowar recently decided to open a new 
public comment period on the CEO-to-worker pay ratio rule, as 
required by section 953(b) of the Dodd-Frank Wall Street Reform 
and Consumer Protection Act. The rule was adopted by the SEC in 
2015. Acting Chair Piwowar's unilateral decision not only 
obstructs the implementation of a congressionally mandated rule 
and diverts staff resources away from other responsibilities, 
but it selectively ignores the tens of thousands of comments 
from investors expressing the view that this information is 
material and important to shareholder evaluation of executive 
compensation.
    In fact, last week, a coalition of 100 investors and 
investor organizations representing $3 trillion in assets under 
management wrote to Acting Chair Piwowar expressing support for 
the rule and urging the SEC to maintain the current effective 
date for the disclosure.
    During the hearing, you were unable to answer any questions 
on this topic. Now that you have had time to research and 
develop an opinion, please answer the following questions.
    Do you agree with Acting Chair Piwowar's decision to open a 
new public comment period on the rule?
    Is it your sense that the first comment period on the 
rulemaking failed to appropriately capture issuer concerns 
about compliance? If so, please provide a detailed explanation.
    Does it concern you, from an SEC governance perspective, 
that one commissioner, without consulting the other, decided to 
reopen a public comment period on a rule that has already been 
adopted by the Commission?
    Can I have your commitment that, if confirmed, you will 
adhere to this congressional mandate and implement the 953(b) 
rule, including retaining the current effective date, without 
delay?

A.2. A statement on the SEC's website indicates the reason for 
the extension was to better understand the nature of 
unanticipated compliance difficulties encountered by some 
issuers and to determine whether additional guidance or relief 
may be appropriate. If confirmed, I look forward to working 
with the staff and my fellow Commissioners to understand the 
nature of these concerns and to proceed in an appropriate 
fashion with the rulemaking process for this rule.

Q.3. In 2011, a bipartisan group of corporate and securities 
law professors filed a rulemaking petition with the SEC that 
would require publicly traded companies to disclose political 
expenditures to their shareholders. To date, more than 1.2 
million securities experts, institutional and individual 
investors, and members of the public have pressed the SEC for 
such a rule, including support from former Republican SEC Chair 
William Donaldson and former Democratic SEC Chair Arthur 
Levitt.
    As a matter of corporate governance and investor 
protection, the case for disclosure is clear and convincing. 
This information is material to how shareholders decide where 
to invest their money and how they vote in corporate elections.
    In response to a question from Sen. Van Hollen, you 
acknowledged that a number of companies already make this 
disclosure. You also said that you would be willing to think 
about whether this disclosure should be mandated.
    Do you agree with the concept that shareholders, those that 
actually own the wealth of corporations, should be able to 
access information regarding a company's political spending 
decisions?
    As noted above, you acknowledged during the hearing that a 
number of companies provide information to shareholders on 
political spending. As more and more companies begin to 
recognize this information is material to shareholders, do you 
agree that a standardized disclosure regime would provide 
shareholders with access to clear and comparable disclosures?
    As you said in response to questions on the need for the 
political spending regulation, materiality is the touchstone 
for making disclosure decisions at the agency. Materiality is 
defined as relevant information to investors. With that in 
mind, can you explain why a disclosure rulemaking petition that 
has received the most investor (institutional, retail, and 
pension) support--tenfold times any other proposed rulemaking 
in agency history--could realistically be deemed immaterial?
    Currently, the SEC has the authority to take preliminary 
steps to consider a rulemaking that would require publicly 
traded companies to disclose their political spending to 
shareholders, including holding a public roundtable on the 
issue. If confirmed, will you commit to hold a public 
roundtable on the issue of corporate political spending 
disclosure?
    Given the record support for this rulemaking petition, I am 
concerned that the SEC has been too dismissive of the comments 
from investors and members of the public regarding an issue 
that goes to the core of the SEC's mission. What assurances can 
you provide that you will take seriously these 1.2 million 
comments in support of a rule to require publicly traded 
companies to disclose their political spending to shareholders?

A.3. I am aware that issues related to corporate disclosure of 
political spending have generated significant interest and 
divergent views. As I stated at the hearing, I believe that 
materiality is the touchstone with respect to disclosure.
    I understand that through shareholder engagement, a number 
of companies have elected to provide information regarding 
their political spending activities. In addition, under the 
SEC's shareholder proposal rule, Rule 14a-8, investors can 
submit proposals to be included in a company's proxy materials 
that would require specific disclosure of items regardless of 
whether they meet the materiality threshold. Based on publicly 
available information, shareholder support for political 
spending and lobbying disclosure proposals under Rule 14a-8 has 
averaged close to but less than 25 percent in recent years.
    If confirmed, I would expect to engage with the staff, my 
fellow Commissioners, and market participants to further 
consider this issue.

Q.4. I worked with former Senator Akaka on section 913 of the 
Dodd-Frank Wall Street Reform and Consumer Protection act to 
authorize the SEC to require broker-dealers that provide 
investment advice about securities to retail customers to 
adhere to a fiduciary standard. In January 2011, as mandated by 
section 913, the SEC published a study on gaps in the 
protection of retail investors, and SEC staff recommended a 
uniform fiduciary standard for broker-dealers and investment 
advisers.
    Specifically, the study states, ``[r]etail customers do not 
understand and are confused by the roles played by investment 
advisers and broker-dealers, . . . They should not have to 
parse through legal distinctions to determine whether the 
advice they receive was produced in accordance with their 
expectations.'' \1\
---------------------------------------------------------------------------
     \1\ https://www.sec.gov/news/studies/2011/913studyfinal.pdf
---------------------------------------------------------------------------
    Consistent with Congress's grant of authority to the SEC in 
section 913, the study recommends the consideration of a 
rulemaking that would apply a uniform fiduciary standard to 
both broker-dealers and investment advisers, when providing 
personalized investment advice about securities to retail 
customer. Former SEC Chair Mary Jo White agreed with the 
findings and recommendations of this study, but the SEC has 
filed to take any additional steps to date.
    If confirmed, what significance will you place on SEC staff 
findings and recommendations?
    If confirmed, will you commit to move forward with a 
uniform fiduciary duty rulemaking as authorized under section 
913 and as recommended by SEC staff?

A.4. I am aware that this issue has generated significant 
interest. I believe investor protection, particularly 
protection of Main Street investors, is a critical element of 
the SEC's tri-partite mission. Based on my experience, I 
believe that as a general matter it is important that our 
regulations are designed to ensure that Main Street investors 
making an investment decision are well informed. I understand 
the current debate regarding the duty owed to these investors, 
including key issues raised by the related fiduciary rule 
issued by the Department of Labor, such as potential divergence 
of regulatory standards across account types, uncertainty in 
application, compliance costs, coordination among regulatory 
agencies, potential limitations on investor choice and 
investment opportunities, and, importantly, investor 
protection. These would be important issues to consider when 
assessing whether the SEC should issue a similar rule. If 
confirmed, I look forward to working with my fellow 
Commissioners and the SEC staff, and consulting with market 
participants, to determine whether the Commission should move 
forward and, if so, in what manner, always keeping in mind the 
interests of Main Street investors.
    I also recognize the importance of coordination and 
discussion with other agencies and stakeholders generally and 
with respect to these issues in particular. If confirmed, I 
would encourage the SEC staff to pursue such coordination and 
discussion.

Q.5. In 2009, the SEC adopted a rule requiring publicly traded 
companies to disclose more information on director selection 
and diversity. However, because the rule failed to actually 
define diversity, the disclosures are vague and provide little 
information to investors on actual board diversity. Last year, 
former Chair White acknowledged that the rule has not resulted 
in particularly meaningful disclosures. Earlier this year, the 
SEC's Advisory Committee on Small and Emerging Companies 
submitted a memo to Acting Chair Piwowar recommending that the 
Commission amend the rule to include ``disclosure regarding 
race, gender, and ethnicity of each board member/nominee as 
self-identified by the individual.''
    What is your view on the effectiveness of the SEC's 
corporate board diversity rule?
    Will you commit to working to update the rule so that 
investors have access to meaningful disclosures such as the 
racial, ethnic, and gender composition of boards, and any 
company efforts or strategies to improve board diversity?

A.5. I believe diversity has value, including at public 
companies and their boards. I have witnessed this first hand 
and I know that many experienced investors share this view. I 
understand that there has been meaningful and ongoing 
engagement on this issue between companies and their 
shareholders, including institutional investors, and that 
disclosure practices are evolving as a result. If confirmed, I 
will work with my fellow Commissioners, the staff (including 
the Office of Minority and Women Inclusion), and the SEC's 
Advisory Committee on Small and Emerging Companies (ACSEC) to 
monitor this issue.

Q.6. Given your role in representing Ally Financial in the 
fallout of the subprime mortgage crisis, I wanted to get your 
perspective on Goldman Sachs' activities to meet the consumer 
relief portion of its settlement with the Federal and State 
Governments. As I'm sure you know, last January, Goldman Sachs 
entered into a settlement of more than $5 billion over its role 
in packaging and selling toxic mortgage-backed securities in 
the years leading up to the crisis. The settlement requires 
Goldman to provide $1.8 billion in consumer relief, and to 
satisfy that portion of the settlement, Goldman has purchased 
approximately 26,000 severely delinquent mortgage loans from 
Fannie Mae for approximately $4.5 billion, loans which 
represent $5.7 billion in unpaid principal balance.
    In essence this deal allows Goldman to purchase loans for 
pennies on the dollar, and once borrowers restart their monthly 
payments, the ability to sell the loan for a profit and receive 
credit under the terms of their settlement.
    And because Goldman gets settlement credit for purchasing 
these loans, it has the financial ability to outbid other more 
community-oriented buyers that may have a greater incentive to 
keep borrowers in their homes.
    Do you think it's fair that Goldman Sachs, who pedaled 
toxic mortgage-backed securities and paid a record $550 million 
penalty in a settlement with the SEC for misleading investors 
about subprime mortgage products, can meet its settlement 
obligations by purchasing delinquent mortgage loans and 
reselling them for a profit?

A.6. It would not be appropriate for me to comment on a 
particular enforcement matter. As a general matter, I believe 
that all participants to a settlement should fulfill their 
settlement obligations.

Q.7. In my mind, the Office of the Whistleblower serves a 
critical function at the SEC, empowering whistleblowers to 
provide key information to the Commission. As you know, Dodd-
Frank required the SEC to establish a whistleblower program, 
and since 2011, the SEC has received more than 18,300 tips and 
awarded more than $111 million to 34 whistleblowers. 
Importantly, since 2014, the SEC has pursued enforcement 
actions against a number of companies that retaliated against 
whistleblowers.
    Do you agree that the Office of the Whistleblower has been 
successful?
    In your view, what can the Commission do to enhance 
protections for whistleblowers and ensure that tips and 
information on misconduct and illegal activity continue to flow 
to the Commission?

A.7. As a general matter, I believe that effective enforcement 
is critical to the fair and efficient functioning of our 
markets and the protection of investors. While I do not have 
substantial experience with the SEC's whistleblower program, it 
is my general understanding that the Office of the 
Whistleblower provides an important tool for identifying 
misconduct and facilitating restitution to investors. I 
understand certain protections on which the Office has been 
focused include preserving the confidentiality of 
whistleblowers and taking action to protect against 
retaliation. If confirmed, I look forward to learning more 
about the efforts of the Office from my fellow Commissioners 
and the staff and hearing their views on how to make the Office 
a more effective component of the SEC's enforcement efforts 
specifically and its tri-partite mission more generally.

Q.8. The shareholder proposal process set forth in Rule 14a-8 
describes the process by which shareholders can file 
resolutions. The rule provides an important mechanism whereby 
eligible shareholders can place proposals in proxy statements, 
thereby allowing shareholders to vote on a proposed change in 
the company's bylaws or make recommendations to management to 
amend company policies. In February, the Business Roundtable 
sent a letter to Gary Cohn, the Director of the National 
Economic Council, detailing recommendations on various Federal 
regulations. \2\ The letter specifically identifies the 
shareholder proposal process and suggests, among other 
recommendations, that the threshold requirements for being able 
to file, refile, and vote on shareholders resolutions should be 
significantly increased.
---------------------------------------------------------------------------
     \2\ https://businessroundtable.org/sites/default/files/
Regulations%20of%20Concern%20Letter%20and%20List%201702_22.pdf
---------------------------------------------------------------------------
    What is your opinion of proposals to curtail the 
shareholder proposal process as outlined in Rule 14a-8?
    Do you believe that the current shareholder proposal 
process needs any changes? If so, please provide a detailed 
explanation of such changes.

A.8. I understand that opinions differ on the shareholder 
proposal process, including, for example, the requirements that 
a shareholder should be required to satisfy in order to submit 
a proposal for inclusion in the company's proxy and a 
shareholder vote. I also understand that this is an issue that 
has been previously reviewed by the Commission and that market 
practices are continuing to evolve. If confirmed, I would want 
to work with the staff and my fellow Commissioners, as well as 
investors and issuers, to review the current state of the 
market and the details of any particular recommendations on 
this issue. In doing so, I would pay particular attention to 
the potential effects on capital formation, investor protection 
and the maintenance of fair and efficient markets.

Q.9. There are currently two petitions for rulemaking pending 
with the SEC requesting rules to require disclosure of short 
positions in parity with the existing required disclosure of 
long positions (File No. 4-689 and File No. 4-691). The current 
lack of transparency around short positions deprives companies, 
investors, and the market of valuable information and may 
encourage trading behaviors that unfairly harm growing 
companies and their investors.
    Would you support a disclosure regime for short sellers, 
modeled after the Regulation 13D disclosures required of long 
investors, to shine a light on manipulative behaviors, protect 
long-term business growth, and allow all market participants to 
make informed trading decisions?

A.9. I am generally aware of these rulemaking petitions. It 
would not be appropriate for me to pre-judge the issue or to 
make policy recommendations at this time. However, if 
confirmed, I look forward to consulting with SEC staff and 
other interested parties to understand the types of data 
currently available to the public, the staff's knowledge and 
assessment of the identified concerns, the expected effect that 
additional disclosures would be anticipated to have on those 
concerns, and the expected effects that such additional 
disclosure requirements may have on other matters such as 
liquidity and price discovery in the market.

Q.10. Title VIII of the Dodd-Frank Wall Street Reform and 
Consumer protection act added a new regulatory framework for 
financial market utilities designated by the Financial 
Stability Oversight Council as systemically important. U.S. 
clearinghouses that have been determined to be systemically 
important financial market utilities, SIFMUs, are subject to 
prudential regulation by the Federal Reserve Board. Title VIII 
allows SIFMUs to maintain accounts at a Federal Reserve Bank 
and provides access to the Fed's discount window in unusual and 
exigent circumstances. SIFMUs are currently able to compete for 
business opportunities abroad because these rules align with 
international standards. However, certain legislative proposals 
in Congress have proposed repealing Title VIII.
    Will you commit to work with Congress to ensure SIFMUs are 
not denied access to foreign markets?

A.10. As a general matter, I agree that we should be mindful of 
the issue of SIFMU access to foreign markets, recognizing the 
international nature of many aspects of our capital markets. If 
confirmed, I look forward to working with Congress on important 
legislative proposals that, consistent with the SEC's mission, 
affect our markets.

Q.11. As you know, the SEC is currently reviewing the proposed 
acquisition of the Chicago Stock Exchange by a group of Chinese 
investors led by the Chongqing Casin Enterprise Group.
    Given Chongqing Casin's various business lines in China 
including property development, insurance, and municipal 
commercial banks, and its likely ties to the Chinese 
Government, in your opinion, does the potential acquisition 
raise U.S. market integrity, transparency, and confidence 
concerns?
    If confirmed, what specific steps will you and your staff 
undertake to thoroughly review the near and long-term 
implications of Chongqing Casin's acquisition of a U.S. 
exchange?

A.11. It would not be appropriate for me to comment on a 
specific pending proposal. If confirmed, one of my goals will 
be to hold non-U.S. acquirers to the same standards as U.S. 
acquirers, including disclosure standards. If confirmed, I will 
work with the staff and my fellow Commissioners to review this 
and any other proposal for consistency with the standards set 
forth in our securities laws.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                        FROM JAY CLAYTON

Q.1. Foreign Corrupt Practices Act: Mr. Clayton, I am a strong 
believer that our markets and our Government work best when we 
shine a light on them. Transparency and eliminating conflicts 
of interest are key to a strong democracy.
    Now I want to ask you about a paper you co-wrote back in 
2011 with nine other lawyers, about the Foreign Corrupt 
Practices Act.
    Your paper to the New York City Bar Association is critical 
of the law.
    I think it is also important to note that President Trump 
has also publicly shared his disdain for the FCPA. Which is 
concerning given the fact that the President's company has a 
history of doing business internationally in places like 
Azerbaijan.
    So I guess my first question is do you continue to oppose 
the FCPA?
    Would you elaborate on your thoughts about corporations and 
bribery, and what you will do to ensure that these two things 
do not cross paths?

A.1. Bribery and corruption have no place in society. Moreover, 
they often go hand-in-hand with many other societal ills, 
including inequality and poverty, and have anti-competitive 
effects, including disadvantaging honest businesses. 
Accordingly, combating corruption is an important governmental 
mission.
    U.S. authorities, including the SEC, other financial 
regulators, and law enforcement agencies, both at home and 
abroad, play an important role in combating Government 
corruption. I believe the FCPA can be a powerful and effective 
means to effect this objective. I also believe that 
international anti-corruption efforts are much more effective 
at combating corruption if non-U.S. authorities are similarly 
committed and seek to coordinate. The New York City Bar 
Association paper you reference focused on this coordination 
point but also was clear that effectively combating Government 
corruption is an important policy objective that should be 
pursued vigorously. Fortunately, international enforcement 
efforts appear to be more prevalent than they were a decade 
ago. If confirmed, I look forward to working with my fellow 
Commissioners, Enforcement Division staff, and other 
authorities in the U.S. and abroad to coordinate enforcement of 
the FCPA and other anti-corruption laws. In particular, I 
believe that coordination with the Department of Justice is 
integral to effective enforcement of the FCPA.

Q.2. CFIUS: Mr. Clayton, the Committee on Foreign Investment in 
the United States is an inter-agency committee who reviews 
transactions that result in the control of American businesses 
by foreign entities. The CFIUS review examines the potential 
effects that foreign investment could have on national 
security. In the SEC space, a Chinese company is in the process 
of purchasing a U.S. Stock Exchange. Now the SEC Chair is not a 
permanent member of CFIUS, but often plays a role, when an 
entity under its purview is under consideration by CFIUS.
    My question to you is will you commit to working with CFIUS 
in a vigorous manner to ensure that Americans' financial 
information is not placed into harm's way?

A.2. While it would not be appropriate for me to comment on a 
specific proposal pending before the Commission, I can confirm 
to you that I am aware of the important role of CFIUS and, if 
confirmed as Chair, look forward to working with CFIUS in 
matters of overlapping jurisdiction to facilitate its mission.

Q.3. Given your history in mergers in acquisitions, you have 
obviously seen and participated in transactions involving 
foreign investment into the U.S.
    Do you believe our financial markets and investors here in 
the U.S. are at an increased risk lately with increased foreign 
investment, particularly from Chinese entities, looking to 
steal proprietary information?

A.3. I am aware of policy and competitive concerns that have 
arisen in the context of foreign investment in U.S. capital 
markets, including market-related and investor protection 
concerns as well as other issues which overlap with other 
authorities and extend beyond the scope of the SEC's authority 
and mandate.
    If confirmed, I will engage with my fellow Commissioners 
and the SEC staff regarding these market-related and investor 
protection issues, and, as noted in connection with your 
question regarding CFIUS, engage with other authorities on 
issues of common interest, including, but not limited to, 
issues related to protection of proprietary information.

Q.4. Priorities/Consensus Building: Mr. Clayton, I know you 
have a long history in the mergers and acquisitions space, but 
I am curious about what is most important to you today.
    If confirmed, what will be your priorities be as SEC Chair?

A.4. If I am confirmed, I will focus my efforts on advancing 
the Commission's tri-partite mission of protecting investors, 
maintaining fair, orderly, and efficient markets, and 
facilitating capital formation. For example, as I stated at the 
hearing, I firmly believe that (1) well-functioning capital 
markets are important to every American; (2) all Americans 
should have the opportunity to participate in, and benefit 
from, our capital markets on a fair basis, including being 
provided accurate information about what they are buying when 
they invest; and (3) there is zero room for bad actors in our 
capital markets. I also intend, if confirmed, to assess the 
actions of the Commission through the lens of what is in the 
interest of Main Street investors. If confirmed, I will work 
with my fellow Commissioners and the SEC staff to pursue these 
and other goals that are consistent with the SEC's mission.

Q.5. When I think about strong nominees, I think about folks 
who are willing to put partisanship aside to work together on 
issues.
    How will you work with the other commissioners to more 
effectively promulgate rules on a timely basis, including on 
difficult issues that will require consensus building among 
Commissioners?

A.5. As I stated at the hearing, an important aspect of my job 
over the past two decades has been to facilitate consensus. It 
is my experience that consensual decision making often has 
lasting value, including that it facilitates future, 
constructive engagement. I recognize that there are situations 
in which individuals will have fundamental disagreements, but 
if confirmed, I plan to work constructively with my fellow 
Commissioners to advance the SEC's tri-partite mission as an 
independent agency. I am hopeful that we will be able to reach 
consensus on the many important issues facing the Commission, 
including those that are yet to be identified.

Q.6. How will you work to implement regulations, including 
those that you may have been outspoken about in the past, but 
carry a Congressional mandate?

A.6. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law and that such rulemakings should be pursued on a basis that 
is timely and feasible. If confirmed, I look forward to working 
with my fellow Commissioners and the SEC staff to carry out the 
statutorily mandated rulemakings.

Q.7. Corporate Political Disclosure: Mr. Clayton, I am a strong 
proponent of transparency around our campaign finance system 
and I strongly believe we have to do something to slow the 
flood of dark money into campaigns which undermines our 
democracy. On a number of occasions, I and many others on this 
Committee has been pushing the SEC to promulgate a rule which 
would require corporate political spending disclosure. 
Unfortunately, the Appropriations Committee prevented the SEC 
from doing anything for the last few years.
    In the future, if Congress were not preventing the SEC from 
promulgating a rule, would you support such a rule as Chair?

A.7. I am aware that issues related to corporate disclosure of 
political spending have generated significant interest and 
divergent views. As I stated at the hearing, I believe that 
materiality is the touchstone with respect to disclosure.
    I understand that through shareholder engagement, a number 
of companies have elected to provide information regarding 
their political spending activities. In addition, under the 
SEC's shareholder proposal rule, Rule 14a-8, investors can 
submit proposals to be included in a company's proxy materials 
that would require specific disclosure of items regardless of 
whether they meet the materiality threshold. Publicly available 
data indicates that shareholder support for political spending 
and lobbying disclosure proposals under Rule 14a-8 has averaged 
close to but less than 25 percent in recent years.
    If confirmed, I would expect to engage with the staff, my 
fellow Commissioners, and market participants to further 
consider this issue.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                        FROM JAY CLAYTON

Q.1. Two entities that you have represented, Valeant and 
Pershing Square, have come under significant legal scrutiny for 
potential insider trading in connection with the Allergan bid 
in 2014. In fact, a Federal judge in California ordered 
Pershing Square and Valeant to make additional disclosures on 
their shareholder documents, including that he had found their 
alliance may violate insider trading rules and practically 
begged the SEC to bring a case against the entities. To date, 
the SEC has not done so. If confronted with a situation in 
which a Federal judge indicates insider trading has occurred, 
will you take the Federal judge's plea as a cue to investigate 
and if warranted bring a case?

A.1. This is in response to Questions 1 through 4. I appreciate 
your recognition that my ability to discuss the matter that is 
the focus of Questions 1 through 4, the proposed Valeant/
Allergan transaction, which is the subject of ongoing legal 
proceedings, is constrained by ethical duties and other 
obligations.
    Valeant's initial proposal to combine with Allergan was 
announced in April 2014, and my firm represented Valeant. I was 
not part of the transaction team or involved in, or to my 
recollection aware of, the proposal prior to its public 
announcement.
    On certain occasions in June 2014, months after the initial 
announcement of the proposed combination, I was consulted by 
other lawyers at my firm on certain discrete legal issues. The 
aggregate time I recorded on this matter was less than 3 hours. 
I am not in a position to comment further on the matter.
    Please see my response to Question 5 below regarding 
insider trading laws generally.

Q.2. You have disclosed that you represented Valeant and 
Pershing Square. Can you please describe for us what exactly 
your representation entailed without violating confidentiality? 
Specifically, were you involved in helping either or both 
entities launch a hostile tender offer for Allergan?

A.2. Please see my response to Question 1 above.

Q.3. The decision in the California case, Allergan Inv. v. 
Valeant Pharms, Inc., recognizes that a major loophole exists 
in insider trading law. A strategic bidder can tip a hedge fund 
provided that it had not yet taken a ``substantial step'' 
towards making a tender offer. In Allergan, the defendants 
claimed that they had only agreed to propose a merger and not a 
tender offer. Do you agree that the distinction between 
planning a merger and planning a tender offer from the 
shareholder's perspective is very thin and meaningless in terms 
of materiality of information?

A.3. Please see my response to Question 1 above.

Q.4. Do you believe entities should be able to escape liability 
for insider trading by virtue of calling themselves ``co-
bidders'' and then exchanging information? If so, please 
explain why; if not, please explain how you would approach that 
scenario.

A.4. Please see my response to Question 1 above.

Q.5. As Prof. Jack Coffee has written, the 2nd Circuit's United 
States v. Newman decision may create a new legal safe harbor to 
engage in insider trading that can be called ``Don't Ask, Don't 
Tell.'' Under Newman, a tippee cannot be convicted unless it is 
proved ``that the tippee knew an insider disclosed confidential 
information and that he did so in exchange for a personal 
benefit,'' which significantly narrows the scope of insider 
trading prosecution. Do you agree with the court's analysis in 
Newman? If not, would you support legislation to eliminate the 
need to prove a ``personal benefit'' to the tipper in order to 
prove an insider trading case?

A.5. I recognize that this is an issue that has received 
attention, particularly in light of the Newman case and other 
recent high profile court cases, which have created some 
uncertainty regarding the contours of various aspects of 
insider trading under our securities laws. As a general matter, 
and without commenting on a particular matter or proposal, I 
support efforts for clarity in this area. With regard to the 
effects of the Newman case, and this area of the law more 
generally, I am also aware that in Salman v. United States, the 
United States Supreme Court clarified some of the uncertainty 
that had been presented by the Newman decision, holding 
unanimously that a tippee can be held liable for trading on 
material, nonpublic information received from an insider 
relative or friend even where the tipper received no direct 
financial benefit from disclosing that information. If 
confirmed, I will actively work with the Enforcement Division 
staff and my fellow Commissioners to follow that decision and 
enforce our securities laws, including, importantly, insider 
trading laws.

Q.6. Last year, I saw a stunning graphic from RBC Capital 
Markets that charted 839 different fee schedules that are 
composed of 3,729 separate fee variables. When one examines 
these variables in detail, it appears that exchanges are using 
their ``fee engineers'' to put together ``bespoke'' pricing 
terms for one or a small handful of customers in order to 
attract and retain order flow--essentially catering to high-
frequency traders. Given this incredible complexity, it is 
likely very difficult for market participants to know whether 
they are getting best execution and the benefit of a ``fair and 
orderly'' market. Hence, Sen. Crapo and I have called for the 
SEC to engage in an access fee (or maker-taker) pilot, which 
would collect data and hopefully create better insight into how 
to deal with potential conflicts in order routing. If 
confirmed, will you pledge to work with us to design and 
implement equity market structure pilots in a timely fashion?

A.6. Promoting fairness and efficiency in our markets is a core 
element of the SEC's tri-partite mission, and I recognize 
concerns with respect to transparency of the equity markets and 
fees, and with respect to potential conflicts of interest in 
routing orders. I understand that the SEC staff has been 
looking at a review of structural market issues, and that the 
Equity Market Structure Advisory Committee and its Regulation 
NMS Subcommittee have proposed a framework for an access fee 
(or maker-taker) pilot and made other significant 
recommendations. If confirmed, I look forward to discussing the 
status of the pilot and other efforts to ensure that the 
Commission is pursuing its mandate effectively in the area of 
market structure with the staff, my fellow Commissioners, and 
this Committee.

Q.7. The last time a real case for Treasury manipulation was 
brought was in 1991, after the Salomon Brothers scandal. I 
suspect that is because the SEC has no idea manipulation is 
occurring because regulators don't have access to the trading 
data. After the Flash Rally on October 15, 2014, when yields 
plummeted 37 basis points in the 10-year Treasury over 12 
minutes, the Fed had to request data from the banks and 
electronic brokers to reconstruct what happened. That led the 
Treasury Department to announce that the public sector will 
begin collecting data on Treasury trade reporting in 2017, but 
for regulatory purposes only. Public trade reporting rules 
create substantial transparency for the market and apply to 
equities, mutual funds, corporate bonds, municipal securities, 
options, futures, and swaps--when can they apply to U.S. 
Treasuries? Will you support public trade reporting rules for 
U.S. Treasuries?

A.7. I understand that the SEC recently approved a FINRA 
proposal that will require non-public reporting of certain 
transactions in U.S. Treasury securities to FINRA's Trade 
Reporting and Compliance Engine (TRACE). I recognize that there 
are competing views on whether this data, like data on other 
securities reported through TRACE, should be made public. For 
example, I understand that some commenters have expressed 
concern about the potential impacts on market liquidity, 
particularly in the context of certain types of trades. At the 
same time, I also understand some commenters have advocated for 
making trade reporting data public in an effort to, among other 
things, improve price transparency and reduce information 
asymmetry in the marketplace. I have not had the opportunity to 
consult with the SEC Commissioners, staff or other market 
participants on this issue, but, if I am confirmed, I look 
forward to exploring this further with them.

Q.8. In the 1960s about half of corporate profits were 
reinvested back into the business--in R&D, in new services, or 
in investments in the workforces that built these businesses. 
Yet today around 95 percent of corporate profits are paid out 
to shareholders in dividends or stock buybacks, fueled by an 
increasing focus on the short-term. Do you agree with me that 
we should promote policies that further incentivize American 
businesses to invest in themselves for long-term growth, 
innovation, and job creation--and try to curb the preoccupation 
with short-term profits and stock prices that detracts from the 
investments that have historically made American businesses 
great?

A.8. I fully support measures to facilitate job growth and 
investment in the future of America. In addition, consistent 
with the Commission's tri-partite mission, including capital 
formation, I believe the Commission should be receptive to 
considering proposals that facilitate job growth and investment 
in America. I am aware of various important policy concerns 
that have arisen in the context of stock buybacks, including 
employment issues that can have far-reaching adverse effects 
and market-related and investor protection issues such as stock 
price manipulation and insider trading. I also recognize that, 
depending on the circumstances, businesses may determine that 
returning capital to investors in an appropriate and efficient 
manner, including Main Street investors, is in the best 
interests of shareholders.
    If confirmed, I intend to engage with my fellow 
Commissioners and the SEC staff regarding these issues and the 
issue of facilitating capital formation and investment more 
generally.

Q.9. Would you be interested in looking at things like stock 
buybacks, quarterly reporting, and proxy access with me to see 
where the SEC might play a role in helping businesses re-orient 
themselves towards long-term value creation?

A.9. If confirmed, I would look forward to working with you and 
other Members of the Committee on these important issues, being 
mindful of the importance of long-term value creation.

Q.10. Financial Services institutions have numerous regulations 
and guidance that address cyber security and specifically 
encryption of data; however, according to breachlevel.com, only 
4 percent of breaches are secure breaches where encryption was 
in use and the data was rendered useless. As SEC Chairman and a 
member of the Financial Stability Oversight Council, how would 
you ensure that the SEC's regulated entities are implementing 
best practices necessary to account for and guard against cyber 
threats? How will you enable the Commission, along with the 
financial institutions that it regulates, to leverage 
innovation in the IT space to protect financial data?

A.10. I share your concern about cybersecurity from a 
regulatory perspective with respect to the companies and 
markets regulated by the SEC, from a systemic perspective with 
respect to potential threats, and from the perspective of the 
Commission itself and the proprietary and market-sensitive data 
it holds. If confirmed, I expect to view this issue as a 
priority and look forward to working with my fellow 
Commissioners and the staff, and consulting with market 
participants and industry experts, to address the issue of 
cybersecurity in these contexts. For example, I look forward to 
learning more about the staff's experience in administering 
Regulation SCI, which requires certain critical market 
infrastructure participants to, among other things, implement 
policies and procedures reasonably designed to ensure that 
their systems have sufficient levels of capacity, integrity, 
resiliency, availability, and security.
    I also understand that cybersecurity remains an examination 
priority for the Office of Compliance Inspections and 
Examinations, and I look forward to learning more about the 
results of those examinations. In addition, if confirmed, I 
look forward to understanding the perspective of the staff on 
the issue of whether companies should be disclosing more about 
their potential cyber-related risks and senior-level expertise 
to address those risks.

Q.11. Since 2009, the SEC has required public companies to 
report their financial statements twice--once as a plain-text 
document, then again as searchable data, using the XBRL data 
format. In 2015, now-Chairman Crapo and I sent a letter to 
Chair White asking for the SEC to end this duplicative system 
and instead adopt a single format that is both human-readable 
and machine-readable, so that companies only need to file a 
single document, with electronic tags embedded within it. On 
March 1, 2017, the two current Commissioners unanimously 
proposed new rules to accomplish exactly this goal. Do you 
agree with Commissioners Piwowar and Stein that corporate 
disclosure should be both human-readable and machine-readable? 
Would you have favored proposing new rules to accomplish this 
goal for corporate financial statements?

A.11. Although it would not be appropriate for me to comment on 
a pending rulemaking before the Commission, as a general 
matter, I believe that the Commission should be actively 
looking for ways to improve efficiency in disclosure practices 
and our markets as a whole, including through the use of 
technology. There may well be a number of instances in which 
the Commission can use technology, or direct the use of 
technology, in an efficient manner to improve the accessibility 
of disclosures to the public.

Q.12. Although the SEC does collect corporate financial 
statements in a machine-readable format, most other corporate 
disclosures are not machine-readable. For example, the cover 
pages of corporate disclosure forms require public companies to 
``indicate by check mark'' which category they fall into. These 
check marks are text, not searchable data fields, and companies 
express these simple categories in over 500 different ways. 
Both the SEC and market data companies must manually rekey this 
information into databases, or else use unreliable parsing 
software, to track the categories of public companies. Do you 
agree that corporate disclosures in general, and these cover 
page items in particular, should be expressed using machine-
readable data instead of plain text? Would you support reforms 
to modernize corporate disclosure requirements to replace 
documents with data?

A.12. As a general matter, I believe that the Commission should 
be actively looking for ways to improve efficiency in 
disclosure practices and our markets as a whole, including 
through the use of technology. And, while I am not in a 
position to comment on this specific matter, it is my general 
view that, in today's marketplace and in light of technological 
advances, there are few areas where the manual reentry of data 
should be required.

Q.13. Mr. Clayton, the mutual fund industry prints and mails 
about 240 million shareholder reports in paper a year, which 
means 2 million trees killed every year. According to industry 
estimates, that costs investors $308 million a year. The 
Commission failed to move forward last year on a proposal to 
allow funds to mail them a brief notice with the website where 
the report is available online, along with a postage-paid reply 
form and toll-free number that they could use to opt back in to 
a hard copy. If confirmed, will you commit to take a fresh look 
at this proposal and do what you can to reduce the cost and 
environmental impact of investing?

A.13. Without commenting on any proposal specifically, if 
confirmed, as a general matter I look forward to working with 
the staff and my fellow Commissioners to explore potential 
disclosure reforms, including reforms that may be able to 
reduce costs and environmental impacts while preserving 
investors' access to information.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                        FROM JAY CLAYTON

Q.1. At your nomination hearing, you reiterated that you want 
the SEC to focus on holding individuals accountable for 
violating securities laws. One major way to create more 
individual accountability is to make sure executives don't have 
compensation packages that let them get rich by bending the 
rules, skirting the law, hurting people, or crashing the 
economy. That's why Section 956 of Dodd-Frank directs the SEC, 
along with several other regulators, to work together to 
``prohibit any types of incentive-based payment arrangement . . 
. that the regulators determine encourages inappropriate 
risks.''
    It took 6 years, but the agencies, including the SEC, 
finally proposed a rule last April. But the rule has not been 
finalized yet.
    Given your stated desire to increase individual 
accountability, can you assure me that you will direct the SEC 
to prioritize working with other agencies to complete this rule 
within 6 months after you're sworn in?

A.1. Rulemaking, both mandatory and discretionary, is a 
critical function of the SEC. I believe it should, among other 
things, reflect the Commission's tri-partite mandate, include 
effective economic analysis, seek clarity over complexity 
wherever practicable, reflect input from a diverse array of 
affected parties and market participants and proceed as 
efficiently as practicable. If confirmed, I look forward to 
engaging with my fellow Commissioners and the staff regarding 
these issues and working to carry out the statutorily mandated 
rulemakings in accordance with applicable law and on a basis 
that is timely and feasible.

Q.2. Near the beginning of her tenure as SEC Chair, Chair White 
announced that the SEC would seek more admissions of fault in 
its settlement agreements, rather than allowing settling 
parties to ``neither admit nor deny'' liability.
    Do you share her position that the Commission should seek 
more admissions of fault in its settlement agreements?

A.2. I agree that pursuing admissions from defendants in 
enforcement proceedings in appropriate circumstances should be 
a key consideration for the Commission. As I stated at my 
nomination hearing, I strongly believe in the deterrent effect 
of enforcement proceedings that include individual 
accountability. However, I also recognize the SEC's interest 
in, where appropriate, avoiding drawn-out proceedings that 
strain the resources of the Enforcement Division staff and 
lengthen the time it would take for resolution, including for 
investors to receive restitution. I believe each matter should 
be decided based on its own facts and circumstances, including 
analysis of whether the added deterrent effect of securing 
admissions will be offset by other relevant factors. If I am 
confirmed, I look forward to developing my views on this issue 
further in consultation with my fellow Commissioners and the 
staff, including in the Enforcement Division.

Q.3. If you are confirmed, can you provide me an annual update 
on the number of settlement agreements the SEC entered into 
that year, the number if those agreements that included an 
admission of fault, and a copy of all non-confidential 
settlement agreements that included an admission of fault?

A.3. Enforcement actions are intended to have a deterrent 
effect. One aspect of deterrence is ensuring that market 
participants are aware of the Commission's actions with respect 
to enforcement. If confirmed, I would look forward to working 
with Congress, my fellow Commissioners, and SEC staff to ensure 
that information regarding the Commission's enforcement 
proceedings and settlements is compiled and publicized on a 
basis that should have such a deterrent effect and facilitates 
analysis. At the same time, I would not discount the deterrent 
effect of publicity surrounding the initiation of enforcement 
proceedings brought by the Commission, whatever settlements or 
conclusions are reached.

Q.4. Mutual funds are sold to individual investors using a 
``pay to play'' business model in which broker-dealers and 
other intermediaries are compensated to sell certain funds to 
their customers, despite the merits of investing in these 
funds.
    Large brokerage firms use this model to take advantage of 
individual mutual fund investors by charging them many 
different types of fees for selling mutual fund shares and 
keeping track of those shares in an investor's account. Rule 
12b-1 fees, account maintenance charges, and revenue-sharing 
payments are extracting billions of dollars each year out of 
the pockets of the 96 million individual investors who rely on 
mutual funds for their savings goals. These fees are in 
addition to sales commissions imposed on the purchase or 
redemption of mutual fund shares.
    If confirmed to lead the SEC, what will you direct the 
Commission to do to address excessive brokerage fees and better 
protect individual investors?
    Would you support an SEC rule that requires broker-dealers 
who provide personalized investment advice of any type to 
register as investment advisers and follow a fiduciary standard 
of care (instead of a suitability standard of care)?

A.4. Based on my experience, I believe that as a general matter 
it is important that our regulations be reasonably designed to 
ensure that Main Street investors making an investment decision 
are well informed. If confirmed, I would expect to approach 
regulation in this area with that perspective. It would be 
premature for me to take a position on a particular rule 
without fully exploring the issue with the Commissioners and 
the SEC staff. If confirmed, I look forward to working with my 
fellow Commissioners and the SEC staff, and consulting with 
market participants and other interested parties, to ensure 
that the interests of Main Street investors are protected, 
including with respect to whether the Commission should proceed 
with rulemaking and, if so, in what manner those investors' 
interests might most effectively be served.

Q.5. One of the fees being charged in the broker-dealer ``pay 
to play'' model is called ``revenue-sharing.'' These are 
payments being made by mutual fund management companies to 
broker-dealers and other intermediaries based on the amount of 
fund shares that are being sold to investors. These payments 
are not disclosed properly to mutual fund investors because the 
payments are not being made directly from fund assets.
    If confirmed, are you prepared to either (1) limit these 
payments, or (2) require more specific disclosure of the amount 
of these payments and their potential impact on mutual fund 
performance?

A.5. I have not yet had an opportunity to engage with the 
Commissioners or the staff regarding this issue. If confirmed, 
I would be interested in working with my fellow Commissioners 
and the staff, including the Division of Investment Management, 
to understand current practices in this area and consider the 
adequacy of existing disclosure rules in this area.

Q.6. A number of fees being charged by large broker-dealers are 
for investor services already required to be performed under 
existing SEC and FINRA rules. These services include providing 
account statements to customers, internally tracking individual 
investment positions, and sending transaction confirmations and 
tax statements to customers. Mutual funds are the only issuer 
of securities required to pay these servicing fees, as issuers 
of equities, bonds, and exchanged-traded funds (ETFs) do not 
pay any distribution or recordkeeping fees. Outside of the 
mutual fund industry, brokers and other intermediaries are 
compensated directly by their customers through commissions, 
account charges, and advisory fees.
    If confirmed, what will you do to correct this inequitable 
treatment, so that mutual fund investors are only subject to 
the same fee structures as equity, bond, and ETF investors?

A.6. If confirmed, I would seek to gather more information from 
the SEC staff, including from the Division of Investment 
Management, regarding these issues, including the comparability 
of services provided and expenses incurred in various 
circumstances. If appropriate, I would also look forward to 
engaging with my fellow Commissioners and the SEC staff 
regarding any potential reforms with respect to this issue.

Q.7. In July of 2016, the Treasury Department issued final 
regulations requiring country-by-country reporting of profits, 
losses, income taxes paid, accumulated earnings and total 
number of employees of multinational enterprises with over $850 
million in revenue. Review of these country-by-country reports 
would allow investors to assess the risk of foreign tax 
liability applied to accumulated earnings held overseas by a 
multinational enterprise.
    Do you believe investors should have access to the country-
by-country reports of multinational enterprises that file such 
reports with the IRS?
    If confirmed, will you require companies that file country-
by-country reports to the IRS to also disclose such reports to 
their investors?
    On April 12, 2016, the European Commission proposed a new 
directive requiring public, country-by-country reporting of 
annual profits and taxes by EU and non-EU multinationals. Do 
you believe the SEC should impose a lower standard of investor 
protection than the European Commission?

A.7. As I stated at the hearing, I believe that materiality is 
the touchstone with respect to disclosure. If confirmed, I will 
want to study this issue with my fellow Commissioners and the 
SEC staff. This will include exploring the potential impacts of 
any such proposal and whether such a proposal would further the 
SEC's tri-partite mission, including, but not limited to, 
investor protection.

Q.8. Stock buybacks can be used to increase a company's 
earnings per share (EPS) even in years where net income has 
gone down. Because many companies use EPS to determine a CEO's 
compensation, executives have an added incentive to use stock 
buybacks to increase EPS in years where underlying earnings are 
flat or negative.
    Should companies be able to inflate earnings per share 
through the use of stock buybacks?
    Should companies be able to game performance pay metrics 
through the use of stock buybacks?
    Should companies be required to calculate and disclose any 
increases in EPS that are attributable to stock buybacks?
    If confirmed, what will you do to prevent executives from 
using stock-buybacks to manipulate performance pay compensation 
metrics?

A.8. I am aware of various important policy concerns that have 
arisen in the context of stock buybacks, including market-
related and investor protection issues such as manipulation and 
insider trading. I also recognize that, depending on the 
circumstances, businesses may determine that returning capital 
to investors, including Main Street investors, in an 
appropriate and efficient manner is in the best interests of 
shareholders. If confirmed, I intend to engage with my fellow 
Commissioners and the SEC staff regarding these issues.

Q.9. Investors should be able identify companies that invest in 
the U.S. economy and American workers. If confirmed, will you 
require companies to annually disclose how many manufacturing 
properties a company has opened or closed, whether those 
properties were in the United States, and the number of jobs 
lost or created as a result?

A.9. I am aware of various important policy concerns that have 
arisen in the context of manufacturing and job creation (or 
loss), including market-related and investor protection issues 
as well as other issues which extend beyond the scope of the 
SEC's authority and mandate. If confirmed, I intend to consult 
with the staff and my fellow Commissioners regarding these 
market-related and investor protection issues, including 
disclosure.

Q.10. I was critical of former SEC Chair White for the high 
number of Well-Known Seasoned Issuer (WKSI) waivers that were 
granted by the SEC under her tenure. These waivers allowed 
numerous companies that violated securities laws--sometimes 
multiple times--to take advantage of special regulatory 
privileges. Under Chair White's watch (as of March 2015), 
institutions that sought WKSI waivers received them in the 
majority of cases, and SEC returned to a decade-old policy that 
allowed institutions found guilty of criminal misconduct to 
receive these waivers.
    Are you concerned with the ease with which institutions 
received WKSI waivers under Chair White's watch?

A.10. I have a great deal of respect for Chair White. I was not 
privy to the Commission's discussions regarding this issue. 
Consequently, it would not be appropriate for me to comment on 
the Commission's decisions.

Q.11. WKSI waivers may only be granted ``upon a showing of good 
cause.'' What criteria do you believe should be considered in 
this determination?

A.11. I have not yet had the opportunity to engage with the 
Commissioners and the SEC staff regarding the issue of waivers. 
But, I will commit to exploring this issue if I am confirmed. 
As a general matter, I believe that the question of whether a 
waiver is appropriate in a particular situation would be 
dependent on the facts and circumstances of that situation, 
including, without limitation, the relationship between the 
misconduct and the activity targeted by the disqualification, 
other aspects of the settlement and the matter more generally, 
the recommendation of the relevant SEC staff and whether a 
waiver would be consistent with the Commission's tri-partite 
mission to protect investors, maintain fair, orderly and 
efficient markets, and facilitate capital formation.

Q.12. Will you continue SEC policies that allow companies that 
have been found to be guilty of criminal violations to receive 
WKSI waivers?

A.12. I have not yet had the opportunity to engage with the 
Commissioners and the SEC staff regarding the issue of waivers, 
including in the context of a criminal conviction. But, I will 
commit to exploring this issue if I am confirmed.

Q.13. Do you believe institutions that have repeatedly violated 
SEC rules should remain eligible to receive WKSI waivers?

A.13. I have not yet had the opportunity to engage with the 
Commissioners and the SEC staff regarding the issue of waivers, 
including in this context, but will commit to exploring this 
issue if confirmed.

Q.14. At your nomination hearing, you acknowledged that you 
would have to recuse yourself for 2 years from any matter 
involving a former client of your or any matter in which your 
former law firm, Sullivan & Cromwell, represented a party. 
Given your extensive client list and Sullivan & Cromwell's 
active SEC practice, it is likely that you will have to recuse 
yourself from a number of matters. Unfortunately, there appears 
to be no public record of SEC Commissioner recusals.
    Will you commit to publicly and promptly disclosing your 
recusals so that this Committee and the public can assess how 
your recusals are affecting the functioning of the SEC?

A.14. The final votes of SEC Commissioners on the Commission's 
decisions, orders, rules and similar actions generally are 
available publicly on the Commission's website at https://
www.sec.gov/about/commission-votes.shtml. This disclosure 
includes whether a Commissioner did not participate in that 
vote. If confirmed, I would expect this approach to continue 
and will commit to exploring whether additional disclosure is 
appropriate.
                                ------                                


  RESPONSES TO WRITTEN QUESTIONS OF SENATOR DONNELLY FROM JAY 
                            CLAYTON

Q.1. Stock Buybacks: Mr. Clayton, in 1982, the SEC provided a 
"safe harbor" from market manipulation liability to 
corporations on certain stock buybacks. Since then, SEC 
oversight of stock buybacks has been lax.
    Do you believe the SEC should take another look at Rule 
10b-18? Do you believe the SEC should step up its oversight of 
the buybacks?
    Former Chair White publicly stated last year that the SEC 
was looking into when and how often companies should tell 
investors about share purchases. She was presumably referring 
to the SEC's ``concept release'' to solicit the public's views 
on financial disclosure requirements in Regulation S-K. 
Currently, corporations only have to report stock repurchases 
quarterly. Requiring immediate or daily disclosure would be a 
step in the right direction.
    Do you believe more transparency and disclosure is needed 
in the area of stock buybacks? Can you commit to looking at 
this as the SEC continues its review?

A.1. With respect to both of these questions, I am aware of 
various important policy concerns that have arisen in the 
context of stock buybacks, including market-related and 
investor protection issues such as stock price manipulation and 
insider trading. I also recognize that, depending on the 
circumstances, businesses may determine that returning capital 
to investors, including Main Street investors, in an 
appropriate and efficient manner is in the best interests of 
shareholders.
    If confirmed, I intend to engage with my fellow 
Commissioners and the SEC staff regarding these issues.

Q.2. Outsourcing: Mr. Clayton, as the SEC continues reviewing 
financial disclosure requirements under Regulation S-K, I hope 
you will consider whether corporations should disclose country-
by-country employment data. This would help investors determine 
which companies employ American workers and better understand 
where outsourcing and offshoring has occurred.
    Are you willing to consider a country-by-country employment 
disclosure as part of the SEC's broader review?

A.2. If confirmed, I would want to study the issue of 
disclosure of country-by-country employment data with my fellow 
Commissioners and the SEC staff.
    As I stated at the hearing, I believe that materiality is 
the touchstone with respect to disclosure requirements. As a 
general matter, the question of whether a particular disclosure 
would be material to an investment decision can be complex and 
often depends on the individual facts and circumstances of an 
issuer. This likely would be true for disclosures of employment 
data beyond that currently required under existing rules. 
Before taking a position on a particular proposal related to 
this disclosure issue, I would want to explore the potential 
impacts of any such proposal and whether such a proposal would 
further the SEC's tri-partite mission, including, but not 
limited to, investor protection.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                        FROM JAY CLAYTON

Q.1. Prioritizing Finalizing Remaining Dodd-Frank Rules: There 
are 20 regulations mandated by Dodd-Frank that the SEC has not 
yet drafted or finalized--that is more than 20 percent of those 
required by law. It is now 7 years since Dodd-Frank became law. 
Acting Chair Michael Piwowar has publicly stated that the SEC 
will halt all work on Dodd-Frank related rules. At the hearing, 
you stated: ``rulemaking should go forward with respect to 
rules required under a statute,'' thereby acknowledging that 
the SEC should finalize any rule required by law. You were 
uncertain, however, as to why certain rules required under 
Dodd-Frank have languished for the past seven years. As chair 
of the SEC, you would be in a position to fulfill the mandate 
of the law and bring this delay to an end.
    As chair, will you prioritize finalizing rules required 
under Dodd-Frank?

A.1. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law and that such rulemakings should be pursued on a basis that 
is timely and feasible. The rulemaking process is important, 
and in many cases demands significant resources. The 
Commission's resources are limited and, accordingly, the 
overall approach to rulemaking should reflect the Commission's 
mandate and be the product of consultation among the 
Commissioners, the staff and, in the case of multi-agency 
rulemaking, other authorities, being mindful of the obligation 
to proceed with mandatory rulemaking at a reasonable pace and 
also being responsive to market developments. Rulemaking, both 
mandatory and discretionary, is a critical function of the SEC. 
I believe it should, among other things, reflect the 
Commission's tri-partite mandate, include effective economic 
analysis, seek clarity over complexity wherever practicable, 
reflect input from a diverse array of affected parties and 
market participants and proceed as efficiently as practicable.
    If confirmed, I look forward to engaging with my fellow 
Commissioners and the staff regarding these issues and working 
to carry out rulemakings efficiently and effectively.

Q.2. High Frequency Trading: By some estimates, high frequency 
trading accounts for half of all trading volume. The strategy 
for high frequency trading is to make a tiny profit on a high 
volume of trades by exploiting small differences in a stock or 
derivative's price. Some high frequency trading practices are 
troubling because they look similar to illegal front-running 
and spoofing activities. These predatory forms of high 
frequency trading harms retail investors and pensioners.
    What will you do as chair to protect investors from abusive 
high frequency trading?

A.2. I am aware that issues related to high frequency trading, 
and equity market structure more generally, have generated 
significant interest and divergent views. Certain trading 
practices have faced questions as to whether they may work 
against the interests of certain types of investors and 
issuers. I am generally aware of the work and recommendations 
to date of the Equity Market Structure Advisory Committee, 
including proposed steps to gather more information about the 
effects of our current approach to regulation such as the 
maker-taker pilot. I am also generally aware that the 
Commission has initiatives underway--and has worked with other 
federal financial regulatory agencies--to capitalize on the 
regulatory data that is available and to ensure that it has 
sufficient information to facilitate its analysis of market 
structure and market function. \1\
---------------------------------------------------------------------------
     \1\ See, e.g., Joint Staff Report: The U.S. Treasury Market on 
October 15, 2014 (July 13, 2015), available at https://www.sec.gov/
reportspubs/special-studies/treasury-market-volatility-10-14-2014-
joint-report.pdf.
---------------------------------------------------------------------------
    If confirmed, I look forward to working with my fellow 
Commissioners and the SEC staff to explore these issues, 
including the important market-related and investor protection 
issues related to high frequency trading that you cite.

Q.3. SEC Conflict Mineral Rule: In our one-on-one meeting, we 
talked about rules and regulations that you think burden 
capital formation and you highlighted your disagreement with 
the SEC rule requiring disclosure of the use of conflict 
minerals in a public company's supply chain. The SEC issued 
this rule because Section 1502 of Dodd-Frank required it. While 
this rule was repealed through the Congressional Review Act, 
the SEC still has an obligation to fulfill the requirements of 
Section 1502 of Dodd-Frank. This would place you in a position 
of having to develop a new rule to implement a provision of the 
law you personally do not agree with.
    How will you square your personal views with the legal 
requirements of your position as SEC chair?

A.3. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law and that such rulemakings should be pursued on a basis that 
is timely and feasible and that reflects the SEC's mission. At 
the hearing, and in my meetings with Senators, I discussed both 
the importance of each aspect of the SEC's tri-partite mission 
in rulemaking and the importance of consensus in the operation 
of the Commission. In this regard, if confirmed, it will be my 
duty to uphold the law. I commit to do so, and I recognize that 
there are different approaches to pursuing the SEC's mission. 
In this regard, on matters where views diverge, compromise may 
be in the best interests of the SEC's mission. If confirmed, I 
expect there will be circumstances where I will support, and 
vote in favor of, a particular approach to a rule or other 
issue that, while furthering the objectives of the Commission, 
would not be the approach I would take if I were acting alone.

Q.4. Will you commit to upholding the law, even if you 
personally disagree?

A.4. Yes.

Q.5. Will you commit to carrying out the mandate of Section 
1503 of Dodd-Frank?

A.5. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law and that such rulemakings should be pursued on a basis that 
is timely and feasible and that reflects the SEC's mission. I 
understand that the SEC has adopted rules as required under 
Section 1503 of Dodd-Frank, and I intend to support the 
enforcement of rules that are in effect.
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATOR VAN HOLLEN FROM JAY 
                            CLAYTON

Q.1. Disclosure of Political Spending: During last Thursday's 
hearing you said that touchstone for shareholder information is 
materiality. What information would you consider to be material 
to shareholders? Materiality is defined as relevant information 
to investors. With that in mind, can you explain why a 
disclosure regulation that has received the most investor 
(institutional, retail, and pension) support (tenfold times any 
other proposed rulemaking in agency history) could ever be 
deemed immaterial? Do you believe reputational risk is material 
information that shareholders and investors should know about? 
Please describe how political spending could become a 
reputational risk? Do you support requiring companies to 
disclose their political spending to shareholders (please 
explain your answer)?

A.1. I am aware that issues related to corporate disclosure of 
political spending have generated significant interest and 
divergent views. As I stated at the hearing, I believe that 
materiality is the touchstone with respect to disclosure.
    I understand that through shareholder engagement, a number 
of companies have elected to provide information regarding 
their political spending activities. In addition, under the 
SEC's shareholder proposal rule, Rule 14a-8, investors can 
submit proposals to be included in a company's proxy materials 
that would require specific disclosure of items regardless of 
whether they meet the materiality threshold. Publicly available 
data indicates that shareholder support for political spending 
and lobbying disclosure proposals under Rule 14a-8 has averaged 
close to but less than 25 percent in recent years.
    With regard to your questions on reputational risk, as a 
general matter reputational risk can arise out of a range of 
activities. There have been a number of circumstances in which 
issuers have determined that potential reputational risks 
arising out of certain aspects of their business could be 
material and have disclosed those risks accordingly.
    If confirmed, I would expect to engage with the staff, my 
fellow Commissioners, and market participants to further 
consider this issue.

Q.2. Fiduciary Duty: The Dodd-Frank Act mandated that the SEC 
study whether there are regulatory gaps in the protection of 
retail investors relating to standards of care for broker-
dealers and investment advisers. The Act also authorized the 
SEC to set a uniform standard. In 2011, the SEC released a 
study recommending that the Commission ``establishing a uniform 
fiduciary standard for investment advisers and broker-dealers 
when providing investment advice about securities to retail 
customers.'' Two previous chairs of the SEC had expressed their 
agreement with the findings and recommendations of the study. 
Will you move forward with a uniform fiduciary duty rule under 
Section 913?

A.2. I believe that investor protection, particularly 
protection of Main Street investors, is a critical element of 
the SEC's tri-partite mission. Based on my experience, I 
believe that as a general matter it is important that our 
regulations are designed to ensure that Main Street investors 
making an investment decision are well informed. I understand 
the current debate regarding the legal formulation of the duty 
owed to these investors, including key issues raised by the 
related fiduciary rule issued by the Department of Labor, such 
as potential divergence of regulatory standards across account 
types, potential uncertainty in application, the effects of 
compliance costs, coordination among regulatory agencies, 
potential limitations on investor choice and investment 
opportunities, and, importantly, ensuring investor protection.
    If confirmed, I look forward to working with my fellow 
Commissioners and the SEC staff, and consulting with market 
participants, to determine whether the Commission should 
proceed with rulemaking and, if so, in what manner and, in any 
event, with an eye toward clarity and consistency and with the 
objective that the interests of Main Street investors are 
protected, including that they have access to appropriate 
investment opportunities.

Q.3. Working With State Securities Authorities: In February, 
the North American Securities Administrators Association and 
the SEC signed a memorandum of understanding (MOU) regarding 
information sharing. The goal of the MOU was to improve better 
information sharing between the SEC and State regulators. Under 
the (MOU), Federal and State securities regulators will be 
better able to monitor the effects of the new rules and also 
guard against fraud. If confirmed, will you prioritize the 
timely sharing between the SEC and the State securities 
regulators as outlined in the MOU? If so how? If confirmed, how 
do you plan to facilitate strengthened cooperation and 
information between Federal and State securities regulators?

A.3. As I stated at the hearing, if confirmed, I look forward 
to working with State securities regulators and other 
regulators with jurisdiction over the securities markets. If 
confirmed, I also look forward to learning more about the MOU 
regarding information sharing and engaging with my fellow 
Commissioners, staff from the Office of Compliance Inspections 
and Examinations, the Enforcement Division and other areas of 
the Commission, and State securities regulators, to discuss 
ways to encourage efficient and effective coordination and 
cooperation. In such discussions, I would be mindful to 
identify areas where coordination can eliminate unnecessary 
duplication, address areas in need of additional resources 
(including in response to changes in the marketplace), and, in 
so doing, enhance investor protection.

Q.4. State Securities Anti-Fraud Authority: In your testimony 
you stated that you are ``100 percent committed to rooting out 
any fraud and shady practices in our financial system.'' As you 
know State securities regulators are on the front lines when it 
comes to policing for violations of securities laws. According 
to the North American Securities Administrators Association, in 
2015 State securities regulators conducted 4,487 investigations 
of alleged violations of State securities laws and took 2,074 
enforcement actions.
    Can you please share your perspective on the role of States 
in protecting investors from fraud? If confirmed, how do you 
plan to work with State securities regulators on enforcement?

A.4. I believe that States, and in particular State securities 
regulators, play an important role in protecting investors from 
fraud. I have seen firsthand the benefits and effectiveness of 
State-Federal cooperation in enforcement matters, and have 
experience working with State regulators. As I stated at the 
hearing, if confirmed, I am very interested in working with 
State securities regulators. If confirmed, I look forward to 
including State securities regulators in discussions with the 
SEC staff regarding steps that can be taken to encourage 
efficient and effective oversight and enforcement.
    In this regard, I believe that continued coordination and 
cooperation with State securities regulators will enhance the 
Commission's ability to deter and detect fraud and ensure that 
individuals who break the law are held accountable. Also, if 
confirmed, in such future discussions, among other things, I 
would be interested in hearing ideas for more effectively 
identifying and sanctioning fraudulent promoters of local, 
nontransparent investment opportunities that have some of the 
hallmarks of ``penny stock'' schemes, who in my experience 
often are recidivists.

Q.5. Independence: Congress established the Securities and 
Exchange Commission in 1934 as an independent agency in 
response to the stock market crash of 1929. What is your 
definition of an independent agency? If confirmed, how do you 
plan to maintain the SEC's independence?

A.5. From my perspective, an independent agency is one that, 
like the SEC, is empowered to pursue its mission in accordance 
with its statutory mandate without undue influence or control 
from outside sources. I believe that such independence is 
fundamental to the tri-partite mission of the SEC and that 
focus on that mission will facilitate the preservation of the 
Commission's independence. If confirmed, I will be mindful of 
protecting the Commission's independence in all areas. If 
confirmed, I look forward to engaging with my fellow 
Commissioners regarding this issue and believe that focusing 
collectively and consensually on the SEC's core mission of 
protecting investors, maintaining fair, orderly and efficient 
markets, and facilitating capital formation will promote that 
effort.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORTEZ MASTO FROM JAY 
                            CLAYTON

Q.1. The Wall Street Journal reported that after Mr. Trump was 
elected, you ``dashed off an email [to a longtime client] 
explaining how Government could promote growth by easing what 
[you] considered unnecessary regulations on raising capital.'' 
\1\ This email was reportedly shared with Trump advisers, and 
you were henceforth nominated to lead the SEC. Can you provide 
a copy of this email to the Committee?
---------------------------------------------------------------------------
     \1\ Michaels, Dave. ``Trump's Man for the SEC: Time To Ease 
Regulation''. Wall Street Journal, February 19, 2017. Available at: 
https://www.wsj.com/articles/trumps-man-for-the-sec-time-to-ease-
regulation-1487505602.

A.1. My communication was related to a Sullivan & Cromwell LLP 
memorandum authored by some of my colleagues, ``2016 U.S. 
Presidential and Congressional Elections--Preliminary 
Observations and Potential Implications for Financial Services 
Legislation and Regulation'', with my commentary regarding 
areas of the memo on which to focus. It would not be 
appropriate for me to provide or discuss client communications. 
Based on my recollection, the discussions I participated in 
with members of the Trump transition team in advance of my 
nomination regarding capital formation and related SEC 
regulation were consistent with the views I have expressed at 
the hearing on March 23rd, in my individual meetings with 
Senators and in these responses, including, without limitation, 
that: (1) U.S. public capital markets appear to be less 
attractive today to both U.S. and non-U.S. companies than they 
were 20 years ago. This may be hindering capital formation in 
the public markets and reducing investor choice, and may be 
adversely affecting the competitive position of the U.S. vis-a-
vis other countries. This also may be limiting investor 
opportunities, particularly, on a relative basis, for Main 
Street investors and, if Main Street investors increasingly 
turn to private investments, may adversely affect investor 
protection. (2) The costs and risks of being a public company 
compared to remaining a private company are viewed as 
significant by the owners and management of well-run private 
companies and, in addition to out-of-pocket costs, include 
regulatory and enforcement risks and other considerations that 
are not easily quantifiable such as the pressure of quarterly 
earnings disclosures and potentially costly procedural hurdles 
that do not appear to foster investor protection. (3) There is 
a perception that considerations beyond investor protection 
have motivated certain public company securities regulation, 
and that such regulation has not always focused on investor 
protection, capital formation and the fair and efficient 
operation of our markets. There is a similar perception 
regarding the risk of enforcement actions against public 
companies and related penalties, including, without limitation, 
aspects of FCPA enforcement actions and whistleblower rules, 
and that they may unduly harm shareholders who ultimately bear 
the costs. (4) The JOBS Act has been viewed positively as a 
general matter, including from the perspective of reducing the 
burdens of becoming a public company without lessening investor 
protection. (5) There are various other significant factors 
driving the result that public capital markets are relatively 
less attractive to private and non-U.S. companies than in the 
past, including that private capital markets have become much 
deeper and more efficient and compete effectively with public 
markets for well-run companies. (6) Although many high-quality 
companies continue to enter the public markets and there are 
many others who aspire to do so, it is important to consider 
these dynamics and anticipated future developments when 
reviewing regulation and future policy initiatives focused on 
capital formation. I also participated in discussion with the 
members of the Trump transition team regarding other matters, 
including, without limitation, regulation of small- and medium-
sized banks, market liquidity, including possible effects of 
the Volcker Rule, regulation of smaller, private funds, and 
---------------------------------------------------------------------------
cybersecurity.

Q.2. You have previously written that ``the growing gulf 
between our most and least fortunate'' is one of the most 
pressing issues of our time. \2\ How will you address this 
issue if confirmed to lead the SEC?
---------------------------------------------------------------------------
     \2\ Clayton, Jay, David N. Lawrence, Stephen Labaton, Matthew 
Lawrence, and Carl J. Schramm. ``USA 10-K: Why America Needs an Annual 
Report''. July 3, 2012. Available at: http://
knowledge.wharton.upenn.edu/article/usa-10-k-why-america-needs-an-
annual-report/.

A.2. If confirmed, one of the ways I will address this issue is 
by working to increase the ability of Main Street Americans to 
participate in investment opportunities, including through our 
public markets. As I mentioned at my nomination hearing, a 
large number of companies, including many of our country's most 
innovative and high-profile growth companies, have chosen to 
remain privately held. Although the growth and success of many 
of these companies is driven by American consumers, most 
Americans are unable to invest, or to invest as efficiently, in 
these private companies during their growth stages, and 
therefore may be missing out on the investment growth that they 
themselves are helping to create.
    I believe that all Americans should have a reasonable 
opportunity to invest in America's growth. If we are able to 
encourage more companies to enter our public markets, we will 
be able to provide more investors with the opportunity to 
invest efficiently in America's growth. I also am open to 
exploring other avenues to achieve this objective and, if 
confirmed, look forward to discussing this issue with the staff 
and my fellow Commissioners and this Committee.

Q.3. As I asked you doing your hearing, in a speech made just 
before he left the Department of Justice, former Attorney 
General Holder described current law, saying, ``the buck still 
stops nowhere. Responsibility remains so diffuse, and top 
executives so insulated, that any misconduct could again be 
considered more a symptom of the institution's culture.'' \3\
---------------------------------------------------------------------------
     \3\ Attorney General Holder Remarks on Financial Fraud 
Prosecutions at New York University School of Law. New York City, NY. 
September 17, 2014. Available at: https://www.justice.gov/opa/speech/
attorney-general-holder-remarks-financial-fraud-prosecutions-nyu-
school-law; an additional explanation of the Attorney General's 
proposal can be found here: https://www.law360.com/articles/582045/doj-
proposal-shows-focus-on-individuals-in-corporate-crime.
---------------------------------------------------------------------------
    Yes or no, do you agree with former Attorney General 
Holder?
    If so, why?
    If not, why not?
    Does Congress need to change any statutes to ensure that 
law enforcement can hold individual executives accountable for 
misconduct?

A.3. As I stated at my nomination hearing, I strongly believe 
in the deterrent effect of individual accountability. If 
confirmed as Chair, I will work with my fellow Commissioners 
and the Enforcement Division staff to enforce the law as it is 
written. I also am interested in hearing from the Enforcement 
Division staff, my fellow Commissioners, and other interested 
parties regarding steps that can be taken, consistent with the 
current law and the Commission's mandate, to enhance our 
ability to ensure that individuals who break the law are held 
accountable.

Q.4. As I mentioned during your hearing, former Attorney 
General Holder suggested, before he left the Department of 
Justice, that Congress change the law to provide for ``strict 
liability'' for financial services executives. \4\ To 
summarize, he recommended applying the ``responsible corporate 
officer doctrine'' that currently applies under the Food, Drug 
and Cosmetic Act to the financial services sector. As I said 
during the hearing, former Attorney General Holder stated his 
belief that executives should be criminally and civilly liable 
for misconduct that occurs under their watch, whether or not 
they had intent or knowledge of wrongdoing. I found your answer 
to my question on this topic during the hearing to be unclear. 
As such, can you clarify your thoughts on former Attorney 
General Holder's proposal?
---------------------------------------------------------------------------
     \4\ Attorney General Holder Remarks on Financial Fraud 
Prosecutions at NYU School of Law. September 17, 2014. Available at: 
https://www.justice.gov/opa/speech/attorney-general-holder-remarks-
financial-fraud-prosecutions-nyu-school-law.

A.4. The SEC does not have the authority to charge individuals 
or firms with criminal offenses. If Congress changes the civil 
liability standard, and if confirmed as Chair, I will work with 
my fellow Commissioners and the Division of Enforcement to 
enforce the law. However, with respect to the outlined 
proposal, I believe that imposing civil liability and/or 
penalties on a person without regard to his or her mental state 
---------------------------------------------------------------------------
could have far-reaching and unpredictable effects.

Q.5. President Trump has stated his desire to deport as many as 
eight million people residing in the U.S., most of whom are 
working. \5\ These workers tend to be concentrated in certain 
geographies and industries.
---------------------------------------------------------------------------
     \5\ Bennet, Brian. ``Not Just `Bad Hombres': Trump Is Targeting Up 
to 8 Million People for Deportation''. LA Times, February 4, 2017. 
Available at: http://www.latimes.com/politics/la-na-pol-trump-
deportations-20170204-story.html.
---------------------------------------------------------------------------
    Could the deportation of as many as eight million workers 
pose a material risk to investors in certain companies?
    If so, which sectors may face such material risks?
    If not, why not?
    As the President's policy of mass deportation continues, if 
confirmed, how will you ensure that companies are appropriately 
disclosing the potential risks posed to their investors due to 
disruptions in their labor force?

A.5. In my experience, company management and individual 
investors generally are in the best position to assess the 
effects and materiality of Government policies and actions. It 
would not be appropriate for me to offer an opinion on any 
specific company or situation, including the hypothetical 
description above.

Q.6. When I discussed with you at the hearing your thoughts on 
mandatory pre-dispute arbitration clauses and the SEC's ability 
to study and limit their use per Section 921 of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, you indicated 
that it was something you ``don't know a great deal about'' but 
that you'd ``work with the staff to learn more about it.'' Will 
you commit to directing the SEC staff to study the use of 
mandatory pre-dispute arbitration clauses by SEC-regulated 
firms to determine if there exists evidence of harm to 
investors?

A.6. If confirmed, I look forward to learning more about the 
use and effects of these clauses, including through consulting 
with the SEC staff regarding their work to date.

Q.7. In response to my questions at your hearing, you indicated 
an openness to ``having a dialogue with the SEC Ethics Officer 
and the people at the SEC who have experience'' with the laws 
and policies around recusals, specifically as it relates to 
transparency around when you have recused yourself from a 
matter receiving a vote before the SEC. Can you please provide 
me with more information on the feasibility of, and your 
willingness to, provide information to the public about 
instances when you've recused yourself, once a matter before 
the SEC is settled and your public reporting would no longer 
trigger the release of market-moving or sensitive nonpublic 
information?

A.7. The final votes of SEC Commissioners on the Commission's 
decisions, orders, rules, and similar actions generally are 
available publicly on the Commission's website at https://
www.sec.gov/about/commission-votes.shtml. This disclosure 
includes whether a Commissioner did not participate in that 
vote. If confirmed, I would expect this approach to continue 
and will commit to exploring whether additional disclosure is 
appropriate.

Q.8. If confirmed, if you seek to undo, limit, or otherwise 
adjust rules established by the Dodd-Frank Wall Street Reform 
and Consumer Protection Act of 2010 during your tenure, will 
you adhere to the same cost-benefit and/or economic analysis 
requirements that the SEC abided by as they established these 
rules in the first place?

A.8. Any rulemaking proceeding will be subject to the economic 
analysis required by law.

Q.9. Please indicate the specific steps you plan to take to 
increase employment diversity and inclusion at the SEC, if 
confirmed. Please include specific benchmarks for increasing 
diversity and inclusion, with specific deadlines by which you 
hope to reach those benchmarks.

A.9. I have personally seen the benefits that diversity has 
brought to my current firm and to many of our clients, and I 
believe diversity has significant value. I have read the most 
recent Annual Report to Congress by the SEC's Office of 
Minority and Women Inclusion (OMWI) and am generally familiar 
with its statistical measures and its principal conclusions. It 
would be premature for me to consider specific objectives 
without first consulting with the OMWI and my fellow 
Commissioners. However, if confirmed, I look forward to working 
to continue to promote diversity at the SEC.

Q.10. During her tenure, Chair White lamented the low level of 
board diversity in the U.S.--noting that women comprise only 20 
percent of Fortune 500 directors and racial/ethnic minority 
director representation has stagnated at 15 percent. As such, 
Chair White directed SEC staff to begin preparing a 
recommendation to the Commission on how to improve corporate 
disclosures on board diversity. What do you plan to do to 
complete this work? \6\
---------------------------------------------------------------------------
     \6\ White, Mary Jo. ``Keynote Address, International Corporate 
Governance Network Annual Conference: Focusing the Lens of Disclosure 
to Set the Path Forward on Board Diversity, Non-GAAP and 
Sustainability.'' June 27, 2016. Available at: https://www.sec.gov/
news/speech/chair-white-icgn-speech.html.

A.10. I believe diversity has value, including at public 
companies and their boards. I have witnessed this first hand 
and I know that many experienced investors share this view. If 
confirmed, I will work with my fellow Commissioners, the staff 
(including the OMWI), and the SEC's Advisory Committee on Small 
---------------------------------------------------------------------------
and Emerging Companies (ACSEC) to monitor this issue.

Q.11. Under Chair White, the SEC redirected resources away from 
broker-dealer examinations to help cover the gap in adviser 
exams because Congress failed to fully fund this program. 
Nevertheless, because of dramatic growth in the industry, the 
SEC's efforts have resulted in examinations for just 10 percent 
of all advisers. \7\
---------------------------------------------------------------------------
     \7\ FY2017 Congressional Budget Justification for the Securities 
and Exchange Commission. Available at: https://www.sec.gov/about/
reports/secfy17congbudgjust.pdf.
---------------------------------------------------------------------------
    Is a 10 percent exam record per year sufficient to 
adequately protect investors?
    What is your plan to increase investment adviser annual 
exams, if confirmed?

A.11. I recognize this is an issue identified by Chair White 
and others as requiring attention. I believe that this is an 
important resource identification and allocation exercise and 
that an effective examination strategy will require an 
efficient use of resources and effective coordination with 
others, including the self-regulatory organizations (SROs).
    If confirmed, I look forward to working with OCIE staff, my 
fellow Commissioners, the SROs, State regulators and others on 
this issue.

Q.12. Some observers would like to point to the Sarbanes-Oxley 
Act of 2002 or other regulations for why there has been a drop 
in public companies since the mid-1990s. As a mergers and 
acquisitions (M&A) lawyer, I'm sure you recognize that a flood 
of private capital has caused M&A activity to increase 
substantially. On top of that, Congress has passed a number of 
reforms like the JOBS Act of 2012 that actually encourage 
companies to stay private for longer.
    Please discuss the relative importance of (a) regulations, 
including the Sarbanes-Oxley Act of 2002 or the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010; (b) M&A 
activity; and (c) the easing of rules facilitating private 
capital formation in explaining the trajectory of U.S. IPOs in 
the last 15 years.

A.12. In my experience, a number of factors may discourage a 
private company from becoming a public company, including but 
not limited to various immediate one-time costs and ongoing 
incremental costs and risks compared with remaining a private 
company. These costs may vary from company to company depending 
on the facts and circumstances, including, for example, the 
industries in which they operate, whether they have 
international operations, and whether they have multiple 
reporting segments.
    With respect to whether M&A activity has had a negative 
effect on IPOs, it is not clear to me that there is a 
correlation between M&A activity and IPOs.
    It is my understanding that the cited JOBS Act reforms were 
principally driven by the desire to allow private companies 
that may have been constrained in (1) capital raisings, (2) the 
ability to allow for employee equity participation or (3) other 
areas related to share ownership, to expand their shareholder 
base. In my experience, the JOBS Act expansion has facilitated 
these objectives but at this time I cannot state its 
significance in the decision of whether or not to become a 
public company.

Q.13. The Investor Advisory Committee (IAC) created under the 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 has made numerous recommendations to the SEC, nearly all 
of which have been unanimous. And yet most did not receive a 
formal response from the SEC as required by law. If confirmed, 
will you pledge to formally respond to all IAC recommendations, 
in a matter transparent and accessible to the public, within 60 
days of them being published?

A.13. I have reviewed the IAC membership and believe the IAC is 
composed of an impressive group of people who have significant 
and diverse experience in our markets. I have also reviewed a 
number of the IAC's recommendations on the SEC's website. Many 
of these recommendations are the subject of, or relate to, 
recent or current rulemakings.
    If confirmed, I look forward to working with the staff and 
my fellow Commissioners to continue to engage with market 
participants, including the IAC, as part of the rulemaking 
process.

Q.14. As SEC Chairman, you will receive many requests to meet 
and to speak at conferences. Will you commit to engage with 
individuals and groups representing the interests of investors, 
particularly retail investors, at least as frequently as you 
engage with individuals and groups representing the interests 
of SEC-regulated entities?

A.14. As I stated at my nomination hearing, I strongly believe 
that it is important to engage with market participants of all 
types. Receiving information about what participants in our 
capital markets--including, importantly, Main Street 
investors--think about issues before the SEC, and the 
functioning of our markets more generally, is an important part 
of the job, and I look forward to engaging with those 
participants if confirmed. I also expect to engage with Main 
Street investors through the IAC as well as engaging with those 
in the investment management industry.

Q.15. You have been employed for most of your career at a white 
shoe law firm. You have no personal public service experience 
and have never litigated a case on behalf of taxpayers. But you 
will have the chance to select a Director of Enforcement. Will 
you commit to selecting someone that has public service 
experience as a prosecutor?

A.15. I regard this position as possibly the most important 
appointment of the Chair and recognize that the position 
requires a highly skilled and qualified individual who will 
instill confidence in the Division. I do not believe it is 
appropriate to have a ``litmus test'' for any particular role 
at the Commission. Employing individuals with a broad range of 
experience is important to further the SEC's mission, including 
at the Enforcement Division, and prior service as a prosecutor 
or within the Enforcement Division will be a very important 
consideration.

Q.16. Please discuss your view on the role of proxy advisory 
firms in supporting pension funds and other institutional 
investors in carrying out their fiduciary duty to vote proxies. 
Specifically, do you believe that further Federal regulation of 
proxy advisory firms is needed? Please discuss your view of the 
effectiveness of SEC Staff Legal Bulletin No. 20 from 2014 in 
providing guidance about investment advisers' responsibilities 
in voting client proxies and retaining proxy advisory firms.

A.16. I believe that this is an evolving industry that has seen 
change, including in response to staff guidance to various 
participants as well as industry commentary. I believe the area 
requires continued scrutiny, including in light of the 
importance and influence of these firms. I understand that, 
following the release of the 2014 staff guidance, the SEC's 
Office of Compliance Inspections and Examinations listed as a 
priority the examination of certain proxy advisory firms with 
respect to their process for making voting recommendations and 
how they address potential conflicts of interest. If confirmed, 
I look forward to studying these and other issues, including 
the results of OCIE's examinations, and discussing them with 
the staff and my fellow Commissioners.
                                ------                                


RESPONSES TO WRITTEN QUESTIONS OF SENATORS HEITKAMP AND HELLER 
                        FROM JAY CLAYTON

Q.1. We appreciate your commitment to lowering any unnecessary 
regulatory burdens on small companies looking to innovate and 
growth their businesses. Last year we passed legislation that 
establishes on Office of Small Business Advocate at the SEC. 
The purpose of the bill is to provide small businesses with a 
stronger voice when it comes to SEC rules. Given the rapid 
technological changes occurring in the area of small business 
capital formation, we believe having an independent voice with 
practical small business experience at the SEC is an essential 
element to helping small businesses effectively access public 
and private markets.
    Under the provisions of our legislation, the Commission is 
required to appoint someone with extensive small business 
experience to serve as the SEC's Small Business Advocate. It 
would also require the Commission to appoint at least 10 
individuals from across the country to serve on a new Small 
Business Capital Formation Advisory Committee, which would meet 
periodically and be required to report back to the Commission 
what they're seeing in terms of on the ground innovations and 
challenges small businesses face with attaining access to 
capital.
    If confirmed, do we have your commitment to move within a 
reasonable time frame to set up the new office and appoint a 
Small Business Advocate?
    If confirmed, will you work to ensure that the Commission 
appoints individuals to the new Small Business Capital 
Formation Advisory Committee who understand the challenges 
startups face in areas outside of the coasts, like Nevada and 
North Dakota?

A.1. As I stated at the hearing, I believe the availability of 
capital for small business is very important both locally and 
more broadly. I understand that the SEC is already taking steps 
to ``stand up'' the new Office of the Advocate for Small 
Business Capital Formation and to begin the search for the new 
Advocate. \1\ If confirmed, I look forward to working with the 
staff and my fellow Commissioners to continue this effort, and 
to explore ways in which we can promote capital formation for 
small- to mid-sized businesses and help them access and 
navigate both our public and private capital markets. I also 
recognize the need for diverse representation on the Small 
Business Capital Formation Advisory Committee by individuals 
who understand the challenges faced by small businesses in 
areas such as Nevada and North Dakota.
---------------------------------------------------------------------------
     \1\ Opening Remarks of SEC Acting Chairman Michael Piwowar before 
the SEC Advisory Committee on Small and Emerging Companies (Feb. 15, 
2017), available at https://www.sec.gov/news/statement/piwowar-opening-
remarks-acsec-021517.html.
---------------------------------------------------------------------------
                                ------                                


 RESPONSES TO WRITTEN QUESTIONS OF SENATORS HEITKAMP, TESTER, 
                 AND DONNELLY FROM JAY CLAYTON

Q.1. Fiduciary Rule: Mr. Clayton, Dodd-Frank specifically gave 
the SEC the authority under Section 913 to study the standards 
of care between broker-dealers and investment advisors. Dodd-
Frank also gave the SEC the authority to promulgate a best-
interest standard after the study was complete, should there be 
any gaps in the current structure.
    Due to the SEC's inability to promulgate a rule, the 
Department of Labor was able to write a rule, which is facing a 
significant amount of uncertainty as of this moment. We 
strongly support the SEC promulgating a best-interest standard 
and at the very least have encouraged DOL and the SEC to ensure 
that any rules are harmonized.
    Do you support the SEC moving forward with a fiduciary 
standard for investment advisors and broker-dealers and will 
you help move efforts forward to ensure that any rules are 
harmonized?
    Do you believe the SEC should create a best-interest 
standard for all brokerage accounts, not just retirement 
accounts?

A.1. I am aware that this issue has generated significant 
interest. I believe investor protection, particularly 
protection of Main Street investors, is a critical element of 
the SEC's tri-partite mission. Based on my experience, I 
believe that as a general matter it is important that our 
regulations are designed to ensure that Main Street investors 
making an investment decision are well informed. If confirmed, 
I look forward to working with my fellow Commissioners and the 
SEC staff, and consulting with market participants, to 
determine whether the Commission should move forward and, if 
so, in what manner, always keeping in mind the interests of 
Main Street investors.
    I also recognize the importance of coordination and 
discussion with other agencies and stakeholders generally and 
with respect to these issues in particular. If confirmed, I 
would encourage the SEC staff to pursue such coordination and 
discussion.

Q.2. We seek clarification regarding your position on the SEC's 
duty to implement statutorily required rules, specifically 
those rules required under the Dodd Frank Act. Your testimony 
before our Committee was unclear as to your intent to dutifully 
carry out the statutory mandates set forth in Dodd Frank. 
Please clarify your position on the following questions:
    Does the SEC have the authority to refuse to implement a 
rule required by law?
    Do you intend to fully implement all statutorily mandated 
rules under Dodd Frank, in a reasonable timeframe?
    Do you believe that excessive delays in promulgating rules, 
or reviewing rules, is tantamount to the SEC refusing to 
implement the law?

A.2. I believe that the SEC is required to implement 
rulemakings required by statute in accordance with applicable 
law, and, if confirmed, I look forward to so carrying out 
statutorily mandated rulemakings on a basis that is timely and 
feasible.
    The rulemaking process is complicated. In many cases, the 
process of promulgating proposed rules, soliciting public 
comments, and issuing final rules can take time. If confirmed, 
I look forward to working with the staff and my fellow 
Commissioners to carry out rulemakings in an appropriate and 
feasible timeframe.
              Additional Material Supplied for the Record
  SEC SETTLEMENT ORDER FOR TRUMP HOTELS & CASINO RESORTS, INC., DATED 
                            JANUARY 16, 2002
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 CORRESPONDENCE FROM THE TRUMP ORGANIZATION TO THE HONORABLE HARVEY L. 
  PITT, THE HONORABLE ISAAC C. HUNT, JR., AND THE HONORABLE LAURA S. 
                     UNGER, DATED DECEMBER 14, 2001
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

 CORRESPONDENCE FROM THE TRUMP ORGANIZATION TO THE HONORABLE HARVEY L. 
                      PITT, DATED JANUARY 28, 2002
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]