    [Senate Hearing 115-118]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-118

    NOMINATIONS OF DAVID J. RYDER, HESTER M. PEIRCE, AND ROBERT J. JACKSON,
                                      JR.

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

                                    HEARING

                                   before the

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

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

                                NOMINATIONS OF:

    David J. Ryder, of New Jersey, to be Director of the United States Mint

                                   __________

        Hester M. Peirce, of Ohio, to be a Member of the Securities and
                              Exchange Commission

                                   __________

     Robert J. Jackson, Jr., of New York, to be a Member of the Securities
                            and Exchange Commission

                                   __________

                                OCTOBER 24, 2017

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban Affairs

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                     Available at: http: //www.fdsys.gov /

                                _________

                    U.S. GOVERNMENT PUBLISHING OFFICE

     27-588 PDF               WASHINGTON : 2017
    ____________________________________________________________________
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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

                        Michelle Mesack, Senior Counsel

                     Elisha Tuku, Democratic Chief Counsel

                Laura Swanson, Democratic Deputy Staff Director

                 Megan Cheney, Democratic Legislative Assistant

                           Dawn Ratliff, Chief Clerk

                         Jimmy Guiliano, Hearing Clerk

                          Shelvin Simmons, IT Director

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                           TUESDAY, OCTOBER 24, 2017

                                                                       Page

    Opening statement of Chairman Crapo..............................     1

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2

                                    NOMINEES

    David J. Ryder, of New Jersey, to be Director of the United
      States Mint....................................................     4
        Prepared statement...........................................    35
        Biographical sketch of nominee...............................    36
        Responses to written questions of:
            Senator Brown............................................    98
            Senator Rounds...........................................    99
    Hester M. Peirce, of Ohio, to be a Member of the Securities and
      Exchange Commission............................................     5
        Prepared statement...........................................    43
        Biographical sketch of nominee...............................    44
        Responses to written questions of:
            Senator Brown............................................    99
            Senator Toomey...........................................   100
            Senator Tillis...........................................   101
            Senator Menendez.........................................   106
            Senator Warner...........................................   109
            Senator Warren...........................................   111
            Senator Donnelly.........................................   114
            Senator Schatz...........................................   115
            Senator Cortez Masto.....................................   116
    Robert J. Jackson, Jr., of New York, to be a Member of the
      Securities and Exchange Commission.............................     6
        Prepared statement...........................................    74
        Biographical sketch of nominee...............................    76
        Responses to written questions of:
            Senator Brown............................................   118
            Senator Toomey...........................................   119
            Senator Sasse............................................   121
            Senator Tillis...........................................   129
            Senator Menendez.........................................   137
            Senator Warner...........................................   142
            Senator Warren...........................................   147
            Senator Donnelly.........................................   149
            Senator Schatz...........................................   152
            Senator Cortez Masto.....................................   153

                  Additional Material Supplied for the Record

    Wall Street Journal article submitted by Senator Van Hollen......   155
    ``The 8-K Trading Gap'' submitted by Senator Van Hollen..........   159

                                     (iii)

      NOMINATIONS OF DAVID J. RYDER, OF NEW JERSEY, TO BE DIRECTOR OF THE
     UNITED STATES MINT; HESTER M. PEIRCE, OF OHIO, TO BE A MEMBER OF THE
    SECURITIES AND EXCHANGE COMMISSION; AND ROBERT J. JACKSON, JR., OF NEW
         YORK, TO BE A MEMBER OF THE SECURITIES AND EXCHANGE COMMISSION

                                  ----------

                           TUESDAY, OCTOBER 24, 2017

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 10:02 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 consider three nominations: Mr. David
    Ryder, to be Director of the U.S. Mint; Ms. Hester Peirce, to
    be a member of the Securities and Exchange Commission; and Mr.
    Robert Jackson, to be a member of the Securities and Exchange
    Commission.
        These nominees, if confirmed, will serve important roles in
    our Nation's commerce and capital markets.
        Mr. Ryder is well equipped to oversee the manufacturing and
    distribution of our Nation's currency, as well as collectible
    coins, national medals, and precious metals, based on his
    executive experience in the private sector and extensive
    Government service.
        Most recently, Mr. Ryder served as Global Business
    Development Manager and Managing Director of Currency for
    Honeywell Authentication Technologies after serving as CEO of
    Secure Products Corporation. He also has firsthand experience
    with the U.S. Mint, having served as its Director beginning in
    1991 under President George H.W. Bush.
        His time in Government service also includes serving as
    Deputy Treasurer of the United States, Assistant to the Vice
    President, and Deputy Chief of Staff to Vice President Dan
    Quayle. Raised in Idaho, Mr. Ryder attended Boise State
    University.
        Following Mr. Ryder, we will receive testimony from both
    Ms. Peirce and Mr. Jackson to be members of the SEC.
        Earlier this year, the Senate confirmed the President's
    nominee for SEC Chair, Jay Clayton, who now serves with
    Commissioners Michael Piwowar and Kara Stein.
        Today we have the opportunity to consider two more highly
    qualified nominees who, if confirmed, would round out the SEC's
    five-person Commission.
        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.
        Today's nominees have demonstrated a depth of knowledge in
    securities law and financial markets through their previous
    experience and body of academic work.
        Ms. Peirce is a senior research fellow at the Mercatus
    Center at George Mason University and the director of Mercatus'
    Financial Markets Working Group. Before joining Mercatus, Ms.
    Peirce served on the staff of the Senate Banking Committee
    under Chairman Shelby, served at the SEC as a staff attorney
    and as counsel to Commissioner Paul
        Atkins, and worked as an associate at a Washington, DC, law
    firm.
        Mr. Jackson is a professor of law and director of the
    Program on Corporate Law and Policy at Columbia Law School
    where he has focused on executive compensation and corporate
    governance matters.
        Prior to joining Columbia in 2010, Mr. Jackson served as a
    senior policy adviser at the U.S. Department of Treasury in the
    Office of the Special Master for TARP Executive Compensation
    and practiced in the executive compensation department of a New
    York law firm.
        I look forward to hearing the priorities of each nominee in
    their respective positions, as well as their thoughts on the
    U.S. capital markets or the production of our Nation's
    currency.
        Congratulations on your nominations, and thank you and your
    families for your willingness to serve.
        Senator Brown.

                   STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Mr. Chairman. And welcome to all
    three witnesses. Good to see you all, some of you for the
    second time. So nice to see you.
        David Ryder has been nominated to be Director of the U.S.
    Mint. Congratulations. Ms. Hester Peirce and Mr. Robert
    Jackson, Jr., have been nominated to be members of the SEC, as
    the Chairman said.
        Mr. Ryder previously served as Director of the Mint in the
    George H.W. Bush administration. Since that time he has
    continued to work in the world of currency design and security
    in the private sector, most recently at Honeywell. His public
    service and corporate experience have prepared him to lead the
    Mint in a time of evolving currency design and technology.
        If confirmed, Ms. Peirce would return to the SEC as a
    Commissioner. Her time at the SEC and working on the Banking
    Committee's staff provide her with a broad understanding of the
    agency's regulatory and legislative issues at a time when
    technology is transforming the way financial markets work.
        Mr. Jackson's academic and private sector background will
    help him weigh the theoretical and practical sides of SEC
    policy. His scholarship on executive compensation--something
    very important to this Committee--and corporate governance will
    be useful as the SEC works to finish, finally, the executive
    compensation rules required under the years-ago-passed Wall
    Street Reform Act.
        The nominees to the SEC will finally bring the Commission
    to full strength. The SEC has joined corporate America as a
    cyberattack victim. Not only must the SEC protect the data it
    collects, it must make sure the public companies that are the
    engine of our economy are up front with investors and their
    customers about cyber risks and breaches.
        I want to emphasize the SEC's investor protection mission
    is the cornerstone of a well-functioning stock market, and that
    is something that is very important to remember. The SEC must
    work tirelessly to ensure integrity and fairness in the capital
    markets so that investors can believe in the markets and in the
    regulator.
        The failure to hold any senior executives responsible for
    the massive misconduct during the financial crisis stands out
    as a failure in enforcement and not just at the SEC. Ms. Peirce
    and Mr. Jackson, this is something that should bother you as
    well, and if you are confirmed, I expect you to do everything
    you can to promote a strong enforcement program.
        Thank you.
        Chairman Crapo. Thank you, Senator.
        We will now move to the testimony, and before doing so, we
    need to place each of you under oath. Would you 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. Ryder. I do.
        Ms. Peirce. I do.
        Mr. Jackson. I do.
        Chairman Crapo. And do you agree to appear and testify
    before any duly constituted committee of the Senate?
        Mr. Ryder. I do.
        Ms. Peirce. I do.
        Mr. Jackson. I do.
        Chairman Crapo. Thank you. That will do.
        I will begin the questioning with both you, Ms. Peirce, and
    Mr. Jackson. While I----
        [Pause.]
        Chairman Crapo. They just reminded me I need to let you
    make an opening statement.
        [Laughter.]
        Chairman Crapo. I guess I will.
        Senator Brown. This is so much on the Banking Committee's
    agenda that we just want to dispense with all the formalities.
        [Laughter.]
        Senator Shelby. Mr. Chairman, he is from Idaho. You may
    dispense with it. That is up to you.
        Chairman Crapo. Actually, I really do want to hear your
    opening statements.
        Senator Brown. They put all that work into writing the
    opening statements, and nobody wants to hear them.
        Chairman Crapo. OK. My face is red, and we will now start
    with you, Mr. Ryder, with your opening statement.

     STATEMENT OF DAVID J. RYDER, OF NEW JERSEY, TO BE DIRECTOR OF
                         THE UNITED STATES MINT

        Mr. Ryder. Thank you, Mr. Chairman.
        First, I would like to introduce my family who came here
    today: my wife of 35 years, Monie; my daughter, Caroline; and
    my son, Nick Ryder. And my niece, Sarah Ryder, came up from San
    Antonio, Texas, and is interested in learning more about the
    Government process, so she came up from San Antonio to be with
    us today.
        Thank you, Mr. Chairman, Senator Brown, and distinguished
    Members of the Committee for allowing me to appear here today.
    Mr. Chairman, as you said, I am a fellow Idahoan, having grown
    up in Boise. In fact, my siblings and I still own a small piece
    of property just outside of McCall, so I do my best to get out
    to Idaho at least once a year to visit family and spend a
    little time in what the great State of Idaho has to offer.
        Chairman Crapo. We appreciate it, and we hope you bring
    some common sense back with you to your job.
        Mr. Ryder. Thank you.
        First, I must say that I am honored that President Trump
    has nominated me to serve as the 39th Director of the United
    States Mint.
        As you are aware, in 1992, I was nominated by President
    George Herbert Walker Bush to be the 34th Director of the Mint.
    I received a recess appointment at that time and served for a
    period of 14 months.
        When I left the Government in 1994, I became a partner with
    Secure Products, a new venture spin-off from the Sarnoff
    Corporation in Princeton, New Jersey, which was formerly the
    central research facility for the RCA Corporation. Our mission
    was to develop advanced anti-counterfeiting technology
    solutions to be primarily used in currency and branded
    products. After a successful 13 years in business, the
    Honeywell Corporation acquired Secure Products in 2007. The
    ensuing 10 years was spent with Honeywell as their global
    business development manager and managing director of currency.
        In my role at Honeywell, I worked with Government agencies
    and central banks around the world to address currency issues.
    Interestingly, one of my last duties while at Honeywell was a
    joint project with The Royal Mint of the United Kingdom where
    we assisted them in the development of the new U.K. one pound
    coin, which was introduced earlier this year. This new
    circulating coin is considered to be the most advanced and
    secure coins in the world today.
        If confirmed, I would like to make education one of my
    focal points at the Mint. As the 34th Mint Director, we
    introduced an initiative called the ``Money Story''. The goal
    of this initiative was to educate the youth of this Nation on
    the history of money, both coinage and paper, via a teacher's
    curriculum and a video co-developed by the U.S. Mint and the
    Bureau of Engraving and Printing. This packet of information
    was made available to all teachers for use in the classroom.
    Teaching our youth early on how to collect coins and other
    numismatic products, as well as how to start saving their hard-
    earned money, helps lay the foundation of the importance of
    money. Over the years, the Mint has continued this excellent
    tradition via various tools which are located on their website.
        Having worked in the currency industry for the past 25
    years plus, I have developed a strong operational and technical
    understanding of this tight-knit industry. I respect the men
    and women who dedicate their lives to this industry. During my
    time with Secure Products and Honeywell, I was afforded the
    opportunity to visit and work with many private and Government
    currency manufacturers in the United States, as well as around
    the world. I will bring to the Mint Director position a strong
    understanding of the industry and many of the challenges it
    faces.
        If confirmed, I would be honored to once again serve in our
    Government and work with this Committee. The U.S. Mint has an
    impressive history, and I look forward to becoming part of that
    history again. As in all businesses, I am sure the Mint has
    challenges to address. I look forward to facing these
    challenges while at the same time fulfilling its mission.
        Thank you.
        Chairman Crapo. Thank you.
        Ms. Peirce, welcome back to the Committee, and you may now
    start your statement.

     STATEMENT OF HESTER M. PEIRCE, OF OHIO, TO BE A MEMBER OF THE
                   SECURITIES AND EXCHANGE COMMISSION

        Ms. Peirce. Thank you. Chairman Crapo, Ranking Member
    Brown, and Members of the Committee, it is a privilege to be
    here today with you, and it is an honor to be nominated,
    alongside Professor Jackson, to be a member of the Securities
    and Exchange Commission. If I am confirmed, I look forward to
    working to protect investors, uphold market integrity, and
    facilitate capital formation--the three interrelated parts of
    the SEC's mission.
        As a young girl, when I was in junior high school, I
    dreamed of being a securities analyst. Now, admittedly, that
    dream was probably built more on the fact that there was always
    a Wall Street Journal gracing my father's reading chair, and my
    mother was always listening to the market news on the radio.
    And, ultimately, that dream was not to come true, but perhaps
    it planted the seeds for why I am here today.
        Ultimately, I went on to study economics at Case Western
    Reserve University and law at Yale. And following my clerkship,
    I joined a law firm where I worked in the securities practice
    group. Ultimately, I found my way to the SEC where I spent 8
    years. The first part of my time there was spent as a staff
    attorney in the Division of Investment Management, after which
    I joined Commissioner Atkins' office and worked on a broader
    range of issues. Then I had the privilege of coming to this
    Committee and working for Senator Shelby, and most recently, I
    have been at the Mercatus Center, where I have learned much
    from my colleagues' knowledge about regulation and economics.
        My desire to return to the SEC is motivated by a belief in
    the importance of individuals, institutions, and innovation.
    Every individual has a unique set of interests, talents,
    knowledge, relationships, and in order for our country to be
    able to draw on those, we need to make sure that our capital
    markets function properly. So, for example, an entrepreneur who
    wants to start a business and has an idea, she needs the money
    so she can meet investors through the capital markets. And then
    when those investors invest in her company, she is able to
    employ other people who can then use their skills and abilities
    to further the enterprise. And then when the investors get
    their returns from their investment, they are able to invest it
    in their own children's education, and those children then
    become the next generation of entrepreneurs and employees.
        But no one is willing to trust her fortunes and future to
    the capital markets unless the institutional framework
    surrounding them is strong. We need to have clear rules that
    are enforced carefully, and we need to foster compliance with
    them. And, of course, everything needs to be done in an orderly
    way, with impartiality and diligence. In the United States, the
    SEC is a key part of that institutional framework. It is
    important for it to set and establish clear rules and modernize
    them when necessary.
        And that brings me to my third point, which is innovation.
    Why is innovation important in financial markets? Not only does
    innovation lower prices and improve quality, but it expands
    access to people who have not had access to the capital markets
    in the past, and it opens up access to companies that have not
    had the ability to use the capital markets in the past. But
    sometimes regulation is so inflexible that innovation cannot
    happen, and so we need to make sure that our rules are flexible
    enough to accommodate innovation as appropriate.
        If I am confirmed, I look forward to working with Chairman
    Clayton and my fellow Commissioners to implement, enforce, and
    modernize rules to support healthy, dynamic capital markets.
    Together we can ensure that our capital markets serve
    individuals and companies across this country, that we build
    strong institutions, and that we support innovation.
        Thank you, and I look forward to taking your questions.
        Chairman Crapo. Thank you, Ms. Peirce.
        Mr. Jackson.

       STATEMENT OF ROBERT J. JACKSON, JR., OF NEW YORK, TO BE A
            MEMBER OF THE SECURITIES AND EXCHANGE COMMISSION

        Mr. Jackson. Thank you. Chairman Crapo, Ranking Member
    Brown, and Members of the Committee, thank you very much for
    the opportunity to join you today. It is my honor truly to be
    testifying before you regarding my nomination to be a
    Commissioner of the Securities and Exchange Commission.
        For me, there is no greater privilege or responsibility
    than upholding the SEC's mission to protect investors, maintain
    fair, orderly, and efficient markets, and facilitate access to
    capital. And to understand why that is so important to me, I
    thought it might be helpful for me to start today by sharing a
    bit about myself and my family. I was born in the Bronx, New
    York, to my two wonderful parents, Maureen and Robert Jackson,
    and I feel so fortunate that they could be here with me today.
    My mother was one of nine children; my father was one of five.
    And of all those people, no one, least of all my parents, would
    have even dreamed that 1 day they would be sitting behind their
    son on an occasion like this.
        You see, the day I was born, my father was working as an
    encyclopedia clerk--as an accounting clerk at a small
    encyclopedia company called Funk and Wagnalls. Throughout my
    childhood, my mother held several part-time jobs, including the
    early shift at Dunkin' Donuts, just to help make ends meet.
        They were young, overworked, and sometimes even
    overwhelmed. But they believed that if they worked hard and
    saved what they could, their son might someday go to college.
        So every month my parents plowed their hard-earned
    paychecks into the market, knowing that if their investments
    were protected and growing they might someday be able to afford
    to send me to school. And that is really the only reason that I
    had the chance to go to college--and the incredible opportunity
    to be here with you all today.
        I believe that the SEC's purpose is to protect everyday
    investors like my Mom and Dad. Because today's markets are so
    complex, it can be easy to get lost in technical details and
    forget why those safeguards are so important. But my story
    shows why protecting America's investors is at the heart of
    what the SEC does. Safe markets not only encourage investment
    and entrepreneurship and growth. Safe markets make it possible
    for two young middle-class parents to transform their lives so
    that someday their son has the chance to sit before the U.S.
    Senate as a Presidential nominee. Safe markets are at the core
    of the American dream, and that is something I have learned by
    living it.
        That is why my work--in Government, as a teacher, and as a
    researcher--has always focused on everyday investors'
    confidence in our markets. At the Treasury Department during
    the financial crisis, I was proud to help develop rules that
    tie top managers' pay more closely to performance and give
    investors a voice on executive compensation. When my research
    team at Columbia Law School showed that the SEC's systems were
    inadvertently giving high-speed traders market-moving
    information before the public could see it on the SEC's
    website, I worked with this Committee's staff to help make sure
    the SEC gave investors the level playing field that they
    deserve. And when our team helped convince regulators to
    release additional information about stockbroker fraud, we were
    proud to help others use the data to expose the brokers most
    likely to defraud investors.
        If I have the honor of being confirmed, I intend to bring
    those tools to bear on the SEC's crucial task. I will be a
    strong advocate for exploring how new technologies can help
    make corporate disclosures more reliable and enforcement
    efforts more effective and efficient. I will encourage the
    staff and my fellow Commissioners to draw on the SEC's long
    history of favoring transparency as a means of maintaining
    investor confidence in our markets. And I will work to
    implement the corporate governance protections that Congress
    has enshrined into law so that investors, employees, and
    communities can be sure that our companies are working to
    produce the kind of long-term value creation that has been the
    hallmark of the American economy for generations.
        Whether protecting retirees from stockbroker fraud, making
    sure Americans get a fair price when they purchase shares of
    stock, or uniting an entrepreneur with the funding he or she
    needs to spur a life-changing invention, the daily meat-and-
    potatoes work of the Commission and its staff is crucial to the
    functioning of our economy. It is vital to millions of American
    businesses and families. That is why my parents' story is such
    an important reminder to me. You see, my parents' confidence in
    our markets not only changed my life; it changed their lives,
    too. My father, the encyclopedia company clerk, retired as the
    chief accounting officer of a public company. My mother left
    Dunkin' Donuts, earned her teaching degree, and has been
    teaching elementary school now for nearly 30 years. None of
    that would have been possible if my parents had not felt they
    could safely save for their futures--and mine--in our markets.
    If I am confirmed, you should know that helping to make stories
    like theirs possible is what will motivate me every day. That
    is really what makes the SEC so important--and why I am so
    honored to be here.
        Thank you again for the opportunity to appear before you
    today. I would be delighted, of course, to answer any questions
    you might have.
        Chairman Crapo. Thank you, Mr. Jackson.
        And now we are at the question time, and I will start out.
    I want to start out with you, Ms. Peirce and Mr. Jackson. And
    while we all know that the Chairman of the SEC sets the agenda
    for the Commission, I would like each of you to just discuss
    one or two or three areas that you think the Commission should
    focus on and prioritize during the next year. Ms. Peirce, why
    don't you start out?
        Ms. Peirce. Thank you. In addition to the rulemaking agenda
    that is going to be taking up a lot of time, I think there are
    some important issues to look at, for example, the supervision,
    the oversight of firms through OCIE. The Office of Compliance,
    Inspections, and Examinations is an important thing. I want to
    see how that is working, including the oversight of SROs, such
    as FINRA. And I also think it is important to take a look at
    market structure again, not only equity market structure but
    also fixed-income market structure. I think we need to have a
    long-term view of how we can address some of the problems that
    we see cropping up in those areas. And then, of course, the
    recent events suggest that cybersecurity will be an important
    area for us to keep an eye on.
        And, finally, I know that once you get inside an agency,
    you often see things that you did not see before that need
    attention. So I will definitely have an open mind to consider
    other issues that need to be looked at.
        Chairman Crapo. Thank you.
        Mr. Jackson.
        Mr. Jackson. Well, thank you, Senator. I would emphasize
    three areas in response to your question, and the first would
    be cybersecurity. I think recent events both at the SEC and
    public companies have taught us that we have got some work to
    do, sir, in making sure that our securities rules and our
    securities regulators have the tools and technologies in place
    to keep up with the changing marketplace. So I think that is an
    area we should focus.
        Second, I would also want to focus on completion of the
    outstanding rules that the Dodd-Frank Act requires. Sir, I am
    concerned that some 7 years after the passage of that law,
    several important investor protections, including protections
    around executive compensation and the clawback of erroneously
    awarded pay, still are not finished. I think those are things
    we should be working on and finishing, and right now the
    Commission has several proposals before it that I think are
    worth some attention.
        And then, finally, I think we should be thinking about
    enforcement and, in particular, sir, the law of insider
    trading. I worry that some of the recent events have caused
    investors to wonder whether or not the SEC is really on top of
    the job, is really the cop on the beat that we need to make
    sure that investors are getting a fair deal. I think those
    enforcement efforts deserve further attention and, if
    confirmed, I would very much look forward to working on them.
        Chairman Crapo. Well, thank you.
        And, Mr. Ryder, similarly, what are some of the top two or
    three priorities you would like to bring to the U.S. Mint?
        Mr. Ryder. Well, having not had a Director of the Mint for
    some 8 years, I think one of the things is to get in and get my
    hands dirty and understand a lot of the issues that have not
    been addressed by a Director in the past 8 years, to address
    some of the EEO issues that may be before the Mint,
    manufacturing issues with the manufacturing facilities, and
    make sure they are running smoothly in order to be able to
    achieve higher revenue for the Government. Last year, the Mint
    returned some $550 million to the general fund in processes and
    fees from special coinage programs and from of Seigniorage. I
    would like to try to increase that revenue. And then, finally,
    work with the Members in this Committee to ensure that some of
    these commemorative programs that do earn quite a lot of money
    for the Government are operated professionally, smoothly, and
    return the type of value that you all expect.
        Chairman Crapo. Thank you. And I only have about a minute
    left, so I would like to ask you to be very brief in your
    response. This question is for Ms. Peirce and Mr. Jackson. Both
    of you brought up enforcement in my first question. This
    question relates to it, and while the SEC does not have
    criminal authority, it does have civil enforcement authority.
        To each of you, and, again, briefly, could you describe
    your views on the SEC's enforcement program as well as your
    views on bringing actions against individuals and not just
    regulated entities when appropriate?
        Ms. Peirce. Enforcement is a key part of what the SEC does.
    If the SEC is not enforcing rules, then no one will take them
    seriously. So I think it is really important to focus resources
    on the right areas. I am glad that the Chairman is focused on
    retail fraud. And I think that looking at individuals is
    important. If something has been done wrong, an individual has
    been involved. So I would like the SEC to make an effort to
    look for individuals to hold responsible.
        Chairman Crapo. Mr. Jackson.
        Mr. Jackson. Mr. Chairman, I think that enforcing the
    securities laws is critical to maintaining investor confidence.
    And in particular, what I would be interested to learn more
    about at the agency would be the degree to which new technology
    is being used to make those enforcement actions not just more
    effective but more efficient, so we can make the best possible
    use of the resources that Congress gives us.
        Chairman Crapo. Thank you.
        Senator Brown.
        Senator Brown. Thank you, Mr. Chairman.
        Mr. Jackson, senior executives at Wells Fargo and Equifax,
    both who testified in our Committee recently, they oversaw
    longstanding problems: fraud pushed from the top at Wells
    Fargo, undoubtedly, and negligent cybersecurity practices at
    Equifax. They were allowed to retire after giving up only part
    of their compensation packages. Equifax CEO Richard Smith, who
    retired in sort of humiliation, received salary and stock worth
    $57 million in 2016, could still receive about $90 million for
    retiring. I suppose that is--57 plus 90 is about a dollar for
    every person whose information was stolen, if I can personalize
    it a little bit. Existing clawback rules in the proposal under
    the Wall Street Reform Act only apply if there is financial
    fraud. We now have two examples frankly that could be just as
    bad as cooking the books.
        Mr. Jackson, how should corporate boards and the SEC
    encourage sound executive compensation practices and improve
    accountability?
        Mr. Jackson. Well, thank you, Senator, and just to begin, I
    could not agree with you more that corporate accountability and
    making sure that investors see that when things like this
    happen executives do not walk out the door with the kinds of
    payments you are describing are critical. Senator, that is why
    I would favor finishing the rules that the SEC is currently
    working through that are mandated by the Dodd-Frank Act. And,
    in particular, Section 954 of that statute authorizes and
    requires the SEC to promulgate rules requiring companies to
    adopt policies or develop policies on the clawback of executive
    compensation in a variety of circumstances. And I think this
    would be one that we should be taking a careful look at.
        It is troubling to me, Senator, that 7 years after the
    passage of that law, those rules still are not in effect, and I
    think that is among the first questions I would ask if I were
    confirmed.
        Senator Brown. And I think both of you--I do not know
    either of you well. I have spoken, obviously, privately and
    publicly in this sense with each of you. I think you both
    understand how this undermines the public's confidence in the
    people you regulate and in the Government for the fact that--
    you know the litany--nobody of major consequence went to
    prison. We think it is a victory around here when a CEO who
    resigns in disgrace gives up his bonus--always a ``his,'' it
    seems--gives up his bonus, like that is a major give-back even
    though they have pocketed tens of millions of dollars with no
    real accountability. And I hope that both of you understand
    what that does to people's faith in Government, in regulators,
    and particularly in the financial sector.
        I want to talk about--let me go with this next question.
    This will be for Ms. Peirce and Mr. Jackson. I am concerned
    that companies are failing to disclose information to investors
    and to the public. Wells Fargo covered up a fake account
    scandal. They were investigated. They were sued by three
    regulators. They agreed to a $180 million fine. Cynics and
    people not so cynical would say that is just a cost of doing
    business. The company said this was not material. In the
    meantime, investors and consumers who entrusted Wells Fargo
    with their money were left in the dark.
        Equifax waited over a month to disclose the breach that led
    to the theft of over 145 million Americans' personal
    information, has never said when or how it determined the
    breach was material. In the meantime, investors and consumers--
    even though executives knew, some of them, the investors and
    consumers were left in the dark.
        Ms. Peirce, how can investors be confident they are getting
    the whole story from companies like Equifax and Wells Fargo
    that seem--these companies seem to choose when the rules apply
    to them?
        Ms. Peirce. Senator, without speaking to any particular
    company's disclosure, it is really important for companies to
    think carefully about what material facts they need to
    disclose. And the SEC staff works intensively with companies
    and goes back and forth about what is happening at the company.
    But, of course, ultimately the company knows better than the
    staff what is material and what is not, and so the ultimate
    responsibility is on the company.
        Senator Brown. So you argue that we should leave the
    decision to the company on what is material?
        Ms. Peirce. No. My point is just that the SEC is pushing
    companies on what is material and what is not, but the ultimate
    responsibility--when omissions are made, the ultimate
    responsibility lies with the company, not with the staff.
        Senator Brown. When a company makes a decision like
    Equifax, they apparently thought it was not material for a
    period of time. The Equifax stock price dropped 25 percent
    after it disclosed. That seems material to me. If you are
    saying that it is up to the company to decide materiality,
    doesn't that mean company executives should be held accountable
    when it clearly--maybe they thought it was not material, but
    certainly the stock market and investors and the public did.
        Ms. Peirce. Again, without speaking to any particular
    company's disclosure, it is important to hold companies and
    individuals responsible when omissions are made.
        Senator Brown. OK. Mr. Jackson, what can the SEC do to make
    sure fewer companies make the wrong decisions in terms of
    materiality especially? What do we do to make sure those
    companies that make--that they make fewer wrong decisions, if
    you will, like Equifax and Wells Fargo?
        Mr. Jackson. Thank you, Senator. I think the way to think
    about this and the way I think about it is from the point of
    view of investor protection. The materiality standard asks us
    to think through what would a reasonable investor think affects
    the total mix of information about the stock that they are
    choosing to buy or sell.
        Now, for me, my concern is that the SEC's rules in this
    area and guidance on what materiality is is not keeping pace
    with the changes in our markets and our companies. I think the
    recent events you talked about are some evidence of that. And
    for me, this requires the SEC to think through how are the
    kinds of disclosures companies are making in today's market
    different from the ones they were making in the market 5, even
    7 or 10 years ago? And how do we need to update the way we
    guide companies about what is important to investors going
    forward? That would be the way I would think about this issue.
        Senator Brown. Thank you.
        Chairman Crapo. Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman.
        Mr. Ryder, on October 16th, the Inspector General of the
    Treasury Department, Mr. Eric Thorson, provided a memorandum to
    the Treasury Secretary discussing challenges that the
    Department is currently facing. In this memo, the Inspector
    General stated that the U.S. Mint should consider the effect of
    alternative payment methods and other technological advances.
    If confirmed, in what ways will you address Inspector General
    Thorson's concern in the area of cryptocurrency?
        Mr. Ryder. Thank you, Senator. Having spent the last 25
    years primarily with technology-related companies, I certainly
    appreciate the advancement in technologies. Some of the things
    that we did for central banks around the world were based on
    advancements in anti-counterfeiting technology. If confirmed, I
    do plan on entertaining as many technology companies that want
    to come to the Mint and present their technology. I think it is
    important to grow the technology base. Given how old it is,
    certainly change is necessary in certain cases. So I would
    welcome the opportunity to do that.
        Senator Shelby. Could the cryptocurrency be a challenge to
    a lot of the central banks and so forth that regulate our
    currency?
        Mr. Ryder. Probably. Central banks are pretty old
    institutions that do things one way.
        Senator Shelby. I know.
        Mr. Ryder. And they do that for a long time, and it is hard
    to change. The payment systems, vending machines, all of those
    apparatuses worldwide would need to be looked at, retrofitted
    if necessary, but with the proper technology, I think it is
    possible to certainly entertain it and see where it takes us.
        Senator Shelby. If you do not, won't the market get ahead
    of the regulators?
        Mr. Ryder. That is quite possible. Technology is a pretty
    slippery slope, and you have to be pretty darn sure of what you
    are implementing in a market this size that it is going to
    work, is going to work effectively, and not slow down the
    payment process.
        Senator Shelby. Ms. Peirce, I join Chairman Crapo in
    welcoming you back to the Committee where you spent a lot of
    time. If confirmed, you will be tasked, as you well know, with
    protecting everyday investors--you mentioned that--while
    maintaining the efficiency and integrity of U.S. capital
    markets. I have long believed that the best way--one of the
    best ways for the SEC to do these things is to conduct a
    thorough cost-benefit analysis on all rulemaking. For the U.S.
    to maintain its longstanding position as having the strongest
    capital markets, I believe the regulators must ensure that they
    prevent bad actors from taking advantage of individuals while
    also not creating an undue regulatory burden. Do you want to
    speak to that?
        Ms. Peirce. Yes, I think that the----
        Senator Shelby. The cost-benefit analysis.
        Ms. Peirce. Economic analysis is extremely important. The
    agency needs to figure out what the problem is it is trying to
    solve, and then it needs to look at the different methods.
        Senator Shelby. And also how you do it, right?
        Ms. Peirce. Exactly. The different methods of solving it
    and then the costs and benefits associated with each. And it is
    very important to also build in metrics so that you can look
    back and see how the rule is working.
        The SEC has improved its economic analysis in recent years,
    but there is more room for improvement, and if I am confirmed,
    I look forward to working on that.
        Senator Shelby. Mr. Jackson, you had a compelling statement
    a few minutes ago, and I believe you, along with Ms. Peirce,
    will be a great addition to the SEC. I have the same basic
    question to you, because in a 2016 brief I have been told that
    you filed in the case between MetLife v. the Financial
    Stability Oversight Council, the FSOC, you stated--and, of
    course, I know you are an advocate. You stated that using a
    cost-benefit analysis to designate institutions as systemically
    important, your words, ``reveals a lack of understanding of
    basic principles of financial regulation.'' What did you mean
    there? Or do you disagree with what she said?
        Mr. Jackson. Thank you, Senator. In that brief, in that
    particular case, the position we were taking was not that cost-
    benefit analysis is not important.
        Senator Shelby. OK.
        Mr. Jackson. And, Senator, I agree with you that thinking
    through the costs and benefits of any particular rule is
    critical to----
        Senator Shelby. It is important to all of us, isn't it?
        Mr. Jackson. Yes, sir. I agree with you. The point we were
    making in that brief was not that costs and benefits are not
    important, but that we should know the limits of what we can
    know about costs and benefits in any particular case, because
    at the end of the day, Senator, although regulators must work
    hard to know what costs and benefits are, many of us make
    policy judgments, including, with all respect, the Congress,
    not knowing exactly what the implication might be of any
    particular choice. And that was the point we were making in
    that case.
        Senator Shelby. OK. Ms. Peirce, quickly, we have a lot of
    layers of regulation, sometimes--well, we have laws, too, that
    are overburdensome and so forth. How will you at the SEC work
    to look back on some of the regulations and ascertain if they
    are duplicative, do they make sense--in other words, good
    oversight? Because I think the SEC should do good oversight,
    just like we should.
        Ms. Peirce. Yes, it is very important, and the SEC has been
    around for a long time, so it does have quite a few years of
    rules, and I think it makes sense to go back and see how
    individual rules are working and also see how they are working
    together and when we need to pare things back or when we need
    to add things. But we should do it very carefully with being
    mindful of the overall burden.
        Senator Shelby. Thank you, Mr. Chairman.
        Chairman Crapo. Thank you.
        Senator Reed.
        Senator Reed. Thank you very much, Mr. Chairman.
        I was struck, Ms. Peirce and Professor Jackson, that you
    both identified cybersecurity as one of the key challenges. In
    that regard, you seem to be closely aligned with Chairman
    Clayton because he said when he was here for his confirmation,
    ``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 is comprehensive for
    cybersecurity issues, that is something that investors should
    know, whether companies have thought about the issues, whether
    it is the particular expertise of the board or not. But I agree
    that it is something companies should know. It is a very
    important part of operating a significant company. Any
    significant company has cybersecurity risk.''
        I assume you agree with the Chairman, Ms. Peirce.
        Ms. Peirce. I do think that almost every company these days
    has cybersecurity risk, and I think it is important for them to
    think about how to disclose that to investors and for the SEC
    to think about whether it needs to provide additional guidance
    to help them do that in light of some of the recent changes in
    recent years and the fact that the threats are greater now than
    they were even 5 years ago.
        Senator Reed. Professor Jackson.
        Mr. Jackson. Absolutely, Senator, I think the risks that
    companies face on the cybersecurity front today are different
    than they were even just a few years ago. And my concern is
    that we make sure that the rules they face and the disclosures
    they provide to investors keep pace with those changes. I think
    it is a critical area for the SEC.
        Senator Reed. Would it help to have some legislative
    direction so that the SEC could move more expeditiously?
        Mr. Jackson. Well, Senator, I think it is always helpful to
    have guidance from the Congress about exactly what the SEC's
    priorities should be, and I look forward to working with you
    and your staff on those questions. But I should point out that
    updating these rules is critical to the SEC's mission more
    generally, and they can, and I think sometimes they should, do
    it without legislation.
        Senator Reed. All right. Another aspect of the SEC's
    responsibility for cyber is having the resources. In Dodd-
    Frank, I helped legislate a $50 million per year fund for the
    SEC for technology improvements and cybersecurity. And, again,
    I asked Chairman Clayton in September about the fund, and he
    said essentially, ``We need more money, and we will ask for
    more money.'' And I would again ask, starting with Professor
    Jackson, do you think we will need significant resources to get
    the SEC ready?
        Mr. Jackson. Yes, and the reason, sir, is that companies
    are spending--the markets that the SEC hopes to regulate are
    spending billions of dollars on the latest technology. And for
    the SEC to keep up, they need to have the kind of resources
    that you just described.
        I was very glad to see that provision in Dodd-Frank that
    provides the SEC the funding, and, sir, I am not sure we can
    ask the SEC to keep up unless we provide them the resources
    that allow them to do so.
        Senator Reed. Ms. Peirce, your view?
        Ms. Peirce. Funding is obviously an important component of
    the SEC's ability to oversee the markets, but it is also
    important that resources be used well. And it is a little bit
    difficult from the outside to understand how well resources are
    being used. You know, I can see Inspector General reports that
    talk about problems on the inside. But it will be much easier
    to assess that when I am actually there.
        Senator Reed. My sense, though, is that given what we have
    read in the newspapers, what we have seen on television, given
    what your regulated entities spend, particularly the large
    ones, on cybersecurity, the funds that the SEC is devoting are
    rather meager. So my instincts would be that we need to
    reinforce your efforts, in addition to providing more guidance,
    and we are working on legislation to help you do that.
        Professor Jackson, you pointed out in your testimony that
    the purpose of the SEC really is to protect people on Main
    Street, not people on Wall Street, and because of the
    complexity of the markets, because of the complexity of
    products, I wonder if you might expand on those points.
        Mr. Jackson. Thank you, Senator. Yes, I think it is very
    easy to be at an agency like this one and talk about and think
    about these problems in very technical ways. What should the 8-
    K rules look like? What is the right market structure for us?
    And for me, the important thing, and what I hope I might be
    able to do if I am confirmed as a Commissioner, is keep in mind
    why you do it. And I think the reason that you do it is so that
    everyday investors can have the kind of story my family had,
    where they can somehow find a way by plowing away money into
    safe investments in the American economy, somehow find a way to
    change their lives. And that certainly would motivate me, if I
    am confirmed, sir.
        Senator Reed. Thank you very much.
        And just for the record, Mr. Chairman, I am not trying to
    imitate Senator Brown. I have a bad cold.
        [Laughter.]
        Chairman Crapo. Well, and you finished within your 5
    minutes, also, and I appreciate that.
        Senator Rounds.
        Senator Rounds. Thank you, Mr. Chairman.
        First, I want to thank all of you for meeting with me in my
    office last week, and I just want to start with Ms. Peirce and
    Mr. Jackson. We had the opportunity to talk about FINRA at our
    meetings, and I believe there is room for improvement at FINRA,
    especially in the area of transparency and in the way that they
    work with compliance with different companies who are producing
    products.
        FINRA must also do, I think, a better job of giving
    producers an outlet to air their concerns. Sometimes I suspect
    that the actual companies or the compliance departments want to
    make sure that producers are absolutely not in front of or
    involved in any reporting whatsoever of anything that is
    inappropriate other than directly through a compliance
    department itself.
        I am just curious whether or not it is time to take a
    second look at FINRA and whether or not their directions with
    regard to compliance is appropriate at this time and whether or
    not it has to be looked at and reviewed.
        Ms. Peirce. I do think that FINRA needs to be reviewed. I
    am encouraged by the fact that they are now under the
    leadership of Robert Cook, who has made an effort to reach out
    to a whole range of constituencies to find out their concerns
    about FINRA. That said, I think it is important for the SEC to
    oversee that process closely. I worry about transparency, too,
    and I have heard from small firms that have concerns about
    their ability to be heard by FINRA. So I think that is
    important.
        We are seeing the number of small firms drop pretty
    dramatically, and so one has to ask: Is that related to the
    fact that the regulatory burden is just not properly
    calibrated? But then you also raise an important issue, which
    is we want to make sure that the communication between FINRA
    and its regulated entities is such that when someone sees
    something bad happening in the industry, they can go and tell
    FINRA without being scared that that is going to train FINRA's
    attention on a firm that is fully compliant and doing things
    well.
        Senator Rounds. Do you think that atmosphere exists today?
        Ms. Peirce. I worry that the atmosphere now is one just as
    you described: You keep your head low, and you do your thing,
    and you are not even willing to raise issues when you see real
    fraud happening.
        Senator Rounds. Mr. Jackson.
        Mr. Jackson. Thank you, Senator. As we discussed in your
    office, I think it is important that the SEC take a prominent
    oversight role with respect to FINRA, and as we discussed, I am
    in particular interested in the part of your question that
    talks about transparency. One thing that FINRA has been doing
    is collecting important information and data on the degree to
    which stockbrokers are engaged in fraud. And one thing that has
    come to light very recently is that there are a number of
    repeat offenders in that space, and I am not sure that FINRA
    has been transparent enough in giving that information to
    investors so investors can tell the difference between a
    producer who can help them plan for their retirement and
    somebody who is going to take their money.
        So I think there is a lot of work to do in that area. But I
    am also encouraged by Robert Cook's leadership. I think he
    understands this, sir, and if confirmed, I very much look
    forward to working with you.
        Senator Rounds. Thank you.
        I think that the Department of Labor's fiduciary rule is
    fundamentally flawed, and I firmly believe that this should
    have been done at the SEC in the first place. I think you would
    have done a better job and you would have understood the need
    of small investors.
        In addition to the jurisdictional issues, this rule truly
    does hurt that small investor by--most of them are going to get
    priced out of the market based upon the DOL's current fiduciary
    rule. Chairman Clayton has been active on this issue since
    starting at the SEC. What are your views on the DOL's fiduciary
    rule? And what role do you believe the SEC should have in this
    space going forward? I will begin with you, Mr. Jackson.
        Mr. Jackson. Thank you, Senator. Let me start by making
    clear I agree the SEC should have an important role in the
    development of these fiduciary standards. It is a natural area
    for the SEC to do rulemaking. And I understand that presently
    the Chairman is working with the Department of Labor and other
    regulators to develop the SEC's presence.
        Without commenting too much on a matter that might come
    before me if I were confirmed, I want to say my own view is
    that what is important in developing this standard is to make
    sure that the market and investors have consistency. Senator,
    my concern is that someday investors are going to think they
    have one standard of protection for their retirement assets and
    another standard of protection for their brokerage accounts.
    And I think that kind of confusion is not only costly but does
    not let investors know what they need to know about the
    protections that they have.
        Senator Rounds. I am going to run out of time, but Ms.
    Peirce?
        Ms. Peirce. I have concerns about the DOL's rule as it is
    currently written. I am glad that calmer minds have prevailed
    and people both at DOL and at the SEC are taking a look at it.
    I think it is important to work with the States as well and try
    to get everyone in a room to work together for the objective
    that everyone has, which is to make sure that investors know
    the type of service they are getting and that they have access
    to service.
        Senator Rounds. Thank you.
        Mr. Ryder, I am out of time, but I will ask one question
    for the record, but I will submit it to you for the record if
    that is OK with the Chairman. I think you will do a fine job,
    sir.
        Mr. Ryder. Thank you.
        Senator Rounds. Thank you.
        Chairman Crapo. Senator Cortez Masto.
        Senator Cortez Masto. Thank you. I am over here at the
    children's table.
        [Laughter.]
        Senator Cortez Masto. I appreciate it. I am a new Senator
    from Nevada. I appreciate the conversation we are having here
    today, and, Mr. Jackson, I just wanted to follow up, and Ms.
    Peirce, on some of the conversation that I have heard already
    from Senator Brown and some others with respect to individual
    executive accountability and what that should look like at the
    end of the day.
        Ms. Peirce, what specific steps would you take to bolster
    executive accountability? I have heard you having this
    conversation, but what would you actually do when it comes to
    executive accountability and making sure that the SEC is doing
    the enforcement necessary?
        Ms. Peirce. I think a lot of it really does come down to
    specific cases and asking questions when you get a settlement
    that only involves a company pushing and saying ``why are we
    settling only with the company without individuals being
    involved?'' Because it really is a case-by-case issue.
        Now, we have to be able to prove the case, obviously,
    against the individual, but I am worried that too often we are
    just seeing settlements that are using shareholder money to
    take the focus off the executives.
        Senator Cortez Masto. Thank you.
        Mr. Jackson.
        Mr. Jackson. Thank you, Senator. My own view about this is
    that there are two things we should be thinking through.
        First, to what degree is the SEC pursuing the enforcement
    actions that it can against individuals? And I agree with what
    has just been said that we could focus on not only settlements
    with corporations, but also the individuals who are
    responsible. And I think it is terrific to ask that question.
        But I would back up, Senator, and ask a broader question,
    which is: Do we have the law we need, does the SEC have the
    tools it needs to bring those cases successfully? Because the
    standards of proof are extremely high, the cases can be
    difficult to make, and I am wondering whether the law that we
    have is the law that we need to hold individuals accountable.
    And that is something I would very much look forward to working
    with this Committee and you and your staff on, updating that
    law to make sure that individuals can be held accountable when
    things go as wrong as they did in the financial crisis.
        Senator Cortez Masto. I appreciate those comments, because
    my next question kind of fits right into that, and you are
    familiar with the Yates memo, and I specifically am concerned.
    When I asked Mr. Clayton about the Department of Justice
    potentially withdrawing the Yates memo from the previous
    administration, he really could not comment on the potential
    impact on the SEC's enforcement program. As you know, this memo
    outlines six key steps prosecutors should take to strengthen
    the pursuit of individual corporate wrongdoing, and news
    reports indicate that the Attorney General, Attorney General
    Sessions, may rescind the memo or scale it back.
        So if confirmed to the SEC, will you commit to redoubling
    efforts to hold individuals accountable for corporate
    wrongdoing, even if the Department of Justice backs away from
    the previous administration efforts? Ms. Peirce.
        Ms. Peirce. Yes, the SEC is an independent agency and has
    its own enforcement agenda to pursue, and an important part of
    that is looking at individuals. So I will commit to looking at
    individuals.
        Senator Cortez Masto. Thank you.
        Mr. Jackson.
        Mr. Jackson. I agree with Ms. Peirce, and I share that
    commitment. The SEC is an independent agency, and whatever the
    Department of Justice does, I think it is important that the
    SEC redouble its commitments to enforcement and, in particular,
    holding individuals accountable. So, yes, Senator, I will
    commit that to you today.
        Senator Cortez Masto. I appreciate that.
        Arbitration clauses, Ms. Peirce, you have written
    critically about the CFPB's rule limiting forced arbitration
    clauses. As we know, this rule will give consumers a choice as
    to whether they want to resolve disputes with financial
    companies through a rigged arbitration system or have their day
    in court. Your claim is that the CFPB's rule should be repealed
    and the market can solve this problem. If consumers do not like
    the clauses, they simply can refuse to do business with
    companies that use them.
        But let us take the two recent examples that we have talked
    about. With the Equifax data breach impacting 145 million
    Americans' personal data, the company initially included a
    forced arbitration clause in its identity theft protection
    service, only removing it after tremendous public outcry.
    Meanwhile, other credit reporting agencies still use these
    clauses, and Equifax still even uses such restrictions in it
    general terms of service. Wells Fargo continues to maintain in
    court that forced arbitration clauses apply even to fake
    accounts that consumers never even requested in the first
    place.
        Can consumers ask to be deleted from credit reporting
    agencies' data bases if they do not like their arbitration
    clauses? They simply just cannot walk away. And this is data
    that they do not necessarily own, even though it is their
    personal information. What rights do they have to vote with
    their feet when Wells Fargo tries to enforce such a clause on a
    fake account or Equifax does the same thing with data that is
    really not their own?
        So I am curious how you can make that statement and what
    your actions would be into looking at forced arbitration
    clauses as SEC Commissioner.
        Ms. Peirce. So credit reporting agencies are not regulated
    entities of the SEC, but in general, arbitration can work well
    for people, but, obviously, the circumstances around it matter.
    So if I were at the SEC, I would be happy to work with staff
    and my fellow Commissioners to consider arbitration as it comes
    up. But I do think that arbitration in general can be actually
    more beneficial than class-action litigation. Treasury issued a
    report yesterday, I think, talking about that. So I think it is
    important to look at the evidence.
        Senator Cortez Masto. So you would be willing to study it
    as an SEC Commissioner, forced arbitration clauses and the
    impact they have on individuals who are really entering into
    adhesion contracts that do not really have the ability to walk
    away from if they need service?
        Ms. Peirce. As that issue comes up on the SEC's agenda,
    but, as I said, the SEC would not be looking at something like
    the credit reporting agencies, which are outside its purview.
        Senator Cortez Masto. My time is running out, and I
    appreciate your comments.
        Mr. Jackson, is this something that you think the SEC would
    be willing to study or take a look at or has a role?
        Mr. Jackson. I think it should, and let me just say,
    Senator, that this issue is going to come up again because,
    increasingly, companies are including mandatory arbitration
    provisions with respect to shareholder lawsuits against them.
    And to the degree that these kinds of provisions come up and
    shareholders are asked to go through arbitration instead of
    litigation, I will have real questions about the degree to
    which we are protecting those shareholders. To me, Senator,
    what is puzzling about that development is we already have some
    law, the Private Litigation Securities Reform Act, that
    increases the burdens of proof and tries to deal with nuisance
    litigation. And, more generally, Senator, I do not have the
    sense that what we have in corporate America is too much
    accountability. So for me, I would be skeptical of those
    clauses, and I want to take a close look at them.
        Senator Cortez Masto. Thank you. I notice my time is up.
    Thank you for your indulgence.
        Mr. Ryder, I have no doubt you will do an incredible job. I
    appreciate all three of you, really, and your willingness to
    serve in public service, so thank you. And welcome to your
    families as well.
        Chairman Crapo. Senator Kennedy.
        Senator Kennedy. Thank you, Mr. Chairman.
        Mr. Jackson, I listened to your comments about everyday
    investors and transparency, and I agree with you. Have you ever
    bought a stock?
        Mr. Jackson. Yes, sir.
        Senator Kennedy. Before you buy, did you read the
    prospectus?
        Mr. Jackson. Well, I reviewed all the disclosures. It was a
    company that had gone public some time ago, but I read all the
    relevant disclosures, yes.
        Senator Kennedy. No. Did you read the prospectus?
        Mr. Jackson. I do not recall in that particular case, but
    generally I would want to know all the things disclosed, both
    in the prospectus and the more recent disclosures.
        Senator Kennedy. All right. Have you ever bought a bond?
        Mr. Jackson. Yes, sir.
        Senator Kennedy. Did you read the prospectus?
        Mr. Jackson. No. In that case, I do not think so, sir.
        Senator Kennedy. OK. Ms. Peirce, have you ever bought a
    stock?
        Ms. Peirce. I am a mutual fund investor because I realize
    my limitations.
        [Laughter.]
        Senator Kennedy. Before you bought the mutual fund, did you
    read the prospectus?
        Ms. Peirce. I did not read the prospectus before I bought
    the mutual fund, I will admit.
        Senator Kennedy. I guess my question is: What is the point?
    I mean, I believe in disclosure. And we all talk about everyday
    people and ordinary investors. But yet we have made the
    disclosure documents inaccessible.
        Now, you are both well-educated, intelligent people,
    presumably sophisticated investors. You are going to be on the
    SEC. I mean, what is the point of a prospectus if nobody is
    reading it?
        Ms. Peirce. I mean, I think you make an excellent point,
    which is that especially for things like mutual funds, where it
    is a retail investor audience that you are going for, it is
    important to have documents that are tailored for them to read.
    Now----
        Senator Kennedy. Well, I know I am making a good point.
    What are you going to do about it on the SEC?
        Ms. Peirce. Well, I think that that is an issue that--for
    example, the Investor Advisory Committee is a relatively new
    addition, a Dodd-Frank addition to the SEC, and I think it can
    be very useful in helping the Commission figure out what kind
    of disclosure is needed, and also there is more--the SEC is
    making a greater effort to do investor testing and things like
    that. And I think that there is real promise there.
        Senator Kennedy. Well, I can save some time on the investor
    testing. The lawyers have made the prospectus meaningless.
    People do not read them. OK? There is your poll. I do not know
    anybody who reads it. I am not saying we should not have
    disclosure. We need more disclosure. But what we are doing is
    not working.
        Ms. Peirce. I fully agree that we need to revisit
    disclosures to find out what we can do to make it work.
        Senator Kennedy. I mean, it looks to me like the only
    people benefiting are the lawyers. You used to be at Wachtell
    Lipton. I bet you all charged--I am not saying--look, I believe
    in free enterprise. But, I mean, what do you pay a law firm to
    put together a prospectus?
        Mr. Jackson. I am sure it is expensive, Senator.
        Senator Kennedy. Yeah. That has always bothered me that the
    SEC always talks about disclosure, and what I think the SEC
    does in many cases is undermines it.
        Let me ask you this: Can we agree, Mr. Jackson, that the
    recession from 2008 was probably the worst we have had since
    the Great Depression?
        Mr. Jackson. Yes, sir.
        Senator Kennedy. How many people went to jail--well, let me
    strike that. What caused it?
        Mr. Jackson. Well, Senator, it is complicated.
        Senator Kennedy. How about giving me a one-sentence answer?
    I do not mean to be rude, but I try to stay--how about this:
    greed? Would you agree with that?
        Mr. Jackson. I would agree that was an important factor,
    Senator, absolutely.
        Senator Kennedy. All right. How many people went to jail?
        Mr. Jackson. In terms of high-profile, important
    accountability convictions, I do not think there are any, sir.
        Senator Kennedy. Did the SEC take a lead in trying to hold
    real people with beating hearts who were greedy, did the SEC do
    anything to make them accountable?
        Mr. Jackson. Well, sir, they did bring some cases in this
    area, but as you point out, there were no successful
    convictions at the highest possible levels of corporate
    management. And if you are asking, sir, did we do enough to
    hold those people accountable, then, Senator, the answer is no.
        Senator Kennedy. Ms. Peirce, do you think anybody broke the
    law on Wall Street in 2008?
        Ms. Peirce. Certainly.
        Senator Kennedy. And how many went to jail, again? I
    forgot.
        Ms. Peirce. Yes, I mean, individual accountability is
    important----
        Senator Kennedy. Well, where was the SEC? You could not
    have found them with a search party. Where were they?
        Mr. Jackson. Well, Senator, as I say, the SEC did bring
    important cases in that area, but if you are unsatisfied----
        Senator Kennedy. And you can count them on this hand.
        Mr. Jackson. Sir, if you are unsatisfied----
        Senator Kennedy. Missing a couple of fingers.
        Mr. Jackson. If you are unsatisfied, sir, with the job the
    SEC did in holding those people accountable for the devastation
    of that crisis, so am I.
        Senator Kennedy. I mean, we all give lip service to
    everyday people and transparency, but when it counted, uh-uh.
        I am over my time, but only by 30 seconds. That is a
    record.
        Chairman Crapo. And I appreciate that.
        Senator Heitkamp, see if you can beat his record.
        Senator Heitkamp. You know, I am going to follow up on his
    line of questioning because I think it is critical. We
    certainly hope those fund managers are reading the prospectus.
    And we certainly need to make sure that the information is made
    more accessible in terms of summary data with background
    information. And so that can be a big challenge for you guys.
    But I am sure as a general matter you guys need to know if you
    share my belief that the quickest way to provide a deterrent
    from insider trading or all kinds of nefarious bad acts is send
    someone to jail, right?
        Mr. Jackson. Absolutely, Senator. Enforcement, especially
    in that area, is absolutely critical.
        Ms. Peirce. Yes, I mean, sending people to jail is
    certainly a deterrent.
        Senator Heitkamp. Yeah, I think there is this sense that
    people, especially in white-collar crime, there is this sense
    that if you give someone a big fine--but frequently the profits
    exceed the fine and the fine is inadequate to deter behavior,
    and we need to see people go to jail. And if we have got a
    problem, as I think we do with the mens rea qualification or
    standard for proof of intent, then we need to fix that. And we
    expect advice from the SEC on how we can do that. I think I
    talked about this with both of you when you were in my office.
        I just wanted to get a couple things on the record. As you
    know, Senator Heller and I pushed and were successful in
    getting something called the ``Small Business Advocacy Act''
    passed. Now that the SEC has an obligation to put a small
    business advocate into policymaking at the SEC, I want to know,
    if confirmed, do I have your commitment to move quickly to set
    up the new office and appoint that advocate with a background
    that understands the capital formation crisis that is facing
    middle America? Do I have your commitment?
        Ms. Peirce. Yes, I think it is extremely important to get
    that voice at the SEC.
        Mr. Jackson. In a word, Senator, yes.
        Senator Heitkamp. OK. Thank you. And can I also get your
    commitment that you will work to ensure that the Commission
    appoints individuals to the Advisory Committee who understand
    the specific challenges of rural startups in the United States
    of America?
        Ms. Peirce. Yes.
        Mr. Jackson. Absolutely. I think the SEC needs to cast a
    wide net and make sure that those kinds of individuals are in
    those positions so we can really find out what those challenges
    are and we can address them.
        Senator Heitkamp. This whole bill was never about checking
    a box and saying look what great thing we did for small
    business. This is about changing the culture of the SEC as it
    relates to small business, and so I am glad to have your
    commitment that you will take that effort very seriously.
        Under the Model Business Corporation Act Section 8.42(b),
    there is a passage that I think is very instructive: ``for
    purposes of establishing knowledge within a corporation of
    material violations of law or bad behavior.'' The passage
    covering fiduciary obligations reads you ``must report certain
    matters to others in the company, including any business
    information within your sphere of responsibility that you know
    or have reason to believe to be significant, or concerns
    actually or probably material violations of the law.''
        To my knowledge, not one State has adopted this model
    guidance into law. Would a more robust duty-to-report
    requirement such as the one proposed by MBCA with associated
    criminal fines and penalties help force material information up
    the chain of command to the board and top executives within a
    corporation?
        Ms. Peirce. That does seem to be more of a State-level
    issue than an SEC issue, but I think that there are some
    changes that have happened. I think the whistleblower changes
    in Dodd-Frank also have the effect of helping to force stuff up
    the chain. So I am hopeful that we will see better compliance.
        Mr. Jackson. I do think, Senator, the whistleblower part of
    the Dodd-Frank law has been important in this respect. What I
    would like to do, if I have the honor of being confirmed, is
    learn more about how we can encourage that information to get
    up the corporate chain, whether it is----
        Senator Heitkamp. I do not want to just encourage it,
    because everybody agrees it should go up the chain. I want to
    mandate it, because I am tired of executives saying, ``I did
    not know,'' ``Not my business,'' ``Did not look, not my
    business.'' And we absolutely need to change the culture at the
    top. And we have tried over and over and over again various
    iterations of forcing this information up the chain only to be
    unsuccessful. And so let us not pass the buck to State
    organizations. Let us just sit down and figure out how we are
    going to get this accountability at the very highest level of
    corporate America moving forward.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, and almost totally on time.
        Senator Scott.
        Senator Scott. I will try to reverse that trend, Mr.
    Chairman. Thank you very much.
        [Laughter.]
        Chairman Crapo. I have a gavel.
        Senator Scott. Yes, sir. That is a warning.
        Good morning. Thank you, folks, for being here this
    morning. I will say to Ms. Peirce and Mr. Jackson your answer
    to Senator Rounds' question on the fiduciary was a very
    important answer, and I thank you for your answer. There is no
    doubt that there is an important opportunity for the SEC to
    coordinate with the DOL as well as State insurance regulators
    during this 18-month window, because in South Carolina the
    average person who is close to retiring only has 1 year of
    income in their retirement account. So the importance of
    opening the door for more financial experts to come into
    households and provide expertise so that those retirees have a
    chance to use their limited resources in the most effective way
    cannot be overemphasized. So I appreciate both of you being
    informed, educated, and, frankly, motivated about making a
    difference in that space. So thank you both for your answers. I
    was going to ask that question.
        Ms. Peirce, I have a different question. You have written
    about Government regulations that make it nearly impossible for
    new credit rating agencies to enter the market. I am concerned
    anytime the Government hinders competition. How can the SEC
    help change this dynamic, especially with investor guidelines?
        Ms. Peirce. It is a problem, I think, especially in an area
    where we have seen the damage when you only have a few large
    credit rating agencies. So I think that the SEC needs to be
    willing to work with the credit rating agencies, the smaller
    agencies, to help them to comply with the rules. And then in
    terms of investor guidelines, those are private, so it is
    difficult for the SEC to intervene and force that change. But I
    think if the SEC allows new credit rating agencies to come up
    and start, then it is more likely those investor guidelines
    will change over time.
        It is important that all of the NRSRO ratings be removed
    from regulations and statutes. I think that is the start to
    then getting the investor guidelines to change.
        Senator Scott. Thank you.
        Mr. Ryder, we have given you too much time off this
    morning, so I want to ask you a very important question. There
    are 10,629 jobs held by South Carolinians because of our $2
    billion-a-year scrap recycling industry. I have got folks from
    Spartanburg to Clinton to Cayce and all the way to the coast in
    South Carolina sitting on millions of dollars of mutilated
    coins the Mint will not accept. Is reinstating the Mint
    Mutilated Coin Redemption Program something you will be working
    on?
        Mr. Ryder. Yes, sir. It is a program that was suspended in
    2015, for good reason. They needed to review the program. It
    had been in operation for quite a number of years.
        Senator Scott. Yes.
        Mr. Ryder. And they are currently on track to have a new
    set of rules hopefully introduced by the end of this year.
        Senator Scott. Thank you. On behalf of 10,629 folks in my
    State, we appreciate that.
        Mr. Jackson, some believe that the balance between
    corporate management and shareholders is tilting too far in one
    direction. Chair Clayton seems to agree. Do current shareholder
    proposals' resubmission thresholds further fair and efficient
    markets?
        Mr. Jackson. It is a very important question, Senator, so
    thank you. What we are trying to do, as you point out, is
    strike a balance between making sure corporate management can
    run the firm as they see fit to maximize its value, provide
    jobs and growth; on the other hand, make sure that they are
    held accountable, sir, for the decisions that they make by the
    owners of the company. And the shareholder proposal rules are
    really shareholders' best opportunity to have a dialog with the
    company, to bring forth ideas and proposals to management,
    almost always on a nonbinding basis, to guide the management
    about what the shareholder thinks the right next step for the
    company is.
        My own sense is that, with respect to the resubmission
    proposals, the SEC very well could and should take a look at
    whether repetitive proposals are furthering that goal. So I am
    someone who is very focused on dialog between shareholders and
    management, and I think as long as we can advance that goal but
    minimize the repetitive proposals that consume corporate
    management's time and cost, I think that would be a good way
    forward.
        Senator Scott. Mr. Jackson, Ms. Peirce, Mr. Ryder, thank
    you very much for your time.
        Mr. Chairman, I yield back.
        Chairman Crapo. I appreciate that 13 seconds.
        Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman. I thank all of
    you for your testimony today, and I have some questions to
    start out with for Mr. Jackson and Ms. Peirce.
        There has been a lot of talk about insider trading, and
    when we had a hearing on Equifax, one of the issues that came
    up is at what point in time did they have an obligation to
    inform the public about the hack that had taken place which
    could have an impact on shareholder value? And that is a big
    issue of what triggers this obligation and materiality. But
    there should be no dispute that once a company reaches that
    decision, they have to inform the public; they have to file an
    8-K; that after that point in time, in my view, they should not
    be engaging in trading their own stock. And I know, Mr.
    Jackson, you have written about this. You have written about
    the 8-K gap and shown that during this window of time, the
    reality is that executives and insiders have traded, so far
    technically legally, and ended up getting a better deal for
    themselves than would be available to a member of the public
    who is informed about these developments.
        Could you comment on that? Because we are working on some
    legislation, bipartisan legislation, to address at least that
    window.
        Mr. Jackson. Thank you, Senator. Yes, you are right. This
    is an area in which I have written before, and I am very
    concerned, sir, that corporate management might be engaging in
    trading right before the announcement of a material public
    event, but after the event has occurred. And I think this is a
    troubling pattern, and I was delighted to hear Chairman Clayton
    at the last hearing say that it really is good corporate
    hygiene for insiders not to be trading during this period.
        Senator, I would very much look forward to the opportunity
    to work with you and your staff on the legislation you
    described. I cannot understand the case, candidly, Senator, for
    why insiders should be trading right before they are about to
    announce important news to the public.
        Senator Van Hollen. Right. Ms. Peirce, would you agree? You
    had an exchange a little while ago with the Ranking Member
    about, you know, what triggers materiality and who makes that
    determination. But, clearly, once a company has made the
    determination that they have an obligation to file an 8-K,
    doesn't it make sense to say that executives cannot engage in
    trading at that point?
        Ms. Peirce. Yes, I mean, I thought that Professor Jackson's
    work on this point was really interesting, and I think there is
    some useful work to be done in the area, and I look forward, if
    I am confirmed, to working with you and the other people
    working on this legislation.
        Senator Van Hollen. Thank you.
        Now, Mr. Jackson, you said that one of the purposes of, you
    know, a company's leadership is to ``maximize value and to
    promote growth and jobs.'' And, clearly, if a company is making
    decisions that are in the long-term interests of its long-term
    shareholders, that is something that can promote growth as they
    make investments, whether in their workforce or other things,
    but we also have a lot of short-termism. We have lots of
    examples where CEOs and the top brass seem to make decisions
    that benefited them at the expense of the long-term interests
    of the corporation. And I am interested in beginning to look at
    some of the incentives that are under the jurisdiction of the
    SEC in that regard because we are about to embark--we are
    embarked already on a big debate over tax reform, and as you
    all may be aware, you know, the Department of Treasury under
    Secretary Mnuchin removed from the website something that had
    been there through Democratic and Republican administrations
    about where the benefit of a corporate tax cut goes, whether it
    is to workers or to the capital side, shareholders, plus folks
    who benefit from stock buybacks. And it is going to be a really
    important question.
        What you have, I think, at your disposal are some tools
    that can address this short-termism, and I wondered, starting
    with you, Mr. Jackson, whether you can talk about issues with
    respect to CEO compensation in the form of stock that might
    give them an incentive to look to the long term, not simply
    short-term profits for themselves.
        Mr. Jackson. Thank you, Senator. Yes, I think that is an
    extremely important issue, and we are all concerned, I think,
    about what short-termism is doing to American companies and the
    economy more generally.
        With respect to executive compensation, what I would say is
    I think it is time for corporate managers who are worried about
    short-termism to put their money where their mouth is, sir, and
    to commit to hold the company's stock over much longer periods
    of time than they currently do, to show investors and
    communities and employees that the decisions that they are
    making are long-term decisions.
        If that is their argument, Senator, if their argument is
    that we really want to do the right thing for the long term,
    then it is hard to understand why they do not want to hold the
    company's stock over the long term.
        You mentioned buybacks, and if I could just add a point on
    that, Senator, I share your concern that, to the degree that
    corporate money might soon find its way back in the United
    States, if there is some legislation on this point, you know,
    the previous research on the last time we did this makes very
    clear that that money, the last time we had a tax holiday of
    this kind, was spent on share buybacks. And I would be
    concerned that we have the right rules in place governing stock
    buybacks to make sure that if that tax change were to happen,
    companies are prepared and required to explain to investors if
    they are going to use that money for buybacks.
        Senator Van Hollen. Thank you. I see my time is up.
        Mr. Chairman, if I could, just for the record, submit a
    Wall Street Journal article describing what happened back in
    the earlier 2000s when we had the tax holiday and which
    essentially confirms what Mr. Jackson said, that that money
    essentially went to buybacks, shareholders, and they actually
    cut their workforce. Thank you.
        Chairman Crapo. Without objection.
        Senator Cotton.
        Senator Cotton. Thank you, Mr. Chairman. And
    congratulations to each of you on your nomination.
        Ms. Peirce, Mr. Jackson, I want to raise with you an issue
    I raised with the Chairman a few weeks ago when he was here and
    that we have also discussed, which is the audit treatment of
    small broker-dealers. The Dodd-Frank Act requires broker-
    dealers to be audited by a Public Company Accounting Oversight
    Board-registered accounting firm, even when they are small,
    even when they are not introducing brokers, so they do not take
    custody of assets. I find that a curious policy since the PC in
    PCAOB is ``public company,'' not ``small firm.'' It also, it
    should be said, takes away business from small accounting firms
    in communities in States, all across a State like Arkansas.
        So starting with Ms. Peirce, could I get your thoughts on
    this policy and what the SEC might be able to do, if anything,
    to give our small broker-dealers as well as our small
    accounting firms a little bit of relief?
        Ms. Peirce. I think that the SEC in its oversight capacity
    of the PCAOB can work with them to understand how they are
    approaching their supervision of their oversight of broker-
    dealer auditors and think about whether the scope of that
    requirement is appropriately tailored. I think, you know, in
    general, smaller entities that are overseen by the PCAOB have a
    tough time, and so maybe there are ways that we can help foster
    compliance to help them try to be compliant rather than coming
    down on them for problems without essentially forcing them out
    of the industry, because I think that is the choice that a lot
    of them are making--that it is just not worth it, so they just
    get out of that business altogether. Maybe there is a way that
    we can work with them to foster compliance.
        Senator Cotton. Mr. Jackson.
        Mr. Jackson. Thank you, Senator. This broker-dealer
    auditing program is relatively new, and we are learning some
    things about it. And as you and I discussed, one of the things
    we are learning is about the kinds of dynamics and costs when
    it comes to smaller firms.
        One opportunity I am wondering about, Senator, is whether
    or not we can and should distinguish between custodial and
    noncustodial broker-dealers for this purpose. I look forward to
    looking into that. I would want to hear more about what the
    facts on the ground are. But I look forward to working with you
    and your staff on making sure that those firms can engage in
    their business and grow.
        Senator Cotton. Thank you. I appreciate both answers, and I
    look forward to working together with you and the Chair and the
    other Commissioners upon confirmation. I do not think there is
    a question of less oversight or less disclosure. It is just a
    question of smart oversight and recognizing the difference
    between, you know, a small broker-dealer with a half dozen or a
    dozen employees and a giant firm, likewise giant accounting
    firms and small accounting firms.
        I would like to now turn to the issue of the consolidated
    audit trail for which the SEC has asked and just raise the
    question of, you know, with the SEC's data breach, with the
    data breach we saw at OPM, is it smart for the SEC to be
    seeking this information? What is the problem it is trying to
    solve? And is there away that we could solve that without
    introducing new risks to sensitive data? Again, we will start
    with Ms. Peirce and then go to Mr. Jackson.
        Ms. Peirce. I do have concerns about anytime the SEC is
    collecting data, I think it needs to ask: Do we need the data?
    What are we going to use it for? And can we protect it? I am
    not convinced that those questions have been answered to my
    satisfaction, but, again, it is difficult to know that without
    being at the SEC and understanding why they decided on such a
    broad scope of data. But those are questions, if I were
    confirmed, that I would want to ask.
        Senator Cotton. Thank you.
        Mr. Jackson.
        Mr. Jackson. Thank you, Senator. I think it is important to
    remember why we began the consolidated audit trail program in
    the first place, and it was really motivated by the flash crash
    and the need to understand exactly what happened in those
    markets so we can make sure it never happens again.
        Now, I have the same question that Ms. Peirce just
    described. I am wondering what degree do we need personally
    identifiable information to solve that problem, and, sir,
    coming from the outside, I do not know the answer to that
    question. SEC staff have been working on it for years. I would
    want to get a better sense of what they are thinking on that
    question and how well they feel they can protect that PII
    before making any decisions. But I do think it is important,
    sir, that we put the cat in place because flash crash is
    something that we do not ever want to repeat, and we want to be
    sure we can protect investors if something like that were ever
    to happen again.
        Senator Cotton. Thank you.
        Mr. Ryder, this will be your second rodeo at the Mint, 25
    years on. What are the biggest changes that you have seen at
    the Mint from when you were the Director 25 years ago?
        Mr. Ryder. Well, coinage is pretty old, and it does not
    change much. But at the Mint, I think some of the advances in
    manufacturing, some of the technology that is used in the
    industry has been quite interesting. I hope to carry that
    tradition on and see where we can take the Mint from a
    technology point of view and advance it to the next century and
    beyond. So I look forward to that challenge.
        Senator Cotton. Well, thank you very much for being willing
    to serve again in a very specialized but very critical role.
        Mr. Ryder. Thank you.
        Senator Cotton. Thank you all.
        Chairman Crapo. Thank you.
        Senator Warren.
        Senator Warren. Thank you, Mr. Chairman.
        The 2008 financial crash exposed serious problems in our
    securities markets, and in response, as part of the Dodd-Frank
    Act of 2010, Congress directed the SEC to issue new rules that
    would protect investors.
        It is now 7 years later, and the SEC still has not
    completed more than 20 of these required rules. Think about
    that. Seven years and 20 rules are still unfinished. The SEC
    has the worst track record of all the financial regulators. And
    when the SEC recently released its regulatory agenda for the
    upcoming year, it did not even include most of these unfinished
    Dodd-Frank rules.
        Now, Mr. Jackson, do you think it is all right that the SEC
    still has not finished so many of the Dodd-Frank rules and
    apparently has no plans to finish them anytime soon?
        Mr. Jackson. Absolutely not, Senator. My view is that those
    protections are critical to preventing the next financial
    crisis, to making sure investors are protected, and I am
    especially concerned about the executive compensation
    protections in Dodd-Frank that are still today not the law.
        Senator Warren. Good. So we are going to come to those in
    just a minute here. I just want to be clear on the record. If
    you are confirmed, will you make it a top priority to get these
    rules back on the agenda and get them completed as soon as
    possible?
        Mr. Jackson. Absolutely, yes.
        Senator Warren. Thank you.
        And, Ms. Peirce, same question. If you are confirmed, will
    you make it a top priority to get these rules back on the
    agenda and completed as soon as possible?
        Ms. Peirce. I will work with the Chairman as he sets the
    agenda to try to get the rules done that are not done.
    Obviously, sometimes things come up that are not anticipated
    that have to take precedence, but I will work with him to get
    the rules completed.
        Senator Warren. OK. I am a little concerned. The answer
    seemed to be a little less definitive than Mr. Jackson's
    because it is the Chairman right now who set the agenda for
    next year, and he has not even put the rules on the agenda for
    work.
        Ms. Peirce. So I think it is important, if I am confirmed,
    to get to the SEC and to talk with the Chairman to understand
    what is motivating his decisions about what goes on the agenda.
    As I mentioned, often when you get inside an agency, you
    discover that there are other priorities that you did not
    actually know about on the outside. So I think it is important
    to remember that the agenda has to follow where the risks
    really lie. And so, yes, getting rules done that Congress has
    directed the agency to do is important, but you also have to
    look at it in context of everything else that is happening at
    the agency.
        Senator Warren. Well, Ms. Peirce, I just want to be clear.
    These rules are not optional. It is not a set of rules that
    says Congress said write these rules if you all feel like it or
    if it fits in your agenda. We passed a law requiring the SEC to
    write these rules, and we did that because they matter.
        For example, three of those unfinished rules relate to
    executive compensation. One requires disclosures on why
    executives are paid what they are paid. Another requires public
    companies to adopt policies for clawing back compensation from
    executives. And a third prohibits bank executives from
    receiving incentive compensation that it could encourage the
    wrong kind of risk taking.
        Study after study has shown that the chance to receive
    giant bonuses pushed executives to take enormous risks in the
    run-up to the 2008 crash, risks that blew up the whole
    financial system, and we know it is still happening.
        In the Wells Fargo fake account scam, executives pushed
    employees to open new accounts at all costs. Why? Because it
    made the Wells' stock price go up, and that put millions of
    dollars in the pockets of the executives.
        You know, the SEC was told to write these rules 7 years
    ago. They are central to the SEC's mission of investor
    protection. So I want to ask the question why you think it is
    OK for the SEC to continue to ignore them.
        Ms. Peirce. Having been a staffer on this Committee, I do
    appreciate the role that Congress plays, which is directing the
    SEC what to do. And it is the responsibility of the SEC to
    implement the rules that it has been directed to implement.
    But, again, part of the reason that those rules are given to
    the SEC to implement is that it thinks about it in terms of all
    of the priorities in order to protect investors, facilitate
    capital formation, and uphold the integrity of the markets. So,
    yes, it is an obligation of the SEC to do that, and if I get to
    the SEC, it is something that I will want to understand----
        Senator Warren. My time is out here, so let me just ask
    this. I just want to make sure to get it on the record. Do you
    believe you have an obligation to complete these unfinished
    congressional mandates from 2010 before any other discretionary
    rules or projects?
        Ms. Peirce. I cannot answer that question without----
        Senator Warren. Well, I think that is an answer then. You
    know----
        Ms. Peirce. ----being at the SEC. The SEC is obligated to
    implement rules that Congress tells it to implement, but I
    cannot tell you in what order they are obligated to implement
    them.
        Senator Warren. Well, but it is supposed to implement the
    rules. I do not care if you are a Democrat or a Republican. I
    do not care if you love Dodd-Frank or you hate Dodd-Frank. The
    SEC is required to follow the law. And if you believe in the
    American constitutional system, you should demand that the SEC
    stop this lawless behavior.
        I am glad you are willing to do that, Mr. Jackson.
        Thank you, Mr. Chairman.
        Chairman Crapo. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chairman. Welcome to all of
    you and congratulations on your nomination.
        Mr. Ryder, I am going to ask you the first question, but
    before I do, I am going to ask Ms. Peirce and Mr. Jackson to
    think about their answer. One of the things I want you all to
    do, if you take a look at the mission of the SEC as protecting
    investors, maintaining a fair, orderly market, facilitating the
    capital formation, and enforcement. So I would like for you all
    to talk about your critical assessment of the SEC, whether or
    not the ratios are right in terms of fulfilling that mission. I
    will give you a chance to think about that.
        Mr. Ryder, I have always believed that silence is consent,
    so the fact that you have not gotten many questions makes me
    think you are going to do just fine with your confirmation, so
    you should consider that a good thing.
        I just have one question for you, and it really has to do
    with the future of the Mint. You are right, coinage is kind of
    old or long-serving, but the world is changing. I was thinking
    the other day, I was at a convenience store, and 20 years ago I
    would have never pulled out a credit card to make a $2.50
    purchase because at the time people would think you just did
    not have $2.50, that you could not afford it. Now it is
    completely inverted. I mean, people that carry crash are crazy.
    I am not one of them, and let any burglars hear that.
        But where do we go from here? When you start talking about
    alternate payment methods, first we have got counterfeiting. I
    want you to talk a little bit about that because I know you
    have some expertise in that area, anti-counterfeiting, I should
    say. But then where do we go, I mean, what do we do in terms of
    the future of coins and dollars? And what does it look like 10,
    20, 30 years from now based on the nature of the way people
    settle payments today?
        Mr. Ryder. Sure, Senator. Thanks for the question. First of
    all, I do not think currency is going anyplace anytime soon. I
    think it is going to be around for quite some time. It may be
    in a different form, but I think what you see is----
        Senator Tillis. And I am getting to the form part.
        Mr. Ryder. And the dollar bills or the dollar coins or the
    different forms of the currency, I think they are going to be
    around for a while.
        In the coinage industry, that may change with the use of
    credit cards and so on and so forth, and the vending machines,
    but the technology that is used to accept those products is
    also changing because the technology is changing. It gives you
    a better opportunity to do things that might be a bit more
    modern, up-to-date.
        Senator Tillis. And just because I want 2 minutes for 1-
    minute responses from each of the other two nominees, what is
    the top priority in terms of an additional role that you all
    will play in anti-counterfeiting?
        Mr. Ryder. I think anti-counterfeiting is something that is
    becoming to be a critical issue. With coinage specifically, the
    bullion side of the house, with the counterfeitings that are
    coming out of China and elsewhere that are exceptionally good,
    I think technology there has to be developed and implemented
    within the United States Mint, and that is something I look
    forward to working on.
        Senator Tillis. OK. And, Ms. Peirce, I asked a question
    before. I will not be able to do a lot of follow-ups, but give
    me an idea of your critical assessment of the SEC today and
    with respect to their mission, whether the ratios and the
    actions are, in your opinion, just you get confirmed, you want
    to continue the status quo or not.
        Ms. Peirce. I think the three parts of the mission too
    often are thought about as separate parts when they are really
    interrelated and complementary. So you cannot protect investors
    if you do not give them investment opportunities. You cannot
    protect investors if your markets are not working the way they
    should. And so, unfortunately, I think the SEC has too often
    taken the view, a very paternalistic view of how to protect
    investors, which is to limit their options and make sure that
    nothing bad happens. Instead, I think we should think about
    investors having access to a portfolio of good investments,
    because it really is not--you should not think about it--a
    finance professor would tell you do not think about it on a
    company-by-company basis. Think about it across a portfolio of
    companies and give investors access to a broader array, and
    also make sure that you are allowing companies of all sizes to
    take advantage of the market. So we may need to make
    adjustments in order that small companies are better able to
    access capital.
        Senator Tillis. Mr. Jackson, do you disagree with any of
    that?
        Mr. Jackson. Thank you, Senator. I think Ms. Peirce has
    quite aptly described a lot of the challenges the SEC faces,
    but I want to be clear about something, sir. I think the
    critical question for me, if I am confirmed, will not just be
    about what the SEC is focused on. It will get the focus on
    making sure that the SEC uses all the resources Congress has
    put at its disposal. Let me give you an example of what I have
    in mind.
        There is a wonderful and very deep source of market data
    that the Enforcement Division has at the SEC. It is a critical
    resources that Congress has helped to fund, and it occurs to
    me, sir, that other divisions at the SEC should be using and
    have access to those data. In other words, we should try to
    keep the SEC from becoming too siloed an organization and
    instead work together across divisions, as Ms. Peirce
    described, to achieve all the parts of its mission.
        So I would look forward to working on that, sir, if I were
    confirmed.
        Senator Tillis. Thank you, Mr. Chair.
        Chairman Crapo. Thank you.
        Senator Schatz.
        Senator Schatz. Thank you, Mr. Chairman.
        Thank you for your willingness to serve. I have a question
    for Ms. Peirce and Mr. Jackson. A few weeks ago, I asked a
    question of the Chairman about the disclosures related to
    severe weather, and I pointed out that there are troubling
    examples of publicly traded companies that are essentially
    throwing up their hands and saying because the risk of climate
    change and severe weather is hard to predict or quantify, we
    are going to just assume that there is no risk. And I want to
    read to you an example from Valero Energy's 10-K filing from
    2016, and I quote: ``Some scientists have concluded that
    increasing concentrations of GHG emissions in the Earth's
    atmosphere may produce climate changes that have significant
    physical effects, such as increased frequency and severity of
    storms, droughts, and floods and other climatic events. If any
    such effects were to occur, it is uncertain if they would have
    an adverse effect on our financial conditions and operations.''
        And then, at the end of August in 2017, Hurricane Harvey,
    one of the strongest Atlantic storms in history, shuttered 20
    percent of the U.S. oil refinery industry and shut down over a
    third of Valero's refining capacity over a week. These closed
    Valero refineries usually produce 1.1 million barrels a day.
        And so my question, and I will start with Ms. Peirce, is:
    Risk is risk, whether it is cybersecurity risk, whether it is
    political risk, whether it is regulatory risk, or whether it is
    the risk of severe weather. Do you commit to making sure that
    the Division of Corporation Finance holds companies accountable
    for adequately disclosing all risk, including the risk of
    severe weather?
        Ms. Peirce. Yes, I mean, I think companies need to be
    thinking of a broad array of risks, and that includes
    cybersecurity and weather, as you described. And I think it is
    helpful to have Corp. Fin. looking at disclosures across
    industries so they can get an idea of a company's ability to
    disclose particular types of things. You obviously do not want
    to have speculation in disclosure documents, but you do want
    shareholders to have a real sense of the whole array of risks
    that companies face.
        Senator Schatz. Thank you.
        Mr. Jackson.
        Mr. Jackson. Thank you, Senator. As we were discussing
    earlier, materiality really is the touchstone of the securities
    laws and the disclosure mandates. And one of the things that we
    think about when we wonder about whether something is material
    is whether shareholders are interested in it, whether that is
    something that shareholders are focused on. And so more and
    more, shareholders are pressing companies to better understand
    these risks, and that signals to me that this might be
    something increasingly important that we need to make sure
    these companies come forward with disclosures on.
        So I would very much hope that Corporation Finance is
    thinking about those questions, and I think it is important to
    point out that in that back and forth between the Division of
    Corporation Finance and a company, they really should be
    pressing and making sure: Have you thought through whether you
    have material climate risk? And if the answer is yes, sir, that
    should be disclosed.
        Senator Schatz. Thank you, and I will stay with you, Mr.
    Jackson. The question is on stock buybacks. Since the SEC
    issued Rule 10b-18 in 1982, which effectively removed barriers
    to stock buybacks, the amount of money companies have put into
    stock buybacks has ballooned to over $700 billion in 2016.
    Companies have choices when they decide how to spend their
    extra cash, and more and more they choose not to spend it on
    their workforce, on capital investments, or R&D. When they have
    extra cash, they immediately pass it on to shareholders. This
    is not a good thing for these companies or for the economy.
        Looking at the performance of companies on the S&P 500, we
    see that companies that spent the most on shareholder payouts
    underperformed companies with the highest spending on capital
    investments and R&D. We may wonder what has happened to
    productivity in our economy, but I think the answer, at least
    partly, has to do with the choices that the SEC made.
        Do you think that the enormous scale of stock buybacks is a
    problem for economic growth and the economy generally?
        Mr. Jackson. Senator, I am worried--I think you are right
    to raise the concern--that what is happening with buybacks is
    companies are consistently choosing not to invest in their
    employees, in their communities, in the future, and I----
        Senator Schatz. Just in the interest of time, for both of
    you, are you willing to reconsider that rule passed, which
    obviously precipitated a golden age of buybacks? And I have 30
    seconds, so I will start with you, Mr. Jackson.
        Mr. Jackson. Absolutely, sir.
        Senator Schatz. Ms. Peirce.
        Ms. Peirce. I am willing to look at the rule, which has
    been on the books for a while, and so it could be looked at
    again.
        Senator Schatz. Thank you very much.
        Chairman Crapo. Thank you very much, Senator Schatz, and
    that does conclude the questioning.
        Before I conclude, although I will wrap up the hearing, I
    want to again thank each one of you for agreeing to attend and
    participate in today's hearing and your willingness to serve
    our country. You are strong candidates, and I believe you will
    all have the support of the Senate to move into your positions
    and be confirmed.
        For Senators, all questions for the record need to be
    submitted by Thursday, close of business, and for our
    witnesses, responses to those questions we ask be due by Monday
    morning. So you will have a little bit of work to do, assuming
    that there are questions. Usually there are some, and usually
    they are not overwhelming. But we ask you to get them to us on
    Monday morning if you can.
        With that, this hearing is adjourned.
        [Whereupon, at 11:42 a.m., the hearing was adjourned.]
        [Prepared statements, biographical sketches of nominees,
    responses to written questions, and additional material
    supplied for the record follow:]
                      PREPARED STATEMENT OF DAVID J. RYDER
                    To Be Director of the United States Mint
                                October 24, 2017
        I would like to first introduce my family who are joining me here
    today. My wife of 35 years Monie, our son Nick, and our daughter
    Caroline Ryder.
        Thank you, Mr. Chairman, Senator Brown, and distinguished Members
    of the Committee for allowing me to appear before you today. Mr.
    Chairman, my siblings and I still own a small piece of land outside of
    McCall, so I do my best to get out to Idaho at least once a year to
    visit family and spend a little time enjoying all that the great State
    of Idaho has to offer.
        First, I must say that I am honored that President Trump has
    nominated me to serve as the 39th Director of the United States Mint.
        As you are aware, in 1992, I was nominated by President George H.W.
    Bush to be the 34th Director of the Mint. I received a recess
    appointment at that time and served for a period of 14 months.
        When I left the Government in 1994, I became a partner with Secure
    Products, a new venture spin-off from the Sarnoff Corporation in
    Princeton, NJ, formally the central research laboratories for the RCA
    Corporation. Our mission was to develop advanced anti-counterfeiting
    technology solutions to be primarily used in currency and branded
    products. After a successful 13 years in business, the Honeywell
    Corporation acquired Secure Products in 2007. The ensuing 10 years was
    spent with Honeywell as their Global Business Development Manager and
    Managing Director for Currency.
        In my role at Honeywell, I worked with Government agencies and
    central banks around the world to address currency issues.
    Interestingly, one of my last duties while at Honeywell was a joint
    project with The Royal Mint of the United Kingdom where we assisted
    them in the development of the new U.K. One Pound Coin, which was
    introduced earlier this year. This new circulating coin is considered
    to be the most advanced and secure coins in circulation today.
        If confirmed, I would like to make education one of my focal points
    at the Mint. As the 34th Mint Director, we introduced an initiative
    called the Money Story. The goal of this initiative was to educate the
    youth of this Nation on the history of money, both coinage and paper
    currency, via a teacher's curriculum and video co-developed by the U.S.
    Mint and the Bureau of Engraving and Printing. This packet of
    information was made available to all teachers for use in the
    classroom. Teaching our youth early on how to collect coins and other
    numismatic products, as well as how to start saving their hard-earned
    money, helps lay the foundation of the importance of money. Over the
    years, the Mint has continued this excellent tradition via various
    education tools which are located on their website.
        Having worked in the currency industry for the past 25 plus years,
    I have developed a strong operational and technical understanding of
    this tight-knit industry. I respect the men and women who dedicate
    their lives to this industry. During my time with Secure Products and
    Honeywell, I was afforded the opportunity to visit and work with many
    private and Government currency manufactures here in the United States,
    as well as around the world. I will bring to the Mint Director position
    a strong understanding of the industry and many of the challenges it
    faces.
        If confirmed, it would be an honor to once again serve in our
    Government and work with this Committee. The U.S. Mint has an
    impressive history and I look forward to becoming part of that history
    again. As in all businesses, I am sure the Mint has challenges to
    address. I look forward to facing these challenges while at the same
    time fulfilling its mission.
        Thank you.

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                     PREPARED STATEMENT OF HESTER M. PEIRCE
            To Be a Member of the Securities and Exchange Commission
                                October 24, 2017
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    thank you for considering my nomination. It is an honor to be nominated
    by the President, alongside Professor Robert Jackson, to be a member of
    the Securities and Exchange Commission (SEC). I welcome the
    opportunity, if I am confirmed, to work to protect investors; maintain
    fair, orderly, and efficient markets; and facilitate capital
    formation--the three interrelated and complementary aspects of the
    SEC's mission.
        I have spent nearly two decades working on financial regulation. I
    studied economics at Case Western Reserve University and law at Yale.
    After a judicial clerkship, I was an associate in the securities
    practice group of a large law firm. I then spent 8 years at the SEC. I
    first worked as a staff attorney in the division that regulates mutual
    funds and investment advisers. As a counsel for Commissioner Paul
    Atkins, I was able to work on a broader array of issues. Following my
    time at the SEC, I had the privilege of serving on the staff of Senator
    Richard Shelby on this Committee. Now I am a Senior Research Fellow and
    Director of the Financial Markets Working Group at the Mercatus Center
    at George Mason University, where I have learned much from my
    colleagues' economic and regulatory expertise.
        I desire to return to the SEC because I believe that individuals,
    institutions, and innovation are important to our capital markets and
    the broader society.
        Properly functioning capital markets enable our society to draw on
    each individual's unique set of talents, experiences, relationships,
    and knowledge. An entrepreneur's vision comes to life because we have
    markets that enable her to share that vision with others who have money
    to invest. Investors' funds pay the salaries that unlock the potential
    of other individuals in society. The returns investors make are used to
    educate the next generation of entrepreneurs and employees.
        Individuals trust their fortunes and futures to the capital markets
    because these markets have grown up within a robust institutional
    framework. Without strong institutions, people would not use the
    capital markets. An effective institutional framework establishes
    reasonable rules, fosters compliance, and swiftly pursues violations
    when they occur. It does all of these things with an unwavering
    commitment to due process. The SEC is a key part of our institutional
    framework. It is therefore incumbent on the SEC to lay out clear rules,
    enforce them diligently and impartially, and modernize them when
    necessary.
        If regulation is appropriately flexible, innovation can bring new
    investors into the financial markets, lower prices, and improve the
    quality of financial products and services. Innovation forces existing
    companies to stay on their toes and pushes them aside when they fail to
    meet people's needs. A regulatory structure that blocks new firms or
    prohibits innovation lets existing companies grow complacent to the
    detriment of the rest of the economy. By contrast, a regulatory system
    that invites competition ensures that the capital markets work for Main
    Street.
        I look forward, if I am confirmed, to working with Chairman
    Clayton, my fellow commissioners, and the SEC staff to implement,
    enforce, and modernize rules that support healthy, dynamic capital
    markets. Together we can ensure that the U.S. capital markets work
    effectively for individuals and companies across this country, are
    supported by strong institutions, and accommodate innovation.
        Thank you. I would be happy to answer your questions.

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                  PREPARED STATEMENT OF ROBERT J. JACKSON, JR.
            To Be a Member of the Securities and Exchange Commission
                                October 24, 2017
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    thank you very much for the opportunity to join you today. It is my
    honor to be testifying before you regarding my nomination to be a
    Commissioner of the Securities and Exchange Commission.
        For me, there is no greater privilege or responsibility than
    upholding the SEC's mission to protect investors, maintain fair,
    orderly, and efficient markets, and facilitate access to capital. To
    understand why that's so important to me, I thought it might be helpful
    for me to start by sharing a bit about myself and my family. I was born
    in the Bronx, New York, to my two wonderful parents, Maureen and Robert
    Jackson, and I feel so fortunate that they are here with me today. My
    mother was one of nine children; my father was one of five. No one,
    least of all my parents, would have even dreamed that one day they
    might be sitting behind their son on an occasion like this.
        You see, the day I was born, my father was working as an accounting
    clerk at a small encyclopedia company called Funk and Wagnalls.
    Throughout my childhood, my mother held several part-time jobs,
    including the early shift at Dunkin' Donuts, just to help make ends
    meet.
        They were young, overworked and sometimes overwhelmed. But they
    believed that if they worked hard and saved what they could, their son
    might someday go to college.
        So every month my parents plowed their hard-earned paychecks into
    the market, knowing that if their investments were protected and
    growing they would one day be able to afford to send me to school.
    That's really the only reason why I had the chance to go to college--
    and the incredible opportunity to be here today with you.
        I believe that the SEC's purpose is to protect everyday investors
    like my Mom and Dad. Because today's markets are so complex, it can be
    easy to get lost in technical details and forget why those safeguards
    are so important. But my story shows why protecting America's investors
    is at the heart of what the SEC does. Safe markets not only encourage
    investment and entrepreneurship and growth. Safe markets make it
    possible for two young middle-class parents to transform their lives--
    so that someday their son has the chance to sit before the United
    States Senate as a Presidential nominee. Safe markets are at the core
    of the American dream--something I have learned by living it.
        That's why my work--in Government, as a teacher, and as a
    researcher--has focused on everyday investors' confidence in our
    markets. At the Treasury Department during the financial crisis, I was
    proud to help develop rules that tie top managers' pay more closely to
    performance and give investors a voice on executive compensation. When
    my research team at Columbia Law School showed that the SEC's systems
    were inadvertently giving high-speed traders market-moving information
    before the public could see it on the SEC's website, I worked with this
    Committee's Staff to help make sure the SEC gave investors the level
    playing field they deserve. And when our team helped convince
    regulators to release additional information about stockbroker fraud,
    we were proud to help others use the data to expose the brokers most
    likely to defraud investors.
        If I have the honor of being confirmed, I intend to bring those
    tools to bear on the SEC's crucial task. I will be a strong advocate
    for exploring how new technologies can make corporate disclosures more
    reliable and enforcement efforts more effective and efficient. I will
    encourage the Staff and my fellow Commissioners to draw on the SEC's
    long history of favoring transparency as a means of maintaining
    investor confidence in our markets. And I will work to implement the
    corporate-governance protections that Congress has enshrined into law--
    so that investors, employees, and communities can be sure that our
    companies are working to produce the kind of long-term value creation
    that has been the hallmark of the American economy for generations.
        As I mentioned, the SEC's three-part statutory mandate requires the
    agency to protect investors, maintain fair and efficient markets, and
    facilitate capital formation. I believe in all three of these noble
    goals, and in the thousands of SEC Staff across the Nation who work
    every day to achieve them. Whether protecting retirees from stockbroker
    fraud, making sure Americans get a fair price when they purchase shares
    of stock, or uniting an entrepreneur with the funding he or she needs
    to spur a life-changing invention, the daily, meat-and-potatoes work of
    the Commission and its Staff is crucial to the functioning of our
    economy. If confirmed, it would be my privilege to be a part of those
    efforts.
        But I also believe it is important to remember why that work is so
    important. For me, that reason will always be my family's story. You
    see, my parents' confidence in our markets not only changed my life--it
    changed their lives, too. My father, the encyclopedia company clerk,
    retired as the Chief Accounting Officer of a public company. My mother
    left Dunkin' Donuts, earned her teaching degree, and has been teaching
    elementary school for nearly 30 years. None of that would have been
    possible if my parents hadn't felt they could safely save for their
    futures--and mine--in our markets. If I'm confirmed, you should know
    that helping to make stories like theirs possible is what will motivate
    me every day. That's truly what makes the SEC so important--and it's
    why I'm so honored to be here.
        Thank you again for the opportunity to appear before you today. I
    would be delighted to answer any questions you might have.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                          FROM DAVID J. RYDER

    Q.1. Under the advice of the Office of Government Ethics, you
    have agreed, if confirmed as Director of the Mint, to recuse
    yourself from any decisions involving your former employer,
    Honeywell.
        What types of contracts and other business arrangements
    does the Mint currently have with Honeywell? If you recuse
    yourself from a decision involving Honeywell, who will make
    those decisions in your place?

    A.1. It is my understanding that the Mint's only business
    arrangement with Honeywell is a purchase order (about $22K)
    with Honeywell Safety Products for training at the United
    States Mint in Philadelphia. If confirmed, I will adhere to all
    applicable ethics laws, rules, and policies. Should I have a
    question concerning my ethical obligations, I will seek the
    counsel of appropriate ethics staff. Additionally, if a
    situation arises in which the Director of the Mint is recused,
    it is my understanding that the Deputy Director of the Mint
    would handle such matters.

    Q.2. As Senator Scott referenced during your nomination
    hearing, the Mint suspended its Mutilated Coin Redemption
    Program in November 2015 amid concerns about unlawful activity
    in the program. The Mint has since issued a proposed rule that
    would allow the Mint to add further precertification,
    documentation, and testing requirements for individuals or
    companies submitting mutilated coins for redemption.
        During the 2 years that the program has been suspended,
    companies have accumulated a significant backlog of mutilated
    coins that cannot be circulated or disposed of without the
    Mint. Do you believe the proposed rule will fully address the
    concerns that the Mint has expressed about the integrity of the
    program? Will the Mint work with individuals and companies that
    may have large backlogs to accommodate unusually large
    redemptions as the program restarts?

    A.2. On November 2, 2015, the Mint suspended the exchange
    program to assess the security of the program and develop
    additional safeguards to ensure the integrity of the United
    States coinage. A Notice of Proposed Rulemaking was published
    in the Federal Register on September 19, 2017, inviting the
    public to comment on proposed revised regulations for the
    program. I understand an important part of the rulemaking
    process that remains ongoing is reviewing public comments to
    further consider the impact of the regulation's measures on
    addressing security risks while maintaining access to an
    effective program for participants. Although I have not been
    part of the rulemaking's development or the upcoming process of
    evaluating potential comments, I do believe the Mint has taken
    important steps to strengthen the program.
        Furthermore, I recognize the importance of resuming the
    program to individuals and companies that have large backlogs.
    I support the Mint's intent to expeditiously resume the
    program, and I look forward to working with you and your staff
    to ensure the Program remains a cost-effective way for the
    public to redeem damaged coins.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                          FROM DAVID J. RYDER

    Q.1. Mr. Ryder, I appreciated meeting with you recently. I
    understand that you previously served as Director of the Mint
    under President George H.W. Bush, and additionally as the
    Deputy Treasurer.
        What do you believe has changed from working as Director
    under President H.W. Bush and now? Are there any new challenges
    that you believe the Mint is facing today?

    A.1. Circulating coin redesign has changed dramatically since
    1992, which has contributed millions of dollars to the general
    fund. I believe that the Mint has also been improving their
    manufacturing processes which has resulted in fewer errors in
    coin manufacturing. For example, the Mint has reported that its
    Mint Quality Index (MQI) went from the low 70s in 2007 to a
    rating of 99.3 percent in 2014 for circulating coins at the
    Denver and Philadelphia facilities. Additionally, I believe the
    Mint's customer service has improved dramatically in the
    commemorative and bullion sales area.
        One of my challenges will be the implementation of the
    Mint's new 5-year strategic plan which focuses on: (1) the work
    place environment; (2) improving the Mint's management and
    governance; and (3) integrating technology into operations and
    support lines.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                         FROM HESTER M. PEIRCE

    Q.1. Although materiality has long been the foundation of the
    SEC's disclosure requirements, the SEC has, over time,
    supplemented this standard with specific bright-line rules. For
    example, the SEC requires disclosure of specified information
    related to executive compensation, corporate governance, and
    internal controls. Do you agree that bright-line rules can be
    useful to both companies and investors by supplementing the
    traditional materiality standard?

    A.1. As you note, materiality is the touchstone for companies'
    disclosure under the securities laws. Bright-line rules can be
    useful in guiding companies' disclosure efforts, but
    materiality should be the controlling principle for the SEC in
    formulating bright-line disclosure rules and disclosure
    guidance.

    Q.2. Speaking at NYU's School of Law earlier this year, Chair
    Clayton said, ``I am not comfortable that the American
    investing public understands the substantial risk that we face
    systemically from cyber issues and I would like to see better
    disclosure around that.'' Two days later, the Equifax breach
    proved him right.
        If confirmed, would you commit to working with Chair
    Clayton and the other Commissioners to revise cyber risk
    disclosure requirements, including considering a specific 8-K
    reporting item for cybersecurity breaches that expose
    personally identifiable information?

    A.2. I share your and Chairman Clayton's concern that investors
    need to understand the material cybersecurity risks that
    companies face. If confirmed, I commit to working with Chairman
    Clayton, my fellow Commissioners, and the staff of Corporation
    Finance to consider whether companies need additional guidance
    for cybersecurity reporting and what form such guidance should
    take, including potentially a specific Form 8-K reporting
    requirement.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                         FROM HESTER M. PEIRCE

    Q.1. It is my understanding that Initial Coin Offerings (ICOs)
    and crypto-currencies have raised billions thus far in 2017.
    This represents an exponential growth in recent years.
        I was glad to see the SEC begin to closely examine this
    market, and I applaud the SEC for its recent issuance of the
    Investigative Report regarding the DAO. The Investigative
    Report was an important step in bringing some clarity to the
    ICO market in explaining how securities laws apply to ICOs
    depending on the ``facts and circumstances.''
        Although the DAO report was helpful, I worry that a
    continued lack of clarity in ICO regulation will stifle
    innovation and, most importantly, leave investors at risk.
        Should the SEC do more to bring clarity to the ICO market?

    A.1. The SEC's 21(a) report on the DAO was a useful first step
    in providing clarity in the ICO market. As the report noted,
    the facts and circumstances surrounding an ICO determine
    whether and how securities laws are implicated. As it gains
    more experience with ICOs, the SEC should look for additional
    opportunities to provide clarity--perhaps through a guidance
    document--to the market about conducting ICOs in compliance
    with the securities laws. To the extent the SEC brings
    enforcement actions in this area, it should identify with
    specificity how a particular ICO violated the securities laws
    to give market participants clear examples of what they should
    not do.

    Q.2. Aside from enforcement actions, what can the SEC do to
    provide certainty to the ICO market? Would a proposed
    rulemaking make sense?

    A.2. A proposed rulemaking might make sense. Alternatively, the
    SEC could consider issuing a concept release, conducting public
    roundtables, or otherwise soliciting input from a broad array
    of market participants and other interested parties before
    undertaking a rulemaking. If I am confirmed, I look forward to
    working with my fellow Commissioners and the SEC staff to
    assess appropriate next steps regarding ICOs. The SEC also
    should work with the CFTC to help to clarify when ICOs
    implicate each agency's regulatory regime.

    Q.3. The SEC is about to implement the initial operating stage
    of the Consolidated Audit Trail (CAT). Exchanges will soon
    begin reporting to what will be a massive database, which will
    include a significant amount of highly sensitive information.
    In its second phase, CAT will begin receiving personally
    identifiable information (PII) of brokerage customers. The
    recent breach of the SEC's EDGAR database, however, calls into
    question the security of the SEC's information technology.
        Will you commit not to collect any PII until you are
    confident that CAT is not susceptible to a breach?

    A.3. If I am confirmed, I commit to working with my fellow
    Commissioners, the SEC staff, and the self-regulatory
    organizations participating in CAT to ensure that, to the
    extent PII needs to be collected, it is not susceptible to a
    breach.

    Q.4. We usually think of outside hackers when we think of data
    security, but in numerous cases, individuals trusted with
    access to confidential data are actually the source of leaks--
    Chelsea Manning and Reality Leigh Winner come to mind. How
    should the SEC control access to CAT data within the agency?
    Should it allow other agencies or researchers access to CAT
    data?

    A.4. I am concerned about both outside and inside compromises
    of the CAT data. My concerns stem in part from prior incidents
    at the SEC \1\ and in part from the reality that mistakes
    happen even when people are well-intentioned. If I am
    confirmed, I will work with my fellow Commissioners and the SEC
    staff to understand the protections that are in place for
    dealing with CAT data, including who is entitled to access the
    data and how. Intergovernmental data sharing is important, but
    should be preceded by similar questions about who the agency
    will allow to access the information and how. If
    nongovernmental researchers are permitted to have access to the
    data, additional protections will be necessary, including
    eliminating PII. Before researcher permissions are granted, the
    SEC should carefully consider the purpose of allowing such
    access and whether it justifies the additional risk of leakage.
    ---------------------------------------------------------------------------
         \1\ See, e.g., Government Accountability Office, ``Information
    Security: SEC Needs To Improve Controls Over Financial Systems and
    Data'' (GAO Report No. 14-419 April 2014), at p.5 (``Although SEC had
    issued policies and implemented controls based on those policies, it
    did not consistently protect its network boundary from possible
    intrusions; identify and authenticate users; authorize access to
    resources; ensure that sensitive data are encrypted; audit and monitor
    actions taken on the commission's systems and network; and restrict
    physical access to sensitive assets.''); Office of Inspector General,
    ``SEC, Federal Information Security Management Act: Fiscal Year 2013
    Evaluation'' (Report No. 522 Mar. 31, 2014), at p.i (describing a
    number of areas in which previously identified weaknesses in security
    controls had not been corrected and thus ``could adversely affect the
    confidentiality, integrity, and availability of the agency's
    information and information systems''); Office of Inspector General,
    ``SEC, Report of Investigation into Misuse of Resources and Violations
    of Information Technology Securities Policies Within the Division of
    Trading and Markets'' (Case No. OIG-557 Aug. 30, 2012), p.11 (in an
    investigation of security breaches in the Automation Review Policy
    Program (ARP), the SEC office charged with overseeing computer networks
    at self-regulatory organizations, finding that ``staff spent hundreds
    of thousands of dollars on computer equipment and software that had no
    checks in place to ensure that the equipment and software purchased
    were needed or used to further the ARP program mission'' and that ``a
    significant portion of the equipment and software purchased was never
    used in the ARP program'').
    ---------------------------------------------------------------------------
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                         FROM HESTER M. PEIRCE

    Q.1. In brief, what is the SEC currently doing right, what
    needs to change, and how do you plan on prioritizing your time,
    should you be confirmed?

    A.1. Chairman Clayton has set the SEC on the right course by
    laying out and taking initial steps with respect to important
    priorities, including facilitating capital formation, combating
    retail investor fraud, and better identifying and protecting
    against cybersecurity risks. To pursue these priorities, the
    SEC will need to shed some bad past habits, including a
    tendency to limit investor opportunities and unduly constrain
    access to the capital markets in the name of investor
    protection. The SEC should work to refocus disclosure
    requirements so that companies are providing the material
    information that investors need to make informed investment
    decisions. The SEC also should work to modernize its rulebook,
    which--after more than 80 years--has grown fat and unwieldy.
        If I am confirmed, I will work with the Chairman to improve
    capital formation, expand investor opportunities, combat retail
    fraud, strengthen cybersecurity risk management, and tend to
    the day-to-day business of the SEC. I expect my priorities to
    include bread and butter issues like EDGAR, the efficacy of the
    SEC's compliance and enforcement programs, oversight of FINRA
    and the PCAOB, and consideration of potential changes to the
    rules governing retail financial professionals and the rules
    governing market structure. As I noted at the hearing, if I am
    confirmed, my priorities may change in response to market
    changes or information I learn from my fellow Commissioners or
    the SEC staff.

    Q.2. Do you believe that private capital being put into
    underperforming companies can improve the company's
    performance?

    A.2. Private capital, along with the expertise that often
    accompanies it, can play an important role in assisting
    underperforming companies.

    Q.3. Do you believe that curbing more private investment would
    help underperforming companies?

    A.3. Unwarranted restrictions on the ability of companies to
    raise capital in the private markets diminish the likelihood
    that companies will survive and thrive. An effective regulatory
    framework can help to ensure that companies have access to a
    healthy supply of private capital and the managerial and
    operational expertise that goes along with it.

    Q.4. Do you agree that private capital being put into companies
    leads to more transparency and communications with existing
    shareholders?

    A.4. Private providers of capital can and often do condition
    their provision of capital on the institution of best practices
    regarding transparency and shareholder communications.

    Q.5. Do you agree that corporate CEOs are more responsive to
    the market today than they were in the past?

    A.5. Among other things, the proliferation of real-time
    information about companies, the increasing speed with which
    that information is incorporated into market prices, and
    compensation plans linking CEO pay to company performance
    likely have increased corporate CEOs' responsiveness to the
    market.

    Q.6. Do you believe that restricting or making it harder for
    private capital to invest in American companies is a good idea?

    A.6. Placing unwarranted restrictions on the ability of
    American companies to access private capital is not a good idea
    from the perspective of those companies, investors, and the
    general public. Along with our public markets, private markets
    are an important source of capital for companies of all sizes.
    If I am confirmed, I plan to work to help both private and
    public markets function effectively to help support the
    dynamism of American companies, the health of the American
    economy, and the prosperity of American employees and
    investors.

    Q.7. Do you believe that private capital should be flexible and
    adaptive to quickly changing circumstances?

    A.7. Private capital should be flexible and adaptive to quickly
    changing circumstances. One of the important features of well-
    functioning capital markets is that providers of capital are
    able to react rapidly to developments at particular companies
    and in the broader economy. A proper regulatory framework can
    facilitate such flexibility.

    Q.8. Do you think that the current IPO market is at its peak?
    What could we be doing to facilitate more entrants into the
    public markets? What are some determinative factors that
    companies evaluate when making a decision to enter into the
    public markets? Do you think that some of these factors have
    served as preclusive, often determinative factors for a company
    deciding not to enter the public marketplace? How do public
    companies affect job creation and economic growth?

    A.8. Whether the IPO market is at its peak depends on a number
    of factors, including general economic conditions, the
    reasonableness of the existing and prospective regulatory
    framework governing public companies, expectations about the
    cost of shareholder litigation, and the degree to which public
    capital is cheaper than private capital. In deciding whether to
    go public, companies consider these factors along with their
    own current need for capital, expectations about future growth,
    and an assessment of the prospects for enhanced stock
    liquidity. If companies determine that the cost of being
    public, including anticipated costs due to future regulatory
    changes, outweighs the benefits of easier access to capital and
    greater liquidity for shareholders, companies will not take the
    step of going public. Reluctance of companies to go public has
    serious implications for our economy, investors, and workers.
    Ready access to capital markets enables companies to obtain the
    capital they need to innovate, hire workers, and contribute to
    economic growth.
        While some factors that affect the decision to go public
    are beyond the control of regulators and legislators, the SEC
    and Congress can take further steps to streamline the process
    for going public, eliminate requirements that do not protect
    investors, address concerns about market structure to ensure
    that the markets work for issuers of all sizes, and commit to a
    reasonable, effective regulatory regime for public companies.

    Q.9. Do you think that the SEC should have a formalized
    retrospective review process, much like prudential regulators
    have, by which the SEC can take a holistic look at its rules
    and regulations and decide which ones are outmoded,
    ineffective, burdensome, etc., or similarly decide which ones
    need to be changed and modernized?

    A.9. Retrospective review is an important part of maintaining
    an effective regulatory framework. If I am confirmed, I would
    be pleased to work with Congress to develop a statutory
    retrospective review process similar to that of the prudential
    regulators, but the SEC already has the ability to develop an
    effective process internally. The SEC has shown an increasing
    commitment to economic analysis, and retrospective review
    should be part of that commitment. As part of ongoing efforts
    to further improve economic analysis, the SEC could make a
    practice of including metrics in its rules that can serve as
    the basis for future retrospective review. Moreover, the SEC's
    plan to revisit Regulation NMS, among other rulemakings, will
    help to set an agency precedent for retrospective review.

    Q.10. How do you plan on working with the CFTC to address
    harmonization issues?

    A.10. Harmonization efforts by the SEC and CFTC in the
    derivatives markets are important. Domestic harmonization, in
    turn, will facilitate better international cooperation. SEC-
    CFTC relations have not always been smooth, but Chairmen
    Clayton and Giancarlo have exhibited an interest in building
    interagency cooperation. If I am confirmed, I look forward to
    working with the CFTC to harmonize rules governing swaps and
    security-based swaps, efficiently oversee dually registered
    entities, monitor the markets, and develop effective regulatory
    frameworks for new technologies that potentially implicate both
    regulatory regimes. I already have the pleasure of knowing
    Chairman Giancarlo, Commissioner Quintenz, and CFTC nominee
    Stump and look forward to getting to know Commissioner Behnam.

    Q.11. With regard to cyber infrastructure and enforcement
    actions, what do you think the SEC is doing right and what
    would you change?

    A.11. Chairman Clayton appropriately has expressed a strong
    commitment to cybersecurity at the SEC and in regulated
    entities and public companies. His early, public prioritization
    of this issue sent an important message to regulated entities
    and public companies. If confirmed, I will be better able to
    assess what the SEC is doing in terms of cyber enforcement. The
    SEC should create a collaborative environment to facilitate
    efforts by the private sector, the SEC, and other Government
    agencies to identify and address cyberthreats. If the SEC fails
    to address its own problems in cybersecurity, I am concerned
    that regulated entities will likewise cut corners.

    Q.12. The Treasury Capital Markets report touched on potential
    changes to best execution and potential changes to market
    structure issues, particularly in the context of Reg. NMS. Can
    you give me your thoughts on what you view as potential areas
    for reform within the context of Reg. NMS?

    A.12. Regulation NMS attempted to reshape the equity markets
    according to a particular view of how those markets should
    work. In doing so, the SEC more deeply entrenched itself in
    decision making, constrained the options of issuers and
    investors, and added new layers of complexity to the markets.
    Potential reforms could make it easier for trading venues to
    tailor themselves to meet the needs of particular issuers or
    investors, rather than the current one-size-fits-all approach.
    If confirmed, I look forward to working with my fellow
    Commissioners, SEC staff, the Equity Market Structure Advisory
    Committee, and this Committee to identify ways in which market
    structure regulation is not working and consider potential
    reforms to ensure that our markets serve the full range of
    investors and companies.

    Q.13. 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 this body that you will work
    with the Committee in tackling some of the languishing issues
    that have been pervasive in market structure over the last 10+
    years?

    A.13. Our equity markets are the best in the world, but reforms
    would help to ensure that they stay that way. Mindful of the
    fact that the Chairman sets the rulemaking agenda, I look
    forward to working on such reforms with my fellow Commissioners
    and with this Committee. I share your concern about the
    system's complexity and the gaming such complexity breeds. I
    also am concerned about the role that SEC regulation plays in
    determining how, where, and when orders are executed. Many
    problems we see in today's markets seem to have their origin in
    well-intentioned SEC attempts to structure the markets. In
    contemplating reforms, the needs of investors and companies
    should dictate.

    Q.14. 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?

    A.14. If I am confirmed, I will work with Chairman Clayton, my
    fellow Commissioners, and the SEC staff to understand and
    address weaknesses in the SEC's information technology
    infrastructure, policies, and practices. Getting the SEC's
    house in order will send an important message to financial
    firms to do the same. The SEC's compliance examiners also play
    an important role in monitoring how financial firms are doing
    and where weaknesses may lie. If confirmed, I look forward to
    working with the SEC staff to ensure that the oversight program
    fosters healthy IT modernization practices.

    Q.15. How will you ensure that regulations set by the SEC do
    not impede progress on IT modernization?

    A.15. IT-intensive regulatory initiatives such as Regulation
    NMS, the Volcker Rule, and the Department of Labor's fiduciary
    rule likely divert industry resources away from IT
    modernization initiatives. I plan to take such opportunity
    costs into account in assessing future regulatory changes. In
    addition, it is important for the SEC to write rules in a way
    that ensures regulated entities have the flexibility to shift
    to newer and better ways of doing things. In the past, SEC
    rules have sometimes inadvertently cemented historical
    information technology by being overly prescriptive.

    Q.16. With regard to corporate disclosures, what standard
    should be used to determine whether or not something is
    disclosed?

    A.16. The appropriate standard for corporate disclosure is
    materiality. Corporations should disclose information ``if
    there is a substantial likelihood that a reasonable shareholder
    would consider it important'' in making an investment decision.
    \1\ That standard avoids ``bury[ing] the shareholders in an
    avalanche of trivial information.'' \2\
    ---------------------------------------------------------------------------
         \1\ TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449
    (1976).
         \2\ Id. at 448.

    Q.17. On February 24, 2017, President Trump signed an Executive
    Order on Enforcing the Regulatory Reform Agenda, part of which
    focused on identifying regulations that are ``outdated,
    unnecessary, and ineffective.'' Given recent technological
    advances, one area of particular focus should be regulations
    requiring paper-based communications as the default delivery
    method in communicating with investors and consumers. Such
    regulations are prime examples of regulations that were first
    adopted decades ago and have failed to evolve with the times.
        If confirmed, will you work to ensure that the SEC
    identifies and modifies outdated regulations regarding paper-
    based communications?

    A.17. If confirmed, I will work to eliminate or modernize
    outdated regulations. Without prejudging the issue about paper-
    based communications, the subject of an outstanding proposal, I
    intend to work to ensure that technology can be used
    appropriately and consistent with investor protection to meet
    disclosure requirements.

    Q.18 Do you believe the recent action by the SEC regarding
    MiFID II was appropriate? If you do not, how would you have
    addressed this issue?

    A.18. While I have not had the opportunity to consult with the
    staff that worked on the MiFID II resolution, I was pleased to
    see that the SEC took concrete steps to provide guidance and
    legal clarity on a matter of such importance. If I am
    confirmed, I look forward to working with my fellow
    Commissioners, the SEC staff, and international counterparts on
    a longer-term resolution, should it be necessary.

    Q.19. Do you think that the U.S. and the SEC should import
    standards from other countries?

    A.19. The SEC should draw lessons from other countries'
    regulatory successes and failures, but the SEC needs to develop
    regulations that work for the American markets. Moreover,
    wholesale importation of foreign standards does not comport
    with the Administrative Procedure Act.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR MENENDEZ FROM HESTER M. PEIRCE

    Q.1. A preliminary report released this week found the SEC
    collected $127 million in corporate civil penalties in 15 cases
    from February through September 2017, in comparison to $702
    million in 43 cases from February through September 2016. \1\
    ---------------------------------------------------------------------------
         \1\ https://www.politicopro.com/financial-services/story/2017/10/
    corporate-penalties-have-dropped-at-sec-since-trump-took-office-163857
    ---------------------------------------------------------------------------
        Are you concerned that these numbers may reflect a shift in
    enforcement priorities?

    A.1. I am committed to a strong enforcement program--one that
    sends a clear message that rules will be enforced impartially,
    swiftly, objectively, and fairly. It is, however, very
    difficult to assess the effectiveness and priorities of the
    SEC's enforcement program by looking only at a single
    statistic, such as the number of cases in which corporate
    penalties were assessed or the amount of penalties. The nature
    and complexity of cases are also important, and these factors
    might not reflect a shift in enforcement priorities. For
    example, an enforcement action that stops a retail fraudster in
    her tracks before she can harm a lot of investors is an
    important matter, but might yield relatively small penalties.

    Q.2. If confirmed, what recommendations will you make to Chair
    Clayton to strengthen the ability of the enforcement division
    to hold accountable those that violate Federal securities laws?

    A.2. If confirmed, I will recommend that Chairman Clayton
    empower the Enforcement Division to pursue enforcement
    matters--regardless of whether they generate big headlines--
    that go to the core of investor protection and market
    integrity. Retail and accounting fraud matters can be difficult
    to investigate, but are important. I also will recommend that
    the Chairman not allow routine compliance matters to take
    valuable enforcement resources away from pursuing intentional
    violations. I also will work with the Chairman foster a culture
    within the SEC that encourages staff to raise concerns and
    suggest changes. Because much of the enforcement work is
    conducted outside Washington, DC, I will also recommend that
    Chairman Clayton build strong relationships with the regional
    offices to ensure that all of the agency's enforcement
    resources are being used productively.

    Q.3. In response to a question from Chairman Crapo, you
    identified cybersecurity as a top priority. If confirmed, what
    recommendations will you make to Chair Clayton related to
    cybersecurity both at the Commission itself and in the
    securities markets at large?

    A.3. Cybersecurity must be an SEC priority. The recently
    revealed breach at the SEC is a stark reminder that the SEC has
    valuable, personally and commercially sensitive information.
    Unfortunately, this last breach was not the SEC's first problem
    in the cybersecurity area. As indicated by Chairman Clayton's
    September 20, 2017, public statement on cybersecurity, he takes
    these issues extremely seriously. I will support the Chairman's
    efforts, including by recommending that the SEC act more
    quickly than it has in the past to implement recommendations by
    the SEC's Inspector General and the Government Accountability
    Office to address cybersecurity weaknesses. To be able to do
    this, the SEC will need to recruit and retain information
    security experts. The establishment of a culture at the SEC
    that encourages employees at all levels to be on the lookout
    for problems can help to ensure that problems are identified
    and elevated promptly within the SEC.
        As you note, cybersecurity is an issue not just for the
    SEC, but for the securities markets as a whole. By taking
    aggressive action to address its own problems, the SEC can set
    a powerful example for the securities markets. I also will
    recommend that the Chairman work collaboratively with regulated
    entities and other regulators to identify and combat
    cyberthreats.

    Q.4. In response to a question from Senator Reed regarding
    resources and cybersecurity, you said ``it will be much easier
    to assess that [resources] when I am actually there.'' I am
    concerned that the SEC does not have the resources it needs to
    appropriately protect itself from cybersecurity threats.
        What specific steps will you take to investigate whether
    the SEC has sufficient cybersecurity resources?

    A.4. If I am confirmed, I will talk with the Chairman, my
    fellow Commissioners, and staff in the Office of Information
    Technology to understand what resources are devoted to
    cybersecurity now, how cybersecurity resources have been used
    in the past, and what projected needs are for the future. Past
    reports suggest that some of the SEC's problems may be due to
    mismanagement of resources, \2\ so I would want to understand
    whether resource management has improved since the period
    covered by those reports. An objective outside analysis of the
    SEC's cybersecurity infrastructure could be useful in
    understanding what the SEC's resource needs might be in coming
    years. I also hope to get a better understanding of how other
    similarly situated agencies are managing cybersecurity threats.
    ---------------------------------------------------------------------------
         \2\ See, e.g., Government Accountability Office, ``Information
    Security: SEC Needs To Improve Controls Over Financial Systems and
    Data'' (GAO Report No. 14-419 April 2014), at p.5 (``Although SEC had
    issued policies and implemented controls based on those policies, it
    did not consistently protect its network boundary from possible
    intrusions; identify and authenticate users; authorize access to
    resources; ensure that sensitive data are encrypted; audit and monitor
    actions taken on the commission's systems and network; and restrict
    physical access to sensitive assets.''); Office of Inspector General,
    ``SEC, Federal Information Security Management Act: Fiscal Year 2013
    Evaluation'' (Report No. 522 Mar. 31, 2014), at p.i (describing a
    number of areas in which previously identified weaknesses in security
    controls had not been corrected and thus ``could adversely affect the
    confidentiality, integrity, and availability of the agency's
    information and information systems''); Office of Inspector General,
    ``SEC, Report of Investigation into Misuse of Resources and Violations
    of Information Technology Securities Policies Within the Division of
    Trading and Markets'' (Case No. OIG-557 Aug. 30, 2012), p.11 (in an
    investigation of security breaches in the Automation Review Policy
    Program (ARP), the SEC office charged with overseeing computer networks
    at self-regulatory organizations, finding that ``staff spent hundreds
    of thousands of dollars on computer equipment and software that had no
    checks in place to ensure that the equipment and software purchased
    were needed or used to further the ARP program mission'' and that ``a
    significant portion of the equipment and software purchased was never
    used in the ARP program'').

    Q.5. If you conclude that the SEC does not have sufficient
    cybersecurity resources, will you make that finding clear to
    ---------------------------------------------------------------------------
    both Chair Clayton and Members of Congress?

    A.5. Yes.

    Q.6. I remain concerned that the current lack of transparency
    around short selling enables manipulative trading behaviors
    that harm growing companies and discourages long-term
    investment. I raised this concern to former SEC Chair Mary Jo
    White in a letter in January 2017. In my view, the current lack
    of transparency of short positions has a trifold impact on the
    securities market--it deprives investors of information
    critical to making meaningful investment decisions; it denies
    issuers of insights into trading activity and inhibits their
    ability to interface with investors; and it withholds crucial
    information from the market, ultimately impeding efficiencies
    and diluting transparency. There are currently two petitions
    for rulemaking pending before the SEC requesting that it
    promulgate 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). In your opinion, should
    the SEC act on these pending rulemaking petitions or consider
    any alternative options, in order ensure fair disclosure of
    short positions?

    A.6. To avoid pre-judging the issue, I cannot speak to the
    particular petitions. If I am confirmed, however, I look
    forward to working with my fellow Commissioners and SEC staff
    to assess transparency concerns associated with short selling
    and potential avenues for addressing those concerns without
    unduly curtailing socially beneficial short selling.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                         FROM HESTER M. PEIRCE

    Q.1. The Citizens United v. FEC ruling allowed, among other
    things, corporations to contribute independent political
    expenditures. Public companies are active participants in our
    elections, yet their shareholders do not know the role that
    they play because the SEC has been reluctant or handcuffed from
    requiring firms to disclose their political contributions.
        Do you believe shareholders have a right to know whether a
    company they've invested in is making contributions in their
    best interest?

    A.1. I understand that some shareholders and other interested
    persons have expressed an interest in corporate political
    contributions. Under current securities law, however, companies
    are not required to disclose information regarding political
    contributions unless that information is material.

    Q.2. What should be the threshold for determining when a
    company discloses their political spending?

    A.2. Materiality is the appropriate standard for all corporate
    disclosures. Companies should disclose political contributions
    that are important to a reasonable investor's investment
    decision.

    Q.3. What policy levers does the SEC have to promote long-term
    value creation?

    A.3. The SEC has several policy levers relevant to long-term
    value creation. Adjustments to the regulatory framework
    governing capital formation can ensure that innovative and
    growing companies can obtain the capital they need to create
    long-term value. The SEC's disclosure regime can promote long-
    term value creation by providing investors the information they
    need to assess companies' long-term value. Adjustments to the
    regulatory regime governing market structure can ensure liquid
    markets for the shares of companies of all sizes, which in turn
    helps those companies to attract investors and build long-term
    value.

    Q.4. Do you believe companies are engaging in too many stock
    buybacks and dividend payments and not spending enough on
    corporate growth?

    A.4. I share a desire to see corporate growth, but assessing
    whether there are too many buyouts and dividends would require
    a case-by-case, fact-specific assessment. Manipulative buyouts,
    of course, should not occur at all. Buybacks and dividends, if
    properly and legally used, can contribute to corporate growth.
    For example, a company without productive uses for cash might
    conclude that it should return cash to shareholders through a
    stock buyback or dividend. The shareholders can then invest
    that money in companies with productive uses for it. Other
    companies might contribute to corporate growth by choosing to
    refrain from buybacks and dividends in order to invest in new
    projects.

    Q.5. Is there a way to center less attention on quarterly
    earnings?

    A.5. Some market participants and companies cite quarterly
    earnings pressure as a reason that companies cannot focus on
    long-term value. I am aware of some private sector efforts to
    find ways for companies to expressly embrace a long-term view.
    If confirmed, I look forward to working with my fellow
    Commissioners and SEC staff to consider whether regulatory or
    statutory changes are necessary and appropriate to allow such
    efforts to move forward.

    Q.6. The disclosure of innumerable hacks over the past few
    years, recently punctuated by hacks of the SEC and Equifax, has
    made clear that we all need to raise our cybersecurity game.
    Given the important role broker-dealers play in the formation
    and distribution of capital in the United States, do you think
    it's appropriate for FINRA, in its examination of broker
    dealers, to perform cyber-vulnerability assessments of
    registered broker dealers?

    A.6. Broker-dealers' cybersecurity is an important matter given
    their central role in the capital markets. FINRA looks at
    registered broker-dealers' cybersecurity policies, practices,
    and risk management. If confirmed, I look forward to working
    with my fellow Commissioners, the SEC's FINRA inspection
    office, and FINRA to understand the scope of FINRA's existing
    cyber assessments and whether additional oversight of broker-
    dealers' cyber vulnerabilities by FINRA or the SEC is
    necessary.

    Q.7. On Oct. 15, 2014, the Treasury market flash rally
    occurred, where the yield on the benchmark 10-year U.S.
    Treasury traded in a 37-basis-point range (0.37 percent), only
    to close six basis points below its opening level. Principal
    trading firms (PTFs) account for a majority of trading in
    inter-dealer Treasury markets, which represent half of all
    trading in Treasuries. Due to a loophole, PTFs, including many
    that use algorithmic strategies, have not been required to
    register as brokers. This allows them to escape oversight and
    reporting requirements. Will you commit to ensuring that PTFs
    are required to register as brokers?

    A.7. If confirmed, I will consult with my fellow Commissioners,
    SEC staff, and the Department of Treasury to consider whether,
    in light of recent market developments, a rulemaking to extend
    broker-dealer registration and reporting requirements to
    principal trading firms in the Treasury markets is appropriate.

    Q.8. Under current law, Regulation ATS's basic regulatory
    standards for exchanges and other financial markets are
    designed to ensure market resilience, integrity and adequate
    operational risk controls. But trading venues that facilitate
    the exchange of Government securities are excluded from
    Regulation ATS. And by excluding them from Regulation ATS, they
    are also excluded from Regulation SCI's cybersecurity
    requirements. Will you commit to closing the loophole that
    permits Government-securities trading venues to avoid these
    basic requirements?

    A.8. It is crucial that our Government securities markets
    function well and are resilient. The SEC's 2015 proposal on
    Regulation ATS asked for comment on whether regulatory changes
    are appropriate for Government-securities trading venues If
    confirmed, this issue may come before me in connection with the
    adoption of changes to Regulation ATS. In considering the
    appropriate regulatory framework (including cybersecurity
    requirements) for Government-securities trading venues, I will
    review relevant comments and consult with my fellow
    Commissioners, SEC staff, the Department of Treasury, and
    banking regulators.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                         FROM HESTER M. PEIRCE

    Q.1. You have written extensively on the problems at the
    Financial Industry Regulatory Authority (FINRA). You previously
    said that you're ``not sure that FINRA serves anyone well in
    its current form,'' and that ``investors feel they're not
    getting the protection they need.'' \1\ And yet, despite the
    SEC having the tools to oversee it, ``in practice FINRA
    operates with substantial independence from the SEC.'' \2\ As
    you put it, ``FINRA rules do not typically attract close
    attention from the SEC's commissioners.'' \3\
    ---------------------------------------------------------------------------
         \1\ ``FINRA Plays `Gotcha' With Brokers, Short-Changes Investors:
    Hester Peirce'', Think Advisor (Mar. 17, 2017) (online at http://
    www.thinkadvisor.com/2017/03/17/finra-plays-gotcha-with-brokers-short-
    changes-inve?slreturn=1509052996).
         \2\ Hester Peirce, ``The Financial Industry Regulatory Authority:
    Not Self-Regulation After All'', Mercatus Center 19 (Jan. 2015)
    (available at https://www.mercatus.org/system/files/Peirce-FINRA.pdf).
         \3\ Id.
    ---------------------------------------------------------------------------
        Given your statements on FINRA and the lack of oversight
    from the SEC, can you commit to reversing that trend and
    conducting formal reviews of all FINRA actions going forward?

    A.1. As you note, I have concerns about FINRA's accountability.
    If I am confirmed, therefore, I will actively review FINRA
    actions.

    Q.2. Will you commit to initiating a review of FINRA's investor
    protection practices?

    A.2. Investor protection is central to FINRA's role. I look
    forward to working with my fellow Commissioners and SEC staff
    to review FINRA's investor protection practices.

    Q.3. At your hearing, you stated that you ``worry about
    transparency'' at FINRA. \4\ FINRA meets behind closed doors
    and is not required to release information to the public unless
    it deems it necessary. FINRA is not subject to the Freedom of
    Information Act, its hearings are not public, and ``there is
    virtually no public information currently available about how
    FINRA specifically uses [its] revenues[.]'' \5\
    ---------------------------------------------------------------------------
         \4\ Greg Iacurci, ``SEC Nominees Jackson and Peirce Blast FINRA's
    Transparency During Hearing'', Investment News (Oct. 24, 2017) (online
    at http://www.investmentnews.com/article/20171024/FREE/171029976/sec-
    nominees-jackson-and-peirce-blast-finras-transparency-during).
         \5\ Mark Schoeff, Jr., and Bruce Kelly, ``FINRA: Who's Watching
    the Watchdog?'': Investment News (Sept. 2, 2017) (online at http://
    www.investmentnews.com/article/20170902/FEATURE/170909996/finra-whos-
    watching-the-watchdog).
    ---------------------------------------------------------------------------
        Do you think FINRA should be subject to the same
    transparency and due process requirements that Government
    agencies are subject to? If not, which requirements should and
    should not apply to FINRA?

    A.3. Self-regulatory organizations (SROs) have traditionally
    not been subject to the same transparency and due process
    requirements as Government agencies. Given FINRA's quasi-
    governmental nature, I and others have asked whether FINRA's
    transparency and due process requirements should look more like
    those applicable to Government agencies. I have not reached a
    definitive conclusion on how FINRA's transparency and due
    process requirements should be reformed. As I mentioned at the
    hearing, I am hopeful that some positive change may come from
    within FINRA in response to the review that CEO Robert Cook
    initiated. If I am confirmed, I look forward to exploring with
    my fellow Commissioners, SEC staff, Members of this Committee,
    investors, member firms, and other interested parties whether
    the SEC or Congress also need to act to increase transparency
    and procedural protections at FINRA.

    Q.4. If confirmed, will you review transparency and due process
    at FINRA? If necessary, will you work with both your fellow
    Commissioners and the Congress to reform FINRA?

    A.4. If confirmed, I intend to work with my fellow
    Commissioners and the SEC staff to look at transparency and due
    process at FINRA. If necessary, I will work with my fellow
    Commissioners and Congress on reforming FINRA.

    Q.5. Despite refusing to disclose most of their finances, FINRA
    pays it several of its seven of its executives more than $1
    million per year. Given its failure to protect investors, do
    you think it is appropriate for FINRA to pay its executives
    several times more than typical Government regulators?

    A.5. I am aware of concerns about the high salaries of FINRA
    executives, particularly because these salaries are paid by
    broker-dealers and, ultimately, investors who have little input
    in setting them. The SEC is not in a position to set salaries
    at FINRA, but, should I be confirmed, I will work to hold FINRA
    accountable for how well it is fulfilling its role as the
    frontline regulator of broker-dealers. A piece of this
    consideration is likely to be how effectively FINRA is spending
    its resources.

    Q.6. On June 1, 2017, the SEC solicited public comments from
    retail investors and other interested parties on revising its
    standards of conduct for investment advisers and broker-
    dealers. In this request for comments the SEC asked ``If the
    commission were to proceed with a disclosure-based approach to
    potential regulator action, what should that be?'' \6\
    ---------------------------------------------------------------------------
         \6\ Jay Clayton, ``Public Comments From Retail Investors and Other
    Interested Parties on Standards of Conduct for Investment Advisers and
    Broker-Dealers'', Securities and Exchange Commission (June 1, 2017)
    (online at https://www.sec.gov/news/public-statement/statement-
    chairman-clayton-2017-05-31).
    ---------------------------------------------------------------------------
        Do you believe that the financial incentives that create
    conflicts of interest in the retail investment market that harm
    investors can be eliminated by enhanced disclosure alone?

    A.6. A key part of investor protection is ensuring that
    investors have access to the information they need to make
    investment decisions, including decisions about working with a
    financial professional. Disclosing conflicts of interest can
    help investors to choose an appropriate financial professional,
    even if some conflicts remain.

    Q.7. If not, what steps will you take to directly tackle
    problematic incentives that lead to conflicts of interest that
    harm investors?

    A.7. As you noted, Chairman Clayton recently sought comment
    from retail investors and others about revising the standards
    of conduct for financial professionals. I look forward to
    reviewing these comments, working with my fellow Commissioners
    and SEC staff in the Divisions of Investment Management and
    Trading and Markets, and consulting with the Department of
    Labor, the SEC's Investor Advocate, the Investor Advisory
    Committee, and State regulators to consider whether regulatory
    changes are needed and what those changes should look like.
    Among other issues that I will consider are the role that
    incentives play in the provision of retail financial services.

    Q.8. If so, how do you design a disclosure regime that
    eliminates problematic financial incentives?

    A.8. If I am confirmed, until I have consulted with my fellow
    Commissioners, relevant staff, the Investor Advisory Committee,
    the Department of Labor, State regulators, and other interested
    parties, I cannot commit to supporting a particular regulatory
    approach in this area.

    Q.9. If the commission proceeds with a disclosure-based
    approach to potential regulator action, what user tests will
    the commission conduct to prove that all investors, not just
    the most sophisticated, fully understand and appreciate the
    nature and extent of the conflicts of interest and make a truly
    informed decision as a result?

    A.9. As your question suggests, investor testing can be an
    important tool for the SEC in designing disclosures so that
    retail investors are able to understand them and readily find
    in them the information that is critical to making good
    investment decisions. If confirmed, I look forward to drawing
    on the work the Office of the Investor Advocate's Policy
    Oriented Stakeholder and Investor Testing for Innovative and
    Effective Regulation (POSITIER) initiative. The empirical
    research produced and aggregated as part of this initiative is
    likely to be relevant to rulemaking efforts regarding the
    provision of retail financial products and services and many
    other SEC rulemaking initiatives. The research also will help
    the Commission to explore how different types of investors
    understand and respond to disclosures and how other types of
    regulation affect investors.

    Q.10. Will you consult the extensive economic analysis the
    Department of Labor put together for their rulemaking on the
    fiduciary standard, including analysis on the incidence and
    cost of conflicts of interest in the financial services
    industry and on how these financial conflicts influence adviser
    recommendations?

    A.10. If confirmed, as part of considering any potential
    rulemaking in this area, I will consult the Department of
    Labor's work in connection with its fiduciary rulemaking,
    including its economic analysis.

    Q.11. What will you do to ensure that broker-dealers do not
    call themselves advisers? How can investors distinguish between
    sellers and advisers if sellers are allowed to call and market
    themselves as advisers?

    A.11. I am aware of concerns that the use of the ``adviser''
    title by broker-dealers is a source of investor confusion. If I
    am confirmed, I look forward to working with my fellow
    Commissioners and the SEC staff to consider how this source of
    confusion can best be addressed.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR DONNELLY FROM HESTER M. PEIRCE

    Q.1. In previous conversations with Mr. Jackson and Ms. Peirce,
    we have discussed my concerns that the wave of stock buybacks
    in recent years has been at the expense of the long-term health
    of companies, their workers, and their communities.
        Are you concerned that the increase of stock buybacks in
    recent years has been at the expense of investments in American
    workers?

    A.1. I share your desire to see companies investing in American
    workers, and the SEC should monitor stock buybacks. To the
    extent that a company is repurchasing its shares to return cash
    that it cannot productively use, buybacks can drive funds to
    companies that are eager to hire workers. One important way the
    SEC can help to protect American workers is to ensure that
    companies of all sizes can raise money in our capital markets,
    which they can then use to hire workers, expand production, and
    invest in research and development. If capital markets are
    healthy, share buybacks may occur less frequently and any
    associated layoffs will take less of a human toll as new and
    expanding companies will have the funds to hire laid-off
    workers.

    Q.2. What actions can or should the SEC take to better monitor
    stock buybacks and to increase transparency? What about
    requiring more immediate disclosure (as opposed to quarterly,
    as currently required)?

    A.2. Particularly given the large number of stock buybacks in
    recent years, the SEC should monitor stock buyback activity for
    compliance with the safe harbor conditions of rule 10b-18, if
    relevant, and to ensure that repurchases are not fraudulent or
    manipulative. If confirmed, I look forward to consulting with
    my fellow Commissioners and SEC staff regarding whether the
    current disclosure about stock buybacks is adequately meeting
    investors' needs or whether more frequent disclosure would be
    appropriate.

    Q.3. Mr. Jackson, your written testimony includes this excerpt:
    ``I will work to implement the corporate-governance protections
    that Congress has enshrined into law--so that investors,
    employees, and communities can be sure that our companies are
    working to produce the kind of long-term value creation that
    has been the hallmark of the American economy for
    generations.'' I agree that companies should produce long-term
    value creation, but unfortunately ``short-termism'' has become
    a disease; Wall Street pressure results in corporate management
    making decisions based on the next quarter as opposed to the
    next decade.
        Ms. Peirce, do you share similar concerns about ``corporate
    short-termism''? What actions can or should the SEC take to
    combat this problem and encourage long-term value creation?

    A.3. I am aware that many market observers and market
    participants have expressed concern that short-termism is
    driving decisions that are not value-maximizing in the long-
    term. While I believe that market prices generally reflect the
    long-term value of companies, it is important to ensure that
    the capital markets work for investors and companies with a
    long-term focus. One way the SEC can do this is by ensuring
    that disclosures are focused on items material to issuers'
    long-term value. I look forward to exploring--with my fellow
    Commissioners, SEC staff, investors, issuers, and this
    Committee--additional regulatory and statutory changes that
    would make it easier for companies to explicitly and
    purposefully embrace a long-term approach.

    Q.4. Mr. Jackson, in our meeting, I mentioned the Carrier
    layoffs and the heart-wrenching video where a corporate
    executive told hundreds of workers their jobs were going to
    Mexico. In response, I crafted the End Outsourcing Act to keep
    jobs in America by restricting tax breaks and Federal contracts
    for companies that ship jobs to foreign countries. It is
    difficult, however, to track when and where outsourcing occurs.
    I believe the SEC can take modest steps in this regard by
    requiring public corporations to disclose country-by-country
    employment. This would help investors determine which companies
    employ American workers and better understand where outsourcing
    has occurred.
        To both witnesses, do you support requiring corporations to
    disclose employment on a country-by-country basis to help
    increase transparency of outsourcing and American employment?

    A.4. I share your concern about the elimination of jobs in this
    country. The most important step the SEC can take to help to
    address this problem is to ensure that our capital markets are
    functioning properly so that we have a dynamic economy in which
    companies compete vigorously for workers all across this
    country. My assessment of an SEC mandate to disclose workers'
    locations, as with other disclosure requirements, would turn on
    its materiality. In addition, the details of how such a mandate
    is structured would be relevant to my decision of whether to
    support such a mandate. In considering such a mandate, I would
    want to consult with my fellow Commissioners and staff in the
    Division of Corporation Finance and Division of Economic and
    Risk Analysis.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                         FROM HESTER M. PEIRCE

    Q.1. I am very concerned about legislative proposals to
    dramatically increase the threshold for submitting shareholder
    proposals. Shareholder proposals are an important way for
    shareholders to communicate with management. They have been
    instrumental in improving corporate governance, such as
    requiring that independent directors make up at least a
    majority of corporate boards. Shareholders submit proposals on
    emerging risks, such as cybersecurity and consumer data
    protection.
        I also worry that the SEC may respond to pressure from
    companies that do not like dealing with shareholder proposals
    and raise the threshold on its own.
        Do you think shareholders should have a voice in the
    companies they own?

    A.1. Shareholders should have a voice in the companies they
    own. Although most contours of shareholders' interactions with
    companies are governed by State law, the SEC's Division of
    Corporation Finance is actively engaged in the shareholder
    proposal process. The process can be costly to shareholders and
    the SEC. If, in light of these burdens, the SEC revisits
    shareholder proposal thresholds, that reconsideration must be
    undertaken with the benefit of the SEC staff's expertise and
    input from, interested parties, including the shareholders whom
    any changes would affect.

    Q.2. Do you think it would a problem if the threshold for
    submitting proposals was set so high that it blocked all but
    the biggest and wealthiest shareholders from submitting
    proposals?

    A.2. It is important that any changes in this area balance the
    beneficial role that shareholder proposals can play in
    informing companies of small and large shareholders' concerns
    with the costs that shareholder proposals can impose on
    nonproposing shareholders.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR CORTEZ MASTO FROM HESTER M. PEIRCE

    Q.1. If confirmed, what specific steps would you take to
    bolster individual executive accountability, consistent with
    what Chairman Clayton has advocated for?

    A.1. Holding individuals accountable for their violations of
    the securities laws is a key part of protecting investors,
    maintaining fair, orderly, and efficient markets, and
    facilitating capital formation. If confirmed, I plan to explore
    with my fellow Commissioners and staff in the Division of
    Enforcement on a case-by-case basis whether the facts and law
    dictate that individuals should be charged instead of or in
    addition to corporations.

    Q.2. Ms. Peirce, you worked at the SEC starting in 2002, and
    then for a Commissioner from June 2004 to August 2008. As you
    know, during that time, tremendous risk built up in the
    financial system. Large investment banks like Lehman Brothers
    and Bear Stearns accumulated hugely risky positions that went
    unchecked by the SEC. For example, the SEC's Inspector General
    in 2008 found eleven separate failings at the Commission
    related to Bear Stearns, including \1\:
    ---------------------------------------------------------------------------
         \1\ https://www.sec.gov/files/446-a.pdf

        Allowing Bear Stearns' concentration in toxic
            mortgage-backed securities to surge past even the
    ---------------------------------------------------------------------------
            firm's internal limits;

        Allowing leverage to go virtually unchecked under
            what was known as the Consolidated Supervised Entity
            (CSE) program, a voluntary regulatory regime; and

        Allowing internal audit staff, rather than external
            auditors as required by SEC rules, to perform critical
            oversight work.

        Key regulators from that time period--from Christopher Cox
    at the SEC, to Hank Paulson, the Treasury Secretary, to Alan
    Greenspan, the past Fed Chair--have all acknowledged that
    voluntary supervision and industry ``self-regulation'' didn't
    work. Has your experience at the SEC during the build-up to the
    financial crisis made you look at the world any differently? If
    confirmed, how will you internalize the lessons of this time
    period and apply them to your new tenure at the SEC?

    A.2. My experience at the SEC has made me look at the world
    differently. Being inside a regulatory agency allowed me to
    understand the breadth of the challenges that regulators face
    and the potential for regulatory mistakes to harm the markets,
    the economy, and individual Americans. The crisis taught me the
    importance of asking questions about trends in the market--why
    are firms engaging in a particular type of activity and what
    will happen if market conditions change? One of those important
    lessons from the crisis period is that well-intended
    regulations can have devastating unintended consequences. \2\ A
    seemingly small change in the law can lead to dramatic changes
    in asset holdings and risk taking. Regulation can homogenize
    firms' risk profiles, which then causes widespread, uniform
    vulnerability to shocks to the financial system. Another
    important lesson that was all too evident during the financial
    crisis is that when firms are able to shift the consequences of
    poor risk management to taxpayers, they are less careful than
    they would be if they were responsible for their own mistakes.
    The crisis also taught lessons about the danger of Government-
    granted monopolies, such as the credit rating agencies.
    ---------------------------------------------------------------------------
         \2\ See, e.g., Stephen Matteo Miller, ``The Recourse Rule,
    Regulatory Arbitrage, and the Financial Crisis'', (Mercatus Center at
    George Mason University Working Paper, Aug. 3, 2017).
    ---------------------------------------------------------------------------
        If I were to be confirmed, these lessons would be at the
    front of my mind in crafting regulation and monitoring the
    market for potentially harmful activity. I will be cognizant of
    the interaction between regulation and industry decision-making
    and advocate for necessary modifications to rules to ensure
    that they are achieving their intended objectives without
    inserting new risks into the system.

    Q.3. Ms. Peirce, you have, in your previous writing, dismissed
    the notion that some financial executives got off the hook for
    wrongdoing that occurred in the lead-up to the financial
    crisis. \3\ You wrote, ``lost in the blind bloodlust targeted
    at financial institutions and their employees is an
    appreciation for the complexity of many of the laws and
    regulations they face.'' \4\ You also noted, ``in my
    experience, Government attorneys don't need any encouragement--
    beyond the prospect of resume bling--to bring big cases.'' \5\
    ---------------------------------------------------------------------------
         \3\ https://www.usnews.com/debate-club/are-banks-becoming-too-big-
    to-jail/for-real-reform-we-must-move-past-too-big-to-jail-hype
         \4\ Ibid
         \5\ Ibid
    ---------------------------------------------------------------------------
        In my view, State and Federal prosecutors were often
    outgunned and outspent, and many times, executives would invoke
    systemic importance or ``collateral consequences'' as to why
    prosecutors shouldn't bring cases. Do you still hold your view
    that the notion of ``Too Big to Jail'' was mere ``hype?'' \6\
    ---------------------------------------------------------------------------
         \6\ Ibid

    A.3. No person or corporation--regardless of influence or
    market power--is above the law. Strong enforcement is a key
    part of ensuring the integrity of our securities markets.
    Financial institutions and their employees should be held
    responsible for violations of the law. Too often, however, the
    discussion around enforcement issues is not focused on facts
    and law, but on emotion. If I am confirmed, I will work to
    ensure that the SEC takes an objective approach to enforcement
    matters, fosters a culture of compliance with its rules,
    diligently and consistently punishes securities law violators,
    and uses its enforcement resources efficiently.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                      FROM ROBERT J. JACKSON, JR.

    Q.1. Although materiality has long been the foundation of the
    SEC's disclosure requirements, the SEC has, over time,
    supplemented this standard with specific bright-line rules. For
    example, the SEC requires disclosure of specified information
    related to executive compensation, corporate governance, and
    internal controls. Do you agree that bright-line rules can be
    useful to both companies and investors by supplementing the
    traditional materiality standard?

    A.1.Yes. As I have previously written, the Commission's
    disclosure rules have consistently evolved over time in
    response to changing investor interests, market dynamics, and
    Congressional mandates. As your question points out, the
    Commission's rules regarding executive compensation, for
    example, were developed in response to significant investor
    interest in those matters.
        It is an essential part of the SEC's task to ensure that
    the Commission's disclosure rules continue to evolve
    appropriately in order to make sure that investors have the
    information they need in order to evaluate the companies that
    they own. If confirmed, I will work with my fellow
    Commissioners and the Staff to ensure that these rules keep
    pace with investors' needs.

    Q.2. Speaking at NYU's School of Law earlier this year, Chair
    Clayton said, ``I am not comfortable that the American
    investing public understands the substantial risk that we face
    systemically from cyber issues and I would like to see better
    disclosure around that.'' Two days later, the Equifax breach
    proved him right.
        If confirmed, would you commit to working with Chair
    Clayton and the other Commissioners to revise cyber risk
    disclosure requirements, including considering a specific 8-K
    reporting item for cybersecurity breaches that expose
    personally identifiable information?

    A.2. Yes. Recent events have taught us that the threat that
    American investors and consumers face from cybersecurity
    breaches is far more serious than we might have imagined even
    just a few years ago.
        Like Chairman Clayton, I am concerned that our disclosure
    rules, and in particular the rules governing current reports on
    Form 8-K, have not kept pace with these developments--and do
    not make clear to public companies the urgency of disclosures
    related to cybersecurity breaches. If confirmed, I will work
    with the Chair, my fellow Commissioners, and the Division of
    Corporation Finance to update these rules in a fashion that
    makes clear the importance of cybersecurity risk to public-
    company investors.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                      FROM ROBERT J. JACKSON, JR.

    Q.1. It is my understanding that Initial Coin Offerings (ICOs)
    and crypto-currencies have raised billions thus far in 2017.
    This represents an exponential growth in recent years.
        I was glad to see the SEC begin to closely examine this
    market, and I applaud the SEC for its recent issuance of the
    Investigative Report regarding the DAO. The Investigative
    Report was an important step in bringing some clarity to the
    ICO market in explaining how securities laws apply to ICOs
    depending on the ``facts and circumstances.''
        Although the DAO report was helpful, I worry that a
    continued lack of clarity in ICO regulation will stifle
    innovation and, most importantly, leave investors at risk.
        Should the SEC do more to bring clarity to the ICO market?

    A.1. I share the concern that this rapidly growing market
    deserves immediate and close attention so that the SEC can help
    protect investors in this area. Like you, I was glad to see the
    SEC carefully examining the ICO market in its Investigative
    Report--and like you, I agree that the Investigative Report
    should only be the beginning of the SEC's work to protect
    investors in these markets.
        As an outsider to the Commission, I cannot say what steps
    the SEC can or should take to bring more clarity to this
    market. I can say, however, that the Commission should consider
    whether its existing rules provide sufficient guidance
    regarding these markets and, if not, what further guidance can
    be provided without impeding the innovations that are occurring
    in this important area. If confirmed, I would work with the
    SEC's Staff, my fellow Commissioners, and this Committee to
    ensure that the SEC takes all of the steps necessary to protect
    the investors participating in the ICO market--and to ensure
    that the innovations that can help unite entrepreneurs with
    willing capital are encouraged rather than impeded.

    Q.2. Aside from enforcement actions, what can the SEC do to
    provide certainty to the ICO market? Would a proposed
    rulemaking make sense?

    A.2. Again, as an outsider to the Commission, it is difficult
    for me to say what particular steps the SEC should take to
    address the issues in this important new area. The Commission
    should, however, be considering whether the evidence the SEC
    currently has about the use of these offerings, the likelihood
    of fraud, and the potential for continued growth in this area
    suggests that a rulemaking is necessary to protect investors.
    If confirmed, I would look forward to working with my fellow
    Commissioners and Staff on more fully understanding ICOs'
    evolving place in our markets and whether and when a rulemaking
    would be appropriate.

    Q.3. The SEC is about to implement the initial operating stage
    of the Consolidated Audit Trail (CAT). Exchanges will soon
    begin reporting to what will be a massive database, which will
    include a significant amount of highly sensitive information.
    In its second phase, CAT will begin receiving personally
    identifiable information (PII) of brokerage customers. The
    recent breach of the SEC's EDGAR database, however, calls into
    question the security of the SEC's information technology.
        Will you commit not to collect any PII until you are
    confident that CAT is not susceptible to a breach?

    A.3. The Consolidated Audit Trail was developed in order to
    make sure that the flash crash of 2010--a period of trading in
    which prices and volume swung uncontrollably, introducing
    volatility into markets around the world--never happens again.
    To do that, the SEC must have a detailed understanding of
    trading activity. That's why the CAT project is so important to
    the SEC's mission. To ensure fair and orderly markets, the
    Commission needs to know much more about trading patterns and
    the risks they might pose for our markets.
        I absolutely share your concern that any breach of any SEC
    system, and in particular the CAT, would have significant
    consequences for the safety and stability of our capital
    markets. That's particularly true if such a breach were to
    occur after the CAT began to store PII of American investors.
    And that's why, during my hearing, I indicated that the SEC's
    own cybersecurity would be among my top priorities as a
    Commissioner.
        Before coming to any conclusions regarding the CAT and its
    storage of PII, however, I would need more information
    regarding the years-long development of the CAT inside the SEC.
    In particular, I would need to better understand why the SEC's
    Staff concluded that having PII would be helpful in
    understanding the risks that gave rise to the flash crash--and
    what evidence and research might support that conclusion.
        However, as we discussed during the hearing, I do wonder to
    what degree PII is necessary to fulfill the objectives of the
    CAT. I understand that the Staff has been working on this
    technology for a number of years, and if confirmed, I would
    seek to understand the rationale for the design decisions of
    the CAT--and how that design can both protect investors and any
    PII that the system collects.

    Q.4. We usually think of outside hackers when we think of data
    security, but in numerous cases, individuals trusted with
    access to confidential data are actually the source of leaks--
    Chelsea Manning and Reality Leigh Winner come to mind. How
    should the SEC control access to CAT data within the agency?
    Should it allow other agencies or researchers access to CAT
    data?

    A.4. I share your concern that losing control of CAT data--
    whether through an outside hacker or a Government leaker--is
    unacceptable. As I mentioned at my hearing, the security of the
    SEC's own data would be among my highest priorities as a
    Commissioner--for just that reason.
        While I am familiar with the general specifications of the
    CAT, as an outsider I do not have sufficient information
    regarding the operational details of the system, including the
    internal controls and information-sharing policies that the
    Staff have already developed. If confirmed, I will work with
    the SEC's Staff and this Committee to gain deeper knowledge of
    what data will be gathered, analyzed, and stored as part of the
    CAT process--and make sure that any protocols governing sharing
    such information with outsiders serve the paramount goal of
    protecting information entrusted to the SEC.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
                      FROM ROBERT J. JACKSON, JR.

    Q.1. How can the SEC better define the scope of lawful trading-
    related activity defined in its rulemakings? Where is clarity
    most necessary?

    A.1. As I mentioned during the hearing, Congress and the SEC
    should be working to be sure the law of insider trading is
    keeping pace with our markets. For two generations, American
    insider trading law has been developed by judges on a case-by-
    case basis. While there are benefits to this approach, there
    are downsides, too. One is that the law develops slowly--too
    slowly, some have argued, to keep pace with insider trading in
    today's markets.
        With respect to an area in which clarity would be most
    helpful, recently courts have questioned the type of proof the
    Government must have with respect to the benefits an insider
    must receive in connection with leaks of material nonpublic
    information to traders. \1\ Uncertainty with respect to such a
    fundamental question is, in my view, a serious problem. The SEC
    can and should frequently clarify its view of the meaning of
    the insider trading laws. The Commission has not updated those
    rules for nearly 20 years, and in my view it is time for the
    Commission to look at these matters again. \2\
    ---------------------------------------------------------------------------
         \1\ Salman v. United States, No. 15-628, 137 S. Ct. 420 (2016);
    see also United States v. Martoma, 869 F.3d 58 (2d Cir. 2017).
         \2\ See Securities and Exchange Commission, supra note 6.

    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?

    A.2. There are a wide range of tools available to the SEC for
    making its view of insider-trading law clear to the markets.
    One, of course, is working with Congress to develop legislation
    that more clearly establishes the rules of trading in your own
    company's stock. Another--and one the SEC has used
    historically, but not recently--is to engage in formal
    rulemaking that clarifies the SEC's view of insider-trading law
    in light of recent developments in the courts. \3\ Another, as
    your question notes, is by providing guidance to companies and
    others regarding the SEC's expectations with respect to
    insider-trading activity.
    ---------------------------------------------------------------------------
         \3\ See Securities and Exchange Commission, ``Proposed Rules:
    Selective Disclosure and Insider Trading'', Release Nos. 33-7787, 34-
    42259, IC-24209, 17 CFR 230 (January 10, 2000).
    ---------------------------------------------------------------------------
        My research has previously pointed to time periods, and
    especially the periods before major corporate announcements,
    where companies and insiders should consider prohibiting
    trading activity. \4\ In this and other areas, companies could
    benefit from guidance from SEC Staff regarding the questions
    raised by insider-trading activity. This kind of clarity would
    help investors, companies, and insiders understand what the SEC
    expects of them when executives trade in their company's stock.
    If confirmed, I would look forward to working with the Staff
    and your office to ensure that market participants know what
    the law of insider trading requires--and can expect that law to
    be vigorously enforced.
    ---------------------------------------------------------------------------
         \4\ Alma Cohen, Robert J. Jackson, Jr., and Joshua Mitts, ``The 8-
    K Trading Gap'' (Columbia Law and Economics Working Paper) (2015).

    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. Yes: there is always some risk that regulatory
    intervention can give large, incumbent firms an advantage over
    smaller firms, just as there is always risk that a failure by
    regulators to intervene might leave investors unprotected from
    fraud. Indeed, as an empirical scholar of law and economics, I
    have a deep appreciation for the fact that the laws and
    regulations we promulgate often have both intended and
    unintended effects--and that regulators must pay attention to
    both.
        The best way to address this problem is for regulators
    developing new rules to pay careful attention to the needs of
    smaller businesses in developing those rules. That's why, if I
    am confirmed, I so look forward to helping to stand up the
    SEC's new Office of the Advocate for Small Business Capital
    Formation, which will better help Commissioners understand the
    perspective of smaller firms when developing new rules.

    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. Disclosure is at the heart of the SEC's mission to protect
    investors, and the Commission's disclosure rules have
    consistently evolved over time in response to changing investor
    interests, market dynamics, and Congressional mandates. In the
    remarks you refer to in your question, Chair White questioned
    whether certain mandates in the Dodd-Frank Act reflected an
    undesirable incorporation of ``social policy'' or ``political
    change'' into the securities laws. \5\
    ---------------------------------------------------------------------------
         \5\ Mary Jo White, Chairman, Securities and Exchange Commission,
    ``The Importance of Independence'' (Sommer Lecture at Fordham Law
    School) (Oct. 3, 2013).
    ---------------------------------------------------------------------------
        The SEC is an administrative agency, charged with enforcing
    and implementing the law that Congress and the President see
    fit to enact. It is not for particular Commissioners, even a
    Chair, to speculate about the motivations behind the statutory
    mandates that Congress has chosen. Regardless of a
    Commissioner's view of the wisdom of Dodd-Frank--or any law,
    for that matter--the SEC's obligation is to implement the will
    of the Congress. If confirmed, I intend to urge the Chairman
    and my fellow Commissioners to follow the law.

    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. Making information easier for investors to digest is an
    important part of the SEC's mission. But it's important to
    distinguish those efforts from simply reducing the amount of
    information available to investors. For generations, the
    Commission has followed Justice Brandeis's famous maxim that
    ``sunlight is said to be the best disinfectant.'' \6\ In my
    view, that rule has served investors well.
    ---------------------------------------------------------------------------
         \6\ Louis D. Brandeis, ``Other People's Money--And How Bankers Use
    It'', 22 (1914).
    ---------------------------------------------------------------------------
        Nevertheless, a great deal can and should be done to make
    sure investors have the tools necessary to find the information
    they need to evaluate the companies they own. In particular,
    technology may allow us to rethink how we structure our
    disclosure regime in a way that ensures investors have better
    access to high-quality information without letting firms avoid
    disclosing inconvenient material facts.
        In addition, in order to better structure disclosures in a
    way that serves investors, we need to learn more about how
    different types of investors--from smaller retail investors to
    large mutual funds and pension funds--consume the information
    that companies give them. A series of recent initiatives,
    including some led by the Office of the Investor Advocate, have
    begun to shed important light on those questions. \7\ If
    confirmed, I would look forward to working with the Staff and
    my fellow Commissioners to better understand how investors
    consume the information companies give them. And I would look
    forward to working with your office to ensure that disclosures
    are as helpful to investors as possible.
    ---------------------------------------------------------------------------
         \7\ See Securities and Exchange Commission Office of The Investor
    Advocate, ``Core Functions'' (2017) (describing the Office's efforts to
    assist retail investors and study investor behavior).

    Q.6. What role, if any, does the SEC have as a prudential
    ---------------------------------------------------------------------------
    regulator?

    A.6. The SEC's primary regulatory priorities are set forth in
    the agency's principal enabling statutes. Those priorities
    include the protection of investors, the maintenance of fair
    and orderly markets, and to facilitate capital formation.
        However, as we learned from the financial crisis--an event
    that devastated millions of American families and even today
    undermines investor confidence in our markets--modern financial
    institutions often cut across regulatory boundaries. When they
    do, gaps in regulatory oversight can have devastating
    consequences for our markets. For that reason, it's important
    for the SEC to engage, where appropriate, with prudential
    regulators such as the Federal Reserve Board of Governors,
    Federal Deposit Insurance Company, and Office of the
    Comptroller of the Currency. If confirmed, I would work with
    Chairman Clayton and those regulators to make sure that the
    kind of devastation American families suffered during the last
    financial crisis never happens again.

    Q.7. 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.7. In general, the SEC has long eschewed reviewing the merits
    of any particular investment choice. For example, in 1979, the
    Commission famously declined to engage in reviewing the
    fairness of any particular going-private transaction. \8\
    Instead, in that case and many others, the Commission has
    relied on a disclosure-based regulatory framework that depends
    on investors and issuers to evaluate the merits of investment
    decisions. That approach has generally served the Commission,
    and our Nation, well.
    ---------------------------------------------------------------------------
         \8\ See, e.g., Randal J. Brotherhood, Note, Rule 13e-3 and the
    ``Going Private Dilemma: The SEC's Quest for a Substantive Fairness
    Doctrine'', 58 Wash. U.L.Q. 883 (1980) (describing the SEC's initial
    proposal to have the Commission itself evaluate the substantive
    fairness of a going-private transaction, and the Commission's eventual
    decision to require only disclosure of the issuer's views regarding the
    fairness of such transactions).
    ---------------------------------------------------------------------------
        But it's essential to that approach that the SEC's
    disclosure rules evolve in light of changing investor
    interests, market dynamics, and external events in order to
    make sure that these rules give investors the information they
    need to make their own judgments about the substantive merits
    of any particular investment choice. If confirmed, I intend to
    work with my fellow Commissioners and the Staff to ensure that
    our disclosure rules keep pace with investors' needs in order
    to best support the SEC's disclosure-based approach to
    securities regulation.

    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?

    A.8. Yes. Congress and the SEC should always be thinking about
    how best to unite small businesses with the investors they need
    to grow their enterprises and our economy. Facilitating capital
    formation and the ability to access that capital has been one
    of the great catalysts of American entrepreneurship. Making
    sure that small businesses have a voice at the SEC is critical
    to the Commission's mission.

    Q.9. How will you work to improve small business capital
    formation and respond to our economy's near-historic low levels
    of firm creation?

    A.9. There are many explanations for recent changes in the
    number of public companies, and I think all of them are
    especially relevant to small businesses. For example, the
    capital-markets fees that a company must pay to go public are
    far higher in the United States than in other markets, giving
    entrepreneurs--and especially the kinds of small companies that
    lack market power over investment bankers--pause before listing
    their shares. And extensive acquisition activity over the past
    two decades has worked to combine thousands of public
    companies, reducing the number of listings on American
    exchanges, and putting smaller companies who choose to stay
    independent at a disadvantage. The SEC should consider all of
    these developments when examining how to make sure small
    business owners get the capital they need--and have incentives
    to create the companies that will power our economy for
    generations to come.
        In addition, recent legislation, and especially the JOBS
    Act, has been directed toward ensuring that entrepreneurs have
    access to the capital they need. The SEC's rules related to
    JOBS Act mandates are still relatively new, however, and it is
    too soon to tell whether they are working--and how they might
    be improved to help small businesses grow and better protect
    investors.
        The SEC will need to understand how markets and investors
    have responded to the JOBS Act before taking those steps. If
    confirmed, I would look forward to working with my fellow
    Commissioners and the Staff to make sure that the JOBS Act and
    related SEC rules do everything possible to unite entrepreneurs
    with the capital they need to grow our economy--while making
    sure investors are protected.

    Q.10. The SEC Small Business Advocate Act of 2016 created the
    Office of the Advocate for Small Business Capital Formation. If
    confirmed, will you work closely with this advocate and
    seriously consider the Office's recommendations?

    A.10. Yes. As I mentioned during the hearing, I think this
    Office will give small businesses a critical voice at the SEC,
    and if confirmed I will carefully consider its recommendations.

    Q.11. 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 not required
    to follow them. If confirmed, will you strongly consider
    supporting the recommendations of the Advisory Committee?

    A.11. Yes. The Commission's Advisory Committees should always
    play a critical role in Commissioners' deliberations. The
    reason is that those Committees often bring perspectives--
    whether experience as a shareholder, on the board of a public
    company, or running a broker-dealer entrusted with Americans'
    retirement savings--that Commissioners should consider before
    making any decisions.
        Because my research and work has always emphasized the
    facts on the ground--the real effects that law has on investors
    and companies--I expect to give great weight to the
    recommendations of these Committees if I am confirmed. In
    particular, the Small Business Capital Formation Advisory
    Committee and its recommendations will provide invaluable
    insight into the needs and concerns of small and emerging
    companies seeking capital. If confirmed, I look forward to
    working with my fellow Commissioners and the Staff to make sure
    that these voices are heard.

    Q.12. 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.12. Yes. I believe that understanding the costs and benefits
    of any particular regulatory or deregulatory choice is critical
    to the SEC's mission. Common sense demands that policymakers do
    whatever they can to understand the implications of their
    policy choices before they make their decisions. And so does
    the law: the courts have made clear that the SEC has an
    obligation to analyze costs and benefits to the degree possible
    in connection with rulemakings. \9\
    ---------------------------------------------------------------------------
         \9\ See, e.g., Bus. Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir.
    2011).
    ---------------------------------------------------------------------------
        As I noted at the hearing, however, I believe it is equally
    important for policymakers to be candid and clear about the
    limits of cost-benefit analysis. All of the potential costs and
    consequences of a decision--in law and in life--simply cannot
    be known in advance, and that fact should not be used as a
    basis for the SEC to fail to fulfill its mission. As an
    empirical scholar of law and economics, I am very familiar with
    the benefits--and limits--of cost-benefit analysis. If
    confirmed, I look forward to working with the Division of
    Economic and Risk Analysis to better understand its approach to
    cost-benefit analysis and to ensure that such analysis
    continues to play an important role in the SEC's work.

    Q.13. I'd like to discuss more about cybersecurity at the SEC.
    What--if anything--does the SEC need to do to improve its
    operational cybersecurity in light of recent events at the SEC?

    A.13. I share the concern that recent news of a breach of the
    SEC's EDGAR system could reflect significant issues with the
    SEC's operational cybersecurity. Without understanding the
    facts behind that and other recent developments, I am not in a
    position to assess the current State of the SEC's
    cybersecurity.
        However, as I mentioned at the hearing, if confirmed the
    SEC's cybersecurity would be among my highest priorities as a
    Commissioner. The Commission cannot fulfill its mission--nor
    can it expect public companies to take cybersecurity
    seriously--unless its operational cybersecurity is beyond
    reproach. If confirmed, I would look forward to working with my
    fellow Commissioners, the Staff, and Congress to make sure the
    SEC has the resources and subject-matter experts it needs to
    get this right.

    Q.14. The Consolidated Audit Trail (CAT) has been called the
    ``Fort Knox of Wall Street.'' \10\ What value do you see in
    fully implementing the CAT?
    ---------------------------------------------------------------------------
         \10\ Bob Pisani, ``Here's What Really Terrifies Wall Street About
    the SEC Hack'', CNBC.COM (Sep. 21, 2017).

    A.14. The Consolidated Audit Trail was developed in order to
    make sure that the flash crash of 2010--a period of trading in
    which prices and volume swung uncontrollably, introducing
    volatility into markets around the world--never happens again.
    To do that, the SEC must have a detailed understanding of
    trading activity. That's why the CAT project is so important to
    the SEC's mission. To ensure stable and fair markets, the
    Commission needs to know much more about trading patterns and
    the risks they might pose for our markets.
        The data that the CAT will make available to the SEC would
    help the Commission keep pace with the rapid changes in our
    markets. It will help us understand what caused the flash
    crash--and how to prevent one in the future. In addition,
    combining these data with recent advances in data science will
    help both policymakers and private companies craft measures
    that will improve the functioning of markets. I look forward to
    working with my fellow Commissioners and the Staff on this
    important initiative.

    Q.15. Are you worried that a breach of the CAT could compromise
    the confidential investment strategies of trading firms,
    particularly if the trade information could be reverse
    engineered or pose a broader systemic risk?

    A.15. Yes. I am concerned that any breach of any SEC system,
    and in particular the CAT, would have significant consequences
    for the safety and stability of our capital markets.
        As your question points out, one of those consequences
    might be the revelation of trading strategies with systemic
    consequences for our markets. Another unacceptable consequence
    could be that personally identifiable information (PII) might
    be compromised. That's why, during the hearing, I indicated
    that the SEC's own cybersecurity would be among my top
    priorities as a Commissioner. And that's why these questions
    will be among the first I will ask Chairman Clayton if I am
    confirmed.

    Q.16. Should the SEC explore alternatives to maintaining PII in
    the CAT? For example, would the SEC be able to fulfill its
    policy aims by requesting PII from individuals only when it is
    necessary for the SEC to fulfill its oversight duties?

    A.16. As an outsider it is difficult for me to know whether and
    why SEC Staff concluded that it was necessary for the CAT to
    collect PII. In particular, I cannot say why the Staff
    concluded that having PII would be helpful in understanding the
    risks that gave rise to the flash crash of 2010--and what
    evidence and research might support that conclusion.
        However, as we discussed during the hearing, I do wonder to
    what degree PII is necessary to fulfill the objectives of the
    CAT. I understand that the Staff has been working on this
    technology for a number of years, and if confirmed, I would
    seek to understand the rationale for the design decisions of
    the CAT--and how that design can both protect investors and any
    PII that the system collects.

    Q.17. In response to questions for the record from Senator
    Tillis during his confirmation process Chairman Clayton stated
    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 . . . .'' Do you agree?
    Is there a risk that Regulation SCI could create some
    cybersecurity risk by introducing an incentive for companies to
    focus more on complying with the regulation, instead of
    leveraging private sector resources to implement innovative
    cybersecurity techniques? If so, what steps should the SEC take
    to mitigate this risk?

    A.17. Cybersecurity risks are a constantly evolving threat and
    pose a fundamental risk to our markets. That's why, at the
    hearing, I described addressing those risks as among my top few
    priorities if I am confirmed as a Commissioner. And that's why
    I believe that the SEC should consider augmenting Regulation
    SCI in light of recent developments like Equifax. In
    particular, those changes should encourage exchanges to make
    the investments necessary to protect themselves and investors
    from the risk of a cybersecurity breach.
        I am aware of the concern that certain parts of Regulation
    SCI might hinder exchanges from making use of the latest
    technologies to protect themselves from cyberthreats. As an
    outsider to the Commission and its work, I am not yet able to
    assess the evidence underlying that concern--and what the SEC
    might do about it. If confirmed, I look forward to learning
    more about the Staff's experience in administering Regulation
    SCI. And I would be delighted to work with you and your office
    to ensure that Regulation SCI gives exchanges the incentives
    they need to protect investors from cyberthreats.

    Q.18. Some have proposed expanding the number of entities that
    should comply with Regulation SCI while others have proposed
    increasing transparency over which market centers are complying
    with Regulation SCI. What considerations would you take into
    account when evaluating this question?

    A.18. Without commenting on any particular question that might
    come before me as a Commissioner if I am confirmed, I want to
    be clear about what will motivate me when addressing issues
    like these. When it comes to cybersecurity, my priority will be
    the protection of our investors and our markets from
    cyberthreats that undermine the stability and growth of our
    economy.
        As an outsider to the Commission and its work, I cannot say
    whether expanding the reach of Regulation SCI or permitting
    widely-disclosed departures from those standards will achieve
    that goal in any particular case. To know the answer to that
    question, the SEC will need to study the risk to the broader
    economy of exchanges having inadequate cybersecurity defenses,
    the costs associated with exchanges adapting to new
    cybersecurity regulations, and especially the risks that
    consumers will face if firms handling sensitive personal data
    have lax cybersecurity protections. If confirmed, would I look
    forward to learning more about the Staff's experience on these
    questions. And I would look forward to working with you and
    your office to make sure investors and markets are protected
    from cybersecurity threats.

    Q.19. Should the SEC update its cybersecurity disclosure
    guidelines for public companies?

    A.19. Yes. I agree with Chairman Clayton that cybersecurity is
    an area where there is not enough disclosure. I'm particularly
    concerned that the rules governing current reports on Form 8-K
    have not kept pace with these developments--and do not make
    clear to public companies the urgency of disclosures related to
    cybersecurity breaches.
        Our markets, and the American public, need swift and clear
    disclosure when their personal information is compromised in
    cybersecurity breaches. If confirmed, I will work with the
    Chairman, my fellow Commissioners, and the Division of
    Corporation Finance to update these rules in a fashion that
    makes clear the importance of cybersecurity risk to public-
    company investors.

    Q.20. How should the SEC ensure that any cybersecurity
    disclosure guidelines for public companies require only timely
    and material disclosure instead of that which is extraneous and
    untimely?

    A.20. The best way to make sure our disclosure rules serve
    investors is to make sure they are updated to reflect the
    reality investors face in modern markets. Cybersecurity issues
    are a dynamic and evolving threat, and require dynamic rules to
    make sure investors get the information they need about those
    threats--which is why I favor reassessing whether these rules
    adequately address cybersecurity.
        The materiality standard, which governs disclosures of this
    type, requires us to ask whether a reasonable investor would
    think the information relevant to the total mix of information
    they consider when making investment decisions. Use of this
    standard has, for decades, helped ensure that corporate
    disclosures are relevant and timely. If confirmed, I look
    forward to working with my fellow Commissioners to ensure that
    critical cybersecurity risks are promptly disclosed to
    investors and the American public.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                      FROM ROBERT J. JACKSON, JR.

    Q.1. In brief, what is the SEC currently doing right, what
    needs to change, and how do you plan on prioritizing your time,
    should you be confirmed?

    A.1. The breadth and depth of the SEC's mission--protecting
    investors in the largest, deepest capital markets in the
    world--reflects an enormous privilege and responsibility. As an
    outsider to the agency, it is clear that the SEC has taken
    important steps to improve its effectiveness in the years since
    the financial crisis. But, as we discussed during the hearing,
    there is still a great deal of work to do. If I am confirmed, I
    would focus my time on the following three priorities.
        The first is cybersecurity. As I mentioned during the
    hearing, I think recent events both at the SEC and public
    companies have taught us that we have a long way to go in
    making sure that our securities regulators have the tools and
    technologies they need to keep up with the changing
    marketplace. The SEC cannot fulfill its mission if it cannot
    assure investors that both its own systems, and the systems of
    the public companies it regulates, are protected from
    cybersecurity breaches. I hope to work closely with Chairman
    Clayton, my fellow Commissioners, and the Staff to make sure
    that the information that Americans entrust to the SEC and to
    public companies is better protected.
        Second, I would focus on finishing the rules required by
    Dodd-Frank. The SEC's failure to do so in the 7 years since the
    passage of that law has harmed investors, companies, and the
    morale of the SEC Staff itself. It has also exposed investors
    to risks that Congress has ordered be addressed, for example by
    failing to make sure that public companies have clawback
    policies in place that require executives to give back pay they
    were awarded by mistake. If confirmed, I would urge the
    Chairman and my fellow Commissioners to follow the law and
    finish these rules.
        Finally, I would focus on holding individuals accountable
    for financial fraud. In particular, the SEC should be thinking
    about how to modernize the law of insider-trading to deal with
    the changes that have occurred in securities markets over the
    last two decades. The SEC should also work with FINRA to ensure
    that investors have better information on the stockbrokers most
    likely to commit fraud. Making sure that individuals who engage
    in insider trading or investor fraud pay the price is critical
    to the SEC's mission, and more can and should be done on that
    front.

    Q.2. Do you believe that private capital being put into
    underperforming companies can improve the company's
    performance?

    A.2. As I have previously written, there is significant
    evidence that investors like these can help hold corporate
    management's feet to the fire, especially at underperforming
    companies--and that this work can be good for all investors and
    the economy more generally. \1\ There is also evidence,
    however, that these investors can engage in counterproductive
    tactics that undermine long-term value creation. \2\
    ---------------------------------------------------------------------------
         \1\ See, e.g., Lucian Bebchuk and Robert J. Jackson, Jr., ``The
    Law and Economics of Blockholder Disclosure'', 2 Harv. Bus. L. Rev. 39
    (2012).
         \2\ See, e.g., Leo E. Strine, Jr., ``Who Bleeds When the Wolves
    Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our
    Strange Corporate Governance System'', 126 Yale L.J. 1870 (2017).
    ---------------------------------------------------------------------------
        Capturing the benefits of private capital--the corporate
    accountability and growth that have so often been associated
    with such investments--while minimizing the costs of those
    tactics is critical to ensuring the growth of the American
    economy. If confirmed, I would very much look forward to
    working with my fellow Commissioners, and your office, to
    ensure that our securities laws are up to that task.

    Q.3. Do you believe that curbing more private investment would
    help underperforming companies?

    A.3. No. Private investment in underperforming companies is an
    important source of accountability. Corporate management knows
    that, if the firm performs poorly, a private investor may well
    intervene and demand better performance on behalf of all
    shareholders. This knowledge--even, and perhaps especially, for
    managers who are never the target of such an investment--
    encourages executives to do everything they can to ensure that
    the company performs well.

    Q.4. Do you agree that private capital being put into companies
    leads to more transparency and communications with existing
    shareholders?

    A.4. Private investors often encourage other investors to pay
    attention to particular issues that are undermining the
    company's performance. \3\ Because private investors usually
    cannot force change at public companies by themselves, they
    must persuade other shareholders that their ideas are best for
    the company. That process can often improve transparency and
    communication among all of the company's shareholders--as well
    as the company's management, who also has an opportunity to
    persuade investors that their strategy is right for the company
    over the long term.
    ---------------------------------------------------------------------------
         \3\ See, e.g., Ronald J. Gilson and Jeffrey N. Gordon, ``The
    Agency Costs of Agency Capitalism: Activist Investors and the
    Revaluation of Governance Rights'', 113 Colum. L. Rev. 863 (2013).

    Q.5. Do you agree that corporate CEOs are more responsive to
    ---------------------------------------------------------------------------
    the market today than they were in the past?

    A.5. Yes: recent corporate governance reforms, including those
    regarding director independence, executive pay, and shareholder
    proposals have encouraged CEOs to be increasingly responsive to
    shareholders. But let's be clear: there is still a great deal
    of work left to do. As I indicated during the hearing, it is
    not my sense that what corporate America is suffering from is
    too much accountability.

    Q.6. Do you believe that restricting or making it harder for
    private capital to invest in American companies is a good idea?

    A.6. No: in general, the benefits that private investors
    offer--by holding corporate managers' feet to the fire and
    making sure they are working hard for all investors--are
    critically important to the health of American companies and
    the broader economy. Making it harder for private investors to
    do that work is unlikely to be beneficial for the investors who
    depend on the growth of the economy to fund their child's
    education and their retirements.
        However, it is also important to acknowledge that these
    investors can engage in counterproductive tactics--like using
    undisclosed derivative positions to attack unsuspecting
    companies and their constituents--that deserve immediate
    attention from the SEC. If confirmed, I look forward to working
    with the Chairman, my fellow Commissioners, and the SEC's Staff
    to ensure that American investors continue to receive the
    benefits of private investment in their companies--while
    reducing the costs of some investors' counterproductive
    behavior.

    Q.7. Do you believe that private capital should be flexible and
    adaptive to quickly changing circumstances?

    A.7. Yes. One of the many benefits of private investments in
    public companies is that private capital can often respond
    quickly to the changing needs of the company and the economy.
    As I have previously noted in my research, these benefits are
    especially valuable when private capital is invested in
    companies over the longer term. \4\ In those cases, the
    presence of private capital can help make sure that corporate
    management is working toward the kind of long-term value
    creation upon which investors, employees, and our economy rely.
    ---------------------------------------------------------------------------
         \4\ Robert J. Jackson, Jr., ``Private Equity and Executive
    Compensation'', 60 UCLA L. Rev. 638, 658 (2013) (documenting the
    relationship between CEO incentives to maximize firm value and long-
    term private-equity investments in companies that the investor has
    taken public).

    Q.8. Do you think that the current IPO market is at its peak?
    What could we be doing to facilitate more entrants into the
    public markets? What are some determinative factors that
    companies evaluate when making a decision to enter into the
    public markets? Do you think that some of these factors have
    served as preclusive, often determinative factors for a company
    deciding not to enter the public marketplace? How do public
    ---------------------------------------------------------------------------
    companies affect job creation and economic growth?

    A.8. There are a wide range of reasons why many companies today
    are choosing not to go public, and all of them deserve the
    SEC's attention. For example, we now have deeper and more
    robust private capital markets than ever before, which allows
    companies to stay private for far longer than they once could.
    For another, the capital-markets fees that a company must pay
    to go public are far higher in the United States than in other
    markets, giving entrepreneurs pause before listing their
    shares. And the pressure public companies face to meet
    quarterly earnings estimates, rather than to grow the company
    over the long term, no doubt can encourage some companies to
    stay private rather than go public.
        Public companies are critical to job creation and the long-
    term economic growth of our Nation, and I am committed to
    ensuring that we are doing all we can to encourage companies to
    go public in American markets. Chairman Clayton has made clear
    that this issue is a priority for him, and I look forward to
    working with the Chairman and my fellow Commissioners to help
    encourage companies to raise capital in our public markets--and
    make sure that investors are protected in the process.

    Q.9. Do you think that the SEC should have a formalized
    retrospective review process, much like prudential regulators
    have, by which the SEC can take a holistic look at its rules
    and regulations and decide which ones are outmoded,
    ineffective, burdensome, etc., or similarly decide which ones
    need to be changed and modernized?

    A.9. I believe that the Commission should consistently review
    its rules to make sure that those rules give investors the
    information they need about the companies they own. To the
    degree that SEC rules are outmoded, ineffective, or burdensome,
    modernizing those rules is a critical task, and several rules
    have gone far too long without needed updates. \5\
    ---------------------------------------------------------------------------
         \5\ For example, as I have noted in my research, the rules
    governing current disclosure on Form 8-K--that is, the rules that
    govern the rapid updates that investors depend upon to learn about new
    corporate developments--have not been carefully examined for more than
    a decade. See, e.g., Alma Cohen, Robert J. Jackson, Jr., and Joshua
    Mitts, ``The 8-K Trading Gap'' (Columbia Law and Economics Working
    Paper) (2015); see also Securities and Exchange Commission, Additional
    Form 8-K Disclosure Requirements and Acceleration of Filing Date,
    Release Nos. 33-8400, 34-49424, 17 CFR 228 (Aug. 23, 2004).
    ---------------------------------------------------------------------------
        As an outsider to the Commission and its work, it is
    difficult for me to say whether formalizing the retrospective
    review process would be beneficial. To know the answer to that
    question, the SEC should investigate, among other things, why
    so many key rules have gone so long without modernization or
    revision and what Staff resources are available for that work.
    If confirmed, I would look forward to working with the Staff
    and my fellow Commissioners to answer those questions--and to
    make sure our rules are keeping up with the demands of modern
    markets and investors.

    Q.10. How do you plan on working with the CFTC to address
    harmonization issues?

    A.10. Because the SEC's and CFTC's work has so often
    overlapped--especially in light of the activities in today's
    markets that cut across traditional regulatory boundaries--
    coordination and harmonization among the agencies' rules is
    critical to maintaining fair and orderly markets. I am aware
    that the Staff of both agencies have worked extensively to take
    steps toward better harmonization in the past, including with
    respect to the regulation of investment advisers, \6\ and have
    also reviewed the joint report on harmonization that both
    agencies prepared in the wake of the financial crisis. \7\
    ---------------------------------------------------------------------------
         \6\ See, e.g., Commodity Futures Trading Commission,
    ``Harmonization of Compliance Obligations for Registered Investment
    Companies Required To Register as Commodity Pool Operators'', RIN 3038-
    AD75, 17 CFR Part 4 (Aug. 12, 2013).
         \7\ Commodity Futures Trading Commission and Securities and
    Exchange Commission, ``A Joint Report of the SEC and the CFTC on
    Harmonization of Regulation'' (Oct. 16, 2009).
    ---------------------------------------------------------------------------
        Although this work has been important, I understand that
    there is more to be done to address the sometimes-overlapping
    regulations governing the work of the SEC and CFTC. If
    confirmed, I would look forward to working with my fellow
    Commissioners, the Staff, your office, and Commissioners at the
    CFTC to ensure that the agencies provide consistent and clear
    guidance to market participants.

    Q.11. With regard to cyber infrastructure and enforcement
    actions, what do you think the SEC is doing right and what
    would you change?

    A.11. As an outsider to the agency and its work, I am not in a
    position to assess the SEC's cybersecurity infrastructure. As
    we discussed during the hearing, however, I am deeply concerned
    by the recent revelations regarding the cybersecurity breach of
    the SEC's EDGAR system--so much so that I have placed securing
    the SEC's systems among my top few priorities. If I am
    confirmed, the first question I will ask Chairman Clayton is
    exactly what happened that made the SEC's systems vulnerable to
    such a breach--and what we need to do to make sure it never
    happens again.
        With respect to enforcement, while taking care not to
    speculate regarding particular enforcement actions that may
    come before me if I am confirmed as a Commissioner, I want to
    be clear: the SEC can and should make far better use of data
    science to make its enforcement efforts more efficient and
    effective. My previous research has used those technologies to
    show how the SEC could more easily identify potential cases.
    \8\ I believe that these techniques could help us to better
    understand the circumstances and larger trends behind where
    we'll find bad actors--and make it easier for us to hold them
    accountable.
    ---------------------------------------------------------------------------
         \8\ See, e.g., Alma Cohen, Robert J. Jackson, Jr., and Joshua
    Mitts, ``The 8-K Trading Gap'' (Columbia Law and Economics Working
    Paper) (2015).

    Q.12. The Treasury Capital Markets report touched on potential
    changes to best execution and potential changes to market
    structure issues, particularly in the context of Reg. NMS. Can
    you give me your thoughts on what you view as potential areas
    ---------------------------------------------------------------------------
    for reform within the context of Reg. NMS?

    A.12. Fundamentally, the SEC's role in the regulation of
    capital markets more generally--and trading venues in
    particular--is to make sure that American investors get the
    level playing field they deserve, and pay a fair price when
    they buy shares of public companies. Regulation NMS was an
    important step toward reducing trading costs and increasing
    liquidity in our equity markets, both important goals.
        But Regulation NMS is now over a decade old, and I am aware
    of the concerns that the rule has added complexity to our
    capital markets--and that these markets are now characterized
    by fragmentation that harms investors. In light of the rapid
    changes in these markets, it may well be time for the SEC to
    reassess the degree to which these rules continue to be
    sufficient to protect investors. The Equity Market Structure
    Advisory Committee has provided important guidance to the
    Commission in this respect. \9\ If confirmed, I would look
    forward to working with my fellow Commissioners, the Staff, and
    your office to explore the degree to which Regulation NMS needs
    to be modernized.
    ---------------------------------------------------------------------------
         \9\ See, e.g., SEC Equity Market Structure Advisory Committee,
    ``Recommendations Regarding Modifying Rule 605 and Rule 606'' (Nov. 29,
    2016).

    Q.13. 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 this body that you will work
    with the Committee in tackling some of the languishing issues
    that have been pervasive in market structure over the last 10+
    ---------------------------------------------------------------------------
    years?

    A.13. Yes: If confirmed, I will work with the Committee to
    tackle any market-structure issues that are keeping our market
    venues from offering American investors a fair price. As your
    question points out, our markets are rapidly evolving, and that
    is especially true in the area of market structure, where
    frequent updates to SEC rules may be needed to ensure our law
    keeps pace with the markets. In particular, I am aware of the
    concern that legal changes and other factors have led to
    fragmentation that harms investors. In light of the rapid
    changes in these markets, it may well be time for the SEC to
    reassess whether these rules continue to be sufficient to
    protect investors.
        Separately, although a great deal of time and regulatory
    attention has been given to the structure of our equity
    markets, millions of Americans--especially those at or near
    retirement--also rely on the structure of our debt markets to
    give them the best possible price for their investments.
    Although these debt markets are crucial to American families,
    they have received relatively scant attention. That is why I
    was delighted to see Chairman Clayton announce his interest in
    forming a Fixed Income Market Structure Advisory Committee.
    \10\ If confirmed, I would work with the Chairman and my fellow
    Commissioners to make sure that American investors can rely on
    the structure of our debt markets to help them prepare for and
    fund their retirement plans.
    ---------------------------------------------------------------------------
         \10\ See Jay Clayton, Chairman, Securities and Exchange
    Commission, Remarks at the Economic Club of New York (July 12, 2017).

    Q.14. 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?

    A.14. I share your concern that, in a world with increasing
    cybersecurity threats, SEC rules must evolve in a way that
    promotes information-technology modernization. That's why I
    agree with Chairman Clayton that cybersecurity is an area where
    there is not enough disclosure--and, as your question suggests,
    that is especially true at financial-services firms entrusted
    with millions of Americans' financial information.
        In particular, I'm concerned that our disclosure rules, and
    especially the rules governing Form 8-K, have not kept pace
    with these developments--and do not make clear to public
    companies the urgency of disclosures related to cybersecurity
    breaches. If confirmed, I will work with the Chair, my fellow
    Commissioners, and the Division of Corporation Finance to
    update these rules in a fashion that makes clear the importance
    of cybersecurity risk to public-company investors.
        Regarding IT modernization at the SEC itself, I share the
    concern that recent news of a breach of SEC systems reflects
    significant issues with the SEC's operational cybersecurity.
    Without understanding the facts behind that and other recent
    developments, I am not in a position to assess the current
    State of the SEC's information-technology resources. However,
    as I mentioned at the hearing, if confirmed the SEC's
    cybersecurity would be among my highest priorities as a
    Commissioner. The Commission cannot fulfill its mission--nor
    can it expect public companies to take cybersecurity
    seriously--unless its own house is in order.

    Q.15. How will you ensure that regulations set by the SEC do
    not impede progress on IT modernization?

    A.15. I share your concern that SEC rules in this area must
    encourage, rather than impede, corporate investments in the
    kind of information-technology infrastructure that can protect
    Americans' data from cybersecurity threats. That includes not
    only the disclosure rules you referred to in your previous
    question, but also Regulation SCI--which, some have argued, may
    inadvertently discourage exchanges from adopting the latest
    technology to defend against cyberthreats.
        As an outsider to the Commission and its work, I am not yet
    able to assess the evidence underlying that and other concerns
    in this area--and what the SEC might do about it. Factors the
    SEC should be focused on, however, include the risk to the
    broader economy of cybersecurity breaches, the costs associated
    with adapting to new cybersecurity regulations, and the risks
    consumers face if those handling sensitive personal data have
    lax cybersecurity protections. If confirmed, I look forward to
    learning more about the Staff's experience in administering
    these rules. And I would be delighted to work with you and your
    office to ensure that all of the SEC's rules--including those
    governing Form 8-K and Regulation SCI--give American companies
    the incentives they need to protect investors from
    cyberthreats.

    Q.16. With regard to corporate disclosures, what standard
    should be used to determine whether or not something is
    disclosed?

    A.16. As I mentioned during the hearing, the concept of
    materiality is the touchstone of our Federal disclosure rules.
    This standard--which asks whether particular information would
    be relevant to the total mix of information a reasonable
    investor would use when making an investment decision--has
    served American investors and public companies well for
    generations.
        As I have written before, the best way to know whether
    something is material--that is, whether it's important to
    investors--is to ask investors. That's certainly what the
    Commission has done in the past. For example, the SEC's rules
    regarding executive compensation were developed in response to
    significant investor interest in those matters. \11\ Our
    markets have evolved rapidly over the past 10 years, and I'm
    concerned that the Commission's disclosure rules haven't kept
    pace with investors' needs.
    ---------------------------------------------------------------------------
         \11\ See Securities and Exchange Commission, Executive
    Compensation Disclosure, Release No. 33-6940, 57 FR 29,582 (1992)
    (listing the shareholder-proposal activity related to executive pay at
    several large, public companies as a basis for promulgating disclosure
    rules on executive compensation).
    ---------------------------------------------------------------------------
        It is an essential part of the SEC's task to ensure that
    the Commission's disclosure rules continue to evolve in order
    to make sure that investors have the information they need to
    evaluate the companies that they own. If confirmed, I will urge
    Chairman Clayton, my fellow Commissioners, and the Staff to
    update our disclosure rules to give investors that information.

    Q.17. On February 24, 2017, President Trump signed an Executive
    Order on Enforcing the Regulatory Reform Agenda, part of which
    focused on identifying regulations that are ``outdated,
    unnecessary, and ineffective.'' Given recent technological
    advances, one area of particular focus should be regulations
    requiring paper-based communications as the default delivery
    method in communicating with investors and consumers. Such
    regulations are prime examples of regulations that were first
    adopted decades ago and have failed to evolve with the times.
        If confirmed, will you work to ensure that the SEC
    identifies and modifies outdated regulations regarding paper-
    based communications?

    A.17. I believe that the Commission should consistently review
    its rules to make sure that those rules give investors the
    information they need about the companies they own. To the
    degree that SEC rules are outmoded--as many rules requiring
    paper-based communications may be today--modernizing those
    rules is a critical task.
        While I would not want to comment on any specific proposal
    that may come before me as a Commissioner if I am confirmed, I
    would look forward to working with SEC Staff, fellow
    Commissioners, and this Committee to identify any outdated
    regulations--including regulations mandating paper-based
    communications--that may no longer serve investors.

    Q.18 Do you believe the recent action by the SEC regarding
    MiFID II was appropriate? If you do not, how would you have
    addressed this issue?

    A.18. I understand that the Division of Investment Management
    and the Division of Trading and Markets recently issued time-
    limited no-action letters in this area. Because these matters
    may well be raised before the full Commission in the future, I
    hesitate to comment specifically on questions that may come
    before me as a Commissioner.
        Nevertheless, I want to be clear: it is crucial that
    American investors know who pays for research on public company
    stocks and what those researchers' financial incentives are.
    The European approach to this problem--that is, MiFID II--
    reflects one way to give investors that information. But it is
    not the only way to make sure that investors know who is
    producing equity research and who is paying for it. If
    confirmed, I look forward to working with the Staff in both the
    Division of Investment Management and the Division of Trading
    and Markets to understand the reasoning behind their recent
    letters--and their thinking about longer-term solutions in this
    area.

    Q.19. Do you think that the U.S. and the SEC should import
    standards from other countries?

    A.19. When considering how best to develop new legal standards,
    my approach is often to draw on as much data and experience as
    possible. While the experience of other countries can be
    helpful in this respect, it is always important to keep in mind
    that one size does not fit all--and that American markets are
    truly unique. We are fortunate to have the largest, deepest and
    most diverse capital markets in the world. Lessons from other
    jurisdictions may be useful in informing the way we think about
    our own law, but at bottom American securities law must be the
    right fit for American investors and companies.
        Nevertheless, it is essential that U.S. regulators engage
    with international counterparts and make sure our positions are
    made clear on a wide range of regulatory questions that apply
    across national boundaries. The SEC, through its Office of
    International Affairs, has an important voice in international
    standard-setting bodies, and if confirmed I look forward to
    working with Staff, my fellow Commissioners, and our
    international counterparts to help make sure that American
    investors' interests are protected in capital markets around
    the world.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR MENENDEZ FROM ROBERT J. JACKSON, JR.

    Q.1. In your testimony, you highlighted enforcement and
    prosecution of insider trading as top priorities. If confirmed,
    what recommendations will you make to Chairman Clayton to
    strengthen the ability of the enforcement division to hold
    accountable those that violate Federal securities laws?

    A.1. I believe that holding corporate executives accountable
    when they violate the law is critical to maintaining trust in
    our financial system. There are two specific enforcement-
    related areas that deserve attention at the SEC.
        First, if confirmed I will work with Chairman Clayton and
    the Division of Enforcement on using data science to make the
    process of identifying and litigating securities-fraud cases
    more efficient. My previous research has used those
    technologies to show how the SEC could more easily identify
    potential cases. I believe that these techniques could help us
    to better understand the circumstances and larger trends behind
    where we'll find bad actors--and make it easier for us to hold
    them accountable. \1\
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         \1\ See, e.g., Alma Cohen, Robert J. Jackson, Jr., and Joshua
    Mitts, ``The 8-K Trading Gap'' (Columbia Law and Economics Working
    Paper) (2015).
    ---------------------------------------------------------------------------
        Second, as I noted during the hearing, I think it is time
    for the Commission and the Congress to consider whether the law
    of insider trading in particular is keeping pace with our
    markets. One reason that so few corporate insiders are held
    accountable is that the burdens of proof the Government faces
    in these cases were designed by common-law judges decades ago.
    The last time the SEC proposed updates to its rules in this
    area--updates that were designed to address uncertainty created
    by the courts--was nearly 20 years ago. \2\ The scope and
    nature of corporate fraud has changed a great deal since then,
    and it may well be time for the SEC and Congress to clarify and
    strengthen our insider trading laws.
    ---------------------------------------------------------------------------
         \2\ See Securities and Exchange Commission, Proposed Rules:
    Selective Disclosure and Insider Trading, Release Nos. 33-7787, 34-
    42259, IC-24209, 17 CFR 230 (January 10, 2000) (noting that those rule
    proposals, like those that could be advanced by the SEC today,
    ``clarif[ied] two unsettled issues under current insider trading
    law.'').

    Q.2. In response to Chairman Crapo's questions, you raised the
    law of insider trading and you highlighted a concern that
    recent events may have caused investors to wonder whether the
    SEC is ``really the cop on the beat we need to make sure that
    investors are getting a fair deal.'' Can you expound on this?
    In your opinion, does Congress need to codify insider trading
    law or make other changes to our Federal securities laws to
    ensure the SEC has the necessary authority to hold wrongdoers
    ---------------------------------------------------------------------------
    accountable?

    A.2. Yes: Congress and the SEC should be thinking about
    updating the law of insider trading. For two generations,
    American insider trading law has been developed by judges on a
    case-by-case basis. There are many well-documented benefits to
    this approach, including drawing on the extraordinary wisdom of
    the judges who sit on our Nation's Federal bench. One downside
    of this regime, however, is that the law develops slowly--too
    slowly, some have argued, to keep pace with modern markets.
        In particular, a recent series of cases have raised
    questions regarding the Government's burden of proof with
    respect to the benefits an insider must receive in connection
    with leaks of material nonpublic information to traders. \3\
    Uncertainty with respect to such a fundamental question of an
    insider's obligations to investors is, in my view, a serious
    problem. The SEC can and should frequently clarify its view of
    the meaning of the insider trading laws. As noted above, the
    Commission has not done so for nearly 20 years, and in my view
    it is time for the Commission to look at these matters again.
    \4\
    ---------------------------------------------------------------------------
         \3\ Salman v. United States, No. 15-628, 137 S. Ct. 420 (2016);
    see also United States v. Martoma, 869 F.3d 58 (2d Cir. 2017).
         \4\ See Securities and Exchange Commission, supra note 6.

    Q.3. The concept of ``materiality'' is defined by the SEC as
    information that a reasonable investor could find important in
    determining whether to buy or sell securities. Can you explain
    how you think about the definition of materiality and whether
    you see emerging ``material'' areas--namely environmental,
    social, and governance topics--where the SEC should be
    ---------------------------------------------------------------------------
    increasing disclosure?

    A.3. My view is that one way to know whether something is
    material--that is, whether it's important to investors--is to
    ask investors. That's certainly what the Commission has done in
    the past. For example, the SEC's rules regarding executive
    compensation were developed in response to significant investor
    interest in those matters. \5\ Our markets have evolved rapidly
    over the past 10 years, and I'm worried that the Commission's
    disclosure rules haven't kept pace with investors' needs.
    ---------------------------------------------------------------------------
         \5\ See Securities and Exchange Commission, ``Executive
    Compensation Disclosure'', Release No. 33-6940, 57 FR 29,582 (1992)
    (listing the shareholder-proposal activity related to executive pay at
    several large, public companies as a basis for promulgating disclosure
    rules on executive compensation).
    ---------------------------------------------------------------------------
        In particular, as your question suggests, investors have
    recently expressed extensive interest in matters that companies
    are often not disclosing. For example, information regarding a
    company's spending on politics has been the most common subject
    of shareholder proposals over the last decade. \6\ As recent
    events have made clear, companies have not consistently taken
    the view that cybersecurity breaches demand prompt disclosure.
    And shareholder proposals asking companies to disclose the
    risks related to climate change are receiving ``historically
    high levels of support.'' \7\
    ---------------------------------------------------------------------------
         \6\ ``Sharkrepellent Dataset of Factset Research Systems, Inc.'',
    Proxy Proposals, available at https://www.Sharkrepellent.net.
         \7\ Thomas Singer, ``Environmental and Social Proposals in the
    2017 Proxy Season'', Harv. F. on Corp. Gov. and Fin. Reg. (Oct. 26,
    2017).
    ---------------------------------------------------------------------------
        It is an essential part of the SEC's task to ensure that
    the Commission's disclosure rules continue to evolve in order
    to make sure that investors have the information they need to
    evaluate the companies that they own. If confirmed, I will urge
    Chairman Clayton, my fellow Commissioners, and the Staff to
    update our disclosure rules to give investors that information.

    Q.4. I worked to include a provision in the Dodd-Frank Wall
    Street Reform and Consumer Protection Act to require publicly
    listed companies to disclose in their annual filing the ratio
    of their CEO's total compensation to their median worker's
    compensation. In August 2015, after 5 years of delays, I was
    pleased to see the SEC finally adopted a rule implementing
    953(b) of Dodd-Frank.
        If confirmed, will you commit to ensure that this rule is
    properly implemented? Will you work to ensure that provisions
    included by the Commission to facilitate compliance do not
    inadvertently open loopholes for companies looking to evade
    this requirement?

    A.4. Yes. I have long shared your concern that the Commission
    took far too long to implement the rules required by Dodd-
    Frank, including the provision requiring disclosure of the
    ratio between the CEO's compensation and that of the median
    employee. As I noted at the hearing, Dodd-Frank is the law of
    the land--and has been for 7 years. It is time that the SEC and
    public companies comply with the law, and I'm delighted that
    this Spring American companies will finally disclose these
    ratios to the public.
        As companies prepare to file those disclosures this
    Spring--and every year going forward--it will be critical to
    ensure that the Division of Corporation Finance carefully
    monitors compliance with the rule, and directs companies to
    give clear, concise and candid information. If confirmed, I
    will absolutely work to make sure investors get that kind of
    information.

    Q.5. In light of the sweeping good faith efforts flexibility
    provided to companies by the Commission's September 2017
    interpretive guidance, will you commit to supporting
    enforcement actions against companies that fail to provide
    disclosures in compliance with the requirements of the rule?

    A.5. Yes. Without commenting on any particular matter that may
    come before me as a Commissioner if I am confirmed, I can say
    without reservation that I would support enforcement actions
    against companies that fail to comply with the law--including
    the requirement that firms disclose the ratio between the CEO's
    and their median worker's pay.
        Disclosure rules like these, and the transparency they give
    investors, have been at the heart of the SEC's mission for
    generations. We have to take these rules seriously, and that
    means aggressively enforcing the securities laws when companies
    or individuals fail to comply with SEC rules.

    Q.6. As you know, the SEC adopted a rule in 2009 requiring
    publicly traded companies to disclose more information on
    director selection and diversity. Many, including former SEC
    Chair White, have expressed concerns that the current rule may
    be inadequate and that shareholders need more comprehensive
    information to make informed investment and voting decisions.
        How does the disclosure of specific details about the
    diversity of corporate boards assist shareholders in making
    informed investment and voting decisions?

    A.6. As your question points out, disclosure regarding the
    diversity of corporate boards is not only the right thing to
    do, but it's the law: the SEC has required such disclosure for
    years. The reason is that investors have long argued that
    understanding a company's approach to boardroom diversity--and
    the benefits it can bring--helps make sure the board has the
    expertise and perspectives it needs to run the firm well. \8\
    ---------------------------------------------------------------------------
         \8\ See, e.g., Ryan Vlastelica, ``Vanguard Calls for More Diverse
    Corporate Boards, Better Climate-Change Disclosures'', Marketwatch
    (Sept, 1, 2017).
    ---------------------------------------------------------------------------
        I share former Chair White's concern that existing SEC
    rules on this issue have proved inadequate. Women and
    minorities are astonishingly underrepresented on the boards of
    U.S. public companies, to the dismay of investors and employees
    alike. At a minimum, the SEC should make sure that companies
    are giving investors basic information about how the companies
    they own have considered diversity when assembling their
    directors. If confirmed, I will absolutely work with the
    Division of Corporation Finance to make certain that our rules
    give investors that information.

    Q.7. One of the problems identified with the 2009 rule is the
    Commission's decision not to define diversity. Do you think the
    failure to define diversity in the rule undermines the value of
    the information provided in the current disclosure regime?

    A.7. While I understand that the Staff declined to define
    diversity in order to allow issuers to use the definition most
    suited to its business model, time and experience have shown
    that the lack of guidance in this area has left both companies
    and investors without the information they need regarding
    boardroom diversity. In fact, the SEC Advisory Committee on
    Small and Emerging Companies recommended nearly a year ago that
    the SEC provide guidance on this issue, and the SEC's failure
    to do so has made it unnecessarily costly for investors and
    companies to comply with the law. \9\
    ---------------------------------------------------------------------------
         \9\ Securities and Exchange Commission Advisory Committee on Small
    and Emerging Companies, Recommendation Regarding Corporate Board
    Diversity (February 16, 2017).
    ---------------------------------------------------------------------------
        More importantly, the Commission's failure to enforce its
    own rule in this area has raised real questions among issuers
    and investors about the SEC's commitment to board diversity.
    Nearly 5 years, ago an empirical study of these disclosures
    revealed that more than half of them failed to comply with the
    most basic aspects of the SEC's rule on disclosure related to
    boardroom diversity. \10\ If the Commission wants its
    commitment to boardroom diversity--and the rule of law--to be
    taken seriously, it must do a better job of consistently
    enforcing its disclosure rules in this area. If confirmed, I
    will work with my fellow Commissioners and the Staff of the
    Division of Corporation Finance to ensure that companies and
    boards can expect diversity-disclosure rules to be enforced to
    the letter of the law.
    ---------------------------------------------------------------------------
         \10\ Note, ``The Glass Boardroom: The SEC's Role in Cracking the
    Door Open so That Women May Enter'', 2013 Colum. Bus. L. Rev. 801
    (2013).

    Q.8. In January 2016, former Chair White instructed staff to
    review existing company disclosures to determine whether the
    SEC should require companies to provide more specific details
    about their diversity practices. In June 2016, former Chair
    White announced that staff was preparing a recommendation to
    the Commission to propose amending the rule to require
    companies to include in their proxy statements more meaningful
    disclosures on their board members and nominees. \11\ The
    current status of that project is unclear.
    ---------------------------------------------------------------------------
         \11\ Mary Jo White, Chairman, Securities and Exchange Commission,
    ``Focusing the Lens of Disclosure To Set the Path Forward on Board
    Diversity'', Non-GAAP, and Sustainability (Jun. 27, 2016).
    ---------------------------------------------------------------------------
        In December, the SEC's Advisory Committee on Small and
    Emerging Companies recommended the SEC amend the disclosure to
    require issuers to describe, in addition to any policy they may
    have with respect to diversity, the extent to which their
    boards are diverse. \12\ If confirmed, will you commit to
    investigating this issue and taking steps to determine whether
    the SEC should revise its rule on director selection and
    diversity?
    ---------------------------------------------------------------------------
         \12\ Securities and Exchange Commission Advisory Committee on
    Small and Emerging Companies, supra note 13.

    A.8. Yes. Given the consistent complaints from investors that
    the rule is not working, the statements from former Chair White
    to that effect, and, as your question notes, the recommendation
    from the Advisory Committee on Small and Emerging Companies, I
    am puzzled that this project has not moved forward, and
    concerned that it was not featured on the SEC's most recently
    announced regulatory agenda.
        If confirmed, among my first questions for Chairman Clayton
    would be to ask why the Commission has not yet moved forward on
    this long-awaited project. I hope very much to work with the
    Chairman and my fellow Commissioners to ensure that investors
    receive the information they need to understand boardroom
    diversity in the companies they own.

    Q.9. In your testimony, you highlighted the importance of
    completing outstanding Dodd-Frank rulemakings, and particularly
    those that relate to executive compensation and clawback
    policies. I agree that this should be a top priority for every
    single member of the Commission.
        Can you explain how failure to complete these rulemakings
    harms the market, disadvantages investors, and may encourage
    senior executives to make excessively risky decisions?

    A.9. The Commission's failure to complete Dodd-Frank's mandated
    rules 7 years after its passage has been harmful to investors
    and companies. It reflects a troubling failure to follow the
    law at the Commission that I hope will be quickly rectified by
    Chairman Clayton and, if I am confirmed, my fellow
    Commissioners.
        For 7 years, neither investors nor public companies has had
    any ability to know whether and when these rulemakings will
    actually become law. The result is that both parties spend
    enormous amounts of shareholder money to predict whether and
    when they will have to comply with these rules. That's good for
    lobbyists and lawyers, but hardly anyone else, and especially
    not the investors. As I mentioned at my hearing, ordinary,
    everyday investors are still waiting for basic, common-sense
    protections like rules requiring clawback of erroneously
    awarded executive pay to take effect. Without such rules,
    executives continue to have the incentives they had before the
    financial crisis to take excessive risk. I cannot see why those
    rules have not been implemented 7 years after Dodd-Frank's
    passage.
        If confirmed, I will urge Chairman Clayton and my fellow
    Commissioners to finish the rules mandated by the Dodd-Frank
    Act. If the Commission wants public companies to take its
    commitment to the rule of law seriously, the SEC must be
    prepared to follow the law itself. Dodd-Frank is, I know, a
    controversial law. But it is the law, and the SEC is required
    to follow it.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                      FROM ROBERT J. JACKSON, JR.

    Q.1. The Citizens United v. FEC ruling allowed, among other
    things, corporations to contribute independent political
    expenditures. Public companies are active participants in our
    elections, yet their shareholders do not know the role that
    they play because the SEC has been reluctant or handcuffed from
    requiring firms to disclose their political contributions.
        Do you believe shareholders have a right to know whether a
    company they've invested in is making contributions in their
    best interest?

    A.1. The bedrock principle of securities-disclosure rules is
    the materiality standard. That standard asks us to consider
    what a reasonable investor would think affects the total mix of
    information about the stock that they are choosing to buy and
    sell. One way to evaluate that standard is to see whether
    investors express interest in particular kinds of information
    through the shareholder-proposal process. For decades, that is
    how the SEC has helped ensure that disclosure rules are
    evolving to keep pace with changes in market conditions and
    investor interests. \1\
    ---------------------------------------------------------------------------
         \1\ See, e.g., Securities and Exchange Commission, Executive
    Compensation Disclosure, Release No. 33-6940, 57 FR 29,582 (1992)
    (developing executive-compensation disclosure rules, in part, in
    response to shareholder proposals on that subject at large public
    companies).
    ---------------------------------------------------------------------------
        As I have written previously, the case for rules requiring
    public companies to disclose their spending on politics is
    strong. \2\ Over the past decade, requests for information
    about political spending have been the most common subject of
    shareholder proposals at large public companies, so it is clear
    that investors have a great deal of interest in these matters.
    Moreover, under current law, public companies are not required
    to give shareholders detailed information on political
    spending. Thus, to the degree that public companies are
    spending shareholder money on politics in a way that diverges
    from investors' interests, standard mechanisms for corporate
    accountability and oversight can work only if investors have
    the information they need to evaluate political spending at the
    companies they own.
    ---------------------------------------------------------------------------
         \2\ See, e.g., Lucian A. Bebchuk and Robert J. Jackson, Jr.,
    ``Shining Light on Corporate Political Spending'', 101 Geo. L.J. 923
    (2013).

    Q.2. What should be the threshold for determining when a
    ---------------------------------------------------------------------------
    company discloses their political spending?

    A.2. As I have previously written, the development of any rules
    in this area would raise a series of regulatory questions that
    would require close consultation with the SEC's Staff. As an
    outsider to the Commission and its work, it is difficult for me
    to say whether and how the evidence currently available to the
    Staff suggests that there should be a particular threshold for
    determining when a company must disclose their spending on
    politics.
        Nevertheless, as I have indicated in previous research on
    this subject, a de minimis exception to rules in this area
    might appropriately balance the benefits of disclosing
    corporate spending on politics with the costs of disclosing
    small amounts of spending that are unlikely to be important to
    investors. As I have said before, the SEC's existing regulatory
    framework for such exceptions, such as SEC rules on disclosure
    of related-party transactions, may serve as a sound starting
    point for such an exception. \3\
    ---------------------------------------------------------------------------
         \3\ See id. (citing 17 CFR 229.404(a) (2012) (exempting from the
    SEC's disclosure rules for related-party dealings transactions with a
    value of $120,000 or less)).

    Q.3. What policy levers does the SEC have to promote long-term
    ---------------------------------------------------------------------------
    value creation?

    A.3. There are at least three tools at the SEC's disposal to
    encourage companies to focus on long-term value creation. The
    first is an area I have written about a great deal: executive
    pay.
        Current practice requires most public-company executives to
    hold their stock-based pay for only 3 years, so it is
    unsurprising that those executives often pursue short-term
    stock-price increases rather than long-term value creation. As
    I mentioned during the hearing, it is time for corporate
    executives complaining about short-termism to put their money
    where their mouths are. SEC rules should encourage executives
    to hold their stock for far longer periods than they currently
    do. This would give executives powerful incentives to invest
    for the long term.
        Second, the SEC should consider taking steps that would
    allow companies and investors to choose voting structures that
    favor shareholders who commit to hold shares for the long term.
    \4\ The SEC should consider how to encourage and enable public
    companies and their investors to choose these voting
    arrangements if they see fit. Those arrangements, if
    appropriate for the particular company and investor base, could
    help ensure companies favor the interests of long-term
    investors over short-term speculators.
    ---------------------------------------------------------------------------
         \4\ See, e.g., Patrick Bolton and Frederic Samama, ``L-Shares:
    Rewarding Long-Term Investors'' (ECGI Finance Working Paper) (2012).
    ---------------------------------------------------------------------------
        Finally, SEC rules governing stock buybacks--which allow
    corporations to return cash to investors today rather than
    invest for the long term--have not been updated since 2003.
    That was a very different time for our markets, our economy,
    and our country. \5\ Given the importance of this issue to
    making sure that public companies invest for the long term, I
    believe these rules now deserve another look. Better disclosure
    of stock buybacks would require managers to explain the basis
    for their decision to investors and to the public, and allow
    markets to price the buyback properly. That kind of disclosure
    is absolutely worth considering, and if confirmed I would look
    forward to working with your office on this issue.
    ---------------------------------------------------------------------------
         \5\ See Securities and Exchange Commission, ``Purchases of Certain
    Equity Securities by the Issuer and Others'', Release Nos. 33-8335; 34-
    48766; IC-26252, 17 CFR 228 (2003) (providing a safe harbor from
    certain securities-law liability for stock buybacks affected in a
    particular manner).

    Q.4. Do you believe companies are engaging in too many stock
    buybacks and dividend payments and not spending enough on
    ---------------------------------------------------------------------------
    corporate growth?

    A.4. On several occasions in recent years, companies have
    foregone long-term R&D investments, operational expansion, and
    strategic opportunities in order to return money to
    shareholders. Shareholders and stakeholders alike are right to
    question if authorizing buybacks or dividends payments help or
    harm the long-term health of the company and the economy.
        As noted above, one way for the SEC to address this issue
    is to modernize its disclosure rules governing stock buybacks.
    I believe that doing so is especially important in light of the
    possibility that new legislation may soon encourage public
    companies to return cash now held overseas to the United
    States. The last time Congress enacted a corporate tax holiday,
    in 2004, American companies used a significant amount of that
    money for a wave of stock buybacks. \6\ If tax law changes
    again to permit corporate cash to come home, I want to be sure
    that companies are prepared and required to explain to
    investors what they plan to do with that money--especially if
    they are going to use it for buybacks.
    ---------------------------------------------------------------------------
         \6\ See Dhammika Dharmapala, C. Fritz Foley, and Kristin J.
    Forbes, ``Watch What I Do, Not What I Say: The Unintended Consequences
    of the Homeland Investment Act'' (NBER Working Paper No. 15023) (2009);
    see also Thomas J. Brennan, ``Where the Money Really Went: A New
    Understanding of the AJCA Tax Holiday'' (Northwestern Law and Economics
    Working Paper) (2014).

    Q.5. Is there a way to center less attention on quarterly
    ---------------------------------------------------------------------------
    earnings?

    A.5. Yes: the SEC has several tools at its disposal to help
    companies focus on long-term value creation rather than
    quarterly earnings. For one thing, SEC rules should encourage
    corporate executives to put their money where their mouth is
    and hold their stock-based pay for lengthier periods of time.
    Managers who cannot sell their stock holdings in the next
    quarter--but instead have to wait for years to cash in on their
    holdings--have far fewer incentives to manage to quarterly
    earnings.
        Second, the SEC should consider allowing companies and
    investors to choose voting structures that favor shareholders
    who commit to hold shares for the long term. Those
    arrangements, if appropriate for the particular company and
    investor base, could help ensure that companies favor the
    interests of long-term investors over short-term speculators.
        I share your broader concern about short-term pressures
    that compel companies to focus on meeting quarterly earnings
    targets. I'm concerned when companies are distributing earnings
    as dividends or driving up stock prices through buybacks while
    cutting back on R&D, capital expenditures, and other
    investments. If confirmed I would look forward to working with
    the Staff, my fellow Commissioners, and your office to
    encourage corporate management to focus on the long term.

    Q.6. The disclosure of innumerable hacks over the past few
    years, recently punctuated by hacks of the SEC and Equifax, has
    made clear that we all need to raise our cybersecurity game.
    Given the important role broker-dealers play in the formation
    and distribution of capital in the United States, do you think
    it's appropriate for FINRA, in its examination of broker
    dealers, to perform cyber-vulnerability assessments of
    registered broker dealers?

    A.6. I absolutely share your concern that broker-dealers--who
    are entrusted with the personal financial information of
    millions of American families and play critical roles in our
    securities and derivatives markets--must take every possible
    step to protect themselves against cybersecurity threats. And I
    agree that all regulators--including the SEC and FINRA--must
    prioritize responding to a rapidly evolving cyberthreat.
        As an outsider to the SEC, FINRA, and their work, I am not
    in a position to know whether FINRA should initiate an
    examination program of the kind described in your question. The
    SEC should, however, be asking whether FINRA's current
    examination programs encompass this type of review, what
    existing data FINRA and the SEC has about brokers'
    vulnerability to cyber-related threats, and what steps the SEC
    or FINRA can take to make sure that investors have as much
    information as possible about the broker's cybersecurity
    preparedness. If confirmed, I would look forward to working
    with SEC and FINRA Staff, my fellow Commissioners, and your
    Office to make sure FINRA takes whatever steps are necessary to
    protect broker-dealer customers from cybersecurity threats.

    Q.7. On Oct. 15, 2014, the Treasury market flash rally
    occurred, where the yield on the benchmark 10-year U.S.
    Treasury traded in a 37-basis-point range (0.37 percent), only
    to close six basis points below its opening level. Principal
    trading firms (PTFs) account for a majority of trading in
    inter-dealer Treasury markets, which represent half of all
    trading in Treasuries. Due to a loophole, PTFs, including many
    that use algorithmic strategies, have not been required to
    register as brokers. This allows them to escape oversight and
    reporting requirements. Will you commit to ensuring that PTFs
    are required to register as brokers?

    A.7. The Treasury market plays a vital role in our financial
    markets and economy, providing a risk-free benchmark to
    investors around the world and financing the critical work of
    our Government. Like so many modern markets, the Treasury
    market has seen a number of significant technological changes
    over recent years, including the increased prominence of PTFs.
        I am familiar with the Joint Staff Report on the events of
    October 15, 2014, produced by the staff of the Treasury,
    Federal Reserve Board of Governors, Federal Reserve Bank of New
    York, SEC, and CFTC, and I share your concerns regarding data
    and oversight gaps of PTFs. \7\ If confirmed, I look forward to
    working with the Staff, fellow regulators, and Congress to
    ensure there is appropriate oversight and transparency in the
    Treasury market and, more broadly, that the financial
    regulatory community prioritizes preserving confidence in the
    world's deepest and most liquid market.
    ---------------------------------------------------------------------------
         \7\ See U.S. Department of the Treasury, Board of Governors of the
    Federal Reserve System, Federal Reserve Bank of New York, Securities
    and Exchange Commission, and Commodity Futures Trading Commission, The
    U.S. Treasury Market on October 15, 2014 (July 13, 2015).

    Q.8. Under current law, Regulation ATS's basic regulatory
    standards for exchanges and other financial markets are
    designed to ensure market resilience, integrity and adequate
    operational risk controls. But trading venues that facilitate
    the exchange of Government securities are excluded from
    Regulation ATS. And by excluding them from Regulation ATS, they
    are also excluded from Regulation SCI's cybersecurity
    requirements. Will you commit to closing the loophole that
    permits Government-securities trading venues to avoid these
    ---------------------------------------------------------------------------
    basic requirements?

    A.8. Because of the importance of the Treasury market to the
    functioning of the financial markets that millions of Americans
    depend upon each day, I share your concerns about trading
    venues that focus on Government securities. Participants in
    these venues must have advanced cybersecurity protections to
    ensure that these crucial markets are not susceptible to
    cyberthreats.
        As an outsider to the Commission and its work, I am not
    familiar with the Staff's full basis for concluding that
    exchanges of this type may be excluded from Regulation SCI's
    cybersecurity requirements. When determining whether that
    exclusion is appropriate, however, the Commission should focus
    on other cybersecurity requirements that may apply to these
    trading venues, the degree to which the exclusion exposes these
    markets and investors to unacceptable risks of data breaches,
    and existing cybersecurity protections in place at these
    venues.
        If confirmed, I will work with my fellow Commissioners and
    the Staff to understand why these venues have been excluded
    from the reach of Regulation SCI. And I would look forward to
    learning more about the Staff's experience in administering
    Regulation SCI in evaluating whether further efforts are needed
    to promote the resilience and integrity of trading venues.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                      FROM ROBERT J. JACKSON, JR.

    Q.1. On June 1, 2017, the SEC solicited public comments from
    retail investors and other interested parties on revising its
    standards of conduct for investment advisers and broker-
    dealers. In this request for comments the SEC asked ``If the
    commission were to proceed with a disclosure-based approach to
    potential regulatory action, what should that be?'' \1\ Do you
    believe that the financial incentives that create conflicts of
    interest in the retail investment market that harm investors
    can be eliminated by enhanced disclosure alone?
    ---------------------------------------------------------------------------
         \1\ Jay Clayton, Chairman, Securities and Exchange Commission,
    ``Public Comments From Retail Investors and Other Interested Parties on
    Standards of Conduct for Investment Advisers and Broker-Dealers'' (June
    1, 2017).

    A.1. I share the concern that retail investors must be
    protected from money managers who act contrary to their
    fundamental duties to their customers. When American investors
    entrust their savings to one of these institutions--whether an
    investment adviser or broker-dealer--they need to know that
    those who manage their money have clear obligations to their
    customers.
        Disclosure lies at the heart of our securities laws, and
    has often served as an effective first line of defense when
    protecting American investors from those who would defraud
    them. But it is not the only tool in the SEC's toolkit, and I
    am deeply skeptical that disclosure alone can eliminate
    conflicts of interest in the retail investment market.
        My general approach to questions of this type is to let the
    facts--evidence from the behavior of retail investors and their
    advisors--tell us what kinds of regulatory approaches are most
    likely to succeed. In this case, a considerable body of
    research--some commissioned by the SEC--makes clear that
    disclosure is often necessary but not sufficient to address
    conflicts of interest in the retail investment market. \2\ The
    evidence tells us that the complexity of financial products and
    compensation structures often makes disclosure ineffective for
    many retail investors. And the data also suggest that
    disclosures may be least effective for the investors who need
    protection the most.
    ---------------------------------------------------------------------------
         \2\ See Securities and Exchange Commission, Comments on Duties of
    Brokers, Dealers, and Investment Advisers, Release Nos. 34-69013, IA-
    3558, File No. 4-606.
    ---------------------------------------------------------------------------
        As I noted at the hearing, I believe that the SEC has an
    important role to play in this area. But it is critical that,
    whatever steps the Commission takes, American families who
    entrust their savings to others can rest easy in the knowledge
    that those who manage their money have an obligation to protect
    their clients from conflicts.

    Q.2. If not, what steps will you take to directly tackle
    problematic incentives that lead to conflicts of interest that
    harm investors? If so, how do you design a disclosure regime
    that eliminates problematic financial incentives?

    A.2. It is important to me that I be careful to avoid comment
    on a matter that may come before me if I am confirmed as a
    Commissioner. Moreover, as an outsider, I have not been privy
    to the ongoing work at the SEC on matters related to financial
    advisers' duties to their clients--and, thus, am not in a
    position to comment on what particular regulatory approaches
    the SEC might be considering.
        However, it is critical to create a regulatory structure
    that ensures that firms do not reward advisers for working
    against their clients' best interests. If confirmed, I would
    look forward to working with my fellow Commissioners and this
    Committee to create those kinds of protections.

    Q.3. If the commission proceeds with a disclosure-based
    approach to potential regulator action, what user tests will
    the Commission conduct to prove that all investors, not just
    the most sophisticated, fully understand and appreciate the
    nature and extent of the conflicts of interest and make a truly
    informed decision as a result?

    A.3. As an outsider, I have not been privy to the ongoing work
    at the SEC on matters related to financial advisers' duties to
    their clients--and, thus, am not in a position to comment on
    what particular regulatory approaches the SEC might be
    considering. I have also not had the benefit of consultation
    with the Staff now working on this issue--or the opportunity to
    ask them about the user tests they might be considering to
    ensure that disclosures are designed to protect investors.
        But let me be clear: any disclosure-based approach in this
    area should be grounded in evidence that proves it will be
    effective in arming investors with the information they need to
    make a truly informed decision. That evidence should carefully
    consider the different effects that disclosures might have on
    investors with different backgrounds, expertise, and financial
    objectives. And disclosure-based policy prescriptions should
    take those differences into account when designing the rules
    governing adviser disclosures. Poorly designed disclosures are
    unlikely to mitigate conflicts of interest--and may risk
    further confusing investors already overwhelmed by the
    complexity of financial advice.
        Moreover, as noted above some conflicts are so complex that
    I believe they are unlikely to be mitigated through disclosure
    alone. If confirmed, I would work with the SEC's Staff and my
    fellow Commissioners to ensure that the SEC's work in this area
    is effective at ensuring that retail investors are made aware
    of any conflicts of interest their broker-dealer faces.

    Q.4. Will you consult the extensive economic analysis the
    Department of Labor put together for their rulemaking on the
    fiduciary standard, including analysis on the incidence and
    cost of conflicts of interest in the financial services
    industry and on how these financial conflicts influence adviser
    recommendations?

    A.4. Yes. As noted above, my approach to these questions will
    be evidence-based, and I will absolutely consider the
    substantive economic analysis produced by both Government
    agencies and outside entities on the incidence and impact of
    conflicts of interest, including the Department of Labor's
    economic analysis of the fiduciary rule. I would also be
    delighted to consult with current Department of Labor personnel
    who have worked on that Department's rulemaking in this area.

    Q.5. How will you ensure that broker-dealers do not call
    themselves advisers? How can investors distinguish between
    sellers and advisers if sellers are allowed to market
    themselves as advisers?

    A.5. I share your concern that investors need to have absolute
    clarity about what types of financial professionals they are
    working with and what services they are providing. Anyone who
    represents himself or herself as providing financial advice
    should be subject to duties appropriate to that role.
        As the SEC Staff noted in a 2011 report, ``[d]espite the
    extensive regulation of both investment advisers and broker-
    dealers, retail customers do not understand and are confused by
    the . . . standards of care applicable to investment advisers
    and broker-dealers when providing personalized investment
    advice and recommendations about securities.'' \3\ If
    confirmed, I would be delighted to engage with firms, consumer
    and investor advocates, and other stakeholders to determine
    whether any additional steps should be taken to ensure that
    investors understand the difference between broker-dealers and
    advisers.
    ---------------------------------------------------------------------------
         \3\ Securities and Exchange Commission, ``Study on Investment
    Advisers and Broker-Dealers'' (January 2011).
    ---------------------------------------------------------------------------
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR DONNELLY FROM ROBERT J. JACKSON, JR.

    Q.1. In previous conversations with Mr. Jackson and Ms. Peirce,
    we have discussed my concerns that the wave of stock buybacks
    in recent years has been at the expense of the long-term health
    of companies, their workers, and their communities.
        Are you concerned that the increase of stock buybacks in
    recent years has been at the expense of investments in American
    workers?

    A.1. Yes. To the degree that stock buybacks are occurring
    because corporate executives are failing to make important and
    productive investments in their employees and their
    communities, this is an issue that concerns me--and should
    concern all Commissioners. Shareholders and stakeholders alike
    are right to question whether buybacks help or harm the long-
    term health of the company, the long-term performance of its
    stock, and the long-term well-being of its employees.
        As we discussed, the SEC's rules governing stock buybacks
    were last substantially updated in 2003--a very different time
    for our markets, our economy, and our country. \1\ Given the
    importance of this issue to investors and employees, I believe
    these rules now deserve another look--and should be updated in
    a way that gives the stakeholders in these companies full
    transparency as to the reasons why the company has chosen to
    buy back shares.
    ---------------------------------------------------------------------------
         \1\ See Securities and Exchange Commission, ``Purchases of Certain
    Equity Securities by the Issuer and Others'', Release Nos. 33-8335; 34-
    48766; IC-26252, 17 CFR 228 (2003) (providing a safe harbor from
    certain securities-law liability for stock buybacks affected in a
    particular manner).

    Q.2. What actions can or should the SEC take to better monitor
    stock buybacks and to increase transparency? What about
    requiring more immediate disclosure (as opposed to quarterly,
    ---------------------------------------------------------------------------
    as currently required)?

    A.2. These proposals, and several others that would improve
    transparency around repurchases, deserve close consideration as
    the SEC works to modernize its rules governing stock buybacks.
    When the SEC last considered these rules in 2003, the scale and
    scope of stock buybacks--and their importance to the economy as
    a whole--were far smaller than they are today. Better
    disclosure of stock buybacks would require managers to explain
    the basis for their decision to investors and to the public,
    and allow markets to price the buyback properly. That kind of
    disclosure is absolutely worth considering, and if confirmed I
    would look forward to working with your office on this issue.
        Moreover, as we discussed during the hearing, I'm
    especially concerned that current rules are not sufficient if
    new legislation encourages repatriation of corporate profits
    from overseas. We know that the last time Congress enacted a
    corporate tax holiday, in 2004, American companies used a
    significant amount of that money for a wave of stock buybacks.
    \2\ If tax law changes again to permit corporate cash to come
    home, I want to be sure that companies are prepared and
    required to explain to investors what they plan to do with that
    money--especially if they are going to use it for buybacks. If
    I'm confirmed, I would look forward to working with my fellow
    Commissioners and the Staff to make sure our securities laws
    give investors the information they need if Congress enacts
    another tax holiday.
    ---------------------------------------------------------------------------
         \2\ See Dhammika Dharmapala, C. Fritz Foley, and Kristin J.
    Forbes, ``Watch What I Do, Not What I Say: The Unintended Consequences
    of the Homeland Investment Act'' (NBER Working Paper No. 15023) (2009);
    see also Thomas J. Brennan, ``Where the Money Really Went: A New
    Understanding of the AJCA Tax Holiday'' (Northwestern Law and Economics
    Working Paper) (2014).

    Q.3. Mr. Jackson, your written testimony includes this excerpt:
    ``I will work to implement the corporate-governance protections
    that Congress has enshrined into law--so that investors,
    employees, and communities can be sure that our companies are
    working to produce the kind of long-term value creation that
    has been the hallmark of the American economy for
    generations.'' I agree that companies should produce long-term
    value creation, but unfortunately ``short-termism'' has become
    a disease; Wall Street pressure results in corporate management
    making decisions based on the next quarter as opposed to the
    next decade.
        Ms. Peirce, do you share similar concerns about ``corporate
    short-termism''? What actions can or should the SEC take to
    combat this problem and encourage long-term value creation?

    A.3. There are at least three areas in which the SEC should
    consider action to encourage companies to focus on the long
    term. The first is an area I have written about a great deal:
    executive pay.
        Current corporate practice requires most public-company
    executives to hold their stock-based pay for only 3 years, so
    it is unsurprising that those executives often pursue short-
    term stock-price increases rather than long-term value
    creation. As I mentioned during the hearing, it is time for
    corporate executives complaining about short-termism to put
    their money where their mouths are. SEC rules should encourage
    executives to hold their stock for far longer periods than they
    currently do. This would give executives powerful incentives to
    invest for the long-term rather than manage to quarterly
    earnings targets.
        Second, the SEC should consider taking steps that would
    allow companies and investors to choose voting structures that
    favor shareholders who commit to hold shares for the long term.
    Academics have argued that permitting these structures can be
    beneficial, and other jurisdictions have long permitted their
    use. \3\ The SEC should consider how to encourage and enable
    public companies and their investors to choose these voting
    arrangements. Those arrangements, if appropriate for the
    particular company and investor base, could help ensure
    companies favor the interests of long-term investors over
    short-term speculators.
    ---------------------------------------------------------------------------
         \3\ See, e.g., Patrick Bolton and Frederic Samama, ``L-Shares:
    Rewarding Long-Term Investors'' (ECGI Finance Working Paper) (2012).
    ---------------------------------------------------------------------------
        Finally, SEC rules governing stock buybacks--which allow
    corporations to return cash to investors today rather than
    invest for the long term--have not been updated since 2003.
    That was a very different time for our markets, our economy,
    and our country. \4\ Given the importance of this issue to
    making sure that public companies invest for the long term, I
    believe these rules now deserve another look. Better disclosure
    of stock buybacks would require managers to explain the basis
    for their decision to investors and to the public, and allow
    markets to price the buyback properly. That kind of disclosure
    is absolutely worth considering, and if confirmed I would look
    forward to working with your office on this issue.
    ---------------------------------------------------------------------------
         \4\ See Securities and Exchange Commission, ``Purchases of Certain
    Equity Securities by the Issuer and Others'', Release Nos. 33-8335; 34-
    48766; IC-26252, 17 CFR 228 (2003) (providing a safe harbor from
    certain securities-law liability for stock buybacks affected in a
    particular manner).

    Q.4. Mr. Jackson, in our meeting, I mentioned the Carrier
    layoffs and the heart-wrenching video where a corporate
    executive told hundreds of workers their jobs were going to
    Mexico. In response, I crafted the End Outsourcing Act to keep
    jobs in America by restricting tax breaks and Federal contracts
    for companies that ship jobs to foreign countries.
        It is difficult, however, to track when and where
    outsourcing occurs. I believe the SEC can take modest steps in
    this regard by requiring public corporations to disclose
    country-by-country employment. This would help investors
    determine which companies employ American workers and better
    understand where outsourcing has occurred. Do you support
    requiring corporations to disclose employment on a country-by-
    country basis to help increase transparency of outsourcing and
    American employment?

    A.4. Thank you for the opportunity to discuss this issue in our
    meeting--and for urging me to view the video mentioned in your
    question, which I watched the next day. \5\ Witnessing the
    devastating impact of Carrier's decision firsthand helped me
    understand the importance of this issue--and, if confirmed, I
    will keep those pictures and those people closely in mind each
    day I work at the SEC.
    ---------------------------------------------------------------------------
         \5\ See YouTube, ``Carrier Air Conditioner Moving 1,400 Jobs to
    Mexico'' (Feb. 11, 2016), available at https://www.youtube.com/
    watch?v=Y3ttxGMQOrY.
    ---------------------------------------------------------------------------
        Whether the kind of disclosure rule described in your
    question would be appropriate depends upon whether the
    information in question would be material to investors--that
    is, whether it would alter the total mix of information that
    shareholders would consider when investing in the company. As I
    have written before, one way to know whether certain
    information is material is to ask whether shareholders have
    expressed interest in that information.
        Many significant investors--including large pension funds
    and mutual funds--have recently expressed interest in the
    information described in your question, both in their public
    statements regarding these matters and through shareholder
    proposals. For this reason--and because this issue is so
    critical to the future of millions of Americans--I would
    welcome the opportunity to work with the Commission and your
    office to investigate whether SEC rules should be updated to
    require disclosure of these matters.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
                      FROM ROBERT J. JACKSON, JR.

    Q.1. I am very concerned about legislative proposals to
    dramatically increase the threshold for submitting shareholder
    proposals. Shareholder proposals are an important way for
    shareholders to communicate with management. They have been
    instrumental in improving corporate governance, such as
    requiring that independent directors make up at least a
    majority of corporate boards. Shareholders submit proposals on
    emerging risks, such as cybersecurity and consumer data
    protection.
        I also worry that the SEC may respond to pressure from
    companies that do not like dealing with shareholder proposals
    and raise the threshold on its own.
        Do you think shareholders should have a voice in the
    companies they own?

    A.1. Yes. My research, teaching, and previous Government
    service have long focused on making sure that investors have
    the tools they need to express their views to corporate
    management. As I noted in my testimony, for example, I am
    especially proud to have worked on the Treasury Department's
    proposals to give shareholders a voice on executive pay. Giving
    investors the ability to express their views help hold
    management's feet to the fire, demanding accountability on
    issues that shareholders believe are important to the success
    of the company.
        The SEC's shareholder-proposal process has, for decades,
    encouraged helpful dialogue between managers and investors in
    just this way. That process allows shareholders to guide
    management on what they believe the right direction is for the
    company--almost always on a nonbinding basis. While I am open
    to the possibility that those rules, which have not been
    revisited for some time, might be modernized, my focus during
    any such process will be to ensure that the rules encourage
    investors to express their views to corporate management.
    Corporate accountability is critical to the future of our
    companies and the economy, and I am deeply skeptical of making
    changes to these rules that would make it harder for
    shareholders' voices to be heard.

    Q.2. Do you think it would a problem if the threshold for
    submitting proposals was set so high that it blocked all but
    the biggest and wealthiest shareholders from submitting
    proposals?

    A.2. Yes. I would have serious concerns regarding any proposal
    to limit shareholder proposals only to the largest or
    wealthiest investors. The shareholder proposal rules are
    shareholders' best opportunity to have a dialogue with the
    company and to bring forth ideas and proposals to management.
    Limiting that process to the largest or wealthiest shareholders
    would deprive American companies of the views of their owners
    and reduce management's accountability to shareholders--steps
    that make little sense for an agency charged with protecting
    investors.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
            SENATOR CORTEZ MASTO FROM ROBERT J. JACKSON, JR.

    Q.1. If confirmed, what specific steps would you take to
    bolster individual executive accountability, consistent with
    what Chairman Clayton has advocated for?

    A.1. I believe that holding executives accountable when they
    violate the law is critical to maintaining trust in our
    financial system. Specifically, there are at least two areas
    that deserve greater time and attention.
        First, I will make certain that in any particular case the
    Division of Enforcement has explored every alternative related
    to bringing proceedings against responsible individuals--not
    just companies. Although I cannot at this time comment on any
    particular enforcement matter that may come before me as a
    Commissioner, I assure you that, where the Division of
    Enforcement recommends action against a company but not
    responsible individuals, if confirmed my first question will be
    to ask what can be done to ensure that corporate insiders are
    held accountable for their actions.
        Second, I will urge Chairman Clayton and my fellow
    Commissioners to adopt the rules mandated by Section 954 of the
    Dodd-Frank Act, which require public companies to develop
    policies regarding the clawback of executive compensation.
    Those rules would help ensure that executives do not reap
    financial rewards while making decisions that harm American
    investors. As I mentioned during the hearing, 7 years after the
    passage of Dodd-Frank, it is time for the Commission to
    finalize the rules that Congress mandated in that law. That's
    especially true for Dodd-Frank's clawback rules--which would
    help hold corporate executives personally accountable for
    causing harm to American investors.

    Q.2. Some observers like to point to the Sarbanes-Oxley Act of
    2002 or the Dodd-Frank Wall Street Reform and Consumer
    Protection Act of 2010 as to why there's been a drop in public
    companies since the mid-1990s. But a flood of private capital
    since that time has caused merger and acquisitions (M&A)
    activity to surge. Bankers enjoy the fees that industry
    consolidation brings in, and with an average CEO tenure of 3
    years, executives benefit from a short-term boost in stock
    prices. On top of that, Congress has passed legislation such as
    the JOBS Act, which makes it easier for companies to stay
    private for longer.
        What do you make of this argument that regulations are to
    blame for a drop in public company formation? Or is it more
    likely that a whole set of public policy choices make it easier
    for incumbent firms to buy-up innovative start-ups, and make it
    easier for private companies to stay that way for longer?

    A.2. There are many explanations for recent changes in the
    number of public companies, and all of them deserve the SEC's
    attention. For one thing, the emergence of deeper and more
    robust private capital markets than we have ever had before
    allows large companies to stay private for far longer than they
    once could. For another, the capital-markets fees that a
    company must pay to go public are far higher in the United
    States than in other markets, giving entrepreneurs pause before
    listing their shares. And extensive acquisition activity over
    the past two decades has worked to combine thousands of public
    companies, reducing the number of listings on American
    exchanges.
        American capital markets can and should remain the envy of
    the world. Chairman Clayton has made clear that this area is a
    priority for him, and if confirmed, I would work closely with
    the Chairman, my fellow Commissioners, and the Staff to ensure
    that the Commission takes the steps necessary to keep our
    capital markets competitive.

    Q.3. What about the fact that investment banks' fees to
    underwrite initial public offerings has consistently clustered
    at seven percent over many decades? Why hasn't competition
    driven down the price to take young companies public, and if
    confirmed, will you seek to study this issue?

    A.3. The fees bankers earn for taking companies public are
    higher in the United States than in most other jurisdictions,
    and these fees are often the most important factor in the
    decision to go public. Scholars have long noted that investment
    banker fees have clustered around seven percent for a wide
    range of companies over a period of decades. \1\ The fact that
    American entrepreneurs are required to give up some seven
    percent of their creation in order to take their companies
    public seems to me to be an important factor in any assessment
    of the changing rates of IPOs in our markets.
    ---------------------------------------------------------------------------
         \1\ See, e.g., Hsuan-Chi Chen and Jay R. Ritter, ``The Seven
    Percent Solution'', 55 J. Fin. 1105 (2000) (``Investment bankers
    readily admit that the IPO business is very profitable, and that they
    avoid competing on fees because they don't want to turn it into a
    commodity business.'').
    ---------------------------------------------------------------------------
        To be sure, there are many reasons why companies choose not
    to go public today, and they all deserve attention--including
    the factors described in your question. If confirmed, I would
    look forward to working with your office to study this issue
    further--and take whatever actions are necessary to ensure that
    America's capital markets remain competitive.
                  Additional Material Supplied for the Record
          WALL STREET JOURNAL ARTICLE SUBMITTED BY SENATOR VAN HOLLEN

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            ``THE 8-K TRADING GAP'' SUBMITTED BY SENATOR VAN HOLLEN

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]