[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
  
  
  
  
  
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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.

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