[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]






 
                     CAPITAL MARKETS AND EMERGENCY
                      LENDING IN THE COVID-19 ERA

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

                            VIRTUAL HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON INVESTOR PROTECTION,

                 ENTREPRENEURSHIP, AND CAPITAL MARKETS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 25, 2020

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-98
                           
                           
                           
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
 
 
 
              U.S. GOVERNMENT PUBLISHING OFFICE 
42-942 PDF            WASHINGTON : 2021 
  
                           
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            SCOTT TIPTON, Colorado
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   FRENCH HILL, Arkansas
DENNY HECK, Washington               TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
RASHIDA TLAIB, Michigan              DAVID KUSTOFF, Tennessee
KATIE PORTER, California             TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa                     ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois                JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts       BRYAN STEIL, Wisconsin
BEN McADAMS, Utah                    LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia            WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts      VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
        Subcommittee on Investor Protection, Entrepreneurship, 
                          and Capital Markets

                   BRAD SHERMAN, California, Chairman

CAROLYN B. MALONEY, New York         BILL HUIZENGA, Michigan, Ranking 
DAVID SCOTT, Georgia                     Member
JIM A. HIMES, Connecticut            STEVE STIVERS, Ohio
BILL FOSTER, Illinois                ANN WAGNER, Missouri
GREGORY W. MEEKS, New York           FRENCH HILL, Arkansas
JUAN VARGAS, California              TOM EMMER, Minnesota
JOSH GOTTHEIMER. New Jersey          ALEXANDER X. MOONEY, West Virginia
VICENTE GONZALEZ, Texas              WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TREY HOLLINGSWORTH, Indiana, Vice 
KATIE PORTER, California                 Ranking Member
CINDY AXNE, Iowa                     ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois                BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 25, 2020................................................     1
Appendix:
    June 25, 2020................................................    51

                               WITNESSES
                        Thursday, June 25, 2020

Clayton, Hon. Jay, Chairman, U.S. Securities and Exchange 
  Commission (SEC)...............................................     5

                                APPENDIX

Prepared statements:
    Clayton, Hon. Jay............................................    52

              Additional Material Submitted for the Record

Sherman, Hon. Brad:
    Written statement of the Council of Institutional Investors..    63
    Written statement of the Credit Union National Association...    88
    Letter to Chairman Clayton from various undersigned 
      organizations..............................................    90
    Written statement of the National Association of Securities 
      Professionals..............................................   111
    Written statement of the North American Securities 
      Administrators Association, Inc............................   116
    Written statement of Principles for Responsible Investment...   129
Huizenga, Hon. Bill:
    Written statement of the U.S. Chamber of Commerce............   145
Clayton, Hon. Jay:
    Written responses to questions for the record submitted by 
      Chairman Sherman...........................................   151
    Written responses to questions for the record submitted by 
      Representative Himes.......................................   158
    Written responses to questions for the record submitted by 
      Representative Cleaver.....................................   161


                     CAPITAL MARKETS AND EMERGENCY

                      LENDING IN THE COVID-19 ERA

                              ----------                              


                        Thursday, June 25, 2020

             U.S. House of Representatives,
               Subcommittee on Investor Protection,
             Entrepreneurship, and Capital Markets,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 12:06 p.m., in 
room 2128, Rayburn House Office Building, Hon. Brad Sherman 
[chairman of the subcommittee] presiding.
    Members present: Representatives Sherman, Maloney, Himes, 
Foster, Meeks, Vargas, Gottheimer, San Nicolas, Porter, Axne, 
Casten; Huizenga, Stivers, Wagner, Hill, Mooney, Davidson, 
Hollingsworth, Gonzalez of Ohio, and Steil.
    Ex officio present: Representatives Waters and McHenry.
    Also present: Representatives Dean, Garcia of Texas; and 
Budd.
    Chairman Sherman. The Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of the subcommittee are authorized to 
participate in today's hearing, as long as they participate 
virtually. And they will be recognized after members of the 
subcommittee have been recognized.
    Members who are participating via the Webex platform are 
reminded to keep their video function on at all times, even if 
they are not being recognized by the Chair.
    Members who are participating via the Webex platform are 
also reminded that they are responsible for muting and unmuting 
themselves, and that they should mute themselves both before 
and after the time that they are allotted. But in addition to 
that, consistent with regulations accompanying H. Res. 965, 
staff will also be muting Members when they are not being 
recognized.
    Members are reminded that all House rules relating to order 
and decorum apply to this hybrid hearing.
    In addition, the Chair informs members participating in 
person that, in enforcing the order and decorum in this hearing 
room, the Chair has the duty to protect the safety of the 
Members. Last week, the Attending Physician provided the 
following guidance: ``For U.S. House of Representatives' 
meetings in limited enclosed spaceS--and this is one--such as a 
committee hearing room, for greater than 15 minutes, face 
coverings are required.'' Accordingly, the Chair will treat 
wearing masks as a matter of order and decorum, and all Members 
should wear masks at all times in this room. Members who do not 
wish to wear masks may participate virtually through the Webex 
platform.
    Today's hearing is entitled, ``Capital Markets and 
Emergency Lending in the COVID-19 Era.''
    Mr. Huizenga. Mr. Chairman? I have a point of inquiry on 
that.
    Chairman Sherman. Yes?
    Mr. Huizenga. It was my understanding, based on the rules, 
that masks were required unless you were speaking, and during 
your question period. That was my understanding, so I just want 
to make sure it is clear for our--
    Chairman Sherman. It is the strong preference of the Chair 
that we wear the masks even while speaking, but that rule will 
be less enforced than at other times.
    The reason for that is, if you are not wearing a mask 
before you speak, you may not be called on in order. But, once 
I call on someone, we will rely upon your dedication to the 
health of yourself but, more importantly, everyone else in the 
room, and urge you to continue wearing your mask.
    You are, as we have seen from a number of instances, more 
likely to spread the disease when speaking than when not 
speaking. So I would urge you to do so, but my tools for 
enforcing that are more limited.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
    And to my Members, I advise your comfort level, and then, 
as we are dealing with this, much like the rules on the House 
Floor, if you are speaking, I think we are free to add to the 
comfort level, being able to deal with that.
    So, thank you. I yield back.
    Chairman Sherman. Okay.
    Accordingly, the Chair will treat wearing masks as a matter 
of order and decorum, and all Members should wear masks. 
Members who do not wish to wear masks, as I have said before, 
may participate virtually.
    I will now recognize myself for 4 minutes.
    Mr. Clayton, I am glad you are here. I hope you are here 6 
months from now. It has been suggested that, as part of the 
President's decision to fire the U.S. Attorney for the Southern 
District in New York, you would be called upon to fill that 
position.
    I rarely quote Senators, because they are rarely a source 
of wisdom, but in this case, Chuck Schumer stated that, ``Jay 
Clayton can allow himself to be used in this brazen Trump-Barr 
scheme to interfere with the investigations by the U.S. 
Attorney for the Southern District of New York, or he can stand 
up, withdraw his name from consideration, and save his 
reputation.''
    I don't always take advice from Senators, but in this case, 
I would commend it to you, especially in light of the fact that 
Senator Lindsey Graham has pretty much indicated that, ``you 
are with us for the duration.'' So, keeping your name there 
simply weakens your gravitas with regard to the SEC and doesn't 
allow you to reduce your commute.
    The COVID-19 pandemic has resulted in unprecedented 
volatility in U.S. markets, yet the markets have remained open; 
they are functioning. I know the Chair will tell us everything 
his staff has done to achieve that result, and that the SEC 
Division of Enforcement and Office of Compliance Inspections 
and Examinations have also moved aggressively to stop COVID-19-
based investment scams and have already suspended trading of 30 
companies.
    We are in a time of emergency, so I would hope that the SEC 
would use its limited bandwidth to do two things: one, the 
things that are necessary because of the emergency; and two, 
the things that are bipartisan. Accordingly, I would hope that 
you would curtail the efforts on the Proxy Advisor Rule and the 
rules that would narrow disclosure related to mergers and 
acquisitions.
    Today, we are going to be dealing with a number of bills, 
including: Ms. Velazquez's bill to require public companies to 
disclose risks to the supply chain, disruptions and impacts and 
what impact they may have on their workforce; Ms. Dean's 
legislation to reverse the Federal Reserve's and Treasury's 
decision to open Federal Reserve lending facilities only to 
corporations with credit ratings from certain agencies or 
having at least one of those certain credit-rating agencies, 
when, in fact, the SEC has determined that a longer list of 
agencies have expertise; Ms. Wexton's bill to require 
disclosure of products likely to be manufactured using forced 
labor from the Uyghur internment camps--and this is a group, of 
course, that the President was so anxious to sell out, but I 
don't think that should be our policy; and Mr. Meeks' 
legislation to temporarily suspend rulemaking by Federal fiscal 
regulators unrelated to the COVID-19 crisis.
    We will also discuss a number of issues that I have 
legislation on, along with my bipartisan cosponsors. Among 
these are: the need for continued public disclosure of those 
unique risks that companies have because of COVID-19; the 
ongoing barriers to the Public Company Accounting Oversight 
Board (PCAOB) and its effort to audit the auditors and make 
sure that investors are protected; continued challenges with 
the flawed Current Expected Credit Losses (CECL) accounting 
standard, and that the overall push at the Financial Accounting 
Standards Board (FASB) needs to be controlled by the SEC to 
move from historic accounting and reporting what has happened 
in transactions that have been completed, to moving to having 
the accountants project what is likely to happen or to 
determine what future values of certain assets will be; and the 
misguided decision by the Fed and Treasury to exempt companies 
receiving taxpayer dollars from the rules we put in the 
Coronavirus Aid, Relief, and Economic Security (CARES) Act 
regarding dividend payments and stock buybacks and executive 
compensation. And we will also be dealing with the loan 
covenant issue that arises at this time.
    I look forward to hearing from Chairman Clayton on these 
issues.
    And I will now yield 4 minutes to the ranking member of the 
subcommittee, Mr. Huizenga.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate you 
holding today's hearing, ``Capital Markets and Emergency 
Lending in the COVID-19 Era.''
    I will note that this hearing is not about the Southern 
District of New York. And now that that box has been checked, I 
hope we can move along to the work of Chairman Clayton.
    The last several months have upended the livelihood and 
well-being of millions of American families throughout the 
United States. With almost every State under stay-at-home 
orders, everyone has been affected by the pandemic. Not only 
has this affected our daily lives, but it has certainly 
impacted our capital markets as well.
    Undoubtedly, these have been uncertain times for American 
investors and market participants. During the first quarter of 
2020, the pandemic caused severe economic and capital market 
shocks. This turmoil was evidenced by sharp price declines, yet 
spikes in volumes in equity markets, which closed the first 
quarter with their worst performance since the financial 
crisis. Additionally, the ultimate symbol of these 
unprecedented times was the March 23rd closing of the floor of 
the New York Stock Exchange, which was the first time the floor 
was closed while electronic trading continued.
    Although we saw significant market volatility early in the 
crisis, I believe that capital markets have been generally 
resilient. Our capital markets have undergone the toughest 
pandemic stress test to date, and I am pleased to report that 
they seemed to pass with flying colors.
    As we are beginning to emerge from the depths of this 
health crisis, we have a unique opportunity to carefully assess 
the actions taken to address the pandemic and its impact. We 
should take stock of the lessons learned in how we might 
improve and modernize moving forward.
    We need to find more ways to jump-start our economy, help 
grow our small businesses, and reduce unnecessary regulatory 
costs and burdens on our public companies. We must also improve 
and expand access to the capital markets for both businesses 
and investors in order to better put their money to work.
    There is no doubt that many of COVID-19's impacts will be 
long-lasting, and that will necessarily influence how America 
conducts business in the foreseeable future.
    Chairman Clayton, I look forward to hearing from you today 
on ways to reignite the economy and help businesses get back up 
and running, as well as to get Americans back to work, not to 
mention what you often talk about as, ``protecting Main Street 
investors.'' And we need those folks to increase savings and 
retirement returns for these Main Street Americans.
    So I am looking forward to hearing from you, as we have 
chatted in the past. Many things are happening, and I hope that 
we will be able to capture some of the temporary reforms and 
streamlining, as economists talk about reducing that friction 
between transactions in a way that certainly keeps investors 
safe, facilitates the markets, and increases the value and the 
importance here in the United States.
    And, with that, Mr. Chairman, I yield back.
    Chairman Sherman. Thank you.
    At this point, I would normally yield to the Chair of the 
Full Committee, if she were available. But instead, I will go 
to the ranking member of the Full Committee, and the Chair of 
the Full Committee will be recognized either after the ranking 
member or after the witness.
    I now recogize Ranking Member McHenry for 1 minute.
    Mr. McHenry. Sure. And I am happy to take her time, but not 
her perspective. Thank you.
    Thank you, Chair Clayton, for being here. I know there is 
exciting news about you, and what the Securities and Exchange 
Commission is doing, so I am glad we can talk about those 
things here today.
    I commend your leadership and the Commission's diligence 
during these tough times. The constant, focused work that you 
all have been doing is commendable. This gives assurance to 
markets and to the American people that our government can 
actually function, even in a time where we have to be socially 
distant.
    We need to ensure that regulators like the SEC are focused 
on policies to make our markets stronger, more attractive, and 
more competitive to see our way through this economic challenge 
borne out of this health crisis.
    I know the Commission has made a lot of progress on 
proposals to stimulate the economy and economic growth, and to 
prioritize targeted reforms to address the current needs 
related to the virus.
    So, thank you for your leadership, thank you for being 
here, and thank you for your good work.
    Chairman Sherman. Thank you.
    Again, I will reserve 1 minute for the Chair of the Full 
Committee, Chairwoman Waters.
    Now, we welcome the testimony of our distinguished witness, 
Jay Clayton, Chairman of the U.S. Securities and Exchange 
Commission.
    Chair Clayton has served as Chair of the SEC since 2017. 
And, during that time, he also has served as a member of the 
President's Working Group on Financial Markets, the Financial 
Stability Oversight Council, and the Financial Stability 
Board--clearly a package of responsibilities that exceeds an 
interest in anything else that he is considering doing.
    Chair Clayton has testified before this committee before, 
so I don't believe he requires more of an introduction.
    The witness is reminded that your oral testimony will be 
limited to 5 minutes. And without objection, your written 
statement will be made a part of the record.
    You are now recognized for 5 minutes.

    STATEMENT OF THE HONORABLE JAY CLAYTON, CHAIRMAN, U.S. 
            SECURITIES AND EXCHANGE COMMISSION (SEC)

    Mr. Clayton. Thank you, Chairman Sherman, Ranking Member 
Huizenga, and members of the subcommittee. I appreciate the 
opportunity to testify today.
    Before I begin discussing the work of the Commission, I 
would like to address briefly the recent news regarding my 
potential nomination to be the U.S. Attorney for the Southern 
District of New York.
    I have a long-held, deep respect for the work of the 
Southern District, which is recognized throughout our nation 
and internationally for enforcing the law and pursuing justice 
without fear or favor. My deep personal respect is largely the 
result of many years of working with the Southern District and 
its distinguished alumni, including senior personnel at the 
SEC.
    I recognize that the nomination process is multifaceted and 
uncertain. It is clear the process does not require my current 
attention. In short, I am fully committed to and focused on my 
role at the SEC.
    I could not be more proud of the work of my colleagues over 
the past 3 years on behalf of Main Street investors and our 
market. There is much more to accomplish in an environment that 
emphasizes a commitment to respect, diversity, inclusion, and 
opportunity for all, and I look forward to continuing to lead 
the Commission.
    Today, my testimony will focus solely on the work of the 
SEC, and in particular, the SEC's important work in responding 
to the effects of COVID-19.
    Our efforts have focused, first and foremost, on the health 
and safety of our employees and of all Americans. Since early 
March, the agency has remained fully operational in a mandatory 
telework posture, thanks to the dedicated women and men of the 
agency who have risen to the occasion, demonstrated flexibility 
and resiliency, and proven why their work is so important to 
Main Street investors and to our market.
    In these times of economic stress and market volatility 
brought about by our collective, unprecedented health and 
safety response to COVID-19, the Commission has focused 
significant resources on ensuring that our markets continue to 
function as expected: facilitating timely, decision-useful 
disclosure; and maintaining our enforcement, examination, and 
investor protection efforts.
    We have worked closely with our fellow regulators over the 
past few months, and I believe our collective efforts to 
preserve the flows of credit and capital in our economy has 
significantly mitigated the potential economic consequences of 
COVID-19.
    I would be remiss here if I did not mention the prompt, 
decisive action of the Federal Reserve, the Treasury, and 
Congress. From my vantage point, these efforts were necessary 
and had their intended stabilizing and other effects.
    Here, I note that despite the extraordinary volumes in 
volatility we have seen over the past few months, the pipes and 
plumbing of our securities markets have functioned largely as 
designed and, importantly, as market participants would expect.
    We are continuing to monitor market prices, capital flows, 
liquidity, and availability of credit in our efforts to assess 
the functionality and resilience of our capital market. We have 
been closely engaged with our fellow authorities and market 
participants in this regard and have provided targeted relief 
and guidance where appropriate.
    We have also been assisting issuers in fulfilling their 
obligations to provide materially accurate and complete 
disclosures. And I have urged both corporate and municipal 
issuers to provide investors with as much information as 
practicable regarding their current and anticipated financial 
and operating status.
    In addition, we have maintained our strong enforcement and 
investor protection efforts, especially in the area of COVID-
related fraud and misconduct. For example, the Commission has 
issued over 30 trading suspensions and brought a number of 
enforcement actions alleging fraud based on COVID-related 
claims.
    Finally, while the agency is engaging in numerous COVID-19 
initiatives, we have also continued our traditional, mission-
oriented agency functions, including rulemaking, investor 
outreach, and others.
    Thank you again for the opportunity to testify about the 
work of the women and men of the Commission, and I look forward 
to your questions.
    [The prepared statement of Chairman Clayton can be found on 
page 52 of the appendix.]
    Chairman Sherman. Thank you.
    We do have a minute available for the Chair of the Full 
Committee, but I am told--and this does surprise me--that she 
would prefer that I not yield her a minute.
    Mr. Huizenga. Mr. Chairman?
    Chairman Sherman. She is nodding, and--
    Mr. Huizenga. Mr. Chairman, a point of inquiry?
    Chairman Sherman. Yes?
    Mr. Huizenga. My understanding is that the second vote has 
just been called. Can you lay out for the Members and for the 
witness your intention of how we are going to be--
    Chairman Sherman. It is our intention to keep this hearing 
going, that Members will leave when their appropriate time is 
to vote. The Chair will leave, and I know that a number of my 
colleagues are here with names that are different parts of the 
alphabet, and so we will just keep going. But I realize that 
there will be a vote, maybe two, that will interrupt our 
proceeding.
    Mr. Huizenga. Thank you for the clarification.
    Chairman Sherman. Thank you. I now recognize myself for 5 
minutes for questions.
    Small businesses, Mr. Chairman, are very important. You 
just adopted probably the most popular program we are involved 
in, the Paycheck Protection Program (PPP), that is going to 
cost the Federal Government half-a-trillion dollars--well worth 
it. But it is important that we do everything possible so that 
small businesses can get capital in ways that don't cost the 
Federal Government money.
    As you know, I remain concerned about the inclusion of 
business development companies (BDCs) in the SEC's Acquired 
Fund Fees and Expenses (AFFE) rule, and that the rule has had 
the unintended effect of BDCs being excluded from many major 
indexes. This has harmed their ability to raise capital and 
harmed their ability to fund small businesses.
    Mr. Stivers and I have introduced legislation to fix this, 
and I know you are working to address it as well in the 
proposed Fund of Funds Rule. Are you confident that the SEC 
will solve this problem in such a way that BDCs will be 
included in these indexes?
    Mr. Clayton. Index inclusion is not something that we can 
mandate, but I am confident that the women and men in our 
Investment Management Division are aware of this issue. We have 
been looking at that treatment.
    And et me just say this: In fee disclosure, comprehensive 
improvement is appropriate. And if you look at our Regulatory 
Flexibility Agenda, we have both Fund of Funds and Investor 
Experience on that agenda. I intend to finish those rulemakings 
and proposals before the end of the fiscal year, and I expect 
that AFFE modernization, I will call it, will be addressed 
therein.
    Chairman Sherman. You can't mandate inclusion in indexes, 
but you can create a rule that you know will have a certain 
effect on inclusion in indexes. I think small businesses are 
perhaps even more important to our economy than the Real Estate 
Investment Trusts (REITS) that already enjoy a rule that 
includes them.
    The second question is about electronic delivery. I would 
like to hear from you about your next steps in evaluating 
electronic delivery of investor documents. Is the SEC looking 
at expanding electronic delivery for documents beyond the 
shareholder reports?
    And as my colleagues have heard me say, if you mail it to 
me, I will lose it. If you email it to me, then, if some 
witness in this room is particularly boring, I can look at it 
on my iPad while I am in this room, but much more likely, 
because we only have interesting witnesses here, when I have a 
spare minute somewhere, I can find it by searching for emails 
from that company.
    So, where are we on electronic delivery?
    Mr. Clayton. My view on this has been further shaped by the 
work we have done in this COVID environment. It is clear that 
we live in an electronic communication world. Let me say that I 
am of the view that anyone who wants paper, should be able to 
get paper, but what this period has shown us is the importance 
of electronic delivery and the effectiveness of electronic 
delivery.
    Chairman Sherman. Okay.
    I now want to address the fact that companies based in 
China and I think also Belgium are being traded on our stock 
exchanges but the investors don't get the protection of the 
Public Company Accounting Oversight Board (PCAOB) auditing 
their audit.
    Senators Kennedy and Van Hollen in the Senate, and myself 
and Mr. Gonzalez here in the House, have put forward 
legislation. I hope that we derive legislation that achieves an 
important goal, and that is: If the audit is only 20 percent, 
30 percent not subject to PCAOB, that is allowed, but when you 
start having an audit that is more than that, you are asking 
people to make investments without that protection. And if you 
are going to invest in--this is the Investor Protection 
Subcommittee. So, I look forward to working with you to make 
sure those who invest in American stock exchanges are 
protected.
    And I would also hope that, in evaluating whether to impose 
the requirement, in measuring what portion of the audit is 
unavailable to the PCAOB, that you would not look at audit 
hours. Because I want to make sure that there is no reason to 
change the numerator, change the denominator by having auditors 
do more or less. We want more auditing, and then we want the 
auditors being audited.
    So, I look forward to working with you on that.
    And I will now recognize the ranking member of the 
subcommittee, the gentleman from Michigan, Mr. Huizenga, for 5 
minutes.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And it seems we may have swapped notes and questions here. 
My first two questions were exactly about the digitization 
efforts and assessing the impacts on business continuity plans 
and making permanent changes to investor preferences.
    I think you answered that with, ``if you want paper, you 
should be able to get paper.''
    To expand a little bit on where the Chair was going on the 
PCAOB, first of all, would it make sense to make clear that the 
SEC has full rulemaking authority under the bill to ensure that 
multinational corporations doing a small amount of business in 
an uninspectable jurisdiction are not intentionally caught up 
in the bill?
    Mr. Clayton. So, the question is, what scope of authority 
would we have in writing the regulations to implement this 
bill?
    I think, as the bill stands, we believe we have the 
authority to do it. Of course, the more intent you express, the 
better. But as it stands, we believe we could implement it. But 
if you have further nuances, further direction, we would, of 
course, welcome that.
    Mr. Huizenga. Yes. I just really wanted to find out whether 
you felt that you had the proper tools to be able to move 
forward on that, so I am glad to hear that.
    As we see small, privately-held businesses struggle to stay 
afloat during these unprecedented times, some will be looking 
to sell their business or be forced to close their doors 
altogether. As you know, I have a bill, H.R. 609, which would 
allow these small businesses the opportunity to be sold to the 
next generation of entrepreneurs while also protecting good-
paying jobs. I hope you will join me in supporting this, and I 
believe we need to pass this bill to help these struggling 
small-business owners.
    Are there some things that we can do to make sure that 
those small, privately-held businesses aren't caught up and 
treated like a large, publicly-traded company?
    Mr. Clayton. Yes. We have an office, thanks to Congress, 
the Office of the Advocate for Small Business Capital 
Formation. And I am so happy with their work they have been 
doing, because their job is to affirmatively recognize that 
small businesses are vastly different--in their capital needs, 
in their operations--from our public companies.
    Just in response to COVID, we have adjusted the 
crowdfunding rules, now, let me just say, all without any 
degradation in investor protection, but to serve smaller 
businesses and to understand that the rules for them raising 
capital and access to capital should be different from public 
company rules, and they shouldn't require hundreds of lawyer 
hours to get through.
    Mr. Huizenga. And I believe that sections within the Bar 
have supported this in the past. We have seen a number of 
efforts. I have passed this bill through the House unanimously, 
and then it became partisan somehow. But, nonetheless, I am 
hoping that we can count on your support and help in exploring 
that.
    You have also testified before this and other committees 
several times during your tenure as SEC Chair. Members of both 
parties on both sides of the Capitol have raised the issue of 
the victims of the Stanford Ponzi scheme at nearly all of these 
hearings.
    You have indicated a willingness to be helpful to these 
victims, but over 21,000 of them, including several of my 
constituents, have been waiting over 11 years. Can you give 
them an update on the status of the Commission's efforts to 
help them get their money back?
    Mr. Clayton. Let me say this: When you look at the status 
of the Stanford victims, you can't reach any conclusion other 
than there was a failure in the system. Everything that went on 
there had the veneer of legitimacy. Yet, at the end of the day, 
they haven't gotten much money.
    And we have dedicated substantial resources to try and help 
them get more money back. They are never going to be anywhere 
close to whole. In fact, they are never going to be anywhere 
close to anything close to whole, anything satisfactory. But we 
are working on it. We are looking at the remaining claims that 
they have and, consistent with our authority and our 
independence as an agency, trying to help them as much as 
possible.
    Mr. Huizenga. In my last 45 seconds, I want you to talk 
about the trajectory of our overall economy, the health of our 
markets, where we are going, and your optimism on that, or 
pessimism.
    Mr. Clayton. Here is where we are: We have been able to 
stabilize our capital markets and the flow of credit in our 
economy, thanks to the great work of the Treasury and the 
Federal Reserve, in conjunction with this body.
    We are still in a period of uncertainty. From my 
perspective, we are going to go into second-quarter earnings, 
and we are going to find out a lot about how companies are 
operating. Hopefully, what we will see is companies adjusting 
and continuing to increase their ability to operate.
    You are going to see that from public companies. To the 
extent that filters down to private companies, that is 
terrific, but we do need to do what we can to keep the economy 
going, as we learn more about how to deal with the virus 
operationally.
    That is as quick an answer as I can give you. We have done 
well, but we have work to do.
    Mr. Huizenga. Thank you.
    I yield back. And, Mr. Chairman, I am going to have to 
excuse myself, because I am about 5 minutes late for my vote 
section. So I will turn it over--
    Chairman Sherman. I understand.
    Mr. Huizenga. --to the ranking member of the Full 
Committee.
    Chairman Sherman. And ``S'' will come up in the alphabet 
soon, so it will be my turn to vote.
    I want to assure the witness that I am getting notes from 
staff as to how to conduct the hearing, but I am not using this 
iPad to review the investor disclosure materials from any of my 
portfolio companies.
    Mr. Clayton. If we had addressed the AFFE, you would, 
though, right?
    Chairman Sherman. I promise you, not while you are here.
    I now recognize the distinguished Chair of the Full 
Committee, Chairwoman Waters.
    Chairwoman Waters. Thank you very much. I appreciate the 
opportunity to be here with you today at this hearing.
    Chairman Clayton, in the middle of the night last Friday, 
Geoffrey Berman, the United States Attorney for the Southern 
District of New York, was forced out of his position by 
President Trump and Attorney General Barr.
    The Attorney General subsequently announced that President 
Trump intended to nominate you as Mr. Berman's replacement. 
Your actions appear to be a continuation of President Trump's 
efforts to squash any attempts to hold him and his enablers 
accountable.
    As you know, the Southern District of New York has been 
instrumental in conducting independent investigations into 
President Trump's associates and the Trump organization and is 
currently investigating Deutsche Bank, an institution with long 
and substantial financial ties to President Trump.
    In light of these past actions, I am deeply concerned that 
while your nomination to this important post is pending, 
President Trump and Attorney General Barr may try to interfere 
with your ability to independently and effectively oversee the 
Securities and Exchange Commission in its mission of serving as 
Wall Street's cop on the beat during a global health pandemic 
that has caused one of the worst financial crises of our 
lifetime.
    Do you plan to continue serving as Chair of the SEC while 
you await your confirmation?
    Mr. Clayton. Chairwoman Waters, as I mentioned in my 
opening statement, I don't think that matter requires my 
attention at this time--
    Chairwoman Waters. I'm sorry. Would you speak up, please?
    Mr. Clayton. I'm sorry. I don't think that matter requires 
my attention at this time, and I expect to continue to devote 
my full attention to the Commission.
    Chairwoman Waters. So, you will continue to serve as Chair 
of the SEC while you await the confirmation? You will not step 
down? You will not step aside? They will not have someone take 
your place in any shape, form, or fashion, as far as you know?
    Mr. Clayton. Let me just say, from where I sit right now, 
this is not the time to decide about the nomination. I am here 
as the Chairman of the SEC. As I look at it, there is no need 
for me to pay any attention to the nomination at this time. I 
am fully committed to being the Chairman of the SEC.
    Chairwoman Waters. And, of course, that would not be your 
decision, and I am not asking you if you are making that 
decision. I am basically wanting to know, has anybody else said 
to you that you would not be serving as Chair while you await 
confirmation? Has anyone said that to you? Did the President? 
Did Attorney General Barr say that to you? Anybody?
    Mr. Clayton. No.
    And, look, I have checked this matter with our Ethics 
Office and the like. I intend to continue to serve as Chairman 
of the SEC and devote my full attention to my duties as 
Chairman of the SEC.
    Chairwoman Waters. Thank you.
    Will you commit today to recuse yourself from any and all 
matters before the SEC that directly or indirectly involve 
President Trump or which may create the appearance that your 
actions serve as a special favor to President Trump in order to 
obtain a position that President Trump and Attorney General 
Barr have highly politicized?
    Mr. Clayton. I am going to continue to do what I have 
always done at the SEC, which is to pursue all matters with 
independence, and to consult with Ethics on any issues that 
would give the appearance of not having independence. But I 
will continue to operate as I have been.
    Chairwoman Waters. Thank you. So, that is a, ``yes.'' Let 
the record show that you have answered in the affirmative.
    Let's see if we have time here for one more question.
    Chairman Clayton, at the onset of the crisis, I called on 
you and other financial regulators to immediately halt the 
adoption of all rulemakings not directly related to addressing 
the unprecedented health and financial crisis caused by the 
COVID-19 pandemic.
    I made it clear that 100 percent of the SEC's resources 
should be dedicated to protecting investors in U.S. capital 
markets during the pandemic. I was also clear that it would be 
unacceptable for the SEC to use this crisis to justify 
regulatory rollbacks of important investor-protection 
regulation.
    Yet, as I outlined in my letter to you this week, I 
continue to see the SEC, under your leadership, engage in 
deregulatory rulemaking that expands private markets that the 
State securities regulators have testified are rife with fraud. 
This proposal would limit the amount and reliability of 
information investors rely on, at a time when markets are 
experiencing the highest levels of volatility since the 2008 
financial crisis.
    Another proposal would prevent many small shareholders from 
seeking to reform and modernize the companies they own, 
including by making it harder to propose increasing board 
diversity, paying workers a living wage, taking seriously 
climate change, or making changes to adapt to the post-pandemic 
world.
    So, have you paid attention to what we are concerned about, 
and the relationship to not using this as a time to do 
deregulation?
    Mr. Clayton. What I can say is, our regulatory agenda--
    Mr. McHenry. The time--
    Mr. Clayton. --has been public. We are continuing to pursue 
our regulatory agenda. We are doing so in a very open way. We 
are continuing to take comments and engage with people. And in 
those areas where investor protection, my aim has been--
    Mr. Casten. [presiding]. The time has expired, 
unfortunately.
    Are you okay letting him finish?
    Mr. Clayton. Thank you.
    Chairwoman Waters. Thank you. We will follow up.
    Mr. Clayton. Thank you.
    Mr. Casten. I now recognize the ranking member of the Full 
Committee, Mr. McHenry, for 5 minutes.
    Mr. McHenry. Chairman Clayton, as I have written to you 
about, harmonizing the choppiness of regulations within the 
Securities and Exchange Commission, I think is something that 
has been needed for quite a long period of time. But I wrote to 
you specifically about regulation crowdfunding. This is an 
issue that I have worked on for a decade.
    Especially now, I think we need to help small businesses. 
And we need to help small businesses in a variety of ways, not 
just with lending, but the opportunity to raise other forms of 
debt, as well as through capital raises for equity as well.
    I wrote to you about this, specifically about special-
purpose vehicles and increasing the offering limit. I just 
wanted to see if you would elaborate on the comments you have 
received and when it looks like you will finalize the 
rulemaking?
    Mr. Clayton. I don't have a specific timeframe for that, 
but it is on our agenda to finish sometime around the end of 
the fiscal year. I intend to stick to our agenda.
    What we are trying to do, if you don't mind me taking a few 
minutes, is--let's just say you are a small or medium-sized 
company and you are looking to raise capital. You have to weave 
your way through a patchwork of six or seven different types of 
exemptions, including regulation crowdfunding. And you need a 
Ph.D. in securities law to do it. What we want to do is 
basically streamline that process without in any way degrading 
investor protection, and, in fact, hopefully increasing 
investor protection. Let's get rid of all that cost while 
maintaining--
    Mr. McHenry. So, in some respects, like with regulation 
crowdfunding, we have a more onerous--capital raised for 
$50,000 than we do for $50 million. And that doesn't make sense 
in terms of a cost burden for the protection of the investor, 
the clarity of information for the investor.
    So, rightsizing those things so that there is a gradual 
change in regulatory cost and oversight based off of the raise, 
instead of having arbitrary break points to smooth those things 
out, is that the focus of your work?
    Mr. Clayton. Yes. That is a fair summary.
    Mr. McHenry. What are the benefits? What do you think we 
will get as a benefit if this is done successfully?
    Mr. Clayton. A hopeful benefit--because, right now, our 
most acute problem is, for companies getting started, raising 
$200,000, $300,000, $400,000, $500,000, generally, that is 
achievable through people, friends and family, the like. Trying 
to take that company from that size up to a $25 million company 
is extremely difficult. Once you get to $25 million, you have 
institutional investors who are sophisticated. You bring them 
in and.
    It is in that gap--pick your number, $500,000, $1 million, 
$2 million, up to $50 million--where there is a tremendous 
amount of choppiness, and access to capital could be better, 
with investor protection. We could limit investment size; we 
can do a bunch of things. But it is too choppy where it is now.
    Mr. McHenry. Okay. And I commend the work that you have 
focused on here. It has been due for decades at the SEC. And I 
think that was how--some of the poor implementation of the JOBS 
Act that you can remedy and make clear the intention of 
Congress here.
    I want to highlight, also, on Environmental, Social, and 
Governance (ESG), we had a recent panel before this committee. 
The head of sustainability at BlackRock said that there was, 
``an overabundance of ESG data, and the strong majority of the 
ESG data is not connected to materiality, which is a 
fundamental foundation of our disclosure framework.
    So, given the vast amounts of data and questionable utility 
for at least some, if not most, companies, do you think it 
would be appropriate for the Commission to dictate a single ESG 
scoring system for every public company using that data?
    Mr. Clayton. That is coming at it in one way. Coming at it 
in a different way, I have been very clear that I think a 
single ESG metric doesn't make a lot of sense.
    When you take qualitative metrics that have a degree of 
subjectivity and then personal preference--so just one of those 
has a fair amount of ambiguity in it, and you combine them 
together to come up with one score, I kind of--I love that the 
economist Ken Arrow won the Nobel Prize for showing that, when 
you try to rank like that, it doesn't work out very well.
    Mr. McHenry. Okay.
    So, likewise, with the coronavirus, do you think there is 
an appropriate one-size-fits-all disclosure requirement for 
risks related to the coronavirus?
    Mr. Clayton. What we are seeing around--and I have to 
commend our staff, because we have gotten out there and tried 
to give companies as much guidance as we can on how to disclose 
around the effects of the coronavirus and our response.
    And it is vastly different from company to company. So, no. 
Some companies have benefited in some ways. Some companies are 
completely shut down. Some companies have liquidity problems; 
others don't. Some have operational issues.
    Our principles-based system has proven itself through this 
response. And, the second-quarter earnings season is going to 
be the same way.
    Mr. McHenry. Thank you. Thank you for your statement. And 
thank you for your work.
    I yield back.
    Mr. Casten. I now recognize the gentlelady from New York, 
Mrs. Maloney, for 5 minutes.
    Mrs. Maloney. Thank you.
    And thank you for being here today, Mr. Clayton.
    I want to address the issue that is on everyone's mind, the 
scandal in the U.S. Attorney's Office in the Southern District 
of New York, which is in my home district. The office has 
several open investigations involving President Trump, his 
company, and his close associates, including Rudy Giuliani.
    There have been press reports that President Trump was very 
unhappy about the Southern District's decision to investigate 
his friends. And then, on Friday night, Attorney General Barr 
released a statement falsely claiming that the U.S. Attorney in 
the Southern District, Geoffrey Berman, had stepped down, and 
announcing that the President intended to nominate you as his 
replacement.
    Of course, we now know that the Attorney General was lying. 
Mr. Berman had not agreed to step down, and when he refused to 
step down, the President fired him.
    This episode was extremely troubling to many of us and 
suggests that the President fired a U.S. Attorney for refusing 
to follow his directions on criminal prosecutions. That would 
be a blatant abuse of power and should be unacceptable to 
everyone.
    Now, Chairman Clayton, you and I have a really very 
productive relationship, even though we don't always agree, but 
I have to ask you some questions about this episode and your 
involvement.
    When did you first discuss the Southern District job with 
the President or the Trump Administration, and with whom did 
you discuss it? Attorney General Barr?
    Mr. Clayton. Look, I am here as the Chairman of the SEC to 
discuss the work of the SEC. What I can say is that, as I said 
in my opening statement, I need to go back to New York. We are 
both from New York, and--
    Mrs. Maloney. Okay. But I was just asking for a timeline. 
When did you discuss it? Just give me the approximate date, the 
timeline.
    Mr. Clayton. What I want to say is, this is something I 
have been talking about for a while, consulting with people as 
to whether this would make sense for me to continue in public 
service. This was first raised to the President and the 
Attorney General last weekend as something that I had wanted to 
do, and they first became aware of it last weekend.
    Mrs. Maloney. Okay. Thank you.
    And did you know that Mr. Berman did not want to leave his 
job in the Southern District when you agreed to accept the 
nomination? In other words, did you know he was going to be 
fired to make room for you instead for the job?
    Mr. Clayton. I am not going to get into that here.
    Mrs. Maloney. Okay.
    If you are eventually confirmed by the Senate for this job, 
would you commit to recusing yourself from all of that office's 
current investigations into President Trump and his associates?
    Mr. Clayton. Here is what I am going to say. That is a 
process that is way down the road. In my current position and 
in any position I take, I commit to doing it independently, 
without fear or favor, and in the pursuit of justice. And there 
is nothing--
    Mrs. Maloney. But that is--excuse me back. I'm sorry, that 
is not what I was asking. I was just asking for a commitment to 
recuse yourself, should you be appointed, from the 
investigation involving the President or any of his associates.
    Because I have to say, the circumstances of Mr. Berman's 
firing were very suspicious and raise a lot of questions about 
whether the President is interfering in ongoing criminal 
investigations.
    I personally think the American public deserves a clear 
answer on whether you will recuse yourself from these very 
sensitive investigations into the President and his associates. 
So I am asking a very simple question: Will you commit right 
here to recusing yourself from these investigations?
    Mr. Clayton. That position and that process is something 
that is separate and doesn't need my attention today. What I 
will commit to do, and what I commit to do in my current job, 
is to approach the job with independence and to follow all 
ethical rules.
    Mrs. Maloney. I understand that you don't want to talk 
about this right now, but I think it is important that the 
American people, right now, know these answers. Because if you 
are not going to be independent--and the way to be independent 
is to recuse yourself--then we need to know so that someone 
else can be nominated. We need independence.
    Mr. Clayton. Understood. And I commit to independence.
    Mr. Casten. I now recognize the gentlelady from Missouri, 
Mrs. Wagner, for 5 minutes.
    Mrs. Wagner. I thank the Chair.
    And I thank you for joining us today in person, Chairman 
Clayton, to discuss U.S. capital markets during this pandemic.
    And I just want to say, for the record, I have worked very 
closely with you and your office and found you to be a person 
of incredible integrity and character and the highest of 
ethics. So I want to thank you for that, and I am sure that you 
will continue to comport yourself in such a way. I have great 
confidence in you.
    Chairman Clayton, despite the challenges of the 
coronavirus, I am pleased to see that the Commission is hard at 
work looking to improve our markets.
    Can you please describe recent proposed changes to your 
equity market structure and where you think improvements will 
be most valuable for the investing public, specifically Main 
Street investors that I have fought for so passionately for the 
past 8 years in Congress?
    Mr. Clayton. Thank you.
    Our equity market structure has become incredibly complex. 
Just to level-set everyone, virtually all trading--I can almost 
emphatically say, all trading is electronic, it is done in 
nanoseconds, and it is complex.
    Our job at the SEC is to make sure that what you pay for 
trading--and it ultimately filters down to our long-term 
investors--is fair and reasonable. And we are looking at both 
infrastructure and governance of data plans and the way data is 
distributed to those who trade in our markets to try and make 
sure that aspect drives fair and reasonable pricing.
    Mrs. Wagner. Thank you.
    Chairman Clayton, I am also worried about the risks of 
fraud stemming from the coronavirus. We saw during the 2008 
financial crisis a rise in investment scams that take advantage 
of the extreme volatility in the stock market that we have 
seen. And I am deeply concerned about the seniors in my 
district, those who are saving for their retirement security. I 
am concerned about these scammers who are out there.
    Can you describe what the Commission is seeing in terms of 
coronavirus-related fraud and scams and what the Commission is 
doing in its examinations and enforcement efforts to reduce 
these kinds of fraud?
    Mr. Clayton. Unfortunately, we are seeing coronavirus-
related fraud. We are seeing people tout products that they say 
they have, testing that they say they have, and then trying to 
pump up the value of their stock. Or in private placements, we 
are seeing some of that.
    And our enforcement staff is being extremely proactive in 
looking at these claims and, if there are substantial indicia 
of fraud or misconduct, bringing trading suspensions and 
eventually actions.
    What I can say to investors is, deal with professionals. 
Let's deal with professionals--broker-dealers, investment 
advisors. If you are at all doubtful about any of these--
    Mrs. Wagner. Known entities.
    Mr. Clayton. Known entities.
    Mrs. Wagner. Those that you have worked with before and 
such. Because we are seeing it quite on the uprise. We 
certainly saw it in 2008. And it is something of deep concern 
to me, to the retail investor, and especially to our most 
vulnerable seniors who could lose everything that they have. 
So, it is of great concern to me.
    I am encouraged, like everyone, to see that the Commission 
remains committed to its regulatory agenda during the pandemic. 
The SEC, under your leadership, has made great progress on a 
number of proposals that will remove unnecessary regulatory 
burdens on businesses and streamline the flow of capital--
capital that we need so desperately right now to stimulate 
economic recovery.
    I know you have been giving us some updates on what you 
have in the queue here. I was very pleased to see that the 
Volcker Rule was finalized today.
    Any other brief update on the progress of the Commission's 
efforts, especially on things like to harmonize the exempt 
securities offering framework, and the proposal to modernize 
the framework for fund valuation practices and such? I think 
that comment period ends on July 21st or thereabouts, so any 
kind of a quick update would be great.
    Mr. Clayton. I am optimistic that we will be able to 
conclude, if not all items, virtually all items on our 
regulatory agenda, including what I want to say is the 
harmonization of that exempt offering framework and bringing 
transparency to a number of places where transparency is 
needed.
    And I am excited about the fact that the women and men of 
the SEC, through a telework posture, responding to all of these 
events, have been able to continue with our defined agenda and 
do so in an incredibly professional way. I just can't say 
enough good things about them.
    Mrs. Wagner. Great. Thank you very much.
    And I yield back to the Chair.
    Chairman Sherman. Mr. Himes is now recognized for 5 
minutes.
    Mr. Himes. Thank you, Mr. Chairman.
    Chairman Clayton, thank you for being here.
    I am sorry that you are caught up in this series of events 
which have raised questions that Mrs. Maloney articulated. I am 
particularly sorry that this has had the effect of calling into 
question, either explicitly or implicitly, your integrity, your 
independence, and your reputation.
    We have known each other for some 3 decades and have worked 
on a lot of things together, and if I were a Senator 
contemplating your confirmation, I would do my job and look at 
your qualifications, your history, and your philosophies, but I 
would absolutely have no questions whatsoever about your 
reputation, your independence, or your integrity. But I am not 
a Senator, for better or for worse.
    Speaking of integrity, Chairman Clayton, I was delighted to 
see your statement of June 22, 2020: The SEC and the Justice 
Department's Antitrust Division sign an historic memorandum of 
understanding (MOU), the purpose of which, apparently, is to 
enhance competition in the securities industry.
    My suspicion is that this MOU was signed because both 
entities had some areas of investigation in mind. And I wonder 
if you might share with us areas that this new joint venture or 
cooperative enterprise might be looking at.
    Mr. Clayton. Thank you very much for your comments.
    And what I want to do is--``investigation'' may be a loaded 
word. I don't want to imply that we are investigating anybody 
together. But what we have been doing--and I greatly appreciate 
our friends at the Antitrust Division--is we have been working 
together on a number of items.
    They have people with great expertise. We oversee complex 
markets. They are able to help us with some of these issues, 
and we are able to help them. We have deep expertise in how our 
markets operate, and we have been sharing that with them.
    The MOU formalizes that relationship. You know, no secret, 
I expect to be completed with this job at the end of the term, 
and I think Mr. Delrahim is of a similar--and we want to 
formalize that really powerful relationship.
    Mr. Himes. Just because I have very limited time, to date, 
no particular areas of possible uncompetitive behavior have 
been contemplated?
    Mr. Clayton. We don't talk about pending investigations. 
But I don't want people to think that this is somehow anything 
more than continuing the cooperation that we have had across 
our respective agencies and divisions.
    Mr. Himes. I think you know what I am going to say next, 
because we have had this conversation a couple of times. Just 
for kicks, I printed out again the pricing for initial public 
offerings in the middle market. This blue bar you see here 
shows almost perfect clustering at 7 percent as gross spread 
for IPOs in the middle market. And we have talked about this a 
lot before.
    I seek unanimous consent, Mr. Chairman, to make this a part 
of the record.
    Chairman Sherman. Without objection, it is so ordered.
    Mr. Himes. And, again, it is just a blue bar showing that 
middle-market IPOs are priced at 7 percent.
    The price of a flight from New York to L.A. moves around a 
lot. The price of a gallon of gas, or the price of an apartment 
for a month in D.C., moves around a lot, because it is a 
competitive market. I don't know if 7 percent is too much or 
too little; I am just blown away by the fact that it never 
varies from 7 percent.
    Is that perhaps an area that this new cooperation with the 
Justice Department might take a look at?
    Mr. Clayton. Let me say this: That is the kind of thing 
where our cooperation, I think, would lead to better analysis.
    Mr. Himes. Okay. I appreciate that. And I will probably not 
let that particular horse die any time soon.
    But I do want to ask you about one other thing. In a 
February 14, 2020, statement on adding more stock price 
information to market data feeds, you said, ``Both the content 
and the technologies used to collect, consolidate, and 
disseminate market data have lagged meaningfully behind 
proprietary data products and systems offered by the 
exchanges.''
    The general public watching this doesn't know what that 
means, I suspect. So correct me if I'm wrong, but what you 
meant there was that exchanges sell much more robust 
information about the nature of trading markets than is 
available to the public who does not purchase that information. 
Is that fair to say?
    Mr. Clayton. That is a fair way to say it.
    Mr. Himes. Okay.
    So, apart from the fact that one is illegal and the other 
is legal, apparently, what is the difference between my paying 
a corporate insider for more robust, non-public information 
about a corporation, and a trading entity paying an exchange 
for non-public information?
    Mr. Clayton. Our law requires, for trading and whatnot, for 
us to look at what is being done, and if it is fair and 
reasonable. And one of the questions that we have is--I am 
going to use my hands to describe what you did.
    Here is the publicly available data. And we started here 
with the robustness of privately available data. What we have 
is an increase like this. And that gap we have to look at and 
decide whether it continues to be fair to trade under those 
circumstances and whether people can comply with their 
obligations.
    Mr. Himes. So there is some gap at which you would judge it 
to be unfair between that which you pay for and that which you 
get publicly?
    Mr. Clayton. Yes. That is a very good question.
    Chairman Sherman. Your time is up.
    Mr. Himes. Thank you, Mr. Chairman.
    Chairman Sherman. Mr. Stivers is now recognized for 5 
minutes.
    Mr. Stivers. Thank you, Mr. Chairman. I appreciate you 
holding this hearing.
    Chairman Clayton, thanks for being here. And good luck in 
your future endeavors, but I am excited about what you have 
been doing at the Securities and Exchange Commission. And I 
want to say thank you for the work you have done to make rules 
that make sense and that give investors more information. Thank 
you so much.
    I do want to follow up on something the chairman brought 
up. Chairman Sherman talked about the Acquired Fund Fees and 
Expenses (AFFE) Rule. Obviously, it was built for mutual funds, 
not companies that have operating expenses. And so, those 
expenses for business development companies make it look like 
they are eating things up with fees, but they are really 
operating expenses. So, when you list equities, you don't have 
them talk about their operating expenses. It is the expenses 
that deal with their investors and the investors' fees.
    Mr. Sherman and I have a bill, and we will pass it if we 
have to, but I believe you can fix this. I know you can fix it. 
You are already working on it. And I hope you fix it and we 
don't have to pass our bill. But I am not going to back down 
from passing our bill, because I think it is really important.
    This ultimately impacts middle-market and small-business 
companies in my district and all around our country, because 
they get less access to capital as a result of a rule that was 
built for mutual funds and is now applied to a company that 
essentially has operating expenses and those have to be 
disclosed and make it look like there are too many fees.
    So, please take care of it. But if you don't, don't worry, 
we will.
    Mr. Clayton. Okay.
    Mr. Stivers. That was the first thing I wanted to bring up. 
And the other thing that I wanted to chat a little bit about is 
the Nationally Recognized Statistical Rating Organizations 
(NRSROs).
    A number of our committee members have expressed some 
concern that the Fed's emergency facility arbitrarily shows 
winners and losers in NRSROs. That is a real concern to me. I 
think we need to make sure that everybody has access to these 
new facilities that are coming up.
    You are the primary regulator. Has the SEC been consulted 
by the Federal Reserve on the subject of rating agencies?
    And if not, have you offered any information that can help 
them understand how they can decide a way to choose rating 
agencies that is not based on some arbitrary decision or some 
decision that doesn't actually look at the health and quality 
of those NRSROs?
    Mr. Clayton. The short answer is, yes, we are in dialogue 
with the Federal Reserve across the programs on the use of 
rating agencies and providing them the data that we have to 
help them make the judgments as to which rating agencies are 
appropriate for which programs.
    Mr. Stivers. Great. Thank you so much.
    Again, during your time as Chairman, you have championed 
issues that protect investors while giving them greater access 
to choice. My colleague from Minnesota, Dean Phillips, and I 
have a bill that we have introduced that would direct the SEC 
to do more tailoring on your rules for registered index-linked 
annuities.
    Those products give investors access to upside while giving 
them capital protection. But a lot of the forms they have to 
fill out are built for equity companies that have a lot of 
information that is not necessarily relevant and is just hard 
for them to navigate.
    So, again, this is something that we don't have to pass a 
bill on; you could actually fix this yourself. And I would just 
highlight it for your attention, and I hope you will pay 
attention and fix that yourself.
    Mr. Clayton. Thank you.
    Mr. Stivers. Thank you.
    I want to again thank you for your great work at the 
Securities and Exchange Commission. You have unfinished 
business. We know you are focused on that and going to stay 
focused on that through the end of the year. Good luck in 
whatever the future holds for you, but thank you for what you 
are doing for investors every day.
    Mr. Chairman, I yield back.
    Mr. Clayton. Thank you very much.
    Chairman Sherman. There seems to be bipartisan support for 
that position.
    I now recognize Mr. Foster for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    And thank you, Chair Clayton, for being here.
    I really appreciate the work that you and your staff have 
done in being proactive about looking out for scams and fraud 
related to COVID. It is important, and it is timely.
    Equally important, and maybe more important in terms of 
market capitalization, are the possibilities of share-price 
manipulation among pharmaceutical firms as all of these ongoing 
clinical trials report out. You have already seen situations 
where results have been released, resulting in massive swings 
in share prices, and scientists questioning the timing, from a 
scientific point of view, of the release of that information.
    Are you doing anything in that way, to look at possible 
share-price manipulation?
    Mr. Clayton. Let me try and do this in the most appropriate 
way. We don't talk about pending investigations. We just don't 
do it.
    Do we look for patterns of activity, generally, that would 
create suspicion in anybody's mind--timing of announcements, 
timing of buys, timing of sales, that type of thing? Yes, we 
have a group that does that.
    Mr. Foster. Have you added extra capacity and moved your 
eyes directly towards COVID-related pharmaceuticals?
    Mr. Clayton. I am sorry that I am being more elliptical 
than I should be.
    And we do that in the context of the current day. And we 
are doing it in the context of the current day. Just as we are 
looking at COVID-related fraud, we are looking at anything that 
would be market-moving in the context of the kinds of 
pharmaceuticals, and other things that you are talking about.
    Let me be clear about this. Right now, we have encouraged 
companies to get out there with information as quickly and 
transparently as possible. Because, in uncertain times, non-
public information becomes incredibly valuable and is a place 
where there can be great misconduct. We want companies to be as 
transparent as possible and, when they are not disclosing 
information, to keep it as confidential as possible.
    Mr. Foster. Yes. That obviously makes them a huge target 
for things like cyber espionage and so on.
    Mr. Clayton. Yes.
    Mr. Foster. So, I just urge you to really keep your eyes 
focused on that sector. Because there are going to be very 
important clinical trials reporting out over the coming months, 
and the eyes of the world are going to be on these, and lots of 
investors are going to be involved.
    Now, I appreciate all of the efforts you have made to 
continually be effective in your job at the SEC as you are 
being considered to lead the Southern District of New York 
office. I appreciate that. And I also appreciate that your 
discussions that you must have had with Attorney General Barr 
or the President or anyone in that command chain really should 
remain confidential.
    But separate from that, did you have any discussions with 
anyone representing or speaking for the Trump family 
organization, President Trump's private lawyers, or anyone 
outside the command chain that goes through Attorney General 
Barr?
    Mr. Clayton. Look, I don't want to go down the road of 
getting into all of these things, but I have not talked to 
anybody about any pending matters--
    Mr. Foster. No, I am talking about considerations involving 
your appointment. Were they confined to the appropriate command 
line that goes from the President to Attorney General Barr and 
that command line, or did you have communications outside of 
the command chain, which, I think, shouldn't be subject to the 
same sort of confidentiality?
    Mr. Clayton. Let me say it this way. I don't want to get 
into what--I am not going to talk about it. There is a time--
but I am completely comfortable that anybody I talked to about 
this was appropriate to talk to.
    Mr. Foster. Were you contacted by people that you turned 
away because you did not feel comfortable?
    Mr. Clayton. I am just going to leave it at that.
    Mr. Foster. Okay.
    Consolidated audit trail: that was on your to-do list when 
you came into the job.
    How do you feel about the progress you have made, 
particularly relating to what will, I think, ultimately be the 
toughest thing, which is getting international agreement to 
have personal identifiers for the participants for trades in 
international venues? How do you see that going?
    Mr. Clayton. I think we have made substantial progress. Let 
me say that we started from a bad spot. We started from a bad 
spot in terms of security and in terms of architecture, and we 
have made substantial progress. I believe we will have a 
completed consolidated audit trail that functions as intended. 
It will be late. It is already late. But I think we are going 
to get there.
    Mr. Foster. But that will require international agreements, 
to get access to the actual identities of the participants at 
foreign venues. And this has already struck me as the toughest 
thing. It is probably not made easier because of an 
Administration that isn't enthusiastic about international 
agreements. What sort of progress do you see has been made 
there?
    Mr. Clayton. We are making progress internationally on that 
type of--LEI or the like.
    Mr. Foster. Thank you. And I will be following up.
    Mr. Clayton. Please.
    Mr. Foster. I yield back.
    Chairman Sherman. Thank you.
    Mr. Hill is now recognized for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. And I appreciate the 
opportunity to have Chairman Clayton with us today.
    And I want to thank you, Chairman Clayton, for the 
Commission's leadership and your staff's leadership through the 
pandemic crisis of March, where you kept your head about you, 
as your fellow Commissioners did, when all were losing theirs 
around you--I think there is a poem in there somewhere--but 
specifically in keeping our markets open for the benefit of our 
constituents, that they had access to knowing the value of 
their account and could consult with their investment 
professionals through that period.
    And, again, as I always do, I commend the work of the Fed 
and the Treasury for their quick work in liquidity. So, thank 
you for being a part of a team that got our capital markets 
functioning again for the benefit of companies who employ 
millions and millions of Americans.
    And, also, thank you for your support, as Chair, for 
entrepreneurship and capital formation and your putting strong 
attention on that, as well as the need to assess things that 
are important to the fintech arena.
    We have a new Securities Commissioner in Arkansas as of 
last month, Eric Munson. And we look forward to you meeting 
Eric in his new capacity and look forward to hopefully 
introducing you personally to Eric as he takes up his new 
responsibilities at the Arkansas Securities Department.
    I want to take a minute today and talk about one of Mr. 
Sherman's bills that is not introduced yet, I don't think, Mr. 
Chairman. It is a bill that you mentioned on our call the other 
day on potentially having the primary corporate facility of the 
Fed ensure that it is subject to Section 4003 of the CARES Act.
    And I took that comment from you--and it is in our 
Commission report dated June 18th that the Fed and the Treasury 
confirmed, that any bond purchased in the primary corporate 
facility is in compliance with the limitations in the 
Coronavirus Aid, Relief, and Economic Security (CARES) Act.
    Chairman Sherman. If the gentleman will yield, I have 
little doubt that everything that is being done is legal--
    Mr. Hill. I can't yield to you right now, because I am busy 
talking to our good SEC Chair, but I will be back in touch 
later. But, thank you. And if I can help on that, let me know.
    Mr. Clayton, I wanted to talk to you about the municipal 
order that you issued providing exemptive relief to municipal 
advisors under the rubric that it is good during the pandemic. 
You know my views on this; I expressed them to you in a long 
letter in February during the comment period on it.
    I don't really believe that this should have been done by 
exemptive relief. I have expressed that to you. I think if we 
are going to make changes in the municipal market for our State 
and local governments, we ought to do that through the 
Administrative Procedure Act (APA) with the rulemaking.
    What led the Commission to do a temporary order rather than 
following the APA?
    Mr. Clayton. Let me say this: Whether we have to follow the 
APA or not, I think we are confident that the way we have done 
this is appropriate, but it is very narrow. This was something 
that was contemplated--and it is temporary. And it would be my 
expectation that if this were done on anything like a permanent 
basis or in any broader scope, that there would be opportunity 
for notice and comment.
    Mr. Hill. Thank you. I do recognize that you made a 
significant narrowing of the scope since it was originally 
proposed, and you attempted to meet some of the questions that 
came in the comments from the bond dealers and from the 
Municipal Securities Rulemaking Board (MSRB) itself.
    But I see your temporary relief was dated June 16th. And 
when you look at the municipal securities market, it is 
functioning quite well due to the work of the Fed and the 
Treasury. I see no lack of access for State and local 
governments to reach the market through traditional means. In 
fact, all of the month of June has seen capital inflows into 
all of the tax-exempt bond funds.
    So, I don't view it as an emergency situation. I view this 
more as a wolf in COVID sheep clothing, in terms of using the 
pandemic to justify its rationale.
    So if at the end of the temporary order, a municipal 
advisor must notify the SEC of any direct placements, will the 
SEC make that public, that information, who does those 
placements?
    Mr. Clayton. We are going to get that information. I don't 
want to commit here to making it public, but I will commit to 
considering whether it should be made public.
    And I would expect that if the activity during this period 
would be something that would be considered, again, through any 
kind of open notice and rulemaking if this were going to be 
extended, expanded, or the like.
    I do want to note that it is limited in size and the 
secondary market distribution is extremely limited.
    Mr. Hill. Right. Thank you. I appreciate, again, our 
dialogue on this.
    And I yield back, Mr. Chairman.
    Chairman Sherman. The next questioner I will recognize is 
head and shoulders above the average Member of Congress all the 
time, but today he is 15 feet above us here in the hearing room 
on the screen, and that is Mr. Meeks. You are recognized for 5 
minutes.
    Mr. Meeks. Thank you. I want to thank you, Mr. Chairman, 
for holding this crucial hearing today.
    The interesting thing is that most people actually wish 
this hearing was a little less important, that the only issues 
that are stated here were our securities laws and our capital 
market regulations and the investor-protection bill before this 
committee. Undoubtedly, these things are crucial to our 
strength as a nation and our status as the financial capital of 
the world. But I would be remiss if I did not say that all of 
these issues are built on something vital and even more 
important, and that is the rule of law.
    Recently, millions of Americans have taken to the streets, 
shouting, ``No justice, no peace.'' And the core notion here is 
simple, that no person is above the law, regardless of whether 
they are wealthy, whether they wear a blue uniform and a badge, 
or even if they live at 1600 Pennsylvania Avenue. And they want 
to make sure that there is equity and that the justice system 
is fair to everyone.
    And I know, Mr. Chairman, by the standards of the 
Administration, you clearly have had a solid run at the SEC, 
and your tenure has not been littered with corruption or 
scandals or anything of that nature. In fact, I know you have 
really worked hard on issues like cryptocurrency scams, and you 
have taken real steps to protect investors, in my view.
    So, I certainly hope that things don't go awry in regards 
to what you are now being considered for, and that we continue 
to try to make sure that we have liberty and justice for all 
and it does not ruin your reputation as you move forward.
    I will stop there, and let's go to some policy questions 
that I think are important for me to ask you, listening to some 
of your statements earlier in regards to, you are going to be 
focused continually on your job as the Chairman of the SEC.
    My first question is, the SEC whistleblower program that 
was created by the Dodd-Frank Act has been incredibly 
successful at uncovering fraud in our financial markets. And 
your predecessor, Mary Jo White, called the program a game-
changer and stated, ``It is past time to stop wringing our 
hands about whistleblowers. They provide an invaluable public 
service, and they should be supported.''
    So my question to you, sir, is why have you sought to 
reform a program that seems to be, and has been proven to be, 
so effective?
    Mr. Clayton. I believe--let me make sure I have it 
correctly--you are talking about our whistleblower pending 
amendments. And let me say this about our whistleblower 
program: It has been extremely successful, and I am extremely 
supportive of it. I think you can see from the recent awards 
that we have not slowed down, and in fact, we have sped up, the 
timing for processing awards and getting them out to 
whistleblowers.
    What I am committed to doing is making this program as 
transparent and as efficient as possible. And I am hoping to 
move forward to finalize those amendments. And what I will say 
is, not decreasing but actually increasing the incentives for 
people to come forward as promptly as practicable.
    Mr. Meeks. Thank you for that. We will be watching and 
following, because that is tremendous. We have seen 
whistleblowers recently have their reputations ruined in an 
attempt, it seems to me, to discourage folks, not necessarily 
from the SEC but with some of other policies that have taken 
place, particularly coming out of 1600 Pennsylvania Avenue.
    Let me just ask another question in my remaining time. In 
the last few months, a record number of day traders have become 
active in the market. And Jim Cramer recently claimed that 
Warren Buffett is, ``overrated'' and ``washed up,'' and that 
he, ``used a Scrabble bag to recommend stocks to his many 
followers.''
    So my question is, how has the SEC reacted to this 
phenomenon of day trades? And does it need any additional tools 
from Congress to address this issue?
    Mr. Clayton. I don't know that we need additional tools. 
But I do see--and there is no doubt about this--there has been 
increased short-term retail participation in our markets, and 
when I see that, it concerns me. It concerns me that people do 
not know the risks they are taking, particularly in leveraged 
products, options, and trading on margin.
    And let me just take this opportunity to thank you for the 
question and to tell all of our retail investors that these are 
sophisticated products that have risks that may not be 
apparent, and you should be quite cautious in trading with 
leverage, trading in options, trading with--I'm sorry. My time 
has expired.
    Chairman Sherman. Thank you.
    Mr. Davidson from Ohio is now recognized for 5 minutes
    Mr. Davidson. I thank the Chair.
    And thank you so much for being here, Chairman Clayton. 
After your appearance before the Full Committee last time, I 
submitted questions for the record regarding bulk download of 
data from FINRA's Consolidated Audit Trail (CAT) system. Thank 
you for your responses to the questions.
    And, in your responses, you highlighted the work the SEC 
has done to limit the types of data collected, as well as the 
directive for the SEC staff to provide recommendations that 
will help enhance the Consolidated Audit Trail's cyber and data 
security. So, thank you for that.
    As you know, this, as proposed, would be the largest 
database to be created and overseen by a regulatory agency, and 
it contains extremely sensitive information. Every firm that is 
supplying this data would view it as very proprietary, trade 
secrets, the keys to the kingdom. The concern is all the more 
highlighted by the SEC itself suffering a breach of the 
Electronic Data Gathering, Analysis, and Retrieval (EDGAR) 
System in 2016.
    One of the questions that you posed to staff in your 
directive was the issue of bulk data downloads. And as I 
understand it, the more than 20 self-regulatory organizations 
(SROs) and the SEC would be able to download bulk data from the 
CAT.
    What particular concerns do you have with this data being 
distributed across SROs, that led you to pose these questions 
to the SEC staff? And what do you think should be done to 
ensure the SEC and FINRA have the proper internal risk controls 
to protect that data held in the CAT as well as held by them 
once it is downloaded? And are you evaluating those controls?
    Mr. Clayton. The short answer is, yes, we are evaluating 
those controls. It is the types of risks that you identified 
that caused me to ask these questions.
    And if you will allow me to speak generally--and know that 
this is a complicated problem--I am looking at it this way: We 
have ``X'' number of SROs, a lot. We shouldn't start with the 
idea that everybody gets all of the data, then maybe we peel 
back a little bit. We should start with the idea that the SEC 
gets all of the data, because we need it, and then see what 
others need to do their jobs.
    Because starting with, everybody gets all of the data, and 
then kind of peeling back, I don't think is the right 
perspective. I think starting with the idea that we at the SEC, 
with our cross-market obligations, have access to all of the 
data, but others get data as they need it to do their jobs--I 
don't want to keep them from being able to do their jobs, but 
let's scope the data consistent with the obligations they have.
    Mr. Davidson. Yes. When you say, ``all of the data,'' I 
want to be sure that you are clarifying, ``all of the data that 
is actually collected.'' Because you have highlighted the 
importance of, first and foremost, not collecting data that you 
don't need, and frankly, data that could--and I think the other 
thing that you have highlighted as a good measure is 
segregating the data that would be personally identifiable to a 
firm or individuals. So, I think those are good controls.
    And while I understand that perhaps not all of the SEC 
staff recommendations may be made public, would you be willing 
to share with our office or with members of this body how we 
could collaborate in this effort?
    Mr. Clayton. I think we are doing a good job collaborating 
already. And that, what I will say, philosophy that I just 
described of, ``what data do you need to do your job,'' not, 
``here's the data, figure out how to do your job,'' is the 
right way to approach this.
    Mr. Davidson. Okay. I hope we can collaborate a little more 
closely, frankly.
    But I want to mention cryptocurrencies, or digital assets, 
as they are more correctly known, because most of them don't 
aspire to be actual currencies, and many of them don't even 
want to handle payment systems.
    So I would just encourage you and the staff to continue to 
look at a truly nonpartisan bill, the Token Taxonomy Act, 
because it provides a bright-line test applicable to digital 
assets. And it is not a change of the Howey Test; it is an 
application to this field.
    And I would say lastly, I joined more than 100 colleagues 
to express our concerns in the commercial mortgage-backed 
securities (CMBS) market. And a lot of us are very concerned 
that the commercial space is going to be--it was immediately 
disrupted because it is so highly liquid and very sensitive 
to--no buy side for anything, frankly, to the point where the 
Fed had to intervene even through municipal bonds.
    So when you had this margin call death spiral that was 
going on for all sorts of things in March, the Fed provided 
essential stability for most things but not much on CMBS. And 
many firms have already gone bankrupt in that space. This 
wasn't bankruptcy because of lack of collateral; it was 
bankruptcy due to a complete lack of liquidity.
    And now we are looking at a similar challenge, where people 
aren't facing challenges because they lack sufficient 
collateral; they are lacking a market structure that can deal 
with it. Are you working on this?
    Mr. Clayton. We are.
    Mr. Davidson. I look forward to that. My time has expired, 
unfortunately.
    I yield back.
    Chairman Sherman. Mr. Vargas is now recognized for 5 
minutes.
    Mr. Vargas. Mr. Chairman, thank you very much for holding 
this hearing. I appreciate it very much.
    And, Chairman Clayton, thank you for being here. I do 
apologize, I stepped out for a little while to vote, so I 
didn't hear all of your testimony, but I have been here since 
the beginning.
    But I did want to ask you, have you ever been a prosecutor?
    Mr. Clayton. I have never been a prosecutor, but I am not 
going to--I don't want to--
    Mr. Vargas. It is just a simple question. I am just asking 
you, have you ever been a prosecutor?
    Mr. Clayton. At the SEC? I oversee--
    Mr. Vargas. Anywhere.
    Mr. Clayton. I oversee 1,300 enforcement attorneys. We have 
brought 2,000 cases in the that time I have been there. We have 
collected over $10 billion in fines and disgorgement, and 
returned $3 billion to harmed investors. Many of the people who 
work under my oversight at the SEC are former prosecutors. So, 
I hope that gives you comfort in your question.
    Mr. Vargas. I have to say, I haven't known you for the 
decades that some of my colleagues have, who have certainly 
said sterling things about you today, but I do know your 
reputation for integrity. That is all I have heard about you in 
the past. So, we may not agree on everything, and there are 
some corporate governance issues that I want to ask you about, 
but my understanding is that you have a reputation for great 
integrity. That is my understanding.
    Mr. Clayton. Thank you.
    Mr. Vargas. I would just refer you to some of the generals 
who came in with great reputations for integrity and 
effectiveness, and what they were called by this Administration 
on the way out or since they had left certainly has left their 
reputation in tatters. I would just refer you to them.
    I do want to ask you, however, about the ESG disclosures. 
Last month, the Investor Advisory Committee (IAC) recommended 
that the Commission promulgate environmental, social, and 
governance disclosure standards and incorporate the disclosures 
into the broader disclosures regime of the SEC-registered 
issuers. Similarly, the Asset Management Advisory Committee 
(AMAC) echoed the IAC's calls for ESG disclosure 
standardization.
    As you may or may not know, in December 2019, this 
committee passed my bill, H.R. 4329, the ESG Disclosure 
Simplification Act of 2019. This bill, among others, requires 
public companies to disclose certain ESG metrics, and directs 
the SEC to establish a rule delineating which metrics must be 
disclosed.
    What are the Commission's next steps on ESG disclosures, 
and how does the Commission plan to bring clarity to ESG 
disclosures and improve the current market-based ESG reporting 
framework?
    The reason I ask this is because I think this terrible 
COVID-19 might be a terrible precursor for climate change.
    Mr. Clayton. I have been very transparent about my views on 
ESG disclosure. In fact, on Tuesday, I believe it was, I 
appeared for an hour to discuss this topic and how to get more 
meaningful disclosure to investors.
    Let me be clear: I believe that there are environmental 
(``E'') topics for a number of companies that are extremely 
important from a disclosure perspective. I also believe that 
there are social (``S'') topics, and there are governance 
(``G'') topics.
    Let's put ``G'' to the side, because we have a tremendous 
amount of ``G'' disclosure. If you talk to investors, it is 
very clear that they can understand how a company is governed 
from the disclosure we have, and compensation, and the like.
    If you don't mind, I will go to ``E'' disclosure, where we 
are working both domestically and internationally on trying to 
get what I will say is more robust data, but on a sector-by-
sector basis. Because it is very different from sector to 
sector, ``E'' information is important to investors.
    For property and casualty, if you have a property and 
casualty portfolio, if it is along the coast, the modeling of 
potential losses and the like from different climate scenarios, 
that is important to investors. But if you look at a 
manufacturing facility, a company based in, let's just say the 
Midwest--
    Mr. Vargas. It depends on where it is, of course.
    Mr. Clayton. Of course. It is a completely different 
scenario. And in some cases, companies can adjust, and in other 
cases, they are price-takers in this space.
    I do believe, through my work with the International 
Organization of Securities Commissions (IOSCO) and, in 
particular, with my friend, Erik Thedeen, in Sweden--we have 
been working collaboratively on a taxonomy--that we are getting 
there. We are not just going to use blunt metrics, but we are 
going to have principles-based and good disclosure.
    Mr. Vargas. My time is almost up, and I was going to ask 
you about corporate governance. But I do want to ask you about 
diversity, in my last few minutes here.
    Obviously, there needs to be more diversity, I believe, 
both in the financial services industry at the highest level, 
but also at the SEC. Could you just comment on that in the few 
seconds I have left?
    Mr. Clayton. This has been a focus of mine since arriving 
at the SEC. We have made progress, but we need to make more 
progress.
    We have brought diversity and inclusion and opportunity not 
just as something that is in an office or is in a training 
program, but I believe we are bringing it into the fabric of 
the SEC. We are integrating our Office of Minority and Women 
Inclusion (OMWI) into our hiring processes, and our processes 
for identifying people on committees. Our Asset Management 
Advisory Committee is holding a special roundtable next month, 
so this is something that I am committed to.
    Mr. Vargas. Thank you for your service. I appreciate it.
    Thank you, sir.
    Chairman Sherman. Thank you.
    Mr. Hollingsworth is now recognized for 5 minutes.
    Mr. Hollingsworth. Mr. Chairman, I wanted to talk about a 
few things, but I probably won't take my full time.
    First and foremost, I wanted to commend Mr. Vargas on his 
work with regard to ESG. This is important work, and I 
appreciate what you have done, also, in developing a taxonomy, 
a language that is clear, that helps investors and doesn't 
muddy the waters with regard to what disclosures should be 
necessary for companies. So, I appreciate that, and I 
appreciate Mr. Vargas's leadership on that.
    In addition to that, I wanted to thank you, Mr. Clayton, 
for some of the recent work you have done on extending the 
exemption for Section 404(b). This was a bill that 
Representative Sinema and I introduced last Congress, with 
strong, bipartisan support. Representative McAdams, across the 
aisle, and I introduced it last year. And I know you have done 
great work on this already, and I really appreciate that.
    And for the many, many companies that will benefit from 
that and can pour more of their dollars into research and 
development instead of unnecessary and burdensome compliance, 
they appreciate it, as well, back home. So, thank you for that.
    Second, I had recently written you a letter, a couple of 
months ago--admittedly, you have had a lot going on--about how 
we could reduce some of the barriers to liquidity for angel and 
early-stage investors by modernizing the definition of, 
``venture capital fund.''
    I wanted to make sure that I followed up with you on that 
just to say, this continues to be important and continues to be 
ever more important given some of the dynamics that are going 
on in our early-stage companies.
    And I would appreciate, should time allow, getting a 
response on that so that we can move that ball forward. This is 
something that I am working on bicamerally and bipartisanly to 
find a solution for, so if we could get back on that, it would 
be great.
    In addition to that, I wanted to cover two abstract topics.
    In March, everyone saw the markets go down, and everyone 
immediately assumed that something must be wrong. Can you 
clarify really briefly that markets going down, even 
significantly in a single day, or significantly in a single 
month, is not dispositive, or conclusive that something is 
wrong or is not functioning in the markets?
    Mr. Clayton. What I can say is we have been monitoring the 
markets throughout--this is the greatest period of uncertainty 
in terms of economic performance that I have seen in the real 
economy.
    We had a financial crisis. During that period--look, I 
don't want to do any victory laps or anything like that, but 
the market has performed incredibly well.
    Mr. Hollingsworth. Right.
    Mr. Clayton. Now, it required action by the Fed, by the 
Treasury, by us, and by private-sector participants. But the 
fact that capital and credit continued to flow throughout the 
system was exactly what you would want.
    Mr. Hollingsworth. Exactly.
    And just to crystallize that very point, as you articulated 
very well, it is important for us to remember that 
circumstances also change. And there are reasons to believe 
that companies might be valued less than they were in February 
on account of what their discounted cash flows might be in the 
future. That is signs of markets working, not necessarily 
markets not working.
    I also wanted to also bring up materiality, because I know 
that there are several bills that are being considered in this 
committee right now that I believe may be redundant, where 
companies need to disclose if there might be a material impact 
to their supply chain, and disclose if there might be material 
impact to their workforce.
    As I understand it--and, again, I am no SEC lawyer, but 
those things that are material, that management believes are 
material to their business, and may have a material positive or 
negative impact on their business need to be disclosed already. 
Is that true or untrue?
    Mr. Clayton. That is a generally correct statement about 
disclosure.
    And we have put out guidance. We tried to act quickly and 
say, look, we have a principles-based disclosure system. Here 
are the things that you should consider when making your 
disclosure: What is your liquidity position? How are your 
operations affected? What is the health and safety of your 
workers?
    Mr. Hollingsworth. Right.
    Mr. Clayton. Access to these things.
    And I don't want to grade people, but overall, the 
disclosure in first-quarter earnings, through that cycle, was 
extremely strong.
    Mr. Hollingsworth. Right.
    Mr. Clayton. I think it gave investors confidence that 
companies were telling them exactly where they stood.
    As we go into second-quarter earnings, let me take this 
opportunity to say, I expect companies to be as forthcoming and 
as comprehensive as possible in doing so, from the lens of how 
management and the board of directors are looking at the 
business and its prospects. I would rather have bad news than 
no news.
    Mr. Hollingsworth. Agreed.
    Thank you so much. I appreciate you being here.
    I yield back.
    Mr. Huizenga. Will the gentleman yield?
    Mr. Hollingsworth. The gentleman will yield.
    Mr. Huizenga. Thank you.
    I wish my friend--and he is a genuine friend--from 
California was still here.
    Mr. Vargas. He is here.
    Mr. Huizenga. Oh, he is here. Good. He can hear.
    I wanted to ask a rhetorical question. He was asking you 
early on about whether you had ever been a prosecutor. I think 
some of us, maybe, want to ask how many members of this 
committee have been bankers or insurance agents or Section 8 
housing providers? Precious few, I might note.
    This is the type of place where a licensed REALTOR or a CPA 
has--
    Chairman Sherman. The time of the gentleman has expired.
    Mr. Huizenga. --become Chair of this committee and served 
well.
    Chairman Sherman. Your point has been made. The time of the 
gentleman has expired.
    Mr. Huizenga. Thank you.
    Chairman Sherman. And now, also participating by Webex, Mr. 
San Nicolas.
    Mr. San Nicolas. Thank you, Chairman Sherman.
    Good day to you, Chairman Clayton.
    And just to answer my colleague's question, I do have prior 
banking and investment advisor experience. So, there are those 
of us within the committee who do provide it, and we are more 
than happy to engage with our fellow colleagues in order to 
provide perspective, to include theirs. Because when it comes 
to financial services, it is important for us to have the 
mindset that it impacts the entire country, not just those who 
have the specialty or the expertise.
    That being said, Mr. Chairman, I wanted to first recognize 
my colleague, Chairman Meeks, who opened the door to what I 
wanted to talk about, which is the concern about potential 
overexposure of retail investors under current market 
circumstances.
    We have seen a lot of new market participants engage in 
active trading activities, to include day-trading and swing-
trading. But of late, there has also been a much larger 
increase in the access of retail investors to, as you 
mentioned, Chairman Clayton, some exotic instruments--
derivatives, options, naked calls--being able to purchase these 
kinds of assets, these kinds of trading vehicles, these kinds 
of hedge instruments even on margin.
    And so I wanted to--you were speaking about it earlier 
before time expired. Before I go into my questions, I wanted to 
go ahead and afford you a few moments to go ahead and make your 
statement on the risks that you are seeing with respect to 
retail investor overexposure.
    Mr. Clayton. Thank you for the opportunity, because what I 
want to say to our retail investors is, when we have times of 
volatility, you hear stories of people making a great deal of 
money as a result of buying low and selling high, and perhaps 
even doing so on a leveraged basis or through options.
    And you know what? Our kind of investor is the long-term 
retail investor. There are significant risks in taking those 
short-term, leveraged, margin positions. Unless you understand 
those risks and are able to bear those risks, you should not be 
doing it.
    Mr. San Nicolas. Thank you for that, Mr. Chairman.
    And on to my questions. While individual investors and 
traders, of course, have their own responsibilities in the 
decisions they make in the capital they put at risk and the 
leverage they expose themselves to, the platforms that make 
those trades available to the investors and traders also have a 
responsibility. They have a responsibility to ensure the 
suitability of the individual making those trades.
    And so I wanted to ask, given the increase in retail 
investor activity, has the SEC enhanced its review of trading 
platform due diligence in ensuring that the investor has a 
suitability test, a proper suitability test, for access to day-
trading, derivatives trading, and margin access?
    Mr. Clayton. We are looking at this issue. Let me try and 
break it down.
    There are self-directed accounts, where you are not dealing 
with someone who has our new Regulation Best Interest (Reg BI) 
obligation, which goes in at the end of the month and which I 
believe will--and I am making this clear to brokers right now--
should, through the care obligation, make sure that investors 
do understand those risks and are able to bear those risks as 
appropriate.
    We are looking at the self-directed aspects of our market 
ecosystem and whether the--let me put it this way: The access 
to those is being granted as appropriate.
    Mr. San Nicolas. Thank you, Mr. Chairman.
    And I guess, to close, I really think it is important for 
the SEC to circle back on this and make sure that even the 
self-directed accounts have the proper disclosures, but, more 
importantly, that it is being done in a way where the investor 
fully understands the risks with which they are getting 
themselves involved.
    Because not only are we talking about potential 
overexposure of an individual investor, but there is going to 
come a time, if we are not careful, that we are going to be 
having counterparty risk and we are going to be having those 
kinds of situations where a whole group of individual 
investors, potentially making a lot of leveraged, derivative, 
bad decisions, are going to begin impacting the ability of the 
markets to function in an orderly way.
    And while we may look at that and think that it might not 
necessarily present itself, that is exactly the same kind of 
mentality that we had prior to the subprime crisis, when we 
thought that tranching everything and spreading out the risk 
was good enough. And so, Mr. Chairman, I just ask that you keep 
a very close eye on this in order to not only protect our 
retail investors but to ensure our orderly markets.
    Thank you, Mr. Chairman, and I yield back.
    Chairman Sherman. Thank you.
    The witness should know that we have about 8 to 10 
additional speakers, so you will be out of here in less than an 
hour. We do not intend to have a second round.
    I now recognize the gentleman from Ohio, Mr. Gonzalez.
    Mr. Gonzalez of Ohio. Thank you, Mr. Sherman, for holding 
this hearing today.
    And, of course, I want to thank you, Chairman Clayton, for 
being with us today and for all your work at the SEC.
    I first want to acknowledge and thank your team for working 
with the other regulators on reforms to the Volcker Rule. I led 
a letter this past December encouraging regulators to amend the 
rule to exempt qualifying venture funds from the definition of, 
``covered fund,'' in order to help spur investments in States 
like mine, Ohio, that are in additional need of start-up 
capital. But thank you for that.
    Additionally, I want to thank you for your recent response 
to a letter that I wrote with my friend, Mrs. Wagner, in 
support of additional access for retail investors to private 
markets. You and I have spoken about this privately.
    [Audio interruption.]
    Mr. Gonzalez of Ohio. Always fun with the technology.
    But, as you are aware, the number of publicly listed 
companies has gone down significantly, while some of our 
fastest-growing--Uber, Lyft, Slack, et cetera--accumulate a 
significant amount of the growth in the private markets before 
going public.
    It has always been my belief that we must do more to safely 
provide everyday Americans access to those opportunities to the 
extent we can.
    My first question on that front is, in your response to my 
letter, you stated that closed-end funds could present an 
avenue for expanding investment options for Main Street 
investors. Can you discuss more about why you think this? And, 
also, what are the current roadblocks?
    Mr. Clayton. Sure.
    My objective is for our retail investors to have access to 
investment opportunities that are aligned with professionals. 
One of the great things about our public capital markets is 
that retail sits right beside institutional, and they get the 
benefit of that professional alignment of interest. When you 
move into the private markets, you want to make sure that you 
maintain that alignment of interest. And I believe that closed-
end funds are one option for being able to do that. But you 
have to have that alignment of interest, and you have to have, 
what I would say is low cost--reasonable cost of access. But I 
think we are exploring ways to do that, and we are making 
progress.
    Mr. Gonzalez of Ohio. Thank you. And I am excited about the 
progress that you have made on that.
    As a follow-up, what are you currently doing to promote 
closed-end funds as a way to access private markets? Is there 
any consideration of rescinding the staff guidance that 
prohibits closed-end funds from investing more than 15 percent 
of their assets in private funds unless the sale is limited to 
accredited investors?
    Mr. Clayton. As part of our overall looking at it, we are, 
but it gets to liquidity. We have to make sure that we have the 
appropriate amount of liquidity, including in closed-end funds.
    Mr. Gonzalez of Ohio. Great.
    Shifting to China for a second, first, I want to reiterate 
support for Chairman Sherman and Senator Kennedy's legislation, 
which I have joined, to what I would call have China play by 
the same rules as the rest of the companies in our stock 
exchanges.
    Building off of the need to further protect U.S. investors 
from China, just yesterday, the Financial Times published an 
article that linked to a recent Pentagon listing of 20 Chinese 
companies that have ties to the Chinese military. This includes 
two companies that are listed on the New York Stock Exchange.
    Going forward, how do we make sure that investors have this 
information, especially since these companies are at greater 
risk of being targeted by United States sanctions, potentially?
    Mr. Clayton. We have a disclosure-based regime, and it 
works. It has worked really well, because if you don't disclose 
appropriately--make material misstatements or omissions or 
commit fraud--we can come after you.
    One of the things that institutional investors know, that 
retail investors should understand, is that our ability to 
enforce that perspective is not uniform across the world.
    Mr. Gonzalez of Ohio. Right.
    Mr. Clayton. And we need to take that into account. 
Investment advisors need to take that into account. Investment 
professionals need to take that into account. And these are the 
kind of challenges you face in a job like this. How much can 
disclosure can you do in circumstances like that?
    Mr. Gonzalez of Ohio. Quickly, do you believe that 
information, being on a list of 20 companies, is material for 
U.S. investors?
    Mr. Clayton. I am not going to make a blanket statement, 
but if you are considering what is material about your company 
or not material about your company, the fact that you may be 
subject to significant sanctions is something that you would 
want to ask that question and see if the company's operations 
and the like or its reputation or whatever--
    Mr. Gonzalez of Ohio. Right. I would argue it is.
    And with my last question, do you believe that China is--
okay, I will submit it in writing.
    Thank you, Chairman Clayton.
    Mr. Clayton. Thank you.
    Chairman Sherman. Ms. Porter is now recognized for 5 
minutes.
    Ms. Porter. Thank you, Mr. Chairman.
    And thank you very much, Mr. Clayton, for being here with 
us today and for your patience as we navigate this hearing.
    You have recently been named as the likely replacement for 
Southern District U.S. Attorney Berman. The U.S. Attorney's 
Office, as you know, has been apolitical for over 200 years. Do 
you agree that it is important for the investigations 
undertaken by the U.S. Attorney's Office to be conducted in a 
nonpartisan manner?
    Mr. Clayton. So, look, I am here as the Chairman of the 
SEC, but what I want to say about my work as Chairman of the 
SEC and our work in the Enforcement Division, which is akin to 
any U.S. Attorney's Office is, we undertake our work in an 
independent, nonpartisan manner.
    Ms. Porter. Terrific.
    As the Chairman of the SEC, you spearheaded numerous rule 
changes, one example being the so-called Regulation Best 
Interest (Reg BI). Was that a nonpartisan proposal, yes or no?
    Mr. Clayton. From my perspective, what we have done with--I 
am not sure what you mean by, ``nonpartisan.''
    Ms. Porter. Okay. Let me try this. Did the Reg BI rule 
change pass the Securities and Exchange Commission, the SEC, 
with bipartisan support?
    Mr. Clayton. No, we--the--
    Ms. Porter. I think you are struggling toward, ``no.''
    Mr. Clayton. No, I am not struggling. I am just making 
sure.
    Ms. Porter. Okay.
    Mr. Clayton. The vote on the--Commissioner Jackson and--no, 
it did not have complete--
    Ms. Porter. Let's try this one more time. Did Reg BI pass 
the Commission with bipartisan support?
    Mr. Clayton. No, it did not.
    Ms. Porter. No, it did not. Thank you.
    What about your shareholder voting proposal? Did that get 
bipartisan support?
    Mr. Clayton. As a proposal going out? No, it did not.
    Ms. Porter. Okay.
    What about your proxy advisor limits proposal?
    Mr. Clayton. No, that did not.
    Ms. Porter. What about your proposal to expand private 
markets?
    Mr. Clayton. Pardon me?
    Ms. Porter. Your proposal to expand private markets?
    Mr. Clayton. Are you talking about--we don't have a--do you 
mean harmonization, proposal for harmonization? I don't 
remember. I will assume you are right; it did not have 
bipartisan support.
    Ms. Porter. Okay.
    So, Mr. Clayton, calling yourself nonpartisan doesn't make 
it true. And your leadership at the SEC is, to be generous, 
inconsistent with being nonpartisan. I think becoming a U.S. 
Attorney would require a big change in your approach from the 
SEC.
    Do you agree that independence from the President is 
necessary to agency independence?
    Mr. Clayton. So, look, wait a second. I just want to go 
back to the bipartisan/nonpartisan--I believe if you look at my 
voting record across the SEC, which is a pretty good--there are 
many times when I have voted with Democratic Commissioners, 
maybe both Democratic Commissioners, and not the Republican 
Commissioners, and vice versa. I vote the way I think I should, 
without regard to partisanship. That is what I do.
    Ms. Porter. Okay.
    Mr. Clayton. That is what I would do in any job.
    Ms. Porter. Okay. Great.
    Do you think that independence from the President is 
necessary to agency independence?
    Mr. Clayton. I think agency independence is independence 
from--look, I interact with you people, I interact with 
agencies, I interact with others. Independence does not mean 
isolated, but independence means doing what you think is right 
based on your experience.
    Ms. Porter. Do you think independence from the President is 
possible if you and the President are golfing buddies?
    Mr. Clayton. I absolutely do, because I do my job every day 
without fear or favor. And we do justice at the SEC. And I 
think if you look at the record of the SEC, it is absolutely 
clear.
    Ms. Porter. How many times have you and President Trump 
golfed together?
    Mr. Clayton. I am not going to get into this.
    Ms. Porter. Is it a large number and you have trouble 
recalling it?
    Mr. Clayton. No. No. No. Look, I have played golf with the 
President a handful of times.
    Ms. Porter. Okay. What did you talk about?
    Mr. Clayton. Those are private conversations.
    Ms. Porter. Are you willing to affirm to this committee 
that you did not discuss any SEC business?
    Mr. Clayton. There are no conversations that I have had 
that would make me in any way--in any way--uncomfortable with 
my independence.
    Ms. Porter. Wonderful. I am glad to hear that. Before you 
golfed with the President, did you ask the SEC Ethics Counsel 
to advise you on that decision?
    Mr. Clayton. Yes.
    Ms. Porter. You did?
    Mr. Clayton. Yes.
    Ms. Porter. And did they issue a written opinion?
    Mr. Clayton. No. But I--the answer is, yes, I did.
    Ms. Porter. You did. Okay.
    I want to turn to talking about your prior work at your law 
firm. In your time at Sullivan & Cromwell, did you ever serve 
on the plaintiff's side of any securities or other matters? Or 
were you solely defense counsel, defending organizations like 
Deutsche Bank and Goldman Sachs?
    Mr. Huizenga. Time.
    Mr. Clayton. Let me say what--
    Chairman Sherman. The witness will be allowed to answer 
briefly, then we will go on to the next--
    Mr. Huizenga. Mr. Chairman, the witness shouldn't be 
compelled to answer at all. The time has expired.
    And I am sorry, Chairman Clayton. Welcome to your 
confirmation hearing.
    Chairman Sherman. I have allowed other people to go a few 
seconds over.
    Mr. Gonzalez of Ohio. Mr. Chairman, you did not. You cut me 
off 2 seconds early, actually.
    Mr. Huizenga. Actually, that is absolutely correct.
    Ms. Porter. Mr. Chairman, may I be recognized? Because it 
is actually my time.
    Mr. Gonzalez of Ohio. Not anymore.
    Mr. Huizenga. Your time has expired.
    Ms. Porter. I would like to offer to allow Mr. Clayton to 
respond in writing, if that would be acceptable to him.
    My question was, just to state it again because there was 
knocking and interruptions while I was speaking, was, are 
there--
    Mr. Huizenga. Mr. Chairman, she is not recognized.
    Chairman Sherman. Excuse me. The offer to get an answer in 
writing is fully consistent with committee rules. The hearing 
record will be kept open the usual number of days for people to 
submit questions in writing, and that could be a question in 
writing.
    We expect a relatively prompt response to the written 
questions that are presented after the hearing. That is what we 
have done in every hearing.
    We look forward to reading your answer, Chairman Clayton.
    Mr. Steil is now recognized for 5 minutes.
    Mr. Steil. Thank you, Mr. Chairman.
    And thank you, Mr. Clayton, for being here.
    I would like to remind all of my colleagues that this is 
not a confirmation hearing. We are not the Senate. This is the 
House of Representatives. If a confirmation hearing is 
required, that would be the role of the Senate. And if somebody 
would like to participate in that, they are more than welcome 
to run for the United States Senate and participate in a 
confirmation hearing.
    I would like to dive in as to the topic that we are here 
for today, which is about monetary policy, the state of the 
economy, and how we are keeping our capital markets strong 
during some of the most challenging times that we have seen 
here in a long time.
    First off, Chairman Clayton, I want to start by thanking 
you for your work to improve oversight of proxy advisors. I 
also want to recognize Commissioner Roisman, who has been a 
valuable voice on this topic. As you know, I dealt with proxy 
advisors in my private-sector career, so I understand how 
important it is to get this issue right.
    In the last few months, SEC Commissioners made a couple of 
public comments that I believe have been viewed by some as 
evidence that the SEC may be softening its approach as it 
relates to proxy advisor reform. Among other things, 
Commissioner Roisman suggested that the final rule may include 
a speed bump that limits the ability of investors to use so-
called set-it-and-forget-it mechanisms to automatically 
populate electronic ballots with proxy advisors' 
recommendations. It seems like that might be a little bit 
different than the peer-review process that was outlined 
previously.
    Could you comment on how the SEC intends to ensure that 
issuers have the opportunity to correct erroneous or misleading 
recommendations, that they are peer-reviewed, the speed bump 
process, and whether or not one approach is more favorable than 
the other?
    Mr. Clayton. You have outlined the issue we are trying to 
address, which is, when you are making a voting decision, you 
have the best information that is available to you to make that 
decision in a timely manner.
    And the process we have now can be improved; that is clear. 
And we are trying to improve it in a way that creates the least 
friction for people to be able to express their opinion. But 
the people who have to vote, they should have a robust amount 
of information. And to the extent practicable, it should be 
accurate. So, we want to make sure that the system produces 
that type of information.
    And we got a lot of helpful comments, and other ideas. 
There is the speed bump that people mentioned. But that is 
where I am driving: transparency and good information.
    Mr. Steil. I appreciate your work and your colleagues' work 
on this important topic.
    Do you have an estimate as to when you believe a rule may 
be finalized on this?
    Mr. Clayton. Like I have done throughout my tenure, we put 
it on the agenda, and we try to get it done, on the time of the 
agenda. So our current agenda has it to be completed by the end 
of the fiscal year. I continue to expect that we will be able 
to complete it by the end of the fiscal year.
    Mr. Steil. I appreciate your work on the topic.
    Chairman Clayton, as you know, emerging growth companies 
(ESGs) are, I think, a very valuable tool for helping startups 
focus on innovation and job creation and growth. I think the 
EGCs are especially important today as we deal with the ongoing 
coronavirus pandemic, since many investors are, in particular, 
in the biotechnology industry.
    I am concerned that many EGCs are facing the loss of that 
status and may see significant increases in their compliance 
burdens in the near term as a result. I think the timing is 
unfortunate, given the economic and managerial challenges 
associated with the pandemic, as well as the role that the EGCs 
could really play in this recovery.
    And so, I am working on legislation to ensure that EGCs 
that face a loss of their status can receive a short-term 
reprieve. I am not asking for you to comment specifically on 
the legislation; I know that you wouldn't be doing that. But 
can you comment on how the economic turmoil that we have been 
experiencing is impacting some of our emerging growth companies 
that need access to public markets?
    Mr. Clayton. Let me say this: As a general matter, because 
of the actions of Congress, the Fed, and the Treasury, 
financing markets have been fairly open, both equity and debt. 
People have been able to term out their debt, they have been 
able to get liquidity, they have been able to alter their 
balance sheets, add equity to their balance sheets.
    Always, as you go further down the size spectrum, 
similarly-situated companies almost always have a bit of a hard 
time. I think, by and large, EGCs have been able to get 
financing as well, but it is an area that we need to watch 
because, let me put it this way: It is much easier to allocate 
capital in a chunk to a large company than it is to allocate it 
in a chunk to a whole bunch of smaller companies. That is just 
something we have to recognize.
    Mr. Steil. Understood. I appreciate your time today.
    And in respect to my time, I yield back. Thank you.
    Chairman Sherman. Thank you.
    The Chair notes that I actually care about the health of my 
colleagues, or at least most of them, and, therefore, I urge 
all Members to wear masks at all times.
    With that, I now recognize Mrs. Axne for 5 minutes via 
Webex.
    Mrs. Axne. Thank you, Chairman Sherman.
    And thank you for being here, Chairman Clayton. I 
appreciate it.
    One thing that I hear constantly from companies is that 
their greatest asset, of course, is their people, and I 
couldn't agree more with that.
    Chairman Clayton, I was hoping you could explain generally 
why you think understanding a company's workforce is crucial 
for investors to evaluate the company?
    Mr. Clayton. It is a personal belief, through my 
professional experience, that the best companies are the 
companies that understand their workforce, however it is 
structured, in the best way.
    More generally, and from a financial point of view, the 
contribution of human capital and employees in companies has 
increased in proportion. If you look at 30 years ago, plant, 
property, and equipment were a lot of the assets on the balance 
sheet. Today, the assets of a company are intellectual 
property, people, and the like, by and large. And so, yes, it 
is extremely important.
    We have a pending rulemaking where we are going to 
encourage, through our principles-based disclosure system, 
companies to discuss their human capital as management views 
it: How do they evaluate it? How do they develop it? How do 
they increase the value of the company through their people?
    Mrs. Axne. Thank you so much. I completely agree with you 
on both a personal and a professional basis. I have spent my 
career working in that arena as well. And that is why I worked 
with Senator Warner to bring some light to this important piece 
of information.
    I also think that the coronavirus has certainly highlighted 
some of those issues, especially when it comes to workplace 
safety and paid sick leave. And that is why I, along with 
Senator Warner, sent you a letter--I believe that was last 
month--urging some action to get more disclosure on this.
    I didn't get a response to that letter, so, since you are 
here, is that something that you would support?
    Mr. Clayton. Actually, you will get a response, but, in the 
meantime, I believe yesterday, we put out guidance for second-
quarter earnings and things that people should think about in 
their earnings reports and their communications with their 
investors, and those types of issues were included in that 
guidance.
    Mrs. Axne. Great. I will absolutely take a look at that.
    I just want to let you know, I do have some concerns. I 
appreciate your intent, but some of the concerns I have had are 
around the principles-based approach, I believe, which didn't 
require specific metrics. And as somebody who has spent my 
career working in strategic and organizational development, I 
know that companies are obviously already measuring these 
metrics and that turnover rate, for example, is something they 
all track and is very meaningful.
    If the SEC gives management discretion in these 
disclosures, are you worried that it will result in some 
unclear information and it won't give the numbers necessary for 
company-to-company comparison or comparisons for a company over 
previous years?
    Mr. Clayton. This is a really good discussion, because we 
are not saying, ``Don't disclose the metrics.'' What we are 
saying is, ``Disclose the metrics that you use.'' And if a 
company uses turnover calculated in a certain way, presumably 
they do it because that is how they are managing their 
business, and that is what the investor would want to know.
    What I don't want to do is adopt a standard across a bunch 
of industries. It may be right for one industry in how 
management is using it, but it is not right for others. So what 
I don't want to do is get comparability, give up 
meaningfulness. And that is the tension we always have in terms 
of establishing metrics that are broad.
    So, we very much encourage companies to share the metrics 
that they use, but take the pharmaceutical industry and 
turnover; very different from the tech sector, different from 
the transportation industry, and how they may look at it.
    Mrs. Axne. I appreciate that. And I think there is an 
opportunity to work through some of those issues.
    I do think we are looking at a risk here, though, and I 
would advise you to take a look at the letter that I sent with 
my Workforce Investment Disclosure Act, which lays out some 
very specific disclosures that could be required. Workplace 
safety violations, for example, can tell you a heck of a lot 
about how many of these companies are going to get back online 
more quickly due to COVID.
    But, moving on--we are running out of time--I wanted to 
just quickly turn to tax disclosures. As we all know, our large 
companies are only paying about half of what the statutory rate 
is. I am wondering if you could tell me if you think there is 
some opportunity for the SEC to be looking at country-by-
country disclosures?
    Mr. Clayton. You actually raise an excellent point. It goes 
to both points, on tax and on operational and safety issues. 
When you have these kinds of multinational companies, trying to 
give investors a flavor for what happens across those various 
jurisdictions is very important, and we look at that. I 
recognize and want to be clear that it is becoming an 
increasing part of how sophisticated investors look at 
companies.
    Mrs. Axne. I appreciate that.
    I know we are out of time. I continue to make--
    Chairman Sherman. Yes, we are out of time.
    At this time, Mr. Gottheimer is recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Mr. Chairman.
    And thank you, Chairman Clayton, for being here today.
    Given the COVID-19 pandemic and the current racial justice 
issues facing our country, I think we can all agree it is more 
important than ever that all Americans have equal and just 
access to credit.
    Every year, 15.4 million Americans are victims of credit 
card fraud, or around 42,000 people every day. The Federal 
Trade Commission (FTC) has previously found that 1 in 5 
consumers have verified errors in their credit reports, and 1 
in 20 consumers have errors so serious that they could be 
denied credit or forced to pay higher interest rates, affecting 
everything from small-business loans, to a mortgage, to a car 
loan. That adds up to 42 million Americans with errors in their 
credit reports, and another 10 million with errors that can be 
life-altering.
    Next week, the House will consider my bipartisan 
legislation, the Protecting Your Credit Score Act, which will 
create a new online portal to provide Americans with free, 
unlimited access to their credit reports and scores, the 
ability to easily dispute errors and fraud, and the ability to 
secure and track their credit data, all to increase 
transparency and help Americans boost their credit and 
financial security through economic declines and beyond.
    Chairman Clayton, are you concerned, particularly during 
the pandemic, about credit issues and Americans' ability to 
have transparency into their credit?
    Mr. Clayton. Let me start by saying that, in general, 
access to credit, provision of credit is not within our 
authority. But I do talk about it a lot.
    Mr. Gottheimer. Yes.
    Mr. Clayton. Because I always say to people, before you get 
involved in investing, understand your credit, get your credit 
under control. That is the best thing you can do for yourself.
    Now, with respect to your question about access to credit 
and provision of consumer credit, we have a consumer-driven 
economy, to a large extent. I believe that the swift actions 
taken by Congress and by the Fed and the Treasury to enable 
credit to continue to flow have significantly dampened the 
negative effects of the COVID-19 response.
    So, yes, having consumer credit that is appropriately 
priced and transparent is extremely important to our economy.
    Mr. Gottheimer. To that point, do you think we should make 
it easier for Americans to get their credit information for 
free and initiate disputes, given, I know, as you have pointed 
out, how important people's credit information is?
    Mr. Clayton. I am going to stay in my lane as to particular 
policy rationale, legislation, and the like. That is not our 
area. I don't want to tread on other people's areas. But I 
affirmatively believe that having access to credit in a 
transparent way is important.
    Mr. Gottheimer. Thank you. And our legislation does just 
that. It puts a centralized portal that is managed by the 
credit bureaus to give people more information and the ability 
to dispute that.
    Separately, AARP's Fraud Watch Network recently reported 
that there has been a steep increase in scams targeting the 
elderly and other vulnerable communities this month--I know 
this is part of your jurisdiction directly, that issue--that 
has been driven largely by the ongoing COVID-19 pandemic. These 
nefarious actors, both domestic and international, are using 
the pandemic and preying on people's fragile states during 
these uncertain times to target their hard-earned retirement 
accounts, their unemployment checks, and other savings.
    Chairman Clayton, millions of seniors across the country 
have been the victims of financial scams, as you know, and been 
cheated out of their rightful retirements. I just wanted you to 
know--and I have talked to you before about our Senior Security 
Act. But, in general, do you agree that we should be doing 
everything possible to prevent our seniors from being robbed of 
their life savings?
    Mr. Clayton. Yes, I believe we should be doing everything 
possible to prevent our seniors from being subject to fraud, 
particularly financial fraud.
    Mr. Gottheimer. Thank you, sir.
    The Senior Security Act, which we have talked about, is a 
bipartisan bill that I introduced with my good friend, Mr. 
Hollingsworth, that would create a Senior Investor Task Force 
at the SEC specifically designed to stop financial predators 
and hucksters from scamming seniors out of their savings.
    And, by the way, it has already passed out of the House 
overwhelmingly and bipartisanly, 392-20. It is now in the 
Senate. Would you support the legislation moving through the 
Senate?
    Mr. Clayton. I am not going to support a specific piece of 
legislation here, but, as you have described it, we are doing 
this already at the SEC. We are happy to work with you. We are 
happy to follow the legislation, of course. If Congress tells 
us to do more, we will do more.
    But I want you to know that we are already focused on 
seniors and making sure that seniors are having access to the 
products that are appropriate, not products that are 
inappropriate for them, and that they are not the victims of 
fraud.
    Mr. Gottheimer. I think that is part of your Retail 
Strategy Task Force, correct?
    Mr. Clayton. That is correct. We have a Retail Strategy 
Task Force, but we also have people who are specifically 
focused on making sure that seniors--let me put it this way: 
Inspections, examinations, all of that, we have a senior focus.
    And let me try and say this in a way that I am able--it is 
important to understand, when you look across accounts and you 
do surveillance and the like, whether accounts have seniors or 
not, which is one of the reasons why date-of-birth data or 
year-of-birth data is important in our oversight.
    Chairman Sherman. Thank you.
    Mr. Gottheimer. And am I--
    Chairman Sherman. The time of the gentleman has--
    Mr. Gottheimer. Thank you. Thank you very much, Mr. 
Chairman.
    Chairman Sherman. Mr. Casten is now recognized for 5 
minutes.
    Mr. Casten. Thank you.
    Thank you so much for your time, Chairman Clayton. If you 
are up to me, we are nearing the end.
    Alexander Kearns was a college student in Naperville, 
Illinois, in my district. He had taken up trading during the 
COVID lockdown, and he recently took his own life when he saw 
that his Robinhood account had a negative balance of $730,000. 
Now, it turns out he didn't know that whole amount. But I want 
to just read you most of his suicide note that his father 
found.
    ``If you are reading this, then I am dead. How was a 20-
year-old with no income able to get assigned almost $1 million 
worth of leverage? The puts I bought/sold should have canceled 
out, but I have no clue what I was doing now in hindsight. 
There was no intention to take this much risk.''
    Robinhood has added 3 million users in 2020. Now, it is my 
understanding that they have made some changes to their 
platform. And Mr. San Nicolas spoke about protecting retail 
investors, and I certainly share your view that people should 
not take risks they can't afford.
    Other than Reg BI, what is the SEC doing affirmatively to 
ensure that people like Alex can't get exposed like that again?
    Mr. Clayton. Yes. We, at the SEC, along with the Financial 
Industry Regulatory Authority (FINRA) are looking at this kind 
of disclosure. And let me just say this: I read that over the 
weekend, and it is just terrible. We need to do something to 
make sure that these kinds of things don't happen.
    Mr. Casten. I understand that you are, as you said, a 
disclosure-driven entity. But the disclosures are only as good 
as the understanding of the person who reads them.
    Mr. Clayton. That is right. Let me just say that I agree 
100 percent. That is what I was saying before: Disclosure is 
only good if people can understand it. And you have to be able 
to make an assessment of whether somebody can understand it.
    Mr. Casten. I thank you for saying that.
    I introduced, and we passed on the House Floor, H.R. 1815 
the SEC Disclosure Effectiveness Testing Act earlier this term, 
specifically to do market testings of those disclosures. It was 
with Reg BI in mind, because if people can't understand in 
plain English what they are signing, then we haven't done our 
market research well enough. And we need to get it through the 
Senate, but I would encourage you to consider it. You could do 
that by rule. I urge you to take it up.
    I want to turn to private markets and some of what my 
colleague from Wisconsin was raising. They require a lot less 
disclosure than public markets. Most of my career, prior to 
getting here, was running private-equity-backed companies. 
Complicated structures, very sophisticated people, constantly 
evolving capital structures. It was hard for me to keep up, and 
I was the CEO of the darn company.
    This month, the SEC has proposed rules to expand exempt 
offerings in the private market. And given the issues and the 
lack of total understanding in public markets, can you just 
help me understand why you think we are protecting investors if 
we are allowing greater participation in private markets by 
people who would not pass the Reg D standard of a sophisticated 
or accredited investor?
    Mr. Clayton. I think we are looking at this in exactly the 
appropriate way, from what you are describing.
    Right now, we have a wealth test or an income test to 
ascertain whether somebody is sophisticated or not. And it is a 
binary test. I have long believed that is not the right test. 
But it is the test we have had. It is integrated into our 
ecosystem.
    What we are doing is saying, are there better ways to test 
whether somebody should qualify as an accredited investor? And 
our proposal says one of the ways to think about it is, you 
pass the Series 7 exam. Were you able to sit down and pass the 
kind of exam that somebody who is selling securities has to 
pass? Do you understand things like exposure from options and 
the like? I believe that kind of component of the accredited 
investor test is important.
    Mr. Casten. I agree, in principle.
    And let me shift, if I may, to an area totally outside of 
your jurisdiction.
    Mr. Clayton. Okay.
    Mr. Casten. The Department of Labor this week issued an 
information letter under the Employee Retirement Income 
Security Act of 1974 (ERISA) to allow 401(k) plan sponsors to 
have private equity as a component of diversified asset 
allocation funds.
    I am not going to ask you to speculate on ERISA. But is it 
your view that a 401(k) plan or an investor in a 401(k) plan 
would pass the sophisticated test that would allow them to 
participate in ways that would not frustrate the spirit of 
Section 506 of Reg D as currently written?
    Put another way, can the Department of Labor make that 
change without you making a corresponding change in Reg D?
    Mr. Clayton. The way that was structured is not directly 
investing in private equity by an ERISA plan. I read the 
letter. I thought it was structured very well, because it was: 
The ERISA plan fiduciary could pick a fund that has a fiduciary 
where the fund has limited exposure to private equity, but not 
direct investment by an ERISA beneficiary into private equity.
    Mr. Casten. Okay. I am out of time, but we will follow up 
with you offline. Because I think there is a real concern that 
we could end up putting a lot of unsophisticated money in 
places that were hard for me, as the CEO of the company, to 
understand.
    Mr. Clayton. I don't want that to happen.
    Chairman Sherman. Thank you.
    Mr. Budd is now recognized for 5 minutes.
    Mr. Budd. Thank you, Mr. Chairman.
    And, Chairman Clayton, I appreciate you being here today in 
your capacity as Chairman of the SEC. I know there has been a 
lot of news, very exciting news, surrounding you lately, but I 
want to talk about U.S. accounting standards as a critical 
component of U.S. capital markets, the deepest and most liquid 
capital markets in the world.
    And, for them to continue to operate efficiently and 
effectively, the U.S. must maintain accounting and reporting 
standards of the highest quality. This is particularly true in 
times of instability, similar to what we are experiencing 
during the COVID-19 pandemic.
    As you are undoubtedly aware, I have long been an outspoken 
critic of the Current Expected Credit Losses (CECL) accounting 
standard, developed and implemented by the Financial Accounting 
Standards Board (FASB), as an entity over which the SEC has 
direct supervision.
    Now, there were already serious concerns centered around 
CECL before the start of this pandemic, and this crisis has 
only further highlighted those concerns.
    My question is, how does the SEC validate that all new 
accounting standards or significant revisions to existing 
accounting standards have been subjected to comprehensive field 
testing or economic impact assessments?
    I just wanted to get your take on that, Mr. Clayton.
    Mr. Clayton. I think that we should be looking at CECL's 
performance during this time period.
    There are two perspectives from which people have been 
looking at CECL and how it operates. One is from a regulatory 
capital perspective, what impact it has on regulatory capital 
from the bank regulators' perspective. I am going to put that 
to the side.
    From my perspective, and what CECL disclosure around 
expected losses is from the investor point of view, we have had 
some significant swings. There are some things that we need to 
look at, including whether different models used by comparable 
institutions produce significantly different results. If you 
have two financial issuers with the same balance sheet, or very 
similar balance sheets, that are coming up with different 
results, why is that happening, and do we need to make 
adjustments? Is somebody using a 2-year model versus a 1-year 
model? Is somebody significantly weighting unemployment in a 
time like this, when unemployment is at a level that no one 
really thought it would be?
    So, that is a long-winded way of saying we should look at 
how CECL has performed in this time of stress and assess 
whether guidance, et cetera, whatever, needs to be made. But it 
is definitely something we should be looking at.
    Mr. Budd. Thank you.
    Does the SEC conduct an independent assessment of investor 
relations to new or significantly modified accounting or 
reporting standards before they are finalized or issued? And, 
if so, why or why not?
    Mr. Clayton. I think what you are getting at is our 
relationship with the Financial Accounting Foundation (FAF) and 
the Financial Accounting Standards Board (FASB), and their 
independence.
    We do engage with them. I believe their independence is 
important. I think we have a very good relationship. And back 
to your CECL point, we are going to continue to work with them 
on evaluating how CECL has been implemented and how it is 
working.
    Mr. Budd. Thank you.
    Would the SEC be open to formalizing through notice and 
comment their review process for new accounting standards?
    Mr. Clayton. I think the process as it works today is a 
good process. I know that people are looking at--in particular, 
we are having this back-and-forth on CECL. I think people are 
looking at CECL and continuing to look at it with questions. 
But, overall, I think the current process is a good process. 
But I would be happy to continue to discuss that with you.
    Mr. Budd. I would like to do that. It seemed that was kind 
of made--it had the feel of being made without direct input of 
the SEC by an unaccountable board, and so I would like to 
continue that discussion. Thank you.
    Does the SEC conduct independent investor outreach to 
invalidate investor considerations for accounting standards on 
a pre-issuance basis? And, if not, would the SEC be open to 
such a process?
    Mr. Clayton. This is something that was important to me, 
and as we have looked at new trustees for the FAF and the FASB, 
I have made it a point to make sure that we have that investor 
perspective, so that that perspective is brought to bear on 
their rulemaking.
    And, of course, they should be reaching out to people who 
are the--not just the preparers but the users of the financial 
standards.
    Mr. Budd. Very good. Thanks for being here today.
    And I yield back my time.
    Mr. Clayton. Thank you.
    Chairman Sherman. I now recognize Ms. Dean for 5 minutes.
    Ms. Dean. Thank you, Mr. Chairman. I thank you for allowing 
me to be a part of this important hearing.
    And I thank you, Chairman Clayton, for your service at the 
SEC during this crisis, this terribly difficult time for our 
entire country.
    Mr. Chairman, I, too, would like to begin by discussing 
rating agencies. I am Madeleine Dean from suburban 
Philadelphia, by the way.
    Last week, Federal Reserve Chairman Powell came before our 
committee, and he acknowledged that not all NRSROs have equal 
access to emergency lending facilities.
    Since the Credit Rating Agency Reform Act of 2006 conferred 
sole supervisory authority of credit rating agencies to the 
SEC, I want to raise this issue with you today. Because these 
lending facilities do not treat all nine of the rating agencies 
equally or uniformly, I would like more insight on how the 
Federal Reserve came up with eligibility standards for rating 
agencies.
    You have said in earlier testimony that there has been some 
conversation between the Fed and the SEC on this subject. Can 
you flesh out a little more what that conversation looks like? 
And what, if any, recommendations were made by the SEC to the 
Fed?
    Mr. Clayton. I haven't been directly involved in those 
conversations, but let me give you my understanding of them. I 
did have a high-level conversation with one of my counterparts 
at the Fed.
    What we have done is, if you look across those nine NRSROs, 
some of them participate in a wide variety of markets--
corporates, products, and the like--and insurance, et cetera. 
Some of them only participate in very narrow aspects of the 
markets or have very limited participation in a market.
    I am going to make up these numbers but get them 
directionally correct. You may have the insurance industry 
where 2 or 3 do 90 percent of the insurance industry, or there 
are a couple others that do just a few companies. We provide 
that data to the Fed, and then the Fed can see which NRSROs 
have sufficient experience to participate in the various 
facilities that they are using.
    Ms. Dean. Well, I am not actually--
    Mr. Clayton. That is the conversation.
    Ms. Dean. Mr. Chairman, I am not actually thinking about 
markets or where they participate, because, as I understand it, 
NRSROs must satisfy the same criteria by the SEC.
    So I am wondering, what is the internal distinction being 
made by the Fed? Is it your opinion that, after the SEC 
registers an NRSRO of a given asset class, that they should be 
treated uniformly?
    Mr. Clayton. I think it is a really good question because 
it highlights the issue. Our registration does not qualify them 
for a particular asset class, or not an asset class; it is just 
a general registration as an NRSRO. So you can have somebody 
who is registered with us who doesn't rate corporate debt or 
has no expertise in rating corporate debt. It is not a merit 
analysis of their ability.
    And I don't want to speak for the Fed. They do a good job 
at this. They need to look at the portfolio of ratings of those 
entities and assess whether they are appropriate for their 
facilities.
    Ms. Dean. I appreciate that. You may know--and this has 
bipartisan support, as you have heard today--that my bill, H.R. 
6934, the Uniform Treatment of NRSROs Act, would help achieve 
this uniform treatment across the NRSROs.
    Let me move on to pick up on the conversation that you had 
begun here with the very troubling firing of U.S. Attorney 
Berman, the U.S. Attorney for the Southern District of New 
York. You said you began a conversation with the Administration 
only this past weekend as to the possibility of you shifting to 
that position. Is that correct?
    Mr. Clayton. Let me be clear. The weekend of the 12th was 
the initial conversation.
    Ms. Dean. Oh, okay. The weekend before the firing of Mr. 
Berman. That would be the week before.
    Mr. Clayton. I'm sorry. I didn't hear that.
    Ms. Dean. That would be the weekend before the firing of 
Mr. Berman.
    Mr. Huizenga. Mr. Chairman? The question--
    Mr. Clayton. The weekend of the 12th.
    Mr. Huizenga. Her question was inaudible, I think. She just 
needed--we needed to let--
    Chairman Sherman. Please repeat your question.
    Ms. Dean. That would have been the weekend before the 
firing, the Friday night firing, of Mr. Berman.
    Mr. Clayton. Yes, the weekend of the 12th.
    Ms. Dean. And you said you had had these conversations with 
others, about a wish to get back to New York, so you were 
looking for a position back in New York. When did you begin 
that conversation with either Attorney General Barr or the 
President?
    Mr. Clayton. As I said, the first time it was raised was 
the weekend of the 12th, and I am going to leave it at that.
    Ms. Dean. It was raised by you or by--
    Mr. Clayton. By me.
    Ms. Dean. --Attorney General Barr?
    Mr. Clayton. Let me be clear on this issue. This was 
entirely my idea. This is something that I had been thinking 
about for several months as a possible continuation of public 
service after my time at the SEC is done.
    Ms. Dean. Okay. And you do not have a history as a 
prosecutor, but this was your idea. You suggested it to the 
Administration. Is that correct?
    Mr. Huizenga. Mr. Chairman?
    Chairman Sherman. Yes. I extended the gentlelady's time a 
bit for the technical problem, but the ranking member points 
out that the--
    Ms. Dean. Oh, thank you. I apologize. I did not have the 
timer visible to me. So, I apologize.
    Thank you very much, Mr. Chairman.
    Mr. Clayton. Thank you.
    Chairman Sherman. Thank you. And you can submit questions 
for the record, and we do expect Mr. Clayton to respond.
    Ms. Dean. I will. Thank you very much. I yield back.
    Chairman Sherman. And now, as our last questioner, I 
recognize the very distinguished gentlelady from Texas, Ms. 
Garcia, for 5 minutes.
    Ms. Garcia of Texas. Thank you, Mr. Chairman.
    And as a member of the Financial Services Committee and 
also the Judiciary Committee, I wanted to just pick up where 
Ms. Dean has left off.
    Mr. Clayton, who approached you? You said it was the 
weekend of the 12th. Who approached you about it? Or did you 
approach the Administration? I just want to be clear on that.
    Mr. Clayton. Let me be clear on this. And I don't--this is 
not a confirmation hearing. I am here as the Chairman of the 
SEC. But I want to be clear on how this came up.
    This was entirely my idea. It was something that I had been 
thinking about, and talking about with others, as to whether I 
could go back to New York, which I had committed to my family 
to do, and I intend to do when I have finished my service here, 
and continue in public service.
    This was a position that was very attractive to me, based 
on my work with the Southern District and my extensive work 
with people who are alumni of the Southern District. It is an 
incredible group of people. They work incredibly hard. They are 
dedicated to justice without fear or favor.
    This was something of interest to me. It came up the 
weekend of the 12th. And that is the genesis for this. And I am 
going to leave it at that.
    Ms. Garcia of Texas. Well, unfortunately, I can't. I think 
that you understand that--I understand and you understand this 
is not a confirmation hearing. But the reality is that you are 
before Congress, you are before a committee. And any time 
anyone comes to testify before the United States Congress, they 
know they are subject to just about any question about 
anything. And you may feel uncomfortable, you may not want to 
answer the questions, but until you run to be a Member of 
Congress, I get to ask the questions.
    So, again, I am going to--
    Mr. Huizenga. Mr. Chairman, a parliamentary inquiry. Is 
this line of questioning even relevant to the title or the 
subject of what our hearing is supposed to be about?
    Chairman Sherman. The gentlelady from Texas is correct. You 
are a Member of Congress; it is your time.
    If I start editing the questions, and comparing it to the 
title, and crafting the titles to exclude the questions that I 
don't want to hear, I am not sure you are going to be happy 
with the result. So--
    Mr. Huizenga. It seems to me, Mr. Chairman, that it should 
at least be in the range--
    Chairman Sherman. Your parliamentary inquiry has been 
responded to, and--
    Mr. Huizenga. Okay. Parliamentary inquiry.
    Chairman Sherman. --if you have an op-ed you want to write, 
put it in The Hill or Roll Call.
    Mr. Huizenga. Mr. Chairman, a point of inquiry. Is it going 
to be your common practice to have discussion on issues that 
are outside of our--
    Chairman Sherman. It is my practice as Chair to recognize a 
Member and to recognize that, as a Member of Congress, they can 
ask the questions they want, and to protect their time from 
interruptions.
    I will ask the staff to restore about half a minute--
    Mr. Huizenga. Mr. Chairman, okay, parliamentary inquiry on 
that. They stopped the clock when my inquiry started, so there 
is no need to add time.
    Chairman Sherman. But the train of thought was certainly 
interrupted, so we will keep that in mind as we go forward.
    I'm sorry, Ms. Garcia. And hopefully, there will be no 
further inquiries. You are recognized for the remainder of your 
time.
    Ms. Garcia of Texas. Mr. Chairman, it is regrettable that 
he is refusing to answer a direct question from a Member of 
Congress. And the American people deserve to know some of these 
questions, because, yes, he did state earlier that this process 
did not require his current attention, the confirmation 
process, but the reality is, when you are a potential nominee 
or you are a nominee, it is all fair game, and the American 
people have a right to know.
    But I will move on.
    This past Wednesday, the Judiciary Committee heard from 
several employees of the Department of Justice--current and 
past--who have testified that the Department is pursuing cases 
based on the President's political and personal whims and not 
based on the rule of law.
    For example, Mr. Zelinsky, a prosecutor on the Roger Stone 
investigation, testified that he was told the Department wanted 
to lessen the sentencing recommendation for Mr. Stone because 
the U.S. Attorney was afraid of the President, and so he agreed 
to treat Mr. Stone differently than any other person.
    Mr. Clayton, should the President's friends be treated 
differently than other defendants?
    Mr. Clayton. Let me tell you how we approach matters at the 
SEC and how I would approach matters anywhere. It does not 
matter who the subjects are; you pursue it without fear or 
favor and to do justice.
    And that is the way that the people who have worked with 
me, the 1,300 people in our Enforcement Division at the SEC, 
have performed it, and that is the right way to go forward.
    Ms. Garcia of Texas. I agree with you, without fear or 
favor is certainly the principle involved here. But what if you 
get an order? Do you believe the President has a right to tell 
you to lower a sentencing recommendation or drop charges 
entirely for his friends or for political allies?
    Mr. Clayton. I am going to talk about the SEC. At the SEC, 
what we do is we approach this through our enforcement 
directors, through our staff. They are empowered to do what 
they think is right.
    Ms. Garcia of Texas. Again, sir, I am asking you if--you 
want to be the U.S. Attorney. You said you have had oversight 
of prosecutors. Can you commit to us today to report any 
political influence or any kind of undue influence coming from 
the White House or the President or his agents to you or your 
office as U.S. Attorney if anything like that occurs, that you 
would report it to Congress?
    Mr. Clayton. I can commit to continuing to do my job as I 
have and any other job like it as I have, which is without fear 
or favor, with independence, and without inappropriate 
influence.
    Ms. Garcia of Texas. Right. I think in response to Ms. 
Porter's questions, you said that you had not had any 
discussion or any kind of influence either while you were 
playing golf with the President or any other time. Is that 
correct?
    Mr. Clayton. What I am going to say is, I have conducted 
myself in my job in a way that I have not had any improper 
influence on any enforcement matter. I am completely confident 
in saying that.
    Ms. Garcia of Texas. So you are--
    Mr. Huizenga. Mr. Chairman?
    Chairman Sherman. The time of the gentlelady has expired. I 
wish I could continue and allocate you more time, but the 
ranking member is being assertive here.
    Ms. Garcia of Texas. Thank you, Mr. Chairman, and I yield 
back.
    Chairman Sherman. Questions for the record will be 
submitted in the requisite number of days, which is 5 
legislative days.
    And we hope, Chairman Clayton, that you can get us an 
answer within a few weeks, a very few weeks, to those written 
questions.
    Mr. Huizenga. Mr. Chairman?
    Chairman Sherman. Yes?
    Mr. Huizenga. I ask unanimous consent to enter into the 
record a June 24th letter from the U.S. Chamber of Commerce to 
both of us. The letter provides comments to the legislative 
text attached to this hearing. Apparently, they need to amend 
that to make this the confirmation hearing, but it is on the 
text of this attached hearing.
    Chairman Sherman. Without objection, it is so ordered.
    I would like to thank Mr. Clayton for his testimony.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
 I remind Members to submit your written questions and mate- 
 rials for the record to the email address provided to your staff.
This hearing is adjourned.
[Whereupon, at 2:41 p.m., the hearing was adjourned.]

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