[Senate Hearing 117-699]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-699


        OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION

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

                                HEARING

                               BEFORE THE

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

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                                   ON

   EXAMINING OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION
                               __________

                           SEPTEMBER 14, 2021
                               __________

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

                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                  

                Available at: https: //www.govinfo.gov /

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
52-997 PDF               WASHINGTON : 2023  


            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                     SHERROD BROWN, Ohio, Chairman

JACK REED, Rhode Island              PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey          RICHARD C. SHELBY, Alabama
JON TESTER, Montana                  MIKE CRAPO, Idaho
MARK R. WARNER, Virginia             TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts      MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland           THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada       JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota                BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona              CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia                  JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia             KEVIN CRAMER, North Dakota
                                     STEVE DAINES, Montana

                     Laura Swanson, Staff Director

                 Brad Grantz, Republican Staff Director

                       Elisha Tuku, Chief Counsel

                 Dan Sullivan, Republican Chief Counsel

                     Mark Uyeda, Republican Detail

                      Cameron Ricker, Chief Clerk

                      Shelvin Simmons, IT Director

                    Charles J. Moffat, Hearing Clerk

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      TUESDAY, SEPTEMBER 14, 2021

                                                                   Page

Opening statement of Chairman Brown..............................     1
        Prepared statement.......................................    37

Opening statements, comments, or prepared statements of:
    Senator Toomey...............................................     3
        Prepared statement.......................................    38

                                WITNESS

Gary Gensler, Chair, U.S. Securities and Exchange Commission.....     5
    Prepared statement...........................................    39
    Responses to written questions of:
        Chairman Brown...........................................    46
        Senator Toomey...........................................    46
        Senator Menendez.........................................    59
        Senator Cortez Masto.....................................    60
        Senator Sinema...........................................    60
        Senator Scott............................................    61
        Senator Rounds...........................................    64
        Senator Tillis...........................................    66
        Senator Kennedy..........................................    74
        Senator Moran............................................    77
        Senator Daines...........................................    84

              Additional Material Supplied for the Record

Letter from American Securities Association......................    86

                                 (iii)

 
        OVERSIGHT OF THE U.S. SECURITIES AND EXCHANGE COMMISSION

                              ----------                              


                      TUESDAY, SEPTEMBER 14, 2021

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:06 a.m., via Webex and in room 538, 
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of 
the Committee, presiding.

          OPENING STATEMENT OF CHAIRMAN SHERROD BROWN

    Chairman Brown. The Senate Committee on Banking, Housing, 
and Urban Affairs will come to order. This hearing is in a, our 
first time, a hybrid format. Our witness is in person. Mr. 
Gensler is here in person. Thank you. Members have the option 
to appear both in person or virtually.
    For those joining remotely, a few reminders. Once you start 
speaking there will be a slight delay before you are displayed 
on the screen. To minimize background noise, please click the 
Mute button until it is your turn to speak or ask questions. 
You should all have one box on your screens labeled ``Clock'' 
that will show how much time is remaining. For those of you 
joining virtually, you will hear a bell ring when you have 30 
seconds remaining and then when time has expired. If there is a 
technology issue we will move to the next Member.
    Our speaking order will be as usual, that is by seniority 
of the Members who have checked in before the gavel came down, 
either in person or virtually, and then by seniority of Members 
arriving, alternating between Democrats and Republicans.
    Welcome, Chair Gensler, back to the Committee. Five months 
ago today, the Senate confirmed you as Chair of the Securities 
and Exchange Commission, one of the historically most important 
jobs in the Federal Government. I know you have already gotten 
to work for the American people, and you had your work cut out 
for you.
    Over the past year-and-a-half, the disconnect between the 
stock market and most Americans' lives has never been more 
painfully clear. Most of the country has been devastated by 
this awful virus. Hundreds of thousands have lost loved ones. 
People lost jobs, lost family businesses. Mothers were forced 
to leave their paid jobs in droves. Millions today are at risk 
of evictions from their homes.
    But you would never know any of that by looking at the 
stock market. It hits new records month after month. Listen to 
this: 53 records since the beginning of the year. Eye-popping 
gains in the stock market and crypto assets attracted millions 
to start investing.
    And like during past times of upheaval, the COVID crisis 
opened the doors for bad actors looking to seize upon people's 
fears and insecurity. Pandemic-related fraud, from Ponzi 
schemes to offers to invest in COVID-related medical care, 
skyrocketed last year.
    The SEC stepped up to educate investors and to punish bad 
actors. The dedicated public servants at the Commission have 
continued to fight for all the Americans whose pensions and 
401(k)s and college savings are at risk. Many have been enticed 
by dramatic jumps in the value of new digital assets. They have 
dreamed of riding the coattails of professional investors and 
celebrities in a new wave of public offerings of more 
speculative investments known as ``special purpose acquisition 
companies,'' or SPACs.
    Some professional investors and celebrities make earning 
millions look easy. But as we are reminded time and again 
through history, it is never that simple. Too often, someone's 
quick profit comes at the expense of workers, sometimes even 
entire communities.
    Chair Gensler, it is your job to make sure that efficient 
markets are balanced with strong enforcement that protects 
Americans from the worst Wall Street greed and careless risk, 
even if that means challenging practices or shady investment 
products that previous chairs had ignored. It means working to 
increase transparency that the last Administration simply did 
not take seriously. We all know that on this Committee. For 
example, the SEC approved new human capital disclosure last 
year without requiring companies to provide even basic details 
or data. ``Just give us some information,'' we almost 
disdainfully said. And let's remember, ``human capital'' is 
business school-speak for the tens of millions of Americans who 
work for these companies.
    Despite the new standard and the investor demand for 
essential information used to judge how companies treat and 
manage these workers, most companies are barely providing any 
additional information.
    My colleagues have been working to improve transparency. 
Senator Warner of Virginia introduced the Workforce Investment 
Disclosure Act to get companies to provide important 
information on how they pay, train, and invest in their 
workers. His bill will shed light on how companies outsource 
and subcontract their workers, such an important part of our 
economy now, and something he and I have jointly written to the 
GAO about.
    Today's tech companies like to say they are more 
``efficient'' than companies of the past, when in reality they 
hire the same number of workers. Half of them are just 
invisible to us under today's disclosure requirements.
    Senator Warren of Massachusetts introduced the Climate Risk 
Disclosure Act, calling for significant new public disclosures 
from public companies regarding the risks climate change poses 
to their financial results and to their operations.
    These bills are good policy. The largest investors have 
been calling for more of this kind of information. I am a 
cosponsor of both bills.
    Of course this would be just a start. Transparency is only 
a first step to getting corporations and the biggest investors 
to behave better. There is much you already have the authority 
to do to make markets work better for the real economy, outside 
of investment firm and hedge fund board rooms.
    For too long, the financial system has catered to the big 
guys, and left everyone else on their own. There are far too 
many stories of how insiders game the system. Big banks abuse 
customers while they make record profits. Brokers who have 
taken advantage of customers use the system to cover up and 
erase their misconduct. Private equity firms buy up companies 
and treat workers as a cost to be minimized. Workers as a cost 
to be minimized--where have we heard that before? They buy up 
houses, they raise rents, they evict families, even during a 
pandemic.
    And of course no matter what happens to the workers at the 
companies they have raided for parts, or to the families in the 
mobile home complex where they have jacked up the rents, or to 
the larger economy, the big guys--the hedge funds, the SPAC 
sponsors, the big banks, the brokers--the big guys seem to do 
just fine.
    That system is not sustainable.
    Increasing people's trust and faith in the market and the 
financial system will lead to more saving and broader 
participation. Yet some of my colleagues say we should let the 
market sort it out. They want to tie the SEC's and other 
watchdogs' hands.
    We know that is counterproductive. It is the same thinking 
that led to a market collapse 13 years ago, and that has led to 
decades of more and more investment flowing to a smaller and 
smaller share of the country.
    The last Administration subscribed to that same always Wall 
Street-first view, and left this country worse off than they 
found it. The damage is too vast to measure. Our economy and 
markets were no exception.
    Investors have fewer tools to hold management accountable; 
savers--and that means retirees, widows, families--have fewer 
protections. And corruption runs rampant; existing, serious 
conflicts of interest have too often been ignored.
    This Administration is taking a different view, thankfully. 
The economy and the markets should work for everyone, not just 
the well-connected. They should reflect the economy we all 
want, with broadly shared prosperity, and a growing middle 
class that all workers can join.
    When that happens, people will have confidence that markets 
will actually work for them, not just Wall Street. And we will 
see more Americans save, and we will see more Americans invest 
for the future.
    Chair Gensler, I look forward to hearing about the progress 
you are making toward those goals.
    Ranking Member Toomey, welcome.

         OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY

    Senator Toomey. Thank you, Mr. Chairman. Chair Gensler. 
Welcome back. It is good to see you, despite our significant 
disagreements. I do appreciate your dedication and enjoy 
working with you.
    As you know, the SEC has historically administered 
securities laws on a bipartisan basis, generally. During your 
confirmation process, I expressed concerns that you might stray 
from this tradition and use the SEC to advance a liberal 
political agenda, such as combating global warming and 
advancing so-called social justice, and push the legal bounds 
of the SEC's authorities to pursue disclosures that are not 
financially material to the reporting companies. Unfortunately, 
this appears to be exactly what you are doing.
    You have added mandatory disclosures on global warming and, 
quote, ``human capital,'' end quote, such as board and employee 
racial and gender identity, to the SEC's agenda. You have 
essentially said that if large investment advisors and pension 
funds like BlackRock and CalPERS, who invest other people's 
money, if they want information about global warming or 
workforce diversity, it must be disclosed even if it is 
financially insignificant and irrelevant to a particular 
business.
    Even President Obama's SEC Chair, Mary Jo White, opposed 
using the SEC's disclosure powers for the purpose of, quote, 
``exerting societal pressure on companies to change behavior, 
rather than to disclose financial information that primarily 
informs investment decisions,'' end quote. That is exactly what 
you are doing, and you are also well on your way to 
politicizing the PCAOB after firing all of the existing board 
members.
    See, it is not the SEC's role, nor its expertise, as an 
independent financial regulator with zero democratic 
accountability, to address these political and social issues.
    Similarly, I have worried that you would favor the 
paternalistic push by some on the left to restrict investor 
freedom under the guise of protection, while actually harming 
retail investors. Such harm may result from your apparent 
opposition to payment for order flow, which helped allow 
brokers to offer commission-free trading. Payment for order 
flow allows a broker to keep a portion of the price improvement 
obtained by routing a transaction to a wholesaler. To my 
knowledge, the SEC has not demonstrated any failure or harm 
associated with payment for order flow, which the SEC has 
allowed for many years. Banning payment for order flow could 
very well have the effect of eliminating commission-free 
trading, which would be a grave disservice to average 
investors.
    Likewise, you have criticized mobile apps that make 
investing easy and fun as, quote, ``gamification,'' end quote. 
But in my view, delivering a product that customers like is not 
a bad thing.
    And I worry that you are attempting to fix problems that do 
not exist. Today is the best time ever to be a retail investor 
in the United States of America. Retail investors receive the 
best execution. A person of modest means can share in the gains 
of stock market at negligible transaction costs. We see the 
tightest bid/offer spreads ever.
    At least four major developments for retail investors made 
this all possible--commission-free trading, accounts with no 
minimum balances, low- or no-fee mutual funds and ETFs, and 
yes, user-friendly technology like mobile apps. Hence, 
investors can also voluntarily use a broker who declines 
payment for order flow but may, therefore, charge a commission.
    Now despite decades of rapidly growing numbers of retail 
investors participating in stock market gains, and enjoying 
more product opportunities at lower costs, some of my 
colleagues suggest that the markets are somehow rigged against 
retail investors. I would like to hear how it is rigged. Don't 
retail investors receive dividends like institutional 
investors? Aren't retail investors entitled to best execution, 
like institutional investors? Don't the value of retail 
investors' shares and those of institutional investors both 
increase when a stock's price increases?
    In my view, the SEC's job is not to make retail investing 
more expensive, or unpleasant, and difficult. In America, 
adults investing their own money should be free to decide how 
to do so.
    Let me turn to cryptocurrency, which together with the 
blockchain technology is a very, very important and very 
promising new technology. As you know, cryptocurrencies are 
actively traded on many platforms. A really important question 
is whether a cryptocurrency is a security for regulatory 
purposes under Howey or some other test.
    Now based on your public statements, it is pretty clear 
that you believe that some are securities but others are not. 
So, I am frustrated by the lack of helpful SEC public guidance 
explaining how you make this distinction. What makes some of 
them securities while others are not securities?
    I understand that the SEC staff will privately provide 
feedback and analysis on whether a cryptocurrency is a 
security, but why keep this analysis private? Why not publicly 
announce what characteristics make a cryptocurrency a security 
or not a security? In other words, how do you apply Howey and 
the Reves tests to these new products? Why wait to make the 
SEC's views known only when it swoops in with an enforcement 
action, in some cases years after the product was launched?
    This is regulation by enforcement, and it is extremely 
objectionable, and I am concerned it can stifle domestic 
innovation.
    So, Mr. Chairman, I hope we will get a better understanding 
of your views on these and a number of other issues. There are 
many things on which you and I agree and where we could work 
together to protect investors, to ensure fair, orderly, and 
efficient markets, and facilitate capital formation. I hope 
that we can work together on these really important parts of 
the SEC's mission.
    Chairman Brown. Thank you, Ranking Member Toomey.
    Today we will hear Securities and Exchange Commission Chair 
Gary Gensler, no stranger to this Committee. This is Chair 
Gensler's first appearance here in this role. Chair Gensler, 
please proceed.

STATEMENT OF GARY GENSLER, CHAIR, U.S. SECURITIES AND EXCHANGE 
                           COMMISSION

    Mr. Gensler. Good morning, Chairman Brown, Ranking Member 
Toomey, and Members of the Committee. I am honored to appear 
here before you today for the first time, as you said, as Chair 
of the Securities and Exchange Commission, and I would like to 
thank you all for your support in my confirmation this spring. 
I would also note I think, Chairman, you may be the eighth 
chairman that I have appeared before in this Committee. I am 
aging myself a little bit, but I think Chair D'Amato might have 
been the first that I was in this Committee room.
    As is customary, I should note that my views are my own. I 
am not speaking on behalf of my fellow commissioners or the 
staff.
    The U.S., as Ranking Member Toomey said, is blessed with 
the largest, most sophisticated, and most innovative capital 
markets in the world. We actually represent 38 percent of the 
world's capital market, and that is when we are only about 23 
percent of the world's economy. They are competitive. They are 
efficient. They are transparent.
    But I think we cannot take our remarkable capital markets 
for granted. New technologies continue to change the face of 
finance for investors and businesses, and more retail investors 
than ever are accessing our markets. Our country and other 
countries are also developing deep competitive capital markets 
as well. And though I provide greater detail in the written 
technology, I would just like to flag three areas for now.
    First is market structure. Market structure is fundamental 
to our mission, to protect investors, on the other side, 
facilitate capital formation, that which is in the middle, 
fair, orderly, and efficient markets. How do we do that? It is 
through transparency and competition in those markets.
    So I have asked staff to take a look at a number of market 
structures. The Treasury market, that is the base of all other 
fixed income markets. The non-Treasury fixed income markets, 
corporate bonds and municipals, which, by the way, in the U.S. 
are twice to 2.5 times the lending out of banks are loaned 
through our capital markets. Our equity markets and securities-
based swaps as well. In each of these crucial markets I think 
companies and investors alike benefit if we can increase 
competition, lower costs, and bring more transactions out of 
the dark.
    Second is a rapid change in technology. We are living in a 
transformational time, perhaps as transformational as the 
internet itself. Now I expect some Members might ask a question 
or two about crypto, but actually the first thing I just want 
to mention is artificial intelligence. AI, predictive data 
analytics, and machine learning are shaping and will continue 
to shape many parts of our economy, and while these 
developments, I believe, can increase access, increase choice, 
and lower costs, they also raise new questions about potential 
conflicts, biases in the data, and yes, even systemic risk.
    And now, for the crypto, because I know that you are all, 
you know, keenly interested. We just don't have, I believe, 
enough investor protection in crypto--finance, the issuance of 
these tokens, the trading, and particularly the lending. 
Frankly, as I have said before, I think it is more like the 
Wild West. I have asked the SEC staff, working with our fellow 
regulators--the Commodity and Futures Trading Commission, the 
bank regulators, the Treasury as well--using our current 
authorities, how can we best bring investor protection to these 
markets? I stand willing also to work with this Committee and 
other committees of Congress if you take up any legislative 
initiatives.
    And then third, issuer disclosure. You see, since the 
1930s, we have had a basic bargain. Investors get to decide 
what risks they take. That is up to the investors. But Congress 
said that it should be based on full and fair disclosure of the 
issues. Over the decades we have updated what those disclosures 
are, and today's investors are increasingly looking for 
consistent, comparable, and decision-useful disclosures around 
climate risk, so-called human capital, cybersecurity, and other 
areas.
    So I have asked staff to develop proposals for the 
Commission to consider these potential disclosures, and yes, 
put these proposals out to public comment, put rigorous 
economic analysis again, and what it is that investors want to 
see and have the public comment.
    Beyond these policy areas, the SEC employees oversee 28,000 
registered entities, more than 3,700 broker-dealers, and 24 
national security exchanges. You have got the picture. A lot 
going on in our capital markets--$110 trillion capital markets.
    Last month, we authorized voluntary return to work, but we 
have been largely remote for 18 months now. This speaks to the 
dedication of the SEC staff. I cannot compliment them enough. 
And while capital markets have grown, the SEC has not grown to 
meet the needs of the 2020s, though. Over 5 years ago we were 
about 4 or 5 percent bigger, and so I just think that it would 
be helpful to be a little bit wise and add to our staff. I hope 
that you can agree with me on that.
    Thank you. I look forward to your questions.
    Chairman Brown. Thank you, Chair Gensler. How a company--as 
we have discussed, privately, and you have spoken publicly--how 
a company treats its employees matters. The SEC can require 
companies to disclose that information, but instead of crafting 
a rule that would provide information and data that could give 
real insight, the last SEC chair wrote a vague rule that 
companies can interpret to require as much or more of, and as 
little information as they like. That lets companies say they 
pay their workers a living wage with ample paid leave and 
retirement contributions while subtracting out half their 
workforce while subcontracting out half their workforce to 
companies that pay lower wages with stingy benefits. We know 
that is a business model for many companies.
    Why is it important to have disclosures standards that are 
consistent and comparable across companies?
    Mr. Gensler. I think that investing in a company, the human 
capital, the workforce, is a key asset. I remember when I 
started on Wall Street at Goldman Sachs and we used to sell 
companies. And when we sold companies we would always have a 
section in that private offering memo about the employees--what 
they are paid, how many part-time and how many are full-time, 
where they are located, retention, and the like. It is even 
more important in the 2020 than when I was young on Wall Street 
because it is so critical to the valuations of the company.
    Now again, we will put to this out--if my fellow 
commissioners concur, we will put it out to public comment and 
see what investors have to say, and then their feedback is 
going to guide us on any final rulemaking.
    Chairman Brown. I think it is pretty clear investors are 
going to want more information, like you suggest, in your 
Goldman days.
    We have talked before about how Wall Street has treated the 
markets as a game for decades, a game they always seem to win 
at the expense of pretty much everyone else, including 
communities in Wyoming and Louisiana and Rhode Island and Ohio 
and Pennsylvania. SPACs, for instance, draw in companies that 
want to please Wall Street, sometimes make promises that they 
cannot deliver on. Look at Youngstown, Ohio. There is a lot to 
unpack with what is happening at Lordstown Motors, whether or 
not the company is only able to succeed, and I hope it does. It 
seems clear there were outside investors looking at this not as 
a long-term investment in a community with a proud 
manufacturing heritage and a talented workforce but as a way to 
make a quick buck with no follow-through.
    There will always be people, of course, like that, but that 
does not mean we need to encourage risky financial mechanisms 
to encourage speculation over a long-term investment.
    In a situation like that one, investors make their money 
and pull out, companies break promises, and workers and 
community pay the price. What are the risks, Chair Gensler, 
that the SPAC market has highlighted over the last year and 
what can we do about it?
    Mr. Gensler. I think the special purpose acquisition 
companies, these blank check companies, the risks are to 
investors and the disclosure to the investors. I have asked 
staff to serve up recommendations that we could consider as a 
Commission. But in essence there are a lot of costs in these, 
and second, they usually have a 2-year fuse, and in that 2-year 
fuse they try to go out and buy something. And a lot of the 
institutional investors, when that happens, sell--it is called 
a ``redemption right''--and retail investors are often left 
holding the dilution or the significant cost of the bankers and 
the promoters.
    So we are looking at greater disclosure and also looking at 
if there are inherent conflicts along the way, and then again, 
try to put this out to notice and comment and rulemaking.
    Chairman Brown. Thank you. My last question. It has been 11 
years since we passed Dodd-Frank. The rules and executive 
compensation, as you know, remain unfinished. We have seen 
executive compensations soar. We have watched executives leave 
with huge bonuses after presiding over fraud and scamming 
customers. The phrase ``golden parachute'' has become a cliche. 
It is that commonplace.
    Why is it important to have strong rules to claw back 
incentive-based compensation when executives got that 
compensation by breaking the rules, and disclose the 
relationship, how important it is to disclose the relationship 
between executive pay and financial performance?
    Mr. Gensler. Let me break it in two things. For the SEC, it 
is important to move forward because this Committee and then 
the whole Congress, with the President, put it in law, and it 
is a mandate that we shall follow. I remember being a staffer, 
sitting on the other side for Senator Sarbanes. I know that 
that is how he felt.
    But too, in terms of the substance, I think why Congress 
addressed this and put it into law is that if there a material 
misstatement or omission in the financials, and those 
financials need to be restated, then the executives should not 
benefit. And there is a certain number of years, a lookback 
period, a clawback period that Congress said, well, then you 
should give up the performance-based compensation, if it was 
based upon faulty numbers.
    Chairman Brown. Thank you. Senator Toomey.
    Senator Toomey. Thanks, Mr. Chairman. Chairman Gensler, one 
area that appears to have nearly universal agreement is the 
benefit of a faster settlement cycle for equities securities. 
As you know, market participants seem to be confident in a T+1. 
My understanding is that you support these efforts. I 
appreciate that. I would just encourage the SEC to move ahead 
as quickly as reasonably possible so that that can proceed.
    I also think there is widespread support for fixing the 
money market fund rule by removing the link between the 30 
percent weekly average liquidity and the possibility of 
imposing fees and gates. You and I have discussed this. I do 
not think there is a need for regulatory reforms that would 
eliminate or reduce the viability of money market funds as an 
investment, but improving this regulation would reduce the risk 
that I think the regulatory regime imposes now.
    I am concerned about the SEC not adequately fulfilling its 
capital formation mission. Last year's appropriation law 
instructed the SEC to deliver two reports to Congress by the 
end of June, which would help benefit small public companies. 
These reports are now past due. I certainly hope the SEC will 
submit those reports promptly.
    And you testified to the House that the SEC would have a 
report on GameStop and Robinhood by this summer. That report 
has not been produced yet. We have got a week left in the 
summer. I do certainly hope that we will see it soon.
    Now let me turn to cryptocurrencies, and my time is limited 
so I am going to try to do this as efficiently as I can, Mr. 
Chairman. But I think I know your position, among other things, 
is that not all cryptocurrencies are inherently securities. 
Right? That is true.
    Mr. Gensler. There are a small number that are not, but I 
think that as Chair Clayton said when he was in front of 
Congress, I think very many of these facts and circumstances 
are investment contracts.
    Senator Toomey. So here is my concern. So some are and some 
are not, is basically what you are saying, and I am concerned 
that the SEC has not provided sufficient definition and 
explained how it would apply the Howey test, which I think is 
the court standard for determining when something is an 
investment contract.
    So, for instance, stablecoins do not have an inherent 
expectation of profit. They are just linked to the dollar. Now 
you might use them in an attempt to make a profit, but that is 
a second-order activity. Is it your view that stablecoins 
themselves can be securities?
    Mr. Gensler. I think, Senator, they may well be securities. 
As Thurgood Marshall wrote in the Reves opinion, in defining 
the scope of the market that it, Congress, wished to regulate, 
Congress painted a broad brush. And it actually included about 
35 different things inside the definition of a security in the 
33 Act.
    Senator Toomey. OK. I have just got limited time here, so I 
acknowledge that. Here is my problem, though. I think what you 
just said was that they may be securities, or that some are 
securities. To me, a stablecoin does not meet the second prong 
of the Howey test, that there has to be an expectation of 
profits from the investment. And so if it does not meet the 
Howey test it looks to me like it is not a security.
    Now maybe you have got a good argument for why some are and 
some are not. My whole point is I think we need to have clarity 
on this. I think you should publicly disclose this. Apparently, 
there are private conversations where you work with people who 
are proposing particular structures and you give them advice, 
your staff gives them advice. I just think we ought to have 
that publicly, and we certainly should not be taking 
enforcement action against somebody without having first 
provided that clarity.
    Mr. Gensler. Well, Senator, this Congress could change the 
laws, but the laws that we have right now have a very broad 
definition of security, including a note, including an 
investment contract and the like. And my predecessor, Chair 
Clayton, and others actually put out a lot of guidance with 
regard to the Howey.
    Senator Toomey. I have just got to push back a little bit 
on that. It is broad but it is well defined. There is a very 
specific litany of the instruments that constitute securities, 
and you know this better than I do. Investment contract is one 
of them. And there is a court decision that lays out the prongs 
for what constitutes an investment contract.
    I am just saying, as a layman who can read English, when I 
read those tests, stablecoins do not seem to meet that test, to 
me. Maybe I am wrong, but if I can misinterpret this I think 
others could too, and some clarity, public clarity I think 
would be helpful.
    Mr. Gensler. I see the red light, but I agree with you that 
some of these tokens have been deemed to be commodities. Many 
of them are securities. And the Supreme Court has weighed in a 
number of times. You noted the Howey test. We have talked about 
the Reves test, which was in the 1990s, as well, as weighed in. 
And I think that there is a fair amount of clarity.
    Over the years, the SEC has even found, believe it or not, 
whiskey caskets, and the courts agreed, in the 1960s, were 
investments. And I think at the heart of our securities laws 
was protecting investors against fraud. They get to decide. 
They get to take the risk. You will find I am not negative or a 
minimalist about crypto. I just think it would be best if it is 
inside the investor protection regime that Congress laid out.
    Senator Toomey. I see my time has expired, Mr. Chairman.
    Chairman Brown. Thank you, Senator Toomey. Senator Reed 
from Rhode Island is recognized.
    Senator Reed. Thank you, Mr. Chairman, and welcome, Mr. 
Chairman. Cybersecurity is one of the greatest threats that we 
face, both as a national security threat and also as an 
economic threat. And in 2018, the SEC issued guidance with 
respect to public companies. I have been trying, over the last 
several years, to enact legislation. Senate 808, the 
Cybersecurity Disclosure Act, was very simple. It would require 
a public company to disclose whether they have a cyber expert 
on their boards, and if not, why not, i.e., they have other 
means to compensate.
    In fact, we did precisely that when it came to financial 
experts. We do require a financial expert on the audit 
committee or an explanation why they do not have one.
    Do you believe that the framework in S. 808 would be 
appropriate for dealing with cyber?
    Mr. Gensler. Senator, I thank you for highlighting that and 
our conversations over the last couple of months. I have asked 
staff to take up two initiatives on cyber, one, company 
disclosure and one with regard to funds, the investment funds. 
And on the company disclosure side I have asked them to look 
very closely at your bill and see whether we would not only 
potentially include that as a recommendation but also some 
other issues around, I will call it, cyber hygiene, and then 
second, incident reporting. When you do have an event or pay 
ransomware, for instance, when does one report. And that is in 
the, you know, 6,000 or 7,000 public companies, and then 
separately we are looking something around funds, the 
cybersecurity of the investment management field.
    Senator Reed. Thank you, Mr. Chairman, and I would 
encourage you to continue to pursue this, and would very much 
like to see my legislation become law and your regulations 
become adopted. So thank you.
    Another issue that has come up, we are all very happy about 
the increased retail participation in the stock market. There 
are a lot of people who never owned stocks before that are 
buying stocks. And some of it is the result of discount brokers 
offering zero commissions, aggressively marketing, et cetera.
    But there is another aspect of this, and that is the 
payment for order flow issue, where a lot of these brokers have 
essentially deals with high-frequency trading firms in exchange 
for rebates, and they will send their orders to these firms. 
And the question is, is the owner of the security getting the 
best deal, or is the intermediary getting a lot of money? And 
it looks like there is a disconnect there, an inherent conflict 
of interest, I think you described it recently.
    So are you trying to move forward efforts to evaluate this 
practice of payment and see if it is fair to the consumer?
    Mr. Gensler. We are. I have asked staff to take a look at 
this. It has been about 16 years since we did a major rewrite 
of the national market structure, and I think the inherent 
conflicts of payment for order flow and rebates on the stock 
exchanges both may make our markets less efficient. And this is 
important for capital formation and it is important for the 
retail investors, that all three Senators have already raised, 
is that retail investors may not be getting best execution, 
even if they get a price improvement, but there it is price 
improvement versus sort of an out-of-date measuring rod. And if 
you measure against the wrong measurement stick it does not 
mean you are getting best execution.
    So we are looking out for retail investors. If anybody on 
this Committee or staff, legally, traded in the retail markets, 
there is like a 97 percent chance that it does not go to a 
transparent exchange. It goes to the dark markets or the 
wholesalers. And so it is harder to get best execution when you 
are not competing order to order.
    So I am like deeply a markets person and believe in the 
competition of markets to bring those orders in competition.
    Senator Reed. Well, thank you, Mr. Chairman. You mentioned 
in your opening remarks that one area you are looking at is the 
Treasury market, and I think that is critical. As you know, in 
March 2020, there was a free seizure of the market, not by 
opponents but the whole market sort of seized up for a moment. 
And a volatility in the Treasury market is very much a danger 
to the entire economy.
    And so I would ask that you continue to look very closely 
at the Treasury markets. I know we have tried to learn lessons 
from March 2020, but I do not think we fully learned all the 
lessons and incorporated them in action.
    Mr. Gensler. I agree with you, and it is one place I hope 
that there is maybe even more bipartisanship. I am working 
closely with Chair Powell at the Federal Reserve, closely with 
Secretary Yellen and her team to try to bring more resiliency, 
safer Treasury market, but also more competitive, that we might 
lower the cost to all of us, the taxpayers. Because we are the 
issuer in that sense.
    Senator Reed. Thank you, Mr. Chairman. Thank you, Mr. 
Chairman.
    Chairman Brown. Senator Kennedy is recognized.
    Senator Kennedy. Thank you, Mr. Chairman. I read your 
editorial in the Wall Street Journal today about the Holding 
Foreign Countries Accountable Act. For what it is worth, I 
agree with most of it. It is a damn good bill, by the way, if I 
may say so.
    Mr. Gensler. I want to thank you. I think it helps us do 
our job, both at the SEC and at the Public Company Accounting 
Oversight Board.
    Senator Kennedy. I appreciate that. I agree with you, 
obviously.
    There was a 3-year implementation period, as you know. 
Foreign companies, including our friends in China, have 3 years 
to comply. The Senate has passed a bill reducing that to 2 
years. We are having a little trouble getting the House to take 
it up. Would you be willing to contribute your considerable 
efforts to encouraging the House to take it up?
    Mr. Gensler. Senator, I have already had some discussions 
and expressed to some of the leadership over there that I 
support that.
    Senator Kennedy. OK. Who pays corporate income taxes?
    Mr. Gensler. Senator, it is the corporation that pays the 
taxes, of course, then ultimately the owners of those 
corporations are the shareholders.
    Senator Kennedy. Corporations just is not a payer. It is a 
tax collector, isn't it?
    Mr. Gensler. Well, I am not here as an expert on the tax 
code. I think the corporation literally----
    Senator Kennedy. But you are an expert on corporations. I 
think economists are generally in agreement that the 
corporation is not a payer. It is a tax collector. The owners 
and the customers and the workers that Chairman Brown spoke so 
eloquently about actually pay the tax, don't they?
    Mr. Gensler. Well again, I never want to mince words but I 
think that the corporation, of course, is paying, and then the 
shareholders have less net income.
    Senator Kennedy. Don't the workers pay it too?
    Mr. Gensler. I think that it is a cost of the corporation. 
Like all costs of the corporation those costs compete with each 
other. Even the cost of the real estate----
    Senator Kennedy. Yeah, but do the workers pay it? I am just 
trying to--I do not have much time. Sorry about that.
    Mr. Gensler. I am not--the workers pay individual income 
tax, workers pay Social Security tax, and all that.
    Senator Kennedy. I just want to be sure I understand your 
testimony, Mr. Chairman. You are saying that the workers are 
not impacted at all by the corporate income tax?
    Mr. Gensler. I am sorry. I thought you were asking a 
different question. All costs in a company compete with each 
other, whether it is the real estate costs----
    Senator Kennedy. I get that, but----
    Mr. Gensler. ----or any other costs.
    Senator Kennedy. But are the workers impacted negatively by 
corporate income tax? It is a real simple question.
    Mr. Gensler. No, I understand it but I think it is best, as 
the head of the Sec, to leave----
    Senator Kennedy. You do not want to answer it.
    Mr. Gensler. ----debates about taxes to Congress. I really 
do think that that is----
    Senator Kennedy. I understand why you do not want to answer 
it. I get it.
    Look, I do not mean any disrespect to you. I followed your 
career. You have had quite a career in public service. You have 
made a lot of money on Wall Street. I respect that. I honor 
that. But as to the people and the companies that you regulate, 
as Chairman of the SEC, do you consider yourself to be their 
daddy?
    Mr. Gensler. No. No.
    Senator Kennedy. Then why do you act like it?
    Mr. Gensler. I try to take the oath of office seriously, 
that the SEC is set up to promote investor protection and 
facilitate capital formation, and that which is in the middle.
    Senator Kennedy. Yeah, but why do you impose your personal 
preferences about cultural issues and social issues on 
companies, and, therefore, their customers and their workers, 
like climate change and the Second Amendment? I mean, I am sure 
you have personal feelings about abortion. Do you have plans to 
implement or impose those values on companies?
    Mr. Gensler. So I want to thank you for the compliment you 
gave me, and I have followed your career and have the deepest 
respect for you too, sir. I think that I am not doing that. I 
think what I have been trying to do is say if investors want 
information about climate risk, and it looks like tens of 
trillions of dollars of assets under management are asking, we 
at the SEC have a role to put something out to notice and 
comment, do the economic analysis, and really see what 
investors are saying. It is really in that narrow set of chalk 
lines that we are operating.
    Senator Kennedy. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Kennedy. Senator Tester 
from Montana is recognized.
    Senator Tester. Thank you, Mr. Chairman, and I want to 
thank Chairman Gensler for being here today. I have just got to 
say one thing really quickly. I have got a farm. My wife and I 
have a farm. We have a corporation. That corporation pays the 
taxes, we do not, and we are the only stockholders of that 
corporation. And that corporation exists, over the last 30 
years or so, has, quite frankly, helped us financially as we 
move forward. So just a different perspective.
    I want to talk about Citizens United decision, which I 
believe is one of the worst decisions that has ever come down 
from the Supreme Court. Incredibly detrimental. It has ended up 
with literally hundreds of millions of dollars, billions of 
dollars, flowing into our political system in an untransparent 
way. I do not think it helps with our democracy.
    That being said, the SEC has the power to require companies 
to disclose corporate political spending. Now the money that 
these companies put into campaigns may or may not be determined 
as being materially important, but nonetheless it depends on 
who you are talking about. If somebody throws a million dollars 
at me in a campaign it is materially important for me in that 
campaign. It may not be materially important to that 
corporation.
    Right now, the current appropriations bill prevents the SEC 
from doing anything about these contributions. Do you believe 
shareholders should have access to that material information 
about how companies, who these shareholders own, spend their 
money?
    Mr. Gensler. Senator, I thank you, and as you noted there 
is the appropriations rider. But putting that to the side----
    Senator Tester. Yep.
    Mr. Gensler. ----you are asking, similar to the other 
issues around climate risk and human capital, to the extent 
that investors want to see that information, and it looks like 
an increasing number of investors do----
    Senator Tester. Yep.
    Mr. Gensler. ----I mean, we see that each of the 
shareholder voting periods, there have been petitions on this 
to the SEC, and so forth, I think the SEC has a role, 
similarly, putting out to notice and comment and see what the 
process brings.
    Senator Tester. Thank you. Thank you for that answer. I 
have talked about this in this Committee before. I think we 
really need to take a strong look at extreme weather events. As 
a farmer this year, for example, this is my wife and my 44th 
harvest, it was the worst one, by far, ever, due to drought and 
due to extreme weather conditions.
    If you take a look at the amount of money that the American 
taxpayer is putting out for extreme weather events in this 
country, it is billions and billions and billions of dollars, 
and it may even be trillions and trillions and trillions of 
dollars. I think it is irresponsible for us not to look at the 
impacts that climate has had on our lives and on our economy, 
because this ain't going away, and it is getting worse.
    And so as Chairman of the SEC, how do you view your work in 
considering the impacts of climate change as they pertain to 
your role as a regulator?
    Mr. Gensler. So again, as I have said to other Senators, 
our role is prescribed by Congress about the issuing companies, 
these 7,000 or so companies, and the investing public, and to 
bring consistent comparable disclosure where investors want it. 
So in climate risk, investors have been asking for it, and 
hundreds of companies--amongst the 500 largest I think it is 
80-plus percent--disclosed something. But we can bring 
consistency, comparability, and make the decision useful 
information.
    Senator Tester. For the investor.
    Mr. Gensler. For the investor, and it would be regarding to 
some of the physical risks that you mentioned, but also the 
transition risk over time.
    Senator Tester. OK. Senator Reed talked to you a little bit 
about cybersecurity. Could you briefly, in the next minute, 
talk about the list of cybersecurity requirements that the SEC 
is looking at implementing?
    Mr. Gensler. I am willing to meet with you or your staff to 
go through.
    Senator Tester. I should have prefaced this by saying, not 
unlike climate change, this problem is going to continue to get 
worse.
    Mr. Gensler. I could not agree with you more. So there are 
two lists we are looking at. One is those activities, how are 
you managing your cyber risk, because it is a real risk. How 
are you governing and managing it, and what are your sort of I 
will call cyber hygiene?
    Second is incident reporting. If you have a breach and you 
are paying ransomware and the like, what are you saying to the 
public when this occurs, especially if you have private 
information. Some companies have tens of millions, sometimes 
hundreds of millions of the American public's confidential 
information, then taken by the bad actor who has just breached 
the wall.
    Senator Tester. So it would be--your work is going to be in 
the realm of hygiene and reporting the attacks.
    Mr. Gensler. That is correct.
    Senator Tester. And the system they have in place.
    Mr. Gensler. Yeah, the system they have and incident 
reporting, but any advice you have, and your staff, we would 
look forward to having good conversations.
    Senator Tester. We look forward to it. Thank you. Thank 
you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Tester. Senator Lummis 
of Wyoming is recognized.
    Senator Lummis. Thank you, Mr. Chairman, and thank you for 
joining us, Chair Gensler. It is nice to see you.
    I have two questions. One is specific and the other very, 
very general. So I will start with the specific. In your 
previous tenure at the Commodity Futures Trading Commission you 
were an advocate of providing no-action relief to regulated 
financial entities within your jurisdiction. Now over the last 
few years the SEC has not provided no-action relief to 
innovators in my opinion nearly enough. The SEC has also 
provided 21(a) investigatory reports on matters of general 
interest under the Exchange Act.
    What would you say to innovators who are nervous about 
approaching the SEC, and how can you improve the use of no-
action relief and other public statements, like 21(a) reports?
    Mr. Gensler. Senator, I thank you for that question, and 
thank you for our continuing dialogue about innovation. I do 
think that Congress gave the SEC important authorities, not 
only to do what you call no-action letters but exemptive 
authorities and the like. And so I have said come in, whether 
it is in the cryptocurrency space or in other innovative 
spaces, come in, talk to us, and see if our rules for custody, 
for instance, which I know we have talked about, or transfer 
agents or something, do not quite fit because they were written 
in a bricks-and-mortar time and now we are in a digital time. 
Let's talk about that, and if we need to go to Congress, go to 
Congress. But maybe we can cobble together something.
    We did this in money markets in the 1970s. Good people in 
the State of Pennsylvania, Senator Toomey's State, came into 
the SEC and sought authorities to do money markets, and that is 
now a $5 trillion asset class.
    So I think there is room here to sort things out and try to 
figure it out, to keep things investor protection-focused, but 
to sort out the new innovations.
    Senator Lummis. And my adjunct question is the general 
question, just about innovation. Do you support responsible 
innovation?
    Mr. Gensler. Oh, my gosh, yes. It has brought us these 
lights in the room. It has brought us this ability to have a 
hybrid hearing with your fellow Members. I mean, innovation is 
what supports access, economic activity, and gives so much of 
us better opportunities in life.
    Senator Lummis. So given that, how do you right-size the 
protections that are within your ambit to innovation, 
generally?
    Mr. Gensler. It is an excellent question that I am sure 
this Committee grapples with decade after decade. I think it is 
the core public policy framework around ensuring that the 
public is not defrauded, that somebody is not misleading them 
and lying to them. To ensure that if you hold somebody's asset 
you do not misuse it or abuse it, so to speak, the physical 
asset.
    And then on trading platforms, at the heart of our 1934 
act, was that competition basically drives to more efficient 
market and people do not manipulate that market, do not front-
run, for instance, in those markets. And I think that these 
basic tenets of antifraud, antimanipulation, but 
procompetition, lower the cost of capital for companies raising 
money and innovators and entrepreneurs, even if they are using, 
for instance, cryptocurrencies and the like.
    But I think that inside that policy envelope that we have 
is a great deal of opportunity. I think it is at the heart of 
our economic success these last 90 years, that we have deeply 
market-based economy. We have the largest capital markets in 
the world, almost 70 percent greater than our economic share, 
38 points versus 23 points. There is a reason, and I think it 
helps our economy. But it is also because it is regulated, 
antifraud, antimanipulation.
    Senator Lummis. So what gaps do you think exist, and what 
additional regulatory authority would be useful, both at the 
CFTC and at the SEC, specifically with regard to digital 
assets?
    Mr. Gensler. I think that we have a great deal of 
authority. I think there is more clarity than some Members on 
this Committee--I mean, I know we are maybe a little bit 
different on that. But I think that in terms of the gaps, we 
have a great deal of clarity on, I think, what is a security, 
but the gaps is the coordination amongst our agencies. So, for 
instance, the coordination with the banking agencies on stable 
value coins, that Senator Toomey raised earlier. The 
coordination with my sibling agency that I was honored to 
chair, the Commodity Futures Trading Commission, on the tokens 
themselves and the platforms. Because to the extent that 
something is a commodity, even the CFTC does not have 
regulatory authority. They have enforcement authority, a 
wonderful piece that Dawn Stump wrote recently that I thought 
was worth reading.
    But working together with the CFTC in how to coordinate, 
and then in the, I would say, infrastructure side, things 
around transfer agents, custody, and the like, that I think we 
could work with Congress to help clarify.
    Senator Lummis. Thank you very much.
    Chairman Brown. Thank you, Senator Lummis. Senator Warner 
from Virginia is recognized.
    Senator Warner. Thank you, Mr. Chairman, and thank you for 
your comments, in your opening comments, about my legislation 
that deals with disclosure around the workforce. I want to come 
to that topic but I want to quickly, Chair Gensler, respond to 
a couple of my colleagues' comments. One, I want to agree with 
Senator Reed. This payment for order flow, we have been talking 
about for close to a decade, and we need to sort through it. I 
think there would be broad bipartisan agreement about that. 
Let's make sure we make that happen.
    On incident reporting, in terms of cyber, I think the 
Intelligence Committee probably has as much visibility into 
that space as anyone, anywhere. We have virtually every member 
of the Intelligence Committee, Democrat and Republican, 
together on a bipartisan mandatory incident reporting bill for 
critical infrastructure, for Federal contractors. We are trying 
to work through details. My hope is we can work with you. If 
you are going to have a mandatory reporting requirement you 
have got to have a penalty or it is toothless. But we are 
trying to work with industry to make that happen, because I 
think, echoing Senator Tester, it is only going to get worse.
    And, you know, as someone who shares some of your concerns 
about crypto, I will acknowledge that you have only put one 
``wild'' in front of ``West,'' as opposed to two, Wild, Wild 
West. And as somebody who has worked with Senator Toomey and 
Senator Lummis, and somebody who managed to do pretty well 
financially because of innovation, I am all in. But we do need 
some guidance. We do need some direction. I would go to the two 
wilds in terms of the description of this area, as good as some 
of the innovation is. Some of the things that I see from the 
intel side scare the dickens out of me. So we need to figure 
out a way to, you know, maybe I ought to join the caucus, 
because we have got to find a way to come together on this area 
of innovation but also area where I can assure you of abuse.
    I will give the industry one credit here. When we were 
going through this definitional process, I heard from more 
newspapers, newsletters, entities. For a group that says they 
are not very well organized, I have never seen a group that has 
got as many publications as the cryptoworld already has.
    Let me get to my last, two-and-a-half minutes, get to the 
topic I wanted to address, which is human capital investment. I 
think we have all acknowledged that every CEO says, ``My 
biggest asset walks out the door each day--human capital.'' 
Yeah, we do not have virtually any reporting. I agree with the 
Chairman. You know, when companies offload their workers as 
contractors, they are really not putting their money where 
their mouth is.
    So I think our Workforce Investment Disclosure Act, which 
passed the House, I hope will be part of the guidance of what 
kind of activities you take. We have got to make sure we have 
ways, because I believe employers--I am sorry, investors, want 
to know employee retention. They want to know what kind of 
skills and training is taking place. As a matter of fact, I 
hope that you will also go beyond workforce and really look at 
the whole realm of ESG reporting. Investors want this, yet 
there are no standards at this point. I am not saying we need 
to move to mandatory across the board, but we really need some 
more look there.
    And I do want to make sure I get a question in here, and 
this is, again, a topic you and I have talked about in the 
past. I have got other legislation that would create the 
equivalent of an R&D tax credit, which was a radical notion, as 
you know, in the accounting world back in the 1970s and early 
'80s, to create an R&D tax credit type equivalent for companies 
that invest in upskilling particularly low- and moderate-paid 
workers. I think creating an asset class around human capital 
make some sense, or at least is worthy of a discussion, and I 
hope you will be willing.
    You can pick any of those items along the way, Chair 
Gensler and comment back, but I hope you will focus on the 
workforce piece.
    Mr. Gensler. Senator, I thank you on cyber. I look forward 
to working further with your staff, and I share your view. In 
the cryptospace there is an intersection that it is almost--it 
a way to subvert our current anti-money laundering laws and 
subverts various things within the intelligence community, and 
we are all trying to protect on.
    I did not use that term. I want to be respectful. I mean, I 
just used one ``wild.'' Also, I do look forward to getting out 
to your great State of Wyoming with all these masks go away and 
everything.
    But on the workforce, just to say we have looked closely at 
your bill and other Committee Members. It is like ultimately 
what investors tell us during the notice and comment period 
too. So when we put something out, hopefully that you will 
weigh in also, all of the Members will weigh in and say, do 
investors really want this information? I have always found 
that if you are going to buy a company, or sell a company, when 
I was doing that at Goldman Sachs, that people really wanted to 
have a thorough review of that workforce and its ups and downs. 
It is an asset, and it is a critical asset. So I could not 
agree with you more on that, sir.
    Chairman Brown. Thank you, Senator Warner. Senator Tillis 
of North Carolina is recognized.
    Senator Tillis. Thank you, Mr. Chairman. Chair Gensler, 
thank you for being here.
    Are you familiar with Rule 17j-1 under the Investment 
Company Act of 1940, and Section 10(b) of the Securities 
Exchange Act of 1934?
    Mr. Gensler. Yes, generally, sir. Yes.
    Senator Tillis. Just for others' edification, 17j-1, under 
the Investment Company Act of 1940, and Section 10(b) of the 
Securities Exchange Act of 1934, are the two provisions used by 
the SEC, combined with judicial precedent, to prosecute 
individuals for the practice of frontrunning. This prohibition 
on frontrunning includes any efforts to do so, including via 
information obtained through payment for order flow.
    So is the practice of frontrunning already illegal?
    Mr. Gensler. The practice of frontrunning is against the 
rules that you said but also the exchanges. A number of the 
exchanges, self-regulated organizations, have that, and it is 
really to protect the public, that if I put an order in that I 
can get that inside the market and somebody is not going to 
take that and use it in front of me.
    Senator Tillis. I know that you have been critical of 
payment for order flow, contending that it presents conflicts 
of interest for broker-dealers, and that retail customers are 
harmed through inferior execution quality. Do you still stand 
by that?
    Mr. Gensler. I think that we need to take a look at this 
whole market structure, because many orders are not competing 
with other orders. If you placed an order to an exchange--with 
a broker, I am sorry--if you placed an order it might be bought 
by one party, and has been publicly disclosed there is one 
wholesaler that has 50 percent of their market share in the 
retail market.
    And so it is really about are the orders competing with 
other orders. So I am procompetition, and I am not sure that 
this payment order flow system really is the best competitive 
landscape.
    Senator Tillis. Is it accurate to say there is another 
safeguard designed into the system, this one by retail brokers, 
to cure potential conflicts of interest for payment for order 
flow arrangement from all of their execution partners? In other 
words, this means that the execution partners will pay the same 
rate and act within the same system, essentially putting all 
execution partners in competition with one another on execution 
policy and not payment for order flow.
    Mr. Gensler. I think the challenge is, if a party is buying 
all the order flow, or a bulk of the order flow, then the 
order-by-order competition does not exist, so the retail public 
does not benefit from that competition. When I was growing up 
you had competition. It was not modern technology but it was 
competition on the floor of the New York Stock Exchange, and 
brokers could scream and yell at each other about what they 
were going to pay. Now if one party is buying literally half 
the retail flow in America of these market orders, that could 
actually have diminished competition in the marketplace.
    Senator Tillis. Do you think the retail brokers should 
route orders to the market center where they have the highest 
likelihood of obtaining the most favorable execution for their 
customers? Why or why not?
    Mr. Gensler. I have asked staff to consider the economic 
analysis and really think about the whole market structure. How 
can we lower the cost of capital formation and raise the 
returns for the retail public, and the institutional public? 
And we have not updated, in 16 years, that national market 
structure.
    So I think it is really--it is almost like a sweater where 
everything is knitted together. I was quoted recently about if 
something was on the table, and I said, ``Yes, because I think 
in this area, kind of it is all on the table,'' to think about 
the rebates at the exchanges, what is called the tick size, the 
national best offer, all with one goal--competition the 
marketplace to lower the cost and raise the efficiency. That 
helps capital formation and it helps investors.
    Senator Tillis. Thank you. I will probably add a couple of 
questions for the record to expand on that, but thank you for 
your answers.
    I want to talk a little bit, in my remaining time, about 
the gamification of retail investing. How would you describe 
gamification?
    Mr. Gensler. It is a term that I must admit I had only 
heard in the last year or so, but if I can broaden it out, it 
is----
    Senator Tillis. And do you think Governments should prevent 
gamification?
    Mr. Gensler. I think the role of the SEC is about 
protecting investors, so I think the question is are there 
conflicts that arise by doing behavioral prompts to encourage 
Senator Lummis to trade and sending Senator Lummis a different 
prompt than Senator Warner or Warren. And they have sort of 
differentially marketed to the three.
    Senator Tillis. If we go down that path--and I want to be 
respectful of time--but if we go down that path, in States like 
mine that have an educational lottery--I think in Maryland you 
have a similar lottery--if we go down that path and we look at 
possible restrictions or eliminating gamification in the 
investment sector, why wouldn't we apply that same logic to 
lottery systems across the Nation, or any publicly gamified 
ventures?
    Mr. Gensler. I think what I am interested in learning, and 
we just put out a public comment, a request for comment, not 
even a rule, to ask could you help us, the public comment on if 
a platform is maximizing to revenues by marketing to each of 
these Senators in this room differently, could there be a 
conflict rather than considering what is best for each of you 
in your families for your investment needs.
    And so it is that. These platforms are now optimizing based 
upon our Fitbit, based upon our mobile apps, based upon how we 
drive our cars. They are maximizing based upon all this data, 
and that brings us greater innovation. It is a plus to 
innovation, a plus to access. It can be a plus to lower costs. 
What we are just raising is could it be a conflict as well if 
they are trying to market to everybody differently.
    Senator Tillis. Thank you.
    Chairman Brown. Thank you, Senator Tillis. Senator Menendez 
from New Jersey is recognized.
    Senator Menendez. Thank you, Mr. Chairman. Chair Gensler, 
good to see you. As we all know, the asset management and 
investment consultant industries are overwhelmingly White and 
male. We also know that study after study has shown that 
greater diversity leads to greater profitability.
    So in an effort to improve performance in these industries 
and thereby benefit everyday investors, the SEC's Asset 
Management Advisory Committee unanimously recommended that the 
SEC take several tangible, concrete actions to improve 
diversity in the industry in a way that is aligned with the 
SEC's own diversity and inclusion goals and its mandate to 
protect investors and promote fair and open markets.
    Have you had the opportunity to read the full Advisory 
Committee's report?
    Mr. Gensler. Sir, I am familiar with the report. I have 
read a summary, to be candid with you.
    Senator Menendez. OK. Have you been briefed by the authors 
of the recommendations on the Advisory Committee's Diversity 
and Inclusion Subcommittee leadership?
    Mr. Gensler. I have met with the leadership of the 
committee.
    Senator Menendez. Uh-huh. Have they advised you about it?
    Mr. Gensler. Oh yes. Yes.
    Senator Menendez. OK. Well, these recommendations, they are 
simple, they are straightforward. For example, one is to 
require enhanced disclosure requirements on gender and racial 
diversity of advisory firms. Some firms already report this 
information voluntarily. And others to establish a procedure to 
allow the SEC, when it receives reports of discriminatory 
practices, to direct reporting parties to the Government agency 
best equipped to investigate the complaint.
    None of this is particularly difficult or controversial, as 
is evidenced by the unanimous vote of the Advisory Committee. 
So given that broad support, can you commit to bringing these 
items before the Commission for a vote before the end of the 
year so we can bring transparency and diversity to the industry 
and ultimately deliver better market outcomes for investors?
    Mr. Gensler. I have asked staff to look very closely not 
only at these recommendations but other recommendations with 
regard to issuers, but you are speaking about on the investment 
management side and make recommendations up to the Commission. 
With a full docket I do not want to say what time that will be. 
It might be after----
    Senator Menendez. Let me just say----
    Mr. Gensler. ----after the end of this year.
    Senator Menendez. Let me just say I have been around here 
for a while, and I get similar answers from every chair. And 
the problem is we never end up with any concrete steps to 
creating the diversity that everybody claims that they support. 
So I am tired of hearing about we are going to study it, we are 
going to get more recommendations. I want to know what is our 
pathway to action.
    Mr. Gensler. So, sir, we are doing more than just studying. 
I have asked staff for recommendations on the issuer side, as 
we have talked about earlier, about human capital, and that is 
the 7,000-plus issuers, and that includes diversity. It 
includes workforce statistics, as Senator Warner and I were 
discussing earlier as well, and Chair Brown.
    So I have asked to bring that up in front of the five-
member commission. It is a lot to take on to do the economic 
analysis, and it be very investor focused, because we have to 
live within the chalk lines. This is about investors and what 
investors make their decisions upon.
    Senator Menendez. Well, we will be following up with you. 
This is an issue I have been pursuing for some time, and 
without satisfaction, to be honest with you.
    Should shareholders of companies that make public pledges 
expect their company to act in a manner consistent with the 
stated company policy?
    Mr. Gensler. I think it is at the bedrock of our securities 
laws. President Roosevelt called the first action front of 
Congress, the '33 Act, the Truth in Securities Law. And so you 
are talking about that if you make a pledge to your 
shareholders about building a factory or any pledge, that you 
not defraud the public, that it be honest rendition of the 
disclosures you are making.
    Senator Menendez. Well, after the insurrection attempt 
earlier this year, many companies made public pledges to stop 
donating money to the 147 Members of Congress who objected to 
Congress' certification of President Biden's victory. However, 
since then, many of these companies resumed their political 
donations, in direct contradiction to their public pledges. So 
I do not believe necessarily that they follow what they say.
    So, therefore, do shareholders have the right to know 
whether their companies' political donations contradict their 
public commitment and whether those companies may be supporting 
outcomes which might pose a material risk to the companies' 
bottom line?
    Mr. Gensler. If it poses, as you said, material risk and 
there has been a material misstatement to the public, that is 
at the center of our securities laws.
    Senator Menendez. Well, I look forward to seeing some 
enforcement on that.
    Finally, due to public health concerns, in November of 
2020, FINRA provided member firms the option to complete branch 
office inspections remotely for calendar years 2020 and 2021. 
What is your assessment of the quality of those remote 
inspections? Do you think regulators sacrificed any oversight 
by allowing these remote inspections, and because we are still 
facing, with the Delta variant pretty high, is the SEC 
considering extending remote inspections, given the current 
public health?
    Mr. Gensler. Senator, we are. I mean, we, as a Nation, are 
living through the most challenging time, well at least in my 
life, health-wise and economically related to that. When I have 
conversations with our head of examinations, we have about a 
1,200-person examination unit, I ask that very question. What 
do we lose, what do we gain being remote? And there are 
tradeoffs. We have gained--people are not commuting as much. 
The people have a better work-life balance and so forth, our 
examiners. What we lose is you are not sitting in a room, 
eyeball to eyeball, talking to somebody as you are trying to 
inspect a fund or a company, and so forth.
    But yes, we are looking at extending this, just because of 
the realities of this health pandemic that we are in.
    Senator Menendez. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Senator Scott from South Carolina is 
recognized.
    Senator Scott. Thank you, Chairman, and thank you for 
holding this important hearing today, and thanks to the Ranking 
Member for his comments earlier on, his opening statement, 
about the importance of having market accessibility to all 
Americans. It seems like we have been heading in the right 
direction for quite some time here, over the last 10 years or 
so. Some of the concerns I have, Chair Gensler, is that what I 
have seen from a policy position from you so far seems to 
actually jeopardize that path to financial opportunity for the 
average American.
    I think back to my days in business when I was in the 
insurance and, for a small time, in the financial services 
business, I would tell my clients oftentimes that there are 
really only three ways to create wealth in America. The first 
is real estate, and one of the reasons why we focus on the 
American dream is synonymous with home ownership. There is no 
question in my mind that the fact is that you build equity in 
your house and you are actually building equity in this Nation. 
It is your share of the American dream that is so powerful and 
important that we focus on.
    The second way that you create wealth in this Nation and 
experience more of the American dream is through having a 
business, and have that business grow, and it becomes more 
profitable, and that net worth that you see accumulating is 
part and parcel to the American dream.
    And then finally it is having an equity position in the 
marketplace. And to the extent that we make it more affordable 
for the average person to invest in this marketplace they have 
a chance to literally experience the American dream, to exceed 
their wildest imaginations financially.
    If you think back 32 years ago, do you have any idea what 
percentage of American households that were investing in the 
stock market?
    Mr. Gensler. Well, we have grown. I mean, particularly in 
the last 10 years.
    Senator Scott. But 32 years ago, any idea what it was?
    Mr. Gensler. I mean, I do not know the specific number, but 
lower than today, about 10 points lower.
    Senator Scott. Good answer. So 32 percent of American 
households, 32 years ago, had access to one of the three 
streams that leads to creating wealth in this Nation, and much 
of the reason why they had such limited access is because the 
fees to make a trade were so darn high.
    Imagine today the average stock price is around $119, the 
S&P 500. If you invested in a stock in the '70s and '80s, your 
stock would have to increase to $139 before you made a penny, 
because you were using that increase to pay the transactional 
costs. Today, it is zero. So literally you have a chance to 
invest in the marketplace because we have gotten rid of those 
high transactional costs.
    So, as you said, today the actual number of households that 
are able to invest in the market, 53 percent of households are 
invested in the market. Why? Because the price to get involved 
in the market has plummeted. And so when we hear things like 
banning payment for order flow, it sends shivers down the 
spines of people who have waited for this day to come. Fifteen 
years ago it was $15 or $20 to make your trade. Today it is 
nothing. Literally, you have access to a market. If you are in 
rural America, living in Saluda, South Carolina, or inner-city 
Chicago, for the first time you have a chance to be in the 
marketplace.
    Under the Biden administration, those opportunities could 
vanish away so quickly, and that is painful, as a kid who grew 
up in poverty, who now has access to the market. Forty percent 
of the households in this Nation who make less than $75,000, 
they are in the market. Why? Because it is affordable. We have 
to trust Americans to make their own decisions on their own 
investments and not have a paternalistic regime helping protect 
Americans because they cannot figure it out for themselves.
    I am concerned about that, and my question for you is, what 
is your plan to ensure that the existing system, the potential 
for innovation within that system, continues so that the 
average retail investor benefits from that and we do not see 
ourselves going backwards that leads to higher trade costs, so 
that fewer Americans are able to invest their hard-earned money 
in the way that they see fit?
    Mr. Gensler. Senator, I am sitting here thinking, one, how 
much my father, Sam Gensler, if he was alive today, would like 
you, because he would have agreed on your three points about 
real estate, start a small business, which he did--he never had 
more than 30 employees--and as a kid he used to toss us value-
line tear sheets and he would say, ``What do you think of this 
stock?'' and he would try to buy 50 shares of something.
    Senator Scott. Yes.
    Mr. Gensler. I could not agree with you more. In terms of 
the retail investing, I think that is a positive thing in 
America, and it was when I was a kid as well.
    On the cost, we can always do better. And what I am saying 
is, technology has driven down, and competition has driven down 
the cost of, as you said, investing. But there is still a cost 
left, the payment for order flow. Even if it is a couple of 
pennies out, it is a cost. So it is buried behind the scenes. 
What I have raised to the economists, with Jessica Wachter and 
her whole team, is can we do better to have more competition, 
that orders compete with orders rather than one wholesaler 
buying half of the retail flow in America?
    And so it is about trying to even do better in these great 
capital markets we have, but we cannot take anything for 
granted. So I think we are more aligned. It is about trying to 
drive it down even lower cost.
    Senator Scott. And, Chair, I will take you at your word, 
and frankly it sounds like your father was an amazing guy who 
had a chance to own his house, start a business, and invest in 
the marketplace.
    Mr. Gensler. He never went to college and raised five kids.
    Senator Scott. Yep, and that is the story of the American 
dream. One of the things that I hope that we protect is the 
notion that the American dream is accessible for all Americans. 
And we have within the Administration parts of the puzzle that 
can make it worse for the average person in our Nation, I think 
we should pause and take a serious look at how the market works 
and how can we make it better. Thank you.
    Chairman Brown. Thank you, Senator Scott. Senator Warren 
from Massachusetts is recognized.
    Senator Warren. So thank you, Mr. Chairman. We hear a lot 
about how crypto is all about financial inclusion, a way for 
people who do not have a lot of money to be able to manage it 
or invest it.
    Now the banks have done a pretty lousy job on financial 
inclusion, so I want to test out with you whether or not crypto 
is an improvement. Last Tuesday, the cryptomarket tanked once 
again. The prices of Bitcoin and Ether each fell by about 10 
percent, while a bunch of other tokens failed by as much as a 
third. So in a matter of hours, $400 billion in market value 
disappeared. Poof. It was just gone.
    And meanwhile, several of the biggest crypto exchanges had 
outages, which kept customers from making withdrawals or 
trades. So how did that affect people who do not have a lot of 
money to lose?
    Chair Gensler, let's say that last Monday I took out the 
last sliver of my savings. I went on the crypto exchange, 
Coinbase. I bought $100 worth of Ether. Then I woke up early on 
Tuesday morning, I saw that the market looked like it was 
beginning to tank, and I thought I better sell right now. But 
when I tried to sell, Coinbase, the exchange, was down.
    So Chair Gensler, was there anything I could do to get my 
money out?
    Mr. Gensler. Not at a Federal agency, because they have not 
yet registered with us, even though they have dozens of tokens 
that may be securities.
    Senator Warren. Yeah. OK. So that sounds pretty risky to 
me. But let's say that instead of buying Ether on Coinbase last 
Monday I decided instead to put that $100 toward buying a cool, 
new token, let's call it Newcoin, that was being hyped on 
Twitter. Now Newcoin is available only on a quote/unquote, 
``decentralized'' crypto exchange, so to buy it I had to pay a 
fee, about $20, to the cryptominers who process the 
transactions. That is $20 to buy $100 worth of tokens. But I 
figured that was OK because Twitter told me that Newcoin was 
going to make me a lot of money. But then, of course, I woke up 
on Tuesday morning and the market was tanking.
    So let's ask about this one. Chair Gensler, on Tuesday, 
when I wanted to sell Newcoin and get back to dollars fast, 
that exchange had not shut down. But remember, I had to pay $20 
on Monday to get into decentralized finance. So how much would 
I have had to pay to get out of DeFi on Tuesday to sell my 
coins? Would I have had to pay a second $20 fee, or might I 
have had to pay even more?
    Mr. Gensler. I do not know because it would be all in the 
user agreement. And, by the way, you put quotes around 
``DeFi.'' I think that is helpful, because they are really 
decentralized in name only. There is a user agreement. There is 
something you are doing with this platform. There is a 
governance token. There are usually some fees. But I do not 
know what the particular fees would be.
    Senator Warren. Well actually, we do know some of the fees 
from last Tuesday. The fee to swap between two cryptotokens on 
the Ethereum network was more than $500, obviously way more 
than the $100 I was trying to trade in the first place.
    So the question I have is, in the face of these high, 
unpredictable fees, small investors could easily get jammed and 
wiped out entirely. Chair Gensler, advocates say cryptomarkets 
are all about financial inclusion, but the people who are most 
economically vulnerable are the ones who are most likely to 
have to withdraw their money the fastest when the market drops. 
Does this sound like the path to financial inclusion to you?
    Mr. Gensler. It is a highly speculative asset class. It 
does not sound like the path that you mentioned.
    Senator Warren. Yeah. You know, there are a whole list of 
problems with crypto--unreliable tech, scams, devastating 
climate impact--but high unpredictable fees can make 
cryptotrading really dangerous for people who are not rich. 
Regulators need to step up to address crypto's regulatory gaps 
and ensure that we are actually building the inclusive 
financial system that we need. And, Chair Gensler, I expect you 
and the SEC to take a leading role in getting this done. Thank 
you.
    Mr. Gensler. Thank you.
    Chairman Brown. Thank you, Senator Warren. Senator Daines 
from Montana is recognized.
    Senator Daines. Thank you, Mr. Chairman, and thank you, 
Chair Gensler, for being here today. I want to, I think, join 
my colleagues by expressing my concern with the SEC's posture 
toward cryptocurrency and blockchain. The keyword here is 
``innovation.'' As I have said before, I believe a lighter 
touch regulatory approach is what is called for here, and that 
overregulating this young and emerging industry could drive 
jobs and innovation overseas in the global race, which we 
should all agree on would be a very bad outcome.
    America has long led the world in innovation, and we must 
do our very best to ensure that the conditions continue to 
exist for America to lead in this space, and especially in the 
cryptosector.
    Chair Gensler, you have, on multiple occasions, asked 
cryptocompanies to come in and speak with you. However, many of 
these companies that have come to speak with you have soon 
after found themselves the targets of enforcement actions, or 
even legal threats. The question is, what is the process for 
the SEC to provide guidance, and what might companies expect 
from talking directly with you?
    Mr. Gensler. I thank you. I want to say, I think the way we 
innovate is within public policy frameworks. But we have asked 
companies to come in, talk to us. If they are trading or 
lending a security there is a registration regime, and 
companies, since the 1930s on for 90 years, have found ways to 
innovate but register, or seek an exemption, or seek a no-
action letter, and work with us to ensure that they are 
registered but there is a public policy framework around that.
    Senator Daines. So you are drawing lines, I think, through 
public statements without actually going through, you know, APA 
process. What kind of responsibility do you have to provide 
clarity to market participants as opposed to really chilling 
the marketplace through some of these vague speeches, vague 
remarks, vague interviews?
    Mr. Gensler. So with all respect I think that actually the 
SEC has the authorities that Congress granted, and it is a very 
broad definition of security that includes investment contract, 
that includes note, includes 35 other things. My predecessors 
put out various guidance. Chair Clayton, and so forth, put out 
guidance in this area as well.
    And so I think come in, talk to us. Not you, Senator, but, 
you know, the entrepreneur, and work within an investor 
protection regime that also facilitates capital formation. I 
fear if it stays outside, this field that I studied for 3\1/2\ 
years at MIT, I have a belief that this has been a catalyst for 
change. But I think if it stays outside of the public policy 
framework for anti-money laundering, tax compliance, investor 
protection, it is not going to long persist.
    Senator Daines. I want to shift gears for a moment and talk 
about China. You have made it clear that you will be increasing 
oversight of Chinese firms who are trading in the U.S. markets. 
However, it is not clear to me that the SEC is doing enough as 
it relates to the oversight of Chinese broker-dealers who have 
substantial U.S. customer bases, and frankly they are growing 
rapidly.
    My question is, what is the SEC doing to ensure that 
Americans are not unknowingly having sensitive personal and 
financial information transferred to the Chinese Government?
    Mr. Gensler. Senator, if I could ask if we could meet, you 
know, one on one or with your staff and so forth, because I 
want to understand more about your concerns there, because I do 
think that is an important issue to ensure that Americans are 
protected, their personal information and their privacy is 
protected, just as if they were working with a U.S. firm.
    Senator Daines. Yeah. Having spent a lot of years in the 
cloud computing world it is a real threat where this data 
resides and the access the Chinese Government have to this very 
sensitive and important personal information.
    I want to shift to the CFTC for a moment. You have 
previously acknowledged the need to work together with the CFTC 
to provide effective oversight on the cryptomarket. At the same 
time, you have stated that, quote, ``Many tokens may be 
unregistered securities,'' end quote. What role do you see the 
CFTC playing with respect to oversight of the cryptosector and 
in your capacity as SEC chair, and have you had any 
conversation with the CFTC on this topic to date?
    Mr. Gensler. Yes, I have had some really good conversations 
with Acting Chair Behnam. I was honored to chair the agency 
once as well and think the world of the agency. I think we each 
have respective jurisdictions. They have an enforcement 
authority on commodities, not a regulatory authority. We have a 
regulatory authority where we can write rules and we can 
register companies that are trading platforms and the like. But 
on those trading platforms there may be some commodities on it. 
So what Chairman Behnam and I have been talking about is how 
could we partner up, using our existing authorities, to best 
protect investors.
    Senator Daines. Chair Gensler, thanks for your time.
    Mr. Gensler. Thank you, and I look forward to following up 
on that China issue.
    Chairman Brown. Thank you, Senator Daines. Senator Cortez 
Masto from Nevada is joining us remotely.
    Senator Cortez Masto. Mr. Chairman, thank you. Chair 
Gensler, thank you for joining us.
    Let me jump back--this seems to be the topic of 
conversation with my colleagues--the cryptocurrency. One thing 
I just want to verify. Is the SEC sufficiently equipped, 
whether by regulation or funding, to appropriately ensure 
compliance and keep pace in the cryptocurrency market? Do you 
believe so? And if you do not, then what should we be doing in 
the Committee? What do we need to know to help you?
    Mr. Gensler. I think you have raised both points. I think 
funding-wise we could use a lot more people. I just have to be 
frank with you. I mean, there are 6,000 projects, and while 
some of those are commodities, many of them are securities 
under the laws, and many of the platforms are. So we could use 
some more funding.
    In terms of legislation, I think what I have said earlier 
in this hearing is the coordination between the market 
regulators is strong, and Chair Behnam has been talking through 
how to do this, but there may be things that Congress can weigh 
in and help on the coordination, and also around stablecoins, 
the coordination with the banking regulators.
    And then there are some things, frankly, a bit in the weeds 
about transfer agents and custody and the like.
    Senator Cortez Masto. Thank you. And so let me just say, I 
look forward to working with you on that. Whatever we can do 
here, on the Committee, to support how we address and look at 
the cryptocurrencies, please know that you have got support 
from me.
    Let me talk a little bit about gamification. When you were 
here in March for your confirmation hearing I raised concerns 
about behavioral prompts and gamification, and I said that free 
apps that encourage trading could be detrimental to some retail 
investors.
    So I know that you are looking at this. Senator Toomey 
mentioned that you had talked about doing a report sometime 
this summer and putting a report out, if I remember correctly. 
Can you talk a little bit about where you are and your concerns 
with gamification and how it impacts investors?
    Mr. Gensler. So three things. One, on the GameStop report, 
we are pretty close. It is in front of my fellow commissioners, 
and I would assume it will be out shortly. On the, quote, 
``gamification,'' we have asked the public, through a request 
for comment, to give us feedback. I think the issue there is we 
are living through a transformation time in America, and we are 
seeing this is in every bit of our society, and so forth. But 
if Netflix figures out that I am a rom-com guy, and yes, I am a 
rom-com type of guy, I might see a bad rom-com for an hour-and-
a-half. But this is about people's investing future.
    So what I have asked, I think the core question is, is if 
the data analytics are maximizing the platforms' revenues, 
optimizing for revenues, optimizing for data collection, that 
may be in conflict with maximizing for the users' investment 
returns, and how do we square that.
    And last, if I could, and I apologize, respectfully, to say 
it is not actually free on these apps. It might be zero 
commission, but you are still paying. The payment for order 
flow is underneath the hood, and it is still there, and my real 
concern is about whether the competition is there, whether it 
is sufficient order-by-order competition.
    Senator Cortez Masto. Thank you. I appreciate that 
clarification.
    And then let me just add one final thing, and I know 
Senator Tester talked about this, but climate risk. We have 
seen, from the West, and particularly in Nevada and California, 
some of the worst wildfires we have ever seen, because of the 
extreme weather, impacting the air quality as well that we 
breathe.
    And so I know there was discussion earlier about why should 
the SEC be concerned about the climate crisis and climate risk, 
but would you talk a little bit about this? I understand you 
have said that investors should be able to understand what is 
under the hood of green or sustainable funds. What do you mean 
by that?
    Mr. Gensler. So we have--I thank you for asking that--we 
have a separate rule docket where I have asked for 
recommendations from staff. There are funds, asset managers 
that are making themselves as green or sustainable or carbon-
free, and just as we walk into a grocery store and it might say 
fat-free, it is like what is behind that marketing? And I think 
that actually probably will unite Senators on this Committee. I 
mean, what is behind the marketing and the name? So staff will 
make recommendations, but I hope that we would say something 
about that there has to be some metrics standing behind if you 
are marketing yourself, so to speak, as carbon-free or green.
    Senator Cortez Masto. Thank you. And I would assume there 
is a reason why they are making themselves that way, because 
that is what investors, some investors are looking for. Is that 
correct?
    Mr. Gensler. I think that is right. I think that investors 
increasingly are interested. Investors get to decide. In the 
basic bargain of our capital markets, investors get to decide. 
But investors also get to decide how they make their decisions. 
And all the SEC is trying to do is response to investors, say 
here is how we can maybe help bring consistency, comparability, 
and some decision-useful information.
    Senator Cortez Masto. Thank you. Chair Gensler, thank you 
again for joining us.
    Mr. Gensler. Thank you.
    Chairman Brown. Thank you, Senator Cortez Masto. Senator 
Warnock of Georgia is recognized.
    Senator Warnock. Thank you, Chairman Brown, and thank you, 
Chairman Gensler, for your testimony.
    America's capital markets are some of the most robust and 
transparent markets in the world, but not everyone has equal 
access to them. In Georgia, people of color account for nearly 
half of the total Georgia population while only about 23 
percent of Georgia's startups are minority owned. Women-owned 
businesses are also lagging, with women accounting for only 38 
percent of business owners in the State.
    According to a study by the Kauffman Foundation, Black 
entrepreneurs are three times as likely as White entrepreneurs 
to report that their businesses' profitability is negatively 
impacted by a lack of access to capital, and almost twice as 
likely to cite the cost of capital as hurting their businesses' 
profitability. Needless to say, all of us have a stake in the 
ability of entrepreneurs to pursue the American dream, to 
create jobs.
    Chair Gensler, what initiatives is the SEC leading right 
now to increase diversity within the venture capital industry?
    Mr. Gensler. We have a number of tools in the toolkit, and 
this question came up earlier for Senator Menendez too. We had 
some recommendations from Investment Advisory Committee earlier 
this year, and I have asked staff to say, all right, now what 
can we do with regard to disclosure regimes in the investment 
management side?
    We have more clear disclosure regimes in the company side, 
the issuer side, than the investment management side, but there 
is something, it is in the weeds, Form ADV, that we are taking 
a look at more closely.
    Senator Warnock. What tools do we have to increase 
diversity?
    Mr. Gensler. We are very much, at the SEC, a disclosure-
based regime, and disclosing to decisionmakers, investors, 
about those funds or the companies they invest with, and 
ensuring that that disclosure is what those investors want. So 
it is sort of like it has got to come from investors, we stay 
in the chalk lines we talked about earlier, and both on the 
issuer side and the investment management side what investors 
wish to make their decisions.
    Senator Warnock. And so the role you play in providing that 
kind of transparency and disclosure, I understand that. Let me 
ask it in a different way. What is the SEC doing, or, in your 
view, what could SEC do to help encourage investor capital 
funds to look outside of their traditional geographical areas 
for investment opportunity in other areas of the country, and 
not just in big cities like Atlanta but small cities like 
Augusta and Macon and Columbus? I think a lot of this happens 
because without intentionally doing something else, there is a 
way in which the way things are traditionally done has its own 
momentum.
    Mr. Gensler. You know, I could not agree with you more, and 
I think it might sound like back to basics but fundamentally it 
is the middle part of our mission, making sure that the markets 
are efficient and competitive. And even in the private funds 
space, we have some projects to promote competition in that 
space so that the person raising money, in Georgia or 
elsewhere, of any background--ethnic, racial background--that 
the cost of them raising money is lower as well, for that small 
business entrepreneur raising money, that it is not just a 
friends and family round but they can go to a venture 
capitalist, as you say, and raise money efficiently.
    Senator Warnock. All right. I am going to shift to another 
topic. It is vitally important, and I think we all agree, that 
investors have confidence that financial regulators are keeping 
their protection top of mind so that our markets work for 
everyone. The pandemic has wreaked havoc on our Nation, caused 
significant strains for every aspect of Americans' lives, 
including hardworking families in Georgia and throughout the 
country. Georgians face layoffs, small businesses permanently 
closing and having constantly to worry about the health of 
their families and loved ones.
    Through all of this, criminals saw an opportunity to prey, 
particularly on vulnerable populations, and commit fraud, 
whether it is tricking folks into investing in companies 
falsely claiming to be producing medical equipment or 
businesses using the pandemic to disguise their own fraudulent 
dealings.
    What tools and resources do you believe Congress can 
further provide your agency with to support in its work to 
fight fraud and protect retail investors?
    Mr. Gensler. I thank you for that question. I think two 
areas. One is, frankly, funding. We have shrunk during the 
prior Administration by about 5 percent. We have grown a little 
bit since this new Administration. But we are about 4 percent 
down in head count, and yet retail investing is up. We are in 
the middle of a pandemic. We have got the challenges of doing 
things remotely.
    So it would be good, at a minimum, just to get back to 
where we were in 2016, and I think we actually should get a 
little bit further than that.
    And two, in some areas--and we have talked about the 
cryptocurrency area--is really just to help bring people into 
the investor protection remit, because right now there are many 
individuals in this country that have already been hurt, and 
there are unfortunately going to be more spills on aisle three, 
so to speak--an old grocery store term--because this crypto 
area is trying to stay outside an investor protection 
perimeter.
    Senator Warnock. Thank you so much, Chairman. We certainly 
want to see job growth. We want to see the economy continue to 
thrive. And my first question, I guess, is about equity, and 
the other about integrity. We need both of these things in 
order for the market to perform for everybody.
    Mr. Gensler. Thank you so much, sir.
    Chairman Brown. Thank you, Senator Warnock. Senator Smith 
is recognized, from her office.
    Senator Smith. Thank you so much, Chair Brown and Ranking 
Member Toomey, and welcome, Chair Gensler. It is nice to be 
with you virtually.
    Mr. Gensler. It is good to see you.
    Senator Smith. I have a specific question to start with. 
Having a safe and secure retirement is a crucial goal for so 
many American families, and here is my specific question. 
Registered index-linked annuities has become a rapidly growing 
savings option for many Americans. In the first quarter of 2021 
alone, more than $9.2 billion of these annuities were sold.
    So here is the problem. The SEC does not have a 
registration form for these products. Now this might seem like 
not a big deal, but it is a big problem, and kind of a classic 
bureaucratic quagmire. Because what it means is that for big 
portions of the year these new products cannot be registered at 
all, and when they are registered reporting costs are higher, 
the disclosure forms have a bunch of information that actually 
is not that useful to investors, as they are trying to find the 
information that really matters.
    So I have introduced a bipartisan bill to fix this problem, 
and I am really glad that the Consumer Federation of America, a 
leading investor advocacy organization, is supporting my bill. 
But I think you know, the reality is that we do not need 
legislation to fix this problem, and we do not need 
congressional action. The SEC has the authority to create a new 
registration form itself. And, in fact, I think the SEC has 
literally dozens of product-specific registration forms in 
place.
    So my question to you, Chair Gensler, is can you commit to 
me today to issuing a new registration form for registered 
index-linked annuities?
    Mr. Gensler. Senator, I know that we have different regimes 
for index-linked annuities, and so I look forward to working 
with you and your staff and learning more. Just 5 months into 
the job, I have to admit that I do not know all the details of 
the RILAs, but I look forward to working with you and your 
staff about the potential of doing, as you say, another form, 
because I think we do have different forms for index-linked 
annuities.
    Senator Smith. Right. Thank you. Yeah, it is a specific 
thing and it is something that I think we could solve 
relatively easily, and I hope your agency, when you are 
releasing your updated regulatory agenda soon, I would love to 
see a fix for this issue on that regulatory agenda.
    Mr. Gensler. Again, I look forward to meeting with you and 
getting our staffs together to understand. I think our staffs 
have already chatted, but to understand that even better.
    Senator Smith. I think so too. We will follow up, and I 
look forward to working with you on this.
    So let me ask you a slightly broader question. You know, we 
often have conversations in this Committee about risk 
disclosure to investors, and I think there is general agreement 
that the market works better when investors have clear and 
trusted and transparent information about the risks that 
businesses face, and that that information is provided in a 
systematic way so that investors can compare risks across 
organizations.
    But some of my colleagues on this Committee just take a 
completely different approach when it comes to risk disclosure 
for climate change, and this just does not make any sense to me 
when, as we, as Senator Tester pointed out, we are seeing 
billions and billions of dollars in costs for extreme weather 
events caused by climate change, and that is not only a public 
sector cost, it is also a private enterprise cost as well.
    So right now, when companies release climate-related 
information, if they release any at all, it is not in a 
systematic format or with any specific guidelines, and I think 
this is a problem for investors, and it gets, as you say, the 
goal of the SEC should be to protect investors. It is also a 
problem for regulators, as Chair Powell has laid out and talked 
about to this Committee earlier this year.
    So I just want to commend the work that you and 
Commissioner Allison Herren Lee have done so far on climate 
risk disclosure. I am glad that you are working to solicit 
comments on how best to address this problem, and I understand 
that you are reviewing those comments right now.
    So let me just ask you a question about this, Chair 
Gensler. Why do you think that climate risk disclosure is an 
important priority for investors, to help them understand 
climate risk?
    Mr. Gensler. Well, I think investors have spoken loudly to, 
to your question, and companies right now are making 
disclosures. They are just not consistent disclosures, and it 
is better when it is consistent. But why it is important is 
there can be physical risks, as we have seen, whether it is 
from flooding or weather events and the like, but it also can 
be transition risks, the transitioning to a new economy as we 
globally address this. But investors are really demanding it, 
and the role the SEC might have is to help bring some 
consistency and comparability to all of this.
    Senator Smith. Well, thank you. Thank you for your work on 
this. Mr. Chair, I do not see climate risk disclosure as a 
social issue. I see it as systemic risk that investors face, 
because of climate change, and it is important, we all 
understand that, including investors. Thank you.
    Chairman Brown. Thank you, Senator Smith. Senator Van 
Hollen of Maryland is recognized, and thanks for your patience, 
Chris.
    Senator Van Hollen. No, thank you. Thank you, Mr. Chairman, 
and, Mr. Chairman, great to see you. Let me start by thanking 
you for your efforts to move forward on a rulemaking on 10b5-1 
plans. Senator Fischer and I had bipartisan legislation that 
would have directed the SEC to look at this, because you know 
well that public confidence in the markets requires confidence 
that there is not insider trading, and I look forward to your 
rulemaking in that regard.
    I just want to try and cover a couple other points. One 
involves the whistleblower provisions. As you know, we have 
whistleblower laws designed to encourage individuals to surface 
cases of fraud. And beginning in 2010, a Marylander, John 
McPherson, he was a former forensics accountant, gave the SEC 
what the SEC described as, quote, ``extraordinary and 
continuing,'' unquote, assistance, that helped the agency shut 
down a $1.4 billion investment scam by a company called Life 
Partners Holdings, Inc.
    Despite his substantial assistance, Mr. McPherson did not 
receive the whistleblower award, because the company went 
bankrupt, and as a result the SEC did not collect its fine. But 
the case did require over $1 billion for investors. As you 
know, in bankruptcy, all the lawyers and accountants got paid, 
but the person who was the most instrumental in bringing this 
case to light and exposing the fraud did not receive his 
whistleblower award.
    So I want to work with you and the SEC to see if you can, 
through your existing authorities, make sure that he gets what 
would normally be expected in this case, or if a change in law 
is required to work with us, because I think you would agree, 
would you not, that we do want to continue to incentivize 
people to bring these cases to light.
    Mr. Gensler. Senator, I agree wholeheartedly. I know the 
work that Senator Grassley did to bring this whistleblower 
regime into place. The SEC, to date, has had a really robust 
whistleblower program, and it has helped the American public 
and the investors public. But I look forward to working with 
your office on this matter.
    Senator Van Hollen. Right. I mean, this kind of situation 
obviously may discourage people from coming forward at great 
risk, potentially, to themselves, at the end of the day.
    Mr. Gensler. What I do not know yet is whether it will need 
a change in law rather than something in our current authority.
    Senator Van Hollen. That is what we are exploring now with 
your team, but I look forward to continuing to do that.
    So turning to DiDi, in July, following the collapse of the 
share prices of DiDi, I urged the SEC to thoroughly investigate 
the incident to see if investors were intentionally misled by 
DiDi's public disclosures. As you know, that collapse in share 
price came shortly after that happened. I know you cannot 
disclose whether there is an ongoing investigation, and I 
commend you for the statements you have made generally about 
reviewing listings of Chinese companies on the U.S. exchanges.
    Can you expand on that? I heard Senator Kennedy also 
reference your op-ed piece in the Wall Street Journal regarding 
implementation of the legislation that he and I introduced on 
holding companies responsible to ensure that we are allowed to 
see their books, through an independent entity, to protect 
American shareholders and investors. Can you just talk about 
both those pieces of the need to better protect American 
investors?
    Mr. Gensler. So there is about 270 Chinese-related 
companies in our capital markets, between $1.5 and $2 trillion, 
to give you a sense of scope and scale, but many of these 
actually, the U.S. cannot invest directly. See, in China, they 
prohibit foreign ownership in the internet and telecom and 
other fields. So there has been a form of setting up a shell 
company in the Cayman Islands. That Cayman Islands company 
raises money in the U.S., and it has some operating 
arrangements with the Chinese company, which, by the way, 
usually is still owned 100 percent in China by friends and 
family, and so forth.
    So I sort of got to the SEC; you all had passed the Holding 
Foreign Companies Accountable Act. I think there are two 
issues. One is 19 years after Sarbanes-Oxley, Chair Sarbanes 
sitting in this chair, in this room, passed, and our good 
friend, our Maryland mentor--I consider a mentor--passed that 
bipartisan bill, 50-plus jurisdictions have complied, and 2 
have not--China and Hong Kong. So Congress, on a bipartisan 
basis, again said, let's address that. We have got 3 years. We 
have had discussions directly with the Chinese authorities. The 
clock is ticking.
    But I also think, in the meantime, in the meantime we 
should enhance the disclosures of the existing companies, these 
200-plus companies, as to the political risks, the regulatory 
risks, and the real financials between China and the Cayman 
Islands.
    Senator Van Hollen. Thank you. Thank you, Mr. Chairman.
    Chairman Brown. Thank you, Senator Van Hollen. Senator 
Ossoff is joining us from his office.
    Senator Ossoff. Thank you, Mr. Chairman, and thank you, 
Chair Gensler, for joining us.
    The COVID-19 pandemic has presented the most immediate and 
ongoing threat to the U.S. economy and the global economy of 
the last 2 years. But beyond the risks presented by the 
pandemic, Chairman Gensler, as a voting member of the Financial 
Stability Oversight Council and in your capacity as SEC Chair, 
can you please provide to this Committee your assessment of the 
greatest systemic risks to financial stability in the United 
States?
    Mr. Gensler. We work together at the Financial Stability 
Oversight Council on an annual report, and we are sort of in 
the midst of that right now. And I think that systemic risk 
issues are something that can spill over into the whole 
marketplace. Though our capital markets have weathered the 
storm of this pandemic, and actually weathered, I think, better 
than it would have because of the reforms of DoddFrank and the 
greater capital in the system, there is still risk in the 
system, whether it is in the commercial real estate area, the 
reach for yield--a second area I am mentioning is a reach for 
yield, that many investors, not just retail investors but 
investors more broadly are reaching for yield.
    We, in our country, are also transitioning off of something 
that created systemic risk in the past called the London 
Interbank Offered Rate, and the transition away from LIBOR to 
another set of rates is, I think, being managed well, but it 
still presents some risk in that transition because there are 
$200 to $300 trillion of assets on top of that.
    But I would say the biggest risk is the health care risk 
itself, and the health care risk and how that is managed as a 
Nation, and the economic risk associated with that are probably 
the biggest risks.
    Senator Ossoff. You have a three-part mission, Mr. 
Chairman, to protect investors to maintain fair, orderly, and 
efficient markets and to facilitate capital formation. Could 
you please inform the Committee how you view climate change as 
impacting that three-part mission, and the actions you are 
going to take in order to protect investors maintain fair, 
orderly, and efficient markets and facilitate capital 
formation, given the projections of significant negative 
impacts from climate change?
    Mr. Gensler. I think that we are taking up two initiatives, 
and I think both of them relate to all three of the pieces. I 
think investors increasingly want to know about the climate 
risk of their companies they own, and I think by bringing 
consistent, comparable information and standards into this that 
the companies themselves will benefit. The companies will 
benefit because they will say, Oh, now we can compete 
efficiently in the capital markets by presenting this set of 
standards around their greenhouse gas emissions and around 
their management of climate risk.
    The second docket is around the fund management side, and 
if they are saying that they are green or sustainable or 
carbon-free, what stands behind that. But again, I think that 
that helps investors make decisions and companies raise money. 
So I think it helps all three of our mission points.
    Senator Ossoff. Thank you, Chairman Gensler. Returning to 
the question of systemic risk and financial stability, in 
recent testimony before this committee the Fed Chair testified 
about his concerns regarding money market funds and Treasury 
markets, the performance of money market funds during 
conditions of financial stress in March of 2020, requiring 
Federal intervention. And he testified regarding Treasury 
markets, quote, ``that at that time the Treasury market really 
lost functionality. The most important financial market lost 
functionality significantly during the acute phase of the 
crisis,'' that being the initial onslaught of COVID-19.
    Do you share the Fed Chairman's assessment and concerns 
regarding money market funds and Treasury markets?
    Mr. Gensler. I thank you for reminding me. To your earlier 
question I should have said that Treasury market itself does 
present, the functioning of that market, some systemic risks. 
Three times--October 14, the fall of '19, and the spring of 
'20--we had more than hiccups inside the Treasury market, and 
it is about the structuring of that market. And so working with 
Secretary Yellen, Chair Powell, even Acting Chair Behnam, I 
would hope we can produce more resilience through central 
clearing in that market and also bringing the principal trading 
firms, the high-frequency trading firms, into that remit.
    To your other question about money market and open-end 
funds, we do have that on our docket, as Ranking Member Toomey 
asked earlier. We do hope to do that, I would say, maybe by Q1 
of the year, to address money market funds around the 
connection between the liquidity provided and what are called 
gates, but also to look at the liquidity rules themselves in 
that market as well as open-end bond funds.
    Senator Ossoff. Thank you, Mr. Chairman. I appreciate your 
testimony, and Chairman Brown, I yield back.
    Chairman Brown. Thank you, Senator Ossoff. Thank you, Chair 
Gensler, for joining us today.
    For Senators who wish to submit question for the record 
those questions are due 1 week from today, Tuesday, September 
21st. Chair Gensler, per our Committee rules, we ask that you 
respond to any questions within 45 days from the day you 
receive them. Thank you again.
    With that the hearing is adjourned.
    [Whereupon, at 12:03 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
              PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
    Welcome Chair Gensler.
    Five months ago today, the Senate confirmed you as Chair of the 
Securities and Exchange Commission. I know you have already gotten to 
work for the American people, and you had your work cut out for you.
    Over the past year-and-a-half, the disconnect between the stock 
market and most Americans' lives has never been more painfully clear.
    Most of the country has been devastated by COVID-19. Hundreds of 
thousands have lost loved ones. People lost jobs and family businesses. 
Mothers were forced to leave their paid jobs in droves. Still today, 
millions are at risk of eviction from their homes.
    But you would never know any of that by looking at the stock 
market. It hits new records month after month--53 records since the 
beginning of the year. Eye-popping gains in the stock market and crypto 
assets attracted millions to start investing.
    And like during past times of upheaval, the COVID crisis opened the 
door for bad actors looking to seize upon people's fears and 
insecurity. Pandemic related fraud--from Ponzi schemes to offers to 
invest in COVID-related medical care--skyrocketed last year.
    The SEC stepped up to educate investors and punish bad actors. The 
dedicated public servants at the Commission have continued to fight for 
all the Americans whose pensions and 401(k)s and college savings are at 
risk.
    Many have been enticed by dramatic jumps in the value of new 
digital assets. They've dreamed of riding the coattails of professional 
investors and celebrities in a new wave of public offerings of more 
speculative investments known as ``special purpose acquisition 
companies,'' or SPACs.
    Some professional investors and celebrities make earning millions 
look easy. But, as we are reminded time and again, it's never that 
simple--and too often, someone's quick profit comes at the expense of 
workers and entire communities.
    Chair Gensler, it's your job to make sure that efficient markets 
are balanced with strong enforcement that protects Americans from the 
worst Wall Street greed and careless risk--even if that means 
challenging practices or shady investment products that previous chairs 
ignored.
    It also means working to increase transparency that the last 
Administration didn't take seriously. For example, the SEC approved new 
human capital disclosure last year without requiring companies to 
provide even basic details or data.
    And let's remember--``human capital'' is business school-speak for 
the tens of millions of Americans who work for these companies.
    Despite the new standard and investor demand for essential 
information used to judge how companies treat and manage these workers, 
most companies are barely providing any additional information.
    My colleagues have been working to improve transparency.
    Senator Warner of Virginia introduced the Workforce Investment 
Disclosure Act to get companies to provide important information on how 
they pay, train, and invest in their workers.
    His bill will finally shed some sunlight on how companies outsource 
and subcontract their workers, something he and I have jointly written 
to the GAO about.
    Today's tech companies like to say they're more ``efficient'' than 
companies of the past, when in reality they hire the same number of 
workers--half of them are just invisible to us under today's disclosure 
requirements.
    Senator Warren of Massachusetts introduced the Climate Risk 
Disclosure Act, which calls for significant new public disclosures from 
public companies regarding the risks climate change poses to their 
operations and financial results.
    These bills are good policy, and the largest investors have been 
calling for more of this kind of information. It's why I'm a cosponsor 
of both bills.
    Of course this would be just a start. Transparency is only a first 
step to getting corporations and the biggest investors to behave 
better.
    And there's much you already have the authority to do to make 
markets work better for the real economy, outside of investment firm 
and hedge fund board rooms.
    For too long, the financial system has catered to the big guys, and 
left everyone else on their own.
    There are far too many stories of how insiders game the system.
    Big banks abuse customers while they make record profits. Brokers 
who have taken advantage of customers use the system to cover up and 
erase their misconduct. Private equity firms buy up companies and treat 
workers as a cost to be minimized. Or they buy up houses, raise rents, 
and evict families, even during a pandemic.
    And of course no matter what happens to the workers at the 
companies they've raided for parts, or to the families in the mobile 
home complex where they've jacked up the rents, or to the larger 
economy, the big guys--the hedge funds, the SPAC sponsors, the big 
banks, the brokers--the big guys seem to do just fine.
    That system isn't sustainable.
    Increasing people's trust and faith in the market and the financial 
system will lead to more saving and broader participation. Yet some of 
my colleagues say we should let the market sort it out. They want to 
tie the SEC's and other watchdogs' hands.
    We know that's counterproductive. It's the same thinking that led 
to a market collapse in 2008, and that has led to decades of more and 
more investment flowing to a smaller and smaller share of the country.
    The last Administration subscribed to that same Wall Street-first 
view, and left this country worse off than they found it. The damage is 
too vast to measure. Our economy and markets were no exception.
    Investors have fewer tools to hold management accountable; savers--
and that means retirees, widows, families--have fewer protections. And 
corruption runs rampant--existing, serious conflicts of interest have 
been ignored.
    The Biden administration is taking a different view--that the 
economy and the markets should work for everyone, not just the well-
connected. And they should reflect the economy we all want--with 
broadly shared prosperity, and a growing middle class that all workers 
can join.
    When that happens, people will have confidence the markets will 
actually work for them, not just Wall Street. And we'll see more 
Americans save and invest for the future.
    Chair Gensler, I look forward to hearing about the progress you're 
making toward those goals.
                                 ______
                                 
            PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
    Thank you, Mr. Chairman. Welcome, Chair Gensler.
    The SEC has historically administered securities laws on a 
bipartisan basis.
    During your confirmation process, I expressed concerns that you'd 
stray from this tradition and use the SEC to advance a liberal 
political agenda, such as combatting global warming and advancing so-
called social justice; and push the legal bounds of the SEC's authority 
to pursue disclosures that are not financially material to the 
reporting companies. Unfortunately, your actions at the SEC have not 
alleviated these concerns.
    You added mandatory disclosures on global warming and ``human 
capital''--such as board and employee racial and gender identity--to 
the SEC's agenda. And you've essentially said that if large investment 
advisors and pension funds like BlackRock and CalPERS--who invest other 
people's money--want information about global warming or workforce 
diversity, it must be disclosed even if financially insignificant and 
irrelevant to a particular business.
    Even President Obama's SEC Chair, Mary Jo White, opposed using the 
SEC's disclosure powers for the purpose of ``exerting societal pressure 
on companies to change behavior, rather than to disclose financial 
information that primarily informs investment decisions.'' That's 
exactly what you're doing. You are also well on your way to 
politicizing the PCAOB after firing all of the existing board members.
    It's not the SEC's role nor expertise--as an independent financial 
regulator with zero democratic accountability--to address these 
political and social issues.
    Similarly, I worried that you'd favor the paternalistic push by 
some on the Left to restrict investor freedom under the guise of 
protection, while actually harming retail investors. Such harm may 
result from your apparent opposition to payment for order flow, which 
helped allow brokers to offer commission-free trading.
    Payment for order flow allows a broker to keep a portion of the 
price improvement obtained by routing to a wholesaler. The SEC hasn't 
demonstrated any failure or harm associated with payment for order 
flow, which the SEC has allowed for years. Banning payment for order 
flow could very well have the effect of eliminating commission-free 
trading, and would be a grave disservice to average investors.
    Likewise, you've criticized mobile apps that make investing easy 
and fun as ``gamification.'' Since when has delivering a product that 
customers like been a bad thing?
    I worry that you're attempting to fix problems that don't exist. 
Today is the best time ever to be a retail investor. Retail investors 
receive best execution. A person of modest means can share in the gains 
of stock market at negligible transaction costs. We see the tightest 
bid/offer spreads ever.
    Four major developments made this possible. Retail investors can 
access commission-free trading, accounts with no minimum balances, low- 
or no-fee mutual funds and ETFs, and user-friendly technology like 
mobile apps. Investors can also voluntarily use a broker who declines 
payment for order flow but may charge a commission.
    Despite decades of rapidly growing numbers of retail investors 
participating in stock market gains, and enjoying more product 
opportunities at lower costs, some colleagues suggest that the markets 
are rigged against retail investors. I'd like to hear how it is rigged. 
Don't retail investors receive dividends like institutional investors? 
Aren't retail investors entitled to best execution like institutional 
investors? Don't the value of retail investors' shares and those of 
institutional investors increase when a stock's price increases?
    The SEC's job is not to make retail investing expensive, 
unpleasant, and difficult. In America, adults investing their own money 
should be free to decide how to do so.
    Let me turn to cryptocurrency, which we should further study and 
support. Cryptocurrencies and blockchain are important new technologies 
that are actively traded on many platforms.
    A key question is whether a cryptocurrency is a security for 
regulatory purposes under Howey or some other test. Based on your 
public statements, you believe that some are securities but others are 
not. So, I am frustrated by the lack of helpful SEC public guidance 
explaining how you make this distinction. What makes some of them 
securities and others not?
    I understand that SEC staff will privately provide feedback and 
analysis on whether a cryptocurrency is a security. Why keep this 
analysis private? Why not publicly announce what characteristics make a 
cryptocurrency a security or not a security? Why wait to make the SEC's 
views known only when it swoops in with an enforcement action, in some 
cases years after the product was launched?
    This regulation by enforcement is extremely objectionable and will 
kill domestic innovation.
    Chair Gensler, there are many things on which you and I agree and 
that the SEC can do to protect investors, ensure fair, orderly, and 
efficient markets, and facilitate capital formation. I hope that we can 
productively work together on this mission.
                                 ______
                                 
                   PREPARED STATEMENT OF GARY GENSLER
             Chair, U.S. Securities and Exchange Commission
                           September 14, 2021
    Good afternoon, Chairman Brown, Ranking Member Toomey, and Members 
of the Committee. I'm honored to appear before you today for the first 
time as Chair of the Securities and Exchange Commission. I'd like to 
thank you for your support in my confirmation this spring. As is 
customary, I will note that my views are my own, and I am not speaking 
on behalf of my fellow Commissioners or the staff.
    We are blessed with the largest, most sophisticated, and most 
innovative capital markets in the world. The U.S. capital markets 
represent 38 percent of the globe's capital markets. \1\ This exceeds 
even our impact on the world's gross domestic product, where we hold a 
24 percent share. \2\
---------------------------------------------------------------------------
     \1\ See Securities Industry and Financial Markets Association, 
``2021 SIFMA Capital Markets Fact Book'', available at https://
www.sifma.org/wp-content/uploads/2021/07/CM-Fact-Book-2021-SIFMA.pdf.
     \2\ See World Bank data: https://data.worldbank.org/indicator/
NY.GDP.MKTP.CD.
---------------------------------------------------------------------------
    Furthermore, companies and investors use our capital markets more 
than market participants in other economies do. For example, debt 
capital markets account for 80 percent of financing for nonfinancial 
corporations in the U.S. In the rest of the world, by contrast, nearly 
80 percent of lending to such firms comes from banks. \3\
---------------------------------------------------------------------------
     \3\ Ibid.
---------------------------------------------------------------------------
    Our capital markets continue to support American competitiveness on 
the world stage because of the strong investor protections we offer.
    We keep our markets the best in the world through efficiency, 
transparency, and competition. These features lower the cost of capital 
for issuers, raise returns for investors, reduce economic rents, and 
democratize markets. That focus on competition is in every part of the 
SEC's work, particularly with respect to market structure.
    We can't take our remarkable capital markets for granted, though. 
New financial technologies continue to change the face of finance for 
investors and businesses. More retail investors than ever are accessing 
our markets. Other countries are developing deep, competitive capital 
markets as well.
    The SEC is a remarkable organization. In just under 6 months, I 
have gotten to know many of the dedicated 4,400 people across 12 
offices. Our agency covers nearly every part of the $110 trillion 
capital markets. Those markets touch many Americans' lives, whether 
they're investing for their future, borrowing for a mortgage, taking 
out an auto loan, or taking a job with a company that's tapping our 
capital markets. We engage with companies raising money and with the 
key parties that sit in between companies and investors, including 
accountants, auditors, and investment managers.
    While just last month we authorized voluntary return to office, 
we've largely been remote for 18 months now. I cannot compliment the 
dedication of this staff enough for their service to the American 
public.
    In this testimony, I will cover some of the broad themes from the 
SEC's unified agenda, \4\ before closing with a few words on our 
enforcement and examinations divisions.
---------------------------------------------------------------------------
     \4\ See https://www.sec.gov/news/press-release/2021-99.

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    Market Structure

    Predictive Data Analytics

    Issuers and Issuer Disclosure

    Funds and Investment Management
Market Structure
    I'll start with market structure. In every generation, we have to 
look at how we can revisit our rule sets to better enhance efficiency 
and competition in our markets.
    Markets work best when they are transparent and competitive. 
Issuers and investors alike benefit from that competition because it 
lowers the cost of capital.
    I have asked staff to take a look at five market structure-based 
projects across our $110 trillion capital markets: the Treasury market, 
non-Treasury fixed income markets, equity markets, security-based 
swaps, and crypto asset markets.
Treasury Market
    First, let me turn to the Treasury market. This $22 trillion market 
\5\ is integral to our overall capital markets as well as to global 
markets. It is the base upon which so much of our capital markets are 
built. Treasuries are embedded in money market funds; myriad other 
markets and financial products are priced off of Treasuries; and they 
are an essential part of our central bank's toolkit. They are called 
the ``risk-free asset'' not just here in the U.S. but globally. They 
are how we, as a Government and as taxpayers, raise money: we are the 
issuer.
---------------------------------------------------------------------------
     \5\ Statistics from Securities Industry and Financial Markets 
Association: https://www.sifma.org/resources/archive/research/
statistics/.
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    During the start of the Covid crisis, liquidity conditions in the 
Treasury market deteriorated significantly. This wasn't the first time 
we observed challenges in this market, though. Back in October of 2014, 
there was the Treasury ``Flash Crash''. In the fall of 2019, we had 
significant dislocations in Treasury funding markets, called the 
Treasury repo market.
    I've asked staff to work with our colleagues at the Department of 
the Treasury and the Federal Reserve on how we can better enhance 
resiliency and competition in these markets.
    To the extent that this market is more efficient, that could 
potentially save money for U.S. taxpayers and lower the cost of our 
debt. To the extent that this market is more resilient, it is less 
likely to add to systemic risks during times of stress.
    We will seek to consider some of the recommendations that external 
groups, like the Group of Thirty \6\ and Inter-Agency Working Group for 
Treasury Market Surveillance, \7\ have offered around potential central 
clearing for both cash and repo Treasuries.
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     \6\ See Group of Thirty, ``U.S. Treasury Markets: Steps Toward 
Increased Liquidity'', available at https://group30.org/publications/
detail/4950.
     \7\ See Brian Smith, ``Remarks at the Federal Reserve Bank of New 
York's Annual Primary Dealer Meeting'' (April 8, 2021), available at 
https://home.treasury.gov/news/press-releases/jy0116.
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    Further, I've asked staff to reconsider some initiatives on 
Treasury trading platforms, and also to consider how to level the 
playing field by ensuring that firms that significantly trade in this 
market are registered as dealers with the SEC.
Non-Treasury Fixed Income Market
    Additionally, I've asked staff for recommendations on how we can 
bring greater efficiency and transparency to the non-Treasury fixed 
income markets--corporate bonds, a $11 trillion market; municipal 
bonds, a $4 trillion market; and asset-backed securities (which back 
mortgages, automobiles, and credit cards), a $13 trillion market. \8\ 
This market is so critical to issuers. It is nearly 2.5 times larger 
than the commercial bank lending of about $10.5 trillion in our 
economy. \9\
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     \8\ Statistics from Securities Industry and Financial Markets 
Association: https://www.sifma.org/resources/archive/research/
statistics/.
     \9\ See Federal Reserve, ``Assets and Liabilities of Commercial 
Banks in the United States'', available at https://
www.federalreserve.gov/releases/h8/current/default.htm.
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Equity Market
    Next, I'd like to discuss equity market structure.
    Every so often, in response to new technologies, the SEC updates 
its rules around market structure. After the internet came along, 
buyers and sellers could meet in new trading venues. An earlier 
Commission created a new rule in the 1990s to facilitate that. In 2005, 
the Commission further addressed this fragmented structure under 
Regulation National Market Structure.
    In the last 16 years, though, technology has expanded by leaps and 
bounds. It has changed how market makers interact, how trading 
platforms compete, how investors access those markets, and the economic 
incentives amongst these various market participants. Retail investors 
can trade over commission-free brokerage apps. Telecommunication has 
transformed the speed of high-frequency trading. That wasn't the case 
even a few years ago.
    Despite these new technologies and developments affecting the 
structure of equity markets, we are often relying on rules written in 
an earlier period. Rules mostly adopted 16 years ago do not fully 
reflect today's technology.
    I believe it's appropriate to look at ways to freshen up the SEC's 
rules to ensure that our equity markets reflect our mission and are as 
efficient and competitive as they could be.
    I think it's time we take a broad view about what the market 
structure should look like today. The Commission started this exercise 
with regard to market data under former Chairman Jay Clayton. I've 
asked staff for recommendations, particularly around two key questions:
    First, how do we facilitate greater competition and efficiency on 
an order-by-order basis--when people send each order into the 
marketplace?
    While there is fragmentation amongst trading platforms, past 
reforms and new technologies may have led to more segmented markets and 
higher concentration amongst market makers. Nearly half of the volume 
transacted is executed in ``dark pools'' or by wholesalers. One firm 
has publicly stated that it executes nearly half of all retail volume. 
\10\ Further, I wonder whether this means that the consolidated tape--
the so-called National Best Bid and Offer--fully reflects the full 
range of activity on exchanges.
---------------------------------------------------------------------------
     \10\ See Citadel Securities, ``Equities & Options'', available at 
https://www.citadelsecurities.com/products/equities-and-options/.
---------------------------------------------------------------------------
    Second, how do we address financial conflicts in the market? As I 
have stated previously, I believe payment for order flow and exchange 
rebates may present a number of conflicts of interest.
    Around those two key principles, I've asked staff for 
recommendations as to how we can ensure a more level playing field, 
enhance competition, and improve resiliency in our markets.
    Moreover, I believe shortening the standard settlement cycle could 
reduce costs and risks in our markets. I've directed the SEC staff to 
put together a draft proposal for the Commission's review on this 
topic.
Security-Based Swaps
    The security-based swaps market is not a large market compared to 
the fixed income and equity markets, but it was at the core of the 2008 
financial crisis. More recently, total return swaps were at the heart 
of the failure of Archegos Capital Management, a family office.
    This year, the SEC is implementing rules related to securities-
based swaps. Security-based swap dealers and major security-based swap 
participants will begin registering with the Commission by Nov. 1.
    Further, on Nov. 8, new post-trade transparency rules will go into 
effect, requiring transaction data to be reported to a swap data 
depository and thus available to the SEC and, under appropriate 
circumstances, other regulators. Then, beginning on Feb. 14, 2022, the 
swap data repositories will be required to disseminate data about 
individual transactions to the public, including the key economic 
terms, price, and notional value.
    In addition, the Commission has yet to finish the rules for the 
registration and regulation of security-based swap execution 
facilities. I've asked staff for recommendations on how the Commission 
can finalize mandates to stand up the regime established under the 
Dodd-Frank Act and to consider whether it would be best to do this 
consistent with the regime established by the Commodity Futures Trading 
Commission for security-based swap execution facilities. The CFTC has 
had swap execution facility rules that have worked well since they were 
adopted nearly a decade ago.
    Further, to allow the Commission and the public to see aggregate 
positions, Congress under Exchange Act Section 10B gave us authority to 
mandate disclosure for positions in security-based swaps and related 
securities. I've asked staff to think about potential rules for the 
Commission's consideration under this authority. As the collapse of 
Archegos showed, this may be an important reform to consider.
Crypto Assets Market
    Next, I'll turn to a newer market structure issue: crypto assets.
    Right now, large parts of the field of crypto are sitting astride 
of--not operating within--regulatory frameworks that protect investors 
and consumers, guard against illicit activity, and ensure for financial 
stability.
    Currently, we just don't have enough investor protection in crypto- 
finance, issuance, trading, or lending. Frankly, at this time, it's 
more like the Wild West or the old world of ``buyer beware'' that 
existed before the securities laws were enacted. This asset class is 
rife with fraud, scams, and abuse in certain applications. We can do 
better.
    I have asked SEC staff, working with our fellow regulators, to work 
along two tracks:
    One, how can we work with other financial regulators under current 
authorities to best bring investor protection to these markets?
    Two, what gaps are there that, with Congress's assistance, we might 
fill?
    At the SEC, we have a number of projects that cross over both 
tracks:

    The offer and sale of cryptotokens

    Cryptotrading and lending platforms

    Stable value coins

    Investment vehicles providing exposure to crypto assets or 
        crypto derivatives

    Custody of crypto assets

    With respect to investor protection, we're working with our sibling 
agency, the CFTC, as our two agencies each have relevant, and in some 
cases, overlapping jurisdiction in the cryptomarkets. With respect to a 
broader set of policy frameworks, we're working with not only the CFTC, 
but also the Federal Reserve, Department of Treasury, Office of the 
Comptroller of the Currency, and other members of the President's 
Working Group on Financial Markets on these matters. \11\
---------------------------------------------------------------------------
     \11\ See ``Readout of the Meeting of the President's Working Group 
on Financial Markets to Discuss Stablecoins'' (July 19, 2021), 
available at https://home.treasury.gov/news/press-releases/jy0281.
---------------------------------------------------------------------------
    Further, I've suggested that platforms and projects come in and 
talk to us. Many platforms have dozens or hundreds of tokens on them. 
While each token's legal status depends on its own facts and 
circumstances, the probability is quite remote that, with 50, 100, or 
1,000 tokens, any given platform has zero securities. Make no mistake: 
To the extent that there are securities on these trading platforms, 
under our laws they have to register with the Commission unless they 
qualify for an exemption.
    I am technology-neutral. I think that this technology has been and 
can continue to be a catalyst for change, but technologies don't last 
long if they stay outside of the regulatory framework. I believe that 
the SEC, working with the CFTC and others, can stand up more robust 
oversight and investor protection around the field of cryptofinance.
Predictive Data Analytics
    The second theme is predictive data analytics.
    We are living in a transformational time, perhaps as 
transformational as the internet itself. Artificial intelligence, 
predictive data analytics, and machine learning are shaping and will 
continue to reshape many parts of our economy.
    To take just one example, I believe we're in an early stage of a 
transition toward driverless cars. Policymakers already are thinking 
through how to keep passengers and pedestrians safe, if and when these 
changes take hold.
    Finance is not immune to these developments. Here, too, 
policymakers must consider what rules of the road we need for modern 
capital markets and for the use of predictive data analytics.
    Today, trading platforms have new capabilities to tailor marketing 
and products to individual investors. While this can increase access 
and choice, such differential marketing and behavioral prompts raise 
new questions about potential conflicts within the brokerage, wealth 
management, and robo-advising spaces, particularly if and when 
brokerage or investment advisor models are optimized for the platform's 
revenue and data collection.
    These models also could inadvertently reflect historical biases 
embedded in data sets that may be proxies for protected 
characteristics, like race and gender.
    Advances in predictive data analytics also could raise some 
systemic risk issues when we apply new models and artificial 
intelligence across our capital markets. This could lead to greater 
concentration of data sources, herding, and interconnectedness, and 
potentially increase systemic risk. We've just put out a request for 
comment on digital engagement practices.
Issuers and Issuer Disclosure
    The third theme relates to issuers and issuer disclosure.
Disclosures
    Since the 1930s, when Franklin Delano Roosevelt and Congress worked 
together to reform the securities markets, there's been a basic bargain 
in our capital markets: investors get to decide what risks they wish to 
take. Companies that are raising money from the public have an 
obligation to share information with investors on a regular basis.
    Those disclosures changes over time. Over the years, we've added 
disclosure requirements related to management discussion and analysis, 
risk factors, executive compensation, and much more.
    Today's investors are looking for consistent, comparable, and 
decision-useful disclosures around climate risk, human capital, and 
cybersecurity. I've asked staff to develop proposals for the 
Commission's consideration on these potential disclosures. These 
proposals will be informed by economic analysis and will be put out to 
public comment, so that we can have robust public discussion as to what 
information matters most to investors in these areas.
    Companies and investors alike would benefit from clear rules of the 
road. I believe the SEC should step in when there's this level of 
demand for information relevant to investors' investment decisions.
Special Purpose Acquisition Companies, China, and 10b5-1 Plans
    There are three other important topics relating to issuers that we 
have prioritized at the SEC.
    First, given the surge in special purpose acquisition companies 
(SPACs), I have asked staff for recommendations about enhancing 
disclosures in these investments. There are a lot of fees and potential 
conflicts inherent within SPAC structures, and investors should be 
given clear information so that they can better understand the costs 
and risks.
    Second is related to China. We have another basic bargain in our 
securities regime, which came out of Congress on a bipartisan basis 
under the 2002 Sarbanes-Oxley Act. If you want to issue public stock in 
the U.S., the firms that audit your books have to be subject to 
inspection by the Public Company Accounting Oversight Board. While more 
than 50 jurisdictions have complied with this requirement, two do not: 
China and Hong Kong.
    Once again on a bipartisan basis, Congress last year said that it's 
time for all jurisdictions around the world to comply with Sarbanes-
Oxley. The SEC has acted quickly to meet our requirements under the 
Holding Foreign Companies Accountable Act.
    Further, we are working to enhance disclosures with regard to how 
Chinese companies issue securities in the U.S. Chinese companies 
conducting business in certain industries, such as internet and 
technology, are prohibited from selling their ownership stake to 
foreigners. As a workaround, they use structures called variable 
interest entities to raise capital on U.S. exchanges through shell 
companies in the Cayman Islands and other jurisdictions. We are working 
to ensure that the heightened risks related to these structures and 
other risks related to operating in China are clearly and prominently 
disclosed to investors.
    The last priority area with respect to issuers is trading by 
corporate insiders. I have asked staff for recommendations on how we 
might tighten Rule 10b5-1 to modernize this 20-year-old safe harbor and 
fill perceived gaps in our insider trading regime.
Funds and Investment Management
    The fourth theme I will discuss is the potential reforms we are 
exploring in the funds and investment management space.
    First of all, we've seen a growing number of funds market 
themselves as ``green'', ``sustainable'', ``low-carbon'', and so on.
    I've asked staff to consider ways to determine what information 
stands behind those claims and how we can ensure that the public has 
the information they need to understand their investment choices among 
these types of funds.
    Additionally, staff are developing a proposal for the Commission's 
consideration on cybersecurity risk governance, which could address 
issues such as cyber hygiene and incident reporting.
    The third topic centers on private funds, and in particular the 
conflicts of interest their managers may have and the information they 
are providing investors about the fees they charge. I believe we can 
enhance disclosures in this area, better enabling pensions and others 
investing in these private funds to get the information they need to 
make investment decisions. Ultimately, every pension fund investing in 
these private funds would benefit if there were greater transparency 
and competition in this space.
    Fourth, following the challenges of the spring of 2020, I believe 
we can build greater resiliency in both money market funds and open-end 
bond funds. I've asked staff for recommendations to address those 
issues, building upon feedback we received on the President's Working 
Group report as well as other information.
    Given the disruptions in the nearly $5 trillion money market fund 
sector in spring 2020, particularly amongst prime money market funds, I 
believe it is time to reflect upon the reforms of 2014 and 2010 to see 
if we can further improve resiliency, particularly in times of stress.
    Given significant growth in open-end funds and some lessons learned 
last spring, I believe it also is appropriate to take a close look at 
this $5-plus trillion sector, to enhance resiliency during periods of 
stress.
Enforcement and Examinations
    Beyond the new policy areas we are exploring, we also have robust 
enforcement and examinations regimes. About half of SEC staff work in 
these two divisions, ensuring that firms are inspected and wrongdoers 
are held accountable for their misconduct. These functions are 
essential to protecting investors, maintaining fair, orderly, and 
efficient markets, facilitating capital formation, protecting the 
competitiveness of our capital markets, and holding those who violate 
our securities laws accountable.
    Our Division of Enforcement continues to be the cop on the beat, 
build on its successes, and focus on matters important to investors and 
the marketplace in order to ensure that investors are being protected. 
We cover the entire securities waterfront--investigating and litigating 
every type of case within our remit. This fiscal year, despite our 
remote work posture, the Division of Enforcement is on track to exceed 
the number of stand-alone actions against wrongdoers.
    Moreover, our Division of Examinations continues to play the role 
of the ``eyes and ears of the Commission.'' This staff is dedicated to 
protecting investors and working families through examinations of 
investment advisers, investment companies such as mutual funds and 
exchange traded funds, broker-dealers, and other SEC registrants. This 
fiscal year, this division is again on track to complete approximately 
3,000 examinations, which are critical to ensuring that firms comply 
with our Federal securities laws and regulations.
Conclusion
    Having started at the SEC in the spring, I have been struck by the 
sheer breadth and scope of the operations of this great agency and 
remarkable staff. The SEC's employees oversee 28,000 registered 
entities, more than 3,700 broker-dealers, 24 national securities 
exchanges, and 7 clearing agencies. \12\ A record 67 million U.S. 
families held direct and indirect stock holdings in 2019. \13\
---------------------------------------------------------------------------
     \12\ See Securities and Exchange Commission, ``Fiscal Year 2021 
Congressional Budget Justification--Annual Performance Plan'', 
available at https://www.sec.gov/files/secfy21congbudgjust.pdf. Numbers 
from fiscal year 2019. See Securities and Exchange Commission, 
``National Securities Exchanges'', available at https://www.sec.gov/
fast-answers/divisionsmarketregmrexchangesshtml.html.
     \13\ Data drawn from the public version of triennial Survey of 
Consumer Finances (SCF): https://www.federalreserve.gov/econres/
scfindex.htm. The SCF is sponsored by the Board of Governors of the 
Federal Reserve System with the cooperation of the U.S. Department of 
the Treasury. The 2019 SCF is the most recent survey.
---------------------------------------------------------------------------
    As our capital markets have grown, though, the SEC has not grown to 
meet the needs of the 2020s. At the end of fiscal year 2016, the SEC 
had 4,650 people on board. Nearly 5 years later, though, that number 
had decreased by about 4 percent.
    Despite that, the agency has worked hard to keep up our mission. I 
hope you all agree that, as more Americans are accessing the capital 
markets, we need to be sure that the Commission has the resources to 
protect them.
    Thank you and I look forward to answering your questions.
        RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
                       FROM GARY GENSLER

Q.1. In his 2020 Report to Congress, the SEC Investor Advocate 
indicated his willingness to work with Congress and other 
regulators to implement the ``Senior Investor Protection Grant 
Program'' established by Sec. 989A of the Dodd-Frank Act if 
Congress were to pass a change moving the program to the SEC 
for implementation. Do you support this change? How would the 
SEC implement the program if Congress acted to make the change?

A.1. If Congress were to move the implementation of the Senior 
Investor Protection Grant Program to the SEC, I would welcome 
the addition of this function to the SEC's other important 
responsibilities. In order to implement the program, we would 
need additional resources for Commission offices to support 
implementation and administration, as well as the appropriation 
to fund the grants. The amount of resources required would 
depend on the size of the grant program that is ultimately 
approved.

Q.2. In 2013, the Commission proposed rules to enhance 
transparency in the marketplace for so-called private 
offerings, but the proposal was never finalized. Since then the 
market for private offerings has continued to grow, but without 
sufficient transparency. What are some ways for the Commission 
to address this information deficit and enhance investor 
protection?

A.2. As indicated on the spring regulatory agenda, the Division 
of Corporation Finance is considering ways to further update 
the Commission's rules related to exempt offerings to more 
effectively promote investor protection, including ensuring 
appropriate access to and enhancing the information available 
regarding Regulation D offerings. Division staff will continue 
to study these issues and make recommendations to the 
Commission.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                       FROM GARY GENSLER

Q.1. At the Banking Committee hearing on September 14, 2021, in 
response to questions, you stated ``I agree with you that some 
of these tokens have been deemed to be commodities. Many of 
them are securities.'' Please identify the specific 
characteristics that distinguish a cryptocurrency that is a 
security from one that has been deemed a commodity.

A.1. Congress established the definition of a security, which 
includes about 20 items, like stock, bonds, and notes. One of 
the items is an investment contract. The Supreme Court took up 
the definition of an investment contract, stating that it 
exists when ``a person invests his money in a common enterprise 
and is led to expect profits solely from the efforts of the 
promoter or a third party.'' The Supreme Court has repeatedly 
reaffirmed this Howey Test. Thus it depends upon the particular 
facts and circumstances, whether any particular financial 
instrument, including a crypto asset, is being offered or sold 
as a security. The SEC's Section 21(a) 2017 Report of 
Investigation on The DAO and subsequent settled enforcement 
orders set forth the SEC's views on how the Federal securities 
laws apply to particular crypto assets. Under the Commodities 
Exchange Act, derivatives on commodities that are not 
securities are subject to the CFTC's exclusive jurisdiction.

Q.2. At the same hearing, I asked whether stablecoins that are 
linked to the dollar and lack any inherent expectation of 
profit are securities. Your response was that ``they may well 
be securities.''
    Is it your contention that such a stablecoin constitutes an 
``investment contract'' and is therefore a security? If so, 
could you please explain why you believe such a stablecoin 
would meet the ``expectation of profit'' prong of the Howey 
test? \1\
---------------------------------------------------------------------------
     \1\ SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
---------------------------------------------------------------------------
    If your response is that such a stablecoin may be a 
security under one of the other types of securities listed in 
the definition of a security in Section 2(a)(1) of the 
Securities Act (U.S.C. 77b(a)(1)), please specify which type 
and explain your analysis.
    Let's say there is a proposed stablecoin called 
ProposedCoin that is linked to the dollar and the holder of 
ProposedCoin does not expect any profit or return from holding 
ProposedCoin. Underlying dollars received by ProposedCoin will 
be held in multiple FDIC-insured bank accounts held at 
thousands of Federal or State-charted banks throughout the 
country. Holders intend to use ProposedCoin as a medium of 
exchange for goods and services within the ProposedCoin 
ecosphere and do not view ProposedCoin as a means of 
investment. Is ProposedCoin a security? Why or why not? Please 
explain your analysis. Please do not address any potential 
effects of ProposedCoin on the banking system or systemic risk 
implications.
    If additional information is needed in order to determine 
whether ProposedCoin is a security, please specify what 
information is missing.

A.2. The existing stablecoin market is worth nearly $138 
billion and is embedded in cryptotrading and lending platforms. 
Though they represent only about 5 percent of all crypto 
assets, more than 75 percent of trading on all cryptotrading 
platforms occurred between a stablecoin and some other token.
    While I appreciate your inquiry regarding a particular 
hypothetical fact pattern, there are many facts that come into 
play when determining whether any particular financial 
instrument is or is not a security. As the President's Working 
Group report on stablecoins notes, ``stablecoins, or certain 
parts of stablecoin arrangements, may be securities, 
commodities and/or derivatives.'' Thus, the use of stablecoins 
presents a number of public policy challenges with respect to 
protecting investors.
    Stablecoins may facilitate those seeking to sidestep a host 
of public policy goals connected to our traditional banking and 
financial system, such as anti-money laundering, tax 
compliance, sanctions compliance, and other safeguards against 
illicit activity. We at the SEC will be working with our 
sibling regulators, including the CFTC, to deploy the full 
protections of the law to these products and arrangements where 
appropriate.

Q.3. At the September 14, 2021, hearing, you referenced that 
the SEC had previously taken the position, upheld in the 
courts, that the acquisition interests in whiskey caskets were 
securities. In what ways are interests in whiskey caskets are 
comparable to interests in stablecoins for purposes of 
analyzing whether a security exists. For example, is each 
whiskey casket, and its contents, viewed as indistinguishable 
from other whiskey caskets? If not, would that analysis apply 
comparably to stablecoins within a particular cryptocurrency?

A.3. Congress created a definition of security that is intended 
to be broad, in order to encompass new and different types of 
investments that are presented to investors and that invoke the 
protections of the Federal securities laws. The definition of 
security includes ``investment contract'' among the list of 
other types of securities. Whether a particular instrument is 
within the definition of security is based on the facts and 
circumstances. As it relates to investment contracts, the U.S. 
Supreme Court's Howey case and subsequent case law have found 
that an ``investment contract'' exists when there is the 
investment of money in a common enterprise with a reasonable 
expectation of profits to be derived from the efforts of 
others.
    For example, in the late 1960s and early 1970s, the 
Commission published releases that warned about investment 
contracts that were sold in the form of whiskey warehouse 
receipts. In the whiskey warehouse scenario, the promoters sold 
receipts to finance the aging and blending processes of Scotch 
whiskey, where purchasers expected a return from the promoter's 
efforts in developing and selling the Scotch. These cases 
highlight the fact that whether something is a security or not 
will depend on the economic reality of the transaction or 
product, not on any name or label given.

Q.4. Please list all no-action letters, arranged in 
chronological order, issued since January 1, 2021, through the 
date of your response, that reference cryptocurrencies, tokens, 
digital assets, and similar items. Please also provide the 
number of pending no-action letter requests that involve such 
items.

A.4. All issued no-action letters are publicly available on the 
SEC's website. A list of digital asset-related staff no-action 
letters can be found at the SEC's website at https://
www.sec.gov/finhub under the ``Blockchain/Distributed Ledger'' 
section and ``Regulation, Registration, and Related Matters'' 
drop-down tab. More specifically, there have been a number of 
SEC staff no-action letters issued that relate to 
``cryptocurrencies, tokens [and] digital assets,'' including 
staff letters to TurnKey Jet, Inc., Pocketful of Quarters, 
Inc., Paxos Trust Company, LLC, and IMVU, Inc. Staff also 
issued a no-action letter to the Financial Industry Regulatory 
Authority (FINRA), and the Commission published a no-action 
statement, relating to the custody of digital asset securities 
by special purpose broker-dealers. There have been no such no-
action letters issued since January 1, 2021.
    Pending no-action inquiries with the staff are nonpublic 
and in most cases are submitted to the staff subject to claims 
of confidential treatment. As pending inquiries are not staff 
actions that are public, I am unable to provide any information 
about them.

Q.5. Please list all exemptive orders, arranged in 
chronological order, issued since January 1, 2021, through the 
date of your response, that reference cryptocurrencies, tokens, 
digital assets, and similar items. Please also provide the 
number of pending applications for exemptive orders that 
involve such items.

A.5. The SEC has not issued any exemptive orders that reference 
cryptocurrencies, tokens, digital assets, or similar items 
during the period between January 1, 2021, and November 23, 
2021.
    Pending inquiries, including requests for exemptions from 
applicable provisions of the Federal securities laws are, 
unless required to be submitted publicly, generally nonpublic 
and in most cases submitted to the staff subject to claims of 
confidential treatment. I am unable to provide any information 
about pending applications for exemptive orders that are 
nonpublic. I am aware of one pending public request, which can 
be found here: https://www.sec.gov/Archives/edgar/data/1009268/
000095010321008030/dp151409-406b.htm.

Q.6. Please list all publicly disclosed enforcement actions, 
arranged in chronological order, taken since January 1, 2021, 
through the date of your response, that reference 
cryptocurrencies, tokens, digital assets, and similar items.
    Which of these actions identify a specific cryptocurrency, 
token, or digital asset that is a security?

A.6. These are matters of public record, and there is a list of 
such actions, and the information requested on the SEC's 
website at https://www.sec.gov/spotlight/cybersecurity-
enforcement-actions. The SEC's complaints and orders in those 
actions are also a matter of public record and are available on 
the SEC's homepage at the link above. The SEC's complaints and 
orders in those actions are also a matter of public record and 
are available on the SEC's homepage at the link above. The 
actions and trading suspensions filed since January 1, 2021, 
are listed below for convenience.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Q.7. Please list all guidance materials posted to sec.gov or 
investor.gov since January 1, 2021, through the date of your 
response that reference cryptocurrencies, tokens, digital 
assets, and similar items. You may omit any items listed in 
response to the prior three questions.

A.7. Statements and other materials relating to digital assets 
are available to the public from our website homepage on the 
sec.gov and investor.gov websites. Click through: SEC.gov/
Strategic Hub for Innovation and Financial Technology (FinHub); 
Investor.gov/Spotlight on Initial Coin Offerings and Digital 
Assets.
    Statements since January 1, 2021, include:

        Risk Alert: The Division of Examinations' Continued 
        Focus on Digital Asset Securities.
        Staff Statement on Funds Registered Under the 
        Investment Company Act Investing in the Bitcoin Futures 
        Market.
        Funds Trading in Bitcoin Futures--Investor Bulletin.
        Digital Asset and ``Crypto'' Investment Scams--Investor 
        Alert.
        President's Working Group on Financial Markets, the 
        Federal Deposit Insurance Corporation, and the Office 
        of the Comptroller of the Currency Report on 
        Stablecoins.
        Statement by Chair Gary Gensler on President's Working 
        Group Report on Stablecoins.

Q.8. You recently stated in an August 5, 2021, letter to 
Senator Warren that the public would benefit from ``additional 
(Congressional) authority to write rules for and attach 
guardrails to crypto trading and lending.'' Do you believe the 
SEC needs additional Congressional authority to properly 
regulate the digital asset marketplace?

A.8. I have stated before that I believe we need additional 
authorities to prevent crypto asset-related transactions, 
products, and platforms from falling between regulatory cracks.
    Additional SEC regulatory authority over cryptotrading and 
lending platforms and intermediaries could aid the SEC's 
ability to prevent fraud and abuse and promote investor and 
market protection. I have asked SEC staff, working with our 
fellow regulators, to work along two tracks. First, I have 
asked them how we can work with other regulators under our 
current authorities to best bring investor protection to these 
markets. Second, I've asked them what gaps we might need 
Congress' assistance to fill.

Q.9. I want to learn more about your thoughts on the threshold 
for a token to be deemed decentralized. In a 2018 New York 
Times article, you spoke about the decentralization of Ethereum 
(ETH). As the article lays out, ``Mr. Gensler said Ether could 
have more problems because the first Ether tokens were sold in 
2014, before the network was functional, by the Ethereum 
Foundation. Ether could get off the hook, Mr. Gensler said, 
because its development has been more decentralized recently, 
and new Ether tokens are now given out to so-called miners 
through a network.'' \2\ Meanwhile, you have also repeatedly 
said that you agree with former SEC Chair Clayton's statement 
that he has yet to see an initial coin offering that was not a 
security.
---------------------------------------------------------------------------
     \2\ https://www.nytimes.com/2018/04/22/technology/gensler-mit-
blockchain.html
---------------------------------------------------------------------------
    I highlight these two instances because to me it appears 
that you believe ETH transitioned from a security to a 
commodity. The concept that ETH can transition to a commodity 
because ``its development has been more decentralized'' appears 
to conflict with your past statements that all ICO tokens are 
securities. I understand there are pending court cases that may 
address this very issue, but as we await decisions in these 
cases, can you clarify your position as to when a token is 
sufficiently decentralized in light of your previous 
statements?

A.9. Though I am unable to comment about any particular crypto 
asset or project, I find myself generally agreeing with former 
SEC Chairman Jay Clayton when he testified in 2018: ``To the 
extent that digital assets like [initial coin offerings, or 
ICOs] are securities--and I believe every ICO I have seen is a 
security--we have jurisdiction, and our Federal securities laws 
apply.'' Purchasers of ICO tokens generally are buying these 
tokens anticipating profits, and there's a small group of 
entrepreneurs and technologists standing up and nurturing the 
projects. I believe we have a cryptomarket now where many 
tokens may be unregistered securities, without required 
disclosures or market oversight.
    The U.S. Supreme Court's Howey case and subsequent case law 
have found that an ``investment contract'' exists when there is 
the investment of money in a common enterprise with a 
reasonable expectation of profits to be derived from the 
efforts of others.

Q.10. I understand from your previous remarks that a Bitcoin 
exchange-traded fund (ETF) approval is unlikely to occur soon 
given your concerns around market structure and volatility. 
However, even with these concerns being voiced publicly over 20 
companies have applied to launch a Bitcoin ETF due to the 
strong amount of interest cited by U.S. institutions. We have 
seen regulatory bodies in Canada, Germany, Switzerland and 
Sweden approve bitcoin ETPs, and many U.S. investors are 
finding ways to access these products in lieu of the absence of 
an SEC-approved domestic product.
    What are your views on other international regulators 
approving these bitcoin ETPs?

A.10. Various international jurisdictions have different legal 
standards and processes for consideration of new investment 
products, including proposed exchange-traded products that may 
be based on bitcoin. Our staff continues to monitor 
developments in other jurisdictions with respect to bitcoin-
focused investment vehicles and has engaged with fellow 
international regulators on their approaches to potential 
bitcoin-based investment vehicles and ongoing monitoring of 
such vehicles if they exist. As fellow regulators, our staff 
seeks to learn from the experiences of others. However, actions 
in the other jurisdictions are not binding on U.S. regulators, 
and our staff continues to follow applicable legal standards 
and processes under the Federal securities laws when 
considering bitcoin-focused investment products.

Q.11. Is there a role Congress can play in hopes of making 
bitcoin ETPs (including an ETF) happen here in the United 
States?

A.11. I welcome Congress' interest and input on the prospect of 
bitcoin ETPs. As noted above, our staff continues to follow 
applicable legal standards and processes under the Federal 
securities laws when considering bitcoin-focused investment 
products. That being said, the markets for actual bitcoin 
itself today are largely unregulated. This lack of regulatory 
oversight and surveillance leads to concerns about the 
potential for fraud and manipulation. Congress could bring the 
bitcoin markets under the U.S. regulatory umbrella, which could 
be helpful in our consideration of bitcoin ETPs.

Q.12. You stated in a recent speech that you look forward to 
reviewing filings of ETFs registered under the Investment 
Company Act, adding that you look forward to the filings 
``particularly if those are limited to these CME-traded Bitcoin 
futures.'' \3\ Can you please explain why you look forward to 
evaluating CME-traded Bitcoin futures but do not express the 
same enthusiasm for approving a Bitcoin spot exchange-traded 
product (ETPs), particularly when they both are based upon the 
same underlying spot Bitcoin markets? Please also explain 
whether your views also apply to the submission of proposed 
listing rule changes for national securities exchanges 
regarding Bitcoin-related ETPs and ETFs.
---------------------------------------------------------------------------
     \3\ https://www.sec.gov/news/public-statement/gensler-aspen-
security-forum-2021-08-03

A.12. The first of the bitcoin futures ETFs have gone effective 
and are operating. The Commission considers all exchange-
---------------------------------------------------------------------------
trading products under the standards applicable to them.

Q.13. In December 2020, the SEC put out a statement and request 
for comment regarding the custody of digital asset securities 
by special purpose broker-dealers (SPBDs). The statement 
requires the SPBD to limit its business to ``dealing in, 
effecting transactions in, maintaining custody of, and/or 
operating an ATS [alternative trading system] for digital asset 
securities.'' \4\ Several submitted comments have noted that 
requiring a broker-dealer to bifurcate its operations to be 
able to deal separately with digital asset securities is 
unnecessary and could lead to additional operational risk for 
the broker-dealer, among other challenges. Is the SEC 
considering revisions to its statement to remove the 
requirement to bifurcate a broker-dealer's operations for the 
purposes of acting as a custodian of digital asset securities?
---------------------------------------------------------------------------
     \4\ https://www.sec.gov/rules/policy/2020/34-90788.pdf

A.13. In the December 2020 statement, the Commission expressed 
certain concerns regarding the custody of crypto asset 
securities and the potential ramifications that would result 
from the loss or theft of crypto asset securities. The period 
in which the statement and request for comment is in effect 
will provide the Commission and its staff an opportunity to 
gain additional insight into the evolving standards and best 
practices with respect to custody of crypto asset securities. 
During this 5-year period, the Commission will continue to 
evaluate its position on an ongoing basis and will consider 
comments to inform any future rulemaking or other Commission 
---------------------------------------------------------------------------
action in this area.

Q.14. Recent press articles have discussed high fees being 
charged to public companies in connection with distribution of 
proxy materials. Historically, these have been set according to 
a fee schedule adopted by the New York Stock Exchange (NYSE).
    Earlier this year, the SEC rejected a proposed rule change 
by NYSE to cease setting a fee schedule.
    What steps are being taken to lower these costs, 
particularly as more proxy materials are being distributed 
electronically?
    Some service providers who fulfill brokers' obligations to 
distribute proxy materials impose an additional ``suppression 
fee,'' which results in the service provider receiving a higher 
fee for electronic distributions than for paper mailings. 
Please explain whether charging higher fees for electronic 
distributions is in the best interests of investors.

A.14. Thank you for your interest in NYSE's schedule of proxy 
distribution fees. I agree that these fees present important 
issues. An NYSE petition for Commission review of staff's 
disapproval of an NYSE proposal to remove the fee schedule from 
its rules is before the Commission. I'm looking forward to 
learning more about these issues and appreciate your 
engagement.

Q.15. I have previously suggested to the SEC that it make 
permanent the relief it granted for allowing virtual meetings, 
rather than in-person, for investment company boards under the 
Investment Company Act. Please discuss whether you intend to 
add this project to the SEC's next regulatory agenda.

A.15. The Investment Company Act requires certain board votes 
to be cast in person. The Commission has at times granted 
temporary industrywide relief from this requirement in response 
to various national emergencies, including the COVID-19 
pandemic. The Commission's exemptive authority depends on, 
among other things, the exemption being consistent with the 
purposes intended by the provisions of the Investment Company 
Act. The Commission could consider applications for in-person 
voting relief for appropriate situations beyond emergencies, as 
its exemptive authority permits.

Q.16. The Consolidated Appropriations Act, 2021, Public Law No. 
116-260, instructed the SEC to deliver two reports about small 
issuers by June 2021--one on analyst research \5\ and one about 
the effects of the 10 percent limitation on investments by 
investment companies. \6\ These reports are now overdue. What 
is the estimated timeframe for delivery of these reports?
---------------------------------------------------------------------------
     \5\ Division Q, Sec. 106.
     \6\ Division Q, Sec. 107.

A.16. SEC staff are in the process of preparing the requested 
reports based on a review of relevant legal and regulatory 
requirements, academic literature, and available data. These 
are important topics that require careful consideration and 
evaluation of a number of issues. We are working diligently to 
---------------------------------------------------------------------------
complete the reports as soon as possible.

Q.17. In your responses to a question for the record from your 
confirmation hearing, you stated that you would ``work with 
fellow Commissioners and SEC staff to eliminate unnecessary 
costs [on public companies] where possible.'' \7\ Please list 
the most promising items to eliminate unnecessary costs on 
public companies that you have identified to date.
---------------------------------------------------------------------------
     \7\ Gary Gensler's March 5, 2021, response to Senator Toomey's 
question for the record, #14, for Senate Banking Committee's March 2, 
2021, hearing, ``Nominations of Gary Gensler and Rohit Chopra'', 
available at https://www.banking.senate.gov/imo/media/doc/
Gensler%20Resp%20to%20QFRs%203-2-21.pdf.

A.17. Consistent with our statutory mandates to consider 
efficiency, competition, and capital formation alongside 
investor protection, we continue to strive to eliminate 
unnecessary costs in our rules. One recent example is the 
Commission's rule to modernize how filing fees are reported, 
calculated, and paid. We also released two proposed rules for 
public comment increasing the use of electronic filing for 
submissions, which we expect will expedite and ease the filing 
process going forward. We will continue working to eliminate 
---------------------------------------------------------------------------
unnecessary costs as we consider future rules.

Q.18. In your responses to a question for the record from your 
confirmation hearing, you stated that you would ``holistically 
review capital formation rules related to small and medium-
sized companies and make individualized determinations about 
whether to preserve, expand or revise such rules.'' \8\
---------------------------------------------------------------------------
     \8\ Id. at #18.
---------------------------------------------------------------------------
    What are the most promising items you have identified so 
far to facilitate capital formation for small and mid-size 
companies?
    If you have not completed this review, please provide an 
estimated timeframe for its completion.

A.18. Small and medium-sized companies need access to our 
capital markets to fund innovations and scale their operations. 
We are continuously looking at what is working, what barriers 
may be preventing the facilitation of capital formation, and 
how investors are faring and being protected in these markets. 
As noted on the Spring 2021 regulatory agenda, staff in the 
Division of Corporation Finance are considering recommendations 
to the Commission on ways to further update the Commission's 
rules related to exempt offerings. In addition, our Office of 
the Advocate for Small Business Capital Formation has been 
publishing new educational content to help small businesses and 
their investors demystify the offering process, thereby 
facilitating capital formation and promoting compliance. As 
part of that initiative, the staff recently released a new 
interactive capital raising navigator tool on sec.gov to help 
small businesses and their investors navigate their options for 
funding small businesses.

Q.19. Any change to the current wealth and income thresholds in 
the Regulation D definition of accredited investor may have a 
relatively larger impact on smaller and rural communities where 
the cost of living and incomes are lower than in metropolitan 
areas. This could complicate the ability of entrepreneurs in 
non-urban areas to raise capital from investors located in 
those areas. If you intend to pursue changes to the accredited 
investor thresholds, how will you ensure it does not become 
more difficult for companies to raise money outside of the 
largest cities?

A.19. Historically, the accredited investor definition has 
generally used wealth and income based criteria as proxies to 
determine those persons whose financial sophistication may 
render certain protections of the Securities Act's registration 
process superfluous. The Commission recently expanded the 
definition of accredited investor to provide additional 
measures for establishing an individual's financial 
sophistication that are not connected to their annual income or 
net worth.
    The Dodd-Frank Act directs the Commission to review the 
accredited investor definition at least every 4 years to 
determine whether the definition should be modified or 
adjusted. The next required review is due to be completed no 
later than 2023. I expect the Commission will carefully review 
both how effectively the wealth- and income-based criteria of 
the accredited investor definition--along with the 
effectiveness of the recently adopted amendments--are serving 
their intended regulatory function and what impact any changes 
in those thresholds would have.

Q.20. In your responses to a question for the record from your 
confirmation hearing, you stated that you would ``work to 
improve liquidity for thinly traded stocks of smaller 
companies.'' \9\ Please describe how you intend to consider 
these concerns as part of your market structure review.
---------------------------------------------------------------------------
     \9\ Id. at #19.

A.20. We will take the liquidity concerns around thinly traded 
securities into consideration as we continue to review U.S. 
---------------------------------------------------------------------------
market structure.

Q.21. In your responses to a question for the record from your 
confirmation hearing, you stated that you would ``review . . . 
the SEC's proposed Exemptive Order issued last year that would 
exempt certain `finders' from broker registration 
requirements'' and determine if further action is appropriate. 
\10\ Please provide an update on your review of the proposed 
Exemptive Order.
---------------------------------------------------------------------------
     \10\ Id. at #21.

A.21. The regulatory status of ``finders'' has been a long-
standing issue in the area of broker regulation. The Commission 
received a wide range of comments in response to the proposed 
Exemptive Order. SEC staff are considering the comments 
received as they continue to evaluate potential appropriate 
---------------------------------------------------------------------------
next steps to recommend to the Commission.

Q.22. In your responses to a question for the record from your 
confirmation hearing, you stated that you would ``more 
thoroughly'' evaluate former SEC Chairman Clayton's December 
2020 letter to the SEC Asset Management Advisor Committee 
regarding ``Thoughts on the Future Progress of Private 
Investment Subcommittee''. \11\ This letter outlined ways that 
the SEC could expand retail investor exposure to private equity 
and venture capital, including through a diversified target 
date retirement fund. Please provide an update on your review 
of the ideas set forth in this letter.
---------------------------------------------------------------------------
     \11\ Id. at #22.

A.22. The Private Investments Subcommittee of the AMAC issued a 
Final Report and Recommendations on September 27, 2021. \12\ 
The staff from the SEC's Division of Investment Management is 
reviewing the final report and its recommendations, and I look 
forward to their input.
---------------------------------------------------------------------------
     \12\ Available at Final Recommendations and Report of the Private 
Investments Subcommittee (sec.gov).

Q.23. On June 1, 2021, the SEC's Division of Corporation 
Finance issued a statement stating that it would not recommend 
enforcement actions to the SEC based on the 2020 amendments for 
proxy voting advice businesses, entitled ``Exemptions From the 
Proxy Rules for Proxy Voting Advice''.
    Please explain why it is appropriate for recipients of 
proxy voting advice distributed by firms like Institutional 
Shareholder Services (ISS) and Glass Lewis to not receive 
disclosure about any conflicts of interest.
    Please explain why it is appropriate to exempt ISS, Glass 
Lewis, and other proxy voting advisory firms from possible SEC 
enforcement if they distribute fraudulent and misleading 
information in connection with their advice.

A.23. We have heard from market participants who use the proxy 
advisory firms about the rules' current and future possible 
impact on the independence, timeliness, and costs of the 
advice.
    Last Wednesday, November 17th, the Commission voted to 
propose amendments to these rules. Those proposals are tailored 
to address the independence, timeliness, and cost concerns 
raised by clients of proxy advisory firms and the confusion 
around sources of liability. The proposals would make no change 
to the conflict of interest disclosure requirements of the 2020 
amendments. The release further clarifies, but does not alter, 
the application of the antifraud provisions of our proxy rules 
to proxy voting advice. These proposals are now in the notice 
and comment process and we encourage the public to share their 
views with the Commission.

Q.24. To the extent that the Internal Revenue Code is amended 
to eliminate the current tax treatment for ETFs and their 
investors, will that reduce returns for long-term buy-and-hold 
investors that hold ETF shares in nonretirement accounts?

A.24. I understand that the Code currently does not require 
``regulated investment companies'' to realize capital gains 
when they distribute property in response to redemption 
requests and that the proposed amendment would remove this 
exception. Accordingly, the proposed amendment may change when 
a shareholder of an investment company that uses in-kind 
redemptions would recognize capital gains. This change is more 
likely to affect ETF shareholders than mutual fund shareholders 
because many ETFs use in-kind redemptions, while mutual funds 
generally do not.

Q.25. My office has received concerns that career SEC staff are 
waiting for direction from the SEC Chair's office before 
proceeding on no-action letters and similar requests involving 
technical interpretations of the Federal securities laws and 
SEC rules. In some cases, the requestors had been working with 
the SEC staff for a significant period of time. For example, my 
office is aware of one request for no-action relief involving 
the application of Sections 13 and 16 of the Securities 
Exchange Act of 1934 to authorized participants in connection 
with non-fully transparent active exchange-traded funds that 
have been already approved by the SEC. What steps are you 
taking to ensure that career SEC staff can resolve pending 
requests on such technical issues?

A.25. The Commission staff continues to review and issue no-
action and similar requests, with numerous requests processed 
in the last few months. As part of its review, the staff 
considers investor protection concerns as well as the 
complexity and the novel nature of the issues raised by the 
request. The staff continues working to expeditiously review 
pending requests and to complete its review in a manner 
consistent with the Commission's investor protection mandate.

Q.26. In May 2021, the Federal Housing Finance Authority (FHFA) 
finalized a rule that requires Fannie Mae and Freddie Mac 
(each, an ``Enterprise'') to develop plans to facilitate their 
rapid and orderly resolution in the event FHFA is appointed 
receiver. 86 FR 23,577 (May 4, 2021). These resolution plans 
are intended to, among other things, ``foster[] market 
discipline by making clear that no extraordinary Government 
support will be available to indemnify investors against losses 
or fund the resolution of an Enterprise.'' Id. at 23,580. 
Specifically, ``[i]n developing a resolution plan, each 
Enterprise shall: . . . [n]ot assume the provision or 
continuation of extraordinary support by the United States to 
the Enterprise to prevent either its becoming in danger of 
default or in default (including, in particular, support 
obtained or negotiated on behalf of the Enterprise by FHFA in 
its capacity as supervisor, conservator, or receiver of the 
Enterprise, including the Senior Preferred Stock Purchase 
Agreements entered into by FHFA and the U.S. Department of the 
Treasury on September 7, 2008, and any amendments thereto).'' 
12 CFR 1242.5(b)(2). Related to this, Treasury's Housing Reform 
Plan released in September 2019 recommended that ``[a] credible 
resolution framework can ensure that shareholders and unsecured 
creditors bear losses, thereby protecting taxpayers against 
bailouts, enhancing market discipline, and mitigating moral 
hazard and systemic risk.'' In light of FHFA's policy that, 
notwithstanding the Senior Preferred Stock Purchase Agreements, 
unsecured creditors of each Enterprise should be at risk of 
loss upon an insolvency event affecting the Enterprise, why 
should SEC regulations governing money market mutual funds, 
registration requirements, or other market activity continue to 
treat securities issued by the Enterprises in a manner similar 
to securities issued by the U.S. Treasury?

A.26. The Investment Company Act defines ``Government 
securities'' to include any security issued by the United 
States, or by a person controlled or supervised by and acting 
as an instrumentality of the U.S. Government pursuant to 
Congressional authorization. \13\ The Enterprises currently are 
in conservatorship, and FHFA, an agency of the U.S. Government, 
is the conservator of each Enterprise. \14\ If and when plans 
for ending conservatorship are developed, SEC staff would 
expect to consider any questions regarding the treatment of 
securities issued by the Enterprises under the Act and its 
rules as they arise.
---------------------------------------------------------------------------
     \13\ Investment Company Act 2(a)(16).
     \14\ The Enterprises are federally chartered housing finance 
enterprises whose purposes include providing liquidity, stability, and 
affordability to the residential mortgage market. See FHFA, Fannie Mae 
and Freddie Mac, https://www.fhfa.gov/about-fannie-mae-freddie-mac. 
FHFA was appointed by its Director as conservator of each Enterprise on 
Sept 8, 2008. See FHFA, History of Fannie Mae and Freddie Mac 
Conservatorships, https://www.fhfa.gov/Conservatorship/Pages/History-
of-Fannie-Mae-Freddie-Conservatorships.aspx.
---------------------------------------------------------------------------
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR MENENDEZ FROM GARY GENSLER

Q.1. Dodd-Frank Section 1504 introduced a disclosure 
requirement for mining, oil, and gas companies requiring them 
to disclose payments made to foreign Governments. The SEC 
issued a strong rule implementing this provision in 2016 which 
was then disapproved via CRA by Congress. In 2020, the SEC 
voted to implement a new, much weaker rule. In particular, the 
2020 rule fails to properly carry out the Congressional intent 
of fighting corruption and protecting investors. Additionally, 
the rule falls short of international standards and redefines 
the term ``project'' in a way that does not align with other 
jurisdictions.
    Given this, would the SEC commit to amending the 2020 rule 
to better align with global standards and meet Congressional 
objectives?

A.1. As noted in the 2021 Unified Regulatory Agenda, the 
Division of Corporation Finance is currently considering 
recommending that the Commission review the rules under Section 
1504 of the Dodd-Frank Act to determine if additional 
amendments to the rules might be appropriate. We are actively 
monitoring developments in this area.
                                ------                                


               RESPONSES TO WRITTEN QUESTIONS OF
             SENATOR CORTEZ MASTO FROM GARY GENSLER

Q.1. LIBOR--How will the SEC work with companies to prepare for 
the discontinuation of LIBOR and the transition to an 
alternative reference rate?
    Is action needed from Congress to ensure a smooth 
transition from LIBOR to an alternative rate?

A.1. SEC staff is actively working on the issue through 
engagement with the industry during meetings and examinations. 
The staff has published statements and risk alerts, including 
Staff Statement on LIBOR Transition (July 12, 2019), EXAMS Risk 
Alert--Examination Initiative: LIBOR Transition Preparedness 
(June 18, 2020), and Office of Municipal Securities Staff 
Statement on LIBOR Transition In The Municipal Securities 
Market (January 8, 2021). SEC staff participate in the 
Alternative Reference Rates Committee, including on accounting 
and regulatory issues, and routinely coordinate with domestic 
and foreign regulators.
    Federal legislation to address tough legacy USD LIBOR 
products, and to amend the Trust Indenture Act of 1939 (TIA), 
could help ensure a smooth transition from LIBOR to an 
alternative rate and lower the risk of disruptive litigation 
related to the transition--especially for those products with 
ineffective fallback provisions subject to indentures governed 
by the TIA.

Q.2. Processing Fees--Mutual funds pay ``processing fees'' to 
deliver prospectuses and other SEC-required documents to their 
investors. Some have raised concerns that the prices charged by 
these processing fee vendors is excessively high. \1\ Is the 
SEC looking into the ``processing fee'' framework and if not, 
will you commit to its review?
---------------------------------------------------------------------------
     \1\ Darbyshire, Madison; Temple-West, Patrick. `` `A True 
Monopoly': Fee Fight Reveals Heft of Wall Street Linchpin Broadridge''. 
Financial Times. August 24, 2021. https://www.ft.com/content/5f912194-
cd4e-424a-8d42-da3a98ca3836; Stoller, Matt. ''Other People's Money: The 
Email Monopoly Gouging Investors Over Shareholder Reports''. BIG. 
August 24, 2021. https://mattstoller.substack.com/p/other-peoples-
money-the-email-monopoly

A.2. Thank you for your interest in the ``processing fee'' 
framework. I agree that these are important issues. In fact, a 
New York Stock Exchange (NYSE) petition for Commission review 
of staff's disapproval of a NYSE proposal to remove the fee 
schedule from its rules is before the Commission. I'm looking 
forward to learning more about these issues and appreciate your 
engagement.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                       FROM GARY GENSLER

Q.1. The pandemic has changed how we live, work, and do 
business. This includes the SEC and the companies it regulates. 
These changes include regulatory relief extended as a practical 
matter due to the remote nature of work during the pandemic, 
such as inspections of home offices. What regulatory activities 
do you anticipate reverting to in-person as we reach our new 
normal, and what regulatory activities can continue to be 
conducted remotely?

A.1. Since the beginning of the pandemic, the Division of 
Examinations (EXAMS) has conducted examinations through 
correspondence to protect both the health and safety of its 
staff and those of SEC registrants. When it is safe to do, 
EXAMS expects to resume conducting examinations on-site, 
particularly where staff may benefit from in-person meetings 
and review of documents. EXAMS will likely continue to rely on 
correspondence examinations in certain instances such as where 
efficiencies can be gained from a remote presence. Further, in 
September, FINRA filed a proposed rule change with the 
Commission that would allow broker-dealers to continue to 
conduct branch office inspections remotely until June 30, 2022.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
                       FROM GARY GENSLER

Q.1. Environmental, Social, and Governance (ESG) based 
investing is the form of investing by which investment 
decisions are made based on a firm's environmental impact, its 
relationship with various communities and social agendas, and 
management culture. From 1995 through 2018, the number of 
assets in funds with ESG criteria increased from $0.6 trillion 
to $12 trillion, an increase of 2,000 percent. More than half 
of all public pension funds are now invested with ESG criteria.
    I was concerned to learn that a recent study by the Center 
for Retirement Research at Boston College found that State 
mandates and ESG investing policies reduce annual returns by 70 
to 90 basis points. As SEC Chairman, you have clearly 
telegraphed the Commission's intention develop and implement 
mandatory climate risk investment disclosure by the end of 
2021.
    Based on the findings of the Boston College study cited 
above, would you agree that by making climate risk disclosures 
mandatory the SEC will be prioritizing a political agenda over 
financial returns for Americans saving for retirement?

A.1. Full and fair disclosure promotes efficiency, 
transparency, and competition in our markets, and is crucial to 
informed investment decision-making. It allows investors to 
decide what risks they wish to take.
    From time to time the SEC freshens up our disclosure 
regimes to reflect investor demands. Today, investors in our 
markets increasingly want to understand the climate risks of 
the companies whose stock they own or might buy. Thus, I have 
asked SEC staff to develop a proposal for climate risk 
disclosure requirements--to provide consistent, comparable, and 
decision-useful disclosures--for the Commission's 
consideration.
    In the asset management space, many funds these days brand 
themselves as ``green,'' ``sustainable,'' ``low-carbon,'' and 
so on. I've directed staff to review current practices and 
consider recommendations about whether fund managers should 
disclose the criteria and underlying data they use to market 
themselves as such.

Q.2. In the same Boston College study, one main factor that 
researchers cited as contributing to lower returns for funds 
with ESG criteria were the increased fees associated with ESG 
disclosures and investing. ESG disclosures and investing 
requires a tremendous amount of research and trading, research 
and trading which is often provided by a cadre of Wall Street 
banks, consultants, asset managers, and advisory firms. I fear 
that ESG investing may simply be another form of active trading 
aimed at bolstering Wall Street's bottom line.
    Rather than lining the pockets of Wall Street traders and 
banks through high ESG investment fees and expenses, wouldn't 
most Americans be better served putting their money into broad 
market index funds or other instruments with very low or no 
management fees?

A.2. All registered funds, including ESG-focused funds, are 
required to provide clear and robust disclosure of their fees 
and expenses in their registration statements. This information 
allows investors to compare fees and expenses across funds and 
make informed investment decisions. Earlier this year, the 
SEC's Office of Investor Education and Advocacy issued an 
Investor Bulletin providing investors with information about 
ESG funds. The bulletin encourages investors to ask questions 
before investing in ESG funds and carefully read all of the 
fund's available information. When selecting an investment 
product, investors should make sure they understand the fees 
and expenses they will pay for a fund. The bulletin also 
reminds investors that they should compare the fees and 
expenses of an ESG fund to other available investment options.

Q.3. Digital assets are a new and exciting technological 
development that holds the potential to transform not just the 
finance industry, but also energy, logistics, art, and so many 
others. I know you have a background and understand the 
potential of this emerging technology sector.
    As policymakers, we must ensure the United States remains a 
leader in the world for technology and financial innovation. 
Despite this, I noted that there are no proposed rulemakings on 
the SEC's most recent Unified Agenda related to digital assets. 
For these reasons, I'm perplexed by several of your recent 
recent public announcements and actions taken by the SEC 
regarding cryptoregulation.
    Rather than releasing clear and transparent rules of the 
road for the industry, does the SEC plan to regulate via 
enforcement and one-off private staff guidance to stakeholders?

A.3. I support innovative developments in our capital markets. 
Before starting at the SEC, I had the honor of researching, 
writing, and teaching about the intersection of finance and 
technology at the Massachusetts Institute of Technology. In 
that work, I came to believe that, though there was a lot of 
hype masquerading as reality in the cryptofield, Satoshi 
Nakamoto's innovation is real. Further, it has been and could 
continue to be a catalyst for change in the fields of finance 
and money.
    While I'm technology-neutral, I am anything but public 
policy-neutral. As new technologies come along, we need to be 
sure we're achieving our core public policy goals. In finance, 
that's about protecting investors and consumers, guarding 
against illicit activity, and ensuring financial stability.
    I also believe that innovation should not be used to 
circumvent the important investor and market protections that 
are at the heart of the SEC's mission--protecting investors, 
maintaining fair, orderly, and efficient markets, and 
facilitating capital formation. Innovation in our capital 
markets has been ongoing over many decades and such innovation 
facilitates new and effective ways to invest, trade, and raise 
capital. As innovation in financial products and markets 
further develops, we will continue to foster that development 
while assuring compliance with the Federal securities laws.

Q.4. As we discussed during the hearing, over the last decade 
technological advancements and innovation have spurred 
competition among retail brokers, lowering costs and barriers 
to entry for retail investors. This has resulted in a younger 
and more diverse group of Americans reaping the benefits of 
stock ownership--many of them for the first time.
    The existing rules regulating the markets have worked well 
to both foster and keep up with the pace of innovation and 
competition in the marketplace. I remain concerned that the SEC 
may move prematurely, and without sufficient analysis or 
stakeholder input, to pursue proposals that would raise costs 
and curb retail investor access to the markets.
    Can you please provide additional details regarding the 
areas of regulation or market structure that, as SEC Chairman, 
you are encouraging the Commission to reexamine in an effort to 
ensure that the rules of the road are keeping pace with 
marketplace innovation?

A.4. We can't take our leadership in capital markets for 
granted. New financial technologies continue to change the face 
of finance for investors and issuers. More retail investors 
than ever are accessing our markets. Other countries are 
developing deep, competitive capital markets as well. Because 
of rapidly changing technology and business models, I think the 
SEC needs to look for opportunities to freshen up our rules 
related to market structure to continue to maintain markets 
that are the envy in the world.
    Ultimately, promoting fair, orderly, and efficient markets 
can help reduce the cost of capital for issuers and increase 
the rate of returns for investors across each of the markets 
the SEC oversees--Treasury markets, corporate bonds, municipal 
bonds, mortgage and other asset back securities, equity 
markets, and security based swaps amongst others. This helps 
contribute to economic growth and is a competitive advantage 
for our Nation.
    I recently addressed your core question--how we might 
reexamine regulation of market structure to ensure keeping pace 
with innovation--at a talk to the Securities Industry Financial 
Market Association. \1\
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     \1\ https://www.sec.gov/news/speech/gensler-sifma-110221

Q.5. During our conversation at this hearing, one of the issues 
we both strongly agreed upon was the importance of small 
business and entrepreneurship in empowering Americans to 
accumulate wealth and achieve long-term financial stability. In 
some of your previous appearances before Congress the issue of 
business development companies, or BDCs, have been discussed. 
As you're probably well aware, there's been longstanding 
bipartisan support to reform the rules that apply to BDCs so 
they can deploy more capital to small and businesses throughout 
the country and provide the opportunity for them to grow.
    One of these issues that's arisen is known as acquired fund 
fees and expenses, or AFFE. Essentially, AFFEs require a 
misleading disclosure about the actual cost of investing in 
BDCs and basically ``double counts'' investor expense. This 
creates an unintended consequence of harming both investors and 
small businesses by closing the door to increased investment.
    This effectively discourages investment into American small 
businesses. For example, after this rule was implemented, we 
saw a decline in the number of BDCs available to invest it, 
resulting in a massive decline in investment and as such a 
decline in small business growth.
    This has harmed both BDC investors and their portfolio 
companies and has had a negative economic effect in areas that 
have a large BDC presence, like South Carolina.
    Please answer the following with specificity:
    We know that BDCs play a vital role in providing 
opportunities for investors to help encourage small business 
growth. What can you tell us about the SEC's agenda to remove 
disincentives to invest in BDCs at this point?
    Last year the SEC proposed a rulemaking that would have 
provided at least a partial fix for the AFFE problem, however 
there is bipartisan support for the SEC to go further and 
ensure that BDCs can be re-included in indices. What is the 
SEC's plan for finalizing this proposal and is your goal to 
facilitate institutional investment in BDCs?

A.5. The Commission has an outstanding proposal addressing 
AFFE, among a number of other disclosure topics. Specifically, 
the proposal would permit funds, including BDCs that make 
limited investments in other funds to disclose AFFE in a 
footnote to the fee table and fee summary, rather than as a fee 
table line item. Comments on the proposal have been mixed, with 
some supporting and others opposing the proposed changes. The 
staff is reviewing the comments received, and I look forward to 
engaging with the team and my fellow Commissioners on this 
topic.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                       FROM GARY GENSLER

Q.1. Mr. Gensler, citizens and entrepreneurs alike are 
concerned the SEC will disrupt the domestic operation of the 
burgeoning crypto industry through ``regulation by 
enforcement.'' Considering the unique characteristics of crypto 
assets, namely the ability to engage with exchanges globally or 
with counterparties directly, do enforcement actions have the 
potential to do more harm than good to the investing public?

A.1. The SEC's Division of Enforcement is responsible for 
investigating potential violations of the Federal securities 
laws and regulations and prosecuting the SEC's civil suits in 
the Federal courts as well as the SEC's administrative 
proceedings. As currently operating, I believe that 
cryptosecurities markets that are not registered or exempt from 
registration are acting outside of, and in noncompliance with, 
laws that provide important investor and market protections. I 
have asked SEC staff, working with our regulatory and law 
enforcement partners, to use our current authorities to bring 
more investor protection to these markets, including by 
prosecuting violations of the law.

Q.2. Mr. Gensler, the SEC has been instrumental in developing 
U.S. capital markets into the global gold standard by 
addressing abuses such as market manipulation, insider trading, 
etc. Enforcement as a way to implement policy was effective, in 
part, because market actors fell under the same set of 
regulations, and citizens exclusively engaged the market 
through SEC regulated market actors. Cryptomarket structure, 
however, includes countless individuals and entities operating 
outside of the SEC's jurisdiction. Will the investing public be 
misled by the appearance that the SEC is the cop on this beat? 
More generally what, if any, assurances will the SEC be able to 
provide to citizens engaging with permissionless platforms?

A.2. The SEC's Division of Enforcement is responsible for 
investigating potential violations of the Federal securities 
laws and regulations and prosecuting the SEC's civil suits in 
the Federal courts as well as the SEC's administrative 
proceedings. As currently operating, I believe that the 
cryptosecurities markets that are not registered or exempt from 
registration are acting outside of, and in noncompliance with, 
laws that provide important investor and market protections. I 
have asked SEC staff, working with our regulatory and law 
enforcement partners, to use our current authorities to bring 
more investor protection to these markets, including by 
prosecuting violations of the law.

Q.3. Mr. Gensler, during the Senate Banking Committee hearing 
on oversight of the SEC, Senator Lummis inquired about 
responsible innovation. When you consider the breadth of 
products and services being deployed on permissionless 
blockchains, in your opinion do those products and services 
represent ``responsible innovation?''

A.3. I support innovative developments in our capital markets. 
Before starting at the SEC, I had the honor of researching, 
writing, and teaching about the intersection of finance and 
technology at the Massachusetts Institute of Technology. In 
that work, I came to believe that, though there was a lot of 
hype masquerading as reality in the cryptofield, Satoshi 
Nakamoto's innovation is real. Further, it has been and could 
continue to be a catalyst for change in the fields of finance 
and money.
    While I'm technology-neutral, I am anything but public 
policy-neutral. As new technologies come along, we need to be 
sure we're achieving our core public policy goals. For those 
who want to encourage innovations in crypto, I'd note that 
financial innovations throughout history don't long thrive 
outside of public policy frameworks. In finance, that's about 
protecting investors and consumers, guarding against illicit 
activity, and ensuring financial stability.
    I also believe that innovation should not be used to 
circumvent the important investor and market protections that 
are at the heart of the SEC's mission--protecting investors, 
maintaining fair, orderly, and efficient markets, and 
facilitating capital formation. Innovation in our capital 
markets has been ongoing over many decades and such innovation 
facilitates new and effective ways to invest, trade, and raise 
capital. As innovation in financial products and markets 
further develops, we will continue to foster that development 
while assuring compliance with the Federal securities laws.

Q.4. Mr. Gensler, are there unique opportunities for misuse or 
abuse of customer's crypto assets compared to traditional 
markets? For example, what consideration is the SEC giving to 
things like rug pulls, trading bots, and so-called 
``extractable value?''

A.4. The SEC's Division of Enforcement is responsible for 
investigating potential violations of the Federal securities 
laws and regulations and prosecuting the SEC's civil suits in 
the Federal courts as well as the SEC's administrative 
proceedings. As currently operating, I believe that the 
cryptosecurities markets that are not registered or exempt from 
registration are acting outside of, and in noncompliance with, 
laws that provide important investor and market protections. I 
have asked SEC staff, working with our regulatory and law 
enforcement partners, to use our current authorities to bring 
more investor protection to these markets, including by 
prosecuting violations of the law.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                       FROM GARY GENSLER

Q.1. I understand that mutual funds are forced to pay what some 
characterize as unreasonable ``processing fees'' to brokers 
just to have prospectuses and other SEC-required documents 
delivered to investors. These fees cost fund investors 
approximately $220 million annually, which reduces the returns 
of retail mutual fund investors--Americans saving for their 
retirement, their children's college education, and other 
important life goals. The SEC recently had an opportunity to 
reform the ``processing fee'' framework but opted instead to 
preserve the status quo. What steps might the SEC, under your 
leadership, take to right-size this regulatory system and 
protect the interests of retail fund investors?

A.1. Thank you for your interest in the ``processing fee'' 
framework. I agree that these are important issues. In fact, a 
New York Stock Exchange (NYSE) petition for Commission review 
of staff's disapproval of a NYSE proposal to remove the fee 
schedule from its rules is before the Commission. I'm looking 
forward to learning more about these issues and appreciate your 
engagement.

Q.2. You have previously stated that bringing ``greater 
transparency and resiliency'' \1\ to the U.S. Treasury market 
it is a priority of yours. I agree that the effort to 
strengthen the U.S. Treasury market should be a top priority. 
In a recent report released by the Group of Thirty, entitled 
``U.S. Treasury Markets; Steps Towards Increased Resilience'', 
\2\ leading market experts and academics endorsed increasing 
public post-trade transparency as a key step regulators could 
take to strengthen the Treasury market. Do you agree that steps 
should be taken to increase the post-trade transparency of U.S. 
Treasuries, bringing this market in-line with our stock, 
options, and corporate bond markets?
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     \1\ https://static.politico.com/f9/3e/
aa7bf5714cb19cea53a55c21a345/0623gensler-126251.pdf
     \2\ https://group30.org/images/uploads/publications/G30-U.S.-
Treasury-Markets-Steps-Toward-Increased-Resilience-1.pdf

A.2. As outlined in a recent speech at the U.S. Treasury Market 
Conference, there is much work that can be done to bring 
greater efficiency, competition and transparency; market 
integrity; and resiliency to the $23 trillion Treasury markets. 
\3\ The SEC plays a critical role in our overall efforts to 
improve the functioning of the Treasury market. I've asked 
staff to make recommendations for the Commission's 
consideration to freshen up our rules to reflect the state of 
the Treasury market today.
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     \3\ https://www.sec.gov/news/speech/gensler-us-treasury-market-
conference-20211117
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    One work stream relates to data quality. Currently, the 
Trade Reporting and Compliance Engine (TRACE), a facility 
operated by FINRA, facilitates the mandatory reporting of over-
the-counter transactions in Treasury securities. TRACE does not 
publicly disseminate any information about these individual 
transactions. Further, only broker-dealers that are registered 
with FINRA, however, report Treasury transactions to TRACE, 
leaving out major market participants like commercial banks and 
proprietary trading firms.
    I support the Fed's recently announced new rule requiring 
large banks to report transactions to TRACE. I've asked staff 
to continue to work with FINRA, the Department of the Treasury, 
and the Federal Reserve to consider further enhancements to 
TRACE. In part to help make the TRACE data set more 
comprehensive, I have directed the SEC staff to consider 
whether nonbank firms that significantly trade in the Treasury 
market should be registered as dealers with the SEC and 
required to become TRACE-reporting members of FINRA.

Q.3. Though many in industry have asked the Federal Reserve 
over the past several years to update the outdated margin 
eligibility rules under Regulation T (i.e., which securities 
are eligible to be held on margin), the Fed has yet to act. 
Without revised guidance, many established companies that are 
not traded on a national stock exchange, including hundreds of 
community banks across the U.S., are disadvantaged because 
their stock is not margin eligible. In the past, the SEC has 
exercised authority over the Federal Reserve's margin rules as 
applied to securities of foreign companies. Will the Commission 
consider working with the Federal Reserve, or issuing updated 
guidance, to review and modernize the margin requirements so 
that investors in qualified companies can take advantage of 
margin benefits?

A.3. I'm looking forward to working with you and your staff to 
learn more about this issue.

Q.4. As Americans work to rebuild financially following the 
COVID-19 pandemic, Congress and Federal regulators should look 
for ways to encourage capital formation. Unfortunately data 
reveals that the number of public offerings continues to 
decline, a trend already in place prior to the pandemic. Fewer 
companies go public and those that do, often do so later in 
their life cycle, depriving investors of alpha. Investors--
informed and able to make reasoned financial decisions--should 
be able to invest in private markets to access growth 
opportunities and diversify holdings with this asset class. 
Last year, the Commission took an important first step to 
expand the definition of accredited investor based on financial 
sophistication instead of a strict income or wealth-based test.
    Do you believe wealth and income is the only way a person 
should be able to qualify as an accredited investor?
    Will you commit to examining other metrics to allow 
investors to demonstrate financial sophistication and ability 
to assess risk, including the possibility of a test to 
determine financial sophistication?

A.4. Historically, the accredited investor definition has 
generally used wealth and income based criteria as proxies to 
determine those persons whose financial sophistication may 
render certain protections of the Securities Act's registration 
process superfluous.
    The Commission recently expanded the definition of 
accredited investor to provide additional measures for 
establishing an individual's financial sophistication that are 
not connected to their annual income or net worth.
    The Dodd-Frank Act directs the Commission to review the 
accredited investor definition at least every 4 years to 
determine whether the definition should be modified or 
adjusted. The next required review is due to be completed no 
later than 2023. I expect the Commission will carefully review 
both how effectively the wealth- and income-based criteria of 
the accredited investor definition--along with the 
effectiveness of the recently adopted amendments--are serving 
their intended regulatory function and what impact any changes 
in those thresholds would have.

Q.5. During the hearing last week you reiterated that major 
changes to equity market structure, including banning payment 
for order flow, are still ``on the table.'' If the SEC intends 
to ban PFOF, will you commit to considering and analyzing 
alternatives to such a ban before moving forward?

A.5. I have not reached any conclusions with regard to equity 
market structure and have asked the staff to develop 
recommendations for consideration by the Commission. In this 
regard, I've asked staff to consider: how do we facilitate 
greater competition and efficiency on an order-by-order basis--
when people send each order into the marketplace? I've asked 
staff to consider whether shrinking tick sizes, reevaluating 
what is included in the National Best Bid and Offer, enhancing 
disclosure, or leveling competition between trading venues and 
wholesalers could increase transparency and competition. I've 
asked staff to consider the potential conflicts of interest in 
the context of payment for order flow and on-exchange use of 
rebates. Further, such review includes consideration of 
enhancements of rule 605 with regard to order execution 
information.

Q.6. During last week's hearing, you stated that the goal in 
equity market structure reform is to improve ``competition in 
the marketplace to lower the cost and raise the efficiency.'' 
Given possible reforms you have discussed--including allowing 
exchanges to execute in sub-penny increments and updating the 
``out of date measuring rod'' (or the NBBO) by which best 
execution is measured--could achieve the objectives of 
increased competition and efficiency, shouldn't we explore the 
impact of these ideas before contemplating out-right bans on 
business practices (like PFOF), which would clearly limit 
competition?

A.6. As noted above, I believe that our market structure should 
provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.7. You have previously stated that execution firms who 
transact off-exchange get valuable information about retail 
orders that other market participants do not have and as such, 
execution firms have an improper information advantage. You may 
be aware that every trade--regardless of execution venue--must 
be immediately reported to the public tape for market wide 
dissemination and incorporation into real-time price discovery. 
While we acknowledge that scale conveys operational benefits, 
your statements suggest that you are conflating operational 
scale with an improper information advantage that harms 
competition and retail investors. Can you please elaborate on 
the data and analysis you conducted on our U.S. Equities 
markets to make those statements, including a list of factors 
you are assessing and comparing to determine whether or not one 
firm has an information advantage over another?

A.7. As you note, executed trades in NMS stocks are publicly 
reported and disseminated. Certain off-exchange execution 
dealers that receive the great majority of retail investor 
orders, typically known as wholesalers, however, receive 
information earlier than or beyond what is publicly reported 
and disseminated. Examples of such additional information 
include: (1) information on investor orders prior to execution 
or cancellation, including the submission of nonmarketable 
limit orders that wholesalers typically route out to exchanges 
for execution, as well as investor ``stop loss'' orders (orders 
that are not executable until the stock price hits the stop 
price selected by the investor); and (2) the identity of the 
routing broker (typically a broker that focuses on retail 
investors) for executed trades. In contrast, the public reports 
of orders executed in the off-exchange market do not identify 
the wholesaler that executed the trade or the identity of the 
retail broker whose customer submitted the order.

Q.8. You have been critical of the PFOF model, contending that 
it presents inherent conflicts of interest for broker-dealers 
and that retail customers are harmed through inferior execution 
quality. It is my understanding that among the ways retail 
brokers cure the potential conflict is to require similar PFOF 
arrangements from all of their execution partners such that all 
pay the same rate and retail brokers similarly put all of their 
execution partners in competition against one another to 
compete on execution quality--not amount of PFOF. Thus, retail 
brokers award order flow based on the a market center's ability 
to consistently provide best execution as measured by a variety 
of factors including price improvement levels, size improvement 
levels, and service levels. According to filings made to the 
SEC by broker dealers, retail investors received over $3.6 
billion in price improvement dollars from execution firms in 
2020 as measured under current SEC Rule 605 metrics.
    Do you agree that retail brokers should route orders to the 
market center where they have the highest likelihood of 
obtaining the most favorable execution for their customers? 
Why? Why not?
    Do you agree that uniform payment rates adequately mitigate 
the theoretical conflict? Why? Why not?

A.8. I believe that our equity market structure should promote 
the opportunity for investor orders to receive best execution 
and have asked the staff to develop recommendations in this 
area. Retail brokers should route orders to the market center 
where they can be executed on the best terms reasonably 
available in the market, which is required of brokers pursuant 
to the duty of best execution they owe to their customers.
    Further, it is not clear that a uniform PFOF rate, as you 
describe it, adequately mitigates the conflict concerns raised 
by PFOF.

Q.9. Relatedly, are you familiar with the concept of ``size 
improvement''? That's where an execution firm fills an order 
for greater size than the size available at the NBBO. For 
example, a retail customer has an order for 1,000 shares, but 
there are only 300 shares being offered at the NBBO. The 
execution firm offers ``size improvement'' by executing the 
full 1,000 share order at or better than the NBBO, giving the 
customer a better price than she would have received if the 
order were sent to an exchange. I've been told that when you 
factor in both price improvement and size improvement, retail 
investors benefited to the tune of $11 billion in 2020. This 
amount is missing from the current Rule 605 reports due to 
shortcomings in Rule 605--a shortcoming which many folks, 
including exchanges, argue should be addressed.
    Do you agree that Size Improvement is a valuable benefit 
that retail receives today? Why? Why not?
    If retail orders are forced onto exchanges, where do you 
suppose the Size Improvement would come from?

A.9. I have not reached any conclusions with regard to equity 
market structure and have asked the staff to develop 
recommendations for consideration by the Commission. In this 
regard, I've asked staff to consider: how do we facilitate 
greater competition and efficiency on an order-by-order basis--
when people send each order into the marketplace? I've asked 
staff to consider whether shrinking tick sizes, reevaluating 
what is included in the National Best Bid and Offer, enhancing 
disclosure, or leveling competition between trading venues and 
wholesalers could increase transparency and competition. I've 
asked staff to consider the potential conflicts of interest in 
the context of payment for order flow and on-exchange use of 
rebates. Further, such review includes consideration of 
enhancements of rule 605 with regard to order execution 
information. Your query with regard to size improvement is 
amongst questions I've asked staff to consider when making 
recommendations.

Q.10. If the SEC were to ban PFOF, broker-dealers naturally 
would need to find alternative sources of revenue in order to 
run their businesses. I have a very difficult time 
understanding how a retail investor is better off paying $9.99 
or even $4.99 a trade than under the current framework where 
there is no commission for trading and retail investors receive 
very substantial price and size improvement from execution 
firms. Moreover, even if some brokers retained a zero 
commission model wouldn't you expect those revenues to be made 
up in less transparent ways like margin interest rates, lower 
interest rates on cash balances, inactivity fees, and other 
methods. What analysis have you and your staff done to 
determine how a return to commission-based trading will impact 
retail investors--especially lower-income investors? What data 
did you use?

A.10. I agree that transparency is a one of the SEC's important 
tools to promote competition in the U.S. equity markets. As 
noted above, I believe that our market structure should provide 
investor orders with an opportunity for the best possible 
execution. I have not reached any conclusions in this area and 
have asked the staff to develop recommendations for 
consideration by the Commission.

Q.11. On multiple occasions, you have pointed out that other 
jurisdictions, including Canada and the U.K. have banned PFOF 
and forced trading onto lit exchanges. In these statements, 
you've suggested that the investor experience in those 
jurisdictions is better as a result. Can you please elaborate 
on the data and analysis you conducted to make those 
statements, including a list of factors you are assessing and 
comparing to determine that retail investor execution quality 
is better in those markets compared to the U.S.?

A.11. I have noted that other jurisdictions have prohibited 
their brokers from accepting PFOF from off-exchange venues. 
Amongst key questions on which I have asked the staff to 
consider in developing recommendations is what we can learn 
from these other markets and how our market structure could be 
improved to provide an opportunity for retail investors to 
receive the best possible execution quality for their orders.

Q.12. There is substantial research out there suggesting that 
the investor experience is worse in jurisdictions that have 
implemented rules forcing trades to be executed on exchanges 
rather than requiring brokerages to route orders to the market 
centers that provide the most favorable execution for the 
investor. According to an analysis by the CFA Institute, in 
Canada retail investors' average price improvement dropped 70 
percent after such rule was adopted.
    Do you believe that forcing retail orders to go to 
exchanges--rather than requiring brokerages to route based on 
best execution--will achieve the best outcome for retail 
investors? Why? Why not?
    Do you agree that forcing retail order flow to exchanges 
will be a significant financial win for exchange operators at 
the expense of retail investors? Why? Why not?

A.12. Fair competition between market centers is essential for 
our market structure. I believe that our market structure 
should provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.13. You have made comments suggesting that the recent growth 
in ``off-exchange'' trading is harmful to investors, and that 
our equity markets would benefit from more trades being routed 
to lit exchanges. Do you agree that investors' orders should be 
executed wherever they are able to obtain the most favorable 
execution? Why? Why not?

A.13. As noted above, I believe that our market structure 
should provide investor orders with an opportunity for the best 
possible execution. With regard to the equity markets, I've 
asked staff to consider: how do we facilitate greater 
competition and efficiency on an order-by-order basis--when 
people send each order into the marketplace? I have not reached 
any conclusions in this area and have asked the staff to 
develop recommendations for consideration by the Commission.

Q.14. Under the current framework, retail brokers incentivize 
competition for order flow by rewarding execution firms that 
provide superior execution quality. Forcing more retail order 
flow to exchanges would remove this direct link which is 
necessary for brokers to hold execution firms accountable and 
thus would reduce the competition that drives the price and 
size improvement benefits that retail investors receive today.
    Do you agree that forcing retail orders on-exchange will 
reduce the retail brokers' ability to demand better price and 
size improvement benefits for retail investors? Why? Why not?
    Do you agree that forcing retail order flow to exchanges 
will be a significant financial win for exchange operators at 
the expense of retail investors? Why? Why not?

A.14. As noted above, I believe that our market structure 
should provide investor orders with an opportunity for the best 
possible execution. I've asked staff to consider: how do we 
facilitate greater competition and efficiency on an order-by-
order basis--when people send each order into the marketplace? 
I have not reached any conclusions in this area and have asked 
the staff to develop recommendations for consideration by the 
Commission.

Q.15. In addition, there is hard data showing that forcing 
trades onto lit exchanges does not result in better executions 
for investors. For example, data from the SEC's Tick Size Pilot 
showed that, for the category of securities that included a 
``Trade-At'' requirement that orders be executed on lit 
exchanges, spreads in fact widened more than other test groups. 
The same result flowed from similar ``Trade-At'' initiatives in 
other jurisdictions, such as Canada and Australia. What data 
and analysis do you have from our markets to suggest that the 
opposite outcome will occur in the U.S.?

A.15. As noted above, I believe that our market structure 
should provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.16. Chair Gensler, I am sure you would agree with me that the 
proliferation of low or no-commission online trading firms has 
greatly reduced the barriers to entry for retail investors to 
access the markets. Firms like Robinhood that introduced 
commission-free trading are responsible for attracting tens of 
millions of new investors to our markets who are saving for 
college, to buy a home, or for retirement. This phenomenon--
which was made possible by the current regulatory structure 
that promotes competition among a diverse array of market 
participants, including retail brokers and execution firms that 
compete for order flow--has often been called the 
``democratization'' of investing and has greatly promoted 
financial inclusion in the U.S. As you are considering 
potential changes to equity market structure, will you commit 
to me that you will refrain from pursuing any drastic changes 
that will threaten the substantial gains we have made in 
promoting financial inclusion?

A.16. New financial technologies continue to change the face of 
finance for investors and issuers. More retail investors than 
ever are accessing our markets.
    Promoting fair, orderly, and efficient markets can help 
reduce the cost of capital for issuers and increase the rate of 
returns for investors across each of these markets. This helps 
contribute to economic growth and is a competitive advantage 
for our Nation. Market integrity is about financial inclusion 
and fairness of the markets. Promoting inclusion and equal 
access facilitates greater competition among capital providers.
    As noted above, I believe that our market structure should 
provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.17. I am writing to ask if you have had a chance to review my 
letter submitted to you on June 9, 2021, regarding the harmful 
impacts that the proposed amendments to Rule 144 put forth 
under former Chairman Clayton will have on small businesses. 
Prohibiting the ``tacking'' of the time between the investment 
and the conversion in calculating the relevant holding period 
under Rule 144 for market-adjustable convertible loans and 
other convertible securities provided to unlisted public 
companies would lead to a significant decrease in capital.
    Have you and your staff had a chance to properly collect 
data and review how this proposed rule change could remove 
access to capital from the small and microcap markets
    What impact the disappearance of this capital will have on 
women and minority-owned businesses? If so, what are your 
findings on likely and possible adverse impacts?

A.17. Thank you for your continued engagement on important 
aspects of Rule 144. As noted in my prior reply to your letter, 
the staff is actively working on developing recommendations for 
the Commission concerning the proposed amendment to Rule 144. 
Currently, the staff is actively reviewing public comment 
submissions in response to a request for data or studies that 
would facilitate estimating effects on access to capital, as 
well as comments on all aspects of the analysis, including the 
number of small entities that would be affected by the proposed 
amendments, the existence or nature of the potential impact of 
the proposals on small entities discussed in the analysis, and 
how to quantify the impact of the proposed amendments.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR KENNEDY
                       FROM GARY GENSLER

Q.1. Chairman Gensler, you have previously stated that it is a 
priority of yours to bring ``greater transparency and 
resiliency'' to the U.S. Treasury market. I agree that the 
effort to strengthen the U.S. Treasury market should be a top 
priority.
    In a recent report released by the Group of Thirty, 
entitled ``U.S. Treasury Markets; Steps Towards Increased 
Resilience'', leading market experts and academics endorsed 
increasing public post-trade transparency as a key step 
regulators could take to strengthen the Treasury market.
    Do you agree that steps should be taken to increase the 
post-trade transparency of U.S. Treasuries, bringing this 
market in-line with our stock, options, and corporate bond 
markets?

A.1. As outlined in a recent speech at the U.S. Treasury Market 
Conference, there is much work that can be done to bring 
greater efficiency, competition and transparency; market 
integrity; and resiliency to the $23 trillion Treasury markets. 
\1\ The SEC plays a critical role in our overall efforts to 
improve the functioning of the Treasury market. I've asked 
staff to make recommendations for the Commission's 
consideration to freshen up our rules to reflect the state of 
the Treasury market today.
---------------------------------------------------------------------------
     \1\ https://www.sec.gov/news/speech/gensler-us-treasury-market-
conference-20211117
---------------------------------------------------------------------------
    One work stream relates to data quality. Currently, the 
Trade Reporting and Compliance Engine (TRACE), a facility 
operated by FINRA, facilitates the mandatory reporting of over-
the-counter transactions in Treasury securities. TRACE does not 
publicly disseminate any information about these individual 
transactions. Further, only broker-dealers that are registered 
with FINRA, however, report Treasury transactions to TRACE, 
leaving out major market participants like commercial banks and 
proprietary trading firms. I support the Fed's recently 
announced new rule requiring large banks to report transactions 
to TRACE. I've asked staff to continue to work with FINRA, the 
Department of the Treasury, and the Federal Reserve to consider 
further enhancements to TRACE. In part to help make the TRACE 
data set more comprehensive, I have directed the SEC staff to 
consider whether nonbank firms that significantly trade in the 
Treasury market should be registered as dealers with the SEC 
and required to become TRACE-reporting members of FINRA.

Q.2. I would like to ask you about a longstanding problem that 
needlessly reduces the returns of retail mutual fund 
investors--Americans saving for their retirement, their 
children's college education, and other important life goals. I 
understand that mutual funds are forced to pay excessive and 
unreasonable ``processing fees'' to brokers just to have 
prospectuses and other SEC-required documents delivered to 
investors. These fees cost fund investors approximately $220 
million annually. The SEC recently had an opportunity to reform 
the broken ``processing fee'' framework but preserved the 
status quo.
    What is the SEC going to do, under your leadership, to fix 
this broken system and protect the interests of retail fund 
investors?

A.2. Thank you for your interest in the ``processing fee'' 
framework. I agree that these are important issues. In fact, a 
New York Stock Exchange (NYSE) petition for Commission review 
of staff's disapproval of a NYSE proposal to remove the fee 
schedule from its rules is before the Commission. I'm looking 
forward to learning more about these issues and appreciate your 
engagement.

Q.3. It is widely accepted that one of the principal reasons 
for the 2008 financial crisis was inflated credit ratings from 
Credit Rating Agencies (CRAs). As a result of the crisis, the 
SEC was required to study and recommend a new model for how 
credit rating agencies should operate. If no model was adopted 
by the SEC, and independent board would recommend a solution.
    Given that the SEC has not recommended a new model for 
NSROs and other Credit Rating Agencies since Dodd-Frank became 
law more than 10 years ago, will you implement an independent 
board as prescribed by the Dodd-Frank Act's adoption of the 
bipartisan Franken-Wicker Amendment?

A.3. Weaknesses at credit rating agencies contributed to the 
2008 financial crisis, as the ``issuer pays'' model led to 
conflicts and potentially misaligned incentives. Section 939F 
of Dodd-Frank mandated that the SEC issue a report to Congress 
on its findings and recommendations regarding the credit rating 
process for structured finance products and various conflicts 
of interest. Additionally, Dodd-Frank provides the SEC 
rulemaking authority to address these conflicts of interest and 
directs the SEC to ``give thorough consideration to the 
provisions of the [Franken-Wicker amendment] . . . ''. As 
required under section 939F, the SEC issued a report to 
Congress titled ``Report to Congress on Assigned Credit 
Ratings'' in December 2012. As noted in the Spring 2021 Unified 
Regulatory Agenda, the Office of Credit Ratings is considering 
recommending that the Commission propose rules and amendments 
designed to address the conflicts of interest associated with 
the issuer-pay business model (i.e., the NRSRO receives 
compensation from issuers and obligors for rating the 
securities of the issuer or the obligor) and increase 
transparency and promote competition for the ratings of 
securities.

Q.4. As I have raised with your predecessors in the past, once 
fully operational, the Consolidated Audit Trail (CAT) will be 
the largest Government database of its kind, capturing all 
trading activity in equity securities and listed options in the 
U.S. as well as information on all individuals and institutions 
engaged in such trading. The CAT will ultimately hold data on 
100 million plus retail and institutional accounts. This 
massive database will be a major target for hackers and foreign 
enemies. Investors trust the U.S. stock market with their 
savings and expect that their privacy is protected by the firms 
where they hold their accounts. The SEC's CAT puts their 
privacy at risk by collecting personal information it doesn't 
need.
    Earlier this year I introduced the Protecting Investors' 
Personally Identifiable Information Act that would prohibit the 
Securities and Exchange Commission (SEC) from requiring brokers 
to submit investors' personally identifiable information and 
instead obtain this data by requesting it from the broker. To 
address the SEC's concern that such a process takes too long, 
the bill would require brokers to provide the data to the SEC 
within 24 hours.
    Do you agree that the approach in my bill is a better and 
safer approach to protecting investors' data than the one 
currently contemplated by the CAT?
    When do you intend to finalize Proposed Amendments to the 
National Market System Plan Governing the Consolidated Audit 
Trail to Enhance Data Security; Release No. 34-89632; File No. 
S7-10-20; RIN 3235-AM62, especially the sections that relates 
to the personal information the CAT can and cannot collect?

A.4. The protection of investors' personally identifiable 
information is critically important. The Commission previously 
issued relief that exempts the SROs from collecting or 
retaining the most sensitive data: (1) individual social 
security numbers and individual tax payer identification 
numbers; (2) dates of birth, and (3) account numbers. As a 
result of the relief, broker-dealers are required to report 
only ``phone-book'' type information: that is, name, address, 
and birth year. The Commission has proposed to codify the 
exemptive relief, and to adopt some additional protections for 
all CAT data, in the CAT Data Security Amendment. Commission 
staff are currently considering comments on the proposed 
amendments.

Q.5. It's been nearly 10 years since Allen Stanford's arrest 
for running the second largest Ponzi scheme in U.S. history and 
the collapse of Stanford Financial Group. Over 21,000 victims 
of Mr. Stanford's crimes, throughout the United States, have 
yet to be repaid in any meaningful way, collecting 11 cents on 
the dollar of the $7.2 billion swindled from them. These 
victims, who purchased what were marketed as safe Certificates 
of Deposit, are primarily working class families. These 
families continue to deal with the economic overhang and 
financial hardship inflicted upon them by the Stanford Fraud 
each and every day.
    Last year several Senators and I wrote to the SEC urging 
the Chairman to audit the books of the court appointed 
receiver, Ralph Janvey, who has proven to be dysfunctional, and 
demands high fees from victim's compensation, most recently a 
$300 fee deducted from the recovery amount to transfer funds 
into their bank accounts. The receiver has recovered $937 
million for victims, however total receiver fees and expenses 
incurred exceeds $210 million and is at least 38 percent of the 
amounts distributed to the wronged investors. This year, the 
receiver sought and was approved for a 42 percent hourly rate 
fee hike, and is further seeking approval for fees and expenses 
up to $2.5 million for the months of March and April 2021.
    I am constantly receiving complaints from my constituents 
about the lack of transparency of the receivership.
    What role does the SEC have in overseeing fees charged by 
the receiver, which have already exceed $210 million?
    Will you commit to reporting back on whether increased SEC 
oversight is meaningfully improving recoveries for victims?
    If increased oversight is not meaningfully improving 
recoveries, will you petition the Federal court in Texas for 
removal of the receiver?
    The core problem here is that the Securities Investor 
Protection Corporation (SIPC) refused to help these victims, on 
legal and technical grounds. Now I know the SEC sued SIPC and 
lost. I respect the SEC for trying to do right.
    What recommendations do you have for us, here in Congress, 
to fix this gross injustice?

A.5. The Receiver was appointed by the United States District 
Court for the Northern District of Texas, and he reports to the 
court. To be paid, the Receiver must submit, and the court must 
approve, detailed fee applications. While the SEC does not have 
formal oversight or audit authority over the Receiver, both SEC 
staff and the court-appointed Examiner closely monitor the work 
and fee applications of the Receiver. Our staff reviews and 
questions the Receiver's fee applications before they are 
filed, and has objected to prior fee applications. For example, 
the SEC objected to the recent increase in the Receiver's 
hourly rate, but the district court approved the increase 
anyway, over the SEC's objection. Should Congress determine 
that additional legislation is necessary to address similar 
challenges that might arise in the future, the SEC staff and I 
would be happy to work with your staff and you on possible 
legislation.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                       FROM GARY GENSLER

Q.1. You have previously stated that execution firms who 
transact off-exchange get valuable information about retail 
orders that other market participants do not have and because 
of this, execution firms have an improper information 
advantage. You may be aware that every trade--regardless of 
execution venue--must be immediately reported to the public 
tape for market wide dissemination and incorporation into real-
time price discovery. While we acknowledge that scale conveys 
operational benefits, your statements suggest that you are 
conflating operational scale with an improper information 
advantage that harms competition and retail investors.
    Can you please elaborate on the data and analysis you 
conducted on our U.S. Equities markets to make those 
statements, including a list of factors you are assessing and 
comparing to determine whether or not one firm has an 
information advantage over another?

A.1. As you note, executed trades in NMS stocks are publicly 
reported and disseminated. Certain off-exchange execution 
dealers that receive the great majority of retail investor 
orders, typically known as wholesalers, however, receive 
information earlier than or beyond what is publicly reported 
and disseminated. Examples of such additional information 
include: (1) information on investor orders prior to execution 
or cancellation, including the submission of nonmarketable 
limit orders that wholesalers typically route out to exchanges 
for execution, as well as investor ``stop loss'' orders (orders 
that are not executable until the stock price hits the stop 
price selected by the investor); and (2) the identity of the 
routing broker (typically a broker that focuses on retail 
investors) for executed trades. In contrast, the public reports 
of orders executed in the off-exchange market do not identify 
the wholesaler that executed the trade or the identity of the 
retail broker whose customer submitted the order.

Q.2. You have been critical of the PFOF model, contending that 
it presents inherent conflicts of interest for broker-dealers 
and that retail customers are harmed through inferior execution 
quality. It is my understanding that among the ways retail 
brokers cure the potential conflict is to require similar PFOF 
arrangements from all of their execution partners such that all 
pay the same rate and retail brokers similarly put all of their 
execution partners in competition against one another to 
compete on execution quality--not amount of PFOF. Thus, retail 
brokers award order flow based on the a market center's ability 
to consistently provide best execution as measured by a variety 
of factors including price improvement levels, size improvement 
levels, and service levels.
    According to filings made to the SEC by broker dealers, 
retail investors received over $3.6 billion in price 
improvement dollars from execution firms in 2020 as measured 
under current SEC Rule 605 metrics.
    Do you agree that retail brokers should route orders to the 
market center where they have the highest likelihood of 
obtaining the most favorable execution for their customers? 
Why? Why not?
    Do you agree that uniform payment rates adequately mitigate 
the theoretical conflict? Why? Why not?

A.2. I believe that our equity market structure should promote 
the opportunity for investor orders to receive best execution 
and have asked the staff to develop recommendations in this 
area. Retail brokers should route orders to the market center 
where they can be executed on the best terms reasonably 
available in the market, which is required of brokers pursuant 
to the duty of best execution they owe to their customers.
    Further, it is not clear that a uniform PFOF rate, as you 
describe it, adequately mitigates the conflict concerns raised 
by PFOF.

Q.3. Relatedly, I want to discuss ``size improvement,'' where 
an execution firm fills an order for greater size than the size 
available at the NBBO. For example, a retail customer has an 
order for 1,000 shares, but there are only 300 shares being 
offered at the NBBO. The execution firm offers ``size 
improvement'' by executing the full 1,000 share order at or 
better than the NBBO, giving the customer a better price than 
she would have received if the order were sent to an exchange. 
I've been told that when you factor in both price improvement 
and size improvement, retail investors benefited to the tune of 
$11 billion in 2020. This amount is missing from the current 
Rule 605 reports due to shortcomings in Rule 605--a shortcoming 
which many folks, including exchanges, argue should be 
addressed. We understand that your view is that retail orders 
should be forced onto an all-to-all exchange for order-by-order 
competition.
    Do you agree that Size Improvement is a valuable benefit 
that retail receives today? Why? Why not?
    If retail orders are forced onto exchanges, where do you 
suppose the Size Improvement would come from?

A.3. I have not reached any conclusions with regard to equity 
market structure and have asked the staff to develop 
recommendations for consideration by the Commission. In this 
regard, I've asked staff to consider: how do we facilitate 
greater competition and efficiency on an order-by-order basis--
when people send each order into the marketplace? I've asked 
staff to consider whether shrinking tick sizes, reevaluating 
what is included in the National Best Bid and Offer, enhancing 
disclosure, or leveling competition between trading venues and 
wholesalers could increase transparency and competition. I've 
asked staff to consider the potential conflicts of interest in 
the context of payment for order flow and on-exchange use of 
rebates. Further, such review includes consideration of 
enhancements of rule 605 with regard to order execution 
information. Your query with regard to size improvement is 
amongst questions I've asked staff to consider when making 
recommendations.

Q.4. If the SEC were to ban PFOF, broker-dealers naturally 
would need to find alternative sources of revenue in order to 
run their businesses. I have a very difficult time 
understanding how a retail investor is better off paying $9.99 
or even $4.99 a trade than under the current framework where 
there is no commission for trading and retail investors receive 
very substantial price and size improvement from execution 
firms. Moreover, even if some brokers retained a zero 
commission model wouldn't you expect those revenues to be made 
up in less transparent ways like margin interest rates, lower 
interest rates on cash balances, inactivity fees, and other 
methods.
    Do you agree that transparency is important to fostering 
competition among retail brokers? Why? Why not?
    What analysis have you and your staff done to determine how 
a return to commission-based trading will impact retail 
investors--especially lower-income investors? What data did you 
use?

A.4. I agree that transparency is a one of the SEC's important 
tools to promote competition in the U.S. equity markets. As 
noted above, I believe that our market structure should provide 
investor orders with an opportunity for the best possible 
execution. I have not reached any conclusions in this area and 
have asked the staff to develop recommendations for 
consideration by the Commission.

Q.5. On multiple occasions, you have pointed out that other 
jurisdictions, including Canada and the U.K. have banned PFOF 
and forced trading onto lit exchanges. In these statements, 
you've suggested that the investor experience in those 
jurisdictions is better as a result.
    Can you please elaborate on the data and analysis you 
conducted to make those statements, including a list of factors 
you are assessing and comparing to determine that retail 
investor execution quality is better in those markets compared 
to the U.S.?

A.5. I have noted that other jurisdictions have prohibited 
their brokers from accepting PFOF from off-exchange venues. 
Amongst key questions on which I have asked the staff to 
consider in developing recommendations is what we can learn 
from these other markets and how our market structure could be 
improved to provide an opportunity for retail investors to 
receive the best possible execution quality for their orders.

Q.6. There is substantial research out there suggesting that 
the investor experience is worse in jurisdictions that have 
implemented rules forcing trades to be executed on exchanges 
rather than requiring brokerages to route orders to the market 
centers that provide the most favorable execution for the 
investor. According to an analysis by the CFA Institute, in 
Canada, retail investors' average price improvement dropped 70 
percent after such rule was adopted.
    Do you agree that competition among market centers is 
essential to operating efficient and resilient markets? Why? 
Why not?
    Do you believe that forcing retail orders to go to 
exchanges--rather than requiring brokerages to route based on 
best execution--will achieve the best outcome for retail 
investors? Why? Why not?
    Do you agree that forcing retail order flow to exchanges 
will be a significant financial win for exchange operators at 
the expense of retail investors? Why? Why not?

A.6. Fair competition between market centers is essential for 
our market structure. I believe that our market structure 
should provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.7. You have made comments suggesting that the recent growth 
in ``off-exchange'' trading is harmful to investors, and that 
our equity markets would benefit from more trades being routed 
to lit exchanges.
    Do you agree that investors' orders should be executed 
wherever they are able to obtain the most favorable execution? 
Why? Why not?

A.7. As noted above, I believe that our market structure should 
provide investor orders with an opportunity for the best 
possible execution. With regard to the equity markets, I've 
asked staff to consider: how do we facilitate greater 
competition and efficiency on an order-by-order basis--when 
people send each order into the marketplace? I have not reached 
any conclusions in this area and have asked the staff to 
develop recommendations for consideration by the Commission.

Q.8. Under the current framework, retail brokers incentivize 
competition for order flow by rewarding execution firms that 
provide superior execution quality. Forcing more retail order 
flow to exchanges could remove this direct link which is 
necessary for brokers to hold execution firms accountable and 
thus would reduce the competition that drives the price and 
size improvement benefits that retail investors receive today.
    Do you agree that forcing retail orders on-exchange will 
reduce the retail brokers' ability to demand better price and 
size improvement benefits for retail investors? Why? Why not?
    Do you agree that forcing retail order flow to exchanges 
will be a significant financial win for exchange operators at 
the expense of retail investors? Why? Why not?

A.8. As noted above, I believe that our market structure should 
provide investor orders with an opportunity for the best 
possible execution. I've asked staff to consider: how do we 
facilitate greater competition and efficiency on an order-by-
order basis--when people send each order into the marketplace? 
I have not reached any conclusions in this area and have asked 
the staff to develop recommendations for consideration by the 
Commission.

Q.9. There is hard data showing that forcing trades onto lit 
exchanges does not result in better executions for investors. 
For example, data from the SEC's Tick Size Pilot showed that, 
for the category of securities that included a ``Trade-At'' 
requirement that orders be executed on lit exchanges, spreads 
in fact widened more than other test groups. The same result 
flowed from similar ``Trade-At'' initiatives in other 
jurisdictions, such as Canada and Australia.
    What data and analysis do you have from our markets to 
suggest that the opposite outcome will occur in the U.S.?
    Do you agree that forcing retail order flow to exchanges 
will be a significant financial win for exchange operators at 
the expense of retail investors? Why? Why not?

A.9. As noted above, I believe that our market structure should 
provide investor orders with an opportunity for the best 
possible execution. I have not reached any conclusions in this 
area and have asked the staff to develop recommendations for 
consideration by the Commission.

Q.10. There has been significant debate about the form that 
climate disclosures should take--mandates vs. guidance, 
prescriptive vs. principles-based, et cetera.
    What direction do you believe the Commission will take in 
the proposal and what types of modeling are you doing to 
determine which form will yield the most informative 
disclosures for investors?
    Will any of the various existing standards be used for 
mandatory ESG reporting (SASB, GRI, CDP)?
    As you know, the Task Force on Climate-Related Financial 
Disclosures is only a framework and not a reporting standard. 
Does the SEC plan to incorporate TCFD into mandatory reporting 
requirements and if so, how might this be structured into 
metrics reporting?
    Will mandatory reporting include verification and/or third 
party certification of reported elements? How has the SEC 
considered the cost of the increased burden of data gathering, 
verification, certification, and auditing?
    It is undeniable that climate and ESG disclosures more 
broadly may have global impacts, but several international 
jurisdictions are seemingly ahead of the U.S. and the SEC in 
promulgating reporting obligations and standards around climate 
change and ESG. To that end, how do you see the Commission 
becoming more engaged with global standard setters in the 
coming years, particularly in leadership roles since U.S. 
markets are the deepest and most liquid in the world?

A.10. Today, investors increasingly want to understand the 
climate risks of the companies whose stock they own or might 
buy. Large and small investors, representing literally tens of 
trillions of dollars, are looking for this information to 
determine whether to invest, sell, or make a voting decision 
one way or another. Investors are looking for consistent, 
comparable, and decision-useful disclosures so they can put 
their money in companies that fit their needs.
    I have asked the staff of the Division of Corporation 
Finance to develop recommendations for the Commission to 
consider. The staff are currently engaged in that process, 
including considering how best to structure any recommended 
disclosure proposals.
    As staff put together their recommendations, we have 
benefited from the input that the public submitted this spring. 
Among other frameworks and standards, many commenters referred 
to the Task Force on Climate-related Financial Disclosures 
(TCFD) framework. I've asked staff to learn from and be 
inspired by these external standard-setters. I believe, though, 
we should move forward to write rules and establish the 
appropriate climate risk disclosure regime for our markets, as 
we have in prior generations for other disclosure regimes.
    Our Division of Economic and Risk Analysis will conduct an 
economic analysis that will carefully consider the effects on 
efficiency, competition, and capital formation along with 
investor protection of any proposal that the Commission 
considers.

Q.11. There is a longstanding problem that needlessly reduces 
the returns of retail mutual fund investors--Americans saving 
for their retirement, their children's college education, and 
other important goals. I understand that mutual funds are 
forced to pay excessive and unreasonable ``processing fees'' to 
brokers just to have prospectuses and other SEC-required 
documents delivered to investors. These fees cost fund 
investors approximately $220 million annually. The SEC recently 
had a clear opportunity to reform the broken ``processing fee'' 
framework and failed to do so, just leaving it as it is.
    What is the SEC going to do, under your leadership, to fix 
this broken system and protect the interests of retail fund 
investors?

A.11. Thank you for your interest in the ``processing fee'' 
framework. I agree that these are important issues. In fact, a 
New York Stock Exchange (NYSE) petition for Commission review 
of staff's disapproval of a NYSE proposal to remove the fee 
schedule from its rules is before the Commission. I'm looking 
forward to learning more about these issues and appreciate your 
engagement.

Q.12. In its request for information on climate disclosures 
promulgated by then-Acting Chair Allison Lee, the SEC included 
a question on whether disclosure requirements should extend to 
private companies. Specifically, question 14 posed the 
following question:
    ``What climate-related information is available with 
respect to private companies, and how should the Commission's 
rules address private companies' climate disclosures, such as 
through exempt offerings, or its oversight of certain 
investment advisers and funds?''
    In your view, does the SEC have the authority to regulate 
the disclosure activities of private companies?
    Does the SEC intend to promulgate rules or guidance that 
targets climate-related disclosures for privately held 
businesses?

A.12. Today, investors increasingly want to understand the 
climate risks of the companies whose securities they own or 
might buy. Large and small investors, representing literally 
tens of trillions of dollars, are looking for this information 
to determine whether to invest, sell, or make a voting decision 
one way or another. Investors are looking for consistent, 
comparable, and decision-useful disclosures so they can put 
their money in companies that fit their needs. I have asked the 
staff of the Division of Corporation Finance to develop 
recommendations for the Commission to consider to provide 
investors with decision-useful disclosures. The staff are 
currently engaged in that process.
    Over the last several decades, the Commission has adopted 
several rules to create safe harbors from registration 
requirements under Section 5 of the Securities Act. These 
regulations provide issuers with greater certainty than 
statutory exemptions alone. Many of these existing regulatory 
transaction and resale exemptions include disclosure 
requirements. Advisers to private funds also have disclosure 
obligations and antifraud liability.

Q.13. In June of this year, the SEC announced that it would 
reexamine and therefore not enforce the Proxy Advisor Rule that 
had been adopted by a majority of the Commission in July 2020 
following a meticulous and years-long process under the 
Administrative Procedure Act. The Proxy Advisor Rule was guided 
by efforts to increase transparency, quality, and 
accountability in the proxy advisory system in the United 
States.
    When does the SEC expect to announce further regulatory 
action related to the Proxy Advisor Rule?
    Could you describe how SEC staff will conduct an 
appropriate review of the rule given that the SEC has decided 
not to enforce the existing rule before it has gone into 
effect?
    How will the SEC's additional regulatory actions prioritize 
increasing the transparency, quality, and accountability around 
proxy advisor firms?

A.13. Although some parts of the 2020 rules are not yet 
effective, other parts have been effective since November 2020. 
We have heard concerns from market participants who use the 
proxy advisory firms about the rules' current and future 
possible impact on the independence, timeliness, and costs of 
the advice.
    Last Wednesday, November 17th, the Commission voted to 
propose amendments to these rules. Those proposals are tailored 
to address the independence, timeliness, and cost concerns 
raised by clients of proxy advisory firms and the confusion 
around sources of liability. The proposals would make no change 
to the conflict of interest disclosure requirements of the 2020 
amendments. The release further clarifies, but does not alter, 
the application of the antifraud provisions of our proxy rules 
to proxy voting advice. These proposals are now in the notice 
and comment process and we encourage the public to share their 
views with the Commission.

Q.14. News sources have reported that the SEC informed Coinbase 
that it would sue if Coinbase launched its cryptocurrency 
lending product, but has not disclosed the reasoning for its 
decision--either to Coinbase or the public.
    Appreciating that the SEC's mission is both ``to protect 
investors'' and ``maintain fair, orderly, and efficient 
markets,'' does the Commission have any plans to disclose its 
reasoning for barring lending products like the one proposed by 
Coinbase?
    Wouldn't the issuance of public guidance help prevent the 
development of products the SEC finds problematic?

A.14. I cannot comment on any particular product. To the extent 
that crypto asset platforms are offering or selling crypto 
assets that are securities or securities derivatives, or are 
engaging in other activities that involve securities, the 
Federal securities laws would apply. The definition of security 
is intended to be broad, in order to encompass new and 
different types of investments that are presented to investors 
and that need the protections of the Federal securities laws. 
Whether a particular instrument is within the definition of 
security is based on the facts and circumstances. As I have 
stated at the hearing, none of the significant crypto asset 
trading platforms are registered as securities exchanges with 
the SEC or are operating pursuant to an exemption from 
registration, such as the exemption for alternative trading 
systems. The SEC has been clear about how it applies the 
Federal securities laws in this area, as explained, for 
example, in the 2017 DAO Report and SEC settled orders.

Q.15. You indicated in your testimony that you are working with 
the CFTC and other Federal agencies on policy frameworks for 
digital asset issues.
    Could you be more specific on how you are working with the 
CFTC?
    Are other CFTC and SEC Commissioners involved in these 
discussions?

A.15. The SEC and CFTC work closely and collaboratively on a 
wide range of crypto asset-related issues. Both agencies have 
dedicated offices responsible for staying abreast of 
developments in the crypto asset space, and our respective 
staff communicate frequently about these developments. Our 
efforts are assisted further by our respective participation in 
broader interagency initiatives, such as the President's 
Working Group on Financial Markets, which worked on addressing 
issues related to stablecoins. The SEC and CFTC also both 
participate in multiple international bodies that are 
addressing crypto asset-related issues, such as the 
International Organization of Securities Commissions. Dating 
back to the Shad-Johnson accord, the SEC and CFTC have 
repeatedly been called on to address issues that implicate the 
unique and also the overlapping jurisdictions of each agency 
and, in response, we have worked collaboratively on areas where 
our authorities overlap. We will continue to closely 
communicate and work together to ensure the integrity and 
transparency of our financial markets.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR DAINES
                       FROM GARY GENSLER

Q.1. On August 27, the Securities and Exchange Commission (the 
Commission) issued a 78-page ``Request for Information and 
Comments on Broker-Dealer and Investment Adviser Digital 
Engagement Practices, Related Tools and Methods, and Regulatory 
Considerations and Potential Approaches; Information and 
Comments on Investment Adviser Use of Technology To Develop and 
Provide Investment Advice''. In addition to defining ``digital 
engagement practices'' (DEPs) for the first time, the 
Commission poses 91 categories of questions. The Commission 
also makes clear that these questions are ``not intended to 
limit the scope of comments, views, issues, or approaches to be 
considered.'' Furthermore, the Commission requests 
``statistical, empirical, and other data'' in response to its 
questions on the newly defined DEPs.
    This is an exceedingly broad request for information on a 
loosely defined topic that could be relevant to nearly every 
financial services company. I am concerned that the unusually 
short current 30-day comment deadline of October 1 is 
insufficient to allow thoughtful and data backed engagement 
with the SEC on this topic--and breaks with the Commission's 
own practice of providing a longer comment period for similar 
requests. For example, the SEC's March 15 request for public 
input on climate disclosure gave commenters 90 days to respond.
    Will you extend the comment period past the October 1 
deadline?
    Will you consider giving longer, more reasonable comment 
periods for RFIs in the future?

A.1. As you note, the comment period for the Request closed on 
October 1. To date, we have we received over 2,000 comments in 
response to the Request, including many responses from retail 
investors to our ``Feedback Flyer''. The Commission evaluates 
comment periods on a case by case basis consistent with the 
applicable law.
    Although the comment period has closed, we continue to 
welcome additional feedback, including statistical, empirical 
and other data, as we consider all of the comments and evaluate 
potential next steps.

Q.2. Can you provide an update on what the Commission has done 
to date, and what it is planning to do moving forward, to 
protect seniors from fraudulent scams?

A.2. Deterrence through strong enforcement action has been an 
important part of the SEC's efforts to protect senior 
investors, and the Division of Enforcement places a high 
priority on investigating frauds targeting seniors. For 
example, on February 4, 2021, the SEC announced charges against 
three individuals and their affiliated entities with running a 
Ponzi-like scheme that raised over $1.7 billion from over 
17,000 senior and other retail investors. In addition, the 
Division's Retail Strategy Task Force develops and implements 
strategies for identifying potential violations to uncover the 
types of misconduct that most affect individual investors, with 
a focus on data-driven approaches, and investigates cases that 
involve schemes targeting the most vulnerable members of the 
investing public, often including senior investors. With the 
Office of Investor Education and Advocacy, the Division also 
seeks to educate senior investors so they can better protect 
themselves, through investor outreach, including in partnership 
with AARP, and issuing alerts and bulletins to educate seniors 
and other investors.
    Finally, on June 15, 2021, in recognition of World Elder 
Abuse Awareness Day, the SEC, the North American Securities 
Administrators Association (NASAA), and the Financial Industry 
Regulatory Authority (FINRA) announced a training program to 
assist securities firms in identifying and reporting 
exploitative activity against seniors.
              Additional Material Supplied for the Record
              LETTER FROM AMERICAN SECURITIES ASSOCIATION

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