[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                         OVERSIGHT OF THE SECURITIES.
                           AND EXCHANGE COMMISSION

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 18, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-13
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]  


                              __________

                                
                    U.S. GOVERNMENT PUBLISHING OFFICE                    
52-391 PDF                  WASHINGTON : 2023                    
          
-----------------------------------------------------------------------------------     
                          

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas                EMANUEL CLEAVER, Missouri
TOM EMMER, Minnesota                 JIM A. HIMES, Connecticut
BARRY LOUDERMILK, Georgia            BILL FOSTER, Illinois
ALEXANDER X. MOONEY, West Virginia   JOYCE BEATTY, Ohio
WARREN DAVIDSON, Ohio                JUAN VARGAS, California
JOHN ROSE, Tennessee                 JOSH GOTTHEIMER, New Jersey
BRYAN STEIL, Wisconsin               VICENTE GONZALEZ, Texas
WILLIAM TIMMONS, South Carolina      SEAN CASTEN, Illinois
RALPH NORMAN, South Carolina         AYANNA PRESSLEY, Massachusetts
DAN MEUSER, Pennsylvania             STEVEN HORSFORD, Nevada
SCOTT FITZGERALD, Wisconsin          RASHIDA TLAIB, Michigan
ANDREW GARBARINO, New York           RITCHIE TORRES, New York
YOUNG KIM, California                SYLVIA GARCIA, Texas
BYRON DONALDS, Florida               NIKEMA WILLIAMS, Georgia
MIKE FLOOD, Nebraska                 WILEY NICKEL, North Carolina
MIKE LAWLER, New York                BRITTANY PETTERSEN, Colorado
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 18, 2023...............................................     1
Appendix:
    April 18, 2023...............................................    83

                               WITNESSES
                        Tuesday, April 18, 2023

Gensler, Hon. Gary, Chair, Securities and Exchange Commission....     4

                                APPENDIX

Prepared statements:
    Gensler, Hon. Gary...........................................    84

              Additional Material Submitted for the Record

McHenry, Hon. Patrick:
    Letter to Federal Reserve Vice Chair for Supervision Michael 
      S. Barr, FDIC Chairman Martin J. Gruenberg, Acting 
      Comptroller of the Currency Michael J. Hsu, and NCUA 
      Chairman Todd M. Harper from Chairman McHenry and Senator 
      Lummis re: SAB 121, dated March 2, 2023....................    96
Mooney, Hon. Alexander X.:
    SEC Memorandum dated October 13, 2022, ``The Inspector 
      General's Statement on the SEC's Management and Performance 
      Challenges, October 2022''.................................    99
    Washington Times op-ed by Representative Mooney, ``SEC's 
      uncharted territory focuses on activists, not investors,'' 
      dated April 18, 2023.......................................   131
Sessions, Hon. Pete:
    Letter to SEC Chair Gary Gensler re: Chair Gensler's response 
      to his September 20, 2022, letter re: Rapid Therapeutic 
      Laboratories Sciences, Inc. (RTSL) inquiry.................   135
    Response letter from Chair Gensler to Representative 
      Sessions' September 20, 2022 letter, dated December 2, 2022   137
    Letter to SEC Chair Gary Gensler re: Rapid Therapeutic 
      Laboratories Sciences, Inc. (RTSL) inquiry, dated September 
      20, 2022...................................................   138
Gensler, Hon. Gary:
    Written responses to questions for the record submitted by 
      Chairman McHenry...........................................   139
    Written responses to questions for the record submitted by 
      Representative Wagner......................................   152
    Written responses to questions for the record submitted by 
      Representative Donalds.....................................   155
    Written responses to questions for the record submitted by 
      Representative Rose........................................   165
    Written responses to questions for the record submitted by 
      Representative Barr........................................   168
    Written responses to questions for the record submitted by 
      Representative Nunn........................................   172
    Written responses to questions for the record submitted by 
      Representative Meuser......................................   203
    Written responses to questions for the record submitted by 
      Representative Steil.......................................   205
    Written responses to questions for the record submitted by 
      Representative Fitzgerald..................................   210
    Written responses to questions for the record submitted by 
      Representative Flood.......................................   215
    Written responses to questions for the record submitted by 
      Representative Davidson....................................   220
    Written responses to questions for the record submitted by 
      Representative Hill........................................   222
    Written responses to questions for the record submitted by 
      Representative Lucas.......................................   227
    Written responses to questions for the record submitted by 
      Representative Nickel......................................   232
    Written responses to questions for the record submitted by 
      Representative Torres......................................   235
    Written responses to questions for the record submitted by 
      Representative Nikema Williams.............................   236
    Written responses to questions for the record submitted by 
      Representative Gonzalez....................................   239
    Written responses to questions for the record submitted by 
      Representative Cleaver.....................................   240

 
                      OVERSIGHT OF THE SECURITIES.
                        AND EXCHANGE COMMISSION

                              ----------                              


                        Tuesday, April 18, 2023

             U.S. House of Representatives,
                    Committee on Financial Services
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:06 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick McHenry 
[chairman of the committee] presiding.
    Members present: Representatives McHenry, Lucas, Sessions, 
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, 
Hill, Emmer, Loudermilk, Mooney, Davidson, Rose, Steil, 
Timmons, Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, 
Flood, Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, 
Velazquez, Sherman, Meeks, Lynch, Green, Cleaver, Himes, 
Foster, Beatty, Vargas, Gottheimer, Gonzalez, Casten, Pressley, 
Horsford, Tlaib, Torres, Garcia, Williams of Georgia, Nickel, 
and Pettersen.
    Chairman McHenry. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``Oversight of the Securities 
and Exchange Commission.''
    And I will now recognize myself for 4 minutes for an 
opening statement.
    Chair Gensler, we welcome you before the committee. As you 
can see, we are under a new management and a new Congress, so 
please get comfortable. We expect to get through a lot today.
    Let's get started with digital assets. Under your 
leadership, the Securities and Exchange Commission has brought 
nearly 50 separate enforcement actions against digital asset 
firms, and now, your Agency is requesting an additional $78 
million to expand your enforcement agenda. At the same time, 
you have refused to provide clarity on whether digital assets 
offered as part of an investment contract are subject to 
securities laws and, more importantly, how these firms should 
comply with those laws. You are punishing digital asset firms 
for allegedly not adhering to the law when they do not know if 
it will apply to them. It is nonsensical. The Administration 
has said it, the Federal Reserve has said it, and I will say it 
again: Congress must provide clear rules of the road for the 
digital asset ecosystem because the regulators cannot agree.
    Regulation by enforcement is neither sufficient nor 
sustainable. Your approach is driving innovation overseas and 
endangering American competitiveness. The ranking member and I 
have worked for more than a year on this issue, and we will 
continue to work this Congress, but let me be clear: Our goal 
is to make a law, and we expect you to play a constructive role 
in that process.
    Next, we will discuss your overly-aggressive and very-
expensive rulemaking agenda. In the past 2 years, the 
Commission has proposed 53 new rules at a breakneck pace. That 
is twice as many rules as your predecessors, Mary Jo White and 
Jay Clayton, in the same amount of time. This raises serious 
concerns that the rulemaking process is being rushed, 
undermining the quality of our securities laws and risking 
unintended negative consequences. These concerns have been 
echoed by senior personnel at your own Agency, and they are 
similar to concerns raised while you were at the Commodity 
Futures Trading Commission (CFTC).
    Time and time again, you have cut the public out of the 
rulemaking process with unreasonably-short comment periods, 
even for major rules like your disastrous climate disclosure 
proposal, and equity market structure overhaul. You failed to 
justify these significant rules with thorough evidence, careful 
studies, and even cost-benefit analysis. I look forward to 
hearing why the Commission is rushing to make such dramatic 
changes in our public markets based on paltry economic analysis 
and limited public input.
    Finally, it appears that you have been so busy weaponizing 
the Securities and Exchange Commission to push your agenda that 
you have forgotten a key pillar of the Commission's statutory 
mission: capital formation. Unlike you, this committee is 
working to strengthen public markets, help small businesses and 
entrepreneurs, and increase market access for all investors to 
ensure the long-term growth and prosperity of this country.
    I will close with this: Chair Gensler, your responses to 
congressional inquiries have been unacceptable. You have a 
constitutional duty to conduct your business in your Agency, 
but we, too, have a constitutional duty to conduct oversight of 
your Agency. Under our jurisdiction, we intend to do that, and 
we will continue to do so aggressively, but it is your duty to 
respond and comply with congressional inquiries. If you 
continue to thwart this institution by ignoring our requests 
and providing incomplete responses, we will be left with no 
choice but to pursue all avenues to compel the information or 
documents that we need and that the American people need and 
deserve to see for themselves.
    With that, I yield back.
    The Chair now recognizes the ranking member of the 
committee, the gentlewoman from California, Ranking Member 
Waters, for 4 minutes for an opening statement.
    Ms. Waters. Thank you, Mr. Chairman. Good morning, and 
welcome, Chair Gensler. Right now, our financial system is 
still recovering from the sudden collapse of Silicon Valley 
Bank and Signature Bank, our nation's affordable housing crisis 
is worsening, and we are on the brink of a Republican-imposed 
debt default that will create unprecedented and untold levels 
of harm to the United States and the global economy. But, 
unfortunately, today's hearing is not focused on addressing any 
of those looming crises. Instead, we are here this morning 
because last Congress, Republicans threatened to do a big 
number on the SEC and Chair Gensler, and today is the start of 
them making good on that promise.
    This playbook is not new. Committee Democrats and the 
American public have seen it all before. Under the first 
Consumer Financial Protection Bureau (CFPB) Director, Richard 
Cordray, Republicans worked around the clock to harass the 
Agency with sham investigations, baseless subpoenas, and 
nonstop hearings, all in hopes of delaying or impeding the 
important work of the Agency. This is the same exact strategy 
they plan to use on the SEC, and, unfortunately, everyday 
people will pay the price.
    The SEC has, on average, provided over twice the legally-
required time for comment on its proposals to strengthen Wall 
Street's rules. And yet, Republicans claim that things are 
still moving too fast, and are joining industry's efforts to 
attempt to delay these long-overdue reforms. For example, 
Republicans are desperately trying to hamper the finalization 
of the SEC's rule on climate-based disclosures, which will 
finally provide the material information that investors have 
been asking for to evaluate how their investments will fare as 
climate change worsens.
    The SEC is also working to finalize rules to implement 
major market structure reforms that would increase 
transparency, promote competition, and address issues that 
arose during the GameStop events and were identified by 
investigations this committee led. Additionally, the SEC has 
proposed rules to require greater transparency for private 
equity and hedge funds, which are opaque, even though they have 
significant impacts on our economy and society.
    These reforms are not being rushed. They are long overdue, 
and this committee held several hearings and considered 
legislation addressing all of these issues. Meanwhile, 
Republicans are eager to rush forward with measures that would 
deregulate our capital markets. We just witnessed what Trump's 
deregulation means for the banking sector and financial 
stability as the collapse of SVB and Signature Bank threatened 
confidence across the banking system. I can't believe that this 
committee is rushing to take off more guardrails when we should 
be adding them.
    I would also like to applaud Chair Gensler and his staff 
for the forceful actions the SEC has taken in dedicating more 
resources to go after crypto criminals. This is a stark 
difference from the hands-off approach that the Republicans' 
SEC Chair took to mask noncompliance in crypto. In fact, under 
Chair Gensler, the SEC has nearly doubled the size of the unit 
responsible for protecting investors in crypto markets and from 
cyber-related threats since the recent bank failures and the 
fall of FTX and various crypto platforms.
    With that, I am going to yield back the balance of my time, 
because the Chair did not go over his time, and I will honor 
his notion here for me, too.
    Chairman McHenry. The Chair now recognizes the gentlewoman 
from Missouri, Mrs. Wagner, who is also the Chair of our 
Subcommittee on Capital Markets, for 1 minute.
    Mrs. Wagner. Thank you, Mr. Chairman. Chair Gensler, it has 
been 18 months since you have appeared before this committee. 
My colleagues and I look forward to discussing your Agency's 
overly-aggressive agenda that is, in fact, rushing through 
rulemakings at a frenzied pace, the likes of which we have not 
seen since the response to the 2008 financial crisis.
    However, your agenda is driven neither by congressional 
mandate--and let me underscore congressional mandate--nor by a 
widespread market failure like we saw in 2008. In fact, it 
remains to be seen what actual deficiencies the Commission 
seeks to address with its 53 new regulations. Even when a very 
brief or half-baked cost-benefit analysis is provided, it fails 
to consider the aggregate regulatory burden on retail 
investors, small businesses, and the capital markets, the bread 
and butter of the United States of America. These dramatic 
changes you are proposing will cause death by a thousand cuts 
to U.S. capital formation. I yield back.
    Chairman McHenry. The Chair now recognizes the ranking 
member of our Subcommittee on Capital Markets, the gentleman 
from California, Mr. Sherman, for 1 minute.
    Mr. Sherman. Chairman Gensler, thank you for working hard 
and getting things done and fulfilling the mandate given to you 
by the 1933 and 1934 Securities Acts and bringing them up-to-
date for the 21st Century. Thank you for getting information 
that investors who care about the environment will want. Thank 
you for standing up to the crypto-bro billionaires, an area 
where the multibillion-dollar frauds are just the beginning of 
the societal harm.
    Investor protection is not the antithesis to capital 
formation; it is the necessary antecedent. If we do not protect 
investors, capital will go to other markets. The private 
placements cannot swallow the whole idea of companies being 
public, and the idea that 2,000 shareholders should become 
2,000 shareholders of record through phony math that allows 
companies to have perhaps 10,000 beneficial shareholders and 
not be themselves considered public is something that needs to 
change. I yield back.
    Chairman McHenry. Today, we welcome the testimony of Gary 
Gensler, the Chair of the Securities and Exchange Commission. 
Chair Gensler, we thank you for taking the time to be here. You 
will be recognized for 5 minutes to give an oral presentation 
of your testimony. And without objection, your written 
statement will be made a part of the record.
    Chair Gensler, you are now recognized for 5 minutes.

STATEMENT OF THE HONORABLE GARY GENSLER, CHAIR, SECURITIES AND 
                      EXCHANGE COMMISSION

    Mr. Gensler. Good morning. Thank you, Chair McHenry, 
Ranking Member Waters, and members of the committee. Thank you 
for inviting me to testify. As noted in my written testimony, 
my views are my own.
    Walking into the Rayburn Building, I couldn't help but stop 
by the statue of Sam Rayburn, the longest-serving Speaker of 
this great House. His colleagues used to call him, ``Mr. Sam.'' 
You see, as Chair of the House Committee on Interstate and 
Foreign Commerce, he worked closely with President Roosevelt to 
establish the nation's first Federal securities laws in 1933 
and 1934. In fact, that 1934 Act was called the Fletcher-
Rayburn bill. Rayburn and Roosevelt were motivated by the lack 
of market integrity and disclosure. The markets were rife with 
fraud and manipulation. And they knew that market integrity and 
disclosure helps protect investors, builds trust in our capital 
markets, and, yes, lowers the cost of capital for issuers. This 
foundational work has been part of our nation's economic 
success and global standing ever since, but we can't take it 
for granted.
    Congress built on Rayburn's work in the 1970s and again in 
the 1990s to mandate that our Agency also consider efficiency 
and competition as well as capital formation in formulating our 
rules. As amended, this led to our often-said three-part 
mission around protecting investors, promoting fair, orderly, 
and efficient markets, and facilitating capital formation. In 
essence, it is about ensuring that our markets serve investors 
and issuers alike, but not the other way around. Investors and 
issuers do not serve the markets. It is about the issuers and 
the investors. And much of our work is basically focused on the 
middle, the markets, driving efficiency, integrity, and 
resiliency in the markets. And with regard to efficiency and 
competition, we have multiple projects, including, as further 
detailed in my written testimony, around equity markets and 
private funds.
    As it relates to integrity and disclosure, we also have 
multiple initiatives. The technology that I think is most 
transformative in our time is artificial intelligence. It is 
not crypto, as much as we are going to discuss crypto here 
today. And that is why I think that we have to have some 
projects in that area around robo-advising and brokerage apps 
and the conflicts that may be in predictive data analytics.
    But as to crypto, which I know will come up, simply put, 
investors in the crypto market should benefit from compliance 
with the same laws that Rayburn and Roosevelt laid out. It is 
the law; it is really not a choice. As to disclosure, the SEC, 
as designed by Rayburn and Roosevelt, is merit neutral. But we 
do have an important role with regard to ensuring full, fair, 
and truthful disclosure about material risks, and thus, we have 
disclosure projects, including regarding climate risk, cyber 
risk, and stock buybacks.
    And lastly, as to financial resiliency, lest we forget, 
risk in one corner of the market can spill out and hurt regular 
folks. Eight million Americans lost their jobs, millions of 
families lost their homes, and, yes, small businesses were 
shuttered after the 2008 crisis. Recent market events are just 
the most-recent reminder of this. That is why we have a number 
of projects around our U.S. Treasury markets, around investment 
funds, and around private funds.
    In summary, much of our work is about making the markets 
more efficient, more fair, and more resilient for the benefit 
of investors and issuers. We greatly benefit from public input 
and use it to make adjustments that staff and, ultimately, the 
Commission, thinks appropriate.
    Coincidentally, my dad was also sometimes called, ``Mr. 
Sam.'' He was the first of his family born in this country, and 
he ran a small vending machine business, never went to college, 
and the bar owners would call him, ``Mr. Sam.'' He was never a 
public figure. I can't believe I am saying in the same words, 
``Sam Rayburn'' and ``Sam Gensler.'' But he was a big believer 
in this system of democracy that we have, even things that we 
are going to go through today in this hearing. He was a 
believer that the American system could help him as a small 
business owner and as an investor, with the little bits of 
money he put to the side. So, I would hope that both, ``Mr. 
Sams,'' would think about the SEC's work to ensure that the 
markets serve investors and issuers alike, but not the other 
way around. It is not that the investors and issuers serve the 
markets or the market intermediaries in the middle.
    Thank you. I yield back.
    [The prepared statement of Chair Gensler can be found on 
page 84 of the appendix,]
    Chairman McHenry. Thank you, Chair Gensler. I will now 
recognize myself for 5 minutes.
    Ether is one of the most popular digital assets and powers 
the Ethereum blockchain. Back in 2018, then-SEC Corporation 
Finance Director Bill Hinman stated that he believed Ether was 
not a security. Last month, CFTC Chair Behnam expressed his 
view that Ether is a commodity. The State Attorney General of 
New York asserted in a court filing last month that Ether is a 
security. Clearly, an asset cannot be both a commodity and a 
security. Do you agree?
    Mr. Gensler. Actually, all securities are commodities under 
the Commodity Exchange Act. It is that we are excluding 
commodities, but I would agree that a security cannot be both 
an excluded commodity and an included commodity. I'm sorry, Mr. 
Chairman, just to talk about the Commodity Exchange Act more 
precisely.
    Chairman McHenry. Okay. So, how would you categorize Ether?
    Mr. Gensler. I think that the general sweep of what 
Congress did not just in the 1930s, but as a mandate----
    Chairman McHenry. I am asking you, sitting in your chair 
now, to make an assessment under the existing laws, is Ether a 
commodity or a security?
    Mr. Gensler. Without speaking to any one token, it is a 
matter of fact--
    Chairman McHenry. I know you have repeatedly said you are 
not going to speak to any one token, except you have spoken to 
one: Bitcoin. So, I am asking you to speak to a second one, the 
second-largest market cap here.
    Mr. Gensler. And speaking to the tokens, there are 10,000 
to 12,000. If there is a group of entrepreneurs in the middle--
--
    Chairman McHenry. I am asking about one.
    Mr. Gensler. ----that the public is anticipating a profit 
based on the----
    Chairman McHenry. I am asking you a specific question, 
Chair Gensler. I said this to you in private, so it should be 
no shock to you that I am asking this question: Is Ether a 
commodity or a security?
    Mr. Gensler. And again, it depends on the facts and the 
law, and if there is a group of individuals in the middle----
    Chairman McHenry. I am asking you about the facts and the 
law, sitting in your seat and the judgment you are making.
    Mr. Gensler. Mr. Chairman, I think you would not want me to 
pre-judge because I am also----
    Chairman McHenry. But you have pre-judged on this. You have 
taken 50 enforcement actions. We are finding out as we go, as 
you file suit, as people get Wells Notices on what is a 
security in your view and your Agency's view. I am asking you a 
very simple question about the second-largest digital asset. 
What is your view?
    Mr. Gensler. And my view is, is if there is a group of 
individuals in the middle that the public is anticipating a 
profit based on--
    Chairman McHenry. Okay. Let me just ask a second question 
then. Do you think it serves the market for an object to be 
viewed by the commodities regulators as a commodity and by the 
securities regulators as a security? Do you think that provides 
safety and soundness for the products? Do you think it provides 
consumer protection? Do you think it serves the value of 
innovation? I think, ``no,'' should be a very simple answer for 
you here.
    Mr. Gensler. I think----
    Chairman McHenry. That uncertainty is bad, is it not?
    Mr. Gensler. And I think that Congress has said that there 
is one Agency, the Securities and Exchange Commission, under 
this committee----
    Chairman McHenry. You won't answer my question and you are 
the head of that Agency, so give me a break. Come on.
    Mr. Gensler. I am answering it in the generic because you 
would not want me to speak about any one set of facts and 
circumstance----
    Chairman McHenry. Okay. But you have already spoken--have 
you said anything about Bitcoin?
    Mr. Gensler. My predecessors and the Agency itself have 
spoken to that.
    Chairman McHenry. Okay. But you are not willing to do the 
same about Ether?
    Mr. Gensler. I think----
    Chairman McHenry. Okay. Let me just step back. There is a 
lack of clarity here in the marketplace. Can you at least agree 
to that?
    Mr. Gensler. I think that the clarity is there. The law is 
clear that there is a group of individuals who rely on----
    Chairman McHenry. Let me be explicit about this. The market 
does not see it. Your regulatory actions and the CFTC's 
regulatory actions say that there is a great deal of 
uncertainty here. It is the intention of this committee to fix 
that uncertainty and actually provide sound legal basis for 
this, so let me get into your rulemaking process.
    You have proposed 53 rules in 2 years. Mary Jo White 
proposed 23, and Jay Clayton proposed 26. At the same time, 
your Agency has consistently provided less of a comment period 
than either of your predecessors. Just as one example, when the 
SEC made significant changes to the U.S. equity markets in 2005 
for regulation of National Market System (NMS) Securities, the 
Commission broadly solicited public feedback, held numerous 
roundtables, and issued White Papers and concept releases. Fast 
forward to today, you have proposed 4 equity market structure 
proposals that would impact millions of retail investors, and 
you have provided a mere 60 days of comments on 1,600 pages of 
regulations. Let me ask you this: Do shorter comment periods 
and less public interaction improve rulemaking?
    Mr. Gensler. The equity market structure rules had 105 days 
of comment from the time we voted it out through March 31st, 
but I think robust public input helps us greatly, and we take 
comments on our rules. Our average has been about 70-plus days 
overall, but we also get comments after the comment period----
    Chairman McHenry. I want to get into the cost-benefit 
analysis, but my time has expired. With that, I will recognize 
Ranking Member Waters.
    Ms. Waters. Thank you very much. Mr. Gensler, I would like 
to give you time to expand on your answer to Mr. McHenry and 
explain to him exactly how you define, ``securities,'' and 
``commodities.'' Please go right ahead.
    Mr. Gensler. A security by Congress' will has about 30-plus 
terms, and one of those terms is an investment contract, and 
the Supreme Court has addressed this multiple times over the 
years, and we as a Commission have addressed this in these 100-
plus actions that the Chair mentioned. I think there are 130 or 
so actions we have taken. And it is basically if the public is 
putting their hard-earned funds with entrepreneurs, promoters, 
and anticipating a profit, there is a four-part test, and it is 
a broad sweep. Thurgood Marshall said that Congress painted 
with a broad brush to protect the public, and the SEC is an 
Agency you all set up years ago as a disclosure-based Agency. 
We are merit neutral, but we are not neutral to full, fair, and 
truthful disclosure in crypto or elsewhere, and that is really 
the core.
    And is there a group of entrepreneurs in the middle who are 
working on that project, promoting that project, who have a 
website that the public looks to? Do they have Twitter accounts 
and handles? Do they upgrade the software, and is the public 
sort of reading about them? And, in fact, is there somebody who 
is even visiting you and they are hiring lawyers and sending 
them in to talk to us and so forth? Is there something there 
that the public is anticipating, a profit based upon those 
efforts?
    Ms. Waters. Thank you very much. Chair Gensler, I would 
like to ask a few questions about crypto. You have often 
suggested that we are witnessing mass noncompliance with our 
securities laws by crypto firms. However, crypto firms often 
suggest that their coins and activities are different and need 
a new statutory framework. Do you agree? And does the SEC have 
the authorities it needs to bring crypto issuers and 
intermediaries into compliance with the investor protection and 
market integrity framework built over the past 90 years?
    Mr. Gensler. Yes, I do believe that we have the authorities 
we need and the laws to protect the investors.
    Ms. Waters. Would you say that one more time?
    Mr. Gensler. Yes, I do believe that we have the laws and we 
have the authorities to oversee the crypto intermediaries, the 
crypto exchange----
    Ms. Waters. Are you exercising that authority now?
    Mr. Gensler. Yes, we are.
    Ms. Waters. Would you describe for this committee how you 
are doing that? I understand that you have engaged with a 
number of crypto firms. Is that correct?
    Mr. Gensler. We have. We talk to the crypto firms, some 
tokens, as to how they can register, but also these platforms. 
I have been around finance for over 40 years in one way or 
another, and I have never seen a field that is so noncompliant 
with laws written by Congress and affirmed over and over by the 
courts, but this is largely unfortunate for the investing 
public, a non-compliant field.
    Ms. Waters. Thank you very much. I am going to move on to a 
question about deregulating capital markets. As you know, this 
committee cares about increasing access to capital, 
particularly for small businesses. I, for example, have worked 
with Chair McHenry to pass legislation on crowdfunding and 
other innovative ways for startups and small businesses to 
raise capital. These are targeted approaches to supporting 
business growth and creating jobs.
    Some on the committee suggest, however, that deregulation 
is needed, but I do not see how deregulating capital markets is 
good for small business, job creation, innovation, or economic 
growth. Would you please explain whether or not you believe 
deregulation is needed?
    Mr. Gensler. I think that we benefit in this country by the 
markets and small businesses being able to raise capital in a 
well-regulated market that protects against fraud and 
manipulation. And the reason small business benefits is because 
it lowers the risk in the markets when you can lower the amount 
of fraud and manipulation, and you promote good transparency.
    Ms. Waters. Thank you very much. My time is almost up, but 
I just want you to reiterate whether or not you really have the 
authority to do what is necessary in dealing with the crypto 
markets. You said it twice. Say it a third time, please?
    Mr. Gensler. I think we do. We could use more resources, 
but I do think we have the authorities.
    Ms. Waters. Have you indicated what resources you need?
    Mr. Gensler. We have in congressional testimony to the 
House Appropriations Committee, and it is included in this 
testimony as well.
    Ms. Waters. Thank you very much. I yield back the balance 
of my time.
    Chairman McHenry. I will now recognize the Vice Chair of 
the committee, the gentleman from Arkansas, Mr. Hill, for 5 
minutes.
    Mr. Hill. Thank you, Mr. Chairman, and, Mr. Gensler, thank 
you for coming to be with us today. I want to continue to 
follow up on Chair McHenry's questioning. I will attempt to be 
more successful. In November 2021, the President's Working 
Group on Financial Markets released its report on stablecoins, 
which recommended that Congress enact legislation to establish 
a Federal prudential framework for stablecoins. Do you remember 
that report?
    Mr. Gensler. I do, sir.
    Mr. Hill. Is the SEC a member of the President's Working 
Group?
    Mr. Gensler. We are, sir.
    Mr. Hill. And did you support that recommendation of the 
President's Working Group?
    Mr. Gensler. I did.
    Mr. Hill. And do you think that Congress has been inactive 
on this topic?
    Mr. Gensler. As best I know, Congress has engaged with the 
Administration throughout the 2 years, so----
    Mr. Hill. You would call that active? Yes, we are looking 
for that framework, and you support us drafting a regulatory 
framework for payment stablecoins?
    Mr. Gensler. If I could say, I think that it is important 
to ensure that there is safety and soundness there. And if this 
committee and Congress were to address this through 
legislation, to ensure that we do not undermine our $100-
trillion capital markets, that we do not inadvertently somehow 
undermine what money market funds operate in this country or 
how other parts of the financial markets, and lastly, that we 
do not undermine both the CFTC's and SEC's authorities to go 
after fraud and manipulation because right now, the stablecoins 
are being used in the crypto ecosystem, and I think you really 
do want the SEC to be that cop on the beat in the crypto 
ecosystem.
    Mr. Hill. I am glad to hear you say that you support a 
regulatory framework. And I think those issues you raise have 
to be taken into account by the President's Working Group, and 
I think they have. I think those are addressed in their 
reports, and I think that is certainly the focus of hearings. 
And I am glad to hear, and I don't think I am putting words in 
your mouth, that you do support Congress attempting to create a 
regulatory framework for payment stablecoins. Is that fair?
    Mr. Gensler. I think with the guardrails of not undermining 
the $100-trillion capital markets, and remember also----
    Mr. Hill. We have your checklist.
    Mr. Gensler. Also, in the recent events in the markets, one 
of those stablecoins actually had over $3 billion at Silicon 
Valley Bank.
    Mr. Hill. I understand. That was a terrible decision by 
Silicon Valley Bank. We have already had a hearing on that 
subject, and I know we will have some more follow-ups on it. 
Let me ask you about the Consolidated Audit Trail (CAT), 
something that has plagued my existence for the 8 years I have 
served in Congress. I am on the record as not being a supporter 
of the CAT. Has the SEC issued the final rule on the 
Consolidated Audit Trail, to the best of your knowledge?
    Mr. Gensler. The rules are in place. We are still working 
on parts related to filings in front of us on funding and some 
amendments with regard to data security.
    Mr. Hill. Would it surprise you that some people in the 
brokerage community weren't aware that the CAT is actually 
already being collected as of December 31st? And are you aware 
that that data is already being collected?
    Mr. Gensler. We are actually, as a regulatory Agency, aware 
that it is being collected, transaction data is being 
collected, and we benefit from that.
    Mr. Hill. Are you concerned about the encryption of that 
data being inadequate?
    Mr. Gensler. I think as a government Agency, we should 
always be focused on data security, and data encryption is one 
of the pieces of data security.
    Mr. Hill. I would like for you to, if you would, respond in 
writing about the encryption of that and the protection of 
anything that would be considered personally identifiable 
information (PII).
    Let me turn to a different subject, which is the Treasury 
market. Right now, the Federal Reserve is shrinking its balance 
sheet and there is an unprecedented amount of Treasuries issued 
because of the avalanche in spending by the Biden 
Administration. Is the SEC a member of the Inter-Agency Working 
Group on Treasury Market Surveillance?
    Mr. Gensler. Yes, we are, sir.
    Mr. Hill. And yet, you have this proposal, which, as I read 
it, would say that people who are buyers of Treasuries could 
somehow be swept up and become dealers. Why are you proposing 
that an investor in Treasuries could suddenly become a dealer?
    Mr. Gensler. It is really under a law Congress passed in 
the 1980s after a lot of problems in the Treasury markets, but 
it is focused on parties that are facilitating buying and 
selling Treasuries, and making markets in those Treasuries in 
the markets to get them registered, whether they be high-
frequency traders or others that are active in the market--
    Mr. Hill. My time has expired. We will have to continue 
this conversation offline. Thank you, Mr. Chairman.
    Chairman McHenry. The gentlewoman from New York, Ms. 
Velazquez, is now recognized for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. Chair Gensler, I, 
like many people, was outraged by the reports that Silicon 
Valley and Signature Bank executives were receiving significant 
bonuses while simultaneously running their banks into the 
ground. Since becoming Chair, can you briefly explain the 
actions you have taken to address executive compensation issues 
amongst publicly-traded institutions?
    Mr. Gensler. Thank you. I am proud that we were able to 
complete two mandates from Congress in this area: one, that 
executive compensation needs to be clawed back if it is built 
upon erroneous financials; and two, that disclosure paid for 
performance. And also, we took up something around how insiders 
sell their stock and how they do this under the plans, and this 
was one of the proposals that we adopted last December as well, 
unanimously. It is about insiders selling their stock.
    Ms. Velazquez. In light of that response, as you know, 
Section 956 of the Dodd-Frank Act requires the SEC and several 
other Agencies to write rules to ban incentive-based executive 
compensation that encourages inappropriate risk-taking. It has 
been almost 12 years--12--since we passed the Dodd-Frank Act, 
and the SEC, like other required Agencies, still hasn't 
finalized this rule. So, what steps has the SEC taken under 
your leadership to finalize this important rule?
    Mr. Gensler. We have initiated discussions with the other 
five Agencies. We have to work with the bank regulators and the 
Federal Housing Finance Agency (FHFA) to do this, but I am 
committed to getting this done. We have to do it in 
coordination with the bank regulators.
    Ms. Velazquez. When, in another 12 years?
    Mr. Gensler. No, you are absolutely right. I came into this 
job 2 years ago, and there were eight mandates from Congress 
that had not yet been done out of Dodd-Frank. We have completed 
a number of those, and I am committed to completing this along 
with the the four bank agencies and the FHFA.
    Ms. Velazquez. Sir, it has been publicly reported that Greg 
Becker, the disgraced CEO of Silicon Valley Bank, sold $3.5 
million of Silicon stocks less than 2 weeks before the bank's 
collapse, raising questions about whether he ran afoul of 
insider trading laws. What actions has the SEC taken to 
investigate stock trading by bank executives leading up to the 
bank's collapse?
    Mr. Gensler. If I could step away from any one circumstance 
and say it is against the law to trade on material non-public 
information--whether you are at a company or you are just a 
private citizen, it is against the law, and we take that very 
seriously.
    Ms. Velazquez. What action has the SEC taken under your 
leadership to address insider trading generally?
    Mr. Gensler. Over the course of the last 2 years, we 
brought over 1,500 law enforcement actions. And we could get 
back to you and give you a list of those related to insider 
trading, but, unfortunately, more than one.
    Ms. Velazquez. Mr. Gensler, the S. 2155 legislation that 
passed in 2018 contained legislation I authored that extended 
the 1940 Investment Company Act to Puerto Rico and the other 
Territories. The legislation provided a 3-year spacing period 
for enforcement that could be extended for another 3 years at 
the discretion of the SEC Chair. I recently met with several 
investors from Puerto Rico who informed me that the SEC was not 
enforcing this statute. It has been almost 5 years since this 
became law. Is the SEC currently enforcing this statute, or has 
a second extension being granted?
    Mr. Gensler. Thank you for raising it. I think it was an 
important amendment to bring this under the Investment Company 
Act for Puerto Rico-funded companies. And if you are aware of 
anybody or want to tell us somebody that you think is not in 
compliance, that would be helpful to us, but we are enforcing 
all of the laws that are on the books of the SEC.
    Ms. Velazquez. We need to have a meeting, sir.
    Mr. Gensler. I look forward to that.
    Ms. Velazquez. Thank you.
    Chairman McHenry. The gentleman from Texas, Mr. Sessions, 
is now recognized for 5 minutes.
    Mr. Sessions. Mr. Chairman, thank you very much. Mr. 
Gensler, you started your conversation with this committee 
with, ``My views are my own.''
    Mr. Gensler. Yes.
    Mr. Sessions. Why did you say that?
    Mr. Gensler. Because it is part of our law that I always 
say that my views are my own; they don't represent the staff or 
my fellow Commissioners.
    Mr. Sessions. Do they represent the Agency?
    Mr. Gensler. I am here as the Chair of the Agency, but 
because I am a member of a five-member Commission, the 
Commissioner speaks as that Commission. And that is standard 
language that we include--
    Mr. Sessions. Standard language.
    Mr. Gensler. --in our speeches and our testimonies.
    Mr. Sessions. So, you cannot speak on behalf of the Agency? 
Why are you here?
    Mr. Gensler. As Chair of the Agency, to express my views as 
the Chair of the Agency.
    Mr. Sessions. Why didn't you say, ``I express the views as 
Chairman,'' as opposed to, ``my own?'' I don't understand that. 
When you say, ``my own,'' that is personal. Now, you are 
contradicting that and saying, ``as Chairman.''
    Mr. Gensler. Again, because it is written into our----
    Mr. Sessions. I think you ought to reevaluate that, because 
I think that is a complete cop-out, and that is why this 
committee is going to express its opinion to you today.
    Mr. Chairman, I would ask unanimous consent for a letter 
that I have sent to Mr. Gensler to be entered----
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Sessions. Mr. Gensler, you were kind enough and your 
staff was kind enough last year to engage me on an issue on 
which I asked for us to speak, I asked for us to try and get 
closer to an understanding, and which you have spoken about a 
couple times today in regards to the chairman. But perhaps 
issues about, well, these would not be appropriate in public 
forums to talk about. But almost every filing that companies 
make are public filings. They already are public. It already is 
known. And once again, I think you are trying to hide behind 
things for either a lack of willingness to be candid about it, 
or you are trying to obfuscate your oath of office, which was, 
``well and faithfully.'' This committee is not happy with that 
attitude or performance.
    I was told by you after we had had numerous discussions 
with your staff about a company that had a capital formation 
issue with millions of dollars at risk at the last minute based 
on their public filings that you would not respond at all or 
even discuss the matter with the company to try and alleviate a 
problem for the average number of days that it would take your 
Agency to respond. In other words, the Agency had to respond. 
You were simply a placeholder. You have no real responsibility. 
You have your own views, not the views of the management of the 
organization responsible. So, I would say to you today that 
there is a corollary.
    You talked about your father, so I am going to talk about 
my father. My father, who served as a Federal Judge for 14 
years, became the Director of the FBI under President Reagan. 
He recognized that the Agency had a problem that probably 
emanated from the Department of Justice. I am not going to 
blame the FBI. I am not going to blame the Department of 
Justice. I am saying the circumstance was there that they would 
not give credible information or deal with people whom they 
were indicting and charging.
    And my father changed that and said if you have reputable 
counsel that stands at the behest of a court, that a court 
could punish them for incorrect or unlawful behavior, 
inappropriate or unethical behavior. If you had a counsel who 
is of extreme confidence, then the Bureau would deal with you 
even on the most sensitive issues. I will tell you that one of 
the clients that I referred to you has extremely important and 
valuable confidence in their counsel, and you as an Agency have 
chosen to stonewall, obfuscate, and not do your job. I have 
sent you a letter, and I am asking you to respond back to this 
committee and to me about whether you are going to look at that 
when confronted by this committee, because I strenuously 
believe that you should have some authority and responsibility 
in that effort.
    Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman from California, Mr. 
Sherman, is now recognized for 5 minutes.
    Mr. Sherman. Chair Gensler, I am very pleased with your 
attitude and your performance, but my views are my own. I would 
like to speak for the gentleman from Texas, but he hasn't 
authorized me to do so. And the Chair of the committee says 
that we ought to have absolute clarity in this issue, and I 
agree with him, and we can achieve that if the Chair will work 
with me on legislation to say that all intangible investment 
assets, including all crypto, are securities. That way, it 
would be very clear that investors in crypto get the same 
protection as investors in stocks, bonds, and other intangible 
assets acquired for an investment purpose.
    The definition of, ``accredited investor,'' that we have 
now relates to the wealth of the investor or their income, 
which may have nothing to do with their sophistication and 
knowledge. And I look forward to working with others on this 
committee to have a definition of, ``accredited,'' that 
discards the idea of wealth and looks instead at knowledge, but 
also specifies that if you are going to participate in that 
kind of private placement, you don't put more than 5 percent or 
10 percent of your assets in any one basket. The definition of 
an, ``accredited investor,'' we have now is based on wealth 
levels set in the 1980s, which means they are completely out-
of-date and probably shouldn't be used at all.
    Mr. Chairman, you said to the Banking Committee a couple of 
years ago that, ``To the extent there are securities on these 
trading platforms, under our laws, they have to register with 
the Commission.'' So assuming that a particular crypto token is 
a security, if that is true, is an exchange where that security 
is traded a securities exchange?
    Mr. Gensler. Under the laws, if you meet the definition of 
an exchange and you have securities on that exchange, yes, you 
have to come in and comply and register and protect the 
investing public.
    Mr. Sherman. I heard you say earlier that no field in 
finance is so rampant with noncompliance. If there are those 
who are not complying with our securities laws, please shut 
them down as quickly as you possibly can. And I point out that 
the most famous crypto exchange was FTX, and it is now, of 
course, the most infamous exchange.
    Congress expanded from 500 all the way up to 2,000 the 
number of entities that can be beneficial owners and still have 
the company thought of as a private company. That is a lot: 
2,000 owners. But we have a huge loophole here where you could 
have dozens or hundreds of beneficial ownership entities 
counted as only one if they list the stock in street name. Do 
you have the authority, and will you move toward a definition 
of 2,000 that reflects 2,000?
    Mr. Gensler. I think you raise a good point, and I have 
asked staff for recommendations for the Commission's 
consideration really to ensure that Congress is well-informed 
about these numbers. The 2,000 number you reference in the Jobs 
Act really means 2,000, and how to look at, as you say, street 
name ownership that a broker might hold for hundreds of 
thousands--
    Mr. Sherman. I think you will find companies calling 
themselves private that have many, many thousands of beneficial 
owners, and that is not what the securities law calls for. 
Companies, when they file their 10-Ks every year, list the risk 
factors. One risk factor that is increasingly important is the 
risk of a disruption in the U.S.-China relationship or economic 
relationship. If investors got explicit information about that, 
that would protect investors. If companies had to fight for 
capital by demonstrating their resiliency, their ability to 
withstand such a breakdown, then our entire country would be 
more resilient and Taiwan would be more secure.
    Can you move forward to be more explicit and clear with 
companies that they need to disclose the risks to the company 
and hopefully what they are doing to ameliorate that risk of a 
possible breakdown in the U.S.-China relationship?
    Mr. Gensler. Under current rules, companies need to 
disclose material risks. And if they have operations and there 
are material risks related to any geopolitical area, not just 
the one you mentioned, they are obliged to disclose that.
    Chairman McHenry. The gentleman from Oklahoma, Mr. Lucas, 
is now recognized for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman, and Chairman Gensler, 
it is good to see you again.
    Mr. Gensler. It is good to see you, if I can call you Mr. 
Chairman as well.
    Mr. Lucas. Absolutely, and I always like to remind my 
friends here that we spent a great deal of quality time 
together at your previous posting at the Commodity Futures 
Trading Commission (CFTC) when I was the Chair of the 
committee. That said, I would like to begin by focusing on a 
proposed rule pertaining to security-based swaps.
    There is a consensus from market participants that the 
SEC's proposed rule to publicly disseminate large, security-
based swap positions would deeply harm liquidity, particularly 
in the credit market. And I will note that standing up a large 
position reporting regime for confidential regulatory purposes 
is sensible. As you know, for example, the CFTC has a large 
position reporting regime for futures, but that information is 
anonymous and aggregated. In November, I, along with my 
Democrat colleagues and Republican colleagues, sent a letter 
from the members of the committee regarding this proposal. We 
specifically asked that you support an approach that would 
require confidential reporting, noting the potential harm of 
putting sensitive position information out on the market. 
Chairman Gensler, have you carefully considered this bipartisan 
feedback, and will the SEC amend the proposal to reflect this?
    Mr. Gensler. I recall your thoughtful letter and the 
approach, and we are taking that into consideration. I think 
part of the motivation, as I understood it--Congress put this 
in the Act that you helped write--was not only for the official 
sector to have some information, the confidential information, 
but also, for some of that information to be in the public 
domain as well. And that is what we are sorting through, but 
your letter was helpful.
    Mr. Lucas. I look forward to your response because I think 
the issues that have been raised are very legitimate. As the 
chairman also discussed, the volume and breadth of SEC 
rulemaking is of significant concern to me. The implications of 
many of the proposed rules are massive and often affect the 
same or interconnected financial products and market sectors. 
The adverse consequences in one sector can bleed over into 
another, causing lasting economic harm.
    I would like to reflect on my time as Chair of the House 
Agriculture Committee. During the implementation process of 
Title VII of Dodd-Frank, the CFTC's rulemaking process seemed 
to be rushed and chaotic, which led to proposed rules that were 
poorly vetted. As a result, the CFTC routinely resorted to 
last-minute staff guidance, and no-action letters that were 
needed to modify new rules that simply weren't always workable. 
This patchwork approach circumvented the standard rulemaking 
process and lacked a real cost-benefit analysis. At the time, 
many of the proposed rules were required by Dodd-Frank. The 
same cannot be said today. Even still, the SEC is following the 
same, some would say flawed path.
    The proposed rules have a major impact on every asset class 
under the SEC's jurisdiction, with serious consequences for 
public companies, investors, and retirees. I recommend the SEC 
take great care to analyze and carefully consider the impact of 
draft rules. This way, you can avoid the rush to fix all of the 
unintended problems that were created. A thought to consider, 
Mr. Chairman, as we work through this process together.
    Mr. Gensler. Yes, I agree. We put these proposals together 
carefully, but we also benefit from the public comments. We 
benefit from hearings like this as well, and the letters that 
you send us to sort through. It generally takes over a year 
before we finalize something, and we take these meetings with 
market participants seriously and consider their thoughts.
    Mr. Lucas. I would just note, Mr. Chairman, that you have 
issued twice as many rule proposals in your first 2 years as 
the SEC Chairman (53), than former Chair Mary Jo White (23), or 
former Chair Jay Clayton (26), in their first 2 years, while 
providing 21 percent less time for public comments. I get the 
impression from personnel across the SEC that there are 
concerns about the high volume and the fast pace of this 
rulemaking. Let's try and get it right, not get it done in a 
hurry. With that, I yield back, Mr. Chairman.
    Chairman McHenry. The gentleman from Massachusetts, Mr. 
Lynch, is now recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. And thank you for your 
good work, Chairman Gensler. I appreciate the energy and the 
talents that you have put to work on behalf of investors. My 
friends on the other side of the aisle seem to be bemoaning a 
lack of regulatory clarity, and then in the same breath, they 
criticize the SEC's rulemaking efforts, which arguably would 
provide that clarity that they desire.
    Chair Gensler, in your testimony today you mentioned that 
there have been over 130 enforcement actions brought by the SEC 
against crypto firms that have either engaged in marketing 
securities without providing the necessary disclosures or 
failed to submit audited financials or investor protections 
that would allow investors to actually make a meaningful and 
informed decision regarding the crypto products or the 
underlying business. Chair Gensler, based on current law, of 
those 130 enforcement actions, how many have you won? How many 
has the SEC prevailed on?
    Mr. Gensler. Many of them are settlements, but of those 
that we have taken to court, we have won, on the Howey 
analysis, these token issues, 6 or 8 times. We have won on 
other matters in front of the courts as well, and so we have 
been quite successful throughout.
    Mr. Lynch. Okay. Am I correct in asserting that each of 
those cases went through a regulatory or a legal process or 
maybe even a judicial appeal, and that actually there are 
written decisions on each of those cases either by an 
administrator or by a court of law that do provide explicit 
guidance based on current law to other crypto and stablecoin 
firms to provide clarity and that actually lay out some rules 
of the road that should, you would think, guide other crypto 
firms and their actions?
    Mr. Gensler. You raise a very good point. Every one of them 
is a vote of a five-member Commission, sometimes run by Jay 
Clayton, sometimes I am honored to chair, but always a five-
member Commission and always with a written public document, an 
order, or a charging document.
    Mr. Lynch. And there is also a joint statement on crypto 
asset risks to the banking organizations from January 3, 2023, 
which lists 8 key risks associated with crypto assets that 
banks should be aware of, so there is a fair amount of guidance 
out there and clarity. It is just not the clarity that the 
crypto industry wants.
    Mr. Gensler. Absolutely. We have also been clear and we 
have been public as a five-member Commission with regard to the 
custody of crypto assets, about the exchange definition in 
crypto assets. We put some of this also out to public comment. 
But I agree with you, it is not a matter of a lack of clarity.
    I think this is a field that in the main has built up 
around noncompliance, and that is their business model. Even 
though it is not the law, they have chosen to be noncompliant 
and not provide investors with confidence, protections, and it 
undermines the $100-trillion capital markets. If there is one 
field of finance and investors get hurt, then it is going to 
undermine the small businesses, and everybody else raising 
money in the capital markets can get hurt by this field of 
noncompliance.
    Mr. Lynch. That is great. One of the things I worry about 
in this area is that crypto firms offer an amalgam of services 
that, in the traditional banking system and securities area, 
are ring-fenced. So, they do a lot of things such as exchange 
function, broker-dealer functions, custodial and clearing 
functions, and lending functions, and we have also seen 
comingling of investor funds. Can you talk about the risks that 
arise in that structure?
    Mr. Gensler. Absolutely. We separate these everywhere else. 
The New York Stock Exchange is not running a hedge fund trading 
against the people trading on that New York Stock Exchange, and 
here we have a field that comingles this and trades against 
their customers and doesn't give the proper disclosures. And we 
brought a number of cases, one settled, one litigated matter, 
with this regard.
    Mr. Lynch. Thank you. Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman from Florida, Mr. Posey is 
now recognized for 5 minutes.
    Mr. Posey. Thank you very much, Mr. Chairman. Speaking of 
crypto, commingling of funds or on that subject, prior to the 
collapse of FTX, did you have any concerns with the company or 
question if they were breaking any securities laws or harming 
investors?
    Mr. Gensler. I think, if I might, I had, since I have been 
in this job, a general concern about the field and, as 
expressed here today, about the noncompliance of this 
commingling of these various functions, and that they should 
come into compliance by separating exchange from broker-dealer, 
from what you might call a hedge fund function and other 
functions.
    Mr. Posey. With those concerns, did you direct your staff 
to look into FTX?
    Mr. Gensler. I want to stay at a little bit higher level, 
but I directed the staff to look into the crypto intermediaries 
and a wide range of crypto intermediaries, yes, sir.
    Mr. Posey. Okay. What did they find?
    Mr. Gensler. We filed a number of actions late last year, 
which are public actions with regard to Sam Bankman-Fried and 
FTX, which can be found on our website. But what we found in 
those actions as they show is we allege a number of violations 
of the securities laws.
    Mr. Posey. Yes. When did you think FTX was problematic? At 
what point?
    Mr. Gensler. Again, we filed these actions in December, and 
I think we filed follow-up actions in January because it takes 
time to develop an investigative file, and we follow the facts 
and the law. But I have given speeches and I have been clear 
with many members of this industry that right now, they need to 
come into compliance. We have one goal, which is to bring them 
into compliance and to stop commingling all of these functions, 
to stop using customer funds as if they are their own. It is 
like somebody who has their hand in the cash register, as they 
say, I want to take some money out of the cash register for the 
weekend, I will put it back later, and that is just not proper.
    Mr. Posey. How long after you met with FTX and investigated 
did you notify the public and the investors that there was----
    Mr. Gensler. Again, as we discussed earlier today, we 
protect anything we do in our examination function or 
investigative function. We protect that information and hold it 
confidential because it is important for the integrity of any 
investigation, but also for people's privacy, and often we find 
that we close investigations without bringing action. So, there 
is a time-tested reason that you, of course, would want us to 
keep things confidential, so we only make them public when and 
if we either settle or bring charges.
    Mr. Posey. I'm sad to hear that. The Inspector General 
found that your SEC is facing the highest attrition rate in 10 
years. How has the attrition rate affected your Agency's 
ability to regulate digital assets?
    Mr. Gensler. No, it is a very dedicated workforce. We have 
moved up to about 6-percent or 7-percent attrition, which is 
consistent with other financial regulators across the U.S. 
Government. I am really pleased to say that last week, in the 
Partnership for Public Service's rankings, we went up in the 
overall rankings. These are employee surveys done by outsiders. 
I think we are now third out of 27 mid-sized agencies, but in 
terms of digital assets, we could certainly use more resources. 
There are more things to look at and investigate than we have 
people on the staff to do.
    Mr. Posey. Okay. Thank you. Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman from Missouri, Mr. Cleaver, 
is now recognized for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. Chairman Gensler, 
thank you for your April letter, which I interpret to be a 
gentle reminder to Congress that we need to raise the debt 
ceiling, and I appreciate the fact that you clearly understand 
and recognize the importance of this. We have raised the debt 
ceiling 78 separate times since 1968, under both parties, 49 
times under Republicans and 29 times under Democrats. It is 
something we have to do.
    My first question is, do you think that the mere suggestion 
that we are not going to deal with the debt ceiling creates a 
problem for us economically, and to one of your 
responsibilities specifically, which is to maintain some level 
of order in the markets? Just a mere suggestion, just a mere 
threat, what does that do?
    Mr. Gensler. It puts a dose of uncertainty into markets, 
but it becomes particularly problematic the closer one might 
get to whatever deadline that is, and that is not our 
jurisdiction. That is others. And then if we were to go over 
said X date, it would really be one heck of a mess in capital 
markets, that is for sure. But it would undermine the base of 
our capital markets, U.S. Treasuries, or the risk-free part of 
our capital markets, and everything else is built on top of 
that.
    Mr. Cleaver. I was here in 2011 when there was a stalemate. 
We were not going to do anything, and we ended up, of course, 
averting the cataclysm. But we still did damage to the economy, 
because the gamesmanship caused us not to address this very 
serious problem. I guess we have failed once, at least, maybe 
more. You may be able to address our obligations. In 1812, we 
had the resources for a period of time, but since then, we have 
met our obligations. And I am really maybe obsessed with what 
could happen if we don't, and it is troublesome to me.
    I don't think you are old enough to remember a movie that 
came out in 1974 called, ``Blazing Saddles.'' It is one of my 
favorite movies, and should have won the Academy Award. But you 
may remember the scene--Gene Wilder is brilliant, but Cleavon 
Little played the role of a guy named Bart, and at one point in 
the movie, he is surrounded by people who are ready to lynch 
him. He takes out his gun and puts it to his own head, and he 
said, ``Get back or I will shoot.'' You probably don't want to 
say this. Is that what Congress is doing right now with the 
debt ceiling?
    Mr. Gensler. Being old enough to have seen the movie, I 
think I learned enough to say it is between Congress and other 
parts of the Administration--the Treasury Department, and the 
White House. I can just speak to the capital markets piece. On 
the capital markets piece, we have already seen some small 
bits. There are certain money market funds and other funds that 
are being careful about which short-term Treasury bills they 
buy. But if we were to get close to that X date, your 
proverbial visual that you just did from the movie from 1974, 
it is likely that we would start to see fraying, and less 
liquidity in the Treasury markets, which ultimately means 
higher cost to the taxpayers coming into that. And then, if we 
were to go over that default cliff, it would be, of course, 
unprecedented, but it would be one heck of a mess in the 
capital markets. It would hurt the equity markets, it would 
hurt the rest of the fixed-income markets, and it would ripple 
into the banking system as well, not to mention all of the 
money market funds.
    Mr. Cleaver. Thank you. I yield back, Mr. Chairman.
    Chairman McHenry. I like my colleague. I think we need to 
exchange movie lists. A lot of bipartisanship, that is true. 
With that, we will go to the gentleman from Missouri, Mr. 
Luetkemeyer, for 5 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Welcome, Chair 
Gensler. We certainly appreciate you being here today. And when 
I was talking to some friends of mine yesterday about your 
parents, they said, oh, EPA Director, and we both chuckled 
about that. But it makes the point that it seems as though your 
Agency has taken on a different mission, that you seem to be 
pushing an ESG agenda, which, in my mind, is something that is 
not in the best interest of or under your purview at the SEC. I 
will let my other colleagues get into that a little bit deeper, 
but I want to put something on the record with regards to that, 
and my first question deals with mortgage insurance-linked 
notes.
    According to the National Association of REALTORS, the 
average first-time homebuyer's down payment is 6 percent. In an 
environment of elevated interest rates and home prices, private 
mortgage insurance can make the difference between a family 
becoming homeowners or waiting years on the sidelines to amass 
a 20-percent down payment. But at the same time, private 
mortgage insurance protects taxpayers by standing in front of 
credit losses at the Government-Sponsored Enterprises (GSEs) in 
the event a borrower defaults on a low-down-payment loan. Like 
other insurers, private mortgage insurers must manage capital 
positions and risk exposures on an ongoing basis. Mortgage 
insurers are, in fact, encouraged by State regulators and the 
FHFA to manage that risk through the purchase of traditional 
reinsurance and through capital market structures, such as 
mortgage insurance-linked notes.
    However, the SEC's recently-repurposed conflict-of-interest 
rule may unintentionally restrict the ability of private 
mortgage insurers to utilize mortgage insurance-linked notes as 
a risk management tool because the rule does not define the 
term, ``synthetic asset-backed securitization.''
    Chair Gensler, as the SEC continues to work on the 
conflict-of-interest rule, will you ensure that the final 
regulation does not cause unintended harm to the residential 
mortgage market by limiting the ability of mortgage insurers to 
utilize critical capital and risk management tools like 
mortgage insurance-linked notes?
    Mr. Gensler. This real proposal is one of those, ``leftover 
mandates,'' that Congress had put in place 13 years ago in 
Dodd-Frank. So we put out a proposal to do that, which Congress 
said that if somebody was doing assets securitizations, they 
could not effectively trade against their investor clients, 
which is something Congress saw happening back in the 2008 
crisis. And we are committed to do that within the law, and 
obviously to take in the comments that you are talking about 
and sort through this.
    Mr. Luetkemeyer. Okay. Obviously, there are concerns about 
that, and I hope that you will be able to address those. With 
regards to the banking crisis that we have had recently, I 
think it is an instructive moment from the standpoint of things 
that we maybe were not thinking about before. We saw with this 
crisis, where somebody got on social media, and within less 
than 2 days, had a $42-billion run-off on the books as a result 
of a social media tweet and the follow-ups from that.
    That got me thinking about some concerns, and, in fact, 
this morning, the CEO for Charles Schwab, Walt Bettinger, 
voiced the same concern that I have been talking about for the 
last several days, which is about short selling. It would seem 
to me that if we have a situation where we have a lot of banks 
that are not very liquid right now, that there are some 
concerns that somebody could play some funny games with not 
just the banking industry, but our economy as a whole. It could 
be somebody trying to make money. It could be a foreign actor 
who wants to do something different to our economy.
    I guess my question really has two parts. Number one, do 
you have the ability to stop a short-sell problem that arises 
within the banking industry, for instance, based on its threat 
to the entire industry?
    Mr. Gensler. Both buying a security--going long, it is 
called--and shorting a security, are important parts of our 
capital markets and are legal. To go both long and short is a 
way to express and help capital markets work, so we facilitate 
that. What we guard against is people trading on material non-
public information, and we guard against people doing 
manipulative acts in the market.
    Mr. Luetkemeyer. My question is very simple: Do you have 
the authority to keep this abuse from happening, this 
manipulation from happening for the wrong reasons? I understand 
that it is part of the market structure, it is part of market 
investing. But if people were doing this to try and cause a run 
on the banks to undermine our economy, undermining the industry 
for their own profit, or as a foreign actor to do something, do 
you have the ability to stop that? That is my question.
    Mr. Gensler. We most definitely have the authority and the 
ability to go after fraud and against manipulation and 
capital----
    Mr. Luetkemeyer. My question is, do you have the authority 
to have an across-the-board ban on short selling so that you 
can stop this from happening?
    Mr. Gensler. I don't believe that Congress has given us 
that authority, sir. We are given authority to deal with 
individual acts of manipulation and chasing after fraud.
    Mr. Luetkemeyer. Okay.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Luetkemeyer. Okay. Thank you very much. I will yield 
back.
    Chairman McHenry. The gentleman from Connecticut, Mr. 
Himes, is recognized for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman, and welcome, Chairman 
Gensler. I don't have, ``Blazing Saddles,'' today, but I have 
Lionel Trilling. Lionel Trilling was an American critic, an 
intellectual who, in a book in 1950 called, ``The Liberal 
Imagination,'' said that American conservatism is not so much 
about ideas, it is, ``a series of irritable mental gestures 
which seek to resemble ideas.'' That was true in 1950. It is 
certainly true here today.
    And to illustrate that, the head-spinning irony of where 
you are sitting right now is that less than 3 weeks ago, the 
Federal Reserve, the FDIC, and the Treasury were sitting in 
those same seats in a hearing about the crumbling of Silicon 
Valley Bank, and to hear the Majority at the time, it was all 
their fault. They had done too little, and they had done it too 
slowly, something you might remember as you get accused of 
doing too much, too quickly. I promise you that when something 
goes wrong under your jurisdiction, you will be sitting back in 
that seat having done too little, too slowly. Now, never mind 
that Silicon Valley had one banker on their board of directors 
and zero bankers on their risk management committee. Never mind 
that the vast majority of their deposits were unguaranteed. 
Never mind any of that stuff. It was their fault. And I promise 
you, when something goes wrong under your jurisdiction, you 
will have done too little, too slowly.
    You have been accused of not being here. The Republicans 
have now been in the Majority for 100 days, and you are here on 
day 100. Did you receive an invitation from the Republican 
Majority prior to the invitation that brought you here today?
    Mr. Gensler. We worked with the Chair to come when he 
wanted me to be here.
    Mr. Himes. Have you said, ``no,'' to a Majority invitation 
to testify?
    Mr. Gensler. No, and whenever the Chair wants me here, I 
will be here.
    Mr. Himes. Okay. Having gotten that off my chest, I do have 
a serious question. I have long been concerned by the fact that 
an awful lot of our capital markets are migrating to private 
markets. You mentioned that in your testimony. You point out 
that the amount of liquidity in the private markets now 
actually exceeds the banking system in size.
    If you look at public versus private market offerings since 
2009, registered offerings are more or less flat since 2010 
anyway, and exempt offerings are really skyrocketing. The 
challenge there, of course, is that individual retail 
investors, by and large, cannot invest in private offerings. I 
worry that profitability and good deals will migrate to those 
private offerings, the accredited investors and institutional 
investors--that is a term of art for people with substantial 
amounts of money to invest--and retail investors will be left 
with an increasingly small set of opportunities to invest in 
the American capital markets.
    With my 2 minutes remaining, Chair Gensler, I think it is 
fair to consider the possibility that the regulatory structure, 
which I have long supported around public offerings, creates 
some arbitrage for issuers versus the exempt market. So, I just 
want to give you 2 minutes to reflect both on the proposals 
that you have made with respect to market structure, but also 
in the overall big picture, are there things that we can be 
doing along the lines of the JOBS Act or anything else that 
would hopefully reduce some of this arbitrage between the 
public and private equity markets?
    Mr. Gensler. I think that the American economy has 
benefited both by vibrant robust public markets and private 
capital markets. My dad never had to tap the private capital 
markets like those today, but he ran a small business with 30 
or 40 employees, and he didn't tap the public markets. I was at 
Goldman Sachs for many years before it was a public company, 
and I was at a big company that tapped only private markets, so 
I think both have a role to play.
    In terms of our regulatory agenda, what we are trying to 
bring is greater efficiency and competition in the asset 
management of private capital, these $20 trillion, $25 trillion 
of assets under management by hedge funds and private equity 
and the like, and through greater transparency of their fees, 
their performance and their side letters, where they might be 
having different deals.
    And this is really going to help the retirees in all of 
your States, because most of your States are invested in 
private equity and in hedge funds as limited partners. It helps 
the State Treasurers. It helps the endowment, so it helps the 
people behind that if we can bring greater competition in a 
field that probably has just 2 percent, and it would be half-a-
trillion dollars a year in revenues to the asset managers. This 
is what I meant earlier, that it is important that our capital 
markets work for investors and issuers, not the middle, maybe.
    Mr. Himes. My time has expired. Thank you, Mr. Chairman.
    Chairman McHenry. We will now go to the gentleman from 
Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman, and I am glad to see 
you here, Chair Gensler. And I do want to congratulate you on 
finally appointing a permanent Inspector General yesterday, a 
little late coming, in my opinion. But I am going to jump right 
in.
    In late February, Chairman McHenry, Senator Scott, and I 
sent you a request for documents and information on your 
climate disclosure rule. The fact is, other than a couple of 
emails that were private, you produced only publicly-available 
documents in response to that request. I am going to highlight 
a couple of those. You sent us a copy of the public comment 
file on the rule. You sent us a copy of the rule itself twice. 
You sent a copy of your testimony the last time you appeared 
before this committee. You sent us a copy of your public 
calendar. You sent us copies of public speeches, testimony, and 
press releases from you and your fellow Commissioners. You sent 
us a copy of a public Financial Stability Oversight Council 
(FSOC) report from 2021.
    And the most interesting and, frankly, dumbest example of 
this that we received to date is a copy of a letter that myself 
and Chairman McHenry sent you congratulating you as being 
confirmed as Chair in 2021. I have that one in my file already. 
So frankly, it is insufficient and, frankly, unacceptable what 
has been going on. I think it is an embarrassment to you and to 
your team that you sent me a copy of the letter I sent you as 
and then tried to call that responsive. That does not really 
make a whole lot of sense.
    And further, in your response letter to the chairman and 
myself, the SEC staff admitted that the proposed rule, ``could 
increase costs,'' related to energy prices under certain 
circumstances. But you provided no analysis, the actual 
information that we were looking for, not my letter to you 
congratulating you for becoming Chair. We wanted the analysis 
on how the Commission determined that. Did the SEC conduct an 
analysis of how this new climate disclosure regime could change 
energy prices before publishing the proposal?
    Mr. Gensler. We, under the law, focus on the costs and 
benefits----
    Mr. Huizenga. Did you conduct an analysis?
    Mr. Gensler. The analysis that we put out is in the 
proposal we put out last year about the economics with showing 
companies----
    Mr. Huizenga. So, you did do an analysis, okay, because it 
looks like that may have relied mostly on public comments to 
form your cost-benefit analysis.
    Mr. Gensler. I just want to make sure for the record, we 
did an analysis with regard to the costs. It is technically the 
efficiency competition and capital formation analysis, and it 
is out there in the public domain, and we have gotten feedback 
on that. We are not a climate regulator.
    Mr. Huizenga. Amen to that. We understand that. So, did you 
rely on any internal economic data or assessment to inform your 
cost-benefit analysis? In other words, did you, the SEC, 
perform any of that cost-benefit analysis internally?
    Mr. Gensler. The SEC looked at I think, over 6,000 public 
registration----
    Mr. Huizenga. So, that is a yes?
    Mr. Gensler. ----statements. Yes, there is a lot of 
analysis, and that is summarized and put out to public comment.
    Mr. Huizenga. Okay, and I would like to see those documents 
provided immediately. You are willing to do that, then?
    Mr. Gensler. I am a firm believer in congressional 
oversight. I know that I am not----
    Mr. Huizenga. Okay. That was previously requested, and you 
sent me a copy of the letter that I sent to you congratulating 
you. So, it sounds like we now have an understanding that you 
are going to actually send us your analysis.
    Mr. Gensler. I know that this----
    Mr. Huizenga. Yes or no?
    Mr. Gensler. I know that our staffs are working on this.
    Mr. Huizenga. We have a minute. Yes or no?
    Mr. Gensler. I believe in congressional oversight and----
    Mr. Huizenga. Okay. Moving on. I am taking that as a, 
``no.'' So, in this climate disclosure request, you responded 
to our FTX request solely with publicly-available documents. To 
date, 213 pages of those publicly-available documents are 
produced, and guess what? You didn't give us anything 
surrounding the charges filed against Sam Bankman-Fried. On 
April 12th, Chairman McHenry and I sent you a follow-up letter, 
and we were led to believe that the staff recommendation memo 
presented to the Commission for a vote on charges against Sam 
Bankman-Fried exists. Is that true? Is there a memo from the 
staff recommending to the Commission the charges with which Sam 
Bankman-Fried was ultimately charged?
    Mr. Gensler. Under standard practice, our Commission 
receives action memos from the staff whenever--
    Mr. Huizenga. So, it does exist?
    Mr. Gensler. We work on--
    Mr. Huizenga. So, it does exist. Okay. Well, you have not 
sent that to us. Your staff has, frankly, told us that it 
exists, yet you have not sent it.
    Mr. Gensler. When we conduct an investigation, we are 
obliged to keep investigative matters confidential.
    Mr. Huizenga. Hold on a second. Don't hide behind the DOJ, 
because then it sounds like I need to send letters to the DOJ 
and not to the SEC about the SEC charges. We will be following 
up with you after this. My time has expired.
    Chairman McHenry. A response to our questions would be 
appropriate. We will now go to Mrs. Beatty of Ohio for 5 
minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, thank you, Ranking 
Member Waters, and thank you to our witness today, Mr. Gensler. 
Thank you also for responding to us and taking the time to talk 
to me about the SEC and meet with our team and for being here 
today.
    Kind of staying in this same questioning with the climate 
rule, as you know, and many may know, I am a former small 
business owner myself. So I think I know as well, if not better 
than most, of the unique challenges that small businesses might 
have, as well as maybe family farms.
    With that in mind, I want to ask about the Commission's 
proposed climate disclosure rule. We have heard many critiques. 
People on the other side of the aisle have framed this rule on 
its emissions disclosure, especially Scope 3 emissions 
requirements, as being burdensome for small businesses and 
family farms. I have been reading a lot of research articles on 
this, and I want to give you a minute or so to chat with us 
about whether this rule is burdensome to small businesses. Are 
there actually ways that they have been protected?
    Mr. Gensler. Our proposal and our authorities are about 
public companies, and that is what it speaks to, and really, it 
is just about public companies. We do not place through this 
proposal, and nor do we intend to have any obligations on non-
public companies. There are small businesses, there are 
agriculture interests that you might be referencing.
    Hundreds and hundreds of companies are making disclosures 
about greenhouse gas emissions, and some of those are, as you 
mentioned, about their supply chain or so-called Scope 3. And 
even in our proposal, we recognized and we said the obligation 
is only on the public company. They can make estimates if there 
is something that they are talking to their shareholders about, 
but we got a lot of feedback. We got a lot of comments on this 
issue, and we are taking that into consideration, and as we do 
on all of our rules, we will consider making adjustments if 
appropriate.
    Mrs. Beatty. Okay. Thank you. Let me try to get another 
question in here. Certainly, as you know, investor protection 
is a key part of your mission. And I want to take a moment to 
highlight some of the investors in my home State of Ohio, like 
teachers and firefighters,and police and other public servants 
saving for retirement through their State public pension 
system. These public servants saving for retirement are a part 
of the constituency the SEC is tasked with protecting through 
its investor protection mission.
    Last month, we heard or it has been referenced many times 
about our SVB hearing. I expressed a concern then about the 
State Teachers Retirement System of Ohio, how it suffered a big 
loss with some $27 million invested in SVB. What actions has 
the SEC taken, under your leadership, to protect these workers 
and their retirement savings, or what can I go back and tell my 
constituents?
    Mr. Gensler. I think, really, most of our agenda, whether 
it is our enforcement that we do, ensuring that people follow 
the law, or our rulemaking helps protect those retirees, but I 
would just even go back to an earlier comment. We are really 
trying to bring greater competition and efficiency in the 
private funds area because those retirees are often invested in 
those private equity and hedge funds. And if we can help 
through transparency and still greater competition, that could 
mean lower costs, lower fees to those folks.
    Mrs. Beatty. Okay. I have about 35 seconds. Is there 
anything you would like to share with us, if I yield my last 30 
seconds to you?
    Mr. Gensler. If I could just note something about you, you 
mentioned your hearing about the recent events in the markets. 
And I would note, there were three banks that failed, and there 
have been a handful a day in the last 4 or 5 days, and two of 
those banks, the first and the third that failed, Silvergate 
and Signature, were engaged in the crypto business. Some would 
say they were crypto banks. And the third, the biggest, Silicon 
Valley Bank, actually when it failed, you saw this country's 
and the world's second-leading stablecoin had $3 billion 
involved there depegged. So, it is interesting just how this 
was, and some crypto narrative as well.
    Mrs. Beatty. Thank you, and my time is up. Thank you, Mr. 
Chairman.
    Chairman McHenry. The gentlewoman from Missouri, Mrs. 
Wagner, is now recognized for 5 minutes.
    Mrs. Wagner. Thank you, Mr. Chairman. Chair Gensler, you 
have publicly stated that, ``Our markets are the finest in the 
world,'' and that, ``retail investors have greater access to 
markets than at any time in the past.'' Yet, despite these 
statements, which I wholeheartedly agree with, you still 
released four proposals last December--Order Competition, 
Regulation Best Execution, NMS, and Rule 605--that completely 
upend those markets and remake them from top to bottom. There 
is a strong possibility that these four proposals could make 
equity markets more costly, less efficient, and, overall, worse 
for retail investors.
    Throughout these proposals, the Commission admits over 100 
times that it is uncertain of the impacts of the proposal and 
that it is unable to quantify or, ``estimate,'' the economic 
effects of the proposals. This uncertainty means that these 
proposals will likely make markets worse for retail investors. 
You may be willing to risk that, but Members of Congress who 
represent these retail investors, as well as American 
businesses seeking to raise capital in our equity markets, are 
not, sir. If the SEC's client truly is the American public, as 
you have said many times before, then I would urge you to 
reconsider these proposals before putting millions of 
Americans' hard-earned savings at risk.
    Let me change topics here. You have said repeatedly that 
the duty of best execution is too important for only FINRA to 
have a best execution rule and that the SEC should have one as 
well. I would like a yes-or-no answer here, sir. Are you aware 
that there is a process under existing rules for the SEC to 
amend or change FINRA's rules, which would include its current 
best execution rule? Yes or no?
    Mr. Gensler. Yes, I am aware we have that authority.
    Mrs. Wagner. Yes or no, do you believe the Financial 
Industry Regulatory Authority (FINRA) is incapable of 
maintaining and enforcing an adequate best execution rule?
    Mr. Gensler. I think this is an important rule that we 
should have at the Commission level.
    Mrs. Wagner. Yes or no, are they incapable of maintaining 
and enforcing an adequate best execution rule?
    Mr. Gensler. Again, I think we should adopt one at our 
level as well, and we have it in other various--
    Mrs. Wagner. I reclaim my time. As proposed, it would be 
duplicative, onerous, and costly for firms to comply with both 
the SEC and now FINRA's best execution regulations at the same 
time.
    Chair Gensler, your proposed rule on open fund liquidity 
would require funds to assume a worst-case scenario of a 10-
percent sell-off on the fund when classifying the liquidity of 
assets. I have spoken with many asset managers who informed me 
that a 10-percent run would be a magnitude higher than any that 
they have seen in recent history. One asset manager informed me 
that the highest run they have seen going back to the crash of 
2008 was 2 percent. What historical data did you use to justify 
the 10 percent, and is it appropriate for the SEC to require 
funds to operate in a scenario that is 5 times worse than 
historical standards?
    Mr. Gensler. This was just to define what is highly liquid, 
middle liquid, and illiquid, and so it is really a definition--
--
    Mrs. Wagner. What historical data did you use to come up 
with the 10 percent?
    Mr. Gensler. Again, we lay that out in our----
    Mrs. Wagner. No, you don't.
    Mr. Gensler. ----proposals, but I would be glad to follow 
up and----
    Mrs. Wagner. You don't lay it out at all. Chair Gensler, 
you have testified before this committee twice, and both times 
I have asked you if you intended to rewrite Regulation Best 
Interest (Reg BI), and you have said, no. Is that still the 
case?
    Mr. Gensler. That is still the case. It is not on our 
unified agenda.
    Mrs. Wagner. You remain committed to supporting the 
continued implementation of Reg BI?
    Mr. Gensler. We look to vigorously enforce it.
    Mrs. Wagner. Do you intend to rewrite Reg BI? You said no 
in the past.
    Mr. Gensler. Oh, I'm sorry. I misunderstood your question. 
It is not on our unified agenda.
    Mrs. Wagner. Great. Chair Gensler, out of the more than 50 
rules proposed under your leadership, none appear to directly 
address capital formation. If you believe that one or more of 
these proposals directly addresses this crucial issue, please 
cite which ones and specifically how that standard is met, in 
10 seconds.
    Mr. Gensler. I think that many of them do because it is 
about issuers and investors. I would just take private funds. 
If private fund advisers, the general partners, are taking 
half-a-trillion dollars of fees a year, if----
    Mrs. Wagner. My time has expired. I would ask you to 
respond in writing. Be very specific to your mandate of 
protecting the retail investor, capital formation, and small 
businesses and IPOs. Thank you. I yield back.
    Chairman McHenry. The gentleman from Illinois, Mr. Casten, 
is now recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chairman. It's nice to see you, 
Chair Gensler. Do you believe that climate change creates 
significant financial risks to corporations?
    Mr. Gensler. I'm sorry. I didn't hear that word in there.
    Mr. Casten. Do you believe that climate change creates 
financial risks to corporations?
    Mr. Gensler. It is really what investors are basing their 
investment decisions on, and what we have found in public input 
is that a significant number of investors managing tens of 
trillions of dollars of assets believe that it is important to 
their investment decisions. That is the standard to which we 
are held.
    Mr. Casten. Let me maybe then sort of add a little color. 
In 2020, as you know, the CFTC said that climate change poses a 
major risk to the stability of the U.S. financial system. In 
2021, FSOC said that climate change is an emerging threat. And 
recently, the IPCC said that within the range of possible 
temperature rises, global economic losses could amount to $23 
trillion per year. Are these numbers material?
    Mr. Gensler. They are significant to the economy, but what 
is material is that investors in public companies are today 
making decisions based on climate risk disclosures, and we are 
trying to bring some consistency to that.
    Mr. Casten. Okay. Is it your view that clear disclosures 
would help investors to hedge those risks?
    Mr. Gensler. It is certainly in our comment file that we 
have had thousands of investors who have said that to us.
    Mr. Casten. Okay. I am assuming this is a, ``yes.'' Are you 
familiar with the term, ``information asymmetry?''
    Mr. Gensler. Yes, I am, very much so.
    Mr. Casten. Okay. There was a report from Nature Climate 
Change recently which said that real estate in the United 
States is estimated to be overvalued by $121 billion to $237 
billion due to unpriced flood risk driven by climate change, 
with low-income households facing the greatest risk of losing 
home equity, as was the case in the 2007-2008 housing crisis. 
Can you speak to how your proposed rule would address that 
informational asymmetry between folks who are aware that they 
are overpriced and folks who are not?
    Mr. Gensler. I mentioned about Chair Rayburn and President 
Roosevelt. They were trying to address information asymmetries 
such that the public didn't have full, fair, and truthful 
disclosures from companies accurately describing the risk. That 
is what we are doing here in this proposed climate risk so that 
the investing public better understands the risks when they buy 
or sell a security.
    Mr. Casten. Okay. When I am done here, I am going to run to 
the House Science Committee, so you will forgive me if I 
ventured into the science side here a little bit. There was an 
article in The Washington Post--I think it was just last week 
actually--that talked about the effect of climate change in 
coastal communities in the U.S., and found that recent 
hurricanes, Michael and Ian, were both made much worse by 
warming oceans. The Federal tide gauge number--this was 
shocking--in Louisiana, the sea level is 8 inches higher than 
it was in 2006 when Hurricane Katrina hit. Just since 2006, it 
is 8 inches higher. The National Oceanic and Atmospheric 
Administration (NOAA) has said that they expect 2 feet of 
additional sea level rise on the Gulf Coast by 2050. So if you 
buy a home in Pensacola today, it will be underwater before the 
mortgage is paid off. And I could go on.
    And data from the First Street Foundation shows that there 
are more than 400,000 properties, more than a third in West 
Virginia, that are at risk of severe flooding. Is it logical to 
assume that purely profit-driven companies are going to seek to 
offload that risk onto less-sophisticated players?
    Mr. Gensler. The only thing we oversee is the public 
companies, manage their risks. This has become an important 
risk, and it is a risk that investors want to understand how 
they are managing it, whether, as you say, they are defraying 
it, or offloading it on others, or they are retaining it 
inside. It is about disclosure, so how they are managing that 
risk like they manage other risks.
    Mr. Casten. I asked that question because we know and the 
CFTC report actually acknowledged that they said that they have 
seen that insurers are offloading risk onto Fannie Mae and 
Freddie Mac disproportionally in flood-prone areas. Given that 
movement and given your obligation to protect investors, is it 
safe to say that your mandate is to protect all investors, not 
just the sophisticated ones?
    Mr. Gensler. It is absolutely correct that it is all 
investors, whether it is the most-sophisticated, the largest, 
or the smallest, but we are merit neutral, I just want to say. 
So, it is a matter of disclosure base, disclosing the risk and 
how those companies are managing those risks.
    Mr. Casten. Obviously, from my questions, I agree, and you 
had mentioned the $130 trillion of global assets under 
management that are looking to get into ESG leases. And as we 
sit here saying, should we be protecting all investors or is 
that just woke, I am glad to hear you keep pushing this, and I 
would just urge you, given the SEC's mandate, to continue to 
push hard for a strong climate----
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Kentucky, Mr. Barr, is now recognized for 5 
minutes.
    Mr. Barr. Chairman Gensler, I want to discuss Staff 
Accounting Bulletin No. 121, which was issued last year by the 
SEC's Office of the Chief Accountant. SAB 121 requires SEC 
registrants, including banks, to include on their balance 
sheets crypto assets that are custodied on behalf of their 
clients. Requiring banks to place custodied digital assets on 
their balance is a shift, as Chairman Powell recently noted, in 
historical practice, as custody assets have always been treated 
as off-balance sheet.
    SAB 121 changed that, and I am concerned about the 
consequences because banks have capital, liquidity, and other 
prudential requirements that non-bank custodians do not have, 
meaning that banks cannot offer digital asset custody services 
at scale without significant balance sheet implications. If 
banks cannot provide digital asset custody services at scale, 
they simply will not offer those services, which could lead to 
market participants not having bank-grade custody solutions to 
pick from, and will turn to offshore solutions, like in the 
Bahamas, diminishing American competitiveness and compromising 
investor protection.
    Chairman Gensler, has it occurred to you the irony that at 
the same time you pursued SAB 121, which has effectively 
precluded highly-regulated banks from offering customers the 
safety and security of segregated digital asset custody 
services, not a single one of the 4,500 employees under your 
supervision at the SEC noticed that FTX was allowed to 
commingle customer funds, and allowed FTX to trade, settle, 
custody, lend, and borrow digital assets without institutional-
grade custody?
    Mr. Gensler. I am actually quite proud of the staff who put 
out that staff accounting bulletin because what they said is 
that public companies, not just banks, needed to put on their 
balance sheet if they had customer crypto. And it is what we 
subsequently found in bankruptcy court, in the Celsius 
bankruptcy and others, that in bankruptcy, investors just stand 
in line.
    Mr. Barr. Reclaiming my time, did you or your staff consult 
with prudential bank regulators? Was there any interagency 
interaction on SAB 121 before or after this was issued in March 
of 2022, given the ramifications that this effectively prevents 
well-regulated banks from providing digital asset custody 
services?
    Mr. Gensler. There was significant dialogue beforehand with 
accounting professions, the Big Four and others, because this 
question kept coming up, but there has been consultation about 
this with the bank regulators subsequently.
    Mr. Barr. Again, I find it very interesting that nobody at 
the SEC under your supervision noticed that FTX, a one-time 
$32-billion company, was run on QuickBooks.
    Private funds rulemaking: You have repeatedly stated that 
increasing competition in the private fund market is one of the 
primary objectives of your proposal, but last week, the 
Committee on Capital Markets Regulation issued a competitive 
analysis of the U.S. private equity fund market. Its key 
findings were that concentration is very low, 4 times lower 
than the concentration of the public mutual fund industry. The 
number of fund advisers and funds is steadily growing. The 
range of investment strategies available to investors is 
increasing at a significant rate, and barriers to entry are 
low. Effective management fees have been declining. Performance 
net of fees and portfolio diversification benefits outmatch 
that of public markets, and demand from investors is growing.
    This analysis directly refutes the entire basis of your 
rulemaking that there is a lack of competition in private 
equity. Indeed, your proposal will have the exact opposite 
effect by reducing competition in U.S. private funds markets, 
including disadvantaging new and smaller private equity 
advisers and decreasing the number of investment opportunities 
available to investors. When you contend there is a need for 
greater competition in the private funds market, what specific 
evidence are you relying on?
    Mr. Gensler. Just looking at this field, and how the 
limited partners came to the SEC and did various filings with 
us saying they needed greater transparency about fees, about 
performance, and about the side letters, and particularly the 
side letters, because the fund managers are cutting special 
deals. If I might just say on the earlier point on crypto, if 
these companies had registered, we would be able to look at 
their books and records, but when they don't register, the only 
tools we have are actually investigative----
    Mr. Barr. Reclaiming my time, and back to private funds, 
the United States has only 4.4 percent of the world's 
population, but 50 percent of the capital is raised here. And 
Europe, by contrast, has the same population, but less than 20 
percent of the capital is raised there. The difference between 
us and Europe, and I want to state the U.S., not Europe, is 
that we diversify our markets with private capital being a big 
driver, making credit easier to obtain for all Americans making 
investments in tech and healthcare, biotech manufacturing, 
higher-paying jobs. So when you analyze proposals to change our 
capital markets, don't forget to recognize we have a much 
better system than Europe. Let's not be Europe. I yield back.
    Chairman McHenry. The gentlewoman from Massachusetts, Ms. 
Pressley, is now recognized for 5 minutes.
    Ms. Pressley. Thank you, Chair Gensler, for joining us 
today for this critical hearing. Although I wish it didn't have 
to be repeated, I know there are some who deny this fact, so I 
just want to reaffirm that climate change is real. It is here. 
And let's be very clear that our constituents' investments, 
whether it is their personal retirement savings or college 
savings for their children, are at risk. The good news is the 
SEC's proposed climate disclosure rule would help protect 
investors by requiring companies to disclose their exposure to 
climate risks. Although the cheerleaders for Big Oil want to 
weaken this rule, the consequences are clear. Without a 
comprehensive climate disclosure regimen, we will fail working-
class people throughout our country, and we will fall far 
behind our global partners.
    Chair Gensler, you mentioned earlier during the comment 
section that there were thousands of investors who commented 
favorably, correct, on the proposed rule?
    Mr. Gensler. That is correct. I think we have gotten 15,000 
comments, and on the investor side, it is almost uniformly 
supportive of mandating climate risk disclosures.
    Ms. Pressley. Right. They were overwhelmingly favorable. 
For those watching at home, I just want to get into the details 
to better explain why they were so overwhelmingly favorable. 
There are three categories of greenhouse gas emissions. Scope 1 
and 2 emissions result from a company's operations, for 
example, the pollution from a company vehicle or their use of 
electricity generated from fossil fuels. And then there are 
Scope 3 emissions, which are the biggest category making up, on 
average, 70 to 80 percent of a company's carbon footprint. 
These are resulting from indirect ops, which include the entire 
business model, including emissions produced by suppliers and 
also from consumers using the company's product.
    Big Oil is fighting to get rid of Scope 3 emissions 
disclosure from the SEC's proposed rule because in a world 
without transparency, they can gravely misrepresent their 
exposure to climate risks, and rake in millions of dollars. Oil 
companies like Chevron reduce their Scope 1 emissions by 
switching to electric vehicles for transportation, and their 
Scope 2 emissions by installing solar energy at their 
headquarters. Then, they could technically claim to be net zero 
even if they continued selling fossil fuels as their core 
product.
    Chair Gensler, if you were an investor looking at climate 
transition risk in your portfolio, do you think that looking at 
an oil company's Scope 1 and 2 emissions alone would give you 
an accurate picture of your risk exposure?
    Mr. Gensler. In my personal portfolio, I am only allowed to 
be in index funds in terms of our broad-based funds. But what 
we have learned is that many of the comments we receive from 
actual investors have said they would like to have better 
consistency around greenhouse gas emissions, including some 
estimates about their supply chain.
    Ms. Pressley. Right. The people want to see Scope 3 
disclosures. The European Union and other countries around the 
world are implementing new disclosure rules that include Scope 
3 emissions in the next few years. Some argue that reporting is 
too burdensome, but 70 percent of U.S. companies will be 
reporting Scope 1, 2, and 3 emissions within the next few years 
regardless of what the SEC does. Let me make it plain: This is 
not the time to backtrack and to weaken regulations. Now is the 
time for action and to put people over polluters. Thank you, 
and I yield back.
    Mrs. Wagner. [presiding]. The gentleman from Texas, Mr. 
Williams, is now recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman. And I 
am from Texas, so I don't need to tell you why this 
conversation didn't ring well back where I live. We have seen a 
troubling trend with the current Administration which continues 
to call for more government regulations and push an anti-growth 
green agenda. The SEC's climate risk disclosure rule would have 
major consequences for businesses across the country, 
especially smaller entities which lose out on opportunities 
because they cannot afford the increased compliance costs that 
come with burdensome regulations like these, and we see this 
Administration continue to put the pressure on small 
businesses.
    An economic analysis of the SEC's climate proposal 
estimated that compliance associated with these requirements 
could cost over $100 million for certain companies. This would 
be detrimental for companies and will stifle innovation and a 
business's ability to grow. What is the SEC's legal authority 
to enforce these climate-focused regulations, and how does the 
SEC plan to ensure that this climate disclosure rule does not 
disproportionately harm smaller entities? I am a business guy 
in Texas, and I own a small business which may lack the 
resources and expertise to comply with the rule's reporting 
requirements.
    Mr. Gensler. Let me take your second question first.
    Mr. Williams of Texas. Okay.
    Mr. Gensler. Our authorities are just about the public 
register, I would say, 7,000 or 8,000 companies. And we are not 
placing any obligations on non-public companies, companies that 
aren't raising money on the New York Stock Exchange.
    In terms of the authorities, we are staying right within 
those authorities I talked about earlier that Rayburn and 
Roosevelt wrote. It is about describing the business, putting 
it out there, the full and fair description including the 
material risk, and investors today are making decisions based 
on climate risk disclosure, so it is trying to bring some 
consistency to that. But we are not a climate regulator, and we 
are neutral about that.
    Mr. Williams of Texas. Following up on this previous 
question we talked about, it is clear that your climate 
proposal will undoubtedly impact private companies which cannot 
shoulder the increased costs that would come with collecting 
and providing the data obligated by this rule. This is not 
making our public markets more attractive to companies trying 
to break into the market. And this rule's unnecessary 
information requirements will subject companies to public 
scrutiny, investor pressure, and increased regulatory burden. 
So, this will use valuable company time and costly resources, 
and we see this on Main Street with the regulations that the 
Biden Administration has put on businesses. So, we will see it 
costing resources that business owners could otherwise be using 
towards raising capital, growing business operations, and quite 
frankly, hiring people and putting people to work.
    Can you discuss the impact that increased reporting 
requirements and the associated costs will have on the 
attractiveness of our public markets and private companies' 
decisions to go public and grow?
    Mr. Gensler. I think those public companies already are 
making significant disclosures about climate risk. And I think 
that what we can do is help bring some consistency, and also 
ensure for those companies that are public that consistently 
helps them against some that might be making bold claims, what 
one might call, ``greenwashing,'' and the like, and help them 
tell their stories in a consistent way. And as Representative 
Barr said earlier, Europe is also requiring it, so it will help 
us be recognized by Europe--hopefully our rules would be 
recognized by them rather than their more restrictive rules.
    Mr. Williams of Texas. Yes. All of this, coupled with 
interests and regulations, is killing Main Street American 
small businesses. And my last question, by calling on a more 
stringent ESG regime, we are trying to turn the many economists 
and financial experts at the SEC into environmental scientists 
who will force companies to adhere to a moving target of 
climate change goals coming from whichever party controls the 
White House. As the materiality standard definition continues 
to be threatened by your Agency, I am concerned that everyday 
investors will ultimately be hurt by activists who might be the 
loudest in the room but are not personally invested in many of 
these companies.
    Chairman Gensler, how will you ensure that investors are 
not going to be pressured and harmed because of activists 
pushing their agenda into a space where they do not care about 
any individual security? Can you commit to materiality 
limitations?
    Mr. Gensler. Materiality is a bedrock of our disclosure 
regimes, and that is in the context of what basically, as the 
court says, a reasonable investor would find significant in 
making their investment decisions.
    Mr. Williams of Texas. Okay. I yield back. Thank you.
    Mrs. Wagner. The gentleman from Illinois, Mr. Foster, is 
now recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman. Chair Gensler, 
first off, I just want to thank you for your work. And I do 
believe that there should be a rough proportionality between 
the number of rulemakings and the number of good ideas, and 
there is a backlog of good ideas, many of which are really 
falling through the cracks. I am worried about sort of the 
overload, both on your staff and on industry participants, on 
this. I think, for example, the economic analysis, when you 
have multiple rulemakings coming in at once and trying to 
understand how they will talk to each other and interact with 
each other, is a complicated thing. And I see a huge merit in 
pilot programs, particularly in regards to market structures on 
this, that if you just hived off 10 percent of the markets and 
tried your new auctions on those, for example, and see if what, 
to me, is the bottom line, is the quality of order execution 
for retail traders, that is pretty close to my economic bottom 
line.
    And I would also like to commend you on your approach to 
605 in terms of it needs to be updated, and providing retail 
investors some idea of what kind of quality of order execution 
they get when they switch to different platforms, I think is 
the right answer. But I am a little bit leery about having a 
new complicated reporting requirement for all of the different 
market participants. There is one entity that has all the 
necessary data, the Consolidated Audit Trail. And running some 
standard agreed-upon open-source version of the software on the 
Consolidated Audit Trail, some light version of the 
Consolidated Audit Trail, I think, would get that information 
in a form that would be digestible. So if I could just have a 
reaction, first, to pilot programs, and second, to the 
technical implementation of measures of execution quality?
    Mr. Gensler. We put out the four proposals in December. And 
I think that they address separate important parts of the 
market in terms of the two that you mentioned, the updating of 
a 23-year-old rule, so that the retail public, the individual 
investors can get better information on execution quality. I 
think it is what you call it, 605. I am glad to hear you are 
supportive of that.
    In terms of the auctions that we propose, this order 
routing rule that we propose, that was really to help 
individual investors get better execution, and get more 
competition with regard to their execution.
    Mr. Foster. But it is not blindingly obvious, at least to 
me, that they are actually going to get better pricing. This 
sort of cockamamie system that we have right now does allow a 
retail investor to sort of raise his hand and say, look, I am 
clueless. Will you give me a good price to trade against me, 
because I am documented to be clueless, if you understand----
    Mr. Gensler. Actually----
    Mr. Foster. The pro-toxicity of their order flow is, I 
think, the buzz word.
    Mr. Gensler. Yes. I would like to think that the individual 
investor is pretty smart, but the individual investor is only 
trading small amounts of stock. So, there is a sweetness in the 
order, and it is trying to get competition for that sweet order 
because it is small.
    Mr. Foster. Yes, but right now, your system, as I 
understand it, might take away his ability to sort of monetize 
the sweetness of his small, clueless orders.
    Mr. Gensler. I actually think, and again, it is only a 
proposal, that we are going to consider all of the comments 
that come in. But it is trying get even greater competition by 
saying that order could go straight to a lit exchange, which 
would be fine. That order, if it can get at least mid-market 
half the spread, that would be fine, but if it is less than 
that and not on a lit market, put it out to some competition.
    Mr. Foster. Okay. And a pilot program would reveal that, is 
the main point I am making. That if you do this, you should see 
better, hive off 10 percent to the market, try your auctions 
and see if order execution quality is better. It seems 
straightforward. I am a scientist and a big fan of data. 
Nothing is more joyful as a scientist than to prove the 
theorist wrong. And you have theoretical calculations, so you 
should save money, and you should be able to prove it with a 
pilot program before you expose the whole market to it.
    Another sort of touch on crypto and one of the lessons, it 
seems like if you are going to prevent wash trades, you need to 
know the true identity. Some regulator somewhere has to know 
the true identities behind market participants. Have you found 
any way in the crypto business to reconcile sort of the crypto 
libertarian point of view with the absolute necessity to know 
the true identities to prevent wash trades, the price we pay 
for crypto?
    Mr. Gensler. It is to get the intermediaries, the store 
frauds, to register, and then we could get the data from those 
crypto exchanges themselves as to where the buy and sell orders 
are coming from.
    Mr. Foster. Okay.
    Mrs. Wagner. The gentleman's time has expired. The 
gentleman from Minnesota, Mr. Emmer, is now recognized for 5 
minutes.
    Mr. Emmer. Thank you. Chair Gensler, I have a lot of 
questions and a limited amount of time, so if you can keep your 
answers to either yes or no, that will allow us to get through 
as many as possible, sir.
    From your perspective, is it more difficult now for the 
digital asset industry to access financial products and 
services in the United States than it was, say, 2 years ago?
    Mr. Gensler. Sir, I am not running one of those businesses. 
If they came into compliance, I think----
    Mr. Emmer. I am reclaiming my time. The answer, sir, is, 
``yes.'' Do you think you and the SEC have had a role to play 
in that?
    Mr. Gensler. I think we have a role to protect the American 
investor and the capital markets and--
    Mr. Emmer. Reclaiming my time, sir. You have played an 
obvious role in that. During your tenure at the SEC, how many 
rules has the SEC finalized that actually accommodate the 
existing regulatory framework and are specific to the digital 
asset industry so the crypto market can come into compliance?
    Mr. Gensler. It is their rules that are on the books for a 
year, so we have not finalized any new rule specifically with 
regard to crypto. We proposed some things and best execution. 
We have also----
    Mr. Emmer. Sir, reclaiming my time, the answer is zero. And 
how many enforcement actions has the SEC levied against digital 
asset companies during your tenure, sir?
    Mr. Gensler. I think it is probably 40 or 50----
    Mr. Emmer. The answer, sir, is about 55. My understanding 
is that the biggest crypto failure in history is probably FTX, 
at $9 billion. Were you the Chair of the SEC when FTX 
collapsed?
    Mr. Gensler. Yes.
    Mr. Emmer. And how many times did you meet with FTX prior 
to their collapse?
    Mr. Gensler. I think my public record shows 2 times.
    Mr. Emmer. You met with FTX at least twice, and arguably, 
the second-biggest crypto failure in history was Terra Luna. 
Who was the Chair of the SEC when Terra Luna collapsed, sir?
    Mr. Gensler. We had brought--
    Mr. Emmer. You were, sir. Reclaiming my time, you were. 
There are five members on the Commission. Do you believe your 
speeches and interviews are to serve as the official position 
of the SEC?
    Mr. Gensler. I can only speak for myself when I am 
speaking----
    Mr. Emmer. Again, sir, in a statement on the SEC website, 
you are quoted saying, ``The Kraken staking-as-a-service 
enforcement action should make clear to the marketplace that 
staking-as-a-service providers must register,'' but, again, you 
haven't provided any rules for how that can be done. I must 
remind you, your public statements are not regulations. It is 
not responsible to expect the American people to assume your 
statements are a substitute for rules. Do you agree with this 
statement regarding the digital asset industry, that the SEC 
needs additional congressional authorities to prevent 
transactions, products, and platforms from falling between the 
regulatory cracks?
    Mr. Gensler. I think that it is a largely non-compliant 
field and----
    Mr. Emmer. Sir, again, I asked you to comply with my 
questions, and I am asking you if you agree with that quote. 
And I am going to tell you, I am quoting you from an August 3, 
2021, article, and I believe you told Congressman Hill earlier 
that you need congressional authority to regulate stablecoins, 
and stablecoins happen to be a significant percentage of the 
crypto market. The question is, when were you telling the 
truth, to Mr. Hill or to me? You have to start answering these 
questions in a more transparent manner, sir. Does it concern 
you, by the way, that your approach to the digital asset 
industry is actually driving this industry out of the United 
States?
    Mr. Gensler. We are trying to drive it to compliance, and 
if they are not complying with the laws, then they shouldn't be 
offering their product----
    Mr. Emmer. Reclaiming my time. Madam Chairwoman, I would 
like to enter into the record this Wall Street Journal article 
from April 14, 2023, detailing China's ploy to open its banking 
system to crypto firms in an effort to seize an opportunity 
created by our hostile regulatory environment, of which, Chair 
Gensler, you are a big part.
    Mrs. Wagner. Without objection, it is so ordered.
    Mr. Emmer. Look, Chair Gensler, FTX was domiciled abroad 
and so was Binance, yet American consumers still had access to 
both. You can't really think that pushing this industry abroad 
is going to protect American consumers when it hasn't, several 
times in the past, on your watch. You say the crypto market is 
rife with non-compliance. However, existing SEC rules make no 
sense for blockchain-based companies, and following them would 
actually kill these businesses. Your regulatory style lacks 
flexibility and nuance, and as a result, you have been an 
incompetent cop on the beat, doing nothing to protect everyday 
Americans, and pushing American firms into the hands of the 
Chinese Communist Party (CCP).
    Your intention to work against the SEC's mission and put 
American investors in harm's way has been made very apparent, 
sir. It has been a year-and-a-half since you appeared before 
this committee. You need to answer to Congress about the issues 
that you have had with the SEC staff union, the work 
environment you have cultivated at the SEC that has led to 
hemorrhaging of senior staff, the intellectual inconsistency of 
your regulatory treatment towards Bitcoin spot ETFs, and your 
politicization of capital formation opportunities----
    Mrs. Wagner. The gentleman's time has expired.
    Mr. Emmer. ----through your treatment of certain specs, and 
that is just to name a few. Thank you. I yield back.
    Mrs. Wagner. The gentleman from New Jersey, Mr. Gottheimer, 
is now recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Madam Chairwoman, and Ranking 
Member Waters. Chair Gensler, thank you for being here today, 
and thank you for your leadership on many fronts. I will try to 
take a breath here, but I have a couple of quick questions.
    I have shared with you my concern with the unusually short-
fused, overlapping, rushed, and zone-flooding rulemaking under 
the SEC, and my fear that it undermines the public's ability to 
provide thoughtful feedback on the proposals of the Commission, 
and risks stressing an already-tenuous economic climate. The 
SEC's Inspector General raised concerns with this aggressive 
and rushed approach to rulemaking in a report last October and 
raised concerns that the SEC has staffing issues that may 
affect the quality of the rulemaking given the short fuses.
    Some of these proposals are necessary, obviously, to 
protect investors, and I want to make sure they see their way 
through to ensure stability in the financial markets. But I am 
concerned that when doing it in this manner, it is sometimes 
hard to tell the impact these rules will have collectively on 
the economy, on jobs, and on certain key job-producing sectors 
in my State of New Jersey and the tri-State area and 
nationwide.
    Since you have taken the helm of the SEC, 27 of the 
Commission's 53 comment periods have had a highly unusual 
comment period, shorter than 45 days from the date the proposal 
was published in the Federal Register. Considering the delay 
between when rules are posted on the website and when they are 
posted in the Federal Register as part of the comment period, 
it is not only inconsistent, but it strays from the historical 
practices of the SEC. These proposals collectively total more 
than 4,000 pages, with more than 2,500 questions to respond to. 
Last year, I took a letter from 47 Members of Congress to get 
you to extend the 30-day comment period on a 300-page 
rulemaking with more than 900 questions.
    Many of the proposals put forward by the Commission in the 
last 2 years affect the same stakeholders who have repeatedly 
requested additional time, especially small businesses and 
other smaller players in the space, to respond to the SEC's 
often-overlapping and rushed comment periods. And I am 
concerned that the limited stakeholder engagement, especially 
from small businesses without large regulatory teams to 
respond, will lead to unintended consequences that will 
ultimately harm American consumers. Have you at any point been 
concerned that by moving this so quickly, it could really hurt 
smaller market participants and their time to provide feedback?
    Mr. Gensler. I am very proud of what we have done. We have 
put out 46 proposals to date. We have reopened some, so that 
may be why this other number is floating around this hearing. 
And on average, it has been more than 70 days from the time we 
voted out until we put it on our website. We have a formal end 
to a comment period, but we get comments after that, and we 
take meetings after that, and we engage actively with trade 
associations and market participants.
    Mr. Gottheimer. It doesn't actually count when it goes on a 
website because there is no formal comment period on a website. 
When it goes to the Federal Register is what the standard is, 
so--
    Mr. Gensler. With all due respect, people can read it. 
People can start to do their analysis. They can engage with 
staff or with their trade association members, so----
    Mr. Gottheimer. And they can start submitting comments as 
soon as it goes on the website? Is there a way to do that, 
formal comments?
    Mr. Gensler. They tell us that they would have time to read 
what we do. We put it out. It is very transparent. And we also 
often consider comments well beyond that period of time, and we 
continue to receive comments. On average, it takes 12 to 15 
months from proposal to considering an adoption, so the area is 
transparent.
    Mr. Gottheimer. But the comment period closes during that 
time, right?
    Mr. Gensler. But we continue to have meetings, and the 
staff and the Commission is able to consider, just like this 
hearing right here is going to influence me as a decider or a 
decision-maker on that Commission.
    Mr. Gottheimer. Yes, I will just come back to this. I will 
shift gears. Since 2019, I pushed this committee and financial 
regulators to create smart guardrails for digital assets. You 
have repeatedly claimed that most cryptocurrencies are covered 
by existing securities law, and despite that belief, the 
Commission has issued little formal guidance to facilitate 
digital asset firms' compliance with existing rules. The SEC 
under your leadership has largely used enforcement actions to 
spur compliance. I am concerned that the lack of formal 
guidance through the normal rulemaking process is spurring even 
more uncertainty in the space, hurting our global leadership in 
financial technology, putting consumers at risk, and further 
enabling bad actors.
    The SEC's Advisory Committee urged you to solicit comments 
on Federal securities law regulation for crypto assets. Do you 
plan to take their advice and go through a public rulemaking 
process that allows regulatory changes in the appropriate 
manner versus just enforcement?
    Mr. Gensler. We have, Congressman, in a number of areas. 
The best execution rule that we put out last December includes 
a whole section on crypto assets. We are updating our custody 
rule, and we put out a lot of words and important economic 
analysis, and last Friday, we did the same on an expanded 
definition of----
    Mr. Gottheimer. Do you feel like you have all that you need 
from us, all the laws you need to be able to do what you need 
to do?
    Mr. Gensler. Yes, as it relates to crypto assets, and to 
the earlier question, I also support Secretary Yellen's 
initiative about stablecoins.
    Mr. Gottheimer. Thank you so much. I yield back.
    Mrs. Wagner. The gentleman from Georgia, Mr. Loudermilk, is 
recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman. Chair Gensler, 
thank you for being here today. I have a lot of concerns. I 
would like to continue on a little bit in the direction that my 
colleague from New Jersey was going on the number of 
rulemakings and how you have fast-tracked a lot of these, 
limiting the public comment period. I have heard you say in 
here that you support congressional oversight and you respect 
it, but from what we have seen, your actions are different than 
what your words are saying.
    You have shortcut a lot of the Administrative Procedure Act 
in your rulemaking. It appears that what you are wanting to do 
is hurry things along before Congress can have its new 
oversight. But what I want to talk about is something that I 
have not been in favor of and I have opposed ever since it was 
proposed, which is the Consolidated Audit Trail. I know Mr. 
Hill asked you some questions about that.
    First of all, I have never been supportive of it, but it is 
here and we have to constrain it. I believe it is a violation 
of the Fourth Amendment of right to privacy of individual 
investors. Let me put it in the words of the American 
Securities Association. They described how the collection of 
this data violates the Fourth Amendment Right to Privacy 
because it forces every investor's financial information, 
personal information, and transaction history without any 
evidence of wrongdoing.
    And I want to quote from a letter that they have sent to 
this committee, to both the ranking member and the chairman, 
``Tracking unsuspected and unsuspecting Americans' every move 
in hopes of finding unlawful activity is not consistent with 
the principles undergirding the Constitution,'' which is true. 
In fact, a lot of information that we see that regulators are 
forcing independent financial institutions to divulge about 
their investors or their bankers or those that do business with 
them, if law enforcement was trying to derive that information, 
it would require a search warrant. But yet, the Federal 
Government will come in, and they will force that information 
out of these individuals.
    I spent a lot of time in the military dealing with 
information security, and I had 30 years in the information 
technology sector. What I see in industry is a decentralization 
of information because of the risk of disclosure. For example, 
many industries are going to blockchain because you are no 
longer centralizing it. When it is centralized, there is a one-
stop shop for the bad players to come and get information about 
individuals.
    My first question is, what do you believe about this? Is it 
easier to protect decentralized investor information held by 
thousands of firms, or do you feel it is more secure to 
centralize that in a database administered from Washington, 
D.C.? Which do you feel is more secure?
    Mr. Gensler. There is risk in both sectors. There is risk 
in the decentralized, and there is risk in the centralized. It 
is really about the appropriate data security in that database, 
and this is a debate that technologists have quite often. And 
the Consolidated Audit Trail is important to help surveil the 
markets, to oversee the markets. Data was being collected 
before that.
    Mr. Loudermilk. Surveil the markets. So, you are looking to 
use this as a surveillance tool of the markets to enforce 
regulation, or what is the purpose of the Consolidated Audit 
Trail?
    Mr. Gensler. To help oversee the markets to protect against 
fraud and manipulation, front running, insider trading.
    Mr. Loudermilk. Without any just cause, or are you just 
randomly going to say, maybe somebody is doing something wrong 
here, and I have all of this information? But let me tell you, 
there is no one in the information systems industry that is 
worth their salt that will tell you it is more secure to have 
information at one point, a one-stop-shop. So if I am a bad 
guy, I am a foreign player, I only have one spot to go to pull 
all this information. I am going to put all my investment, all 
my technology in breaking your security to get that information 
versus thousands of places that I do not have the resources to 
do that. Centralizing is a security risk.
    One of one of my questions is, will the Consolidated Audit 
Trail and the case databases collect personal financial 
information of American retail investors? Are you going to 
collect information on individuals who are using platforms to 
invest? Are you going to collect that information?
    Mr. Gensler. You are right, there are two databases. The 
case database will not have their names, their birthdays, and 
so forth, but it has to have an identifier so that it can be 
tagged back to what the broker-dealer has--
    Mr. Loudermilk. What about the Consolidated Audit Trail?
    Mrs. Wagner. The gentleman's time has expired. Perhaps you 
can answer in writing, Chair Gensler?
    The gentleman from New York, Mr. Meeks, is now recognized 
for 5 minutes.
    Mr. Meeks. Thank you, Madam Chairwoman. And thank you, 
Chair Gensler, for coming to testify today. When you appeared 
before this committee in 2021, I asked you about your 
commitment to improving the SEC's diversity disclosures, 
empowering investors, and encouraging greater corporate 
diversity, especially within America's boardrooms and among 
senior management. And you mentioned your focus at that time on 
a human capital rulemaking which would include such disclosure 
improvements, and I understand that a proposal should be coming 
out within the next few months.
    What concerns me, however, is that much has happened since 
2021, including efforts by some on the extreme right wing, like 
Florida's Governor Ron DeSantis, to politicize diversity, 
equity, and inclusion (DEI) efforts in an attempt to ignite his 
own, I guess, Presidential campaign. Now, we have well-
intentioned companies in States like Florida trying to make 
improvements to their policies, who find themselves at odds 
with the leadership of their State. It is also disappointing 
since there is strong evidence that improving corporate 
diversity can be a bipartisan issue. This should not be a 
partisan issue. For example, my board diversity bill received 
the support of 55 of my Republican colleagues right here on the 
House Floor in 2019. We passed it with the bipartisan support 
of my Republican colleagues, many of whom sit on this very 
committee.
    So, given the attempts by Governor DeSantis and others to 
curtail DEI efforts in academia and corporate America, I have 
two questions related to your human capital rulemaking work. 
First, is the SEC considering how State-level efforts to hamper 
DEI-related programs could make it harder for companies to 
comply with more-robust human capital disclosures, which we 
expect from the SEC?
    Mr. Gensler. We consider the law the Federal law, and maybe 
we could have staff follow up if there is something at the 
State level that you want to flag for us and help us sort 
through in terms of any of our rulemakings. But particularly 
with regard to human capital management, we try to do our best 
to stay within the law and how the courts interpret the law.
    Mr. Meeks. Yes. There are the things that the SEC can do in 
your human capital rulemaking so that you can shield public 
companies looking to do the right thing with respect to DEI and 
disclosure from State-based legal challenges, or at least will 
the SEC seek public comments on this question?
    Mr. Gensler. In all of our rulemakings, we seek public 
comment on our authorities because we want to, of course, stay 
within our authorities. But our disclosure-based authorities, 
again, we are merit neutral, and that is because Congress 
decided we needed to stay that way. But it is the disclosures 
for investors to best understand the companies they are 
investing in as it relates to human capital, that they can best 
understand that most important asset of the company.
    Mr. Meeks. I couldn't agree with you more, and I think that 
is good policy. That is why it should be bipartisan, and that 
is why it has been bipartisan previously. I am just hoping that 
what is happening in Florida doesn't occur or affect what you 
are trying to do on an equitable basis, just giving investors 
the information they need to know.
    Let me do this quickly, because I see I am running out of 
time. I want to touch on crypto regulation. As you are aware, 
our regulator in New York, the New York Department of Financial 
Services, has created a first-in-class licensing regime for 
virtual currency businesses, of which we are very proud. What I 
am afraid of is that some are saying they may take businesses 
throughout this country abroad and get regulated someplace 
else. What do you say about that?
    Mr. Gensler. I say if they are complying with the laws, and 
doing right by investors, they can be here, but if they are not 
complying with the laws, investors will get harmed.
    Mr. Meeks. I am out of time.
    Mrs. Wagner. The gentleman from West Virginia, Mr. Mooney, 
is now recognized for 5 minutes.
    Mr. Mooney. Thank you, Madam Chairwoman. The Securities and 
Exchange Commission is maybe the Agency that most directly 
threatens the livelihoods of West Virginians today. I never 
imagined I would say that, because American Presidents are not 
supposed to so brazenly weaponize the SEC to push through 
radical climate change policies that are unable to pass through 
Congress. When the Obama-Biden war on fossil fuels was first 
launched in 2009, coal mining gainfully employed nearly 20,000 
West Virginians. Today, that number has shrunk to 14,000, a 50-
percent decrease. And the SEC has proposed a crippling climate 
disclosure rule to mandate all sorts of detailed emissions data 
for public companies and many non-public companies.
    The SEC already requires the disclosure of material 
information to its investors. Let us not kid ourselves and say 
it is about materiality. SEC Commissioner Hester Peirce put it 
best when she stated, ``Although styled as a disclosure rule, 
the goal of this proposal is to direct capital to favored 
businesses and to advance favored political and social goals.'' 
In other words, it is about naming and shaming fossil fuel 
companies. Some estimates suggest this disclosure rule could 
cost companies over $100 million to comply.
    Chair Gensler, the SEC Inspector General issued a scathing 
report saying you were rushing through rules without adequately 
considering the cost. Can you tell me today how many jobs this 
climate disclosure rule will cost West Virginia families?
    Mr. Gensler. Again, sir, we are not a climate regulator, 
and we are merit neutral. This is about companies who are 
already making disclosures and trying to bring some consistency 
to that disclosure. That is what it is about, with all due 
respect, not about something further than that. And in terms of 
the economics, it is really about ensuring that investors get 
the benefit of those disclosures. And if they want to go long 
West Virginia coal, they have the means to purchase companies, 
the public companies, and it is only about public companies 
again.
    Mr. Mooney. Thank you. Despite your assurances, I think it 
is clear this rule will be devastating to my State of West 
Virginia.
    I would like to submit for the record, Madam Chairwoman, 
the Inspector General's statement on the SEC's management and 
performance challenges.
    Mrs. Wagner. Without objection, it is so ordered.
    Mr. Mooney. Thank you. I would also like to submit for the 
record an op-ed I wrote for The Washington Times on the SEC's 
climate disclosure rule.
    Mrs. Wagner. Riveting. Without objection, it is so ordered.
    Mr. Mooney. Thank you. I do have a couple more questions. 
Chair Gensler, how many climate scientists does the SEC employ?
    Mr. Gensler. We employ economists who are more general 
economists, so some of them might have some knowledge, but I 
just think of them as market economists and financial 
economists.
    Mr. Mooney. Okay. Another question, and it is a yes-or-no 
one. Would you agree that Congress is better suited than the 
SEC to enact climate policy?
    Mr. Gensler. I would say straightforward we are not a 
climate policy agency. We are a market regulator, and it is 
about full and fair and truthful disclosure about public 
companies.
    Mr. Mooney. Okay. We will go with the yes-or-no again. Yes 
or no, does the SEC have the legal authority and expertise to 
enact climate policy?
    Mr. Gensler. We have the legal authority to enact rules 
about disclosure, about risk, and climate risk is something 
investors today are investing. So, it is just about authorities 
about disclosure, about these material risks in companies that 
are accessing the financial markets.
    Mr. Mooney. Okay. But it sounds like you would agree the 
SEC doesn't have the legal authority to enact climate policy?
    Mr. Gensler. We are not a climate policy agency. We are a 
market regulator and a disclosure-based regulator for public 
companies.
    Mr. Mooney. I ask because this rule was designed to choke 
off capital from politically-disfavored sources of energy. Let 
me be clear in my last 30 seconds. The SEC has no business 
enacting climate policy, which is exactly what you are doing. 
No matter what changes are made to this proposed rule, it is 
rotten to the core and should be rescinded entirely. The SEC 
and the Biden Administration must end this war on fossil fuels 
and return to focusing on the needs of investors, not 
activists. Thank you, Madam Chairwoman. I yield back.
    Mrs. Wagner. The gentleman from New York, Mr. Torres, is 
now recognized for 5 minutes.
    Mr. Torres. Mr. Gensler, there are areas on which we do see 
eye to eye, like the need to disclose climate change risk or 
the need to understand the immense implications of the 
unfolding AI revolution. But I am going to offer observations 
about three areas in which I have heard concerns, and then have 
you respond as you see fit.
    First, on the subject of crypto, the lesson learned from 
the collapse of FTX is that companies that bear the 
characteristics of FTX--offshore, deregulated, overleveraged 
companies--have the greatest risk of losing customer funds. In 
a world of scarce enforcement resources, one would think that 
the SEC would prioritize enforcement actions against high-risk 
companies that resemble FTX--offshore, deregulated, 
overleveraged companies. Instead, it appears the SEC has done 
the opposite. Instead of targeting an offshore, deregulated 
exchange like Binance, you have chosen to target an onshore 
regulated exchange like Coinbase. Instead of targeting an 
offshore deregulated stablecoin issuer like Tether, you have 
chosen to target an onshore regulated stablecoin issuer like 
Paxos. It seems like your enforcement priorities ignore the 
lessons learned from the FTX failure.
    Second, on the subject of equity market structure, if a 
broker sends a retail order to an exchange, the broker would be 
in compliance with your proposed rule. But if the broker sends 
the retail order flow to an off-exchange wholesaler, the broker 
would be out of compliance with your proposed rule even if the 
wholesaler is offering a better price than the exchange. And 
therein lies what seems to be the perversity of the proposed 
rule. It strikes me as perverse to tell a broker that you 
cannot send retail order flow to the wholesaler who is offering 
a better price and, therefore, a better execution.
    On the third subject of private funds, both the New York 
State and the New York City retirement systems are heavily 
invested in private funds. The New York State Common Retirement 
Fund invested about $29.5 billion in PE, and over the course of 
10 years saw an annualized return of 10.12 percent. The New 
York State Teachers' Retirement System invested $14.7 billion, 
and over the same period saw 16.6 percent in annualized 
returns. The New York City Employees' Retirement System 
invested $6.5 billion, and over the course of 10 years saw an 
annualized return of 15 percent. And when I see returns as high 
as 16.6 percent, which seem impressive, there is a question 
that comes to mind: Does the SEC risk fixing what isn't broken? 
Those are three observations, and you are free to respond.
    Mr. Gensler. I thank you, and let me try to do them in 
kind. In terms of crypto, you are right that U.S. investors are 
accessing the crypto markets, both onshore and offshore 
companies. Our jurisdictional reach is to both if they are U.S. 
investors that are participating in that.
    Mr. Torres. Let us be clear. You have the authority to take 
enforcement action against offshore, deregulated exchanges and 
stablecoin exchanges?
    Mr. Gensler. We do. It takes longer to build the 
investigative files. It takes longer sometimes in cooperation 
with offshore enforcement authorities to pursue that. And it 
is, frankly, more challenging to actually get subpoenas 
complied with, and so it takes longer.
    In terms of your second area about the efficiency in the 
capital markets, one area is these individual investors and 
individual investors are placing, as you described, these 
market orders. And what we did was we put out a proposal and 
said if that proposal is getting at least the middle of the 
market, at least mid-part or better, it is fine. But if these 
individual small-dollar orders were not doing that, either they 
are sent to a regulated exchange or put into competition. But 
we are going to get feedback on it, and it is one of the four 
rules we put out. It might be the one that I think we have 
gotten 5,000-plus comments on already. So, I will look through 
that.
    Mr. Torres. Maybe I am missing something, because you hold 
the exchange as the gold standard of competition, but if the 
wholesaler is offering price improvement relative to the 
exchange--am I failing to see something?
    Mr. Gensler. One of the things is----
    Mr. Torres. If the wholesaler were offering a worse price, 
then I would consider that a failure of competition, and I 
would see the reason for your rule, but if it is offering a 
better price, are we fixing what isn't broken?
    Mr. Gensler. We don't have a level playing field right now 
between the dark markets that are probably a third to a half of 
the market on any given day and the----
    Mr. Torres. But what you denounce as the dark markets are 
outperforming what you consider the gold standard, so that is 
where I am confused.
    Mr. Gensler. I am saying that the dark markets actually 
have different rules of the road. They don't have the same 
minimum----
    Mr. Torres. I could speak to you for an hour, but----
    Mr. Gensler. ----but we are trying to harmonize that. On 
your last----
    Mrs. Wagner. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Ohio, Mr. Davidson, for 5 
minutes.
    Mr. Davidson. Chairman Gensler, in advance of today's 
hearing did you coordinate acceptable responses with Senator 
Elizabeth Warren?
    Mr. Gensler. No, I am speaking on my own behalf.
    Mr. Davidson. Did you coordinate with Democratic staff? I 
ask because it happened before, and I want to be clear whether 
you operate of your own accord or whether there is some sort of 
coordinated approach to the damage that you are inflicting on 
America's capital markets.
    Mr. Gensler. I am here sitting in my role as Chair of the 
Agency, and I get remarkable support by SEC staff.
    Mr. Davidson. Okay. I have a few quick questions where a 
yes-or-no answer will suffice. Chairman Gensler, part of the 
SEC's mission is to protect investors. Does the SEC review pre-
IPO documents?
    Mr. Gensler. I think you said pre-IPO documents. If you are 
going to take a company public, the staff of the SEC does 
review those to see that they are concurrent with the law.
    Mr. Davidson. Correct. Is Coinbase a publicly-traded 
company?
    Mr. Gensler. I'm sorry?
    Mr. Davidson. Is Coinbase publicly traded?
    Mr. Gensler. Yes.
    Mr. Davidson. Okay. So, the SEC allowed pension funds and 
retail investors to invest in a company, Coinbase, that you 
apparently, from prior remarks, believe was engaging in illegal 
activity. All of their activities were laid out in their public 
filings in the S-1 prior to the IPO. You did say that you 
believe Coinbase is selling unregistered securities, correct?
    Mr. Gensler. Again, I am not going to speak to any one----
    Mr. Davidson. No, but you said that they are selling 
unregistered securities. This was in your public comments.
    Mr. Gensler. With all due respect, I look forward to you 
finding that because I am trying to be very careful. I am not 
speaking about any one company.
    Mr. Davidson. We will help refresh your memory. In the Kim 
Kardashian settlement, the SEC stated that EthereumMax is a 
security. She reached a settlement for promoting an 
unregistered security. The unregistered security is 
EthereumMax. Have you charged the issuers of EthereumMax for 
offering an unregistered security?
    Mr. Gensler. We reached a settlement with a celebrity, Ms. 
Kardashian----
    Mr. Davidson. She just promoted it. She doesn't operate 
EthereumMax, and you said that EthereumMax is an unregistered 
security to the people that offer it.
    Mr. Gensler. We did in that settlement. Yes, sir.
    Mr. Davidson. Okay. It is still trading. What about 
Ethereum? Is Ethereum now a security?
    Mr. Gensler. We had this----
    Mr. Davidson. I heard your exchange. They have been in 
place since 2015. You say in your statements that there is 
clarity in the market and the rules are clear, just come on in. 
You can't even answer the question. Do you say that XRP is a 
security?
    Mr. Gensler. We are in court and in active discussions and 
litigation on that----
    Mr. Davidson. You are in litigation because you do say it 
is a security. Let us move on a little bit. As you know, 
qualified custodian banks would effectively be unable to 
provide crypto asset-related custody as a result of punitive 
capital impact under accounting provisions in Staff Accounting 
Bulletin No. 121. Do you agree that the bulletin should be 
amended?
    Mr. Gensler. I think that the staff addressed an accounting 
issue and appropriately saw that crypto assets held in custody 
today are not segregated or not bankruptcy-remote in bankruptcy 
and should be appropriately put on public company financials.
    Mr. Davidson. I wish I had time to go into the ESG rule and 
everything else, but, Chairman Gensler, your record of failures 
to protect investors and abuses of power make it clear that we 
need to restructure the Securities and Exchange Commission. The 
failures are many, but let me cite some of the abuses.
    You average more than two rules proposals a month. You 
provide inappropriately-short comment periods. You have 
unworkable and unlawful ESG disclosure mandates on the market. 
You have essentially a, ``Hotel California'' rule for crypto 
where you can check in anytime you like, but you can never 
leave. You have endless discovery with no resolution and no 
clarity for the captives in the market. You have unworkable 
proposals for overhauling equity market structure, and a de 
facto ban on crypto through the proposed custody rule. You have 
high staff turnover, unhappy people leaving your office, and 
unhappy companies and capital leaving our country.
    To correct a long series of abuses, I am introducing 
legislation that removes the Chair of the Securities and 
Exchange Commission and replaces the role with an executive 
director who reports to the Board, where all authority would 
reside. Former Chairs of the SEC will be ineligible under my 
proposed bill, and this isn't just my take; it resonates across 
the political spectrum. The American people want democratic 
access to capital, with retail investor participation. You 
can't just exclude retail investors from markets and claim it 
is for their own good. Our markets need to function and 
flourish.
    I yield back.
    Chairman McHenry. The gentlewoman from Texas, Ms. Garcia, 
is now recognized for 5 minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you, Chair 
Gensler, for being here today. I know it has been a long day 
and you are probably hungry and maybe thirsty too, but bear 
with us. We are almost there.
    As we know, April is Financial Literacy Month, so I would 
like to begin by touching on the SEC's financial literacy 
efforts. My home State of Texas consistently ranks a concerning 
low in financial literacy. The Federal Reserve Bank of Dallas 
reports that Texas' slow financial literacy rates are 
correlated with poor outcomes on measures like emergency 
savings, possession of a bank account, and credit score. And 
even further, in my district, which is 77-percent Latino, 
limited English proficiency adds an additional barrier.
    Chairman Gensler, I understand that the SEC holds an annual 
financial literacy and career day for high schools, and one 
recently took place. I would like to commend the SEC for these 
outreach efforts, and I would also like you to encourage the 
Commission to strive for more financial literacy outreach work. 
Can you please provide an update on the SEC's financial 
literacy outreach efforts and the event that took place this 
month?
    Mr. Gensler. It is a really important part of our role of 
investor education, and we have an Office of Investor Education 
that tries to engage the public, and also provide information 
on our website so that the public can better understand. In 
addition, we take in somewhere between 2,000 and 4,000 tips, 
complaints, and referrals per month, such that the investing 
public knows to turn to us from time to time as well as State 
regulators when they see something and they think there is 
something amiss with their broker-dealers. But it is a really 
critical part, and I am glad to follow up with staff to share 
more about what we have done in the last month, if I understand 
your question.
    Ms. Garcia. Well, yes, and I would love to see what they 
may be doing in Texas, in particular, because of our low 
financial literacy rate, and, of course, in my district, 
particularly when it comes to our Spanish-speaking people. And 
as you know, in Texas, we are under mandate for access to the 
ballot in both English and Spanish, and in Harris County, my 
home county, it is English, Spanish, Vietnamese, and Chinese. 
So it is an international population, and certainly we need to 
make sure that financial literacy efforts are also in those 
languages.
    Next, I would like to turn to the issue of human capital 
disclosure, a practice that is essential to allow investors to 
put their money into companies that share their values, like 
fair wages, diversity, inclusion, worker health and safety, and 
comprehensive benefits. You may know that the Republican 
Majority dissolved the Diversity and Inclusion Subcommittee, so 
it is now up to the Full Committee to take up these issues as 
they occur during hearings, especially related to diversity and 
inclusion.
    Human capital management is not only essential for 
employees, but it is also good for business. Good human capital 
management has been shown to increase a company's bottom line 
and performance. Employees who are taken care of and are happy 
just perform better. Chairman Gensler, can you please provide 
an update on the SEC's efforts to produce more-comprehensive 
rulemakings on human capital disclosures, and why is this type 
of disclosure so important?
    Mr. Gensler. The staff is still working on recommendations 
to the full Commission. I think it was in 2020, we actually 
updated the requirements for disclosure, including human 
capital disclosure. So, we wanted to take a close look at how 
those disclosures looked in 2021 and 2022, and then, based upon 
that, put forward further recommendations. Why they are 
important? It is really an important asset of many businesses. 
And I know even when I was young and on Wall Street in the 
Goldman Sachs merger department, if we were selling a company, 
the buyer would want to know about the turnover, about the 
compensation, about the benefits, about the employment 
statistics, because it is a critical asset, and it relates to 
financial performance and the risk somebody is taking as an 
investor.
    Ms. Garcia. When do you expect to get those 
recommendations?
    Mr. Gensler. Again, I would not like to pre-judge the 
timing, but the staff is working on it to serve up to our five-
member Commission. As I said earlier, it is one of the 
remaining proposals on our unified agenda.
    Ms. Garcia. Okay. Thank you. I see my time is running out, 
so I yield back my last 5 seconds.
    Chairman McHenry. The gentleman from Tennessee, Mr. Rose, 
is now recognized for 5 minutes.
    Mr. Rose. Thank you, Mr. Chairman. I want to follow up on 
Mr. Himes' earlier comments and congratulate Chairman McHenry 
on getting you here so quickly in the 118th Congress. Chair 
Gensler, it has been a while since you have been here and 
testified before this committee, and I want to know, how did 
you manage to go more than a whole year and more than half of 
the 117th Congress without testifying before this committee?
    Mr. Gensler. Congressman, I have been in front of this 
committee under three Presidents, and under seven or so Chairs. 
I must say I enjoy being in this committee room and being in 
front of you, but I do not know the answer to that; it was up 
to then-Chair Waters at the time.
    Mr. Rose. I am wondering, when the Democrats were in the 
Majority, did they not reach out to you all of last year about 
testifying, or did they ask you to testify and you just refused 
or declined to come?
    Mr. Gensler. I stand ready. Whomever is the Chair, I stand 
ready to be here.
    Mr. Rose. It is good to have you here. I want to shift 
gears a little. It currently costs just $2,000, you might say, 
for an individual or a group of individuals to submit a 
shareholder proposal, obviously owning a stake in the company. 
Many companies have millions of investors who will each spend 
potentially several hours considering such a proposal to make 
an informed voting decision. As your agenda continues to make 
it easier for activists to have their shareholder proposals 
included on company proxies, why haven't you considered the 
costs that will be borne by those millions of other 
shareholders?
    Mr. Gensler. Shareholder democracy is an important part of 
the fabric of our capital markets and has been since Rayburn 
helped write these laws. And we do take into consideration the 
costs and benefits of the rules.
    Mr. Rose. When you were justifying your decision to roll 
back the 2020 proxy advisory reforms, you seemed very concerned 
with the cost borne by proxy firms. Why was that weighted so 
heavily?
    Mr. Gensler. It was only one of the costs, if I recall the 
analysis, but there were other costs and benefits that were 
weighed as well. And I think that it really was about moving 
forward, that they could provide that information to the 
investing public in a timely way, and then investors get to 
decide whether to vote yes or no on various proxies.
    Mr. Rose. In January, I wrote to you, joined by some of my 
colleagues, Mr. Steil and Mr. Sessions. I wrote to you 
regarding my concerns with the new approach articulated in 
Staff Legal Bulletin 14L and the unprecedented low rate of 
shareholder proposals permitted to be excluded by SEC staff 
during the most recent proxy season. I will note that you did 
not respond to this letter. I hope you will do so. Is it common 
practice for you to miss deadlines and ignore requests from 
members of this committee?
    Mr. Gensler. Thank you for reminding me. I will take a 
close look at that letter.
    Mr. Rose. I appreciate that. I hope you will. I will shift 
gears again to the SEC's proposed climate change rule, which we 
have discussed already today, including reporting on so-called 
Scope 3 financed emissions, which would require financial 
institutions to collect and report on the emissions activity of 
their customers, including privately-held farms and small 
businesses, and even State and local municipal governments. 
Chair Gensler, do you think it is appropriate for the SEC to 
use disclosure requirements to shape access to capital for 
American businesses and families or even local government 
entities?
    Mr. Gensler. Again, we are merit neutral, and the climate 
risk disclosure rule is only about public companies. It is not 
about those private, non-public companies.
    Mr. Rose. I heard you say that earlier, but I guess I fail 
to see how you can't see that if Scope 3 disclosures are 
required, that those public companies are, in fact, going to be 
pressing municipalities, small businesses, and small farmers 
for the information that is necessary for them to comply with 
the rule that you have proposed?
    Mr. Gensler. If I can address it in two ways, one, our 
proposal was only that a company that said it was material to 
them or they were making certain future commitments, they would 
disclose it, but they could use estimates, they could use 
frameworks, they could use templates, and so forth. But two, we 
have heard a lot from the public comment period. The public 
comment period helps us. And I have asked staff to consider how 
we can look at this to address those comments, whether it is 
from the farm community or small business communities across 
America, because we only oversee the 7,000 or 8,000 public 
companies. It is not a rule about the rest.
    Mr. Rose. Thank you. I hope, indeed, we see that reflected 
in whatever emerges. Thank you, and I yield back.
    Chairman McHenry. The gentleman from North Carolina, Mr. 
Nickel, is now recognized for 5 minutes.
    Mr. Nickel. Thanks so much, Chair Gensler, for being with 
us today. My staff tells me I am the 25th Member to ask 
questions. How are you enjoying your visit here today?
    Mr. Gensler. I always love being in front of the House 
Financial Services Committee.
    Mr. Nickel. It has been a while since you have been here, 
so folks are excited to hear from you. My first question 
involves a bill I have recently introduced, the Improving 
Disclosure for Investors Act, with Congressman Huizenga, which 
would make it easier for investors to receive documents 
electronically. According to a recent survey, a large majority 
of everyday retail investors, regardless of income or age, 
prefer e-delivery for its environmental benefits, speed, and 
convenience. And businesses strongly support e-delivery because 
it allows them to enhance the quality of their disclosures, 
improves investor engagement, and reduces costs.
    Additionally, it is estimated that the industry sends over 
27 billion pieces of paper in the mail, which my staff tells me 
is the equivalent of 2 million trees being cut down every year. 
Our bill would align the SEC's rules with my constituents' 
preferences, and I believe this is an issue that industry, the 
SEC, environmental groups, and Congress can work together on to 
make life easier for my constituents.
    I feel pretty good about this bill. I think it is going to 
pass. I think it is going to get signed by the President. When 
that happens, what do you think about the bill? Do you know 
about the bill? And will the SEC prioritize adopting e-
delivery?
    Mr. Gensler. I look forward to actually looking at the 
details of the bill, but if passed and the President signs it, 
certainly we will implement it according to its law. I would 
note, many years ago, I helped work in the late Clinton 
Administration on the e-signature bill that then-Senator John 
McCain led work on. So, I believe that what was once done on 
paper can be done electronically.
    Mr. Nickel. Thank you so much. Chair Gensler, we share the 
same goal of making our markets more safe, fair, and equitable. 
So, I am concerned that dramatic changes to our capital 
markets, as seen in the proposed rules on equity market 
structure, could have negative and unforeseen impacts on the 
working families in my district who are saving for retirement. 
I was happy to see the Commission pursue updates to Rule 605 to 
modernize data collected from the industry and I applaud you 
for those efforts. This will certainly improve competition and 
lower prices.
    However, since the rules were proposed, several new 
academic studies have come out with evidence for two of the 
proposed rules which would do the opposite of what the SEC 
claims, increasing costs for everyday investors. Without the 
wholesaler system, these retail investors could lose close to a 
billion dollars per month in additional trading costs. Any 
increased costs on my constituents looking to save for 
retirement concerns me. Additionally, I am concerned that 
commission-free trading, which my constituents rely on, would 
go away. Have you considered constituents like mine in North 
Carolina's 13th district who are saving their hard-earned money 
for retirement and how these proposals could increase costs for 
them?
    Mr. Gensler. Absolutely. I would note that zero commission 
does not mean zero cost. There are a lot of costs that are 
elsewhere in the system. And the other proposal is about a 
broker has to have a standard to give you best execution when 
you place an order, I believe, and we are getting public 
comment, that is a pretty straightforward standard to get best 
execution. And your Federal securities regulator ought to have 
that in place, not just the self-regulatory organization. The 
other proposals are to level the playing field between what is 
called the lit market and the dark markets, that they have more 
harmonized rules and they compete for your orders. And then, we 
have proposed something around getting better competition for 
individual orders of below a certain dollar amount. But 
absolutely, it is about trying to make the markets more 
transparent and more competitive for your constituents.
    Mr. Nickel. My time is running out here, but I want to 
thank you for being here with us today. I think it is really 
important that you engage with the general public, with 
industry, and with a number of different stakeholders in this 
process. My office is going to be reaching out to you later on 
about trying to find some ways to get folks together with you 
in a productive way to engage on these issues. Thank you again 
for being here. And Mr. Chairman, I yield back.
    Chairman McHenry. Thank you. The gentleman from Wisconsin, 
Mr. Steil, is recognized for 5 minutes.
    Mr. Steil. Thank you very much. Chairman Gensler, the 2013 
Commodity Futures Trading Commission (CFTC) Inspector General 
report raised concerns about your use of personal email to 
perform official CFTC business. Have you used a personal email 
address to conduct any SEC business?
    Mr. Gensler. No. There are some people who occasionally, 
over the course of the time, inadvertently send me something, 
and then I just forward it to the SEC.
    Mr. Steil. So, you have not used a personal email address 
while at the SEC. Have you used multiple email addresses at the 
SEC to conduct SEC business?
    Mr. Gensler. I have two SEC emails. They are both on the 
website, both stored and retained.
    Mr. Steil. Thank you very much. Do any members of your 
senior team or subject matter experts have digital wallets or 
own digital assets?
    Mr. Gensler. I don't believe, under our ethics rules, they 
do.
    Mr. Steil. Do you own digital assets or have a digital 
wallet?
    Mr. Gensler. I do not own any crypto assets. All of my 
securities holdings are actually digital because they are held 
by a broker-dealer and they are digital there.
    Mr. Steil. Have you ever owned Bitcoin or another digital 
asset?
    Mr. Gensler. No.
    Mr. Steil. I am guessing that most folks on your senior 
staff, you included, have bought or sold stocks, but none of 
them currently own crypto assets, but they are in the process 
of making rules and regulations on crypto assets. Would that be 
a fair assumption?
    Mr. Gensler. I could not speak to that. At MIT, I actually 
taught a course called blockchain and money. I taught multiple 
courses called crypto finance and other courses as well.
    Mr. Steil. But you did not own any crypto?
    Mr. Gensler. No.
    Mr. Steil. You taught the course, but you weren't a user of 
the product?
    Mr. Gensler. I did not own crypto assets. They are a 
highly-speculative asset. I don't own them now.
    Mr. Steil. No, I am not asking for your view. I am just 
saying that you are in the business now of making rules and 
regulations regarding digital assets, you have taught a class 
on it, but you have never personally owned a digital asset, any 
crypto, including Bitcoin?
    Mr. Gensler. The only digital assets I have are my bank 
account and my brokerage accounts, but no crypto.
    Mr. Steil. Very good. Thank you. On July 13, 2022, the SEC 
proposed amendments to Rule 14a-8, which would make it harder 
to exclude duplicative proposals. According to a recent 
analysis, shareholder proposals increased 8 percent last year, 
a lot of them ESG-related. Do you agree that this proposal will 
burden shareholders by increasing compliance costs? Yes or no?
    Mr. Gensler. I think it will benefit shareholders to 
enhance share of democracy----
    Mr. Steil. The question is, will it increase compliance 
costs?
    Mr. Gensler. We put out to public comment an economic 
analysis that includes both the costs and the benefits.
    Mr. Steil. Understood. But is there a cost associated with 
that? Is there a compliance cost?
    Mr. Gensler. Sir, I would have to get back to you as to 
what we put out in----
    Mr. Steil. That is fine. The proposal acknowledges the fact 
that it increases compliance costs, and Commissioner Uyeda 
argued in a statement that this proposal is, ``one more reason 
for not becoming a public company to begin with.'' Do you 
disagree with your Commissioner's comment?
    Mr. Gensler. We have lively and good debates, but I do 
think that shareholder democracy is part of our U.S. capital 
system.
    Mr. Steil. Understood. I would be concerned about the 
increasing compliance costs and that this burden upon burden 
upon burden is a reason we see fewer companies going to the 
public markets in the United States.
    Let me shift gears. Last summer, the SEC released a request 
for comment looking into whether or not index providers should 
be considered investment advisors. I have not heard this 
concern or this complaint from anyone. Did anyone come to you 
and ask you to investigate this issue?
    Mr. Gensler. It is a policy initiative that has been in 
front of the career staff at the SEC for a number of years, so 
we thought we should get public input. This was just a request 
for comment, not a real proposal.
    Mr. Steil. I understand that it is at that stage, but I 
think where the concern is that some of these fishing 
expeditions have substantive and material compliance costs for 
companies unless there is a substantive risk that you are 
identifying in this space.
    Mr. Gensler. Here is substantive risk. If you are included 
or excluded by an index, there is a lot of economic and 
academic research about what can affect the stock price or bond 
price being in and out of an index, so that being in an index 
itself is pretty important to those issuers. So, who are the 
index creators, the providers, and how are they regulated?
    Mr. Steil. Thank you for your feedback. I know I have to 
yield back. I would say I also have concerns on your proxy 
advisor position. Mr. Chairman, I yield back.
    Chairman McHenry. The gentlewoman from Colorado, Ms. 
Pettersen, is now recognized for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman, and it's nice to 
meet you, Chair Gensler. We have never had the opportunity to 
say hello. I am new to Congress. I come from the State 
legislature, so I am still not used to how differently 
committees run. You are gracious in saying that you enjoy being 
in front of us, but the good news is you are almost done. But 
thank you so much for being here today and explaining to the 
public the important role that the SEC plays in ensuring that 
the American financial system remains strong.
    April is National Financial Literacy Month, and it is 
something that I know has been highlighted by Congresswoman 
Beatty and Congresswoman Kim. The theme this year is, 
``Investing is for Everyone.'' This issue was brought to the 
forefront during the GameStop issue that this committee was 
heavily involved in nearly 2 years ago. Since that time, we 
have seen the amount of retail investor participation remain 
high at 20 percent, relative to the previous 10 percent a 
decade ago.
    And one of the more important purposes of making investing 
accessible is to build generational wealth. Investment 
products, many of which are overseen by the SEC, are what 
comprise many typical Americans' retirement plans. By helping 
teach individuals the risks and rewards of investing, the SEC 
can help individuals, particularly from marginalized 
communities, who can potentially access long-term wealth. Can 
you talk about some of the successes of the Investing is for 
Everyone campaign, and also talk about how the SEC is working 
to educate new investors?
    Mr. Gensler. Investor education, as I mentioned earlier, is 
very important, and we have an Office of Investor Education 
which is reaching out to the public. We also have a really 
important piece of it beyond investor education. If people see 
something that they feel is a problem, tips, complaints, and 
referrals to comment to us and let us know.
    I know that I also try to use the platform of being a Chair 
and speak to the public, whether it is through social media or 
other means, to try to take what are sometimes complex issues 
and make them more digestible for the public.
    Ms. Pettersen. I was also really impressed with the website 
and all of the tools and information that is available for the 
public to utilize. I know that this has been covered 
extensively, but I do think there are fair points to be made 
regarding how the different rulemakings could interact with one 
another and the short time that has been given for public 
feedback. How can you reassure the public that these changes to 
the markets will not significantly impact their retirement 
savings accounts or their children's college funds or any other 
investments that they have made?
    Mr. Gensler. I think our whole mission, our whole goal is 
to help both issuers and investors. You asked about investors, 
but it is really about lowering the cost to the markets in the 
middle and making sure that the market works for them and that 
they are not just working for the market. In terms of comment 
periods, I would note that we put out to public comment reforms 
of our stock market, and they were out for 3\1/2\ months for 
comment. We have gotten 3,000 to 6,000 comments on each of 
these rules. So whatever that adds up to, nearly 20,000 
comments, but we continue to take comments as they come in.
    Ms. Pettersen. Great. Thank you for that. I know it is a 
concern that I have heard throughout the financial services 
community. You have talked about something that I want to 
cover, and I am almost out of time. It goes by quickly. I want 
to discuss a topic that you briefly mentioned in your testimony 
and that you have a background in. Players in the financial 
sector have traditionally sought to use advanced technology and 
analytics to get on the cutting edge of their competitors. The 
rapid growth and expansion of artificial intelligence (AI) has 
the potential to revolutionize many sectors of American life 
but also brings new challenges.
    In October 2020, the White House Office of Science and 
Technology Policy (OSTP) published a Blueprint for an AI Bill 
of Rights, which shared a roadmap for the responsible use of 
deployment of AI. As the committee has covered, the strength of 
our markets is central to the strength of our country. Bad 
actors utilize AI or even a zealous AI system has the potential 
to disrupt markets in ways that we have not even fathomed yet. 
What specifically should Congress consider as we potentially 
look at developing a regulatory framework for AI?
    Mr. Gensler. Thank you for asking. It is much more 
transformative than anything we have discussed about crypto, 
with all respect to that.
    Ms. Pettersen. And now, we have 10 seconds.
    Mr. Gensler. But I really think that it is going to bring 
great progress for the country. We are looking at it in terms 
of the conflicts in robo advising and in brokerage apps and the 
conflicts that are there potentially.
    Chairman McHenry. The gentleman from South Carolina, Mr. 
Timmons, is now recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman, and, Chair Gensler, 
thank you for being here today. The SEC currently has rules 
that aim to prevent market participants from trade front 
running. These rules help to protect retail orders from having 
the price move against them due to a participant trading ahead 
of the order and impacting the supply and demand for that 
security. Do you agree that such a prohibition plays an 
important role in helping protect retail investors?
    Mr. Gensler. I do think that rules against front running 
help individual investors.
    Mr. Timmons. Thank you for that, but under the auctions 
mechanism that the SEC proposed in December, detailed 
information regarding the characteristics of a retail order 
would be publicly announced prior to that order being executed. 
In practice, this would allow participants to use that 
information to legally trade ahead of the retail order. I find 
this astonishing. Do you agree that the ultimate result of the 
SEC's auctions rule would be legal front running with prices 
moving against retail investors?
    Mr. Gensler. I understand your point, but I think that it 
could actually benefit investors and be part of a critical 
structure. We have auctions in the options market. We have 
learned from that and look to see whether they have something 
and build on that and the cash markets.
    Mr. Timmons. Given your repeated statements on the need to 
protect retail investors, it is shocking that the SEC would 
issue such a proposal. I believe it is clear that the SEC 
should not move forward until a proper impact analysis can be 
conducted. Furthermore, as highlighted earlier by Congressman 
Lucas, there is substantial evidence to show that the SEC 
rushed this proposal without considering the real-world impact 
on the investing public.
    Moving on to rulemaking, the SEC's recently-proposed rule 
on third-party vendor due diligence for investment advisors is 
concerning because it seems that the Commission again failed to 
consider the real-world impact. But the reality is that the 
broad scope and significant due diligence obligations required 
as a result of this rule would force many small to medium-sized 
vendors out of their respective markets and push their clients 
to a few larger vendors. Many of these businesses do not have 
the capacity or resources to comply with the unnecessary and 
overly-burdensome obligations. Are you concerned about the 
potential consolidation that could happen and the subsequent 
risk that consolidation creates if there is an overreliance on 
a small number of vendors?
    Mr. Gensler. I think we have already seen in the markets 
that there is a great deal of consolidation about outside 
service providers, investment advisors.
    Mr. Timmons. But we shouldn't facilitate that. That is not 
good.
    Mr. Gensler. We already live in that ecosystem. What we are 
trying to do is ensure that the investment advisors relying on 
those service providers still do their role and comply with the 
laws and do their due diligence on the use of these service 
providers.
    Mr. Timmons. Okay. I have one final question, and I have to 
be honest, I do not know how you are going to answer it. I am 
kind of excited.
    Mr. Gensler. I am excited just listening to the question.
    Mr. Timmons. The fact that I do not know how you are going 
to answer it is actually really concerning. In 2014, Jared 
Bernstein published an op-ed in the New York Times entitled, 
``Dethrone `King Dollar''', where Mr. Bernstein advocated for 
the U.S. Government to actively take steps to remove the dollar 
as the global reserve currency. President Biden has now 
nominated him to be the head of his Council of Economic 
Advisers, all while the Chinese are actively undermining the 
dollar as a global reserve currency and their successes are 
increasing both in number and at an ever-increasing rate.
    Chair Gensler, you have been in and out of government 
service for 25 years, and you also have ample experience on 
Wall Street. Do you agree with Mr. Bernstein that the U.S. 
Government should take steps to actively remove the dollar as 
the global reserve currency?
    Mr. Gensler. I am not familiar with the op-ed, but I think 
that we have benefited as a nation from the fact that the U.S. 
dollar has had such a central role for actually a little over 
100 years.
    Mr. Timmons. So no, you do not think that we should 
actively take steps to remove the dollar as a global reserve 
currency?
    Mr. Gensler. I am going to go a little further. I think a 
lot of our agenda at the SEC is about ensuring that we go as 
many years, as many decades as possible that we have the best 
capital markets. And I think the best capital markets 
undergirds are geopolitical standing and that helps the dollar 
be the leading currency.
    Mr. Timmons. We agree. I really appreciate that. It is 
disappointing that the President is nominating someone who 
disagrees with both of our positions on this. I guess, just 
quickly, if we do lose the dollar, the cost of import goods 
will skyrocket because foreign companies will no longer want 
dollars. We will lose our ability to borrow at current levels. 
Inflation will be higher than it already is after spending 
trillions of dollars we do not have. Interest rates will rise. 
It will crush the real estate market. All of that is bad, but 
even worse, our interest rate on our $32 trillion of debt would 
go through the roof. President Biden has nominated somebody who 
thinks that we do not need to have the position we have in the 
world. Thank you, Mr. Chairman. I yield back.
    Chairman McHenry. The gentleman from Nevada, Mr. Horsford, 
is now recognized for 5 minutes.
    Mr. Horsford. Thank you to the chairman and the ranking 
member for your leadership, and thank you to Chair Gensler for 
appearing before the committee. The sophistication and sheer 
size of the United States capital markets would not be possible 
without the competence and information provided by a strong 
Securities and Exchange Commission. Investor protection is 
paramount, and it is worth reiterating that as a result of the 
SEC, you have helped return hundreds of millions of dollars to 
defrauded Americans each and every year.
    Your consumer protection efforts go beyond enforcement 
actions to ensuring that every investor has access to the same 
timely, accurate, and complete information required to 
participate. So, I applaud the Commission's work around 
facilitating capital formation for U.S. markets, maintaining 
fairness and efficiency in those markets, and especially your 
strong stance on protection for Main Street investors.
    I know that having three pillars to your mandate can also 
create tension between differing objectives. However, I want to 
urge you to keep in mind that for many of my constituents in 
Nevada, and many all across this country, their main 
interaction with our vast financial system is through their 
retirement plans. For example, I commend the vision of consumer 
protection inherent in your open-end fund liquidity rulemaking, 
and I also agree that net asset value should be considered as a 
way to shield general shareholders from ending up on the losing 
side of a first mover advantage. However, as I understand it, 
this proposal would require open-end funds to implement a hard 
close at 4:00 p.m. Eastern Time.
    Upon first glance, this deadline does not seem too onerous. 
However, in Nevada, my constituents' retail investors often 
make their investments through intermediaries such as 401(k) 
plans and other retirement accounts. These hardworking Nevadans 
who aren't able to submit their orders directly to the fund 
would need to submit their orders to their intermediary hours 
beforehand, potentially as early as noon. So, I do not think I 
have to remind anyone here, but that would mean constituents in 
my State would miss out on today's price if they can't get 
their trades in by 9:00 a.m. Pacific Standard Time.
    Chairman Gensler, what would you say to investors who worry 
that a hard close will lead to a bifurcated market, where 
sophisticated investors will be able to utilize more 
information and lock in the day's price while others are forced 
to trade early in the morning? And additionally, do you see any 
ways to mitigate this disadvantage for West Coast investors 
while still implementing a swing pricing proposal?
    Mr. Gensler. What I would say to the constituents is that 
we have a system right now where the open-end funds and money 
market funds work really well for them during normal times. But 
in times of stress, which we have every so often, we have had 
to rely on our Federal Reserve and other means to sort of 
support them from time to time, for example, in the 2008 
crisis, and in 2020, and so forth. And what we are trying to do 
is find a way that those funds are less reliant on potential 
extraordinary measures by our central bank, and that is really 
what we are trying to do. And there is a bit of plumbing, there 
is a bit of infrastructure behind the scenes that when we, you 
and I, think we are putting in an order by 4:00 Eastern Time, 
or I guess, 2:00----
    Mr. Horsford. 1:00.
    Mr. Gensler. 1:00, so it is 3 hours' difference. Thank you, 
1:00 Nevada time that actually it is going to a retirement plan 
servicer, and then they are sending it, and we are trying to 
address and work--
    Mr. Horsford. It adds to the complexity of what I am 
raising, which is why it could not create some bifurcated--
    Mr. Gensler. Right, and it also adds to the challenge of 
the systemic risk issue that those fund managers may currently 
not know until late that evening or even the next morning, what 
redemption requests they have.
    Mr. Horsford. I would like to work with you on that. I am 
concerned about a two-tiered system. Let me just point out for 
the record that all three major credit rating agencies failed 
to forecast the existential risks that both Silicon Valley Bank 
and Signature Bank faced. And it is too late, in my opinion, to 
change ratings after an institution fails. So, I hope that you 
would assess the performance of the rating agencies and 
determine what the root cause of the inaccuracies was in their 
ratings. I think that is very problematic and something that 
needs to be addressed. I know there is a lot of oversight with 
your Agency, but this is something that should reach priority--
    Chairman McHenry. The gentleman from Pennsylvania, Mr. 
Meuser, is now recognized for 5 minutes.
    Mr. Meuser. Thank you, Mr. Chairman. Chairman Gensler, I am 
concerned about the SEC's proposed rule on swing pricing and 
how it may affect retirement plans. Many people think it is a 
rule in search of a problem. Have you consulted with the 
Department of Labor to do a study about the cost this 
requirement would add for retirement investors?
    Mr. Gensler. I know that we have discussed other rules with 
the Department of Labor, but I would have to get back to you on 
this rule, sir.
    Mr. Meuser. We would very much like to see such a study. 
This rule is, in fact, negatively affecting the financial 
future of nearly 2 million workers in Pennsylvania, so if you 
could, that would be great.
    Also, Chairman Gensler, I have grave concerns about how the 
SEC has handled its review of particularly high-profile S-4 
registration statements. I would like to start with concerns 
about potential conflicts of interest related to this S-4 
review. You were the CFO of Hillary Clinton's 2016 Presidential 
campaign, and as campaign chairman, John Podesta, testified 
under oath in 2017, you are ultimately responsible for funding 
the very discredited Steele dossier. Additionally, senior SEC 
enforcement official, Melissa Hodgman, is the spouse of former 
FBI Agent, Peter Strzok, and SEC General Counsel, Megan 
Barbero, has worked on two impeachments of the former 
President.
    However, neither you nor Ms. Hodgman nor Ms. Barbero have 
recused yourselves from the following. In May 2021, Digital 
World Acquisition Corporation (DWAC) filed a registration 
statement for its merger with Trump Media & Technology Group 
(TMTG). For nearly a year, the SEC has obstructed the merger, 
destroying billions--I said billions--of dollars in shareholder 
value and harming over 20 million individual retail investors 
the SEC is chartered to protect, including many of my 
constituents.
    The average processing time for an S-4 form in 2022, which 
as you well know is the last step in a merger like this, was 
134 days. Before your term as Chair, it was under 100 days. As 
of today, the DWAC has waited 337 days for the SEC to begin 
processing this form. This seems clearly out of the ordinary, 
correct?
    Mr. Gensler. The review of these forms, the merger forms 
when a special purpose acquisition company is buying a company 
and that company is going public are reviewed by our division 
of disclosure review. And, yes, it takes time to make sure that 
those filings are accurate and in compliance with the law, and 
we certainly had more of them in 2022 than 2021. You talked 
about the lengthening of that time.
    Mr. Meuser. Yes. I am focusing on this one, 337 days. Why 
should my constituents not be concerned that this out-of-the-
ordinary delay is caused by such conflicts of interest?
    Mr. Gensler. With all due respect, there are no conflicts 
here. This is just a matter of making sure that filings with 
the Securities and Exchange Commission accurately have the 
full, fair, and truthful disclosures in those documents.
    Mr. Meuser. Of course. Will the SEC ever approve the DWAC-
TMTG merger?
    Mr. Gensler. We do not have a role in approving or 
disapproving mergers. We do have a role of overseeing the 
disclosures with regard to those mergers, and it is really just 
the disclosure documents review.
    Mr. Meuser. Okay. What concerns should my constituents have 
who are shareholders in this very un-ordinary extended review 
process?
    Mr. Gensler. I would say----
    Mr. Meuser. They shouldn't have any concerns or they should 
have serious concerns because they are losing money?
    Mr. Gensler. Overall, again, not speaking about anyone's 
circumstance, but overall, it is about a 300-person unit that 
looks at these documents to see whether they are complying with 
the law and they are accurate.
    Mr. Meuser. Okay.
    Mr. Gensler. And yes, from time to time, we actually take 
an order. A five-member Commission takes an order to 
investigate further.
    Mr. Meuser. Are you familiar with this----
    Mr. Gensler. It is called an 8(e) order.
    Mr. Meuser. I am not familiar with that. I want to get to 
that, but Stable Roads, for instance, with which you are very 
familiar, has very similar procedural parallels to all of this. 
Ms. Hodgman bragged about the incredible speed, efficiency, and 
creativity. It was able to move forward even while under an 
aided investigation. What was the legal basis for refusing to 
process a registration statement based upon the existence of 
the so-called Section 8(e) examination? What is the legal basis 
for it?
    Mr. Gensler. Again, I am not speaking about anyone's 
circumstance, but Congress gave us authority under the 1933 Act 
that I talked about earlier, that Sam Rayburn fathered, to make 
sure that the disclosures to the public are accurate and 
complete.
    Mr. Meuser. Can this organization expect some sort of 
response from the SEC anytime in the near future?
    Mr. Gensler. Again, we work with registrants to make sure 
that their filings are accurate and complete.
    Mr. Meuser. Thank you. I yield back, Mr. Chairman.
    Chairman McHenry. The gentlewoman from Michigan, Ms. Tlaib, 
is now recognized for 5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman. And Chair Gensler, 
thank you so much for being here. As you know, climate 
disasters cost us money, right? Climate disasters cost the 
economy money. Is there an impact on the economy?
    Mr. Gensler. There is a lot of economic research which 
shows that----
    Ms. Tlaib. It is a pretty simple question.
    Mr. Gensler. ----climate risk has led to cost to the 
economy.
    Ms. Tlaib. Yes, like the disasters that a lot of my 
residents talk about. Somebody is paying the cost to clean it 
up. I know in Michigan, we have had several, I think, since 
2020--we have had about 11 different climate disasters, which 
resulted in about $2 billion in costs. So, it costs money when 
we have these climate disasters?
    Mr. Gensler. Yes. There are weather events. And there are 
other events that can occur.
    Ms. Tlaib. When you all put the rule out in regards to 
Scope 3 emissions, there was overwhelming support in the 
comments by investors for the proposed rule, correct?
    Mr. Gensler. There has generally been strong support 
amongst investors. There are some that are in opposition to so-
called Scope 3 disclosures.
    Ms. Tlaib. Yes.
    Mr. Gensler. But there's generally very strong support, but 
it's far more mixed on the issuer side.
    Ms. Tlaib. Actually, Chair Gensler, I read that 97 percent 
of investors supported the proposed rule of all the comments 
submitted. So I want to talk about, what is Scope 3?
    Mr. Gensler. One of the ways that investors have thought of 
to understand the climate risks of the companies they are 
investing in is their greenhouse gas emission, and then there 
are so-called emissions that are from the company itself, Scope 
1, from the electricity they buy. And then, there is this 
concept called Scope 3, the greenhouse gas emissions of their 
suppliers and their customers.
    Ms. Tlaib. Which is really important. Doesn't the European 
Union require some sort of disclosure around this? Already 
about 70 percent of public companies in America have to report 
to them in regards to that. I think they call those, if I am 
not mistaken, corporate sustainability reporting directives. Do 
they have a Scope 3 emissions disclosure?
    Mr. Gensler. The European Union's disclosure directive is, 
I believe, being finalized and going into place sometime this 
summer, but from public reports, yes, they would be covering--
--
    Ms. Tlaib. Seventy percent of U.S.-based public companies 
would have to report, correct?
    Mr. Gensler. Their regime in Europe says that if you 
operate in Europe or you are listed in Europe or you have over 
150 million euro, you are covered.
    Ms. Tlaib. Yes.
    Mr. Gensler. And The Wall Street Journal recently reported 
that about 70 percent of U.S. companies would meet that 
European standard.
    Ms. Tlaib. However, despite the importance of this, I think 
folks outside of Congress are generally very supportive of this 
proposed rule. Companies, though, under Scope 3, would have to 
determine what they think is important to report. Is that 
correct? It would be up to them?
    Mr. Gensler. What we have proposed is only about public 
companies. It is not about their suppliers, but the public 
company would be required to estimate.
    Ms. Tlaib. You are not worried about underreporting, 
because the way the threshold is, it literally only requires 
disclosure of Scope 3 emissions that they themselves determine 
to be important. I can go into detail and show you when you say 
things are illegal, no one ever talks about the fact that there 
is a huge trend within these public companies of inside 
trading, of violating the law. Enforcement is a different 
aspect.
    Mr. Gensler. You are right----
    Ms. Tlaib. But I am worried about underreporting here.
    Mr. Gensler. Yes. What we proposed was that those companies 
which found that so-called Scope 3, was material to them would 
have to report it.
    Ms. Tlaib. They get to decide. Chairman Gensler, I am 
really concerned at us allowing them to decide. Just look at 
Silicon Valley Bank, and I am so glad that Congresswoman 
Velazquez mentioned Section 956, and the fact that it has been 
12 years that we didn't even have this. We can't even claw 
back. But we know for a fact from the timeline that certain 
companies do certain things for profit, even though it is 
against the law.
    And I just feel like when we kind of let them decide 
whether or not it is important to report, I am really concerned 
about underreporting regarding the emissions impact. And I just 
want you to go back to the rest of the Commission and express 
this concern. You can't allow them to self-determine what is 
important. I think we need to tell them what it is.
    Chairman McHenry. Thank you. Votes have been called on the 
House Floor. The Chair's intention is to get through as many of 
these questions as possible, then we will recess for the 
purposes of these two votes on the Floor and will quickly come 
back. We will restart the hearing as soon as we have bipartisan 
attendance and then get rolling here.
    Mr. Fitzgerald of Wisconsin is now recognized for 5 
minutes. I think we will have time to get to Mr. Vargas next in 
the queue on the Democrat side, and then Mrs. Kim, if we have 
time.
    Mr. Fitzgerald. Thank you, Mr. Chairman. I will be quick. 
This was a question that Congressman Luetkemeyer had touched on 
earlier, and it is something that has been kind of a running 
theme, I think, as we have had the Fed and others come before 
the committee. So, sustainable homeownership is obviously a 
mechanism for young adults to try and get into the market and 
build wealth. However, access to affordable homeownership is 
increasingly out of reach in many communities across the 
country. And I have been trying to put this on a lot of 
people's radar so that they can kind of watch as we try to 
usher things forward.
    So, 65 percent of Wisconsinites are first-time homebuyers, 
have used private mortgage insurance, and without that tool, 
based on the median income and the median home value, it would 
take the average Wisconsin family about 10 years to save the 20 
percent it would take for a down payment. And at the end of 
January, the SEC re-proposed a rule regarding the prohibition 
against conflicts of interest in certain securitizations, which 
you are aware of, so the whole idea of the synthetic asset-
backed-securitization is what a lot of Members have been 
focused on.
    My question to you is, we feel that the rule could be 
overly-broad and ambiguous. And it could prohibit private 
mortgage insurers from procuring not only reinsurance in the 
capital markets, but just over the ordinary course of the U.S.-
regulated insurance businesses, it could tighten it too much, 
and I am just wondering if you all are in tune with that? We 
are very concerned that young adults between the ages of 25 and 
35 are going to miss the opportunity for this first-time 
homeownership, and we are not sure how we are going to recover 
from that.
    Mr. Gensler. I appreciate your raising it. It was a recent 
proposal, so I haven't gotten a summary yet of what is in the 
comment file. But in terms of this, I think what Congress 
addressed, and we are doing this because it was mandated by 
Congress, that people in the asset securitization markets--this 
is mortgage markets that are securitizing it in the 2008 
period--had some conflicts that were revealed in Congress that 
we had to address to make sure to address those conflicts. So, 
we are trying to follow up on Congress' mandate that we are 
required to do that, but I will certainly get back to you.
    Mr. Fitzgerald. Yes, and once again, I am putting it on 
your radar. I think it is a running theme. It is a big concern, 
I think, for many members of the committee, but thank you for 
your time. I yield back.
    Chairman McHenry. We will now go to Mr. Vargas of 
California for 5 minutes.
    Mr. Vargas. Thank you very much, Mr. Chairman. Again, I 
want to thank you and I want to thank the ranking member for 
convening this hearing. And I can see why you cherish the 
experience, Chair Gensler, coming here under seven different 
Chairs, and I imagine you could name them all if you were asked 
to do so. No, don't look, don't look, that is cheating. That is 
cheating, but anyway, of course, and again, I thank you very 
much.
    Now, I was going to go into a whole bunch of questions here 
and praise you because I am the co-Chair of the Congressional 
Sustainable Investment Caucus, and what you are doing, I think, 
is fantastic. And again, I appreciate it, but you kind of 
dropped the bomb on us in a second there. You said something 
and then you didn't get an opportunity to talk about it, and 
that is AI.
    I don't want to put words in your mouth, because enough 
people have done that today, but you said something like AI is 
really what is going to be much more transformative, with all 
due respect to crypto or these other things. You said something 
like that, and then you stopped. Could you elaborate?
    Mr. Gensler. I truly believe it. I think it is as 
transformative as the internet itself. It is going to affect 
all parts of our economy, whether it is radiology, whether it 
is driverless cars, but in finance, it is already being 
adopted. It is being adopted for call centers, for compliance, 
robo advising brokerage apps, and something called sentiment 
analysis, where even this hearing right now might be being fed 
right into a sentiment analysis to analyze whether the markets 
will go up or down, depending upon what the Chair said. This is 
Chair McHenry, not Chair Gensler.
    Mr. Vargas. Yes. We will have a picture up soon.
    Mr. Gensler. Yes.
    Mr. Vargas. Very nice.
    Chairman McHenry. Or it will probably be life-size, 
actually.
    Mr. Gensler. It is transformative, but it also raises 
public policy issues. And one of them that we are looking at is 
the SEC using predictive data analytics and robo advising, and 
in brokerage apps, are the applications just solely looking at 
the interests of the investors, or are they also looking at 
their own interests? And that might inherently have conflicts 
in the algorithms.
    Mr. Vargas. Okay. So as liberal as I am, I am actually 
conservative in the way I look at the world. When there are 
changes, it makes me a little nervous. For example, when we 
take a look at risk for insurance, and we take a look at ZIP 
Codes, and things other than the person's driving experience, 
miles driven and all of that, it makes me a little nervous. So 
when you get into AI, especially how it is going to affect core 
communities, people of color, does that not concern you?
    Mr. Gensler. I think it is a big challenge because right 
now, you can sweep the data up from your automobile driving. It 
is called telematics. You can sweep up your social media usage 
and sort of based upon that, decide how to underwrite and make 
a loan. There is research actually, interesting research that 
shows if you capitalize your letters for pronouns in your 
emails, you are better credit than if you don't. I am giving 
you sway a little bit, and if you charge your phone every 
night, you are better credit, believe it or not.
    So if it happens to be the people who capitalize their 
letters are of a certain race or ethnicity or gender and it has 
nothing to do with credit, but then we are embedding something 
into the systems which has inherent biases. So yes, I think you 
are right to have that consideration.
    Mr. Vargas. Okay. I know that we are pressed for time, so I 
am going to go ahead and yield back, and again, I thank the 
chairman.
    Chairman McHenry. I thank my colleague. Mrs. Kim is now 
recognized for 5 minutes.
    Mrs. Kim. Thank you so much. I know we are rushed with time 
here, but I have to say that in my ongoing conversations with 
those stakeholders in the financial industry, there are some 
things that they raise as concerning, and there is a theme 
here, which is the frantic pace, limited comment periods, and 
complexity of the rules proposed by the SEC under your 
leadership undermine the SEC's long-established three-part 
mission: to protect investors; to maintain fair, orderly, and 
efficient markets; and to facilitate capital formation.
    Persistent inflation is eating away the hard-earned savings 
of retirees, and now some of the proposals by the SEC will make 
it harder to save for retirement, and this is unacceptable. And 
I echo Representative Horsford's comments about the, ``hard 
close'' rule that would force investors to put in orders to 
purchase or redeem funds as early as 10:00 a.m. Eastern Time in 
order to get that day's price. As a Member of Congress who 
represents California, this is concerning, because my 
constituents may have to place orders way before they are 
getting out of bed. I just wanted to echo that comment and 
share that concern.
    Do you believe that creating a second-class citizen of 
investment is fair for my constituents or constituents who are 
asking for a level playing field?
    Mr. Gensler. It is actually trying to help them out and 
level the playing field to protect them, because it is the 
biggest institutions that are sometimes anticipating that the 
Federal Reserve will come to their support, and in times of 
stress, open-ended bond funds have made such costs to the U.S. 
Federal Reserve. And that is what we are trying to address, 
those implicit----
    Mrs. Kim. Thank you. I know you addressed that issue in 
Representative Horsford's question, so thank you. I know you 
are repeating that, too, but let me get to the next issue.
    According to your SEC Office of the Advocate for Small 
Business Capital Formation, women founders' share of funding in 
the private markets, specifically venture capital, remains a 
fraction of the overall capital raised. One way to reduce this 
gap in funding is by incentivizing more women fund managers in 
the industry, something I heard in my conversation in 
roundtable discussions I had with them. The SEC's private funds 
proposal restricts side letters, and it would raise barriers to 
entry into private markets and disadvantage new fund managers 
raising their first funds. So, have you assessed how moving 
forward with this rulemaking will inhibit new and emerging, 
especially women, fund managers from raising funds?
    Mr. Gensler. I think this rule proposal, if adopted, would 
really help a diverse array of investors. Those are the 
investors behind the pension funds that are in here and help a 
diverse array of small businesses. It would potentially lower 
the profits of the middle. That efficiency and competition 
would drive greater efficiency in the middle of the market, the 
asset managers. And I would imagine they would comment to you 
that they might have lower potential profits, but that is going 
to help investors on one side and small businesses on the other 
side, raising money from those private funds.
    Mrs. Kim. Thank you. Thank you for your comments on that. I 
want to make mention of the Commission's asset-backed 
securities (ABS) conflict of interest rule. As you know, there 
are many Americans who can save up for a 20-percent down 
payment on a home, but private mortgage insurance allows them 
to get into a home in a fiscally-responsible manner. And it is 
especially critical in Orange County, which I represent, which 
has some of the most expensive housing stock in the industry. A 
whopping 72 percent of first-time California homeowners use 
private mortgage insurance.
    Will you ensure that private mortgage insurance can 
continue to utilize the capital markets for transactions that 
are recognized by State regulators--FHFA and the GSEs--being 
important tools for prudent risk and capital management in 
today's housing market? Obviously, I am talking about the 
working-class and middle-class Californians whom I represent. 
They agree that PMI would be needed to give them access to 
homeownership. I want to get your thoughts on that.
    Mr. Gensler. As to the discussion with Representative 
Fitzgerald earlier, I will take this back and think about it, 
but we have to comply with a law passed by Congress that 
addresses these conflicts in the market.
    Mrs. Kim. Thank you.
    Mr. Gensler. Thank you.
    Chairman McHenry. Will you please provide that in writing?
    Mr. Gensler. Yes.
    Chairman McHenry. Thank you. We will now go to Mr. Green 
for 5 minutes, and then we will recess.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member as well. And Chairman Gensler, given that we are into a 
countdown to default because of my Republican colleagues and 
their failure to permit a vote on legislation to lift or 
suspend the debt ceiling so that we, the richest country in the 
world, might pay our bills, the hearing should really be about, 
in my opinion, the adverse consequences of the richest and most 
powerful country in the world failing to pay its debts because 
of politics. And questions to be answered would include what 
will the adverse consequences of default be on auto loans and 
other things that impact a good many people, such as mortgages 
and the stock market? What will the adverse consequences be on 
the $100-trillion capital markets, the largest in the world, I 
might add, or the adverse consequences on the dollar as a 
global reserve currency? And what are the likely adverse 
consequences on our need to attract investors to our Treasuries 
in the event of a default? Of course, the question of paramount 
importance would be, what is the likelihood of a Republican 
recession?
    So, Mr. Gensler, let me ask you, please, as it relates to 
our global reserve currency, what do you prognosticate the 
consequences to be on our status with our global reserve 
currency?
    Mr. Gensler. Representative, it is hard to predict, because 
we would be in uncharted waters, but it would be quite 
disruptive. The base of our markets is the U.S. Treasury. And 
you would envision that there would be more risk in that 
market, less liquidity, and that it would cost more as 
taxpayers to raise money in terms of the U.S. dollar, how it 
probably would be in more volatile times, but what would happen 
to its rates is hard to predict. But in terms of homeowners and 
the capital markets, we would be in for a lot of volatility. 
And we would take a hit in terms of future investors thinking 
about our capital markets in the same way they would have to 
price in the risk of this instability potentially happening 
again.
    Mr. Green. This is a good segue into the question with 
reference to the adverse consequences on the need to attract 
investors to our Treasuries. Our Treasuries are considered the 
best in the world. People believe that their money is secure 
when it is in an American Treasury. What would be the 
consequences?
    Mr. Gensler. Again, it is hard to predict, but it would be 
quite disruptive, and quite volatile and uncertain.
    Mr. Green. I thank you for your commentary and I will close 
with this: It seems to me that we should understand the 
importance of suspending or lifting the debt ceiling such that 
we don't get into these uncharted waters, because once we are 
in these waters, we may extricate ourselves, but the adverse 
consequences can be something that can last for a moment. And I 
am using, ``a moment,'' in a rather loose way because it could 
be much longer, obviously, than a moment. And I would hope that 
as you make your commentary to persons in these meetings that 
you have with them, that you would let them understand to a 
greater extent than we might share in the public our position 
with the reserve currency and the impact. There is a war for 
currency supremacy and currently we are winning, but we don't 
have to have this esteemed position forever. It can change. 
Your final comments?
    Mr. Gensler. I think you are correct, and it is what I was 
trying to state to the Representative 10 minutes ago. Part of 
our agenda is trying to ensure that our capital markets stay 
the most efficient, most resilient, and most fair so that we 
become and we stay the destination of choice.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman McHenry. We will reconvene immediately following 
votes. The committee stands in recess.
    [brief recess]
    Chairman McHenry. The committee will come to order.
    Chair Gensler, thank you for waiting for us to come back 
from votes, and thank you for making yourself available.
    I will now recognize the gentleman from New York, Mr. 
Garbarino, for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman, and Chair Gensler, 
thank you so much for being here. In addition to serving on 
this committee, I also chair the Cybersecurity and 
Infrastructure Protection Subcommittee of the House Homeland 
Committee Security. Congress plays an important role in 
encouraging agencies to achieve regulatory harmonization so 
there are no duplicative and burdensome regulations. We had a 
hearing last month where I heard from a number of stakeholders, 
including one from BPI, who said their cybersecurity employees 
spent anywhere from 30 to 40 percent of their time focusing on 
compliance matters instead of the day-to-day productive 
mission.
    Last month, the SEC decided to release 4 newly-proposed 
rules that contain more than 1,400 pages of regulatory language 
on cybersecurity and operational resilience for the capital 
markets industry. This comes nearly a year after the SEC 
proposed two other rules that would require issuers to publicly 
disclose a cybersecurity incident within 4 business days 
following the company's determination that the incident was 
material. Let me be clear. Given the existing workforce 
challenges that we are seeing across not only the financial 
services sectors, but all the rest of the 16 critical 
infrastructure sectors, we must ensure that we are not driving 
talent out of the cybersecurity workforce pipeline, because the 
Federal Government is not analyzing how rules and regulations 
interact with each other.
    With all of this in mind, do you know if the SEC has worked 
with the Cybersecurity and Infrastructure Security Agency 
(CISA) or other Federal agencies on the development of any of 
these proposals, or how can the SEC harmonize its many 
proposals with existing regulations and laws, such as the Cyber 
Incident Reporting for Critical Infrastructure Act (CIRCIA)?
    Mr. Gensler. I thank you for that, sir. Yes, we have had 
good conversation with CISA, with Director Jen Easterly, but 
also her staff with regard to the best standards that they 
think exist in terms of cyber resiliency and enhancing that for 
our investment advisors and broker-dealers.
    Mr. Garbarino. Okay. And that is great, but we need to do 
something consistent now. There is going to be a 72-hour rule 
there. You have a 4-day rule. The Comptroller of the Currency 
has another rule, 30 to 40 percent of having employees. And 
especially in the financial services sector, spending time with 
compliance leaves us vulnerable, and I think we need to do a 
better job. And it is not just you, but it is everyone that I 
think needs to continue to do that or do it better. Just a 
follow-up, yes or no, has the SEC conducted an analysis on how 
the two proposed rules from last year, if finalized, would 
impact the recently-proposed rules from this year?
    Mr. Gensler. We actually have reopened one of the rules 
from last year, which relates to investment advisors, and we 
reopened that to be simultaneous with these three new proposals 
because there might be some similar commenters.
    Mr. Garbarino. Okay. Thank you. I would now like to ask 
about another inconsistency between two rule proposals that you 
have pending at the SEC. The first is your proposal on short 
sale disclosures, which it seems to me prudently excludes 
individual position reporting to avoid negative consequences 
such as copycatting and herd behavior, and the disclosure 
contemplated there is on a monthly basis. And in contrast, your 
proposal on the securities-based swaps disclosure Rule 10b-1 
explicitly requires individual position reporting to be on a 
timeline of one day after the trade is placed.
    I just want to understand the distinction. Has the 
Commission made a determination related to front-running, 
copycatting, and herd behavior, which are clearly risks 
associated with the short sale disclosure but do not exist in 
the case of securities-based swap disclosures? And if that is 
so, how did you come to that conclusion, and what economic 
analysis was performed?
    Mr. Gensler. I would like to work with you and have SEC 
staff get back to you, because it is a detailed question, but 
each of these really were to address separate information. In 
terms of short sale disclosure, that actually is a 
congressional mandate as well out of Dodd-Frank, and we worked 
through that, but with regard to securities-based swaps, it was 
an authority that was given to us separately.
    Mr. Garbarino. Okay. Hopefully, we can get a more detailed 
answer because it just doesn't seem to make sense. I would 
think what is good for the goose, would be good for the gander 
here. So, I think maybe we can get back something more 
detailed.
    And I just want to spend the last bit of time, because I 
have 30 seconds left, to discuss the SEC rulemaking on 
regulated investment advisors. Chairman Gensler, it is clear 
that the SEC is rushing forward with its rulemakings without 
taking into consideration their full aggregate impact. One 
example is the unprecedented number of significant proposed 
rulemakings on regulated investment advisors; there are 
currently at least seven. As with the slate of other proposals 
that we have discussed today, it appears that the SEC has not 
provided analysis, economic or otherwise, of their aggregate 
impact.
    It is unclear if the SEC understands the ramifications on 
the pension plans, small businesses, and merging funds in New 
York and across the country. Just last week, Politico said that 
the New York City Pension Fund warned that some of the 
proposals would harm public workers. I think there are serious 
concerns surrounding some of these proposals, and I encourage 
you to rethink some of them. Thank you. I yield back.
    Mr. Flood. [presiding]. The gentleman's time has expired. 
The Chair now recognizes himself for 5 minutes.
    Chair Gensler, I want to follow up today on my March 30, 
2023, letter to you regarding Staff Accounting Bulletin No. 121 
(SAB 121) and the SEC's fundamental changes to the way banks 
and financial institutions are expected to account for the 
custody of digital assets. SAB 121 indicates that an 
institution acting as a custodian of digital assets should hold 
custody of digital assets on-balance sheet. I am concerned that 
the SEC's Office of the Chief Accountant underestimated the 
effects of SAB 121 and its requirement to put custodied assets 
on balance sheets and, as a result, banking organizations would 
effectively be precluded from serving as digital asset 
custodians. Chairman Gensler, you have not responded to my 
letter dated March 30, 2023, on SAB 121.
    I ask unanimous consent to submit my letter to Chairman 
Gensler into the record.
    Without objection, it is so ordered.
    I have a staff email in front of me, Mr. Gensler, 
confirming receipt of the letter, so I know the SEC received 
it. Can you explain why you failed to answer my letter, Mr. 
Chairman?
    Mr. Gensler. This is a letter that I just got in the last 2 
weeks, as I understand it.
    Mr. Flood. No, it is dated March 30, 2023, and I have a----
    Mr. Gensler. Two-and-a-half weeks ago. I'm sorry.
    Mr. Flood. Yes. I have a----
    Mr. Gensler. Let me just address again, the substance.
    Mr. Flood. I am going to reclaim my time.
    Mr. Gensler. Sorry.
    Mr. Flood. I do expect a written response very soon to that 
letter. And Chairman Gensler, I am new to this committee. I may 
not look like it today, but I sit way down on the dais. I have 
heard rumors that you are not particularly interested in 
communicating with Congress, the entities you regulate, or just 
about anyone else. As you can tell by how late I have been in 
the speaking order for this hearing, I am nowhere near one of 
the most-senior Members of Congress in this room. But let me 
remind you that everyone on this dais represents different 
parts of the United States of America, and by ignoring our 
letters, you are effectively ignoring the American people, and 
make no mistake, we will hold you accountable.
    Now that we have gotten that out of the way, let me move on 
to my questions. As you know, the Chairman of the Federal 
Reserve, Jerome Powell, said, ``Custody assets are off-balance 
sheet. They always have been.'' Congressman Barr asked you this 
morning about whether you conferred with the prudential 
regulators before issuing SAB 121. You said that you, 
``consulted with bank regulators subsequently.'' Can you 
clarify what that means? Does that mean you issued SAB 121 
without consulting with any of the banking regulators 
beforehand? That is a yes-or-no question.
    Mr. Gensler. Sir, I am going to try to address your 
question. Putting crypto assets off-balance sheet is also a 
recipe for further risk in the system and disaster for the 
system, and what----
    Mr. Flood. I am going to repeat my question, Mr. Gensler. 
Did you consult with Federal prudential regulators before 
issuing Staff Accounting Bulletin 121? That is a yes-or-no 
question.
    Mr. Gensler. And under the authorities Congress gave us, 
our Chief Accountant looked at what public companies' questions 
are and they consulted with the Big Four, they consulted 
internally, and they put out that Staff Accounting Bulletin.
    Mr. Flood. What feedback did you receive from the 
prudential regulators after issuing SAB 121? Did they identify 
any conflict between SAB 121 and prudential regulations?
    Mr. Gensler. Just as has happened in the past, they have 
their own authorities to take up what regulatory actions they 
would take, but we addressed just public company accounting, 
and today, in the U.S., there is no good regime. Once you take 
a crypto asset, a company, if you go into bankruptcy, there is 
no segregation. And until that is resolved and protected, that 
is very different than taking custody of equities, taking 
custody of fixed income.
    Mr. Flood. So, publicly-traded banks effectively would have 
to follow SAB 121?
    Mr. Gensler. That is correct.
    Mr. Flood. And you recognize what a huge difference that is 
from prudential Federal regulators with a family-owned bank? 
There is quite a difference. Do you think that is fair?
    Mr. Gensler. If you want to raise money in the U.S. public 
markets, then you have to follow accounting standards that 
properly account for your liabilities. And, sir, crypto 
assets----
    Mr. Flood. What about what Chair Powell said? He clearly 
said just the opposite of what you are arguing.
    Mr. Gensler. I am going to stay in our lane, and our lane 
is that Congress gave one agency oversight of public company 
accounting, and that is the Securities and Exchange Commission.
    Mr. Flood. My time has expired. The gentleman from New 
York, Mr. Lawler, is now recognized for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman. Mr. Gensler, how much 
money has the SEC spent to analyze the impact of climate change 
on capital markets since you took over?
    Mr. Gensler. Sir, we have about a $2-billion-plus budget, 
and part of that is our Economics Unit of about 160 people, but 
our remit is just about the disclosure regime. If I understand 
your question about climate risk, we are not a climate risk 
regulator. We are a disclosure regulator and a capital markets 
regulator.
    Mr. Lawler. Okay. How much money have you spent doing that 
function?
    Mr. Gensler. Our oversight of the capital market is $2-
billion-plus a year.
    Mr. Lawler. Okay. Is it your view that the SEC should be 
guiding companies and investors in the type of investments they 
are making?
    Mr. Gensler. As mandated by Congress, we are merit neutral. 
Investors get to decide which investments they take, but it is 
based on full, fair, truthful disclosure, so that is our remit.
    Mr. Lawler. So investors get to decide, but you believe ESG 
should be a component of that decision-making process?
    Mr. Gensler. What we know today is that hundreds of 
companies are making disclosures with regard to climate risk, 
and investors across the spectrum, from small investors to 
large, are currently using those climate risk disclosures in 
their investment decisions.
    Mr. Lawler. But do you believe that should be kind of a 
guiding principle of how people invest?
    Mr. Gensler. It is currently happening in the U.S. and 
around the globe, and so what we have a role to do is to help 
bring some consistency and comparability with disclosures that 
are already happening.
    Mr. Lawler. Does the SEC deserve any culpability in the 
collapse of FTX?
    Mr. Gensler. A number of entities in the crypto field are 
non-compliant with U.S. law, as adopted by Congress over the 
years, and we are going to be a vigorous cop on the beat to 
help bring them into compliance.
    Mr. Lawler. Respectfully, that is not what I asked. I 
asked, does the SEC deserve any culpability for the collapse of 
FTX? Yes or no?
    Mr. Gensler. I think that when people are defrauding the 
public, we go after them, and that is what have done here and 
elsewhere.
    Mr. Lawler. Sir, you are not answering my question. I am 
asking you a very simple, straightforward question. Does the 
SEC deserve any culpability at all?
    Mr. Gensler. I understand your question. I am very proud of 
the SEC and its staff, and we will continue to pursue to 
bring----
    Mr. Lawler. So, you don't believe the SEC deserves any 
culpability with respect to the collapse of FTX?
    Mr. Gensler. We have a whole field in crypto that 
understands the law, and if they are providing exchange 
services, broker-dealer services, clearing services of crypto 
security tokens, they should come into compliance or----
    Mr. Lawler. Okay. Reclaiming my time. Why didn't the SEC 
take action on FTX's alleged secret lending of at least $4 
billion to Alameda Research?
    Mr. Gensler. Again, I am not able to talk about specific 
companies or investigations, but I will say, all of these 
companies should come into compliance with the law. And until 
they do, we will continue to pursue as a cop on the beat and 
investigate and follow the facts and law, but it takes time to 
build cases. It takes time to do them as thoughtfully and 
carefully as you would want us to do.
    Mr. Lawler. I would just like you to answer my question, 
but that is fine. As you have proceeded with such drastic 
rulemaking at a rapid pace, the SEC's Office of Inspector 
General (IG) raised significant concerns with your short 
comment periods, which limit the amount of feedback that SEC 
staff receives. Why have you ignored the IG and pushed for 
shortened comment periods?
    Mr. Gensler. We benefit greatly from the comment period. 
So, on average, we have our rules outstanding for about 70 to 
80 days from when we----
    Mr. Lawler. I would just remind you, at a Bloomberg 
conference, you said you don't trust industry participants to 
provide honest feedback. So, do you actually benefit from 
comment periods?
    Mr. Gensler. Yes, we very much benefit from comment----
    Mr. Lawler. So you take back your comments where you said 
you don't trust their feedback?
    Mr. Gensler. The feedback that we get is helpful, and it is 
part of the robust input from the----
    Mr. Lawler. So, you do trust their feedback? Your quote was 
that you don't trust industry participants to provide honest 
feedback. Do you or don't you?
    Mr. Gensler. We rely on that feedback as part of our 
ongoing--
    Mr. Flood. The gentleman's time has expired.
    Mr. Lawler. Your obfuscation is amazing. Congratulations.
    Mr. Flood. The gentleman from Iowa, Mr. Nunn, is now 
recognized for 5 minutes.
    Mr. Nunn. Thank you, Mr. Chairman. And thank you, Chair 
Gensler, for joining us today.
    In my State of Iowa, we have over 400 insurance companies, 
many of them very small, but they invest over $66 billion in 
our local economy. When I was on the financial services 
roundtable last week in my hometown, Des Moines, everyone 
around the room was really focusing on the severe impacts of 
your agencies, intentional or unintentional. But I would like 
to get to the bottom of this hard close and swing price 
proposal on Main Street retail investors.
    Earlier today, you highlighted the fact that this plan 
would favor small businesses, but honestly, I don't know that 
they feel the same way. I am very concerned about swing pricing 
and hard close proposals that have drawn strong opposition from 
both industry and consumer advocates with, most recently, the 
Consumer Federation of America arguing it would basically 
create a two-tier market here, which would benefit 
sophisticated investors at the expense of Main Street guys back 
in my hometown of Des Moines. The rule would limit access to 
trading and impose additional costs on hardworking Americans' 
401(k) plans, our nurses with 457 plans, and our teachers with 
403(b) plans. In fact, your proposal acknowledges that these 
middle-class investors may lose their ability to manage their 
investment through the close of the stock market at each day.
    Chair Gensler, my first question to you is, do you believe 
the 401(k) saver should have access to current pricing of 
mutual funds they are buying or selling?
    Mr. Gensler. I think that 401(k) as well as many other 
retirement plans benefit from this----
    Mr. Nunn. I absolutely agree with you on that.
    Mr. Gensler. ----elective investment vehicle.
    Mr. Nunn. Yes. In other words, the pricing of the security 
is a crucial factor that savers should consider when making 
this investment decision, correct?
    Mr. Gensler. If I understand your question, yes.
    Mr. Nunn. Good. Then, why is the SEC effectively picking a 
winner model and a loser model?
    Mr. Gensler. We are trying to address a systemic risk that 
exists in our capital markets right now, that in times of 
stress, the open-ended bond fund community has come and called 
upon the Federal Reserve for assistance. So, it is really a 
matter of how wide is the public safety net? And I know that my 
dad, if he was in trouble when he had a small business, he 
wouldn't have had the U.S. Government help bail him out.
    Mr. Nunn. That is right.
    Mr. Gensler. We try to lower that risk in these bond funds.
    Mr. Nunn. I want to get into the details here then because 
mandating a hard close for mutual funds is not a new idea. And, 
in fact, it was proposed over 20 years ago, back when I still 
had all brown hair and was working for then-financial chairman, 
Senator Chuck Grassley across the aisle, a good man from Iowa, 
who recognized this, and I believe talked with your predecessor 
about how dangerous this could be. In fact, in 2004, he 
proclaimed that hard closes will be the end of same-day 
execution of trades for many retirement plan investors.
    Mr. Chairman, it is my understanding that swing prices 
currently is an option for funds used today. Isn't it true that 
no funds have utilized swing pricing since the SEC's 
authorization in 2016?
    Mr. Gensler. I would have to get back to you. I think it 
has had limited use at most.
    Mr. Nunn. The answer is no. If no funds have found it 
worthy, why would the SEC mandate it?
    Mr. Gensler. It is really to address the systemic risk 
issues and a voluntary system to do something to protect the 
overall system sometimes doesn't work as well as when you 
actually have to--
    Mr. Nunn. Mr. Chairman, I believe that is your perspective. 
But we have had so many folks who have told us the direct 
opposite. And I hope that you will be open to hearing them. I 
know that you are providing that feedback comment, but 
overwhelmingly, it seems like this is falling, for many of my 
folks, on deaf ears. I want to ask, what makes you believe the 
retail investor would not face the same negative impacts and 
burdens now based on the decision that you are proposing going 
forward?
    Mr. Gensler. It is really a risk trade off, but right now, 
the American public is holding this stress risk that our 
Federal Reserve might need to help support this over our 
collective investment vehicles. And we are trying to address 
that through these real proposals, but, again, the public 
feedback is helpful.
    Mr. Nunn. I would offer that you are taking a long vision 
of something on which we have very little feedback. Isn't it 
true that you have proposed roughly 50 rules since the spring 
of 2001?
    Mr. Gensler. In the last 2 years, 46 rules.
    Mr. Nunn. Okay. Very nice. I think you are working your way 
very quickly to 50. Has the SEC done a cost-benefit analysis 
that impacts the aggregate of these rules?
    Mr. Gensler. We do cost economic analysis on each and every 
one of them and sometimes the subcomponents on each and every 
one of them.
    Mr. Nunn. Chair Gensler, as we move forward on this, my 
aim, and I think the aim of many in this room, is to help the 
mid- and low-level investor be successful not just in their 
retirement, but in their future going forward. I hope you will 
be open to listening to them. I yield back my time, Mr. 
Chairman.
    Mr. Flood. The gentleman's time has expired. The 
gentlewoman from Texas, Ms. De La Cruz, is now recognized for 5 
minutes.
    Ms. De La Cruz. Thank you, Mr. Chairman, for holding this 
important hearing today and allowing Congress to administer its 
critical oversight duties. And thank you to the witness, 
Chairman Gensler, for taking the time to appear before Congress 
today. Now, given the SEC's primary mission to protect 
investors, maintain fair and efficient markets, and facilitate 
capital formation, do you believe it is appropriate to 
prioritize environmental, social, and governance issues?
    Mr. Gensler. We prioritize investors and issuers alike. And 
as I said earlier, we are merit neutral, but we do have a 
proposal to help bring consistency around climate risk 
disclosures because markets already are investing and relying 
on disclosures around climate risk.
    Ms. De La Cruz. I think that would be a matter of opinion. 
The breadth of your climate proposal implies a nearly limitless 
understanding of the Commission's authority, and that is a real 
concern today that is contrary to the context and history of 
the Securities Exchange Act. Now, Congress has dictated the 
disclosure rules must focus on investors, as investors have 
focused on financial returns, not investors that have other 
objectives or motivating resources. Can you explain how carbon 
emissions disclosure is related to financial returns to all 
public companies, including companies that have determined it 
is not material for the purpose of their financial filings?
    Mr. Gensler. Investors today receive climate risk 
disclosures from hundreds of companies, including greenhouse 
gas emissions, as you noted. And those investors want to 
compare and contrast those different companies and make sure 
that there is some consistency of those disclosures. And it is 
really the investors who are saying it is material to them to 
understand those disclosures.
    Ms. De La Cruz. Let us talk about that. Congressman Barr 
gave valuable insight as to the United States' strength in 
private capital. He stated that 50 percent of the world's 
private capital comes from the United States, while only 20 
percent comes from the EU. With your current rule in place, it 
seems that your philosophy is moving away from the strength of 
our United States capital market and closer to a European 
system, which is contrary to your own comments indicating our 
unique market strength. That being said, are you in favor of an 
EU regulatory regime?
    Mr. Gensler. We have different laws. We have different 
capital markets than Europe, and we, the SEC, live within the 
authorities we have here, and I think we benefit from robust 
public markets and private markets here in the United States.
    Ms. De La Cruz. During this hearing, you talked about the 
private investor and their importance in this process and about 
hearing their voice. During this hearing, you said there were 
1,500 letters of support for your climate disclosure rule. With 
millions of retail investors in our country, 1,500 is a very 
small number. Nonetheless, of the 1,500, how many of those came 
from small business owners or individuals?
    Mr. Gensler. We would have to get back to you. It is 
actually 15,000 comments that we have, but I would be glad to 
have staff get back to you on that.
    Ms. De La Cruz. That would be important because as my 
colleague, Mr. Lawler, brought out, a statement that you said 
at a Bloomberg conference earlier this year, that you don't 
trust industry participants to provide honest feedback, but you 
are talking about these 15,000 letters that you received, that 
were giving support to this climate disclosure.
    Before taking on the role as a Congresswoman, I was a small 
business owner and individual retail investor, saving my hard-
earned money into market with the goal of maximizing my dollar 
for, ultimately retirement, and I think that is what the 
everyday American is doing on Main Street America. And I think 
that most people would agree that they want their dollar to 
grow for retirement and not to be impacted by partisan policies 
such as ESG that would ultimately negatively impact their 
retirement.
    Mr. Flood. The gentlewoman's time has expired.
    Ms. De La Cruz. Mr. Chairman, I yield back.
    Mr. Flood. The gentlewoman from Indiana, Mrs. Houchin, is 
now recognized for 5 minutes.
    Mrs. Houchin. Thank you, Mr. Chairman. And thank you, Chair 
Gensler, for your testimony here today. Chairman Gensler, many 
times before Congress, most recently in September of 2022, you 
stated your belief that the vast majority of digital assets are 
securities. And in February of 2023, you stated that everything 
other than Bitcoin is a security. In a March of 2023 op-ed, you 
changed your tune slightly and asserted that most digital 
assets are securities. If your own view has continually evolved 
on these statements, how can you assert that the law is clear 
on the issue if you yourself have vacillated on it?
    Mr. Gensler. I actually think I have been consistent. 
Sometimes, reporters report the same conversation differently, 
but let me state it here. Most of these have a group of 
entrepreneurs in the middle and the public is relying on their 
efforts. There is a website, there is a Twitter account they 
are relying on.
    Mrs. Houchin. I want to reclaim my time. Earlier in the 
hearing, you stated that your agenda at the SEC is to ensure we 
have the best capital markets for years to come, and in an 
ecosystem as borderless as the digital asset industry is, 
competition between countries to attract and retain investors 
is critical. A key factor in this competition is whether the 
country has a clear regulatory framework, which the United 
States currently does not have. The European Union just 
provided this clear regulatory framework through its markets 
and crypto assets regulation, and we are already seeing digital 
asset firms move jobs and capital to European jurisdictions as 
a result.
    Have you considered the impact that the policies you 
furthered as Chair of the SEC will have on digital asset firms 
leaving the United States? If so, what is your assessment of 
that impact? Does it align with your statutory duty to 
facilitate capital formation in the United States?
    Mr. Gensler. Our duty is to protect the investors and the 
issuers to access the capital market, and if there is so much 
non-compliance, then people will have lower trust in our 
capital markets, which could hurt the rest of our capital 
markets.
    Mrs. Houchin. Chairman Gensler, if you are regulating by 
enforcement action versus having a clear regulatory framework, 
I am not sure how there can be the certainty in that, sir.
    Mr. Gensler. If I can say, we have a clear regulatory 
framework built up over 90 years. It is just a bunch of 
intermediaries in this market that think they have a choice. 
They do not have a choice. They are noncompliant generally, and 
they need to come into compliance.
    Mrs. Houchin. Given that your own statements have 
vacillated, Chairman Gensler, I think it is clear that the lack 
of clarity on this issue has not done anything to help this 
industry thrive in the United States. There is a constant 
threat of regulation through enforcement by your Agency, and 
that has driven innovators and those who want to play by the 
rules elsewhere.
    Switching gears to capital formation, Chairman Gensler, 
what specific steps is the SEC taking to promote capital 
formation in light of the decline in public companies, and slow 
IPO activity. How is the Commission balancing the 
implementation of so many costly regulatory disclosure 
requirements with its statutory obligation to facilitate 
capital formation?
    Mr. Gensler. In every proposal that we make, any adoption 
we make, we look at the effect on capital formation. It is a 
key part of what we do, but we are trying to drive greater 
efficiency in the middle of the markets.
    Mrs. Houchin. Chairman Gensler, why was the industry not 
allowed to collaborate on many of the proposals before they 
were published, including a proposal on equity market 
structure? The comment files for the equity market structure 
proposals are overflowing with letters from financial services 
firms representing the interests of hundreds of millions of 
retail investors. These letters raise serious concerns about 
the impact that the contemplated changes will have.
    In light of all of these alarm bells, don't you agree that 
a better approach would be for the SEC to withdraw the 
proposals and take its time to conduct a holistic review, 
gather input from financial services firms, and study the 
market structure, rather than proceeding recklessly with an 
untested experiment that risks harms to the markets of everyday 
retail investors?
    Mr. Gensler. With all due respect, I am very proud of what 
we put out. We built upon years of experience. It has been 17 
years since we updated some of these foundational rules for 
better equity markets, and we met with a lot of people in the 
market before the--
    Mrs. Houchin. Can you assure us today that the equity 
market structure proposals will not result in increased 
commission costs, delayed execution, less favorable terms, and 
other harmful items to retail investors?
    Mr. Gensler. Again, they are out for public comment, but 
the goal is to drive greater efficiency, so that would lower 
costs.
    Mr. Flood. The gentlewoman's time has expired.
    Mrs. Houchin. Thank you. I yield back.
    Mr. Flood. The gentleman from Tennessee, Mr. Ogles, is now 
recognized for 5 minutes.
    Mr. Ogles. Thank you, Mr. Chairman. Chair Gensler, I want 
to follow up on Chairman Huizenga's last question regarding Sam 
Bankman-Fried and the Justice Department. He was talking about 
the memo, the request, about any communication between the 
Justice Department and your Agency. Is it fair to assume that 
you are about to say that the Department of Justice is 
responsible or implicated in the production of that document 
regarding the charges to Sam Bankman-Fried?
    Mr. Gensler. No. Let me say two things. One, it is really 
important to protect investigative files because there are 
things in investigative files that are private. And we put out 
then in a charging document, for the court to review and the 
public to review, the important information about those 
charges, but an investigative file is important just to keep 
confidential. Two, the Justice Department conducts parallel 
investigations, and that is a separate matter as to whatever 
they do.
    Mr. Ogles. So, a memo was requested. That should be an 
internal document from your Agency. You and your Agency report 
to this committee, so you should be able to produce that 
document.
    Mr. Gensler. Again, sir, I have a deep belief in and 
respect for congressional oversight, but we are working with 
the committee staff here. We are working with the members that 
you meant to try to address their issues. We have met, the 
staffs have met, have continued to brief as to how we 
deliberate and how we approach enforcement matters. But it is 
also really important----
    Mr. Ogles. I will reclaim my time.
    Mr. Gensler. ----that we protect investigative files.
    Mr. Ogles. We have a Department of Homeland Security that 
gets secret documents to the committee that can be reviewed in 
the Sensitive Compartmented Information Facility (SCIF). There 
can be a process here by which you oblige this committee and 
produce the documents that have been requested. It is that 
simple. If I wanted to hear preaching, I would go to church. 
You were asked a question. A document was requested. You have 
an obligation to produce it. Now, if we need to take 
extraordinary measures to protect the information within that 
document, it can be done, but please spare me the preaching.
    Chairman McHenry and Representative Huizenga both mentioned 
that your responses have been inadequate. Your staff have 
relayed to the committee that you have four full-time employees 
in the Office of the General Counsel, and are working with 
one--I repeat, one--IT staffer to address the concerns of 
Congress and the committee. Given the size of your budget, do 
you plan to continue using inadequate resources to respond to 
this committee?
    Mr. Gensler. Again, I know that our staffs have been 
meeting and discussing and trying to work together to get to 
your goals and we believe in that oversight. We have actually 
added some resources. These are very broad requests, these two 
requests that you just referenced.
    Mr. Ogles. I understand, but clearly, there is some 
additional scrutiny. Clearly, there is a need for more 
personnel. So, you are either intentionally obstructing or you 
are just not a good manager, okay? No offense. As we move 
forward, when you look at the uncertainties in the marketplace, 
well-educated recessionary pressures, inflationary pressures, 
this committee has questions. Unfortunately, you are unable or 
unwilling to provide the appropriate answers. That bothers me. 
That concerns me.
    I go back to the Securities Acts of 1933 and 1934, and the 
trifecta of the directive for your agencies: one, to protect 
investors; two, to maintain fair, orderly, and efficient 
markets; and three, to facilitate capital formation. That seems 
pretty clear. And yet, with ESG, you delve into this realm of 
environmental regulatory regime. Is the SEC widely known for 
its expertise in science?
    Mr. Gensler. We are a capital markets regulator. We are 
merit neutral. We don't make, and we are not through this 
rulemaking addressing, climate policy.
    Mr. Ogles. To be clear, no one is looking to the SEC for 
scientific guidance.
    Mr. Chairman, I am out of time, so I yield back. Thank you.
    Mr. Flood. The gentleman's time has expired. The gentleman 
from South Carolina, Mr. Norman, is now recognized for 5 
minutes.
    Mr. Norman. Thank you. Chair Gensler, thank you for being 
here today. I think you have heard a lot of frustration with 
you about your response time, about getting back to the 
committee, and about you passing regulations and not giving 
enough time for comments. You have 4,500 staff members, you 
have 6 divisions, and you have 25 offices located in D.C., so 
to not respond, even if it is complicated and broad, like you 
said, you need to at least respond with something. That hasn't 
happened. I hope you will take note of the frustration that so 
many Members have had and outside of this chamber have had 
specifically on the job that you are doing and the non-
response.
    I am in the real estate business. For the houses that we 
sell, the buyers have to get private mortgage insurance (PMI), 
Mortgage Insurance-Linked Notes (MILNs), I think you 
understand. Can you give me a yes or no, will you ensure that 
private mortgage insurers can continue to utilize the capital 
markets for the MILN transactions which are recognized by State 
regulators, recognized by the FHFA and the GSEs, and are 
important tools in the housing market today? Yes or no, sir? It 
is very easy. I only have 5 minutes. Just yes or no?
    Mr. Gensler. I understand----
    Mr. Norman. Will you ensure that you will utilize the 
capital, allow this to happen with MILNs? Okay. Would you just 
get back with me on that?
    Do you understand the major questions doctrine?
    Mr. Gensler. I understand that the Supreme Court last year 
articulated a doctrine that, in essence, it existed but 
articulated it in a case last year.
    Mr. Norman. It is basically common sense, that statutory 
interpretation, and it has to do with the Agency's rulemaking 
authority. It is not unlimited. You just cannot go out willy-
nilly and pass regulations without getting congressional 
approval. Do you agree with that?
    Mr. Gensler. We live within the authorities granted by 
Congress. They are not unlimited, I agree with that, and we 
live within how the courts interpret our authority.
    Mr. Norman. Then why, on March 21, 2022, did your Agency 
propose a 500-page climate disclosure rule that would replace 
the voluntary sustainability report with mandatory disclosures, 
with the dollars this cost, in the hundreds of millions? Does 
that not fall under what we were just talking about?
    Mr. Gensler. I think that it is within our authorities that 
there are existing authorities, very clearly, that many, many 
companies, hundreds are currently making these----
    Mr. Norman. So, you are just going to do it?
    Mr. Gensler. ----disclosures and to bring some consistency 
to those disclosures----
    Mr. Norman. But you are just going to do it without 
bringing it before Congress. You just intend on doing that. I 
get that. What is your opinion of the Clayton-era proposals 
that you eliminated?
    Mr. Gensler. I have great respect for Chair Clayton, but 
which proposal, sir, are you referencing?
    Mr. Norman. The one I am talking about is the rulemakings 
where you have an appropriate cost-benefit analysis before you 
put your rules into effect.
    Mr. Gensler. We are using the same guidance from 2012 that 
I think predated Chair Clayton. It is internal guidance about 
how we do cost-benefit analysis, and we are using the same 
approaches that I believe--
    Mr. Norman. But you pretty much did away with it, didn't 
you? You are not getting the cost-benefit analysis before your 
proposals were put into place.
    Mr. Gensler. Sir, with all due respect, we actually are. We 
put out cost-benefit analysis in our proposals. And for all of 
our final rules, we take public comment, we update them, we 
adjust them, we adjust rules.
    Mr. Norman. Here is what I would ask you to at least 
consider. In the last 24 months, you have put up 53 rule 
proposals. For previous heads of the SEC in 24 months: Ms. 
White did 23; and Mr. Clayton did 26, in 20 percent less time 
for input from those that are paying your salary and are trying 
to run institutions. You have had 60 days for public comments 
on some of these rulings, which is not enough time, but which 
you are on record as saying is a lot of time. You basically do 
not value those that much.
    Mr. Gensler. I am on on record saying I do value them.
    Mr. Norman. Do value, okay. For every dollar that you 
spent, whether it is environmental regulations that you are 
just putting on the businesses or trying to survive the lack of 
input, theoretically, I think you believe that more than you do 
your real-life examples that these institutions are going over, 
and I hope you take this to heart. I yield back.
    Chairman McHenry. The gentleman yields back. We will now go 
to the gentleman from Florida, Mr. Donalds, for 5 minutes.
    Mr. Donalds. Thank you, Mr. Chairman. Chairman Gensler, I 
am last but not least, so why don't we just get to it? The 
Commission has been extremely active on the rulemaking front 
during your tenure at the Agency's helm, with dozens of rules 
proposed and issued, many overlapping in scope and topic. Many 
of the new rule proposals also relate to security-based swap 
markets and may duplicate the requirements only recently 
implemented. First, have you considered the impacts of 
proposing new and additional regulatory burdens on this market 
when the full effects of Title VII rules are still unknown? 
Second, and just as important, have you done a fulsome analysis 
on the impact of the rules markets, specifically as they relate 
to market liquidity?
    Mr. Gensler. With regard to the securities-based swap 
market, we have, I think it is three different rule proposals, 
and for each of them, we have done a full economic analysis, 
which is put out for public comment. And that is related to the 
swap execution facilities in the swaps markets, relates to 
large trader reporting is a separate rule proposal. And third, 
we made a proposal around any manipulation in the markets. A 
number of these are actually required by Congress--the first, 
the swap execution facilities, for sure.
    Mr. Donalds. While we are on a position of rules, let me 
ask you this question. It is actually a follow-up from my 
colleague, Mr. Norman. On your climate disclosure rule, 500 
pages, you say that is the way we can have uniformity in 
disclosure. But what provision are you using to create 
authority for large climate disclosure when Congress never gave 
you one?
    Mr. Gensler. Congress did give us authority around 
disclosures in both of our first Acts, the 1933 Act and the 
1934 Act.
    Mr. Donalds. Chairman Gensler, can you honestly sit there 
and tell me that in 1933 and 1934, Congress actually 
anticipated climate disclosure rules?
    Mr. Gensler. They did not anticipate many things. It was 90 
years ago. But what they did anticipate is that companies 
needed to be truthful in their disclosures and----
    Mr. Donalds. Truthful in their disclosures around their 
financial practices, around assets, liabilities, earnings per 
share, return on equity, and I can go on and on and on, but 
potential climate risks, Congress never anticipated that. 
Never.
    Mr. Gensler. No, it is broader than that, sir, because it 
is also companies today are already making significant 
disclosures about climate risk.
    Mr. Donalds. If they do that of their own volition, that 
does not give you the authority to make everybody do it. Just 
because some are doing it, it does not mean you have to make 
sure everybody does it.
    Mr. Gensler. With all due respect----
    Mr. Donalds. Chairman Gensler, do you disclose how many 
blue shirts you own? Should we be able to pass a law that makes 
everybody disclose how many blue shirts they own?
    Mr. Gensler. Companies that are in the business of raising 
money from the public are supposed to----
    Mr. Donalds. Chairman Gensler, every publicly-traded 
company raises money. Every one of them does it. That is why 
they are in the public markets.
    Mr. Gensler. Right.
    Mr. Donalds. But that does not mean that you get to 
arbitrarily create some rule out of thin air that we never 
granted you to make them regulate on climate emissions. We 
never did that.
    Mr. Gensler. They are already making disclosures and it is 
bringing----
    Mr. Donalds. Yes, but you do not have the authority to make 
it uniform, because we never gave you the authority. You are 
making a determination and the definition without congressional 
authority. Yes or no?
    Mr. Gensler. We do have authority, sir.
    Mr. Donalds. You are making a determination and a 
definition without congressional authority. Yes or no?
    Mr. Gensler. It is the same authorities that----
    Mr. Donalds. Yes or no?
    Mr. Gensler. Will all due respect, sir, it is the same 
authorities that we use when we said you have to disclose 
material risk, you have to disclose management discussion and 
analysis.
    Mr. Donalds. But material risk and management discussion 
goes to the actual operations of the business itself. What you 
are talking about is something dealing with the outside aspects 
associated with the business. I am going to reclaim my time and 
move on to something else.
    You said earlier in another line of questioning that the 
players in the digital asset space do not have a choice, that 
they have to comply with the rules. But once again, Congress 
has never given you a framework for regulating digital assets. 
Where are you pulling that one from?
    Mr. Gensler. With all respect, sir, we disagree on this.
    Mr. Donalds. I can see we disagree on a lot, Chairman 
Gensler, because we are not giving you the authority; you are 
just taking it. I think that is the best part of the issue 
right now.
    Mr. Gensler. With all due respect, Congress painted with a 
broad brush when they set up the SEC, and I quote Thurgood 
Marshall, which is one of the greatest----
    Mr. Donalds. Congress painted with a broad brush in 1933 
and 1934, not in 2023. We have not touched that. It is a new 
industry. One last quick question because I am concerned about 
your Agency. You have some of the highest turnover amongst the 
Agencies. Do you think you have the manpower to actually 
regulate digital assets, considering all of the other 
rulemakings in which you are engaged?
    Mr. Gensler. We actually have 6 percent to 7 percent 
turnover, which is consistent with the other Federal 
financial----
    Mr. Donalds. I would disagree. And OPM would say otherwise, 
Chairman Gensler. Quickly, last question--and I think this 
might have come up already--you were Hillary Clinton's CFO in a 
campaign, right?
    Mr. Gensler. It is part of my history.
    Mr. Donalds. Were you? Yes or no?
    Mr. Gensler. In 2016.
    Mr. Donalds. Did you facilitate the payment for the Steele 
dossier since you were CFO at the Hillary Clinton campaign? Yes 
or no?
    Mr. Gensler. Sir----
    Mr. Donalds. Yes or no?
    Mr. Gensler. That was not----
    Mr. Gensler. You are under oath, Chairman Gensler. Yes or 
no?
    Mr. Gensler. I know. It was not something of which I was 
aware.
    Mr. Donalds. I yield back the rest of my time. Thank you, 
Mr. Chairman.
    Chairman McHenry. The gentleman's time has expired. I would 
like to thank the witness. It is late in the day, and he has 
been willing to take Members' questions. And as I have told the 
Chair privately, we may disagree on actions and matters of 
policy, but I thank you for your willingness to engage in this 
forum. That is meaningful and is noteworthy, and I very much 
appreciate it. In written form, when we request documents, we 
would like to have that same level of compliance and interest 
in complying as your physical presence and willingness to 
answer questions. With that, I would like to thank Chair 
Gensler for his testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing is adjourned.
    [Whereupon, at 3:25 p.m., the hearing was adjourned.]

                            A P P E N D I X


                            April 18, 2023
                            
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