[House Hearing, 113 Congress] [From the U.S. Government Publishing Office] OVERSIGHT OF THE SEC'S AGENDA, OPERATIONS, AND FY 2015 BUDGET REQUEST ======================================================================= HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION __________ APRIL 29, 2014 __________ Printed for the use of the Committee on Financial Services Serial No. 113-75 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ______ U.S. GOVERNMENT PRINTING OFFICE 88-537 PDF WASHINGTON : 2014 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman GARY G. MILLER, California, Vice MAXINE WATERS, California, Ranking Chairman Member SPENCER BACHUS, Alabama, Chairman CAROLYN B. MALONEY, New York Emeritus NYDIA M. VELAAZQUEZ, New York PETER T. KING, New York BRAD SHERMAN, California EDWARD R. ROYCE, California GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma MICHAEL E. CAPUANO, Massachusetts SHELLEY MOORE CAPITO, West Virginia RUBEEN HINOJOSA, Texas SCOTT GARRETT, New Jersey WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas CAROLYN McCARTHY, New York PATRICK T. McHENRY, North Carolina STEPHEN F. LYNCH, Massachusetts JOHN CAMPBELL, California DAVID SCOTT, Georgia MICHELE BACHMANN, Minnesota AL GREEN, Texas KEVIN McCARTHY, California EMANUEL CLEAVER, Missouri STEVAN PEARCE, New Mexico GWEN MOORE, Wisconsin BILL POSEY, Florida KEITH ELLISON, Minnesota MICHAEL G. FITZPATRICK, ED PERLMUTTER, Colorado Pennsylvania JAMES A. HIMES, Connecticut LYNN A. WESTMORELAND, Georgia GARY C. PETERS, Michigan BLAINE LUETKEMEYER, Missouri JOHN C. CARNEY, Jr., Delaware BILL HUIZENGA, Michigan TERRI A. SEWELL, Alabama SEAN P. DUFFY, Wisconsin BILL FOSTER, Illinois ROBERT HURT, Virginia DANIEL T. KILDEE, Michigan STEVE STIVERS, Ohio PATRICK MURPHY, Florida STEPHEN LEE FINCHER, Tennessee JOHN K. DELANEY, Maryland MARLIN A. STUTZMAN, Indiana KYRSTEN SINEMA, Arizona MICK MULVANEY, South Carolina JOYCE BEATTY, Ohio RANDY HULTGREN, Illinois DENNY HECK, Washington DENNIS A. ROSS, Florida STEVEN HORSFORD, Nevada ROBERT PITTENGER, North Carolina ANN WAGNER, Missouri ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania Shannon McGahn, Staff Director James H. Clinger, Chief Counsel C O N T E N T S ---------- Page Hearing held on: April 29, 2014............................................... 1 Appendix: April 29, 2014............................................... 55 WITNESSES Tuesday, April 29, 2014 White, Hon. Mary Jo, Chair, U.S. Securities and Exchange Commission..................................................... 8 APPENDIX Prepared statements: White, Hon. Mary Jo.......................................... 56 Additional Material Submitted for the Record Huizenga, Hon. Bill: United States Court of Appeals for the District of Columbia Circuit, No. 13-5252, National Association of Manufacturers, et al., v. Securities and Exchange Commission, et al.......................................... 81 National Law Review article entitled, ``Federal Appeals Court Holds Securities and Exchange Commission (SEC) Conflict Minerals Rules Violate Free Speech''....................... 110 Joint Statement on the Conflict Minerals Decision by SEC Commissioners Daniel M. Gallagher and Michael S. Piwowar, dated April 28, 2014....................................... 112 Lynch, Hon. Stephen: ``High-Frequency Trading: A Regulatory Strategy,'' by Charles R. Korsmo, dated December 16, 2013......................... 114 Moore, Hon. Gwen: Letter to SEC Chair Mary Jo White from various Members of Congress, dated April 21, 2014............................. 201 White, Hon. Mary Jo: Written responses to questions for the record submitted by Representative Ellison..................................... 203 Written responses to questions for the record submitted by Representative Fitzpatrick................................. 213 Written responses to questions for the record submitted by Representative Garrett..................................... 214 Written responses to questions for the record submitted by Chairman Hensarling........................................ 232 Written responses to questions for the record submitted by Representative Hurt........................................ 238 Written responses to questions for the record submitted by Representative Murphy...................................... 240 Written responses to questions for the record submitted by Representative Posey....................................... 243 Written responses to questions for the record submitted by Representative Sinema...................................... 251 Written responses to questions for the record submitted by Representative Wagner...................................... 252 OVERSIGHT OF THE SEC'S AGENDA, OPERATIONS, AND FY 2015 BUDGET REQUEST ---------- Tuesday, April 29, 2014 U.S. House of Representatives, Committee on Financial Services, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. Members present: Representatives Hensarling, Bachus, Royce, Capito, Garrett, Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, Rothfus; Waters, Maloney, Velazquez, Sherman, Capuano, Lynch, Scott, Green, Cleaver, Moore, Perlmutter, Himes, Peters, Carney, Sewell, Foster, Kildee, Delaney, Sinema, Beatty, Heck, and Horsford. Chairman Hensarling. The 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 SEC's Agenda, Operations, and FY 2015 Budget Request.'' I now recognize myself for 5 minutes to give an opening statement. This morning, we welcome Securities and Exchange Commission Chair Mary Jo White back to the committee. I wish to note at the outset for the record, contrary to many, if not most Administration witnesses, she has been most accommodating with her schedule, and she is timely with the submission of her testimony, so Madam Chair, you are especially welcome before this committee. We appreciate your cooperation in the congressional oversight process. This committee is indeed committed to conducting vigorous oversight of the SEC, to make certain that it is accountable in fulfilling its mission of maintaining transparent and efficient capital markets, protecting investors, and promoting capital formation. By holding today's hearing, we hope to better understand the progress the Commission is making in fulfilling its statutory mission and to have a better understanding of Chair White's relative priorities. A number of members on this committee have maintained that the SEC has insufficient resources with which to carry out its mission. I will always have an open mind on the issue, but it is not an empty mind. The SEC's budget has grown substantially in recent years. In fact, the SEC's budget has increased by 80 percent in the last 10 years and by nearly 300 percent since the year 2000. I again note that when my Democratic colleagues were in the Majority, even after the passage of the Dodd-Frank Act, they never called for the dramatic budget increases they are calling for now. Not many other agencies throughout the entirety of the Federal Government have seen such hefty budget increases during this same period of time, and I don't know many folks in Texas' 5th Congressional District, which I have the honor of representing, whose family budget has seen an 80 percent increase in the last 10 years. In addition, as we see the national debt clock regrettably continue to turn at the pace that we have observed, this is something that must loom large over all of our budgetary decisions. I know that some have considered the placement of the clock to be ideological. I personally never knew that math was ideological. Many of us believe that the SEC has given short shrift historically to capital formation. The bipartisan JOBS Act was an attempt to help remedy past SEC inaction on capital formation initiatives. Even President Obama, with whom I rarely agree, called the law a game changer for entrepreneurs in capital formation. Regrettably, the SEC remains behind schedule in implementing the JOBS Act. It is important that the implementation of the JOBS Act go forward. Regrettably, we still live in an economy where 1 in 6 people are on food stamps. We have the lowest labor force participation rate in a generation where 15 percent of our fellow country men are at the poverty level in median family income, having fallen every year in the Obama Administration. Clearly, we have millions of our fellow countrymen unemployed or underemployed, who could benefit from the full implementation of the JOBS Act. During the same period when SEC budgets increased so dramatically, regrettably, there were numerous examples of the agency's financial mismanagement, squandered resources, and mission failure. I hasten to add that almost all of these examples predate Chair White's tenure, but it does underscore that in Washington it is not always how much money you spend that counts, but how you spend the money. Even though the SEC, I believe, had ample resources and ample authority leading up to the 2000 crisis, clearly somebody was asleep at the switch. Whether it was the failure to properly administer the now defunct consolidated supervised entities program, regrettably not doing anything about the credit rating agency oligopoly and the role that played in the crisis, or the failure to uncover the Madoff and Stanford Ponzi schemes, notwithstanding the warnings received from multiple market professionals. In addition, regrettably, and notably for an agency that is entrusted with policing financial markets and enforcing accounting standards, the SEC has repeatedly failed audits of its own financial statements and internal controls conducted by the GAO, which begs the question, how will asking for more funding necessarily prevent future fumbles? How the SEC spends its budget is a legitimate concern, and so is how the SEC spends its time. According to one report, the SEC has finalized less than half of its required rulemakings under Dodd-Frank nearly 4 years after the law was enacted. We continue to need to hold Washington accountable. We need to ensure that Washington uses resources wisely and efficiently, and we need to ensure that we repeal any unnecessary, ill-conceived Washington regulations that hurt our economy and kill jobs. I look forward to listening to Chair White's testimony and continuing to hear about some of the pressing issues of the day concerning the SIFI designations of non-bank entities through FSOC, the fiduciary duty versus the suitability standards of broker-dealers, issues relating to market structure, and issues regarding whether the presence of a robust cost-benefit analysis will ultimately benefit some many of our Americans who remain unemployed and underemployed. I now recognize the ranking member for 4 minutes. Ms. Waters. Thank you, Mr. Chairman, for holding this important hearing this morning. And thank you to Chair White for appearing before the committee and offering your overview of the agenda and operations of the SEC. It has been nearly 4 years since the passage of the historic Dodd-Frank Wall Street Reform and Consumer Protection Act, and we have come a long way. The Commission has completed critical work, and we now have in place the registration of hedge fund and other private fund advisors, the appointment of an investor advocate, and the finalization of the Volcker Rule, among other accomplishments. Even in the face of near constant attempts by my friends on the opposite side of the aisle to roll back the Dodd-Frank reforms, not to mention the SEC's inadequate funding, the Commission is moving forward on this essential work, but much more remains to be completed. Most notably, the SEC still has to adapt final versions of most of the substantive swap rules under Dodd-Frank. Given the number of these rules still awaiting completion, as well as the legal challenges facing the Commodity Futures Trading Commission (CFTC), I remain very concerned that our swaps markets will remain a source of shadowy unregulated risk, and as it relates to the JOBS Act, I also urge the Commission to move expeditiously to finalize the amendments to Rule 506 offerings that they proposed in July of last year. Given that private offerings with general solicitation and advertising are currently taking place, we must also move to put in place reasonable investor protections that will guard against fraud. I am also going to hear from Chair White on her view of the SEC's Fiscal Year 2015 budget and how the Commission would use the additional resources they have requested. In particular, I agree with the Chair, who knows that there is an immediate and pressing need for significant additional resources to permit the SEC to increase its examination coverage of registered investment advisors. I hope that the Chair can further elaborate on this need and also weigh in on the Investor Advisory Committee's recommendation that Congress authorize the Commission to impose user fees on SEC-registered investment advisors in order to fund and enhance the examination program. This recommendation is consistent with my bill, H.R. 1627. Finally, I remain very interested in how the Enforcement Division at the Commission selects which cases to pursue, and how the Commission is responding to criticisms that it relies too heavily on deferred prosecution agreements, and neither- admit-nor-deny settlement. The Chair came into this position at the SEC with a reputation as a tough litigator, and I would like to hear more about the Commission's enforcement program during her tenure. Obviously, the Commission has a lot on its plate, and I commend the Chair for taking on this important work and for being with us today, and I yield back the balance of my time. Chairman Hensarling. The Chair now recognizes the gentleman from New Jersey, the chairman of our Capital Markets and GSEs Subcommittee, Mr. Garrett, for 3 minutes. Mr. Garrett. Thank you, Mr. Chairman, for holding this important oversight hearing. And thank you, Chair White, for joining us and for your testimony. Lately, there has been a lot of news attention surrounding the Nation's equity markets, and I want to thank you, Chair White, for prioritizing the examination of this issue long before the recent media outcry, and for you and your staff's work in this area as well. I believe that you and your staff are approaching the ongoing review of our equity markets in just the way that it should be, taking a look at the entire marketplace, examining how the rules require various market participants to interact, and using empirical data and robust analytical tools to drive any potential decision-making. It is critical that you and your agency do not fall into the trap of adopting some half-baked potential changes in order to publicly respond to sensationalized and overhyped media narratives. The SEC has to be the grownup in the room in this very important decision-making. So this committee now has been approaching this very important issue in the same manner. In June of 2012, we held the first of a series of events to more closely examine our Nation's equity markets and study how they operate, understand which rules govern them, and explore ways to make them function more efficiently and effectively. In May of 2013, Ranking Member Maloney and I hosted a roundtable in New York City with some of the most knowledgeable people in the country, including the SEC's new Director of Trading and Markets, to review the entire evolution of the statutory and regulatory history governing our equity markets. And most recently, at the end of February this committee held an extensive review of Reg NMS, which is the predominant SEC rule governing how the market centers and market orders are required to interact. This hearing raised important fundamental questions challenging some of the current assumptions that are taken for granted today. Now that this issue is gaining significantly more media attention, I welcome any other policymaker or commentator to jump on the bandwagon with us. There is still plenty of room, to be sure. But I do urge caution to the latecomers. This is a very complicated and multi-dimensional issue, and it does not lend itself to easy undertaking or quick fixes. I hope that everyone will do their homework as the SEC and this committee have, and continue to do so, instead of turning to simple sound bites. Another top priority of mine that I look forward to discussing in more detail with the Chair is the recent push by some of FSOC and other international regulators to expand the government's safety net and potential regulation approach to those in the asset management business. This is of grave concern, and I hope that this committee and all of its members will work together to send a strong message to FSOC to not go any further down this road. Now, FSOC has become an unaccountable and nontransparent black hole where potential regulators in the Executive Branch are trying to impose their will on supposed independent regulators. This committee must remain diligent in its oversight, and persistent in its commitment to rein in the FSOC. And finally, I want to publicly thank Chair White for posting the OFR's study on asset management on their Web site and allowing the more knowledgeable people around the country to correct many of their inaccuracies and their falsehoods as well. So I thank you for that, and I yield back. Chairman Hensarling. The Chair now recognizes the gentlelady from New York, the ranking member of our Capital Markets and Government Sponsored Enterprises Subcommittee, Mrs. Maloney, for 2 minutes. Mrs. Maloney. Thank you, Mr. Chairman. And I would like to particularly welcome Chair White, who is from the great City of New York, and I believe I speak for all New Yorkers when I say that we are so proud of you and your distinguished career. The SEC has an enormously important role in our economy because it is responsible for overseeing and regulating our Nation's capital markets. The SEC must simultaneously encourage capital formation by businesses that are seeking to grow; ensure that investors in these companies are adequately protected; and maintain fair, orderly, and efficient markets. Balancing all of these objectives is a difficult job, but I believe the SEC has performed admirably under Chair White. Importantly, just as the markets are constantly evolving and innovating, sometimes in response to new regulations, so must the SEC. In this respect, I am pleased that all five SEC Commissioners have publicly committed to a thorough review of market structure issues. I am also encouraged by the SEC's commitment to a data-driven approach on these complex market structure issues which is evidenced by their new market information data analysis known as MIDAS. This will allow the SEC to analyze trading data to determine where the problems are and what needs to be fixed. I would also like to note that trading volume in the equity markets has more than doubled to $71 trillion since 2001, and I would welcome any comments on how the SEC's budget for overseeing the equity markets, whether or not it has kept pace with this enormous, enormous increase in responsibility. I would also welcome any discussion on how the lack of resources has impacted the Commission's oversight in this area and other areas. You have an incredibly important job to do. I look forward to your comments on these issues and others. Welcome. Chairman Hensarling. The Chair now recognizes the gentleman from Virginia, the vice chairman of our Capital Markets and GSEs Subcommittee, Mr. Hurt, for 2 minutes. Mr. Hurt. Thank you, Mr. Chairman. Mr. Chairman, thank you for holding today's committee hearing on the SEC's agenda and Fiscal Year 2015 budget request. I firmly believe that one of the foremost responsibilities of this committee is to provide the appropriate oversight and scrutiny of the Federal agency budgets under our jurisdiction, especially at a time when our national debt surpasses $17 trillion. Federal agencies must learn to work smarter and do more with less. I am, however, encouraged by Chair White's recent comments regarding several of the SEC's upcoming priorities, including the need to engage in comprehensive reviews of equity market structure and disclosure requirements. As she noted, the problem of disclosure overload is having a negative impact on investors, public companies, and the SEC itself. Streamlining our disclosure regime will lead to benefits for both businesses seeking capital in the public markets and investors seeking information to make informed decisions. In addition to these reviews, it is imperative that the SEC remember to advance its third and equally critical mission, which is facilitating capital formation. Congress has provided the SEC with broad discretion to amend and to improve securities laws and regulations without sacrificing key investor protections, and the SEC must take the lead in promoting capital formation that will spur growth and opportunity for our Nation and for the people I represent in Virginia's 5th District. I would like to thank our distinguished witness, Chair White, for appearing before this committee today, and I look forward to your testimony. Thank you, Mr. Chairman, and I yield back the balance of my time. Chairman Hensarling. The Chair now recognizes the gentleman from Georgia, Mr. Scott, for 1 minute. Mr. Scott. Thank you, Mr. Chairman. And welcome, Ms. White. I am over here. It is good to have you here. I hope that in your discussion, you will talk about market structure timeline. That is extraordinarily important because a lack of order competition under the current structure is a major concern of mine. I hope that we will deal with that and also examine what you feel are some of the present conditions that could lead to an excessive amount that would have and tends to have a rather negative impact on excessive competition. So it is sort of a delicate balancing act we have to reach. I look for your comments on that. And also, I am very interested in knowing how you and the CFTC are making progress on the harmonization, particularly in cross border, as you implement Title VII of Dodd-Frank. And then, there is the fiduciary rule that you and the Labor Department seem to be having some trouble with. I would certainly appreciate your comments on that. Thank you, Mr. Chairman. Chairman Hensarling. The Chair now recognizes the gentleman from Texas, the ranking member of our Oversight and Investigations Subcommittee, Mr. Green, for 2 minutes. Mr. Green. Thank you, Mr. Chairman. Mr. Chairman, the SEC, in my opinion, is not a burden to taxpayers; it is a benefit to taxpayers. And if we look at a true cost-benefit analysis, we can see that in recent years the SEC has taken almost twice as much in when you juxtapose that to its budget as it is budgeted, and these monies come in, in terms of fees, so the SEC is of great benefit to taxpayers. It oversees more than 25,000 market participants, including over 11,000 investment advisors, approximately 10,000 mutual fund and exchange traded funds, approximately 4,500 broker-dealers, approximately 450 transfer agents, and approximately 18 securities and exchanges. The SEC has responsibility for reviewing the disclosure and financial statements of approximately 9,000 reporting companies. It has new expanded responsibilities over derivatives, an additional 2,500 reporting advisors to hedge funds and other private funds. It has expanded responsibilities over nearly 1,000 mutual advisors, 10 registered credit card rating agencies, and 7 registered clearing agencies. The SEC plays a critical role in overseeing our capital markets and protecting our investors from fraud. I do not see it as a burden. I see it as one of the benefits that we have, and I think that what happened with Bernie Madoff is clear evidence that a better funded can make a greater difference. I am supportive of what is being done, and I support totally what the chairman is doing as well. I yield back. Chairman Hensarling. The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty, for 1 minute. Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member Waters, and thank you, Chair White, for your testimony today. It has been nearly 6 years since the foreclosure crisis sparked a financial crisis that rocked our Nation. In the aftermath of the Great Recession, Congress passed comprehensive legislation to reform all aspects of the financial services industry. The Dodd-Frank Act, an important law, although not perfect, was designed to address the catastrophic failures that led to the Black Swan events of 2008. Adding in the JOBS Act, the SEC has been assigned more than 100 new mandatory and discretionary rulemakings in the past 4 years. All of these new regulatory and oversight responsibilities are critical to minimizing the risk of future financial market shock but cannot be properly exercised without appropriate funding for the SEC. I believe an adequate appropriation, even if increased, would not impact our Federal deficit in any way. I look forward to discussing with you some of the important new activities the Commission is undertaking as a result of the Dodd-Frank Act. Thank you, and I yield back. Chairman Hensarling. That concludes our opening statements. We will now turn to our witness. Today, we welcome the testimony of the Honorable Mary Jo White, Chair of the U.S. Securities and Exchange Commission. This is Chair White's third appearance before our committee, so I believe she needs no further introduction. Without objection, Chair White, your written statement will be made a part of the record. Chair White, again, welcome, and you are now recognized for your remarks. STATEMENT OF THE HONORABLE MARY JO WHITE, CHAIR, U.S. SECURITIES AND EXCHANGE COMMISSION Ms. White. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee for inviting me to testify regarding the SEC's agenda, operations, and our fiscal 2015 budget request. The agency's mission is critical to investors, the markets, and capital formation as well as our economy more broadly. Now, more than ever, we will need a strong, vigilant, and adequately resourced SEC. To put the SEC's extensive responsibilities and budget request into context, from fiscal 2001 to fiscal 2014, trading volume in the equity markets, as has been noted, more than doubled to a projected $71 trillion. The complexities of financial products and the speed with which they are traded increased exponentially. Assets under management of the mutual funds grew by 131 percent to $14.8 trillion, and assets under management of investment advisors jumped almost 200 percent to $55 trillion. Today there are, as has been noted, over 25,000 registrants overseen by the SEC, including broker-dealers, clearing agents, transfer agents, credit rating agencies, exchanges, and others. During this time of unprecedented growth and change, the SEC also has been given significant new responsibilities for over- the-counter derivatives, private fund advisors, municipal advisors, crowdfunding portals, and more. The President's $1.7 billion budget request would enable the SEC to address our critical priorities. As you know, the SEC's funding is deficit-neutral, which means the amount Congress appropriates does not impact the deficit, the funding available for other agencies, or count against caps in the congressional budget framework. Nonetheless, I fully recognize Congress' oversight responsibilities and my duty to be an effective and prudent steward of the funds we are appropriated. I believe our accomplishments this past year and the improvements the agency has made should give Congress and the public the confidence that we will fulfill this responsibility. Since my arrival in April 2013, the Commission has adopted or proposed more than 20 significant rulemakings across the regulatory spectrum, including many mandated by the Dodd-Frank and JOBS Acts. We are more aggressively enforcing the securities laws, requiring for the first time admissions to hold wrongdoers more publicly accountable and obtaining orders for penalties and disgorgement of $3.4 billion in fiscal 2013 alone, the highest in the agency's history. We have intensified our data-driven disciplined approach to analyzing and appropriately addressing complex market structure issues, including those relating to high-frequency trading and dark pools. We are now focused on completing the money market reform rulemaking we proposed last year to address redemption risk and resiliency concerns related to this important investment product. The Commission is also working to complete the rulemakings under the Dodd-Frank Act which were required in response to the financial crisis, and those under the JOBS Act which were designed to facilitate capital formation for smaller businesses. The staff has begun a comprehensive review of our public company disclosure rules in an effort to make them more effective for investors. Importantly, our budget request would permit the SEC to increase its examination coverage of investment advisors that everyday investors are increasingly turning to for investment assistance for retirement and family needs. While the SEC has made the most of its limited resources, we nevertheless were only able to examine 9 percent of registered investment advisors in fiscal 2013. In 2004, the SEC had 19 examiners per trillion dollars in investment advisor assets under management. Today, we have only eight. More coverage is clearly needed, as the industry itself has acknowledged. This budget request would also allow us to continue to strengthen our Division of Economic and Risk Analysis, our fastest growing division, by adding financial economists and other experts to assist with economic analysis and rulemaking, risk-based selection for investigations and examinations, and structure data initiatives. The agency has made great strides to enhance our technology, including developing tools that permit us to better understand and protect our markets and building the technological foundation for unified access to SEC information applications and data across the agency. We are at a critical point in the deployment of more sophisticated technology tools and platforms to assist in these efforts, and it is vital that we have the resources necessary to continue modernizing our IT systems and infrastructure. I am pleased with the agency's accomplishments, but much more remains to be done. I firmly believe that the funding we seek is justified by our progress and by our important and growing responsibilities to investors, companies, and the markets. Your continued support will allow us to build on the significant progress the agency has achieved, which I am committed to continuing and enhancing. I am happy to answer your questions. Thank you. [The prepared statement of Chair White can be found on page 56 of the appendix.] Chairman Hensarling. Thank you, Madam Chair. The Chair now recognizes himself for 5 minutes for questions. I want to follow up on some comments made by the chairman of our Capital Markets Subcommittee. Many have called the asset management industry part of the shadow banking group, which is obviously a pejorative term. As Chair of the SEC, are asset managers regulated, from your vantage point? Ms. White. Yes, they are, and they have been for many years. Chairman Hensarling. So, they are regulated? Ms. White. They are regulated. Chairman Hensarling. In your opinion, does your Commission lack any authority that it needs to adequately regulate the asset management industry? Ms. White. Obviously, we are always looking to see whether that is the case, but I do not believe we lack that authority, Mr. Chairman. In other words, we have the authority we need. Chairman Hensarling. Okay. Madam Chair, one thing that you and I may have in common is that some people might accuse us of being vertically challenged. Notwithstanding that, you managed to poke your head way up to put out for comment the OFR asset management study when others would not. I want to thank you, along again with our chairman of our Capital Markets Subcommittee, for doing that. We know that FSOC has moved already on several non-bank SIFI designations on what I might call part of the shadow regulatory process, as FSOC continues to be a rather opaque organization, if you will, using a rather amorphous process. Be that as it may, from your perspective, how do asset managers differ from traditional--how are they different from traditional banks and bank holding companies? Ms. White. They are different in many ways. I think that the most fundamental difference is that they are an agent, and they, therefore, manage others' monies. You have to make certain to distinguish that when you are looking at any systemic risk issues. We are not talking about positions on the balance sheet, but we are talking about acting as agents in the spaces that they act in. Chairman Hensarling. We know that designating a firm as an SIFI imposes increased cost upon an entity or an organization, in this case, potentially this could be imposed upon investors in mutual funds, people who are saving for retirement, maybe a downpayment on a home, maybe to send their kids to college. Do you believe that the evaluation of asset managers for an SIFI designation should take into account the economic cost that ultimately could be borne by our Nation's hardworking investors? Ms. White. Without getting into discussions I can't because they are confidential when we deal with FSOC with any potential designation-- Chairman Hensarling. Which may be part of the problem, but continue. Ms. White. FSOC is focused on the issue of transparency and enhancing transparency, I think, but it is also important to recognize that the discussions of potentially systemically important institutions contain a lot of confidential data as do some of the other discussions, which you would not want to be-- and I don't believe anyone would want to be--made public. I think that the primary focus and really the primary congressional mandate given to FSOC is to focus on identifying and addressing systemic risk to the broader financial system, and while any consideration of any decision an organization makes should take into account all facts and circumstances and impacts, we can't lose sight of the main mission. Chairman Hensarling. What do you see as the systemic threat specifically posed by the mutual fund industry? Ms. White. The answer--that has obviously been studied and is continuing to be studied by FSOC, of which I am a member. Clearly, the SEC also is the primary regulator of the mutual fund industry and asset managers, and I think our regulations do address, and frankly, increasingly, any potential systemic risk that that industry or any particular member of it might pose. Chairman Hensarling. What are the Dodd-Frank Act, non-bank SIFIs which potentially could be assessed to help pay for the resolution of a failing financial institution, which I believe could have the consequence, if you designate a mutual fund as an SIFI, it means that individual fund investors, many of whom have entrusted their retirement savings to a mutual fund, they could be on the hook for bailing out large financial institutions, is that your understanding, and do you think this is an appropriate consequence for moderate income mutual fund investors? Ms. White. I think it remains to be seen just how the designations play out, and indeed how even enhanced regulation is exercised if there is to be a designation. But plainly, the concerns that you note are real ones. Chairman Hensarling. The Chair now recognizes the ranking member for 5 minutes. Ms. Waters. Thank you very much, Mr. Chairman. Chair White, you recently stated in a speech to the Consumer Federation of America that protecting investors underlies everything the SEC does, and I know that you and your colleagues are currently giving thoughtful consideration to a significant investor protection issue, namely the extension of a uniform fiduciary rule, to broker-dealers under Section 913 of Dodd-Frank. The rulemaking enjoys broad support from investor advocates, advisor groups, and even the major broker- dealer trade association. As I understand it, the SEC's Investor Advisory Committee submitted a unanimous recommendation to you that the Commission move forward with such a rulemaking. Can you provide me with a timeline of when you expect to be able to respond to the committee's recommendation? Ms. White. I can give you an approximate timeline. First let me say that, speaking for myself, I think this is an extraordinarily high priority for the Commission to decide, and under Dodd-Frank, we are given the authority to decide and then authority following that, depending upon our decision, whether to impose a uniform fiduciary duty standard on broker-dealers and investment advisors. What I have done is to prioritize that issue with the staff because of how important I think it is, and they have come back to me and I have gone back to them on the range of options and considerations. It is a priority of mine to have the Commission reach this very important issue this year. Ms. Waters. Thank you very much. On a similar point, I have a bill, H.R. 1627, the Investment Adviser Examination Improvement Act, which would authorize the SEC to levy user fees to cover the cost of an increase in the frequency of examinations of investment advisors. The Investor Advisory Committee of the Commission has endorsed this legislation, which was one of the recommendations that the SEC staffer originally provided in the study that was required in Section 914 of Dodd-Frank. From your perspective as Chair, do user fees represent a scaleable and workable way for the Commission to improve investor protection? Ms. White. There is no question in my mind that one of the most significant resource investor protection issues we face is our examination function of investor advisors. Increasingly, retail investors in particular are making use of investment advisors. As I think I alluded to in my oral testimony--it is certainly in my written testimony--given the resources we have now, we are only able to cover 9 percent of those investment advisors last year, and that is using very smart risk-based methods to identify where we should be going based on risk. And this budget request prioritizes our receiving resources, I think 240 additional positions, which is as many we believe we could hire smartly and train very well, to deploy exactly in that space. So, with respect to the user fee proposals and other proposals that have been made in Congress, my priority is to have the funding to be able to carry out my job, which I do not have now. Ms. Waters. Thank you very much. Section 911 of the Dodd- Frank Act provides that each time the Investor Advisory Committee submits a finding or recommendation to the Commission, the SEC shall promptly issue a public statement assessing the finding or recommendation of the committee and disclosing what action, if any, the SEC intends to take with respect to the recommendation. Does the Commission plan on responding to this recommendation from the Investor Advisory Committee? Ms. White. We have had a number of discussions with the Investor Advisory Committee about how best to respond, and essentially what Dodd-Frank calls for is a Commission response. We try to give as much information as we can even if the Commission hasn't reached a decision on an issue. So, as I mentioned before, it is a priority of mine to have the Commission reach a decision on what to do in this space. At times, the response, or the full response at least to the Investor Advisory Committee is based on what we go forward with or we don't go forward with, but I do try in other ways to inform the Investor Advisory Committee of the progress, the staff briefings that are occurring and that kind of thing on the way to a decision. Ms. Waters. Thank you very much. I think it is extremely important, and I am very pleased that you have reiterated that this is a high priority and your staff is very much involved with this recommendation, and I am pushing very hard for H.R. 1627, so thank you very much. Chairman Hensarling. The Chair now recognizes the gentleman from New Jersey, Mr. Garrett, the chairman of our Capital Markets and GSEs Subcommittee, for 5 minutes. Mr. Garrett. And again, thank you, Mr. Chairman. So, Chair White, you have heard all the stories in the paper and in the news. Can you tell us, are the markets rigged? Ms. White. The markets are not rigged. The U.S. markets are the strongest and most reliable in the world. That is not to say they are perfect, and obviously one of our continuing high priorities is to increase market quality. Mr. Garrett. So, just following along that line, I don't know if you have read it or not, but if you have seen stories on it, was there any factual or substantive information in those reports and in Michael Lewis' book that was new to you or new to the SEC? Or has your agency basically known that information, I will say, for years? Ms. White. I am not in a position to give a book review on it, but clearly the issues with respect to the greater speed in our markets, including those obviously employed by high- frequency traders are issues that have been discussed for years, examined for years. We are obviously dealing with a marketplace that has changed dramatically over the last decade and the last 5 or 6 years, continuously evolves, and then one thing I think is important to keep in mind is when you say ``high-frequency traders,'' which is where most of the discussion has occurred lately, that is not a single phenomenon as our new MIDAS Web site that has been alluded to makes very clear. There are very different kinds of strategies and approaches that are used by high-frequency traders, but these are issues that our experts in Trading and Markets and the Commission more broadly have been focused on really continuously as the market has developed. Mr. Garrett. Okay. And so part of that, I will say the allegation that deals with the issue of what you call inside information, so if there is a market impact because of a publicly executed trade, which is what trades are, is it using inside information to adjust your trade or your bid and offer across the market because of that executed trade? Ms. White. If we are talking about the legal concept of that-- Mr. Garrett. Yes. Ms. White. At least as I understand your question. Mr. Garrett. Yes. Ms. White. It is not, as I understand the question-- Mr. Garrett. Yes. Ms. White. And as it has been described, it is not unlawful insider trading. I think there has been some confusion, too, between do you have earlier access to order information, that is to say what the order is, versus, can you more quickly react to executing based on that public information. I think then there has been confusion about that. Mr. Garrett. Yes, and that sort of segues somewhat into my last question. Does the use of what you call exchange data feed, right, which is approved by the SEC to make changes to your bids, does that constitute insider trading? Ms. White. If properly used, no. Mr. Garrett. Right. Changing topics here to what the chairman was talking about with regard to FSOC and asset management and SIFI designation, if you look at a series of recent actions taken by FSOC, and I am going to run down them, and the bank of regulators, there seems to be a pattern here. First, you have FSOC intervene on money market fund reform; next you have the OFR release, which I talked about before, and a much maligned asset management report; then you have banking regulators put forth a liquidity coverage ratio (LCR) proposal that basically ignores the SEC's existing liquidity regime; and next, you have FSOC announce it is hosting an upcoming conference on systemic risk posed by, of all things, asset managers; and finally, last week there were reports that two asset managers advanced to FSOC's second stage of SIFI review. In all of these cases, you have banking-regulator-dominated entities proposing what I will call potential-like regulation and potentially extending their taxpayer safety net, which means all of us potentially can be on the hook and then therefore the subsidies on what? On security products and the firms, and so, as you can tell, I am concerned about this. So, as the head of the agency with expertise in this area and with authority in this area, are you concerned about it as well? Ms. White. I am very concerned. I think you distinguish, too, between FSOC's duties, authorities, most of which I think encompass the data points you just mentioned. And then separately, to some extent, the Fed's powers by virtue of the Bank Holding Company Act that touch on these issues, for example, the liquidity ratio regime. It is extraordinarily important for FSOC, which is charged under the statute, for identifying systemic risk and addressing them within their authorities, that they obviously carry that out. Mr. Garrett. But why would we want to extend the taxpayer subsidy and bailout safety net to capital markets and asset management? Ms. White. I am not suggesting for a moment that we should-- Mr. Garrett. Okay. Ms. White. --do that. But what I do think is very important is for FSOC, as it carries out the duties given to it, that it has the expertise, listens to the expertise at the table, as well as drawing on external sources of expertise, particularly when FSOC gets beyond banking regulated space. Mr. Garrett. Yes, I saw that gavel coming, so thank you. Chairman Hensarling. The gavel did come. The time of the gentleman has expired. The Chair now recognizes the gentlelady from New York, the ranking member of our Capital Markets and GSEs Subcommittee, Mrs. Maloney, for 5 minutes. Mrs. Maloney. Thank you very much. Madam Chair, there has been a great deal of discussion about market structure issues recently and the fairness of the current market structure, in particular. One issue that stands out to me as a problem is that not everyone has equal access to market data at the same time, giving some an unfair advantage. Some market participants can buy access to private data feeds that are significantly faster than the data feeds that are available to the public, and even some of the big institutional investors have said that this ``tying gap'' creates an unlevel playing field, and have called for action to address it. Do you agree that these private data feeds create an unlevel playing field? Ms. White. I think the issue that you mentioned, and that has been discussed recently and obviously historically as well, is certainly one that we are looking at. I think it is important to point out that under the current regulatory regime, the SROs are required to provide to the proprietary feeds and the consolidated data feed the information at the same time. That doesn't answer the question how fast, therefore, can it be used and absorbed, obviously, and so some of the questions that have been raised about potential unlevelness of the existing playing field go to that area. But I think it is important to focus on the complexities in this, area, and one of the things we want to be sure that we maintain is that we are very data-driven and disciplined in deciding what to do with respect to any aspect of our current market structure which is, as a whole, I think, working quite well. That doesn't mean it is perfect by any means, but it is certainly one of the issues that we are looking very closely at. Mrs. Maloney. It really throws up a red flag when BlackRock and Goldman Sachs and some of these other large institutional investors are calling for some type of regulation to address the timing gap between the unlevel playing field that, in their materials, they talk about between the private data feed and the public getting access to it. So, would eliminating this timing gap between private and public data feeds lead to fair markets? I think it would. Don't you think eliminating that timing gap between private and public feeds and data would eliminate an advantage there to some? Ms. White. It is clearly, as I said before, an issue we are quite focused on. Let me be clear, I think you have had a number of different issues raised, and frankly, different people have different views on them in the public arena, too, in terms of what would increase market quality and both the fact and appearance of fairness in a level playing field, and they are both extraordinarily important. I think the issue you raise and others is extraordinarily important in and of itself, as well as any perception of unfairness, so that is certainly a priority issue for us. Mrs. Maloney. Has the SEC taken any actions to try to stop abusive practices or create a more level playing field? Ms. White. No question about that. I think one thing to be very clear about-- Mrs. Maloney. But have you taken any actions? Have you done anything about it? Ms. White. I think we have done-- Mrs. Maloney. Have you disciplined anybody? Have you done anything? Have you made any changes? Ms. White. I think we have done a number of things. Clearly, to the extent that there are unlawful inappropriate practices engaged in by whether it is high-frequency traders, dark pools, or any other market participant, our enforcement and our examination functions, in particular, have responded to those. I have said publicly-- Mrs. Maloney. Can you give examples? Ms. White. I have said publicly before that we have a number of ongoing investigations as to practices by high- frequency trading firms and dark pools. One example of enforcement action that we brought at the end of 2012 was actually I believe the first action where there was a penalty assessed. There was a $5 million penalty against the New York Stock Exchange based on precisely the issue of providing that market data first to the proprietary customers rather than the public consolidated feed. There is no question about the seriousness and significance of that issue. We brought a number of others similar to that as well. Mrs. Maloney. I would say that any practices which seek to manipulate the market or disadvantage investors is going to have a devastating effect on the markets. I know people now who don't want to trade in the markets because of the high- frequency trading, and they don't feel they are treated fairly, that there is an advantage to the insiders, and I feel this is extremely important. My time has expired. Thank you for your service. Ms. White. And I agree with that. I think the appearance issue is also important, as well as the fact. Chairman Hensarling. The time of the gentlelady has expired. The Chair now recognizes the gentleman from Alabama, our chairman emeritus, Mr. Bachus, for 5 minutes. Mr. Bachus. Thank you. I would assure Mrs. Maloney that there is very good staff at the SEC on market structure and they have been looking at this issue for some time, and it is rather complicated, but it is not something that they are not aware of and have not been addressing. Chair White, you gave up a job where you were compensated 10 times more than you are now being compensated as a public servant, and I want to compliment you. I think you have shown your independence, you have stayed above politics. At times you have displeased both sides, but I think you have shown a balance, and it is in the best interest that we have an independent strong agency, and I think you have done a good job. You have toughened enforcement. You should be given credit for that. And you have addressed a backlog of regulatory issues, so I compliment you on that. One of the regulatory issues is the JOBS Act, and a bipartisan achievement of this committee during my tenure as chairman was the JOBS Act, and I think that this committee and its members can take a lot of credit for Steve Case, American Online cofounder, who published in the Washington Post earlier this month an article entitled, ``Hey, Washington, the JOBS Act you passed is working,'' and the SEC deserves credit for helping to translate many of the provisions of that Act into workable regulations. As you go forward, it is my hope that you won't become too prescriptive, so prescriptive that it discourages innovation that we are trying to inspire, and let me quote Steve Case: ``Protections against fraud are important and safeguards should be put in place, but overprotection led to a stifling environment that slowed growth and limited opportunity. The JOBS Act reflects a more classical American acceptance of risk and its rewards.'' Can you tell us how the SEC will approach the implementation of the remaining provisions of the JOBS Act to make sure it achieves its full potential? Ms. White. Yes, sir. And again, completing those JOBS Act rulemakings as well as the mandated Dodd-Frank ones remains a very high priority for me in this year's agenda. I think the provisions do vary as they were given to us by Congress. Some have built-in investor protections, I think, in terms of the crowdfunding intermediaries portals mechanism, for example. Others may not, for example, the lifting of the ban on general solicitation we talked about earlier. So our perspective on this is to plainly carry out the statutory mandates that we have been given in the optimal way we can, and by that I mean we want the rule to be workable. Obviously, we always have in mind investor protections. It is a balance that I think should not be inconsistent but nevertheless is one that we have to engage in. We clearly engage in economic analysis of the choices that we make. Some of the choices may be made for us in the statute, and obviously we need to be faithful to those, but we certainly want these rules to work. That is the point. In order to encourage that capital formation and JOBS, that is the intention of it. Always having in mind investor protection, one of the things I have done with the--not just the JOBS Act rulemakings, but frankly, we will do it even more broadly, is when the new marketplace opens, and I don't believe it will have any stifling effect, that we are really ready to kind of look at it in real time, is it working, is it not working, is there an uptick in fraud as some are concerned about? If so, we should be all over it, and I think that is investor protection, and I think it is also wise in terms of facilitating capital formation. Mr. Bachus. Thank you. I know that Ranking Member Waters mentioned this, but I have long had an interest in making sure that there is proper oversight of our registered investment advisors, and you have expressed a concern about that in your opening statement, and of course, for any of us who went through the Bernie Madoff case, that really came home to us. A lot of people were hurt. Last Congress, some of us worked on an SRO proposal, and that was just one approach, and I know Ms. Waters has reintroduced H.R. 1627, which is a user fee, and the investment advisor community seems to have embraced that. I would just urge you to continue to--I know your examinations--you are not examining but 9 percent of them, and I urge you to continue to keep this as a priority and that all of us will work together to resolve this so we get a more frequent schedule of examinations. Ms. White. Thank you very much, and I will. Mr. Bachus. Thank you. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentlelady from New York, Ms. Velazquez. Ms. Velazquez. Thank you, Mr. Chairman. Chair White, the Volcker Rule provided the financial industry with many exemptions, including on certain collateralized loan obligations (CLOs). However, some in the industry are asking for broader relief arguing that the current rule will restrict access to capital. Can you explain what risks non-exempt CLOs pose and how the rule has affected the CLO market so far? Ms. White. I think that is something we will continue to look at. The rule itself became--the Volcker Rule itself became effective, I think, on April 1st, but a lot of the effectiveness of it in terms of conformance period doesn't kick in for some time. On the CLO issue, I did concur and approve of what the Fed recently did, which was to extend the conformance period for CLOs that may hold securities, and that is kind of the key. If a CLO doesn't hold securities, then there is an exemption, but if not, the agency has determined that there was not, but what the Fed has done is to extend that conformance period to give a greater period of time to adjust to the rule requirements. Ms. Velazquez. So far, $32 billion in CLOs have been issued this year, so it looks like it hasn't slowed down. Ms. White. Yes, and what we are talking about now, the legacy CLOs, yes, and some of the CLO market is an active one, the current CLO market. Ms. Velazquez. Chair White, investing can be very risky, we all know that. Easing SEC reporting and registration requirements for crowdfunded security, as required under the JOBS Act, will therefore expose tens of thousands of investors to increased risk. How does the SEC plan to inform ordinary investors of the risks while not burdening small businesses and restricting capital access? Ms. White. On crowdfunding, we have made that proposal. I think the comment period closed, if I am remembering it right, in February. We have gotten a lot of comments. Some of the investor protection provisions, as I mentioned a little bit earlier, are built into the statute. Extraordinarily important to that is the intermediary structure of the funding portal or the broker where there are, either by statute or to some extent by our proposal, requirements to inform investors of the risks and make sure they are educated on exactly what the investments are about, not releasing the funds until the targeted amount is achieved. But we have gotten a lot of comments, frankly, from both sides, which is not unusual in terms of do we have enough investor protections built in, some thinking we have too many built in and therefore will stifle this means of raising capital that is prescribed by the statute, so we are very carefully considering those comments before we move to adoption. Ms. Velazquez. Thank you. Chair White, the SEC cost estimates for crowdfunding do not look promising for smaller issuers. Has the SEC investigated ways to reduce these costs without impacting investor protection? Ms. White. Certainly, an integral part of all of our rulemakings is intended to weigh impacts and weigh costs and cost-benefits. Again, within the framework we are given by a particular statute. The other method that I have tried to adopt on our rulemakings is to try as they come out the door frankly, to monitor the new marketplace in this instance that is created, so that we can see if it is working. If it is not, we would be in a position to make adjustments so that it would work without compromising investor protection. Ms. Velazquez. So, do you anticipate a way for new businesses jumping into the market once the JOBS Act is fully implemented? Ms. White. On the crowdfunding provision, certainly there remains a lot of excitement about doing just that. You can't really tell until it is actually activated, but certainly there is a lot of excitement about that. Ms. Velazquez. Thank you. Thank you, Mr. Chairman. Chairman Hensarling. The Chair now recognizes the gentlelady from West Virginia, the chairwoman of our Financial Institutions Subcommittee, Mrs. Capito, for 5 minutes. Mrs. Capito. Thank you, Mr. Chairman, and thank you, Chair White, for being with us today. I know you are very familiar with the reporting guides that the SEC requires for specific industries, and you actually made a speech, I think last year, talking about the importance of disclosure, which we certainly agree with and the need to keep these disclosure standards up to date. You mentioned also in that speech that the mining industry's guidelines have not been updated since 1982, and I was wondering if you have any plans to update those? They are quite short in the reporting document, and I was wondering what the holdup was and what your plans are for that? Ms. White. The industry guides in general are part of what we are doing as part of the comprehensive review of our disclosure program, and there are a number of them that I think fairly could be said to be outdated, and we are certainly looking very closely at those. I can't be more specific now, but I'm happy to report back when I have a better sense of what the status is, but clearly that is included in what we are reviewing. Mrs. Capito. Do you have any kind of timeline on that? Ms. White. It is, what we engaged in, and what I have instructed the staff to engage in is a comprehensive review, which I think is really quite important to our disclosure regimes which that is a part of. Mrs. Capito. Right. Ms. White. What that doesn't necessarily mean, however, is that as part of that review we will not do certain discrete things. We won't wait to do certain discrete things, but I don't really have a timeline on it for you as I sit here today. Mrs. Capito. I understand it is a problem in terms of international standards that we are sort of getting left behind there. Another question I have is on the pension fund issue, with MAP-21, and I am going to have to refer to my notes here because it is kind of in the weeds. It has a provision that allows companies to use average discount rates when calculating their pension differences. This is especially important in the current low interest rate environment. What steps do you see the SEC taking to work with FASB to ensure that these companies, if they are using this average, are in compliance with their financial reporting? I have written a letter to you and to others making sure that these companies know that they are accurate in their reporting and that it is reflective of whether it is overfunding or underfunding their pensions. Ms. White. What I can say to that at this point, and I may be able to say more later, and I know we do have I think a letter from you on this. Mrs. Capito. Right. Ms. White. Is that FASB is studying this, and I expect to receive a briefing in fairly short order from our chief accountant's office who works with them on this. Mrs. Capito. I think that provision probably will expire shortly, so I think that we-- Ms. White. I'm aware of that. Mrs. Capito. Yes, thank you. I noticed--well, two quick questions. I have a bill out that says that before you can put a whole lot of rulemaking on, and Mr. Meeks and I are on this together, where you have to really look at what kind of duplicative efforts are already there, your old rules or regulations that are antiquated, instead of just piling on. You did mention cost-benefit analysis in your rulemaking; are you scrubbing this at the same time? Ms. White. Certainly with respect to any rulemaking we are focused on now, we certainly scrub what is out there, whether it is in our agency or other agencies to try to avoid that duplication. Frankly, there might not be a need, or there might be a different need based on that analysis. Mrs. Capito. Right. Ms. White. In terms of actually reviewing our rules, what I think is the most constructive way to do that rather than on a sort of project basis, we certainly do reviews of what is called retrospective review under the Reg Flex Act and so forth, and that is important, but I also think that as they come out the door, we should be and I think are, but I am trying to enhance this, we are really reviewing the impact of those rules as we go forward and making changes that we think we should make. We have also-- Mrs. Capito. I think-- Ms. White. I'm sorry-- Mrs. Capito. I was going to say, because I think we are finding in some spaces that there can be conflicts there, too. You have a new rule that comes up that really conflicts with not an entire previous rule that may be a certain part of that rule. I am certain you are looking at that. It certainly would lead to confusion and could lead to litigation and other things. Ms. White. Certainly, that should not be occurring. I am not suggesting it doesn't occur obviously. One of the things we have encouraged our various advisory committees frankly to do is also to bring to our attention any examples that may be occurring or even if not a conflict where something is outdated or not optimal, but we encourage all constituencies to do that. And we get a lot of feedback. It is not as if once our rule goes out we don't-- Mrs. Capito. I bet you do. Ms. White. --we don't hear back all right, so we do. We are trying to be more proactive in getting that feedback so. Mrs. Capito. Thank you. And just in conclusion, I would like to thank you for your service, and I thank you for your very crisp and concise answers. Thank you very much. Chairman Hensarling. The Chair now recognizes the gentleman from Massachusetts, the ranking member of our Housing and Insurance Subcommittee, Mr. Capuano. Mr. Capuano. Thank you, Mr. Chairman. And thank you, Madam Chair, for being here. Madam Chair, 6 years ago we had a humongous financial crisis, the greatest in my lifetime, and hopefully the last in my lifetime but we will see. Five years ago, we passed a significant law to try to address some of the things that caused that crisis. Three years ago, the SEC passed some proposed regulations, adopted proposed regulations, relative to credit rating agencies that came out of that Dodd-Frank bill. Three years later, those rules are still not finalized. A few years ago, the Supreme Court made a ruling that corporations are people, and they can spend money anywhere they want in political stating which is fine. Many of us asked the SEC to address that issue to simply require corporations who make political donations to simply publicize them, and the SEC has now taken a walk on that request after several years of being asked. Recently you had one of your long-term attorneys, whom I understand is well-respected within the agency, retire. At his retirement party he basically criticized the SEC's approach over the last several years as being too timid relative to enforcement actions against some of the biggest names on Wall Street, therefore leading to an attitude on Wall Street of, ``What is the big deal? We can get away with it. Maybe pay a small fine relative to the rewards we reap.'' And now recently we have had a book comes out by a well- respected author, whether you agree with all the details or not, it certainly raises questions, serious questions, as to whether the whole market is rigged, especially against small investors. Even if there is nothing illegal being done, I think certainly most people would think that when they push the button to make a trade, that is going to happen and nobody is going to interfere with that in a matter of a split millisecond between the time they push the button and the trade is actually executed. After all these things that the SEC really hasn't done much about, I will tell you that I understand full well that the SEC is understaffed, and I will tell you that I hope you recognize this, I have been one of the greatest supporters of fully staffing and adequately paying the employees of the SEC, and I think that you will find that most of that support is on this side of the aisle. We agree with that comment, but nonetheless, that is the fact. To me, that raises lots of questions about focus and priorities of what is left. Fully understanding you are understaffed, what are you going to have a limited staff do? And in my opinion, the SEC's most important function is providing confidence for investors in the general public, that there is a level playing field, that they will be protected from shysters, and that the market will be an honest and free market. In the last several months, lots of things have happened to raise that question, and I simply want to ask you, do you agree with the things I have commented about, not necessarily the details, but the seemingly constant erosion of confidence in the SEC to actually do the job, the main job it is required to do, not in the fact that you are doing in the details of this regulation or that, but the fact that whether we believe you are doing it enough? If we don't believe it, you may as well not exist, and it doesn't matter what your funding level is. And I will tell you that from my end of the table, that is certainly what I am starting to see, one drip at a time, and I would just like to hear your reaction to that concern. Ms. White. Plainly, it is a significant concern if that is your perception or anyone else's or more broadly the market's perception, and so it is something that I think we have to be very cognizant of. I think when I was answering the questions before on our work on the market structure issues, that even if, in fact, some piece of that may not be a problem but it is perceived to be even as unfair or creating an unlevel playing field, that, in and of itself, is a significant issue. I do think that the SEC and our experts in particular in trading and markets, are intensively and with great expertise and increasingly sophisticated use of data addressing those issues, but I recognize what is somewhat a separate issue of making certain that there is confidence in that work or any of those conclusions as well as we proceed. I think there are virtual consensuses out there but you still have the questions being raised which makes it a problem, is that the current market structure, including the advances of technology, have actually benefitted in particular the retail investor. I am not saying they haven't benefitted the institutional investor in terms of decreased costs and narrowing of the spreads and greater liquidity, but if the retail investors don't think that is the case, that is a problem. There is no question about that. I might note, and I don't want to overstate it, but you have actually had certainly in recent months, the recent past, more retail investors coming back into the markets, which I think is a very good thing; but we have a constant duty to ensure people that we are really on all those jobs that you have mentioned. I am happy to follow-up on the specifics. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, the chairman of our Housing and Insurance Subcommittee. Mr. Neugebauer. That you, Mr. Chairman. Chair White, thank you for being here this morning. As you know, the Financial Stability Oversight Council, FSOC, recently designated Prudential Financial as a non-bank SIFI that will be now subject to enhanced prudential standards. Unfortunately, this was over the strong objection of voting members who have insurance expertise, and one of those members, Director John Huff, a State Insurance Commissioner who actually regulates the businesses of insurance, stated, ``FSOC's misguided overreliance on banking concepts is no more apparent than in the FSOC's basis for the designation of Prudential Financial.'' He went on to say that, ``the basis for this designation was grounded in implausible and even absurd scenarios.'' What is your reaction to Mr. Huff's remarks? Ms. White. And this is on Prudential, I think I heard you say? That happens to be a case that I am actually recused on, so I don't want to talk about the specific case, but I think I can talk generically and be responsive which goes back to obviously there are 10 voting members of FSOC, so decisions when they are taken are taken by those votes, and it is extraordinarily important that before any decision is made, that FSOC have and listen to the expertise in the particular industry. I am not commenting on the specific decision at all, but I think that is critical. Mr. Neugebauer. I think, based on what you just said, then the people who were in the room when this decision was made, who actually had more expertise in insurance regulations, spoke in opposition to it. Should that be troubling to us that we are trying to let people who have not necessarily had experience in regulating insurance companies have such a large say in this issue? Ms. White. Again, obviously if FSOC was created as it was by statute, I do think FSOC, its primary purpose, which I think is an extraordinarily important and positive one, is to bring together the financial regulators from across market spaces, if I can call it that, so that you can sit in the same room I am seeing this, I am seeing that and react to it. But I also think again, that you want your decision-making to be optimal. It doesn't mean just because one particular expert who may be a voting member says X, therefore X is the right answer necessarily, but it does mean you should listen to that expertise, and and I am not suggesting that FSOC doesn't do this because it certainly does to a degree, bring in external sources of expertise as well. But get that expertise at the table, particularly when you are in areas beyond the members' particular expertise. Mr. Neugebauer. I do understand that you recused yourself because of your previous ties to Prudential, but now that the decision has been made, do you agree with that decision? Ms. White. Because I am recused, I don't think I should comment on the specific decision, and it is one that I would not have therefore studied either in obviously the same way. Mr. Neugebauer. I want to commend you and your fellow Commissioners for committing to a data-driven, holistic review of our U.S. equity markets structure. Can you kind of give a little snapshot of how you see this review proceeding and some of the next steps and timelines? Ms. White. And it has been proceeding. It is something, by the way, that even before I became Chair, and at my confirmation hearing, I identified as one of my three immediate priorities, in addition to completing the mandated rulemakings and enhancing the enforcement function, making certain that the SEC and its experts had the data they needed to fully understand all of the market structure issues and then respond appropriately if there is a need to respond. And so, I am very personally close to the work that is being done there, in really constant discussion with the senior folks in Trading and Markets, and we are proceeding in a data- driven disciplined way. I think the knowledge base of the Commission has been enhanced significantly by being able to bring on the MIDAS technology, when the CAT technology comes on board even more so, and again that will help us, all of us, make certain that we fully understand all of those issues. But it is a very high priority. It is proceeding actively. I can't tell you specifically when you will see a particular product come out of that review, but I assure you that when it ought to come out, it will come out as we proceed with that review. Mr. Neugebauer. And you are committed to looking at the whole space, and nothing is off the table; is that correct? Ms. White. Without any question. And that includes our own regulations as well. All the issues of speed, disbursement, volatility, but including also, has NMS contributed in ways that were unintended, or over time they may have contributed in ways that are unintended? It is a comprehensive review where every issue is on the table. Mr. Neugebauer. Thank you. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Massachusetts, Mr. Lynch. Mr. Lynch. Thank you, Mr. Chairman, and thank you, Madam Chair, for your willingness to help the committee with its work. I want to go back to the point raised by Mrs. Maloney and also Mr. Capuano earlier. I am concerned about high-frequency trading, and there are a number of elements that have been raised in Mr. Lewis's book and also by some other writers, for example, Charles Korsmo, who wrote a very thoughtful article that I would like to ask unanimous consent to enter into the record. Chairman Hensarling. Without objection, it is so ordered. Mr. Lynch. Thank you. One of the red flags that I thought came out in Mr. Lewis's book was the fact that in many cases, these high-frequency traders are maintaining positions for just a matter of seconds, oftentimes less than a minute, and at the end of the day they are balancing out their trades. They don't maintain positions for very long, and there was one high-frequency trader, Virtual Financial, which publicly boasted that in 5\1/2\ years, they had one day of trading losses, and they attributed that to human error. So, when you say the market's not rigged, I just have to say that there seems to be a definite advantage for a firm that can operate for 5\1/2\ years with only one day of trading losses. It is incredible in itself, but I just think we need to go deeper on this, and I think that there are some major questions that have been raised here by Mr. Lewis's book and others. The Order Protection Rule and regulation NMS which significantly fragments liquidity and provides some slow market arbitrage opportunities for high-frequency traders, and are you looking at that? Ms. White. The answer is, we could not be doing a more intensive review of all the issues, and I agree that there are a number of questions that have been raised and not just recently or by a book. These are real questions that we are looking into and will respond appropriately when we have completed that review. I do think-- Mr. Lynch. I sure hope so, and this is not on you. This is not on you, Madam Chair, because you are relatively new, but the co-location and technological strategies that allow computerized traders to front run trades by virtue of proximity and speed, that has been out there for a while. This firm has been doing this for 5\1/2\ years. So-called maker-taker policies at exchanges that distort market behavior by confusing trading activity with useful liquidity, discrepancies between how fast traders can trade and how quickly exchanges recognize those price changes across fragmented equity markets, and those are all concerns. And the other question I have is, what is going on in dark pools? At least the suggestion from the evidence provided by Mr. Lewis, that investors who are going to dark pools are also being taken advantage of, and I know that you have some authority, the SEC has some authority under ATS to look at those dark pools to tell us whether or not those trades are being made at an optimum advantage for those investors or whether they are being taken advantage of much in the same way some of these other trades are being front run. Do you have any intent of looking at these dark pools? Ms. White. No question about that. We are looking at the dark pools. I think I also mentioned that we, and I can't say more than this because of the nature of it, but we have investigations involving practices in dark pools on the enforcement and examination side, and each issue that you mentioned raised significant questions. For example, maker- taker pricing. There are different views about whether they are benefitting market quality or they are deteriorating or diminishing market quality. Mr. Lynch. I appreciate that. I only have 8 seconds left. Have we prosecuted anybody for any of this, up to this point? Ms. White. We have certainly brought cases on the civil side. We don't prosecute in the criminal sense, but there have been some criminal actions as well. Certainly, front running is not allowed if appropriately described, and we have certainly brought front running cases, and we have brought cases involving really the spectrum of market participants. Mr. Lynch. Thank you. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from California, Mr. Royce, the chairman of the House Foreign Affairs Committee, for 5 minutes Mr. Royce. Thank you, Mr. Chairman. And thank you, Chair White, very much. Thank you for your testimony here today. You briefly described your view as the difference between asset managers versus banks and other financial institutions, and there was the OFR's report on the potential for SIFI designation, and as you explained this, it seems as though the SEC and the OFR were not necessarily on the same page in terms of the way you perceived it at the SEC. And I was going to ask you, was there collaboration between the OFR and your staff in preparing this or not in terms of the final report because you are the primary regulator, and so at the end of the day there should be, when you are not in concurrence with the view, some way to express that, maybe it would be to have a dissenting opinion in terms of the OFR position, but I was just going to ask you about that. Ms. White. I'm sorry, I guess the first point would be that actually nothing has been presented for any kind of decision yet to this point, and my understanding, and this does precede my time as Chair, but in I think late-ish at least 2012, FSOC actually commissioned, asked OFR-- Mr. Royce. Right, originally. Ms. White. --which is its research arm, and obviously meant to well inform FSOC's deliberation to undertake this study in terms of the SEC's staff's participation, it is an OFR study. The Commission itself did not participate but the SEC staff did provide throughout the process of the report its technical expertise and comments. At the end of the day, some of those comments were taken and some of those were not taken, and essentially the staffs agreed to disagree. But in the end, it really is OFR's study. And in response to an earlier question, OFR actually publicized its own study, and I think everyone expected public reaction. What the SEC did was to open a page so that those comments could be collected there because I think anything is improved by getting input. Mr. Royce. Right. I recall you opening the page. But I just wondered on the asset management report if there might be a way to actually attach the views of the SEC, of the primary regulator, in a situation like this? It was just one idea. Ms. White. I appreciate the idea. I think it is their study, and that is clear. Obviously, the SEC is free to speak in other ways. Mr. Royce. Let me ask you another question. As you know, Section 165 of Dodd-Frank requires the Federal Reserve to tailor prudential rules for non-bank SIFIs to account for differing business models including insurers. However, the Federal Reserve says it is required to impose Basel bank- centric rules on nonbank SIFIs. That is due to the Collins Amendment. Given that the Fed has taken the position now that Collins constrains their ability to tailor rules for nonbanks, would it not be prudent for FSOC to postpone further designations of insurers and other nonbanks until the Collins issue is resolved? Ms. White. Again, in terms of what I can discuss, that is certainly an issue about which there is awareness on the part of the FSOC members, and there has been discussion about that which I expect to continue. Mr. Royce. My last question is about the FSOC process and whether voting members meet with firms before or after a notice of proposed designation. It is my understanding that the process does not include an opportunity for a firm to make their case that they are not systemic to the voting members of FSOC. They can't make that case themselves prior to FSOC voting to designate the firm. It seems obvious to me that potential designated firms should have an audience either with FSOC members, or as a group. Can you think of any reason why you would not meet with a firm prior to voting on their notice of proposed designation? Ms. White. Again, those protocols were set before my time, but, there certainly is input, as I understand it. There certainly is input that the companies give in advance-- Mr. Royce. To make their case. Ms. White. To the deputies who are actually doing the day- to-day work. Mr. Royce. Yes, but not to those who are making the final decision, and, Chair White, that was the point I was going to make. And thank you very much, Mr. Chairman. I yield back. Chairman Hensarling. The Chair now recognizes the gentleman from Georgia, Mr. Scott. Mr. Scott. Thank you very much, Mr. Chairman. Chair White, it is good to have you here, and I just commend you. You all have a very difficult job in having fair trading. You are sort of like the baseball umpire, but this year for the first time baseball umpires have what they call instant replay, causing quite a bit of consternation. But I want to ask you for an instant replay here. Do you or do you not at the SEC have an action plan for order competition in the market structure? Ms. White. Do we have an action plan? Mr. Scott. Yes, for a timeline? Ms. White. I'm sorry. In terms of our review of the market structure issues, including the order types and so forth? Mr. Scott. Right. Ms. White. The answer is we don't have a specific timeline, but since I became Chair, as I mentioned before, this set of issues was in my list of top three immediate priorities, and I have been driving the staff very hard on all of the market structure issues. Mr. Scott. May I take this as an opportunity to-- Ms. White. And therefore I hope to move it quickly. Mr. Scott. --stress to you to please get an action timeline. Order competition, if we lose order competition and you have all of this excessive competition that comes in, that brings all of this complexity with it, and that is what leads us to the dark side, to these dark pools. If we allow our investment process to move into these dark pools, we are in serious trouble. And so, my concern is that a lack of this is very pressing, and this isn't the first time that I have brought this issue up. So I sense that you don't have a sense of urgency here. Do you? Am I going down a wrong hole here? Am I going down a dark hole? Don't you see a need for order competition, and if we don't have it, it will lead to these dark pools? Ms. White. There are a lot of issues in your question. First, we have a sense of urgency. I meant what I said that we are data-driven and disciplined, and we are doing a comprehensive review, which I think is the right way to do this. But that is not inconsistent with bringing a sense of urgency and intensity to all of these issues. In terms of the order types, they are, indeed, submitted by the SROs. If they have a new order type, they make a representation in terms of that in their judgment promote just and equitable principles of trade. Competition is one of the objectives of those order types. They are obviously reviewed by the SEC, and a finding needs to be made with respect to them. So these are things that are--and, again, that does not mean that one wants to make sure that the order as described, the objectives as they are given to improve market quality are, in fact, being used in that way and not in some other way. So, yes. Mr. Scott. Okay. Thank you. I just want to urge you to really move in that direction. But I do have a couple more questions. One is on this fiduciary rule. What is the problem here? My feeling has always been that that is under your jurisdiction as the Securities and Exchange Commission, so why is the Labor Department meddling in your bailiwick? Ms. White. There are two different statutory regimes where that issue--there are probably more than two, but certainly the Department of Labor under the ERISA statute has that issue before it with respect to what is under its jurisdiction. We obviously are focused on the issue from the perspective of whether a uniform fiduciary duty should be imposed on brokers and investment advisors in our space. Mr. Scott. Wait, one point. How close are you to working this out, because we have the business community that is in a state of limbo here? Ms. White. What I can say is-- Mr. Scott. It is not fair to them. Ms. White. Yes, and again, at the end of the day I have to say there are two different agencies with two different statutory regimes. But having said that, I fully recognize the importance of notice to those who may be impacted and consistency. Mr. Scott. Okay. My final point I have to-- Ms. White. I am in touch with Secretary Perez. Our staffs are in touch. Mr. Scott. I have to get this in about the CFTC and you and harmonization, but apparently I will not. But, thanks to the chairman. Chairman Hensarling. Hold that thought for the next hearing. The Chair now recognizes the gentleman from Michigan, the vice chairman of our Monetary Policy and Trade Subcommittee, Mr. Huizenga, for 5 minutes. Mr. Huizenga. Thank you, Mr. Chairman. And it is with great pleasure I get to not only welcome Chair White but my 13-year- old daughter who is here with her mom and might be getting a little embarrassed right now. But I will do my best, sweetie-- not you. Sorry, Chair White. My sweetie in the back. Ms. White. That is okay. Mr. Huizenga. Sorry. Sweetie in the back. Now we are both embarrassed, all right, Allie. Chairman Hensarling. Do we need to strike anything from the record? Ms. White. It is the nicest thing I have been called in a long time. Mr. Huizenga. I know this is confusing and complicated and I will try to explain it later. But the truth is most people here don't understand everything that we are talking about either. So, this isn't the only reason why dad leaves home. But I do want to touch a little bit on conflict minerals, and I have a couple of things here. First, no one wants to see conflict in the central African area, especially the DRC, and we need to work towards stopping any of those atrocities. But my first question is, is does Section 1502 actually stop it? I have had a number of conversations with missionary contacts, NGOs, long-term business people in the area, who at best have mixed reviews about whether we are actually getting at the problem with Section 1502. My question is, is this a workable, practical way to attack the problem? And as I hear from manufacturers throughout Michigan and throughout the country, they are very concerned. The compliance costs are estimated on the low end, $3 billion to $16 billion according to NAM, and then in light of the ruling from the D.C. Court of Appeals, and Mr. Chairman, I would love to submit this for the record. Chairman Hensarling. Without objection, it is so ordered. Mr. Huizenga. Why not take Commissioners Gallagher and Piwowar's joint suggestion on staying that, and Mr. Chairman, I would like to put that into the record as well. Chairman Hensarling. Without objection, it is so ordered. Mr. Huizenga. And while I am on a roll, can I do a third one? This is from the National Law Review about how the Federal Appeals Court holds Securities and Exchange Commission Conflict Minerals Rules-- Chairman Hensarling. The gentleman is pressing his luck, but without objection, it is so ordered. Mr. Huizenga. All right. Thank you. What are your intentions, first of all? Are you still planning on moving ahead? The Wall Street Journal had a headline which basically stated that you are planning on moving ahead with everything other than maybe a narrow section which was identified out of the Court of Appeals, and I am curious why? Ms. White. In response to your earlier comments, obviously this is a rulemaking that was mandated for us to proceed with, so we proceeded with it. Recently the D.C. Circuit has--and I have studied this very, very carefully--upheld the vast majority of that rulemaking and really quite clearly so. They have invalidated the portion that in effect requires the disclosure that something is not non-DRC, I think it is, and so the intentions are, and I think the reason you saw the joint statement coming out yesterday from Commissioners Gallagher and Piwowar, and there probably will be guidance from the Division of Corporation Finance, whether today or tomorrow, that reporters under that set of regulations would be required to report as to the portions of that rule that have been clearly upheld by the Court's decision. As to the aspect that has not been upheld, clearly there would be no requirement to make those disclosures. Mr. Huizenga. My understanding though, and I have started my way through the ruling, but according to this National Law Review, there are certainly other areas and other directions this may be going, and while this is hanging out there and this major question that has huge economic impact is unanswered, why not hit the pause button? Ms. White. In my judgment, obviously, the Court went out of its way to uphold, and there is a severability provision in the regulation, so the fact they invalidated that one portion clearly did not invalidate and went out of their way to say they did not invalidate the other portions. Clearly, there may be other things going forward that affect the invalidated piece of that rulemaking, but the rest of it stands on its own. Mr. Huizenga. It sounds like it is a mixed view at best, and there are others--including this National Law Review article that I would actually encourage people to read--who seem to think that may not be the case, that there are going to be major parts. So with that, Mr. Chairman, I yield back. Thank you. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Missouri, Mr. Cleaver. Mr. Cleaver. Thank you, Mr. Chairman. Let me associate my comments with those earlier stated by my colleague, Mr. Capuano from Massachusetts, and I do understand that you are not in the criminal division of the Justice Department. However, it is troublesome that a 17-year- old page a few years ago stole $12 worth of things out at Crystal City, was kicked out of the page program, went through the justice system, and there are institutions, in fact, one I am thinking of now that has been convicted of fraud twice. Now I am not one of the attorneys in this room, but it seems to me that fraud requires intentionality, that you didn't slip and do it. It is like the tongue; it is not an involuntary muscle. When you speak, even though people say I didn't mean what I said, the tongue pretty much says what we think. And so when you commit fraud, it is intentional. You were deceptive. You did criminal things, and yet nobody goes to jail. So what do you tell a 17-year-old kid who steals $13 worth of merchandise and his life is almost kicked to the curb while fat cat violators who almost sent this country over the cliff economically are guilty of billions and billions of dollars of fraud and nothing happens. They pay a fine, it is the cost of doing business. So it is one of those things that troubles me, and hopefully it troubles a lot of people. Can you go through your admission policy that you have in your statement on Page 4? You make reference to this in your comments? Ms. White. Yes, and essentially I agree with what you just said and very strongly so in fact. Obviously, we can't prosecute. We can't put anyone in jail at the SEC, but if the evidence is there, I think it is the responsibility of both prosecutors, which I used to be, and civil enforcers, or the civil authorities, to take the evidence as far as it leads up the chain and very aggressively so. And, again, one of my three immediate priorities when I first took this job was to make certain that we were being bold and unrelenting to the extent that we have the enforcement powers, and I think the SEC has actually a very strong record on the financial crisis cases in terms of CEOs and senior executives. One of the first things that I did when I got here was to change the SEC's no-admit no-deny settlement protocol in order to try to increase public accountability in certain cases. Now, we have specified a number of parameters, including egregiousness of the conduct, risk to the public, a particular need in a particular case for public accountability, and I think so far we have, in major cases actually, achieved admissions. I think in seven cases, both institutions and individuals. The no-admit no-deny settlement protocol used by all civil law enforcement agencies to actually very good ends including the SEC, no litigation risk, you get there faster, you get money back to harmed investors faster, will always be part of our arsenal. But I think it is enormously important that law enforcement have credibility as to its strength and the strength of its deterrent message, and that is why I changed that protocol, and I think it will continue to evolve. Mr. Cleaver. Okay. Because I only have 50 seconds left, the other issue I wanted to get into was your efforts on conforming and complying with the Office of Minority and Women Inclusion, and I don't think we have enough time. So I am going to yield back, Mr. Chairman, the remainder of my time. Chairman Hensarling. The gentleman yields back. The Chair now recognizes the gentleman from North Carolina, the chairman of our Oversight and Investigations Subcommittee, Mr. McHenry. Mr. McHenry. Chair White, thank you for being here today. Now, you put out the OFR Asset Manager Report for comment. What was your reason for putting out the proposal for comment? Ms. White. I think transparency, and I think that any study, any proposal, benefits tremendously by input from the public. Mr. McHenry. Yes, and I would say Congress has gained a tremendous amount through the comment process in the JOBS Act, and I have learned quite a bit in particular about the JOBS funding, sorry the crowdfunding section from industry leaders, and so I think it is important that we note the comment period. I also want to commend my colleagues on the other side of the aisle: Mrs. Maloney, for her work with the JOBS Act and crowdfunding; and Ms. Velazquez for her questions about the cost challenge within crowdfunding. So generally speaking, what is your view of the JOBS Act? Is this something you think is a wise and prudent change to securities law? Ms. White. That is a broad question. Certainly, I think the objective of the JOBS Act is one that we all should subscribe to, which is to facilitate capital formation by, in particular, smaller and to some degree start-up companies. I think one has to always have investor protections in mind when you do any kind of capital formation both for the sake of the investors, but also for the sake of the credibility of the method you are using to raise the capital. It won't be raised to the extent that you would like it to be if there is not credibility in the protections as well. Mr. McHenry. Did the SEC have the legislative authority? Did they have the authority in law to do basically what the JOBS Act legislated? Ms. White. You mean before the JOBS Act legislated it? Mr. McHenry. Yes. Ms. White. I think the answer--I would have to go back and actually look at it all. Certainly, in some of those spaces I would say, yes. In other spaces, no. I would have to go back and analyze it, though. Mr. McHenry. Right. So Reg D as well Reg A, those two things the SEC could have done unilaterally; right? Ms. White. I would have to get back to you on the legal authority to do-- Mr. McHenry. Yes, the legal authority is there. In terms of this, your answer to Ms. Velazquez, you said that you are going to keep reviewing Title III, the crowdfunding portion, you are going to keep reviewing how the regs work in the marketplace; is that correct? Ms. White. Once it is a live market, yes. Mr. McHenry. Okay, now in your view, if you look at the legislative text, the law for crowdfunding, is this a workable law in your view? Ms. White. I think obviously our objective is to make it workable. I think to some extent you can't tell how workable things are until they are actually rolled out and work or don't work as well as you would like them to, which is one of the reasons that I am trying to set up the interdivisional working groups to look at these markets as they come out the door. Mr. McHenry. So in terms of comments that the SEC has gotten, I have read many of them, met with a lot of the folks, in the tech world, in the securities law world, and they say that the cost of it is a challenge. The cost structure is the challenge; do you concur? Ms. White. There is no question that there are some cost challenges and certainly a number of commenters have raised those, and we certainly are attending to those comments. Mr. McHenry. Which ones? Ms. White. All the comments frankly, but we are always going to be attending to those that raise-- Mr. McHenry. What are the concerns in particular about the audited financials? Ms. White. Some commenters have actually commented on audited financials. There are comments on other aspects as well. Mr. McHenry. Do you concur with that? Ms. White. I have to study the comments. Mr. McHenry. We are 2 years in. We are 2 years in, and we passed the JOBS Act 2 years and 2 weeks ago. The President signed it into law. You have been now at the SEC for a full season, if you will. You have had plenty of time to take a look at this, and so that is why I am asking these questions. I have deep concerns, based on the comments, about the structure of the law, and with the over 690 pages of regulations the SEC has written. And additionally, I have a concern because, look, I know you want to take a pragmatic approach to this, and I just encourage you to do this and to follow-up with this so that it, and the rest of the JOBS Act, can be implemented faithfully as Congress directed. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentlelady from Wisconsin, Ms. Moore. Ms. Moore. Thank you so much, Mr. Chairman, and thank you, Madam Chair, for all of your service. I have some clean-up duties to do here. Being so late in the questioning period, I would like to ask unanimous consent from the chairman to include in the record a letter to Chair White with regard to Section 1502 of Dodd-Frank which relates to conflict minerals. Chairman Hensarling. Without objection, it is so ordered. Ms. Moore. Thank you so very, very much. Also, I am asking you, Madam Chair, how you are doing given the $25 million of your reserve fund which was basically cancelled, and how has that shifted your priorities? My colleague here was about to ask where implementation of the Women and Minorities Provision was in your chain of priorities given the shortfall that you are experiencing through the appropriations process as well as this. Ms. White. Let me say as to our OMWI office, we have, it will be fully staffed and it is a priority, and I think there is some very good progress that is been made there, not enough and more to go with respect to that. With respect to the reserve fund, this is an extraordinarily important funding mechanism for our mission- critical, long-term IT projects. That is what we have decided and in consultation with Congress to use it for, and we want to use it wisely. When you are dealing with long-term IT projects and really trying to keep pace with Wall Street and the markets, they are complex contracts with complex procurement rules, and you want to get it right, but you sure want the funding to be able to carry out this EDGAR modernization. It is all of our risk-based data tools, the enterprise data warehouse, which really brings all of the information the SEC has access to in one spot. Ms. Moore. Thank you so much, Madam Chair. Questions that several people have asked, including my good friend and colleague, Mr. Scott, with regard to implementation under Section 913, the Fiduciary Duty Rule, I was on a panel with one of your colleagues, Commissioner Daniel Gallagher, and I will ask you sort of the same questions I asked him. I understand the dual responsibility, but it seems to me the Labor Department is plowing ahead. It is my opinion that there is more expertise within the SEC for this final rule, and it ought to, of course, be harmonized. And I am wondering, do you want them to take the lead? Can you just tell us a little bit about your interaction with them that would reassure us that your expertise is not the tail wagging the dog? Ms. White. I think it was before I arrived, but certainly I can speak to after I arrived. This was an issue that I was obviously apprised of for the first time during my confirmation process, providing our expertise as to impacts on the broker model has been going on. It is critical to do. I have ratcheted up, if I can say it that way, the discussions between our staffs in providing that technical expertise to the Department of Labor. I have personally met with the Secretary, twice in person and once by phone, Secretary Perez, to try to make certain that the staff's expertise is being fully understood and brought to bear. Again, at the end of the day we are different agencies, but it is extraordinarily important that that expertise be understood, brought to bear, and that there be consistency. Ms. Moore. Thank you. I just have one more question. On Thursday, I read a story in the Wall Street Journal indicating that asset managers Fidelity and BlackRock were already at Stage 2 of SIFI designation, so there is a meeting on May 19th. What is the point and purpose of that meeting if you have already gone ahead, and what are the indicators that they ought to be designated as SIFIs without this analysis, prior to this analysis? Ms. White. I think, again, I can't comment on any particular company whether it is or isn't in the FSOC process. FSOC hasn't commented as well. I am aware of the media reports that you mentioned. There certainly is a process to gather information. I do believe the Treasury Department, when the OFR study came out, said that is a data point, but we are collecting more information about the industry. I actually welcome the conference on May 19th, which is a public conference, to get further input, and I hope it is a constructive conference. Ms. Moore. Thank you for your indulgence, Mr. Chairman. Chairman Hensarling. The time of the gentlelady has expired. The Chair now recognizes the gentleman from Virginia, Mr. Hurt, the vice chairman of our Capital Markets and GSEs Subcommittee. Mr. Hurt. Thank you, Mr. Chairman. And thank you again, Chair White, for joining us today. Before I ask a question, I wanted to say just following up on Mr. Cleaver's line of questioning, as a former prosecutor I certainly appreciate the perspective that you have brought with respect to the no-admit no-deny policy. I really do believe that is important to fostering public trust and public accountability in our markets. Your agency has been very helpful to Representative Delaney from Maryland and me in crafting the College Savings Enhancement Act. This legislation would update definitions for the accredited investors and qualified institutional buyers definitions to include State-run prepaid 529 plans. Obviously, they are very important to families who are saving for future college expenses, and I was wondering if you could comment on: first, whether you think it is important for us to encourage that college savings; and second, do you believe that these plans are suited to be considered QIBs and AIs, similar to other plans such as State-run pensions? Ms. White. Obviously, the objective is quite important. I share that. As part of our review, which is ongoing, of the definition of accredited investor, this is obviously part of that. I think our staff from the Division of Corporation Finance has actually met with several representatives of the Section 529 plans to discuss the idea, whether through guidance or rulemaking, but they are very focused on the issue. Mr. Hurt. Okay, thank you. Also, as I indicated in my opening remarks, I think that some of the comments that you have made relating to disclosure overload are so important, and you have indicated that obviously you are trying to review this regime and trying to come up with proposals that protect investors, don't overburden investors and confuse investors and also look for ways to reduce unnecessary costs for issuers. I guess my question is, how is that review proceeding, and are there specific things that you can think of that should be top priorities for the SEC in trying to scale disclosure requirements down the road? Ms. White. I think that in terms of the status of it, as you know, our SK report was filed at the end of last year which really does trace our entire disclosure regime and tees up the issues. Following that, I directed the Division of Corporation Finance to, again, make this a very high priority. I think our Director has recently given a speech on this to a gathering in terms of path forward. We are seeking views quite deliberately from all constituents, issuers, lawyers who deal with disclosure, and investors, to try to make sure we have maximum information. Obviously, you focus on intelligibility. You focus on unnecessary redundancies. You focus on whether we contributed to the issue by our comment process, which I think is enormously important for both issuers and investors to get good disclosure, but have we perpetuated some of the issues with redundant disclosure or unnecessary disclosure in a particular instance. The overall goal, I suppose there is more than one, but it is clear that to make the disclosure regime more effective, more effective for investors but obviously to do it in a way that does not create unnecessary cost for issuers. Mr. Hurt. Do you have a timeframe for--an aspirational timeframe here? Ms. White. It is a large project. Let me say that it is one that I really am committed to getting us through, and we have embarked on this before in the history of the agency, so I don't have an end time date for it, but I also believe there are things we can do along the way to finishing it, so I would hope to see some product coming out of it. I don't know if will be--I would hope it would be this year that you will see some product come out of it, but I can't guarantee that. Mr. Hurt. Excellent. I don't think I have time for another question, so I will yield back the balance of my time. Thank you. Chairman Hensarling. The gentleman yields back. The Chair now recognizes the gentleman from Illinois, Mr. Foster, for 5 minutes. Mr. Foster. Thank you, Mr. Chairman. I was wondering if you believe that there may be some transparency initiatives that might increase investor confidence and allow the market to sort out a lot of these issues about which venues or brokers are providing the best deals for their customers? An example of this, for example, might be that when a trade is made public, along with the price, size and time stamp, that you actually make public the venue, which I take it is done in some countries. We do it I guess for exchange trades but not off-exchange trades. That might provide some transparency here. Another example might simply be to allow or mandate that a retail customer as part of their order confirmation gets a history of all the trades made in that thing that they bought or sold or was bought or sold on their behalf for a few seconds on either side of the time their order actually got executed, so they have some idea of whether their order was filled at somewhere near the midpoint of the market and if you are looking at transparency initiatives like this, that will hopefully allow the market to sort things out. Ms. White. We are certainly looking at the transparency and at ways to enhance that transparency in an optimal way. Again, we want to make sure we are doing what is optimal to do, but that clearly is an area that we are quite focused on, and not only to in fact enhance that transparency but also to deal with the investor, confidence in the markets, issues we were talking about earlier. Mr. Foster. And does the SEC or should the SEC take a position on the optimum balance between lit and unlit exchanges or markets? What do you personally think about this, and how do you think the SEC should get involved in this issue? Ms. White. The SEC, in a sense, is involved by being obviously the overseer of our equity market structure, and the idea is to have an optimal equities market that works fairly and efficiently and competitively for the marketplace and investors bringing together those who wish to raise capital and investors and making sure it is a safe place. I think the intent of NMS was to increase that competition, to increase market quality, and you have seen a fair amount of dispersion that has occurred. I think some of that was expected to occur, but it has obviously proceeded and has been fairly extensive, and so I think as part of our data-driven, very comprehensive review, we want to see whether there are any changes we should make from the regulatory side that might affect that or might not. But again, I think we have to be very carful that we are not fixing a problem that isn't or not optimally addressing a problem by a change in the rulemaking but very focused on all of the questions. Mr. Foster. Given the explosion in the number of venues, do you think there is adequate uniformity in the safety, soundness, volatility, and cybersecurity requirements that are placed on all of these? Just as a simple example, it is my understanding that there are fairly uniform circuit breaker requirements at all trading venues but not as uniform limit up and limit down type requirements. Ms. White. This is what I call the systems issues, which obviously include any cyber problems with that, and are extraordinarily important to the reliability and strength of our markets. The SEC has taken a number of actions already with respect to those issues, the limit up, limit down rules, the market access rules, all designed to make the marketplace more resilient. It is interconnected. It is obviously electronic and very high speed. Our proposed rule SCI would require even further enhancements of the system. It would apply beyond just the exchanges. It would also apply, if it is adopted as proposed, to ATS's of certain sizes in order to try to bring more into that regulatory regime which I think will enhance the markets. Mr. Foster. One of the effects, as you increase out things like very strict cybersecurity requirements, to make sure that you are robust against that, that is going to impose costs on all of the trading venues, and I think that ultimately that is probably going to be a force that drives toward consolidation for the same reason that small banks are faced with cybersecurity costs. It is one of the issues that they look at and one to see whether they should merge or be acquired. And you are going to be facing the same thing, and I imagine that may drive some consolidation in this business, and so I was wondering if that--how do you view and balance that when you are doing things that will impose almost a head cost, a capitation cost on these trading venues? Ms. White. It is interesting. Certainly with respect to the comments we have gotten on SCI, the proposed rule that I mentioned, those are among the kinds of costs that have been cited to us, consequences that have been cited to us. Our economic analysis and our economists look very closely at that. Obviously, you have proponents of having a less dispersed market, so you have to weigh the benefit of that as you go through it, so we look at all of those factors. Mr. Foster. Thank you. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from South Carolina, Mr. Mulvaney, for 5 minutes. Mr. Mulvaney. Thank you, Mr. Chairman. Chair White, thank you for being here. I have a couple of different questions on a couple of different topics. Thank you, by the way, for making yourself so available. It does allow us sometimes to follow up on conversations we have had previously, and I want to do a little bit of that, but I want to start with a general question briefly about SEC investigations. When you all investigate a particular entity, I don't care who it is, is it part of your practice to contact the clients of that entity to tell them about the fact that you are investigating that entity? Ms. White. Not as a sort of invariable step. Now, you could have witnesses who are clients, so as part of your-- Mr. Mulvaney. I am not worried about witnesses. Would it be unusual for you, if you are investigating Mr. Stutzman's company, to during the investigation, call all of his clients and say, by the way, we just want to let you know we are investigating Mr. Stutzman's company, that would not be ordinary course of business for you folks? Ms. White. That would not be, or it should not be ordinary course of business. It is not ordinary course of business if that is the purpose. Now, the caveat is there only because--and I think you excluded witnesses or people who might have relevant knowledge. Mr. Mulvaney. Sure. Ms. White. Because obviously that can happen as a result of that. Mr. Mulvaney. I want you to contact witnesses, obviously, we all would. So you are saying it is not ordinary course of business to reach out to regular clients and so forth? Ms. White. Not as you have described it. Mr. Mulvaney. And we recognize how damaging that could be, especially if the investigation turns up that no wrongdoing took place. Thank you for that. You were here, separate topic, back in February as part of a larger panel. We had you, we had Governor Tarullo, and some folks from the OCC, the CFTC and the FDIC, and I tried very hard to lay out a circumstance under the Volcker Rule to try and draw some attention to the possible overlap of jurisdiction, and I tried my best. I am not sure I got everybody in the example, but the example that I gave was a large broker-dealer who was also a bank, trading at interest rate swaps in its banking subsidiary, and I asked him who would have jurisdiction over that, and I think I got most everybody at least having some jurisdiction, but you took the position that as the SEC, you all would be first. You all would go first and have primary jurisdiction, and I believe Governor Tarullo agreed. In fact, what he said and I am going to read you his testimony, was that whoever-- Ms. White. I wrote that down when he said it actually. Mr. Mulvaney. So did I, and so did a lot of other people, because I think it was news to a lot of folks. He said whoever is the primary regulator of that entity has, by congressional delegation, the regulatory authority over them. He went on to say that if it is a broker-dealer and the SEC is okay with what practice the broker-dealer is pursuing, then no, then we don't have, none of the rest of us has the authority under the Volcker Rule and the statute to say, no, that is incorrect. He went on to finally say there is not really shared jurisdiction over a particular trade. Is it your understanding that he was right in saying that? Are there limitations? Are there caveats? Are there exceptions to this, or is that the general policy of the SEC, the FSOC, the Treasury, and everybody? Ms. White. That is how it should work where it is clear who the primary regulator is, and I think it is in that example, the broker-dealers would be the SEC. What I actually did add, I guess I have to fess up, at the hearing, when you asked it before, though, is that you are clearly trying to also have consistency among the agencies as to some of the interpretive issues that may, in other situations, spill over to some other kind of entity where the primary regulator is someone else. Mr. Mulvaney. Right. But, and again, that is fine. There may be certain exceptions. I am painting with a broad brush now. If there are circumstances where everybody seems to agree that the SEC is the primary regulator and you say--you bless some practice, some security program, some software for your broker-dealers over how to deal with the Volcker Rule, the OCC or the CFTC can't come in later, in other words, and say no, that is not acceptable? Ms. White. That would certainly be my understanding. Mr. Mulvaney. Good. Thank you very much for that. Last one, and I am trying to go quickly because I only have a minute left. I want to follow up very briefly on a question that Ms. Moore asked before she left dealing with the ongoing analysis for the systemic classifications for asset managers, mutual fund companies, those types of things. I understand that BlackRock and Fidelity came under some scrutiny because of the size of some of their assets. Would you agree with me generally that by the nature of the business, asset managers will be less likely to pose systemic risks than large financial institutions and banks that do investment work? Ms. White. Again, I can't comment on what stage this analysis is-- Mr. Mulvaney. I am not asking about this. I am talking about in general context. Ms. White. --with an FSOC, but I think it is an extraordinarily important difference that the asset managers are based on an agency model from the point of view of systemic risk. Mr. Mulvaney. Will your analysis of asset managers generally, not BlackRock and Fidelity specifically, but generally, will your analysis vary because of what you just said and your recognition that the risks that they face are different or less likely to pose risk than those of other financial institutions? Ms. White. It is certainly a highly relevant factor. Mr. Mulvaney. Have you all developed the metrics yet for doing the stage 3 analysis of asset managers? Chairman Hensarling. Quick answer, please. Ms. White. I really can't comment on that because of the FSOC-- Mr. Mulvaney. Again, I am not asking about specifics. It was just general. Thank you, Mr. Chairman. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Michigan, Mr. Kildee, for 5 minutes. Mr. Kildee. Thank you, Mr. Chairman, and thank you, Chair White, for your candor. I haven't been able to catch the entire hearing. I watched a lot of it on television, so hopefully some of the questions-- a couple of the questions that I might ask you, you may have answered in some form or another, but I would like to just focus on a couple of particular areas. One is somewhat more of an operational question but it does affect the mission. With some regularity here at this committee and at other places, the issue of whether the SEC has the necessary resources to support and carry out its regulatory and enforcement obligations does come up from time to time, especially after the 2008 crisis and the reforms that followed, we saw your responsibilities, your agency's responsibilities significantly increased, and while there may be legitimate disagreement over the question of your authority and what the legislation provides for, I think, I would hope that we would find more agreement on providing the necessary resources in order to execute whatever your mandate is. I know something about this, having been 25 years in local government in a very distressed community, I was the county treasury, I had to continually figure out ways to meet my obligations with fewer and fewer resources, so I have some empathy. And so I wonder if you could comment, as you consider the challenge of having to do more with less, can you talk about some of the choices, presumably realignments or other sort of judgments that you have had to make in order to meet your regulatory obligations in the period of this sort of post- crisis world, and additionally, if you could comment on another aspect of your work, the enforcement function, particularly since it can, in some cases, generate revenue through punitive fines, whether additional resources would allow the SEC to investigate more quickly more allegations of wrongdoing within the securities field. If you could just sort of touch on the general subject of resources and how it affects your mission, that would be good. Ms. White. That bottom line is that I sincerely believe we are underresourced for the responsibilities that we have, and it is of great concern to me. I think on the enforcement side, which is our largest division, and I believe I cited the figure in my oral testimony of just last year the Enforcement Division's work actually yielded orders to return $3.4 billion in disgorgement or civil penalties, and our Fiscal Year 2014 budget is $1.3 billion. Of that $3.4 billion, I think we have already collected almost $2 billion. That is just a metric, but it gives you some perspective on that. We didn't get--in our budget last year, we had sought 450 additional positions for exam and enforcement. I have talked before and it is the one that just kind of hits you between the eyes of needing to adequately cover the examination of investment advisors, so important to all investors, and we just do not have the resources to do that. We are trying to be smarter about it. As I mentioned before, we are using risk-based tools to go to the places of greatest risk. If you think about doing things like moving resources, let's say, from the broker-dealer exam side over to the IA side, the problem there is you look at what we find when we go to the broker-dealers and we find deficiencies and problems almost everywhere we go, a lot of those broker-dealers are also migrating to the IA side. At least some would say because it is actually, we are not there as much, and the industry knows that, and as I say, you have very responsible members in the industry kind of saying the same thing. Our industry needs the SEC to have more resources in order to be able to make this industry safer and have more credibility with the investors. Mr. Kildee. So help me understand a little bit what that means, how that translates to the interest of a consumer, just to put it in plain language. What does that mean when you are not able to pursue some of cases that might come before you, what are the potential consequences that a consumer might face as a result? Ms. White. Frauds can go absolutely undetected, or on the exam side, again, when we actually go to the exam site, particularly when you are talking about investment advisors to retail, but we see it on the institutional investors, too. We find a large percentage of problems. Ponzi schemes, we find situations where fees have been misallocated. One benefit we get from, I think since Fiscal Year 2012, just because we were there, no action taken at all, we pointed out a problem, and $28 million was returned to investors. If we weren't there, that wouldn't have happened. Mr. Kildee. My time has nearly expired, so I will yield back my remaining 5 seconds. Thank you very much. Chairman Hensarling. The chairman will kindly take your 5 seconds. The Chair now recognizes the gentleman from North Carolina, Mr. Pittenger. Mr. Pittenger. Thank you, Mr. Chairman. And thank you, Chair White. We appreciate your testimony today. I would like to ask you, in a February speech you suggested that regulators should be distinguishing between prudential risk and other types of risk and that regulators should avoid taking a rigidly uniform regulatory approach based on the banking concept of safety and soundness. Could you kindly elaborate on these points? Ms. White. Yes. The concern that I have is, obviously, as a capital markets regulator, it is built on different structures. Our sense of what capital is needed, our net capital rule is built on making certain that if a broker does fail, that the customers' monies and securities are safeguarded, and I think when all of us, frankly, and the SEC is also addressing systemic risk, as we should be, we need to be very careful, also true of market structure issues, that one size doesn't necessarily fit all. And I think one thing we have to be very careful about as we do more of the systemic risk regulation is we are looking very closely at the impacts on the capital markets, for example, and on the liquidity of the markets and so forth, so that is what I meant by it. Mr. Pittenger. Thank you. Chair White, according to the SEC staff estimates I have read, the SEC employs 59 economists, at the same time it employs 1,750 attorneys. One measure that illustrates, in my perspective, the limitation of prioritizing economic analysis and the rulemaking is the ratio of economists versus lawyers at the SEC. It seems to me that the SEC should rely upon economic analysis to decide not to propose or adopt a regulation and to do so only after considering the costs and benefits. If empirical evidence, economic theory, and compliance cost data are essential to cost-benefit analysis, is it reasonable to expect that lawyers who are not trained in such matters should be responsible for carrying out the cost-benefit analysis of the agency's rulemaking? Ms. White. Our cost-benefit analysis is primarily done through our division of economic risk analysis, which is where our economists are and-- Mr. Pittenger. Would you say, Madam Chair, that the use of economists would be a more prudent use and the likely source than the larger amount of attorneys that you have? Ms. White. I think you have to--again, the fastest growing division is our division of economic risk analysis where our economists are housed. They are enormously useful to the agency even beyond rulemaking. They really are. So I am all for increasing the number of economists we have, the number of other kinds of market experts we have. And by the way, we have, I think the Enforcement Division has over 20 now who are market specialists, which I think is essential. You don't want just lawyers doing that, but we are also obviously a law enforcement agency charged with enforcing and assuring compliance with the Federal securities laws, and we review the financial filings of companies, and so naturally you are going to have a lot of--you are going to need a lot of lawyers in those spaces, but I take your point. Mr. Pittenger. A lot of attorneys. Ms. White. It is a lot of attorneys. Mr. Pittenger. Yes. Ms. White. Good ones. Mr. Pittenger. Madam Chair, does the SEC evaluate whether specific regulations tailored to impose the least burden on society, including market participants, individuals, different size businesses and other entities, including State and local governments? Ms. White. We certainly try with all of our regulations to have them be cost-effective. Obviously we have to--if we identify something we need to achieve, there may well be costs with respect to achieving that set of benefits, as we see it. But what you are clearly trying to do is do it in the most cost-effective way for all constituents. Mr. Pittenger. Thank you. I yield back my time. Chairman Hensarling. The gentleman yields back. The Chair now recognizes the gentleman from California, Mr. Sherman, for 5 minutes. Mr. Sherman. Thank you. The debt markets do a lot more to finance business enterprise than the stock market. A bond manager who doesn't get the highest rate of return with the bonds with the highest rating is going to be an ex-bond manager. So the key to the flow of many trillions of dollars that finance business and local government is the credit rating agency. In Dodd-Frank, there was the Frank and Sherman Amendment that dealt with the issue of the enormous conflict of interest, where the people selling the bonds, pick and pay the bond rating agency. And as I said here before, if I could pick and pay the umpire, I would have statistics better than Babe Ruth. So, the law requires that you either implement a system in which the SEC picks the umpire, the credit rating agency, or that you come up with something better. Where do you stand on that? What is the progress? Ms. White. First, I think it is an enormously important area to address. In terms of the conflicts of interest, I think, at least as we read this statute, we need to determine after our work if it is in the public interest and then we make the choice that you are indicating is there. One thing I will say on the credit rating agencies, alluded to earlier in a question, is the 2011 corporate governance, I will call them, proposals to enhance disclosure and other governance mechanisms surrounding conflicts. That is a rulemaking priority in 2014 but that is not what you are talking about. Mr. Sherman. I regard that all as window dressing. I am focusing-- Ms. White. I hope it will be more than window dressing because I am spending a lot of time on it. Mr. Sherman. Let's focus on it for a-- Ms. White. I am not avoiding your question at all, because I think it is enormously important. We had our roundtable last year. I met with the staff several times on this, and it is something that we are proceeding with, but I cannot tell you-- proceeding with meaning making a decision as to what we should do, what findings we should make. All I can tell you, as I sit here now, because it is still in discussion with the staff and my fellow Commissioners, is I think it is enormously important to address it effectively. I know that-- Mr. Sherman. I will just tell you that the American and National Leagues have the league picking the umpires. Ms. White. I got you. Mr. Sherman. And it works better. Next issue, the Securities Exchange Act of 1934 has a provision where you are supposed to determine what is in financial statements, the format, et cetera. You have delegated that all to the FASB. You have outsourced that power, and maybe that is a good idea, but I don't think it relieves you of an obligation to at least look at what they are doing. I don't know if you focused on their proposal to capitalize all leases. The effect of that would be to add $2 trillion to the balance sheet of American businesses, $2 trillion in assets, and $2 trillion in liabilities. The effect of that would be to cause about half of all small businesses and medium-sized businesses to be in violation of their loan covenants because the ratio is not just assets to liabilities, the ratio is liabilities to owner's equity, so if you add trillions of dollars to balance sheets, everybody's ratio is off. The effect would be to penalize any business that signs a long-term lease. Normally, I would say what is the FASB should be left to the FASB, but the people in power, Congress, we empower you, and you have empowered a group in Norwalk, Connecticut, that nobody has ever heard of, and the effect this is going to have on our economy is enormous. I don't know if you would prefer to respond for the record or whether this is an issue you focused on. Ms. White. I am aware of the issue. I probably ought to give you a further response for the record, and I agree that we retain that ultimate responsibility also. Mr. Sherman. Given the effect this will have on small business and on real estate, please don't say, that is somebody else's responsibility. We delegated it to you, you are responsible. And finally, I have 11 seconds. I will yield them back. Chairman Hensarling. The Chair now recognizes the gentleman from Ohio, Mr. Stivers, for 5 minutes. Mr. Stivers. Thank you, Mr. Chairman. Chair White, thank you for being here. I appreciate all your time and your candor today. I am going to try to get to four topics, but we will see how that goes: asset managers; money markets; market structure; and municipal advisors. I will have to be quick. On the OFR report, it seems to me that the OFR failed to look at risk, or activities. They only looked at size of the money management industry, so I have some yes-or-no questions I wanted to run by you that would help me understand. Did the Securities and Exchange Commission interact or collaborate with the FEC on the asset management report? Ms. White. As I mentioned, we provided our technical expertise and provided some comments, some of which were taken, some of which were not. Mr. Stivers. So, some of the comments were taken, some were not. I guess that gives me a little bit of concern because the FSOC is dominated by banking regulators that have no real experience with asset managers, so my next question is, has the FSOC created a forum for the SEC that regulates money managers to educate the other FSOC members about money managers? I know they are having this May 19th half-day forum, but have they engaged you in any formal way to educate the other FSOC members? Ms. White. We certainly have done that at the deputies level, and that work does continue. OFR actually did this study and provided it to FSOC, all the members of FSOC, but that is on ongoing process. Mr. Stivers. So I know OFR is supposed to educate the FSOC or research for the FSOC, but if they don't do their research correctly, it impacts the outcome of the FSOC, and I am concerned. I know Ms. Moore talked about the May 19th forum. It concerns me that they moved forward with the designation process before they did their education. It seems to be a designate first, ask questions later mentality, and I hope you will go back to the FSOC and share my concern and the concern of many of us about that designate first and ask questions later mentality. Given that you only have one vote on the FSOC, do you think Congress should consider amending the FSOC structure so that independent regulators like yourselves and the SEC have a multifaceted voice? Ms. White. Again, I think that is ultimately Congress' judgment. I think it is enormously important that independent expertise be fully listened to, but I think that is Congress' judgment how to structure FSOC. Mr. Stivers. I appreciate it. And that leads me to my second question, because I do think that the FSOC is bullying some regulators and has a history of bullying the SEC, my example there is on money market mutual funds. And Commissioner Piwowar wrote a Wall Street Journal editorial on February 28th entitled, ``Give Investors Money Fund Choices,'' where he talked about a choice proposal. Have you looked at that, and do you think that would satisfy the FSOC's concerns about money markets and allow the SEC to have the independent jurisdiction it has currently and is given from Congress? Ms. White. Let me say the SEC is proceeding with its proposal independently, and we have an outstanding proposal. Comments have come in and we are in active discussion between the staff and the Commissioners. I am aware of Commissioner Piwowar's thinking on this, and obviously, everything will be discussed, but just as a bottom line, we believe our proposal was robust, I expect our final rule to be robust, and it is the SEC proceeding independently. Mr. Stivers. I hope you will take the choice proposal seriously because I think it allows for folks to run their businesses the way it makes sense, yet provides some structure. You don't need to comment on that, but I hope you will take that seriously. With regard to market structure, you said earlier to the chairman of our Capital Markets Subcommittee that the market is not rigged, but the market certainly does what it is told to do, and under Reg NMS from 2005 till today, it has forced behaviors in the markets, and I hope, and I guess I am asking, are you willing to open up Reg NMS and take a serious look at how that is driving behaviors in the marketplace and how it is affecting consumers and especially mom and pop consumers? Ms. White. The answer to that is yes, it is part of the comprehensive review in terms of all the impacts that regulation may have had. Mr. Stivers. I have 15 seconds left. My municipal advisors bill--I appreciate you enacting most of it by rule. We sent you a letter on January 9th asking for a few changes, and I hope you will take a serious look at those. I know you have responded, but I would ask you to take a serious look at completing your work so that we don't have to act. Thank you. I yield back my nonexistent time. Chairman Hensarling. The Chair recognizes the gentleman from Michigan, Mr. Peters, for 5 minutes. Mr. Peters. Thank you, Mr. Chairman. And Chair White, thank you for your testimony and for all your work implementing both the Dodd-Frank and the JOBS Acts. Today, I would like to ask about the Commission's authority to determine the standards of conduct for broker-dealers, and investment advisors. As you know, during the debate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, I advocated for an approach that would reduce systemic risk and transparency and certainty in the markets. I believe that any new regulatory framework for broker-dealers, and investment advisors must protect the interest of retail investors, retirement plan participants, and sponsors from unfair and deceptive practices as they seek investment advice. While robust investor protections are critical, any new framework should be crafted very carefully to avoid limiting access to investment education and information for working families. This could ultimately result in worse investment decisions by participants and would in turn increase the cost of investment products, services, and advice that are absolutely critical parts of sound investment strategy for consumers. I believe that it is critical that any new fiduciary rules issued by any agency follow guidelines as were set forth in the Dodd-Frank Act. Those guidelines were carefully structured to ensure that working families continue to have access to investment assistance, and additionally, recognize the importance of having a single uniform fiduciary standard to avoid any potential investor confusion. As you know, I wrote to you earlier this year urging that the SEC move forward on this issue as intended under Dodd- Frank, and ensure that any rulemaking is completely harmonized with efforts by any other regulators. And I appreciated your very timely response in which you mentioned that the Commission staff is coordinating with and providing technical assistance to the Department of Labor staff as they consider potential changes to the definition of fiduciary. My first question, ma'am, is beyond providing technical assistance to the Department of Labor, could you elaborate on other current efforts around this issue at the Commission currently? Ms. White. Yes. I think it is an extraordinarily important issue. I prioritized it for the staff for this Fiscal Year, and I think it is extremely important that the Commission get to a point of deciding how to proceed in that timeframe. In terms of--I am not sure if you are asking about the Department of Labor. I have actually increased, I think, our staff's providing of technical and expert assistance to the Department of Labor and have actually gotten personally involved in several discussions with the Secretary of Labor on that as well, but to ensure that our expertise is being understood and that there is no sort of mistranslation, I just want to make sure we are providing all the expertise we can. At the end of the day, obviously, they are a separate agency than we are, but we understand the consistency concern. Mr. Peters. Let me drill down a little bit on that comment, if I may. So in Dodd-Frank, Congress directed the SEC to study whether having different standards of care for broker-dealers and registered investment advisors could create some confusion for investors. So, if the Department of Labor moves forward with its new definition, there very likely will be very different standards for the care of an IRA versus non- retirement retail accounts. Is there anyone at the Commission currently studying whether that would cause harmful confusion specifically? Ms. White. We certainly are looking at all of those issues and those potential impacts. I don't know--I would have to get back to you as to whether there was sort of a formal study of that. I am not sure it is a formal study, but obviously we have a lot of knowledge in that space. Mr. Peters. It would be nice if you could, if you would, ma'am, get back to us specifically if someone is working on that in particular, and also, on a follow-up, what about studying the economic interactions of the SEC project in the Department of Labor, how they may impact the economy? Ms. White. That is certainly part of the discussion, and we are also having our economist talk to their economist kind of about the broad range of possible impacts. Mr. Peters. Would you mind following up with me as well on specifics on that? Ms. White. I would be happy to do that. Mr. Peters. Great. Thank you so much. I yield back my time. Chairman Hensarling. The gentleman yields back. The Chair now recognizes the gentleman from Illinois, Mr. Hultgren, for 5 minutes. Mr. Hultgren. Thank you, Mr. Chairman. And Chair White, thank you so much for being here. I understand the SEC is close to finalizing new regulations on money market mutual funds which provide a unique and widely used municipal cash management product and help create liquidity in the municipal bond market through its purchases of municipal bonds. I am really concerned about the impact of a floating NAV and what that could have on municipal financing in a time when many State and local government budgets are already stressed. I am concerned because these bonds are a key lifeline to cities and towns, a tool that invests in the future and has a significant impact on State and local infrastructure. Your proposed rule would exempt Treasury and other government funds from the floating NAV under the rationale that these funds didn't exhibit major outflows during the financial crisis. But just as those funds were stable, municipal money market funds were very stable during the 2008 financial crisis as well and during other periods of market stress, is the Commission considering treating municipal funds the same as Treasury and other government funds, and have you adequately considered the impact of floating NAV on State and local governments? Ms. White. That is certainly one of the issues that we are acutely focused on. There were certainly a number of commenters who have discussed that in very useful and constructive ways, and we are quite focused on that. There is also, at least as proposed, if we were to go the floating NAV route, an exemption for retail which would not completely absorb that field but would, to some extent, but we are certainly focused on exactly the issue that you teed up. Mr. Hultgren. Thank you. Registered investment companies are highly regulated by the SEC and use little to no leverage and don't fail like other financial institutions, given the assets they manage are not on their balance sheets. They also are one of the most heavily regulated participants in the financial markets, subject to extensive regulation and supervision by the SEC. Yet, the Office of Financial Research's asset management report only briefly references the regulatory regime to which mutual funds and other asset managers are subject, and the FSOC has turned its sights to reviewing these registered investment companies for systemic designation. How significant a role is the SEC playing in the FSOC's review of asset managers, and shouldn't your agency's voice be paramount as the only securities regulator on the FSOC? Ms. White. The answer is that we are playing a very active role in the process--processes, I guess I should say, as they go forward, particularly at the deputy's level and specifically with respect to making certain that the full range of the existing regulatory regime is understood as we go forward. We are certainly trying, and really have from the beginning. It was decided by FSOC as a group that this is an industry that needed to be looked at. They asked OFR to do the study we have talked about before. I have explained what the SEC's role was in that, but as we go forward, we are continuing to provide really quite extensive input. Mr. Hultgren. Okay. I would also like to discuss Section 913 which authorizes but does not require the SEC to extend the fiduciary standard of conduct applicable to investment advisors to broker-dealers when providing advice about securities to retail customers. I am concerned that imposing a fiduciary duty on broker-dealers could limit investor choices and restrict products and services that are available to customers. I know that the Department of Labor is also considering imposing a fiduciary standard that could impact broker-dealers and investment advisors. I wondered, should the SEC consult and coordinate with other Federal agencies and State regulators before deciding to move forward with rules--implement Section 913? Do you believe that the Department of Labor should suspend its rulemaking until the SEC completes a Section 913 rulemaking? Ms. White. Again, I don't think I can tell the Department of Labor what to do. I think there is a good constructive recognition by the Department of Labor and the SEC of how their rules could differ or may not differ, but the importance of consistency there. We certainly, with respect to our own judgment under Dodd-Frank, are trying to get maximum input from all constituents, and we did put out a request for information I think last--I want to say last March, it might have been--I think it was last March, we got a lot of very useful responses to that. Mr. Hultgren. Even if investors are confused about the differences between broker-dealers and investment advisors, is the only solution to impose a fiduciary standard of care on broker-dealers? Could investors be better served and better protected through additional disclosure? Ms. White. And that is one of the critical issues as to how far can disclosure go to deal with the issue as it is perceived, plainly part of the discussion, the thinking and thinking about alternatives as well. Mr. Hultgren. Thank you, Chair White. My time has expired. I yield back. Thank you, Mr. Chairman. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Washington, Mr. Heck. Mr. Heck. Thank you, Mr. Chairman. Madam Chair, thank you for your service. And thank you for your presence today. There have been a lot of questions about high-frequency trading. I especially appreciated Mr. Garrett's very direct question, is the game rigged? With just about anything in society, you are going to have those who believe thusly--a significant percentage of the population believes Elvis is still alive, but at least in that case, there wasn't anybody as reputable as Mr. Lewis writing what is seemingly a very well-researched book, so in all of the back and forth with all the questioners, I never heard you categorically state that the small investor is not at a competitive disadvantage. And so, I am asking, first, if you are willing to do that, and second, if you are, don't talk to us as if we are talking to the camera, to the small investor, say in terms they can understand that they are not at a competitive disadvantage and here is why. Ms. White. And I appreciate all those questions actually. I don't want to speak beyond where I should or can, but I want to be very clear that--and I think you have seen, including in the commentary after the book has come out by a number of different investor constituencies, that there are market metrics that most agree with that would suggest that the current market structure, which obviously includes the technology and the speed issues that have been talked about, redound to the benefit of the individual retail investor. Now, that doesn't necessarily tell you whether there are other things we might do to increase market quality even further for the individual retail investor, but I want to be very clear that the market metric suggests that the retail investor really is well-served, very well-served by the current market structure. Mr. Heck. So, on an unrelated topic, the Commission proposed a regulation in January including, I think, what could only be characterized as a sweeping preemption of State regulation for small issuers. It seems to me that State regulation of small issuers is kind of in their wheelhouse because it is a more intimate, as it were, face-to-face backyard kind of an endeavor, and I understand the concerns about 50 different rules, but as you know, they have entered into a memorandum of agreement to completely avoid that, and given what you have said about the resource constraint you are under, I do not understand why you would sweepingly preempt State regulators from, in effect, partnering with you to ensure appropriate practices in the market unless you are just completely opposed to any State regulation. So, where are you on that, Madam Chair? Ms. White. First of all, our State regulators are extraordinarily important partners of ours and are protectors of investors, so let me be very clear about that. In terms of what we call the Reg A-plus proposal, our goal, maybe their goal, is to make it a workable rule with strong investor protection, and so one of the things that we considered and continue to consider is there is a GAO report and other data which suggests that one of the reasons that the current Reg A exemption, it goes up to 5 million, is essentially not used, and it is not just the 50 States or the possibility of 50 States review, but that is a significant factor in terms of why it isn't used. One of the things we did in that proposal was to tee up very clearly the coordinated State review, which I think we have made a lot of progress on. Our staffs are meeting about exactly where that stands, what that means, how we should consider that as we go forward. That is something that we would continue to watch closely to see whether that might not ameliorate some of these issues. Mr. Heck. Are you saying that you would consider walking back the sweeping preemption? Ms. White. Basically, we are considering all comments. That is obviously a very significant issue. One thing that should be clear--obviously, the States have their antifraud powers, they can require notice filing under the proposal as it exists now of anything filed with the SEC. Fees, filing fees can be charged on that, but what we are really talking about is that substantive review of offerings that could be in multiple States that have been shown not to be workable, but we are working on it. Mr. Heck. Thank you, Madam Chair. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from Pennsylvania, Mr. Rothfus. Mr. Rothfus. Thank you, Mr. Chairman, and thank you, Chair White, for your attendance here today and for letting us have some time with you. Mr. Stivers and Mr. Ross touched on the money market fund. I just want to touch on that a little bit. Can you tell where the SEC stands right now with respect to the final rule, when we might be seeing that come out? Ms. White. I can tell you that it is in active discussion between the staff and the Commissioners in terms of a final rule. I would expect it to reach a final stage in the near term. I don't want to be more specific than that, but we are working very hard on it. It is an extraordinarily important rulemaking, and I expect it to be in the near term of the Fiscal Year. Mr. Rothfus. And you are not willing to define ``near term'' for us today? Ms. White. I am not willing to define any further than that. I am not sure I used that phrase with other things yet, but I would expect it to be in the next--I better leave it at near term. Mr. Rothfus. Can you tell us whether the Commission is taking into account the report language included in the recent omnibus that directs the SEC to consider how any proposal would impact borrowing costs on businesses and local governments and returns for investors? Ms. White. No question that this rule is taking into account those impacts or potential impacts, other costs, other benefits, obviously, but our economists have been working on this rule for a very long time, these sets of issues, and continue to do so. In fact, we put some recent studies into the comment folder. Mr. Rothfus. One of the things I read recently was that between 1985 and 2008, people who used money market funds, whether they be small businesses, pensions, counties, cities, or municipalities, in the aggregate have earned $450 billion more than they otherwise would have by virtue of having the money market funds there, and there is considerable concern with the floating NAV proposals, and I think you received 1,442 comments on the proposal rule, and 1,387 were opposed. That is 96 percent opposed to the floating NAV proposal. And I look back at an additional $450 billion that could have gone to investors, savers, counties, municipalities, and that, to me, that would be a concern, and I am wondering if the SEC shares those concerns? Ms. White. The SEC certainly is looking at and taking seriously all of those comments, all of the possible impacts from whatever final rule we agree upon. I think we study all the comments in every one of our rulemakings, but this is one the SEC has been studying for a very long time and very deeply, and we continue to do it. Mr. Rothfus. Mr. Pittenger talked a little bit about some cost-benefit analysis that the SEC may engage in, and I think he raised a point about different-sized entities, and I think you responded something to the effect that you are trying to be cost-effective, generally speaking. I guess my follow-up question to that is, does the SEC take a look at a regulation and analyze its impact on the ability for a large firm to comply, and then separately analyze the ability of a small firm to comply? Ms. White. We do. We do look at it in those ways, and we also look for ways in all of our other requirements, whether it be our disclosure regime, or as we think about possibly doing the tick-size pilot. We are constantly thinking in those directions. Mr. Rothfus. What about taking into account a particular regulation's impact on jobs and wages? Is there a specific analysis of that? And I am not talking about a job that might be created because somebody has to hire somebody to comply with the regulation. Ms. White. Yes. The answer is we look at all--I have to see how formalized those factors are, but we do look at all of the impacts from our rules. I probably ought to respond further with more specificity. Mr. Rothfus. I would be--specifically with respect to jobs and wages because we see insufficient job growth out there and insufficient wage growth. Also, the impact--I am wondering if you look at how a regulation may impact on investor choice and liquidity. Ms. White. We certainly do look at that. Mr. Rothfus. Okay. I thank you for being here, and I yield back my time. Chairman Hensarling. The gentleman yields back. The Chair now recognizes the newest member of the committee, the gentleman from Nevada, Mr. Horsford, who is either moving very far or very fast to be in the ranking member's chair. It is very late in the proceeding today. The gentleman is recognized for 5 minutes. Mr. Horsford. Thank you very much, Mr. Chairman. Thank you for this informative session, and thank you, Chair White, for testifying before this committee. I want to touch on just three quick issues. The first is regarding cybersecurity. Before joining this committee, I served on the Homeland Security Committee's Subcommittee on Cybersecurity, and we know that a cyber attack on an exchange or other critical market participants could have broad consequences that impact a large number of public companies and their investors. So, besides hosting these important roundtable discussions that I understand that you had recently, can you talk about what the SEC is doing with regards to mitigating cybersecurity risk? Ms. White. Two sort of primary areas. One is in 2011, our Division of Corporation Finance put out a disclosure guideline in terms of what issuers ought to be attending to in terms of their disclosures of the risk factor of cyber events. With respect to the reg SCI proposal that is pending, that is a proposal essentially to require SROs and alternative trading systems and others to enhance their systems from possible disruptions really from any source but including specifically on the cyber side. One of the--by the way, I thought one of the purposes of our roundtable, and I think it may have succeeded in this, was to bring together people from different parts of the government so that it wouldn't be you are doing this and you are doing that but who actually has the ticket for certain things, so one of the issues that comes up in the disclosure space is that we basically require issuers to disclose what is material. They are worried about giving a roadmap to the next hacker, but that doesn't mean that information shouldn't go somewhere else, confidentially, and it also doesn't mean our government shouldn't be providing information to the private sector to better protect us all. Mr. Horsford. Thank you. My second question deals with the list of regulatory priorities for 2014. I noticed that a rulemaking requiring publicly traded companies to disclose information on political spending to its shareholders was not on the list. Can you discuss why this issue is not on the list of priorities for 2014? Ms. White. I think what you are referencing is the Reg Flex Agenda for this Fiscal Year. When I prepared that agenda, I put such items on the agenda that I thought the Commission could accomplish in that time period for the remainder of the Fiscal Year. A number of items, including the one you reference on political contributions, was taken off under that standard. If you look at our agenda, it is also--a large percentage are congressionally-mandated rulemakings, which I have prioritized at the Commission. Mr. Horsford. Okay. My final question deals with the SEC enforcement. As many of my colleagues have discussed today, there is a common perception that the SEC pursues lesser violations of the securities laws rather than major violations such as those that contributed to the financial crisis or more recent scandals. Recently, the SEC just yesterday, I guess, on a 3-2 vote granted a waiver so that a bank can continue to benefit from the well-known seasoned issuer (WKSI) status, despite that bank's involvement in Libor manipulation. Congress has passed numerous bad actor provisions intended to both serve as a deterrent to others as well as better protect investors, and yet as Commissioner Stein notes, the SEC's Web site is replete where waiver after waiver for the largest financial institutions and that some firms may just be ``too big to bar.'' Are you concerned at all that the Commission continues to grant these waivers, and are you concerned that it is easier for a large firm to receive these waivers than some smaller firms? Ms. White. First as to the SEC's record on--and during the financial crisis and the recent scandals, again, we can't put anyone in jail as I have said, but if you look at the record of enforcement, it is an extraordinarily impressive one, I think both in terms of the complexity of the cases, the names of the institutions, the largest banks being included in those, I think 70 CEOs and other senior executives, so I really think our enforcement program is extraordinarily strong and it is important that it be very strong. In terms of, sorry-- Chairman Hensarling. Continue. Ms. White. Okay. So that is enforcement, on the enforcement side. I think what you are referencing with respect to the so- called WKSI waiver, it is not an enforcement remedy, but it can be a consequence of an enforcement action whether by us at the SEC or of the Department of Justice. I can't talk about specific cases, but we apply the policies that pertain to that particular space and do it very faithfully and vigorously. Chairman Hensarling. The time of the gentleman has expired. The Chair now recognizes the gentleman from New Mexico, Mr. Pearce. Mr. Pearce. Thank you, Mr. Chairman. And thank you, Chair White. I appreciate your straightforward and honest answers here. As I look at the appropriations bill coming out MILCOM, VA, vet funds, buildings, things to--quality of life for our soldiers and they are getting a 33 percent cut according to the President's budget, you are requesting a 30 percent increase to $1.9 billion. You think that is justified in the budget that we are facing seeing that our soldiers are probably going to have less facilities and less pay? Ms. White. I, of course, would advocate fully resourcing and taking care of our soldiers without any question about that. I do think our budget request is fully justified. Obviously, I have written the justification for it. I described earlier, I think, our extensive and really growing and new responsibilities to carry out what Congress has mandated we carry out for the market investors and capital formation. I think we need and we have been surgical about that request. We are deficit-neutral. Mr. Pearce. Okay. I appreciate that, and we could get into a very good discussion about if our soldiers were allowed to charge the customers they protect, they could be budget- neutral. We could also say that if the Administration wasn't shutting down mines, the increase in oil production on Federal lands is only 6 percent, private land, 61 percent in last year, so we could have a very interesting discussion there, but that is not really where I want to go. During the time that we saw Bear Stearns, Lehman Brothers' collapse, Bernie Madoff, Allen Stanford, and MF Global, the charts show us that the SEC budget actually went up by almost 5 times, and so during a period of tremendous budget growth, we are finding that the SEC was doing very little more in the first place. JPMorgan was just assessed 1.7 or 8 billion, billion dollars fine for not reporting Madoff. Was that justified? Ms. White. Again, that is a Department of Justice case. I am actually recused on JPMorgan cases, so I don't think I can appropriately comment on that. Mr. Pearce. I would like to make a comment that, so JPMorgan was fined a lot, and yet Perry Mecarpolis brought in to you, the SEC, in 2000--2001, 2005, he just reports it, and it wasn't like--and so we are talking budget. We are talking priorities, the same thing Mr. Capuano talked about. We are talking about the priorities. He said it took him literally minutes. They were trying to figure out how to pull away a customer, and he pulls up the prospectus for Madoff and says in minutes, so it doesn't require another billion dollars' worth of budget for more lawyers. In minutes, he said, I realized it couldn't be true. He said it actually took me 4 hours to realize they were going to have to sell more trades than existed that whole year, and yet no one in the SEC, during a time that they are increasing their budget by triple and quadruple and more, no one took the 4 minutes to say, this can't be true. And in fact, it took multiple efforts to report Madoff and still they would just whisk it away. The same thing was going on with Mr. Stanford that--and one guy who used to work for the SEC was out stalling off the entire agency, a guy named Showbloom. He was out there advising, and he was able to stall you off for 20 years, and so how is a budget going to improve your performance when you have people like Mr. Barasch who says anytime the lower levels were pushing the investigation up on Stanford saying, no, we are not going to let at that go. How is it going to improve your performance to go 20 times your budget if you have a culture inside that turns and looks the other way? Ms. White. I don't think we have that culture inside at all. Obviously-- Mr. Pearce. Then let me interrupt because you had people sitting in the room with Mr. Corzine as he allegedly, according to Ms. O'Brien says--Ms. O'Brien says that he gave the order for me to transfer $200 million. You had people sitting in the room, according to Mr. Robert Cook, his testimony in front of Congress says, yes, we were sitting in the room. We became alarmed at MF Global. We were sitting in the room and yet those things were allowed to occur. So, you say that the culture doesn't exist, but it was able to go on for 20 years with Mr. Stanford. It was able to go on with Mr. Madoff for even longer. Why do you say that no culture exists that it looks-- Ms. White. I don't think there is that culture, but I certainly would not dispute that those raise serious issues and challenges at the SEC, before my time, but hopefully as I continue, we will have addressed those issues. One of the things in our budget-- Mr. Pearce. If I could take the last second or two. You have already heard two, Mr. Cleaver and you heard Mr. Lynch say nobody goes to jail. Nobody in the agency is ever responsible. You haven't fired anybody. You haven't terminated anybody for their failures in these cases. These 65 billion on Madoff and-- in years and no one in the agency is ever responsible. You are hearing back and forth. Thank you, Mr. Chairman. You have been very gracious. Chairman Hensarling. Unless another Member walks into the room in the next 30 seconds, we will close the hearing. They better walk fast. If not, I would like to thank Chair White for her testimony today. I thank her for the seriousness with which she takes the congressional oversight process and for being accommodating with her schedule. 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 her 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 stands adjourned. [Whereupon, at 1:00 p.m., the committee was adjourned.] A P P E N D I X April 29, 2014 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]