U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing 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

99–781 PDF 2016

EXAMINING THE SEC’S AGENDA, 

OPERATIONS, AND FY 2017 

BUDGET REQUEST 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 18, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–62 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

November 18, 2015 ........................................................................................... 1 

Appendix: 

November 18, 2015 ........................................................................................... 63 

WITNESSES 

WEDNESDAY, NOVEMBER 18, 2015 

White, Hon. Mary Jo, Chair, U.S. Securities and Exchange Commission .......... 5 

APPENDIX 

Prepared statements: 

White, Hon. Mary Jo ........................................................................................ 64 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

White, Hon. Mary Jo: 

Responses to questions for the record submitted by Representative Duffy . 77 

Responses to questions for the record submitted by Representative Ellison .................................................................................................................. 83 

Responses to questions for the record submitted by Representative Garrett .................................................................................................................. 95 

Responses to questions for the record submitted by Representative 

Hultgren ........................................................................................................ 109 

Responses to questions for the record submitted by Representative Hurt .. 113 

Responses to questions for the record submitted by Representative 

Luetkemeyer .................................................................................................. 121 

Responses to questions for the record submitted by Representative Perlmutter ............................................................................................................ 124 

Responses to questions for the record submitted by Representative 

Neugebauer ................................................................................................... 125 

Responses to questions for the record submitted by Representative 

Poliquin .......................................................................................................... 127 

Responses to questions for the record submitted by Representative Tipton .................................................................................................................. 131 

Responses to questions for the record submitted by Representative Royce 132 

Responses to questions for the record submitted by Representative Wagner .................................................................................................................. 133 

(1) 

EXAMINING THE SEC’S AGENDA, 

OPERATIONS, AND FY 2017 

BUDGET REQUEST 

Wednesday, November 18, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Garrett, 

Neugebauer, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, Stutzman, 

Mulvaney, Hultgren, Pittenger, Wagner, Rothfus, Messer, 

Schweikert, Guinta, Tipton, Williams, Poliquin, Love, Hill; Waters, 

Maloney, Velazquez, Sherman, Capuano, Clay, Lynch, Scott, Green, 

Cleaver, Ellison, Himes, Sewell, Murphy, Delaney, Sinema, Beatty, 

Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time. 

Today’s hearing is entitled, ‘‘Examining the SEC’s Agenda, Operations, and FY 2017 Budget Request.’’ 

I now recognize myself for 3 minutes to give an opening statement. 

This morning, we welcome back U.S. Securities and Exchange 

Commission Chair Mary Jo White. This committee is committed to 

conducting vigorous oversight of the SEC because the SEC’s threepart mission is an important one as Americans continue to struggle 

through an economy that is underperforming. 

It is on their behalf that this committee acts to ensure that the 

SEC protects investors; maintains fair, orderly, and efficient markets; and promotes capital formation—all key ingredients to growing a healthy economy with opportunity for all. 

Vigorous oversight is also needed to ensure that the SEC is a 

good steward of its resources, both its time and its budget—a budget that has increased dramatically by more than 64 percent over 

the last 10 years, while the monitors to my left, right, and in front 

of me show the rapidly rising red ink of our national debt. 

Since Chair White’s last appearance before our committee, we 

have seen both good news and bad news. First, the good news. The 

SEC finally completed the bipartisan JOBS Act rulemakings to imVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
2 

plement the reg A+ and crowdfunding titles. This is noteworthy 

and commendable. 

Further, the SEC has now asserted its jurisdiction to hopefully 

stop the Financial Stability Oversight Council (FSOC) from regulating asset managers like banks. This, too, is commendable. 

Regrettably, there is more to discuss that is not so commendable. 

On a three to two partisan vote, a pay ratio rule was pushed 

through which may appease left-wing activists, but does nothing to 

protect investors or facilitate capital formation for small and medium-sized businesses; and does nothing to help struggling families 

get ahead. 

It is another example of the SEC squandering precious resources 

on rulemaking that, again, does nothing to protect investors or facilitate capital formation. 

Additionally, as much as left-wing activists may wish to drag the 

SEC into political advocacy, the Citizens United decision does not 

involve or implicate Federal securities laws. 

A political disclosure rulemaking is not within the SEC’s core 

competency or, more importantly, it is not within its mission. It 

would simply create more opportunities for abuse and politicized 

enforcement, as we have seen with the IRS scandal, and further 

damage the SEC’s credibility. 

The SEC should instead redouble efforts to simplify the disclosure regime and renew its commitment to the materiality doctrine 

articulated by the Supreme Court in 1976. 

Instead of modernizing our proxy system, the Chair’s recent action to cut off staff guidance to public companies in the middle of 

this past proxy season was ill-advised. And the universal proxy ballot proposal favors special interests and short-termism rather than 

benefiting the vast majority of public company shareholders. 

Finally, the SEC does have an opportunity to act and stop the 

Labor Department from making financial advice and retirement 

planning less available and more expensive for Americans with low 

and moderate incomes. This, we hope, they will successfully do. 

Real investor protection comes from innovative capital markets 

that are vigorously policed for force, fraud, and deception. They 

allow capital formation to flourish, and give investors the freedom 

to make informed investment decisions free from government interference and control. 

I now yield 3 minutes to the ranking member for an opening 

statement. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Welcome back to the committee, Chair White. Today, we gather 

to discuss the SEC’s work to oversee our capital markets. This 

work, however, is hampered by harmful Republican cuts to your 

budget request, which will make it harder for you to police these 

markets. Please know that Democrats are committed to full funding for the SEC because the Commission provides the first line of 

protection for investors. 

It has been 8 months since you were last here and more than 5 

years since Dodd-Frank was enacted. But the SEC still has yet to 

propose a uniform fiduciary standard. I am pleased to learn that 

certainly while the Department of Labor is doing its part to create 

a rule that works, that you are working toward this end, and that 

3 

there should be something in the reasonable future dealing with 

this issue. 

Regarding the inadequate level of advisor exams, I join industry 

associations, advocates and members of this committee in calling 

for a modest fee on advisors and I am concerned about any costly 

third-party exams which your staff may be working on. 

I am also concerned—well, as we have discussed, I am deeply 

concerned about the continued seemingly reflected granting of 

waivers of bad actor disqualifications. These waivers allow some of 

the worst actors in our financial system to continue business as 

usual. And I look forward to your explanation of exactly how these 

decisions are made. In recent times, I have learned that they are 

made quite differently than I thought. 

Lastly, I received your letter concerning a bill we considered last 

week related to business development companies. While this isn’t 

quite the bill I would have offered, we did craft a compromise that 

I believe addressed most of your earlier concerns with the legislation. 

I also offered an amendment with Ms. Velazquez to address your 

new concerns with BDCs owning investment advisors. We disagree 

relative to the modest increase in leverage, but I urge you to help 

us craft language to further improve this bill before it moves to the 

House Floor. 

Thank you, and I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Garrett, chairman of our Capital Markets Subcommittee, for 2 minutes. 

Mr. GARRETT. I thank the chairman. And I thank Chair White. 

It is good to see you again. 

I may be echoing some of the comments that Chairman Hensarling has raised. And I do that because, frankly, the last time 

that you were here before the committee, I noted my concerns back 

then over the large number of 3–2 votes that the Commission has 

taken over the last several years, as well as the general perception 

that the SEC is becoming basically increasingly politicized. 

Since that time, really little has happened to relieve any of those 

concerns of myself or the Chair or that others have raised. In fact, 

in the last 6 months, the SEC has prioritized and completed the 

very partisan and politicized pay ratio rule and is right now in the 

process, as you know, of developing a universal proxy ballot rule. 

In essence, these are two priorities that may appease the special 

interests, but they really do very little to make our capital markets 

more competitive. 

So, while I am pleased that the SEC has at last finalized the 

crowdfunding provisions of the JOBS Act, I would note that this 

was also done along a partisan vote, 3 years after the congressional 

deadline. 

At the same time, the SEC’s ongoing failure to develop what I 

might call a capital formation agenda remains one of the most serious deficiencies. It seems that the only time that the SEC actually 

modernizes its securities laws, to the benefit of the growing numbers of businesses, is when we here in Congress tell you to. 

4 

Now, tomorrow, the SEC will host for the 34th year in a row, the 

Annual Government Business Forum on Small Business Capital 

Formation. That is good. 

As in previous years, I expect this forum to produce a number 

of valuable ideas that will help small enterprises get capital and 

grow. 

But as in previous years, I also expect that the majority of these 

recommendations will be basically ignored by the SEC. 

Finally, the SEC clearly has an important mission and role within our sector, the financial sector, but right now, it is up to the 

agency to get its priorities in order. 

And so, I look forward from hearing from you today on how the 

SEC can refocus on this threefold mission for the benefit of 

Americans’s capital market. 

And I yield back. 

Chairman HENSARLING. The gentlemen yields back. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, ranking member of our Capital Markets Subcommittee, 

for 2 minutes. 

Mrs. MALONEY. I thank the chairman for holding this important 

hearing, and I welcome Chair White. 

Quite a bit has happened since Chair White last appeared before 

this committee in March. For starters, the SEC has finalized several rules, such as the CEO pay ratio rule, and two JOBS Act 

rules. 

Perhaps most importantly, the extreme volatility in the markets 

on August 24th was the first real-world test for many of the market safeguards that the SEC put in place after the flash crash of 

2010. 

In particular, the automatic trading pauses for stocks that experience extreme volatility, known as the limit-up, limit-down rules, 

were triggered nearly 1,300 times on August 24th. And a lot of the 

stocks that were halted that day were exchange-traded stocks, 

rather than stocks of individual companies. 

Many stocks that were temporarily halted had trouble opening 

up again, because when they opened back up for trading, their 

prices rose too quickly—which triggered another automatic pause. 

However, despite this widespread disruption, the market-wide 

circuit breaks, which would have halted trading on the entire market for 15 minutes, were not triggered on August 24th. 

So, I will be very interested in hearing Chair White’s perspective 

on how these new safeguards performed. Did they work as intended? Or are there problems with the safeguards that need to be 

fixed? 

Thank you. I yield back, and I look forward to your testimony. 

Chairman HENSARLING. The gentlelady yields back. 

Today, we welcome the testimony of the Honorable Mary Jo 

White, Chair of the U.S. Securities and Exchange Commission. 

Chair White has previously testified before this committee, as we 

all know, so I believe she needs no further introduction. 

Without objection, Chair White, your written statement will be 

made a part of the record, and you are now recognized for 5 minutes to give an oral presentation of your testimony. 

Thank you. 

5 

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, first, thank you for inviting me to testify about the 

recent activities and current initiatives of the U.S. Securities and 

Exchange Commission. 

Since I last testified before this committee in March, the SEC 

has advanced significant rulemakings, continued to bring strong 

enforcement actions against wrongdoers, and made significant 

progress on our initiatives involving the asset management industry, equity market structure, and disclosure effectiveness. 

The Commission has adapted or proposed 17 substantive 

rulemakings in the past 8 months, including rules required by the 

Dodd-Frank and JOBS Acts, and these efforts have included final 

or proposed rules addressing: over-the-counter derivatives; new 

means for small businesses to access capital, including the final 

rules—as the chairman mentioned—both for updating and expanding Regulation A, and for allowing securities-based crowdfunding 

offerings; enhanced oversight of high frequency traders, and our supervision of investment advisors and mutual funds; amendments to 

the SEC rules governing its administrative proceedings; executive 

compensation disclosures; and removing references to credit ratings 

from our rules. 

The Commission also approved a proposal by the National Securities Exchanges and FINRA for a 2-year pilot program that would 

widen tick sizes for stocks of some smaller companies. 

Our enforcement program also continued to deliver very strong 

results, with the Commission bringing 807 enforcement actions, 

and obtaining monetary remedies of approximately $4.2 billion in 

Fiscal Year 2015. 

Of the 807 enforcement actions filed, a record 507 were independent actions for violations of the Federal securities laws. 

More important, though, than the numbers, these actions addressed meaningful issues for investors and the markets, spanned 

the securities industry, and included a number of first-ever kinds 

of actions. 

Significantly, approximately two-thirds of our substantive actions 

in Fiscal Year 2015 included charges against individuals. The Commission also continued to seek admissions, including the first-ever 

admissions settlement with an auditing firm, and to pursue complex cases with criminal authorities, including a recent action 

charging dozens of defendants with a global scheme to profit from 

hacked, non-public information about corporate earnings announcements. 

Going forward, we plan to continue to focus on completing our 

mandatory rulemakings, while pursuing other initiatives that are 

critical to our mission, including those relating to asset manager 

oversight, equity market structure, and disclosure effectiveness. 

This afternoon, for example, the Commission is expected to consider new rules to enhance the transparency of equity alternative 

trading systems. We will also continue to strengthen our enforcement and examination programs, striving for high impact efforts 

that protect investors and preserve market integrity. And we will 

6 

continue developing a number of ongoing initiatives designed to facilitate capital formation, particularly for small businesses. 

The agency’s Fiscal Year 2017 budget request to the Office of 

Management and Budget reflects these priorities, focusing on the 

execution of our core programs and operations by seeking to hire 

individuals with the skill sets necessary to enhance the agency’s 

oversight of increasing complex securities markets, striving to build 

the significant new oversight programs assigned to the SEC in recent years, and continuing to enhance our technology, including our 

ability to analyze and assess large volumes of data. 

As we continue to place a high priority on allocating our resources efficiently and effectively, I was very pleased that the Commission recently received an unmodified audit report, the agency’s 

best ever audit opinion from the GAO, with no material weaknesses or significant deficiencies identified in Fiscal Year 2015. 

We plan to build on these improvements and continue to enhance 

the execution of our mission. 

The Commission’s extensive work to protect investors, preserve 

market integrity, and promote capital formation is not limited to 

the initiatives I have just summarized today or in my written testimony. But I have tried, by example, both here and again in the 

written testimony, to convey the breadth and importance of the 

Commission’s ongoing efforts, and provide a sense of our progress 

in the last few months. 

Thank you for your support for the agency’s mission, and for inviting me to be here today. Your continued support will allow us 

to better protect investors and facilitate capital formation, and 

more effectively oversee the markets and entities we regulate. 

I will be happy to answer any of your questions. 

[The prepared statement of Chair White can be found on page 64 

of the appendix.] 

Chairman HENSARLING. Thank you, Chair White. 

The Chair now yields himself 5 minutes for questions. 

Chair White, it was reported that you announced at a conference 

recently that the SEC is ‘‘full out focused on developing its own fiduciary rule.’’ I alluded to it in my opening statement. 

You were last here in March, and we have spoken about these 

matters both publicly and privately, but is it my understanding 

that the SEC staff has not yet performed an updated analysis of 

the potential impact of a uniform fiduciary standard on retail investors. 

Is that correct? 

Ms. WHITE. The answer is there is not another 2011 study that 

has been done. As we proceed with this, the staff’s recommendations, which are very much in process, actively in progress— 

Chairman HENSARLING. Is there any work being done to update 

the 2011 study? 

Ms. WHITE. Part of the rulemaking, as it advances, will be very 

deep economic analysis by our economists at the SEC, to judge impacts, as well as all relevant baselines, and its— 

Chairman HENSARLING. Will that analysis be complete before the 

proposal of any uniform fiduciary standard? 

Ms. WHITE. Certainly, there will be economic analysis that is 

complete before there is any proposal. There is always additional 

7 

economic analysis, as there should be, before you proceed with any 

adoption. But certainly, that will be part of the proposal process. 

Chairman HENSARLING. But not necessarily the complete analysis that the staff is— 

Ms. WHITE. Not necessarily, but it really depends on how it is 

assessed as we go through that process, including with our economists. 

Chairman HENSARLING. Will this analysis be shared with this 

committee and made public prior to the proposal of any uniform fiduciary standard? 

Ms. WHITE. Typically, unless there is a paper produced separately, which happens from time to time from our DERA folks, it 

is part of the proposal and made public in that way. 

Chairman HENSARLING. We would encourage you to do that. 

Chair White, I don’t know if you share the concerns that many 

share on this committee in looking at the experience of a similar 

proposal in the U.K, but the public sources that I have been able 

to access show that when they imposed a similar fiduciary rule, 

310,000 clients stopped being served by their brokers because their 

wealth was insufficient to advise profitably, and 60,000 investors 

were not accepted as new clients for the same reason. 

And in the year before the Commission ban went into effect, the 

number of advisors serving retail accounts plunged by 23 percent. 

Does the experience in the U.K. concern you? 

Ms. WHITE. I am familiar with several U.K. analyses. Clearly, a 

concern of this rulemaking is what impact does it have on the ability of retail investors to get reasonably priced, reliable advice. 

And as I think I have said before, part of this rulemaking process 

will be very much devoted to what impact it will have on precisely 

that. 

Chairman HENSARLING. I would hope that the SEC would look 

very closely at the U.K. experience, and also look at—I hope you 

have received similar testimony that we have received, that the 

best interest contract exemption is, frankly, unworkable and not an 

exemption at all, meaning that the U.K. experience is most parallel. 

Switching subjects to bond market illiquidity, again, you last appeared before us in March. At that time, you acknowledged the 

concern about bond market illiquidity, and again, we have spoken 

about these matters publicly and privately. Since you testified that 

at that point, you did not see a link between the Volcker Rule, capital requirements, and reduced bond liquidity, it has been 8 

months. 

In the intervening 8 months, on May 20th, The Wall Street Journal reported that the number one concern of financial professionals 

was lack of liquidity in the markets. In August of 2015, 

PricewaterhouseCoopers published a study that attributed ‘‘the 

measurable reduction in financial market liquidity to multiple factors, including bank derisking, due to new regulatory frameworks.’’ 

Last week, The Wall Street Journal reported that U.S. firms are 

holding negative corporate bond inventories for the first time since 

the Fed began reporting this separate data. 

The Chair of FINRA has testified in this committee that, ‘‘There 

have been dramatic changes with respect to the fixed income marVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
8 

ket in recent years that has led to much higher capital requirements, the Volcker Rule, that limits the ability for proprietary 

trading with respect to bank holding companies, and a range of 

other issues that have all had significant impact from the standpoint of liquidity of the fixed income market.’’ 

So since it has been 8 months since you last appeared before us, 

there has been news. Have you been able to determine whether 

regulations like the Volcker Rule are a contributing cause to the 

dramatic decrease in liquidity in our fixed income markets? 

Ms. WHITE. Let me say that it remains a concern of mine, as I 

testified 8 months ago. I think it does of all regulators. But the answer to your question—the direct answer to your question is no, as 

is reflected in the quarterly reports that we make actually to this 

committee on that subject with our fellow financial regulators. 

I think the most recent one reflects both levels of liquidity in the 

primary and secondary markets, as set forth there, and the conclusion that one cannot determine impact from the Volcker Rule. Obviously, there are a lot of factors including capital requirements 

and others that go on. 

I do note that at least recently, reports do indicate that dealer 

inventories have gone into negative territory, and that is something 

that obviously we will be looking very closely at before the final report for this year. I am not trying to get ahead of the report, but 

we will be looking very closely at that, both for its existence, its 

meaning, and whether impacts can be judged. 

Chairman HENSARLING. My time has expired, but Chair White, 

the rest of the world is concluding otherwise. So I would hope the 

SEC would pay very careful attention. 

The Chair now recognizes the ranking member for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

Chair White, you will be asked today about your efforts on a 

number of issues, and I am appreciative for your response on the 

fiduciary duty rulemaking. But just for a second, would you please 

explain to us how a lack of adequate funding does not allow you 

to move as quickly as we would like you to move on some of these 

issues? Are you at all hampered by inadequate funding of the SEC? 

Ms. WHITE. We clearly—and I have testified about this before— 

have responsibilities far beyond our resources, and so we obviously 

try to make the smartest decisions we can in core areas—in new 

areas we have been assigned since Dodd-Frank and the JOBS Act. 

But clearly, it becomes a zero sum game, as they say, at some 

point, and it does slow you down. Of course it does. 

Ms. WATERS. Thank you very much. With that, I would like to 

just have you describe to us the SEC waiver process. The last time 

you testified, I expressed concern with the SEC’s policy of providing 

waivers of disqualifications to bad actors on a seemingly reflective 

basis and I questioned the transparency of whether or not there 

should be public input. 

As you know, I have a proposal that I think would remedy this 

problem that would, among other things, require the process to be 

conducted and voted on by the Commission that will provide the 

public a notice-and-comment period and an opportunity to request 

a hearing, and require SEC staff to keep complete public records 

9 

of all waiver requests and denials and create a public database of 

all disqualified bad actors. 

So here I am, even with a bill, talking about more work for you 

in this area. Before I go any further, because I know this is a little 

bit more complicated than most people think, would you explain to 

us a little bit about that process? 

Ms. WHITE. Yes. First, I want to make it clear that the SEC very 

aggressively pursues financial institutions and senior corporate executives and our record bears that out during and after the financial crisis. So when it comes to disqualifications and waivers, it is 

very important to understand that those are not enforcement remedies. Those are separate provisions in the securities laws that are 

governed by their very separate rules, very separate guidances that 

the Commission and the Commission staff apply very vigorously, 

case by case. 

When an enforcement action of ours or someone else’s may trigger a disqualification, and then if a party is seeking a waiver, and 

it is typically a waiver to be allowed to pursue or continue to pursue business in a totally unrelated area, than the enforcement action was about. The burden is on that party to show us that—to 

simplify it a little bit it would be in the public interest to grant 

that waiver. 

The staff, in order to increase transparency and robustness, has 

updated under my tenure and my direction, guidance on the WKSI 

waivers, as well as the bad actor waivers, and I think the Commission and the staff do very deep dives and apply those standards 

quite robustly before making those decisions. 

If a waiver is granted, it is made public on our website. If a waiver is not granted, typically, the party will withdraw the request for 

that, and it includes non-public information. I think if you look at 

only the public record, you would think we are granting routinely 

in all of them, and that is not the case. There are many, many that 

we do not grant. 

And so a challenge is preserving the privacy of non-public information, but yet, being able to provide publicly the information that 

shows that we are not granting these waivers as they are requested each time. It is a very robust process. 

Ms. WATERS. I would like you to take a look at my legislation 

and see if there is anything that we could do with that legislation 

to help you improve the process, if you believe there is room for improvement. 

Lastly, on BDCs, you have written a letter to us with your concerns. I, and others, are concerned about support for small businesses and we want to make sure that we do everything to create 

resources. Can you help me understand what your concerns are a 

little bit better and what we can do to make the bill better? 

Ms. WHITE. First, let me say that I think BDCs are designed to 

be an engine for economic growth, particularly for small businesses, and that is good for everybody and it is something that the 

staff and the Commission have been supportive of throughout the 

years, frankly, since they were set up. 

And I appreciate, by the way, that some of the concerns that I 

expressed a couple of years ago with the prior bill were addressed. 

I would be happy to talk about it further, but I did recently submit 

10 

a letter to you and to the chairman expressing my concerns with 

certain aspects of the current bill, really investor protection concerns that are significant concerns which I felt I really must express. 

Obviously, it is up to Congress what they do, essentially in several areas, but primarily, the increase in leverage, as well as the 

reduction of rights if I can, again, oversimplify a little bit, in preferred stockholders kind of net net, you also end up under the proposed bill, allowing a BDC to invest 50 percent of their assets in 

a financial institution. 

That is currently 30 percent. And the core objective for the BDCs 

is really to invest in operating companies and new operating companies that you want to give a boost to. And these are retail investors that we are talking about who own the vast majority of BDC 

shares, so that obviously heightens whatever investor concerns we 

have. 

Ms. WATERS. Thank you very much, Mr. Chairman. And I hope 

you will work with us to improve the legislation. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Jersey, Mr. Garrett, chairman of our Capital Markets 

Subcommittee. 

Mr. GARRETT. Thank you. 

Chair White, when you were here once before, I opened with the 

question, ‘‘Are the markets rigged?’’ Let me follow up now with, is 

SIPC rigged as far as the coverage that you get from there? And 

does the small investor actually know that he has no coverage 

under SIPC with his statement? 

Let give you a quick example. Years ago, I invested $2,000 when 

I came out of college in the marketplace. In over 30 years now, the 

market has gone up, it has grown—I have gotten dividend payments out, I have gotten capital gains, I withdrew some money 

over the years to pay taxes and do—likewise. So over the last 30 

years, my statement says it is going up and up in value. I have 

taken out that $2,000 that I initially invested. 

As I understand it, my SIPC coverage right now for my statement—which says I have well over that $2,000; I have about 

$5,000 or $6,000 in my account—is exactly zero. Is that correct? 

Ms. WHITE. As I heard your scenario, that is correct because 

what SIPC is designed— 

Mr. GARRETT. I have zero coverage, even though my statement 

is telling me I have like $5,000 in there, but there is a statement 

indication on the bottom of it that I have—SIPC coverage on a 

statement when I go to the broker dealer that his has a logo right 

there. Does anyone have an obligation to inform me that I have exactly zero coverage on my brokerage statement? Whose obligation 

is it to tell me that? Is that— 

Ms. WHITE. First all of, your account statement should be accurate and obviously, what has sort of given rise to these concerns 

is a huge Ponzi scheme, where the account statements are— 

Mr. GARRETT. But who should tell me that I have zero coverage 

right now? 

Ms. WHITE. The broker should tell you, but the broker in question may be committing a massive Ponzi scheme, so you may not 

get that— 

11 

Mr. GARRETT. So it is a fiduciary duty of the broker to the investment advisor to tell me that I have zero coverage? 

Ms. WHITE. I am not sure I could give you a legal opinion on 

that, but what I can say is that what SIPC covers is what securities and cash that the broker has custody of. So if, for example, in 

your example, when you put in your $2,000, you had invested in 

certain securities that had appreciated, so there were securities in 

the hands of that broker, they would be covered by SIPC. 

But if instead, what your broker did was essentially never engage in bona fide trades, it doesn’t protect against fraud, which is 

really what we are talking about, I think. 

Mr. GARRETT. We don’t know exactly what is, but I am a simple 

investor. I think I have this much money. I find out that something 

went wrong, it is not the market issue, but in actuality, your answer to the first question is I have zero coverage. There is an obligation of someone, I guess the broker, to tell me this and at that 

point, the wise thing for me to do would be what? To move down 

the street to another brokerage account, because then my coverage 

would go back up. Is that not correct? The full amount that I have 

invested? 

Ms. WHITE. If you put that amount in that broker’s custody, it 

would be covered by SIPC. 

Mr. GARRETT. Right. So investors should be told that the smart 

thing to do once you have withdrawn the initial investment, is to 

move to another company. 

Ms. WHITE. But keep in mind, if you have withdrawn your $2,000, but it had appreciated with securities to $7,000 and the 

broker had those securities and then went under, you would be protected to that $7,000. 

Mr. GARRETT. Not from SIPC, however. Not from— 

Ms. WHITE. You would be protected by SIPC, if in fact you had invested that $2,000 at some point in securities and it was still 

with the broker. But what you are not covered for is essentially 

these Ponzi schemes that are reflected falsely on your account 

statements. 

Mr. GARRETT. It depends on how the investments are made, in 

other words? So I as an investor now need to know when I get the 

statement, whether the investments are being done like in a 

Madoff situation, or whether the investments are being done some 

other way. So it really depends. 

How is the investor supposed to know that, whether he is really 

getting coverage or not then? 

Ms. WHITE. Of course, the problem is in the Madoff, and it is a 

huge problem, obviously, in the Madoff situation is that investments weren’t being made. And so you had a massive Ponzi 

scheme. So you were being defrauded kind of from beginning to 

end. 

Mr. GARRETT. So the bottom line for me, as a simple investor— 

and that really describes me well in these things; I don’t know how 

it is being done, and I really don’t know whether SIPC is going to 

be there at the end of the day. 

I would like to move on to a bunch of other questions on regulation D and Rule 506 under the Dodd-Frank Act, really quickly 

here. So you have proposed some amendments to that? And the 

12 

question is, what is the effect of those amendments on the marketplace? The SEC’s Division of Economic Risk Analysis said that only 

2 percent, or $33 billion, of the capital raised under reg D has come 

under 506 of the JOBS Act, which we did. 

That would sort of tell me that there is a suppression effect of 

your amendments just hanging out there. Can you withdraw those 

amendments so that we can actually get the full effect of the JOBS 

Act and 506(c) of Dodd-Frank? 

Ms. WHITE. As you mention, there hasn’t been consensus on 

those amendments, so they have not moved forward. I do think 

they are important however. I still believe they are important to 

give us greater information, greater clarity into how the markets 

are operating. Obviously, we have a year-and-a-half of operation 

now. We have had an interdivisional group looking at those markets. 

I have also inquired about, because I have obviously heard the 

concern that just the fact that regulation is proposed may be hampering those markets. 

Mr. GARRETT. Exactly. 

Ms. WHITE. The feedback that I have gotten, at least from our 

folks, is that they don’t believe that is the case. That is not a definitive finding. But clearly, the 506(c) market has been used, but not 

as much as one might have anticipated and certainly not as much 

as the 506(b) market is being used. 

Mr. GARRETT. Thank you. 

I yield back. 

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, recently it was reported that UBS was underwriting bonds for Puerto Rico’s retirement system, and then placing 

the same bonds into mutual funds that were sold to customers on 

the island—something that would be prevented by the Investment 

Company Act of 1940. 

However, due to the high cost of air travel at the time the Act 

was passed, Puerto Rico and other U.S. territories at the time, including Hawaii, were exempted from the 1940 Act. I have recently 

introduced legislation, H.R. 3610, to close this loophole and ensure 

that Puerto Rico and other U.S. territories have the same protections as States do. 

Do you believe that this loophole should be closed? 

Ms. WHITE. Let me say, I share your concern. I think when the 

exemption was put into law, it was many, many years ago when 

the thought was that just the practical and financial difficulties of 

being able to sort of enforce that law in the territories was just not 

there. 

Today is a very different world. So I share your concerns. I think 

the loophole should be closed. 

Ms. VELAZQUEZ. Thank you. 

In the ongoing financial crisis in Puerto Rico, hedge funds are 

playing a significant role. It is impossible, however, to fully understand the scope of their investments. Some disclosure requirements 

13 

are only available to regulators, while others do not cover debt securities or derivatives. 

I recently introduced legislation, H.R. 3921, to close this loophole 

and increase disclosure requirements on hedge funds. 

Do you believe that further disclosure in this area will benefit investors and the public? 

Ms. WHITE. I think I would have to study it further, the precise 

parameters of it. I can see pros and cons, frankly, to that approach. 

Clearly, registration and reporting are critical to increasing transparency and protecting investors in private funds. And this has 

been looked at very closely in connection with Dodd-Frank when 

we were given authority over private fund advisors. 

And there is a lot of information that is actually produced on 

Form PF by hedge funds and others. 

But the judgment was made then not to basically expose or—expose more than was prescripted to be exposed, the actual holdings 

and strategies of private funds, whether hedge funds or not, because that could lead to front-running and other kinds of actions 

with respect to that kind of disclosure. 

So, there are pros and cons to that. I need to study it further. 

Ms. VELAZQUEZ. Okay. Thank you. 

And I hope that we can work with your office at least to hear 

some feedback regarding the legislation. 

Another issue that has come to our attention, and that I care 

about as ranking member on the House Small Business Committee, 

is that the small business online lending industry that has grown 

rapidly in the past 5 years, and experts are expecting double-digit 

growth through 2020. 

Last week, I sent a letter requesting information on your agency’s involvement with small business online lending. Is there anything—any preliminary comments on my request? 

Ms. WHITE. I have seen the letter. We will obviously be responding to it in due course. In terms of what our space is with respect 

to online lending, we don’t regulate the loans themselves, the lenders, and the terms of the loans to borrowers. That is not in our 

space. 

However, we do regulate online lenders when they sell securities 

to investors that essentially fund these loans whether through 

notes or investment contracts. They may need to register the offerings. Some platforms, depending on how they do it, could have to 

register as broker-dealers. We have brought cases in the enforcement space on some of this. But our jurisdiction really relates to 

protecting investors if, in fact, their offering is made under the 

Federal securities laws. 

Ms. VELAZQUEZ. Thank you. 

I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

And thank you, Chair White, for being here today. 

I want to go back to the line of questioning that the chairman 

was talking about, something I have had a great deal of interest 

in, and that is the fixed-income market. Can you tell me exactly 

14 

what resources at the SEC are dedicated to the fixed-income market? 

Ms. WHITE. I think we may have had this discussion at our last 

hearing. Primarily, it clearly is not confined to our Trading and 

Markets Division. And it is not segregated out as a separate unit, 

which I think we did talk about before. And I have had conversations—but we have 15 to 20 Trading and Markets folks who primarily deal with the fixed-income markets. We clearly have the Office of Municipal Securities, which is a relatively small office within 

the municipal space, which deals exclusively with that area as well. 

And I have had several conversations with Steve Luparello, particularly, who is our Director of Trading and Markets, about the 

need for additional resources, perhaps a restructuring so that we 

make sure that the fixed-income markets are getting the attention 

that they deserve. And in his view now, and he has persuaded me, 

I think we are structured as we should be and resourced as we 

should be. 

Although I will note that in our budget request, I think it is for 

Fiscal Year 2016—we are obviously operating under the C.R. 

now—we sought an additional 15 positions in Trading and Markets 

and at least 2 of those will relate exclusively to a study assessment 

of the fixed-income markets. 

Mr. NEUGEBAUER. And that is in the future. But today, there are 

how many people doing that? 

Ms. WHITE. I would say in Trading and Markets, the last time 

I asked for that sort of number, it was about 16. 

Mr. NEUGEBAUER. But just for corporate bonds. 

Ms. WHITE. Yes, it is—not counting the municipal securities, 

about 16 was the last number I was given. It is a rough number, 

Congressman, if I may say, because it is not how it is structured, 

because there are other people who work in the space as well who 

don’t devote the predominance of their time to fixed income issues. 

Mr. NEUGEBAUER. Back in August, PricewaterhouseCoopers released a study on what they called the ‘‘riddledness’’ of the liquidity 

in certain asset classes. And the study’s findings are of concern to 

me as it highlighted specific areas where liquidity had measurably 

declined, including difficulties in executing trades, reduction in 

market depth, increasing market volatility, and the bifurcation in 

liquidity. The study also notes that pending or future rules and 

regulations could have further significant impact on the marketmaking activities as we exit or a historic period of accommodative 

monetary policy. 

Are you aware of the Pricewaterhouse study? Have you read that 

and looked at it? 

Ms. WHITE. The answer is, I have read a number of studies, and 

I believe that one as well, and certainly our staff has. And it is also 

something that really both in the Trading and Markets area and 

the Investment Management area that we have been very attuned 

to and in dialogue with market participants about those risks and 

those eventualities, particularly when interest rates go up. 

Mr. NEUGEBAUER. So market liquidity is a pretty big deal, isn’t 

it? 

Ms. WHITE. It certainly is. 

15 

Mr. NEUGEBAUER. I think the concern that I have and I think 

others have is we are not sure that your agency is giving the attention to it. Because we hear from a lot of different market participants that the liquidity issue is a real deal. 

And so I would hope as you move forward, that if you are doing 

studies in that area, you would share some of the findings with this 

committee. 

I want to move to—in 2015, Commissioners Stein and Piwowar 

released a statement supporting proposals to shorten the trade settlement cycle for certain security transactions. Industry groups and 

the Commission’s Investor Advisory Committee encouraged the 

Commission and market participants to move forward on reducing 

this settlement cycle, citing that it would improve investor protections and reduce systemic risk. Additionally, an industry-led committee of members across the securities industry issued a White 

Paper outlining the timeline in actions required to move from T3 to T-2 settlement cycle for transactions in the United States in 

the third quarter of 2016. 

Do you agree with moving to T-2? 

Ms. WHITE. Yes, is the direct answer. We actually responded to 

a letter, I think it was from SIFMA and maybe others as well, to 

me. I think the letter was addressed to me, as to both the position 

that I took on it, and also asking for regulatory support to help 

bring that about. 

And so my letter was quite supportive. It is public. We can certainly provide that. And I think the only thing I wanted to be sure 

of is that it didn’t foreclose possibly, down the road, an even shorter settlement period. 

Mr. NEUGEBAUER. Why haven’t you all acted on that? 

Ms. WHITE. I think it is not timely to act on it. But we will act 

timely. 

Mr. NEUGEBAUER. What is timely? 

Ms. WHITE. Essentially we are—again, the letter reflects this. We 

are—because I think they have gotten traction. We are allowing 

the industry coalition, if I can call it that, to get to the place where 

their systems can actually accommodate the T+2, and so the regulation they need will be in place by the time that happens, so, 

2016. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. I thank the chairman. 

Chair White, as I mentioned in my opening statement, I am interested in the events of August 24th, in the markets. The extreme 

volatility of that day meant that the SEC’s automatic trading halts 

for individual stocks were triggered nearly 1,300 times, and I know 

the SEC has said that it is collecting data as quickly as possible 

to analyze what happened, and to determine if there are any 

changes to the agency’s rules that are necessary. 

Can you give us a sense of where this preliminary review—what 

you have found in this review? 

Ms. WHITE. Yes, it is well along, and I am expecting that we can 

share some initial results from that review in the near-term. I 

think—and you are absolutely right as you commented earlier, we 

16 

didn’t invite the mini stress test on August 24th, but we had one. 

The markets did perform quite well, but clearly there were issues 

that came out of that, and one of the significant ones was obviously 

the market-wide circuit breakers, as you said, were not triggered, 

given the amount of volatility, the timing and so forth. 

But we did have a large number of limit up, limit downs trading 

pauses, and particularly, with ETFs. Most of them were in ETFs, 

although interestingly, not on all ETFs. And so, even with the 

same underlying security, it is a more complex issue, which we are 

studying. In part what we are looking at is the practical operation 

of our rules. Obviously, we have the limit up, limit down rules in 

place, which were put in place as a volatility moderator after the 

flash crash. 

It is on a pilot basis, and so, one of things that we are very, very 

interested in is the data that comes out of August 24th, as to what 

modifications, if any, what calibrations should be made in the limit 

up, limit down rules. We are looking very closely at the opening of 

the markets as well, because that is when the majority of all this 

occurred, and there were somewhat delayed openings, particularly 

on the New York Stock Exchange. 

Mrs. MALONEY. Will this information or this analysis be available before the end of the year? 

Ms. WHITE. I hope it will be. I don’t want to commit to it, but 

I would hope it would be. 

Mrs. MALONEY. Last December, you outlined a comprehensive 

plan to update the regulatory regime for asset managers in order 

to account for the significant changes that this industry has undergone in recent years. The SEC has now proposed two of the rules 

that you promised: enhanced disclosures; and the liquidity management rules that you proposed in September. 

But we still haven’t seen the third rule yet, which will require 

transition plans for winding down asset managers. 

Can you give us an update on this third rule, and when can we 

expect this rule to be proposed? 

Ms. WHITE. I think the next in the series—and this obviously— 

it could change, but just in terms of the workflow, will probably be 

the rule on derivatives. 

And then, following that, would be the transition roles and also 

stress testing, which are—it is really—I think categorize it as 

three, but it is really sort of five separate areas. 

And so, in terms of the transition planning rules, which are essentially designed to have funds in the industry be able to deal 

with disruptions in their business in an optimal way. 

That will not be this year, I think in terms of a proposal, but I 

would hope it would be relatively early into next year. 

Mrs. MALONEY. Okay. In terms of the stress test, would you expect the SEC to propose a stress test rule for large asset managers? 

And what are the challenges that you have encountered in developing stress tests for large asset managers? Why is it such a challenge? 

Ms. WHITE. It is a challenge and it is also—it is probably the 

fifth in the five that I mentioned. And the staff is working on them 

all at the same time and working very hard on it. 

17 

Asset managers are not banks, and so one first can’t just transfer 

stress testing for banks into this space, and so to come up with a 

meaningful test for very different funds with different kinds of assets, different kinds of stresses that matter is a real challenge. 

But we are working very hard on it. It is actually a requirement 

under Dodd-Frank. 

Mrs. MALONEY. Okay. Lastly, I would like to ask you about the 

SEC’s use of administrative proceedings. And as you know, DoddFrank expanded the SEC’s authority to try cases in an administrative forum where decisions are made by law judges rather than always having to go to Federal court, which is expensive and timeconsuming. 

Some critics have claimed that the SEC’s administrative proceedings amount to an unfair ‘‘home court advantage’’—and some 

have even claimed that they deprive defendants of due process. 

Can you speak to these issues? How do you feel about it? Do you 

think the SEC does get an unfair home court advantage when they 

are in the form of administrative law judges? And what protections 

are in place to ensure that defendants are still receiving their full 

due process? 

Ms. WHITE. Administrative proceedings and administrative law 

judges have been used by the SEC for many, many years, as well 

as other Federal agencies. Congress obviously gave the SEC as well 

as other Federal agencies the ability to bring enforcement cases in 

either district court or administrative proceedings. 

With respect to the SEC, we have a lot of expertise in our administrative law judges. They deal with very technical kinds of issues. 

They are impartial and they have unique due process rights, not 

the same as a district court, but for example, unlike in district 

court, if you are a respondent in an administrative proceeding, you 

would provide Jencks and Brady material, which is essentially exculpatory information. That is not required in district court, we 

turn over all of our unprivileged investigative file. 

We have also proposed actually for notice and comment amendments to our rules of practice to provide additional rights for defendants. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. Chair White, 

thank you for being here today. And I want to start off my questions with regards to designation of insurers, insurance companies 

as SIFIs. As chairman of the Insurance Subcommittee, it is concerning to me as we continue to discuss this issue with a lot of the 

insurance industry folks as well as those insurance companies that 

have been designated. 

Can you tell me the specific standards that you looked at whenever you voted in favor of designating two of our domestic companies as SIFIs over the objection of the insurance expert on FSOC? 

Ms. WHITE. I think we may have talked about this in March as 

well. I participated, I think, in the AIG and the MetLife cases, not 

the others. Let me just— 

Mr. LUETKEMEYER. I am aware of that. That is why I said just— 

18 

Ms. WHITE. That is why you said two. And the MetLife designation, as you know, is in litigation, so I am somewhat limited as 

what I can say. But what I can say, because the statutory criteria 

are in the statute in public, FSOC’s guidance as to what it looks 

at is public. And then— 

Mr. LUETKEMEYER. Okay. My question, though, is what standards did you look at that were different or more significant to you 

than what the insurance expert on FSOC said were not something 

that in his eyes rose to the level of designated as a SIFI? 

Ms. WHITE. Well— 

Mr. LUETKEMEYER. Where is the—to you the alarm or the— 

Ms. WHITE. It is so hard to get into the—into granularity on 

that, I think, but obviously, we get very detailed presentations and 

analyses from the staff. We have a standard we are applying, and 

looking for certain criteria, I was satisfied that those were met in 

that instance. 

Mr. LUETKEMEYER. Okay. One of the questions— 

Ms. WHITE. Listen—I must say listening very carefully and respectfully and understanding the knowledge that the insurance 

representative brings to bear on this. 

Mr. LUETKEMEYER. But you still went without—or went 

against— 

Ms. WHITE. I made my independent decision, yes. 

Mr. LUETKEMEYER. Okay. The other question that we always get 

is—our concern that we always get from insurance industry folks 

is we need an off-ramp, we need some way, some sort of mechanism or a delineation of things for them to do to become de-designated. Will you support something like that? 

Ms. WHITE. It exists to a degree. It is important to know that because there is actually an annual review process of any company 

that is designated. I think what— 

Mr. LUETKEMEYER. With all due respect, Madam Chair, that is 

not a delineation of things for them to do; that is just a report of 

where they are at. It doesn’t tell you what— 

Ms. WHITE. Well, yes. What a company that is designated will 

have received is a very detailed analysis of the basis of the decision 

of designation. 

Now in some cases, in many cases, you may have a situation 

where it is essentially the core business model, and how much leverage is used or the kind of derivatives that are used. 

And so there hasn’t been a delineation. It could be difficult in 

many cases to do it, but the bottom line for me is, I think the clearer that we are in FSOC about what it is that could get you designated— 

Mr. LUETKEMEYER. The concern that we have— 

Ms. WHITE. —and de-designated is a good thing. 

Mr. LUETKEMEYER. The concern that we have, though, is that 

there is a rubber stamp effect with FSOC with regards to insurance SIFIs. When you have the insurance expert on FSOC say no, 

it is not a problem, and yet everybody else goes along with the 

international designation versus what we think is good for our 

companies here in this country, it raises some questions and concerns. 

19 

Ms. WHITE. All I would say is I don’t think—there is a not a rubber stamp; it is an independent decision in my view, clearly. 

Mr. LUETKEMEYER. I appreciate the comment. I would venture to 

disagree with that at this point. Also, SIFI designation for asset 

managers seems to be headed down that same road, our asset managers being designated as SIFIs headed down that same road. We 

are very concerned about that as well. FSOC has decided to look 

at activities and products of asset managers. Does that concern you 

at all? 

Ms. WHITE. Again, FSOC hasn’t ruled out designations of asset 

managers, but I think the pivot, if I can call it that, to products 

and activities that may raise potential systemic risk makes sense. 

Mr. LUETKEMEYER. Do you believe asset managers are systemically important? 

Ms. WHITE. As phrased that way, I don’t think the business 

model in general creates that. And it is not confined to asset managers. Securities lending is one of the activities being looked— 

Mr. LUETKEMEYER. Okay. I guess my question is, do you believe 

the business model of asset managers can be systemically important? 

Ms. WHITE. As a business model it is an agency model and therefore I think that it ordinarily would not be. 

Mr. LUETKEMEYER. Interesting. I see my time is about up. I yield 

back. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Massachusetts, Mr. Capuano, 

for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. And thank you, 

Madam Chair, for being here. 

Madam Chair, in the last, oh, I don’t know, 20 years, do you 

know which issue at the SEC has received the most comments of 

any? 

Ms. WHITE. You are probably going to tell me political contributions. 

[laughter] 

Mr. CAPUANO. I am not going to tell you anything— 

Ms. WHITE. I don’t know. I don’t know the answer to that. 

Mr. CAPUANO. My understanding is political contributions has received over a million comments— 

Ms. WHITE. It has received over a million, and I think 2,000 of 

those are unique. So that is a lot of comments. 

Mr. CAPUANO. Right. 

Ms. WHITE. No question. 

Mr. CAPUANO. And that being the case, again, I am asking do 

you plan on addressing that issue in the foreseeable future? 

Ms. WHITE. Essentially, and I know we had this conversation 

last time as well, there are very strong views of both sides of this 

issue. 

I think I have three, actually three fairly recent outstanding letters from members of this committee, two different letters, and 

some Members of the Senate as well; I will be responding to those. 

But as I have said before, our focus is on, and our regulatory 

agenda focuses on congressional mandates and what I consider to 

be mission-critical initiatives. Asset management, I have menVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
20 

tioned the disclosure effectiveness initiative, and equity market 

structure— 

Mr. CAPUANO. Will the disclosure— 

Ms. WHITE. But I want to make clear there are avenues through 

the SEC’s rules, which is the shareholder proposal route to raise 

these issues. And they are raised quite actively and the staff— 

Mr. CAPUANO. They are raised, but— 

Ms. WHITE. —essentially doesn’t permit exclusion of them. 

Mr. CAPUANO. They are raised, but they are not required by the 

SEC. 

Ms. WHITE. There is not a mandatory disclosure rule. No, sir. 

Mr. CAPUANO. So therefore, voluntary, which is great—there are 

some people who are good citizens who like to tell people what they 

are doing, but there are a lot who are not. 

Ms. WHITE. And companies are voluntarily making those disclosures. 

Mr. CAPUANO. And I applaud those who have done it voluntarily. 

No regulation is done because everybody does it voluntarily. All 

regulations on every group are done because there is always a 

handful of people who are not good players. 

Regulations are not targeted to everybody because everybody is 

a bad player; all regulations, including SEC regulations, are targeted because there is always a handful of bad ones. The fact you 

have some voluntary compliers, that is good and I applaud them. 

Nonetheless, you have many that are not. 

And you say, obviously—and I appreciate the fact that you clarified that you are trying to focus on congressionally-mandated one, 

but your disclosure effectiveness review generated I believe 64 comment letters—64 versus 1.2 million. And by the way, as I understand it, of those 64, 10 of them related to corporate political disclosures. So Madam Chair, I would suggest— 

Ms. WHITE. We will undoubtedly get more comment letters as 

the disclosure effectiveness proceeds, but at least a couple of those 

letters that, you are right, were submitted on political contributions in connection with that initiative, also urge us to focus first 

on our congressional mandate. 

Mr. CAPUANO. Clearly, I think America has spoken in every capacity they can to you and to your organization that they want to 

prioritize this. It is not that difficult. And the fact that you refuse 

to do it just kind of raises lots of questions. 

But you also say you want to focus on congressionally-mandated 

ones. What about Dodd-Frank Section 956(a)? You haven’t focused 

on that. 

Ms. WHITE. The incentive compensation rules. 

Mr. CAPUANO. Yes. 

Ms. WHITE. The incentive compensation rule is a joint rulemaking with our fellow regulators and we are very active—there 

had been a proposal sometime ago before I even got to the Commission. 

Mr. CAPUANO. In 2011. 

Ms. WHITE. Correct. And we are all working on it very, very actively as we speak. 

Mr. CAPUANO. 2011, 2015, almost 2016, and you think that is active? 

21 

Ms. WHITE. I am describing the current state of affairs. We are 

working on it very actively. The SEC is participating in it very actively— 

Mr. CAPUANO. When do you think you might have a final response? 

Ms. WHITE. We are working very hard to come together on that 

in the very near future. 

Mr. CAPUANO. In the very near— 

Ms. WHITE. In the very near future. 

Mr. CAPUANO. Is your definition of ‘‘very near future’’ the same 

as mine? 

Ms. WHITE. I don’t know. But it is the very near future nevertheless. 

Mr. CAPUANO. Madam Chair, those are two issues, one of which 

is congressionally mandated, and by the way, it said 9 months after 

passage. You did have a proposal, your predecessor had a proposal 

in 2011, as normal, and went back. 

Since 2014, the other regulators have come up with a conclusion, 

and it is the SEC that is holding this— 

Ms. WHITE. No, actually, all of the regulators are working on this 

jointly, and we are covering sort of the entire swath of different 

registrants, different kinds of registrants. It is quite complicated, 

but it is all of us working on this together, it is not the SEC holding anything up. 

Mr. CAPUANO. —but, first of small, it is not complicated to simply 

require political spending to be disclosed. That is relatively simple. 

If you and your staff can’t do it, let me know. I will have it for you 

in a week. It is relatively simple. 

As far as the compensation, I want to be really clear: It only ap- plies to companies with assets over $1 billion. That is all it does. 

It doesn’t say how much, pay anybody you want any amount you 

want, we simply want to make sure that the incentives don’t encourage companies to endanger this economy again. That is all it 

is. 

Ms. WHITE. Absolutely. That is all it is, although how you bring 

that about so it will be effective is not so easy. 

Mr. CAPUANO. I understand that, but something is always better 

than nothing. And my time has run out. Thank you, Mr. Chairman, 

and thank you, Madam Chair. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Right here, Chair White. 

Ms. WHITE. I never can find you. 

Mr. HUIZENGA. Yes, I know. It is the new construction. We are 

about a mile away. 

So, a couple of things. Actually, the seat that you occupy today 

was filled yesterday by Minister Evode Imena, who is the minister 

of mines for Rwanda. And we had a hearing on conflict minerals, 

Section 1502, it was—he was accompanied by the ambassador, 

Mathilda Mukanatabana. 

I’m very concerned about the effects of conflict minerals in 1502, 

what effect it is having on Central Africa. And as you may recall, 

22 

it is not just the Democratic Republic of the Congo (DRC), there 

are nine other countries that are covered by this. 

As he put it, it is not a conflict minerals boycott but rather an 

African boycott the way that 1502 has been implemented. And you 

had said so yourself; I will spare you the whole regurgitation of 

your own speech from October of 2013, but you said, ‘‘but as the 

Chair of the SEC, I must question as a policy matter using the 

Federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals,’’ referencing the goals which I think 

we all share, and certainly you and I do share, of making sure that 

the laudable goals of reducing conflict, keeping extortion out of the 

marketplace and those kinds of things is very true. 

There was a letter that I, along with Chairman Hensarling, 

Chairman Royce, and Chairman Garrett sent you on February 

25th. Your response letter stated that in the time period of July of 

2010 through the middle of March of 2015, this year, the SEC had 

expended over 21,000 hours and spent approximately $2.7 million 

on this particular provision, with which I think we agree the SEC 

has little or no experience. 

The hearing brought really two questions to mind for me. First 

and foremost, is 1502 really truly achieving the objectives that I 

think many of us agree on, of helping the people of central Africa, 

giving them a better life and a better opportunity? 

I will tell you that Minister Imena not does not believe that is 

the case, they are investing more money into compliance than what 

their entire budget is for going out and exploring new mining possibilities. 

The Washington Post had said that—they did a story on the conflict minerals rule, saying it is well-intentioned but ‘‘set off a chain 

of events that has propelled millions of Congolese miners and their 

families deeper into poverty.’’ So that is one issue. 

The second is, is the SEC the right agency to pursue and enforce 

these rules in light of all of the other important investor protection 

actions that do fall under your mandate? 

My friend—I see he has just left, but my colleague from Massachusetts who was just beating you up about 956(a) that has been 

awaiting action since 2011, resource extraction, CEO pay ratio disclosure rules, all of those other things that have had time and attention but are not doing anything to make sure that investors are 

protected. 

I just—I really am struggling with how this is an important element to you when we are seeing—and I understand you are being 

mandated to do these things, but we are seeing faster action on 

those that we are on 956(a) or on so many other areas that we need 

to have a regulation. So please help me understand. 

Ms. WHITE. First, that rule was proposed before I got here, so 

some of those— 

Mr. HUIZENGA. I fully understand. You are implementing— 

Ms. WHITE. I am not trying to—I am just saying— 

Mr. HUIZENGA. —you are implementing what has been given to 

you. 

Ms. WHITE. —the early history I don’t know, but I believe it contains also a deadline where some of the others may or may not, but 

that is just a fact. 

23 

To some degree, kind of in both directions, I sometimes get at 

cross purposes because of my view of congressional mandates 

which is I do believe we have to carry them out and to do it in the 

most cost-effective ways we can. 

In terms of sort of what is in the queue when you can do some 

prioritizing, but it is also—what I did when I first got here was, 

because we had a lot in the queue, was to try to get separate work 

streams going. And so for example, the 956 rulemaking is not done 

by the Corporation Finance Division as this one is, but separate 

work streams. And so as they are ready, we proceed with them, we 

do them as well as we can. 

Some of the time and dollars are really because we are—we have 

to be true to the statutory prescription and to do it as well as we 

can. 

Mr. HUIZENGA. I understand. And in my last remaining 5 seconds, we have seen the SEC budget increase 35 percent since 2010, 

64 percent since 2005, and 300 percent since 2000. And I think, I 

hope you are hearing from me and my other colleagues on both 

sides of the aisle that we need to have priorities and we may not 

be having to increase budgets if we would focus in on what your 

core mandate is. And that is what I want to encourage you to do 

today. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. Clay, 

ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. And thank you, Madam 

Chair, for attending today. 

And in fairness to the SEC’s budget, it does not contribute to the 

deficit of this country, is that correct? 

Ms. WHITE. That is correct. It is deficit-neutral. 

Mr. CLAY. And let’s stay on budget. The House and Senate appropriations committees marks for the SEC’s Fiscal Year 2016 

budget represent level funding, ignoring yours and the President’s 

request for substantial increases. 

Please describe what would be the effect of the SEC—of level 

funding in Fiscal Year 2016. What initiatives would you not be able 

to pursue? 

Ms. WHITE. I think any number of initiatives. I think we are 

talking about budget in terms of budget increases over time. We 

also have to look at what happened to our spaces of responsibility, 

both the new spaces like crowdfunding and other areas but also the 

complexity of the markets and how much they have grown. And so 

what you see in our budget—and I do try to do this very carefully— 

is to prioritize our core mission. 

We have a lot of core missions because that is the nature of the 

SEC, so there are a number of things that we could not proceed 

with if under the current C.R., for example, we are essentially in 

a hiring freeze which means that just as we need to expand to 

cover crowdfunding, for example, you know, we can’t get those 

skilled personnel who are so important to our initiative. 

It will hurt enforcement, it will hurt exams, it will hurt our IT 

development and enhancements, which is so critical to us being an 

effective regulator. 

24 

Mr. CLAY. And how does your budget compare to the industry 

you are regulating? Has it kept pace with the growth in the financial services industry? 

Ms. WHITE. We are outmatched. No question about it. I think one 

metric that sort of makes the point very dramatically is that it has 

been reported that 6 of our largest registrants spend about $10 billion a year on technology. 

Our entire budget is $1.5 billion. 

Mr. CLAY. And at this time—and you mentioned crowdfunding— 

do you expect to need additional resources to oversee these entities? 

Ms. WHITE. Yes. We have to build up that entire regime as well 

as municipal advisors and others. 

Mr. CLAY. Thank you, Madam Chair. 

And at this time, Mr. Chairman, I would like to yield the remainder of my time to the gentleman from Massachusetts. 

Mr. LYNCH. Thank you. I thank the gentleman from Missouri. 

Madam Chair, thank you for being here. I know that the ranking 

member spoke earlier in the hearing about the well-known seasoned issuer (WKSI) waivers and I know you made some comments 

recently regarding that. 

The idea, though—the basic idea, here, is that we would reward 

good behavior with the WKSI title or label, a well-known seasoned 

issuer and also allowing them off-the-shelf registration. And yet we 

would withdraw that—we would withdraw that privilege if we had 

felony conviction or securities fraud on the part of these companies. 

And so, what we have seen here repeatedly, I must say from the 

SEC, is that even though they are convicted of felonies, even 

though they are convicted of securities fraud, we let them have 

that privilege. We don’t discourage bad behavior. And so, I am just 

asking you to try to explain that because I read your statement but 

it is confounding to me. 

Ms. WHITE. Again, I have tried to lay this out and I made a 

speech like last March on this— 

Mr. LYNCH. I read it. 

Ms. WHITE. —to be as clear as one could be. But first of all, I 

think we are all about trying to punish bad behavior and particularly financial institutions and senior executives who have committed wrongdoing, and I think our record in enforcement is quite 

aggressive and quite impressive. 

In terms of WKSI, essentially, that was part of offering reform. 

That had a somewhat different more streamlined set of procedures—if I can call it that—for well-known seasoned issuers, not 

just financial institutions, manufacturing companies, et cetera. 

In addition to streamlining, it also provides more information 

real-time to investors. That is kind of the WKSI regime. In terms 

of, if a company is indicted or commits securities fraud or some 

other trigger for being disqualified as a WKSI. 

And, again, this is covered by regulation or statute with respect 

to all disqualifications. 

Then, what we also have covered by statute or regulation, is a 

procedure for granting a waiver, putting the burden on the party 

seeking the waiver. And in terms of the WKSI, what you are lookVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
25 

ing most closely at is, can you rely on the entity’s disclosures going 

forward? The reliability of the disclosures. 

So if the trigger happens to be— 

Mr. LYNCH. My time has expired. What I am saying is, a conviction for fraud—a conviction for a felony, that is reason to be less 

reliant—that hurts the reliability of these companies, and they 

should have that title withdrawn from them. 

That is my argument. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. 

And welcome, Chair White. It is great to have you back. 

We talked privately, and I have seen the press release from the 

SEC in regards to the tick size pilot program. You have implemented a 5-month delay. We have talked about that. This is not 

going to be a death by 1,000 delays, is it? You are still committed 

to implementing the pilot program? 

Ms. WHITE. We are totally committed to it. We want to get it 

right, though, so it will be meaningful, obviously. That is the goal. 

And we thought long and hard about it. We calibrated the extension so that we can get good reliable data so we get the results we 

are hoping for from the tick size pilot. We are totally committed to 

going forward with it. 

Mr. DUFFY. And we want good data as well and to make sure the 

pilot program is set up correctly. A little more time isn’t met with 

a big objection from us, just as long as you are still committed to 

implementing the pilot program. 

So, thank you for that. I want to follow up on the chairman’s 

question in regard to the corporate bond liquidity and its relationship to the Volcker Rule. We think there is a great tie in to economic growth and job creation through the corporate bond market. 

And, I think, you indicated today and in your last testimony that 

you don’t see a correlation between the Volcker Rule and the lack 

of liquidity in the corporate bond market. 

Is that correct? 

Ms. WHITE. That has been the conclusion of each of our—the 

joint agencies, including ours—quarterly reports to this committee. 

In terms of not being able, certainly, to determine that it is, I 

think is a better way to say it perhaps. 

Mr. DUFFY. Let me be clear first. 

You would agree there is a liquidity issue in the corporate bond 

market? 

Ms. WHITE. I agree that there is a concern, yes. I think we try 

to give in each quarterly report exactly what we are seeing in the 

liquidity and sometimes it is quite strong and sometimes it is 

somewhat more volatile. I keep a close eye on it, and it is a concern. 

Mr. DUFFY. So if not the Volcker Rule, then what? What is causing the lack of liquidity? 

You have to ask the question; it has to be a concern for you. 

What is causing it? 

Ms. WHITE. Again, I think you have to look at whatever particular market we are talking about, and a particular point in time, 

26 

and assess what is the liquidity? Because sometimes there will 

be—talk about the lack of liquidity and it is quite robust at that 

time. So that is why in those reports we do both—here is what we 

are seeing in the primary markets, here is what we are seeing in 

the secondary markets. 

And then, also try to analyze what is having an impact on that? 

Everybody is keeping a very close eye on the diminution of liquidity, which is of great concern to everybody. 

Mr. DUFFY. And it would— 

Ms. WHITE. But ferreting out impacts is not easy in that space. 

Mr. DUFFY. There is great liquidity, but you hit a bump in the 

road, and all of a sudden liquidity vanishes. I think that is the 

cause for concern. 

And so, you can say, yes, sometimes there is great liquidity—that 

is true. But we care more about those little bumps that liquidity 

vanishes, and I think a lot of us would argue that the liquidity 

issue has arisen with Volcker and Basel and all the rules and regulations that have come to pass. 

And, I don’t know if you don’t want to share your personal opinion because it might be contrary to the position of FSOC—I get 

that, but— 

Ms. WHITE. No, no. It is not that. I really do bore into this with 

our own staff too, because one thing that we do for every single 

rulemaking we do is to try to judge those impacts— 

Mr. DUFFY. I would argue that there are people on the outside, 

per the questions by the chairman, who have some significant disagreement. 

I only have a little bit of time left. I want to make just a quick 

comment in regard to the corporate political spending. 

Obviously, I get a lot of letters, as well. I know that people rally. 

Folks around the country, whether they are on the right or the left, 

send me letters. I am sure you get the same and you know where 

those letters come from. 

There is a political agenda. But, for a corporate political spending 

disclosure—would that protect investors if you did a rule to that effect? Would that be material to decisions investors make? 

Ms. WHITE. That may be, to some degree I suppose, in the eye 

of the beholder. But clearly if you are looking for what is material 

to investors under current law in the particular context of a particular company it could be a certain level of spending or something 

else unique about a company. 

If it is material now, it has to be disclosed. What is being sought 

is a mandatory disclosure rule across-the-board. 

Mr. DUFFY. Right. This isn’t material in regard to investment decisions that are made. This is politics. 

Politics are coming into play, and they are trying to send a whole 

bunch of letters to you so we can find out how corporations might 

give politically, and they can rally protests and sit-ins, and we 

know how the game works. But I would encourage you to push 

back and keep a sound, steady course. 

I want to quickly pivot. We had the Director of Investment Management, David Grimm, here before the committee. I don’t know if 

you watched that testimony, but we talked to him about the sysVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
27 

temic risk of asset managers and how FSOC had actually used 

your team and his team to get insight. 

And I didn’t feel very confident that the expertise within the 

SEC has been tapped by FSOC, and it gives me concern that we 

have FSOC making decisions that are contrary to those experts in 

the field, say at the SEC with asset managers also as Mr. Luetkemeyer brought up, Mr. Woodall voted against MetLife and others. 

And those who don’t have that expertise are voting to designate. 

So, we do have—and I know my time is up. 

Ms. WHITE. I would just say that staff is providing extensive expertise that the FSOC on the subject of asset managers is, in terms 

of, for example, the request for information that went out in December. That is quite active, and it is very important that we do 

provide that expertise. I think it is being received. 

Mr. DUFFY. I didn’t feel very confident through— 

Chairman HENSARLING. Time. 

Mr. DUFFY. I yield back. 

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 again, 

Madam Chair, for being here. 

I would like to revisit a topic that Mrs. Maloney from New York 

raised earlier today, and that is going back to the August 24th 

problems in the market. I realize at that time our markets, U.S. 

markets, were responding to a sell off of Chinese stocks earlier in 

the day. However, according to The Wall Street Journal, there were 

dozens of exchange traded funds that traded at shop discounts to 

their net asset value, or their component value, leading to outsize 

losses for investors. 

And I know your opinion was that the markets work very well 

but there are some retail investors here that are very upset. Do we 

have any sense of how much money retail investors lost on the 

24th of August? 

Ms. WHITE. Not as a net, net figure, I think. Because—and particularly if you are trying to tie it to— 

Mr. LYNCH. Ballpark? 

Ms. WHITE. I would have to get back to you with whatever we 

could do on that, but with respect to ETFs themselves, clearly, you 

worry about retail investors in whatever spaces they are in. And 

they are obviously in ETF spaces, and one of the interesting things 

that I think will come out in our initial results when they are made 

public is why some ETFs with kind of the same characteristics 

didn’t have that phenomena occur and others did. 

Mr. LYNCH. Right. 

Ms. WHITE. Clearly, we are looking very closely at it. 

Mr. LYNCH. Reclaiming my time. 

Ms. WHITE. Sorry. 

Mr. LYNCH. I know that we have a couple of indices here, I 

guess. The Vanguard Consumer Staples ETF and the $5.8 billion 

Vanguard Healthcare ETF both plunged 32 percent within the 

opening minutes of trading, and yet if you look at the component 

stocks within those baskets, they were only down about 9 percent. 

28 

So what was also troubling, at the same time the VIX, the CBOE 

Volatility Index—went dark, so for that first half hour—it didn’t 

come on until 10 o’clock, and people didn’t know how much fear 

was in the market, or what direction things were going in. So that 

was a problem. 

And this is all in a time when the Dow experienced its largest 

point drop in history. And so a couple of questions I have are this. 

Again, I ask you, how much was the loss for retail investors? And 

I appreciate if you can get back to me on that. But, given the fact 

that the whole idea of ETFs was to respond to the flash crash, and 

the lack of liquidity, so people could actually trade. 

We have examples of—in the first 37 minutes, there were, I 

think, 1,300 stops instituted on individual stocks, and— 

Ms. WHITE. I think that number covers the ETFs as well. 

Mr. LYNCH. Yes. Just, how can we prevent this problem? Because 

we are going to have sell-offs in China again, at some point. 

Ms. WHITE. Again, not commenting on the cause or causes of August 24th. But what you are referencing now, at least primarily, I 

think, is the limit up/limit down mechanism put in after the flash 

crash, and that is precisely what we are studying, based on that 

data that was generated on August 24th, and how to recalibrate 

that to make it more effective. 

The circuit breakers actually weren’t triggered— 

Mr. LYNCH. Why the delta in the component stocks, versus the 

ETFs? Why? 

Ms. WHITE. That is exactly what we are looking at. But it is not 

a simple analysis, because you will have other ETFs with the same 

characteristics that didn’t experience those trading pauses. So why 

is that? And that is one of the things we are analyzing as well. 

And as I say, this will be an ongoing study. But I am hoping, in 

the pretty near future, we will be able to share some results that 

will answer some of the questions. 

Mr. LYNCH. Yes. Do you know if in the beginning, in your talk 

about the opening, that was a real problem? Do you have any correlation—at least, evidence that high-frequency traders jumped on 

this in the early opening? 

Ms. WHITE. Again, we should wait for the initial results, because 

we are analyzing everything, but that doesn’t pop out. 

Mr. LYNCH. Thank you. 

And I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick. 

Mr. FITZPATRICK. I thank the Chair for the recognition. 

And, Madam Chair, thanks for your testimony here today. 

As Members of Congress, we listen to our constituents, we learn 

a lot about the economy, about what is holding it back, what the 

problems are with job growth in the country. 

And 4, 5, 6 years ago, what I used to hear about from my constituents was high health care costs, high taxes, and a lot of uncertainty in the Tax Code. I have to say that over the course of the 

last 2 years, the focus has shifted dramatically, and almost exclusively, to the cost of regulation. 

29 

Last week, I was back home in Bucks County, Pennsylvania. I 

met with a constituent whose clients are banks, and he talked 

about this one particular new startup—about 10, 12 years old. 

I think there are less than 50 employees in the bank. He said 

eight of them were compliance individuals, complying with regulation. I have to say, even as much as we pay attention, I was 

shocked at the numbers. 

And those banks would tell us, these are individuals who are not 

able to be processing loans or meeting with customers. Last night, 

I met with a constituent not in the financial services industry, in 

a different industry, but with the same issue. He was emphatic 

about the cost of regulation and what it was doing to his particular 

industry. 

In my community, Bucks County, Pennsylvania, we have a lot of 

high-tech biotechnology firms, startups, investors taking big risks 

for them. 

About 3 years ago, one of my constituents from a pharmaceutical 

company—which employs many of my constituents—named Jeff 

Hatfield testified before our Subcommittee on Capital Markets, and 

I have his testimony here. 

And what he was testifying on was the cost of regulatory compliance, the negative impact on research, hiring, and potential 

growth. Specifically, one remedy that he cited was the filing status 

classification 12b-2, to encourage growth, but also protect investors. 

As I am sure you are aware, biotech companies may research 

new therapies for years at a great cost without seeing an actual 

profit, despite a lot of market valuation. 

They are still required to comply with all of the regulatory requirements. He was talking about 12b-2, I think he also testified 

about 404(b), which is a section of Sarbanes-Oxley that requires an 

awful lot of sort of external audits of internal controls. 

The SEC, I am sure, is looking at this. What are your thoughts 

on what Jeff Hatfield testified before the committee, and whether 

or not this cost is really dragging down innovation and hiring in 

the communities? 

Ms. WHITE. What we do at the SEC is really quite vigorous costbenefit analysis, and that is of all of our rules. I think one of the 

great success stories of the SEC, frankly, is our Division of Economic and Risk Analysis (DERA) unit, our economists who actually 

perform that work and a lot of other work at the SEC, a lot of studies to try to really calibrate both the baseline—where are we now, 

in terms of what are we trying to accomplish with the regulation, 

what is the benefit of that, where is the market now, and then, if 

we impose this regulation in this form, what is its cost going to be? 

And you clearly look at the size of a company when you do that, 

too. You look at different industries when you do that, too. Now, 

I can’t tell you that the net comes out so that there is not some 

of those costs imposed, obviously. 

But what I can say is that the SEC really does a very thorough 

analysis of cost-benefit. 

Mr. FITZPATRICK. In terms of the size of the companies, a lot of 

the pharmaceutical and biotech companies don’t have a lot of employees. They are highly compensated employees, and they may 

30 

have a lot of market value, but they are not going to have any revenue for 10 years. 

It could take $1 billion in research to get a therapy to market, 

with no profit until that point in time. 

So what does the SEC cost-benefit analysis say about those companies, which are very important to my district, because they can’t 

grow—they are spending money hiring external auditors, complying with a rule that I am sure was well-intentioned, but not intended to be impacting firms like these. 

Ms. WHITE. I don’t know how to answer that other than to say 

that our economists try to look at it not just as, here are the compliance costs, but what does it do to competition, what does it do 

to the other economic impacts besides just—and I don’t mean to 

minimize it—the compliance costs. 

But again, obviously, what is driving that analysis in the first 

place is a need—a perceived need, certainly, for some regulation to 

protect investors and the markets and to facilitate capital formation. 

But we should be doing as deep a dive as we can, no matter what 

the industry is, no matter what the complexity—or uniqueness, 

maybe, is a better word. And I appreciate that is how the pharmaceutical R&D works, in particular. 

Mr. FITZPATRICK. Thank you. I yield back. 

Mr. DUFFY [presiding]. The gentleman yields back. The Chair 

now recognizes the gentleman from Georgia, Mr. Scott, for 5 minutes. 

Mr. SCOTT. Thank you very much. 

Chair White, are you aware that when we wrote Dodd-Frank, in 

Section 913 we gave exclusive responsibility to the Securities and 

Exchange Commission if there came a time when we needed to put 

together a best interest standard for the fiduciary? You are aware 

of that, aren’t you? 

Ms. WHITE. I am certainly aware that 913 gives the SEC authority to proceed. It doesn’t mandate it. Yes. 

Mr. SCOTT. Let me ask you this: why are you allowing the Labor 

Department to take over your territory that we put in Dodd-Frank, 

that was approved by the House, approved by the Senate, and 

signed by the President of the United States? 

Ms. WHITE. I don’t view it—and I have heard your comments before—that way. Again, we are separate agencies. They do have responsibility and statutory authority in the ERISA space. Even as 

we— 

Mr. SCOTT. Let me— 

Ms. WHITE. —sit here now, brokers have to comply, if they are 

in the ERISA space, with the Department of Labor rules and ours. 

Mr. SCOTT. Let me respond to that, please. I was here. I helped 

write Section 913. There was a reason why the Securities and Exchange Commission came to set and let us do this—because they 

were the regulatory agency. 

Now, you mention ERISA. Not once—not one time—did the 

Labor Department come over and said, ‘‘Hold on, let us handle the 

retirement.’’ No. There was no discussion of that. That is just happening now. 

31 

This is a critical issue, and if there ever was a time for the Securities and Exchange Commission to stand up and do its duty so 

that all of the American people can receive the proper financial advice to make those critical decisions—do you realize what the Labor 

Department is doing? 

Do you realize what position that is putting FINRA and you in 

as far as complying with these complexities? And if you allow that, 

and sit back and disavow the authority we put into 913, that would 

be a very, very serious indictment on the Securities and Exchange 

Commission. 

So what I am asking you—and this is why—when you allow, and 

you pass a rule which says that instead of a Commission base, that 

now you have to pay up-front, fee-for-service, out-of-pocket, before 

a financial investor can even talk to you about it, that has a clear, 

disproportionate impact on the lower income, the middle income, 

and especially African-American investors and other minorities, because they are not going to—they don’t have that much. 

And when you get to what they basically do—even if you get to 

the annuities, which is what they really utilize—but you have three 

different ones. You have the fixed annuity, the variable annuity, 

the indexed annuity. That in and of itself is enough to run most 

people away. 

And then, if they go through that, then they have to sign a contract. Now, I tell you, Chair White—I want to ask for you to get 

more aggressive here. And because you are going to be placed in 

the middle, FINRA is going to be placed in the middle. 

And if they had this unworkable best-interest contract exemption, it would result in low- and middle-income people being pushed 

from these less expensive Commission-based accounts to the more 

costly fee-based up-front out-of-pocket accounts. 

How do you see FINRA managing this conflicting compliance obligation? Because under current regulations, FINRA must find cost 

to be a pivotal issue when assessing and making the difference between what is best here. 

Our financial system is complex and complicated, and you are 

going to push out lower- and middle-income people from being able 

to invest with their retirement. 

I have great respect for you, and I want to make it plain: Seize 

your authority back on this fiduciary issue. The Labor Department 

should have said, if we got a retirement, it is written in the DoddFrank, that the SEC has this responsibility. The respectful thing 

for them to do is at least come to you and FINRA, and say, let’s 

harmonize something to address this. 

This is not theirs alone, and I am speaking for an awful lot of 

very, very important people, the low income, the middle income 

and most African-Americans, they need you to stand up on this. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Westmoreland. 

Mr. WESTMORELAND. Thank you, Mr. Chairman. And thank you, 

Chair White, for being here. 

Chair White, you realize that one of the things that we are responsible for is trying to help our constituents solve problems, and 

32 

I have one that I would very much like for you to address on behalf 

of my constituent. 

Do you know what a naked option stress analysis is? Or an 

NOSA? 

Ms. WHITE. I do now, I believe. 

[laughter] 

I think your staff indicated you had this issue with a constituent. 

Mr. WESTMORELAND. Yes. 

Ms. WHITE. I knew before, too, but I know more now than I knew 

before you had the question. 

Mr. WESTMORELAND. You and I both know more about it than 

what we used to. And my constituent is, very, very aware of it, and 

he has been quite successful in his career. And it is a—the NOSA 

is a vehicle, created by Merrill Lynch to mitigate risk from naked 

options trade, and when it is triggered, the account holder must 

post an NOSA margin to cover potential losses. 

My constituent has contacted me, and we have been over and 

over and over it with the SEC and Merrill Lynch and others, trying 

to find out what triggered this call. And he has been unable to get 

that resolved, and even though he has asked Merrill Lynch on several occasions to give him that, they said that is a resource that 

they have trademarked. 

Now, do you think is necessary, do you think it is okay that a 

company like Merrill Lynch could patent something to use on their 

investors, and not be able to tell them what that is? 

Ms. WHITE. I don’t want to speak about the specifics until I know 

all of the specifics, but clearly there are a number of obligations 

with respect to this, disclosure obligations, suitability obligations. 

What I would suggest on this is that I—it sounds like you have 

been talking to the SEC, I don’t know to whom at the SEC, but 

if I could have one of my senior staff people follow up with your 

staff member, let’s see if we can get to the bottom of it. 

Mr. WESTMORELAND. I appreciate that, Chair White, and I have 

a pretty good file here that I will get to your staff before you go, 

but it would certainly be something good, because this gentleman 

has jumped through all the hoops, and done everything, he and his 

wife both, to get an answer and have been unable to do that. 

And so, any help that you could you give us as far as getting an 

answer or a conclusion of this, it would be much appreciated by me 

and Mr. and Mrs. Denny. 

So, thank you very, very much, and I yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Texas, Mr. Green, ranking 

member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman, and thank you, Madam 

Chair, for appearing today. 

Madam Chair, I would like to get some things for the record; 

these are things that are of common knowledge to a certain extent. 

It is true that you are a member of FSOC, correct? 

Ms. WHITE. Yes. 

Mr. GREEN. And that as a member of FSOC, you have voting 

privileges? 

Ms. WHITE. Yes. 

33 

Mr. GREEN. And that as a member of FSOC, which is a newly 

formed institution as a result of Dodd-Frank, you have the ability 

to look at the entire financial system, looking for risk that may be 

out there that can hurt the system, is that correct? 

Ms. WHITE. Yes. 

Mr. GREEN. Simple terms. 

Now, in doing this, Madam Chair, would it be fair to say that 

if we had had FSOC prior to 2008, we all would have been more 

likely to see the risks that AIG posed, than less likely to see them? 

Is it fair to say that there is a greater likelihood we would have 

seen some of these concerns with AIG? 

Ms. WHITE. It is always hard to judge that, obviously, and that 

you see what you see. But this is a mechanism that is enormously 

important to seeing risks as early as possible, because you have to 

bring all of the relevant financial regulators, or a good component 

of the financial regulators from different strata, in a room together, 

to talk about what they are seeing. And there is no real substitute 

for identifying a problem early than that, I think. 

Mr. GREEN. This is why I ask in terms of more likely or less likely. More likely to have seen it or less likely? 

Ms. WHITE. Certainly in theory, it should be more likely. 

Mr. GREEN. And in reviewing entities such as AIG, which had 

this London office that was doing some things that we didn’t find 

quite acceptable after the fact, in reviewing these things, do you 

spend an inordinate amount of time at entities that don’t come 

under the $50 billion threshold as a trigger, or designation as a 

SIFI? 

Do you spend a lot of time before you cast that vote? 

Ms. WHITE. You spend a lot of time before you cast a vote, a lot 

of time. 

Mr. GREEN. And do you have an office to help you with research, 

the Office of Financial Research (OFR), to help you with the research? People who provide expertise to the Treasury, and the 

Treasury can share its— 

Ms. WHITE. And certainly, OFR does research on various issues. 

The FSOC staff, and the staffs of the member agencies also do a 

lot of work. 

Mr. GREEN. Thank you. And when you cast your vote, are you 

told how to vote? Or does someone say to you, you have to vote a 

certain way on these issues? 

Ms. WHITE. No. 

Mr. GREEN. Is it your opinion that you have been a pretty independent person serving on this FSOC? 

Ms. WHITE. Yes. 

Mr. GREEN. And as an independent person, you put your time in 

and you study things, and you come to final conclusions? 

Ms. WHITE. Yes, and I studied it with, not only the FSOC staff, 

but our staff. 

Mr. GREEN. Now, I just looked at some of the information on 

some of the very large companies in this country. A good many of 

them have triggers that bring them under the auspices of the 

FSOC and the SIFI designation. If you have to study every one of 

them to ascertain whether or not it should be a SIFI, it would take 

a lot of time to do this, wouldn’t it? 

34 

Ms. WHITE. No question. 

Mr. GREEN. Do you have the personnel, such that you can study all of these mega-corporations that are $50 billion and above, do 

you have the personnel to look at them with the kind of detail that 

you need, if you did not have the trigger to bring some of them 

under an umbrella? 

Ms. WHITE. Obviously, the resources are finite. You try to 

prioritize the ones that pose, potentially, a systemic risk. 

Mr. GREEN. And do you find that it is beneficial to have a trig- ger, whether it is at $50 billion or some other amount, is it beneficial to have a trigger? 

Ms. WHITE. That is a little hard to judge, because obviously, 

what we are presented with are those that have met that trigger. 

So you don’t know what hasn’t met that trigger, I guess, to some 

degree. But logically, yes. 

Mr. GREEN. And without the trigger, you find yourself having to 

answer a good many more MetLife questions and a good many 

more questions that relate to entities that you are trying to sift 

through and ascertain whether or not they are SIFIs? 

Ms. WHITE. I think it would depend on what substitute methodology you had. 

Mr. GREEN. Okay, thank you very much. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you very much, Mr. Chairman, and Chair 

White, thank you. 

If we look back to the collapse of Lehman Brothers, one of the 

lessons was the need to quickly understand the relationship of corporate entities to one another. And so, out of the ashes of Lehman’s 

downfall, came the Financial Stability Board’s (FSB’s) concept— 

and this was actually the direction of the G-20—this concept of 

legal entity identifiers, or LEIs, as we call them, where each entity 

has to register that unique 20-digit code, and that makes their 

identity very clear when you are trying to unravel something in 

real time, in terms of all their financial transactions. 

So last month, this committee passed legislation, which I authored, requiring the Office of Financial Research to provide an annual update on the progress of adoption of these LEIs, here in the 

United States. 

Now the global adoption I think is at 400,000; 400,000 LEIs now 

in 180 countries. So if the OFR were to conduct its report today, 

I am afraid that the SEC would lag behind a bit in terms of the 

adoption in other countries. As we move towards more transparency, this obviously this is part of our mission, and I think the 

Commission did mandate the use of LEIs in its security-based 

swap rules. 

It didn’t require it in other rules. So I guess I would ask, should 

we expect that the SEC is going to require greater use of this important risk management tool in the future? 

And is there anything holding you back in that regard? 

Ms. WHITE. There is nothing holding us back. If it is appropriate 

to the space, you want to make sure it fits, right? 

But I think LEI is an enormously important tool. 

35 

The SEC has been a very strong proponent in those global efforts 

that you mentioned, and we frankly look for—we are looking for 

opportunities to use it more, I guess is the way I would answer 

your question. 

Mr. ROYCE. But to get to that point, you might promulgate more 

rules in that direction in order to increase the adoption where appropriate. 

Ms. WHITE. Essentially, as we are adopting whatever rules as we 

go forward, we would look for that opportunity. 

Mr. ROYCE. Right. Let me ask you another question, Chair 

White, which goes to the Financial Services Committee’s focus here 

under the chairman. What we have been trying to do, under the 

chairman’s leadership, is to take a strong interest in housing finance reform and see how we can move forward the concept of 

bringing more private sector credit risk sharing into the GSE’s. We 

would like to get as many positive things done as we possibly can 

in this quarter. 

So real estate investment trusts are a logical investor in these 

transactions. We have seen the communication from the FHFA 

which says that it does not perceive any drawbacks from greater 

involvement by REITs in credit risk transfers. This might be an 

area that, sooner rather than later, we can move forward additional steps to get more private capital. Could you work with us to 

clarify that all of these risk transfer deals are viewed as good read 

assets that do not undermine investor protections? 

Ms. WHITE. We certainly would be happy to work with you on 

that, and I think the staff may be working with you on that, but 

I will make sure that they are. 

Mr. ROYCE. I think that would be helpful. I think it is very clear 

that as the Federal Housing Finance Agency says, at the end of the 

day, there is a clear benefit in getting credit risk transfers to get 

more private capital back in here for this part of this equation and 

that REITs can do this, according to them, and according to us. 

We certainly see the benefit to this and it is—when you are looking at a significant source of private capital like this, it just doesn’t 

make sense to, just because regulatory hurdles, prevent that capital from being deployed. So we would appreciate that assistance. 

Chairman HENSARLING. Does the gentleman yield back? 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Washington, Mr. Heck. 

Mr. HECK. Thank you very much, Mr. Chairman. And Madam 

Chair, thank you so very much being here. 

I want to ask about the Volcker Rule, which I consider to be fairly important. Of course, the Rule is final, but it is not yet being 

enforced and is, at the end of the day, I guess rather a bit of an 

experiment. So I want to pick your brain a little bit about it as we 

await the time when it is actually implemented. 

What are you saying in terms of market behavior and anticipation of the effective date? How do you see the market changing? 

How do you see companies adapting to it? And do you yet perceive 

any change in the risk being taken in the risk to the financial system? Just talk generally about those kinds of things. Is that— 

36 

Ms. WHITE. Again, it is a little hard to judge at this juncture 

with certainly, with any definitiveness on that. We are basically 

just about now going into the exam for the compliance period, actually, and all the agencies are. 

We are coordinating well. We will learn more from that, but before that period actually kicked in, we were obviously talking to 

those subject to the rule to see if they were able to provide the 

metrics they needed to comply and really, they got a very—at least 

initial, positive read on that. 

Mr. HECK. What does positive read mean? 

Ms. WHITE. Positive read, meaning that they should be able to 

comply in a timely way. Now obviously, there are exemptions in 

the Volcker Rule and there are prohibitions in the Volcker Rule. 

And compliance is really at the trading desk level, and so there is 

a lot to look at in terms of is this market-making, or is this something that is prohibited? 

I think we have to see what comes out of certainly this first wave 

of exams to see, is it working, is there good compliance, and then 

in terms of judging its effects, I think that is down the road a bit. 

Mr. HECK. But where you sit here today, based on what you 

know and given that it is limited, are you confident that it will in 

fact reduce risk to the financial system? 

Ms. WHITE. That is certainly the objective, which is basically to 

not have these institutions that are connected elsewhere engage in 

proprietary transactions. But again, I am a person who likes to 

wait on the data, but I think that is certainly the purpose. 

Mr. HECK. It is the purpose. Are you confident that it will 

achieve the purpose in large part? 

Ms. WHITE. I have to see the data. I am afraid on that. 

Mr. HECK. Okay. Subject two. You are also currently reviewing 

a change in definition for accredited investors. Your predecessor 

was pretty clear that it very much needed to be changed and updated. So I would like to ask you what the status of your review 

of the definition of accredited investor is, just a general timeline for 

you think that—where that work will end up, what you personally 

think the direction needs to be. 

Ms. WHITE. Sorry. 

Mr. HECK. Go ahead. 

Ms. WHITE. First, clearly it, for a while, needed a really deep 

dive look in terms of all the various criteria that needed to be considered, not just net worth and income levels, but including them. 

Our staff has been studying that quite intensively for some time 

and they really are coming to a conclusion of their work. 

And the next step—really quite in the last phases of that and the 

next step, which I think will be relatively soon, I know you will 

want me to define that next, but relatively soon to basically put out 

publicly what those findings are and what the analysis is. 

Mr. HECK. Is ‘‘relatively soon’’ something like 90 to 120 days? 

Ms. WHITE. I would think so. 

Mr. HECK. And do you personally believe that there is a definitive need to update? 

Ms. WHITE. I do believe there is a definitive need to update. I 

can say that much. Yes. 

37 

Mr. HECK. Can you give an example of the kind of change that 

you think— 

Ms. WHITE. I don’t want to get—again, we will have to decide 

this, so I don’t want to get ahead of when we are a five-person 

Commission also. But clearly, what we are looking at beyond the 

traditional tests of net worth and income, are other kinds of sophistication, experience, qualifications that certainly many, many 

would argue should entitle you to be an accredited investor. 

And I think one wants to be sophisticated about and realistic 

about what those other criteria are that would meet any investor 

protection concerns, frankly. So we are looking quite broadly. 

Mr. HECK. Thank you. With that, I yield back the balance of my 

time, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Virginia, Mr. Hurt. 

Mr. HURT. Thank you, Mr. Chairman, and I thank Chair White 

for appearing before us today. 

In your testimony, you touched on equity market structure. I 

wanted to highlight one of the things that you said. You said that 

you all had been proceeding, since your last visit here, with an ongoing assessment of the U.S. equity market structure to ensure 

that our markets remain the deepest and fairest in the world and 

optimally serve investors and companies of all sizes seeking to 

raise capital. 

I wanted to turn your attention to the national market system 

plans, NMS plans, that were created in 1975 as an amendment to 

the Securities Exchange Act 40 years ago, and obviously a lot of 

things have changed since that time. The U.S. equity exchanges at 

that time were not-for-profit; they were member-owned. Today, of 

course, they are publicly traded and they are for-profit. And so a 

lot has changed in the last 40 years. 

When you talk about plans for the collection and dissemination 

of market data, I think that we would all agree that if you want 

to ensure the deepest and fairest markets in the world and optimally serve our investors, you have to have accurate market data, 

and that has to be collected and disseminated in a fair and accurate way. 

In the aftermath of the of the NASDAQ SIP outage in August 

2013, I think there were some concerns that were raised about the 

governance of these National Market System (NMS) plans. We 

know that the NMS plans—plan participants are exclusively representatives of the exchanges in FINRA with no industry representation, and that leads it—it has been argued, to two separate problems. 

One is that you don’t have a broad-based representation among 

these participants in providing the best sort of leadership and vision for what needs to take place in making sure that these SIPs 

are the best they can be. 

And then two, and perhaps of greater concern, is the conflict of 

interest issue, and that, of course, has to do with the fact that because the way the revenue is shared, there is a disincentive to invest in the SIPs to make them good as they should be. 

38 

And also, the secondary issue relating to a conflict of interest has 

to do with the fact that these exchanges have their own data feeds 

that compete the SIPs information. 

So I was wondering if you could talk a little bit about where you 

are, and what you think can and should be done as it relates to 

the reform in the governance of these NMS plans? 

Ms. WHITE. This is one of the reasons that I correctly identified 

this very deep comprehensive review of NMS and equity market 

structure, even before I was confirmed, as one of the highest priorities, and we have proceeded on that really, in a sense, on two parallel tracks. One, there are some things that clearly would optimize 

the markets that we are proceeding on in terms of specific rulemaking. 

And then the other is really the more comprehensive review. 

That takes into account—and we have obviously spent a lot of time 

dealing specifically also with SIP governance and single point of 

failure and it is enormously important that the SIP provide its information quickly with the consolidated information. 

And we are—and I think you can see, from our work on the Market Structure Advisory Committee and the subcommittees that we 

just formed, that we are looking very much at that issue—those 

issues, as well as just kind of the whole role of the exchanges in 

the equity market system. We are not—we haven’t concluded on 

those things, but very much front attention. 

Mr. HURT. Can you, as you sit here today, explain to me what 

resistance there is or why we should continue to have these participants that are exclusively from the SROs, without including anybody from industry? 

Ms. WHITE. I am not sure I can provide that answer, other than 

to say that one of the things we need to make sure of as we are 

making the changes, is that the system continues to function. And 

I am not suggesting putting a representative of the industry on 

there; that would mean it didn’t continue to function, but we are 

trying to sort of optimize every aspect as we go. 

So, I could probably provide you some further information on 

that. 

Mr. HURT. I would appreciate it. And I do think that the conflict 

of interest issue is something that obviously goes to the fundamental fairness issue that I think that we all want to see in our 

markets. 

Thank you. I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Thank you. 

I bring up FASB’s $2 trillion addition to the liabilities in assets 

on American balance sheets each time you are here. I want to commend you for stepping forward—and say yes, FASB gets their authority from the SEC, and you take responsibility for their decision 

to delegate that authority. 

They didn’t follow the Administrative Procedure Act. They didn’t 

listen to anybody in the construction field. They didn’t do any costbenefit analysis. And we are going to see a decline in construction 

employment as a result of this new rule. 

39 

So I will just ask you: Do you take responsibility for all that? 

Ms. WHITE. We have had this discussion before. And again, the 

SEC has ultimate responsibility for accounting standards. We have 

obviously, for many, many years, recognized the private sector, 

therefore FASB is the standard-setter. And the SEC has the 

power— 

Mr. SHERMAN. And if I can interrupt, the SEC hasn’t required 

them to follow the Administrative Procedure Act. The SEC has 

done nothing with regard to their processes or their outcomes. 

Ms. WHITE. I understand your point. From your point of view, 

they haven’t followed their due process procedures. I certainly 

haven’t received that information from any other quarter in terms 

of the process that they have followed. 

Mr. SHERMAN. You haven’t received that information from 

whom? 

Ms. WHITE. Among others, obviously people comment on their 

process publicly all the time, as well as our staff and the Chief Accountant’s office. 

Mr. SHERMAN. The people who comment live in the world I used 

to live in—the world of accounting. They have barely heard of the 

Administrative Procedure Act. It is foreign to that world to let carpenters and pipefitters come before the agency and say, ‘‘Please 

don’t ruin my family and my job.’’ And so they refuse to listen to 

any of those people. 

Ms. WHITE. Again, information that is coming to me is that 

FASB—comments were received on this proposal obviously several 

times. And that they were responsive to some and not to others. 

Mr. SHERMAN. They wouldn’t—that is why I am using the word 

‘‘listen,’’ rather than the word ‘‘invite’’ people to send e-mails that 

will be thrown away. They wouldn’t listen to anyone. They didn’t 

do a cost-benefit analysis. We are going to see a decline in construction jobs. There is no benefit from this— 

Ms. WHITE. Of course, the standard is meant obviously to convey 

the economic reality of the transaction. And I know we have had 

this conversation before, but it was actually in 2005 that the SEC 

staff recommended that FASB undertake the, in effect, capitalization of— 

Mr. SHERMAN. Right, with no cost-benefit analysis; they never 

discussed it with anybody who showers after work rather than before work. 

Ms. WHITE. And, again, in terms of where a cost-benefit analysis 

comes in or doesn’t for an accounting standard, because the purpose—I know you are a CPA, and a very good one, but the purpose 

is really to convey the economic reality of the transaction. I know 

they put off the transition period. We are cognizant of— 

Mr. SHERMAN. Right. The transition—they don’t convey economic 

reality in their discussions, which is why they have no defense for 

FASB number two, which also distorts the American economy by 

penalizing companies that engage in research. 

Every accounting—and I will ask your Chief Accountant to look 

at this because it is proof that they don’t always do it on the basis 

of economic reality—theorist for decades has said that you capitalize research. They don’t, because it is not convenient. 

40 

And to come here and say, well, they just reflect accounting theory and economic reality, is a misstatement of what they do. And 

I know I have brought up with your people FASB number two, and 

they basically say, ‘‘Look, we don’t want to listen to reality; we 

don’t care; we want to do what is convenient.’’ 

And this approach—if the same people who tell you that accounting theory—and it doesn’t—requires leases to be capitalized, let 

them cite you any accounting theory which says that research 

should be written off and not capitalized. The accountant—you 

have empowered. You take responsibility for. They give you some 

talking points. These decisions are as important as any reached in 

Congress. 

They affect hundreds of thousands of lives. And the procedure 

and the outcome is not something that your agency can be proud 

of. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney. 

Mr. MULVANEY. I thank the chairman. 

And thank you, Chair White, for coming in today. 

A couple of minor deals, and I am going to talk more than I ordinarily do, just so we can have you understand where we are on a 

couple of different things. 

Thank you very much, by the way, for offering the proposed regulations on crowdfunding. The last time you and I spoke in March, 

you gave us your best efforts to get them done by the end of the 

year and we appreciate that. I understand they were published at 

the end of last month, the end of October, and they are out now 

for review. 

When can we expect those to be implemented on the JOBS Act, 

the crowdfunding portion of that? 

Ms. WHITE. Essentially—I think they become effective in, I want 

to say October 2016. They are final rules now. 

Mr. MULVANEY. Right. 

Ms. WHITE. So it is a matter of the effective date. I think it may 

be October, but it may be earlier. 

Mr. MULVANEY. Okay. So, October of next year or earlier. 

Ms. WHITE. Yes, but I think it could be May. I will have to give 

you the exact date. 

Mr. MULVANEY. That is fine. That would be great. 

The only thing—when I got them, one of the questions I had 

was—I used to run a small business. They are almost 700 pages, 

which I suppose on the one hand is to be expected, given what we 

are doing here, which is going out to the retail public, small investors for the first time, so there are a lot of protections that need 

to be built in. 

One of my questions, though, on this is how do you all—have you 

all talked about how you are going to handle de minimus violations? We have small mom-and-pop organizations—that is who this 

is designed to help—now having to deal with 700 pages full of regulations. Have you all given this much thought as to how you reconcile those two things? 

41 

Ms. WHITE. Look, the answer is we are not out there to get people on this. We want this marketplace to work; we obviously want 

investors protected in the marketplace. One of the things that I 

have done since I have been here on these new marketplaces that 

we are setting up, whether it is lifting the ban on general solicitation or A+ or crowdfunding, is to have an interdivisional working 

group all over it when it begins, as opposed to looking at it a year 

from now. 

Which means, as part of that, it is not just Enforcement or Examination, although it includes that clearly. But it is also Corporation Finance and Trading and Markets and people who can give 

guidance and help people conform to the regulations as we go. So 

hopefully, that will be helpful. 

Mr. MULVANEY. And lastly, and just— 

Ms. WHITE. The effective date, I happen to have here. 

Mr. MULVANEY. Okay. 

Ms. WHITE. Once in a while, I bring a piece of paper: May 16, 

2016. 

Mr. MULVANEY. Beautiful. Thank you for that. 

Lastly, you all changed the size of the investment for the small 

retail investors. You took it down to $2,000. Very briefly, could you 

tell us your thinking on that? 

Ms. WHITE. What we were doing in the crowdfunding space was 

to try to address concerns. We got comments from both directions, 

such as, this is just not going to be workable; there is not enough 

capital. You are sort of shutting people out of the markets, too. We 

really are concerned about fraud, and people losing money. 

And so that was one of the adjustments we made in respect to 

comments we got—really, in direct response to comments we got. 

Mr. MULVANEY. Thank you. I encourage you to keep an open 

mind. If things work out as we hoped they would when we passed 

the bill, then we can review those limits as well as other things in 

the bill. 

I want to switch gears now to the Small Business Credit Availability Act that Ms. Waters mentioned in her comments. And I am 

going to speak more than I am going to ask here, just to let you 

know where we are coming from on a couple of different things 

that are in this bill. 

So, we are talking now about BDCs. We have your most recent 

letter from early November. We have gone through it. And we are 

very excited about working with you to get the SEC okay with it. 

I think you know that we have worked with your folks over the last 

18 months to do exactly that. 

You raised a couple of things in your letter that we think are 

probably not entirely accurate, specifically dealing with preferred 

stock. In fact, we actually think that the bill does exactly what you 

say you want it to do. We look forward to sitting down with you 

on that. 

There are other places where we think that maybe your concerns 

are a little bit misplaced. You have concerns, for example, about leverage and the impact of that on a retail investor. And we thought 

we had mitigated that by having that cooling-off period, by having 

the BDC announce they were going to lever up in order to give 

42 

folks time to get out of the investment if they were uncomfortable 

with that. 

So we think we have addressed some of the other things. 

Regarding the 1 year, I know you objected in your letter to only 

having 1 year to write the rules. Keep in mind, that grows a little 

bit, Chair White, out of our experience. As happy as I am that we 

now do have the JOBS Act crowdfunding things, they are almost 

3 years late. And so we are sort of trying to hold your feet to the 

fire, as we do as Congress. 

Secondly, we do think that a lot of the changes that are contained in the bill are not going to require very dramatic changes 

in the rulemaking. It could be as simple as changing ratios or 

changing numbers and so forth without doing a wholesale of review. So we hope that when you sit down to do the rules, you will 

see that maybe it will be easier to write these rules than you anticipated in your letter. 

Finally, and this is the big one, I hope that—when you first 

looked at it back, I can’t remember, it was October, you didn’t have 

a problem with a couple of different sections, specifically section 60 

of the bill, when you said, in your view, these provisions did not 

raise significant investor protection concerns. In the most recent 

letter, you say the exact opposite about the same section. 

So we do hope that when we do sit down, we won’t have a circumstance where the goal posts moved, and we can simply work on 

it together. 

Ms. WHITE. It was based on experience in between, but we are 

happy to work with you and your staff. 

Mr. MULVANEY. Thank you very much. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Minnesota, Mr. 

Ellison. 

Mr. ELLISON. Thank you, Mr. Chairman. 

Chair White, conflicted investment advice costs investors a lot of 

money. Some have said $17 billion a year. And I am very concerned 

that workers who are sold IRAs with high fees and hidden commissions damage their retirement security. And I am very supportive 

of the Department of Labor’s decision to move forward with a rulemaking to protect workers. 

The SEC and the DOL have different jurisdictions, statutes, missions, and mandates. For example, the SEC does not have authority over insurance. I would prefer the SEC follow the lead of the 

Department of Labor in protecting the retirement accounts of workers. 

So can you respond to that? I would like to know what your 

thoughts are on this issue. Do you see there being a looming retirement crisis? And what role would a ‘‘best interests of the consumer’’ standard be, and what value would that be in terms of 

moving forward in this space? 

Ms. WHITE. My own personal conclusion—as I think I surely 

have conveyed before—is that we should subject brokers and investment advisors to a uniform fiduciary duty based on the Section 

913 recitation of best interests of the client, irrespective of your 

own financial interest. 

43 

And that obviously applies to those classes of registrants. In 

terms of what the Department of Labor is doing, I have said before, 

they are a separate agency, they have separate statutory authority, 

and they are proceeding. 

Obviously, coordination is important. We do that with all kinds 

of agencies when there is some overlap. From our point of view— 

my point of view, and again, it is up to the entire Commission as 

to whether and what the parameters would be of our uniform fiduciary duty role—it would be done under Section 913 of Dodd-Frank, 

which, as you know, provides some parameters to our uniform fiduciary duty that takes some specific cognizance of the broker model, 

I think. 

And so that is one of the things that we would obviously have 

to be considering as we proceed under that authority, which is different than Labor’s authority. 

Mr. ELLISON. Thanks. 

Also, when you were here in March, I urged you to finalize the 

CEO median worker pay ratio rule. I’m glad to see that the SEC 

has finalized that rule. Congratulations, and thank you. 

The gap between CEO and worker pay has grown substantially, 

as you know—from 20 to 1, back around 1980, to now 300 to 1, 

which is really remarkable. 

Now, most people come at this from a moral standpoint, and they 

say it is not right and it is not fair, and I agree that they are right. 

But I want to ask you about something a little different. Is it good 

for the economy at large? 

And so, I would like to direct your attention to a graphic that I 

have. Many argue that paying CEOs in stock options encourages 

them to prioritize their personal short-term benefit over long-term 

needs of workers, investors, and the firm. 

Many have called to eliminate the CEO performance pay loophole 

in Section 162(m), because stock options are considered performance-based under Section 162(m), the deductibility is unlimited. Do 

you have any thoughts about this? 

Ms. WHITE. I speak as the Chair of the SEC here. I think one 

of the things that we have been very active in is disclosure of executive compensation. 

And indeed—we talked a little bit earlier about Section 956 in 

the Dodd-Frank Act, that we and fellow regulators are working 

very hard on, which is basically incentive comp, to make sure that 

excessive risks aren’t taken. 

I think I have to leave to others, the broader issue. So that is 

really not in our remit, as they say. 

Mr. ELLISON. Yes, but do you agree that—I am sure you are well 

aware, when people talk about the disparity between CEO pay and 

median pay, a lot of times the argument is, is this right or not. 

Leaving that argument aside, do you have an opinion as to how 

a very wide disparity—say, going from, say, 20 to 1 in 1980 to 300 

to 1 like nowadays—how does that impact the functioning—the 

proper functioning of markets, of retirement, of consumer demand? 

Do you have any views on that? 

Ms. WHITE. I think where we operate in that space—if we do, in 

particular—would be in the 956 space, which is basically to try to 

ensure that the incentive compensation of executives—oversimpliVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
44 

fying a little bit—in financial institutions is not done in such a way 

as to encourage excessive risk-taking, which obviously— 

Mr. ELLISON. That is what I am asking you. Do you think it 

does? 

Ms. WHITE. We are going in our rulemaking with our fellow regulators, we try to deal with that. 

Mr. ELLISON. I appreciate your answers. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, Mr. 

Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. Good afternoon, 

Chair White. 

Chair White, in your opening statement, you clearly conveyed 

that you are committed to the three-pronged statuary mission—to 

protect investors, maintain fair and orderly and efficient markets, 

and facilitate capital formation. 

Included in that, do you read anything that would be considered 

social engineering? 

Ms. WHITE. I wouldn’t, no. 

Mr. PITTENGER. Yes, ma’am. 

In that light, over the last 5 years, you have spent thousands of 

man-hours and millions of dollars to defend rulemakings that really don’t address the crisis and, from our perspective, don’t fit into 

the scope of your mission, whether you are dealing with the conflict 

minerals issues or the resource extraction or the CEO pay disclosure rules that were just discussed. 

How do you relate your role in these issues—it seems to me to 

be a diversion, whether—in terms of scope of mission. Is this an 

interest of yours? Is this something of the Administration that you 

feel compelled to carry? Why would you move away from what 

clearly is your scope of mission? 

You are coming and you are wanting to increase your budget by 

25—at a billion and a half right now, to go to billion eight—.88. A 

significant amount of money, and it seems to me that it is expansion of your footprint. It is expansion of your role and expansion— 

the bureaucratic entrenchment of your agency. 

As we look at the Federal Government today, people are concerned—they see the overreach, they see the footprint of the Federal Government. They see the impact. Look at our economy. A 

very slow economic growth of 2 percent. 

Do you appreciate the fact that maybe this death by 1,000 cuts 

in terms of overregulatory involvement of the engagement in so 

many of these unrelated efforts having an adverse effect that may 

be well intended, well designed by those who share those concerns, 

but killing the goose that laid the egg? 

In trying to protect everything, aren’t you hurting the overall 

cause? 

Ms. WHITE. First, I very much believe in furthering our core tripartite mission, and I think I have talked about that at some 

length, and it has several aspects to it. 

I think what you may be alluding to, at least primarily, are some 

of the congressional mandates that the SEC was charged by Congress—and it is Congress—to carry out. 

45 

And what I said a little bit earlier is, I do believe, when I have 

a congressional mandate, that means I carry it out. We try as hard 

as we can to carry it out in as cost-effective a way— 

Mr. PITTENGER. Do you feel as though— 

Ms. WHITE. —and as consistent with our mission as we can. 

Mr. PITTENGER. —Chair White, that fits into your scope of mission? 

Ms. WHITE. It is part of the mission given to us by Congress. 

Mr. PITTENGER. As you stated earlier, to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation—do these extra additional forays really fit into that scope 

of mission? 

Ms. WHITE. I think we can’t talk about them as a group. We have 

obviously done a number of the mandates that you might put in 

that category, that we have certainly seen some investor advantage 

to. But again, if it is a congressional mandate, I think we have to— 

we have an obligation to carry it out in the best way we can. 

Mr. PITTENGER. Let me ask you this in closing. If there are excessive disclosure requirements that hurt our capital markets, if 

that is true, and would you buy into that, that there could be? 

Ms. WHITE. Part of what we are trying to do with the disclosure 

effectiveness review is to make the disclosures more meaningful for 

our investors and obviously not to create gratuitous— 

Mr. PITTENGER. We are talking about an excessive amount. We 

hear from the market continually about the excessive burden of 

these disclosures. They increase the compliance cost, they make it 

more difficult to raise capital, all of these things have a combined 

effect to slow our markets and impact our economy. Would you 

agree that the reality is that these excessive burdens are really 

having an adverse effect? 

Ms. WHITE. It is one of the reasons we do that very deep costbenefit analysis I was describing before. We obviously want to look 

at— 

Mr. PITTENGER. But let’s look at the overall— 

Ms. WHITE. Not burdening, but— 

Mr. PITTENGER. Respectfully, I just have a few seconds left. Respectfully, can I say look at the results today, it is all about results. 

Can you say with all your good judgment, with all these disclosures, all these requirements, all these mandates, all these compliance issues have been healthy as it relates to growing and expanding our economy? Or has it honestly had an adverse effect? 

Ms. WHITE. I don’t think it is static; I think we have to be focused on as these rules go out that we think are important looking 

at exactly that. 

Mr. PITTENGER. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Murphy. 

Mr. MURPHY. Thank you, Mr. Chairman. And thank you, Chair 

White, for being here. It’s good to see you. 

My first question, I think, was already somewhat asked by the 

gentleman from Massachusetts, Mr. Capuano, regarding Petition 

4637 on the shareholder funds for political activities. Just to dive 

into that a little bit more, as far as timing for a response from that, 

46 

where do you think we stand and what is the timing that you think 

we can expect to hear back from you? 

Ms. WHITE. On the letter, you mean? 

Mr. MURPHY. Yes. 

Ms. WHITE. As I have said earlier, I have three relatively recent 

letters, some from members of this committee, another one from 

different members of this committee, and I am expecting to respond 

to them fairly shortly. 

As I have also said, though, we are focused on our mandated 

rulemakings and mission-critical initiatives that I have described. 

Mr. MURPHY. And just to make sure—my understanding is when 

1.2 million comments put in that this is a record, I guess, just to 

make sure, you feel that is sufficient to move forward. 

Ms. WHITE. There have been a lot of comments on this and very 

strong views on both sides. I think there are about 2,000 unique 

comment letters. There is clearly intense interest on both sides of 

this issue. 

One of the things I mentioned before is that I watch what is happening in terms of companies—the shareholder petitions that are 

being filed, which is through our regulations that is made possible 

and the number of companies increasingly that voluntarily are 

making those disclosures. There is a recent survey out, I think, just 

in the last 2 or 3 days showing those numbers are up. 

Mr. MURPHY. Okay. Thank you. And then as it relates to DOL 

and their moving forward on fiduciary duty, I know there have 

been some questions on that as well. Can you just elaborate a little 

bit more on the distinct responsibilities between SEC and DOL and 

how you plan on moving forward with this? 

Ms. WHITE. Sure. Essentially two separate agencies, two separate statutory regimes. The Department of Labor obviously is responsible for the very important ERISA space and has been since 

1974, I think. 

And again, I think I mentioned this a little bit earlier, but actually even as it exists now, brokers for example who are our registrants who are in the ERISA space or parts of the ERISA space 

are subject to different DOL rules and different rules under the securities laws and regulations. So I think each agency has to judge 

for itself how it is proceeding. 

With respect to the SEC, we don’t have a mandate to proceed 

with the uniform fiduciary duty, but we have authority given to us 

by Dodd-Frank in Section 913 to do that. I personally, after lots 

and lots of study, made the judgment that I think we should proceed with analyzing a rulemaking to impose a uniform fiduciary 

duty consistent with Section 913. There is a lot of analysis to do 

on it, economic and otherwise, and it is complex and not a quick 

exercise. 

I think the Department of Labor’s initial proposal on theirs was 

actually in 2009. 

Mr. MURPHY. Yes. I think one of the concerns we all have on 

both sides of the aisle is duplication, and multiple, multiple agencies are looking at the same exact thing. I know you have had some 

meetings with Labor Secretary Perez and hopefully I am sure having these conversations is your way of staying in your lane, and 

who is doing what. 

47 

I think we all want to get the bad actors out, but at the same 

time don’t want duplication. We want taxpayer money spent as 

wisely as possible. 

Have you had that conversation? Where do you see that heading? 

Ms. WHITE. What we have done—and I think this is again before 

I was here, but really from 2009 forward—and then obviously I am 

familiar with the more recent context—is the staff of the SEC—this 

is not the Commission, although I also participated in some meetings with Secretary Perez—provided technical assistance and expertise from our space to them, some of our economists met with 

them on a number of the issues. 

And I think, as you do in—frankly, any time you overlap with 

any other agency—take the CFTC on swaps and securities-based 

swaps, you each have your authorities. They somewhat differ sometimes, but you try to be as consistent as you can because obviously 

it is not good for market participants if they have two sets of rules 

that they have to comply with. But often, there are different markets, different statutory obligations, and so there is not perfect consistency. But it is very important as you go forward on anything 

that overlaps that you talk and try to do what you can to conform. 

Mr. MURPHY. I am running out of time. But quickly, can you just 

talk briefly about what you think the SEC’s role is in cybersecurity? To me, that is one of the biggest threats that is— 

Ms. WHITE. It is one of the biggest threats and risks we all have, 

full stop. The SEC has three areas of specific, I would say, jurisdiction. One is we did, I think, in November of last year, our regulation SCI, which is security, compliance, and integrity, which essentially is a rulemaking with respect to our critical market infrastructures to raise the bar on the resiliency of their systems and 

report incidents to us when they—and others when they actually 

have them. Part of that is cyber. 

We deal with the brokers and the investment advisors and their 

risks. We put out disclosure guidance and we stay as active in this 

spaces as we can. We also bring enforcement cases when people 

don’t— 

Mr. MURPHY. Thank you. 

Ms. WHITE. —do what they are supposed to under our roles. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Missouri, Mrs. Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. And welcome, Chair 

White. I wore my Kansas City Royals blue— 

Ms. WHITE. I see it. 

Mrs. WAGNER. —to make you feel welcome from your first 10 

years growing up with the world champion Royals. 

Ms. WHITE. But I am a Yankees fan, as I told you. 

Mrs. WAGNER. I know. I know. I am a Cardinals fan. 

Ms. WHITE. Okay. 

Mrs. WAGNER. In following up on some of the questions that have 

been asked about the DOL fiduciary rulemaking, I do want to associate myself with my friend, the gentleman from Georgia, Mr. 

Scott. 

In the SEC’s absolute purview on anything having to do with the 

uniform fiduciary rule, and following up on what the chairman 

48 

said, you talked at the last SIFMA annual meeting about this full 

out focus. 

So what does ‘‘full out’’ mean to you? When can we expect a rulemaking? 

Ms. WHITE. I want to make clear at the outset, this is my view: 

It will ultimately be a Commission decision. I have obviously given 

staff direction, and they are very, very actively working on it. It is 

complex; it is not quick, but we are working toward—in the very 

short-term the—most of the details of what the proposal would be. 

Now that doesn’t suggest that in 2 months, you are going to see 

a proposal. This is a long, complex exercise, and it has to involve 

the full Commission. 

Mrs. WAGNER. It does, and I am glad to see that you are looking 

at a shorter-term rather than the longer-term, and obviously, you 

will need to come back before this committee and the Senate Banking Committee; you have to talk about alternative remedies to a 

uniform fiduciary standard that would address investor confusion, 

including simplifying of titles, and enhancing disclosure. 

All of these things are things that I hope are part of this ongoing 

analysis. 

David Grimm, with your Division of Investment Management, 

stated that further analysis still had to be done. What is the scope 

of analysis, and what do you anticipate is the timeline for completing it? 

Ms. WHITE. Again, I cannot kind of overstate the complexity and 

the importance of getting this right, and part of that is clearly the 

very deep economic analysis that our economists will do as we are 

proceeding with that. 

So, in terms of impacts, in terms of—for example, I think have 

said this before, if we ended up at the end of the day with a rule 

that imposed uniform fiduciary duty, but we deprived retail investors of reliable, reasonably priced advice, we would not have succeeded, obviously. 

And so, our economists have a lot of work to do as we proceed 

with this. 

Mrs. WAGNER. You are correct, we have to get it right, and I 

think the DOL proposal is 1,000 pages of wrong. 

Can you tell us about your analysis, including a study of the impact of the DOL’s proposed rule on investment advisors registered 

with the SEC? 

Ms. WHITE. It would have impact, I think, on investment advisors as well as broker-dealers. What we did with the DOL proposal, 

though, was essentially, as I mentioned before, provided technical 

assistance to them, which included—from our staff and it is our 

staff who are providing how it might impact on investors and how 

it might, what the lay of the land is now in terms of how brokers 

operate, how investment advisors operate. 

It really depends on—and obviously, the Department of Labor is 

taking in a lot of comments about impacts. And so it depends on 

how— 

Mrs. WAGNER. Tens of thousands of comments. And in fact, we 

received a letter, I received a letter from Secretary Perez, stating 

that they were going to make no changes, no re-proposals, even 

prior to the public comment period opening up. 

49 

And I am very dissatisfied with this. I know you said that you 

are providing technical assistance, and in that quote before Senate 

Banking, you even talked about, particularly the lower end, which 

I care deeply about, in terms of customers’ choice, access to products, and the cost of those products. I think that is absolutely key. 

Do you have any concerns that some U.S. investors could potentially suffer based on the new fiduciary definition that the DOL is 

proposing? 

Ms. WHITE. I don’t want to comment on that specifically, other 

than to say that I think the Department of Labor—and certainly, 

our technical assistance included that concern as you proceed with 

any rulemaking, and we have it in proceeding with ours. 

Mrs. WAGNER. I am just looking at a couple of examples, here, 

on how the DOL, I think, conflicts with securities laws. And I understand that DOL’s fiduciary duty rule will require financial advisors to provide 1, 5, and 10 year projections on investment returns 

as part of projecting investment costs under the best interest contract exemption. 

Does this potentially conflict with the Investment Advisers Act of 

1940, especially its antifraud provisions? 

Ms. WHITE. I would have to analyze that with my folks in the 

Investment Management Division, specifically. But what I indicated earlier is even now we have different roles in the ERISA 

space—it is different statutory authority that applies to our brokers, our registrants than the Federal securities laws require. But 

I am happy to get back to you on a specific one. 

Mrs. WAGNER. I would like that—for you to take a look at that, 

and also just, with the indulgence of the chairman, take a look at 

the DOL definition and term on recommendation. It differs completely from the definition used by FINRA. So I am concerned 

about some of these differences and really reiterate that this is the 

FTC’s purview through Section 913, and we would love for you to 

move as quickly as possible. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you Mr. Chairman. Chair White, thanks for 

taking time to be here today. You previously stated that the independence of the SEC should be respected, and noted your particular expertise in terms of dealing with a variety of issues. And, 

with that in mind, I believe it is important that we consider the 

Federal Reserve’s work on mapping transactions within the capital 

markets, and many view this as an early stage to be able to have 

the Federal Reserve regulate much of the capital markets under 

the guides complex transactions. 

Are you fully committed to making sure that the SEC maintains 

its position as the regulatory body? 

Ms. WHITE. Yes. I think one has to recognize, though, that after 

Dodd-Frank, there were some reassignments of some things, and so 

we end up doing more things in consultation with the Federal Reserve by statute. 

I am not saying that is bad, I am just saying—but the short answer to your question is yes. 

50 

Mr. TIPTON. Great. If the Fed does continue this policy with securities products and firms, if they are going to be regulated under 

bankcentric modes, what type of an impact will that have? 

Ms. WHITE. It is hard to answer that in a vacuum, and I do 

think—and we have discussed in connection with asset managers 

and—our doing stress testing as we are required to under DoddFrank. One has to recognize that asset managers are different than 

banks. 

And so that means that however you regulate, however you 

stress test, if you do it optimal is going to be different. 

Mr. TIPTON. Yes, and I think that is actually part of the concern 

that we are seeing as some of this is being formulated, that we are 

going to see and that this seems to be the track that they are on. 

To be able to try and de-risk completely is going to impact some 

of the work that apparently you are trying to do in terms of being 

able to have some capital formation—access to capital because that 

is one of the big issues that we are hearing in our communities, 

simply for small businesses to be able to actually—to be able to 

reach out. 

Do you believe it is important that the FSOC has decided to review activities and products in the asset management industry for 

systemic risk? 

Ms. WHITE. Do I think it is important, you said? 

Mr. TIPTON. Yes. 

Ms. WHITE. I think it is a focus that makes sense. It really goes 

beyond asset management. I think I cited before the example of securities lending as one of those activities. Obviously, that is not 

just asset managers. 

FSOC really is charged with looking for systemic risks and addressing them in the system. 

They have certain authorities and—to deal with them if—but I 

think the pivot, at least for the time being, from a firm focus to 

products and activities, makes sense the SEC staff has been quite 

active in, I should say, the December request for comment on 

those. 

I see their work as complementary to ours, but we obviously have 

been the primary regulator of the asset management industry for 

75 years and we are proceeding with a regime of regulations that 

we think is important to do and makes sense to do, and that is 

completely independent from FSOC. I think what they are doing is 

complementary. 

Mr. TIPTON. Okay. I appreciate your answer on that, but you— 

one comment that you just made in terms of going through and 

seeking comment. One of the concerns, obviously in my district and 

maybe nationwide, is small businesses. You have the GovernmentBusiness Forum on Small Business Capital Formation and the response from the forum comes out and you—what do you believe are 

some of the most specific issues that small businesses are talking 

about right now? 

Ms. WHITE. There are a number of them. We actually have that 

meeting tomorrow, by the way, our annual forum is tomorrow 

morning. It is enormously useful. If you look over the years, a number of the recommendations from that forum, I am not suggesting 

all of them—that we have actually proceeded with. 

51 

Clearly, they result in a lot of interest in crowdfunding. There is 

a lot of interest in A-plus. One of the things we did, by the way, 

when we did crowdfunding, is that we also proposed to amend our 

Rule 147 and Rule 504, which really is addressed precisely at those 

small, in-State businesses that want more facility to raise capital. 

And so, that goes beyond the JOBS Act. That is not something 

mandated, that is something that we are very excited about, as 

were, frankly, the North American Securities Administrators Association (NASAA) State regulators. 

Mr. TIPTON. Great. I do think it is worthy of note that 

Pepperdine University did conduct a study and it said that 53 percent of the respondents—small businesses—believe that the current business financing environment is restricting growth opportunities, and 46 percent believe it is restricting their ability to be 

able to hire new employees. 

So I would encourage you, as you are holding those forums, not 

only to listen, but to actually hear what they are having to say because these impacts—cost benefit analysis that you have been 

speaking are having a real impact. 

And Mr. Chairman, I ask unanimous consent to submit a question for the record in regard to 10K filings on a lot of our mining 

industries and to be able to get a response from that. 

Chairman HENSARLING. Without objection, it is so ordered. The 

time of the gentleman has expired. The Chair now recognizes the 

gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Chair White, for being here. You talk 

of your support for small business. I am a small business owner, 

and you support the International Financial Reporting Standards 

(IFRS), and as you know, the IFRS does not allow the use of last 

in and first out accounting. 

My concern is, if we transition from the current U.S. method of 

generally accepted accounting principles (GAAP) accounting to 

IFRS, the toll on U.S. businesses would be unsustainable, and 

frankly cause most of them to go out of business. 

I think the number to be recaptured is somewhere in the range 

of $100 billion. Now, you have publicly stated that considering 

whether to further incorporate IFRS into the U.S. financial reporting system is a priority of yours. 

The last time you were here, I believe you told my colleague, Mr. 

Barr, that your object was to get a single set of global standards. 

FASB and IASB have made attempts in the past to come to an 

agreement. Those efforts have always been unsuccessful. 

I saw in comments I believe he made yesterday, that the Chief 

Accountant, James Schnurr, urged supplemental use of global rules 

for U.S. companies. Yes or no, do you have any comments on how 

that would work? 

Do you agree with that? Do you agree that it should be supplemental? 

Ms. WHITE. Mr. Stivers, actually, I think you said he made a recommendation to me—he also made a speech, I think last December, about that, and certainly I am quite interested in that. 

Just to be clear, what I have said, though, is that I think the 

Commission, if we can, should speak again on this issue. 

Mr. WILLIAMS. Okay. 

52 

Ms. WHITE. Just speak again. Not saying what that would be. 

And so, I think in terms of sort of the one high-quality global 

standards as a goal, I certainly favor that. 

That doesn’t answer all the details along the way. It doesn’t for 

a moment suggest what the position might be for further application of IFRS—they obviously apply to foreign private issuers. Now, 

that is very different. 

Mr. WILLIAMS. All right, thank you. 

Based on those comments—he, by the way, also said there is virtually little or no support among U.S. companies for a wholesale 

change—do you still consider incorporating IFRS as a priority of 

yours? Yes or no? 

Ms. WHITE. Again, I don’t think I ever stated that as a priority 

of mine. My priority was to get the Commission to say where we 

are. 

Mr. WILLIAMS. Okay. Is your inclination to adopt IFRS based on 

a desire to have one standard worldwide financial reporting system, or is it because you believe the IFRS standards are preferable 

to GAAP? 

Ms. WHITE. That is not what I intended to convey. The SEC, 

some time ago, before I came in, by regulation, has allowed foreign 

private issuers to use IFRS without reconciliation. 

But plainly, the convergence projects have gone where they have 

gone and not gone where they have not gone. 

Mr. WILLIAMS. All right. 

Ms. WHITE. And so, there are differences in the system. 

Mr. WILLIAMS. In the case of last-in first-out (LIFO) inventory reporting, IFRS does not allow the use of LIFO. In contrast, the U.S. 

tax code requires the use of LIFO for financial reporting if it is 

used for tax purposes. 

Effectively, then, the SEC would be making tax policy. Were you 

aware of this potential impact? 

Ms. WHITE. I am aware of the impact, but I don’t want to imply 

for a moment that I think it ought to be done, period. 

Mr. WILLIAMS. Yes. 

Ms. WHITE. But clearly, it has IRS and IRC implications. 

Mr. WILLIAMS. Do you think you should be, effectively, setting 

tax policy? 

Ms. WHITE. No. 

Mr. WILLIAMS. Okay. Do you have a substantive position on the 

use of the LIFO inventory method? 

Ms. WHITE. I don’t. Obviously, the method under GAAP is the 

one that applies. 

Mr. WILLIAMS. You realize, though, how destructive it would be 

to small businesses here? 

Ms. WHITE. I am quite aware of the complexities of that issue, 

absolutely. All I want to make clear is that I think some of the positions that you are indicating were mine really are—I haven’t concluded on any of that. 

My only priority is to get the Commission to say where it is on 

some of those issues, not suggesting for a moment where that 

would be. 

53 

Mr. WILLIAMS. Have you consulted with the Treasury about this 

potentiality? And if so, is the Treasury comfortable with the SEC 

setting LIFO inventory—slash inventory tax policy? 

Ms. WHITE. The answer is I haven’t consulted with Treasury on 

this because it is not ripe at all to consult with them on it, not because it is not an important issue, if we were to reach it. 

Mr. WILLIAMS. LIFO is an important— 

Ms. WHITE. Very important. 

Mr. WILLIAMS. —accounting method for small businesses. 

Ms. WHITE. Absolutely. 

Mr. WILLIAMS. And the recapture of $100 billion, as I said earlier, could devastate small businesses. It could cost jobs. So I appreciate your following through on that. 

Ms. WHITE. Absolutely. 

Mr. WILLIAMS. Thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Maine, Mr. Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Chairman, and thank you, Chair 

White. I appreciate it very much. I know you missed your opportunity to go to Maine this summer, but I know next year is another 

year, and you will make it— 

Ms. WHITE. I am coming. 

Mr. POLIQUIN. —your vacation, and spend as much money as you 

can. I appreciate it. 

Chair White, the State of Maine has the oldest average age in 

the country. And Maine’s second district, which I represent, comprising western central, northern and down east Maine, is likely 

the oldest district in the country. 

In addition to that, coast to coast, there are 40 million Americans 

who live in rural areas. 

Now in parts of Maine—and, I am sure, other parts of the country—when you are living in those areas, we often don’t have internet conductivity. We have power outages all the time, even if we 

do have conductivity. 

In addition to that, 41 percent of our seniors in this country, regardless of where they live, don’t use the internet. So, I know your 

mission, in part, is to make sure our investors receive all the information they can to make sure they are protected in decisions that 

they are able to make. 

Now, one of your own studies back in 2012, Chair White, indicated that 71 percent of investors, regardless of age, prefer to receive their reports from mutual funds and what have you, on 

paper. Right now, there is a proposed rule in your agency—30E-3— 

that you and I talked about back in August. 

Ms. WHITE. Yes, we did. 

Mr. POLIQUIN. And in this rule, if I am not mistaken, a mutual 

fund company can simply send a letter to a senior or any other investor saying, you are no longer going to receive your quarterly 

statements or your portfolio holdings or whatever it might be unless you fill out this form and send it back to us saying that you 

want to continue to receive those reports in paper form. 

Now, what happens if the mail doesn’t go through? Or what happens if you are on vacation in Florida and you live up in 

Madawaska, Maine, and the letter gets lost in a snowbank? Or 

54 

what happens if you change locations and you are in between addresses, or for some other reason, you are away from home? 

This is just not fair, in my opinion, Chair White. It is just not 

right. So, I think when it comes to—with all due respect—the mission of the SEC, that I know you are responsible for upholding, it 

makes a lot of sense to make sure that our investors have the option of receiving their paper financial reports unless they opt out. 

Otherwise, it is much too confusing. 

Now, if someone decides to opt out, instead of opt in, that is all 

fine. So I am hopeful that you will commit to me today that you 

will retain this option, because that is—with all due respect—part 

of your mission. 

Ms. WHITE. I can’t commit to that, because we have an open period of comment until January on this. What I can say—and we 

talked about this to some degree on the phone—is that the proposal 

tries to address the concern. Although, again, we have a number 

of comments in the same vein as yours, which we are obviously 

weighing very seriously. 

But in the proposal we have tried—the staff has tried to build 

in, it is not just sort of one letter that gets lost in the mail. Which 

I understand is a risk, don’t get me wrong. But also, it would periodically, again, be solicited on the issues—so some of the problems 

that have been identified in terms of receipt and choice the proposal tries to address. 

But I fully take your comment about switching the presumption, 

basically. 

Mr. POLIQUIN. Chair White, my mom, whom I love dearly, is 87. 

She can barely use a cell phone— 

Ms. WHITE. But again, she would have the option not to receive 

it by—she could get paper—but I fully take the concern. Yes. 

Mr. POLIQUIN. I appreciate that very much. I have a very short 

amount of time left. I would like to morph, if I can. 

Chair White, thank you very much. Our financial services industries is the envy of the world, and it gives all kinds of options to 

investors saving for their retirement or for the kids’ education, and 

also, is the backbone liquidity to our economy that allows us to 

grow and raise capital and hire more workers. 

I am very concerned, and you and I talked about this a little bit 

this summer, I believe, also about asset managers and pension 

fund managers and mutual funds be designated as SIFIs. And in 

particular, I know there has been a movement through FSOC and 

also some of the other folks who come before us, that you are starting to look at activities instead of asset size. 

Now, I would like to ask you if I can right now, what activities 

are of concern to you, because if Mr. Hill and I manage a couple 

of different pension funds—mutual funds—and his performance is 

better than mine— 

Mr. HILL. It would be. 

Mr. POLIQUIN. It would be. Then my clients would go to his and 

the assets are not on our balance sheet anyway. They held it in the 

trust department down the street. So if something happens to me, 

it is no systemic risk to the economy or to the capital markets. 

Ms. WHITE. And I think that is why you have seen the pivot to 

particular activities. One of the things we are dealing with in our 

55 

separate, primary regulator space too, is liquidity risk management 

kinds of issues, just to make sure that—because in an open-end 

fund, you are entitled to get your money right away. Those kinds 

of risks. 

I mentioned before, securities lending, which asset managers and 

other people not even under the SEC’s jurisdiction may use and 

does that pose any risk. But there are no answers there. It is really 

just asking questions and I think it is good to ask those questions. 

Mr. POLIQUIN. I will submit to you, Chair White, that there is 

no risk in the asset management business model to the economy 

and please look at that very carefully and make sure, with your position on the international regulatory bodies, that you make sure 

that we stand up for American asset managers when it comes to 

any regulatory issues with respect to your industry. 

Thank you very much. Have a wonderful Thanksgiving. 

Ms. WHITE. Thank you, you too. 

Mr. SCHWEIKERT [presiding]. Thank you, Mr. Poliquin. 

I now recognize the gentleman from Arkansas, Mr. Hill. 

Mr. HILL. Thank you, Mr. Chairman. Madam Chair, thank you 

for being back before the committee and congratulations on a good 

GAO audit. I know that makes every management team smile 

when you get that. And also, congratulations on clearing up some 

of your 50 front burners; maybe you are down to 40 or so now. 

I would like to start out by talking about equity market structure. I thought SIFMA wrote a very thoughtful piece last July, I 

think, in 2014 about their suggestions on equity market structure 

challenges that we have seen over the course of the past few years, 

including some of the references to this summer. 

And you have now formed an Equity Market Structure Advisory 

Committee and a couple of comments about that I am concerned 

about. I would like to get your thoughts. 

I understand they have subcommittees meet in private without 

any transparency on their policy recommendations. I would like 

your thoughts on that. And then, I noted that the overall membership in the committee didn’t include NASDAQ, it didn’t include the 

New York Stock Exchange, it didn’t include a big retail brokerdealer, and I come from the retail broker-dealer space, so I am always concerned about the best execution, the promise that we 

make to do as our regulator to achieve best execution. 

So I am concerned those entities are not involved in your Market 

Structure Advisory Committee. Could you respond to that, please? 

Ms. WHITE. Yes, I would be happy to respond to it. First, the 

Commission—and it is really all five of us on the Commission, went 

through a very lengthy process of vetting and of trying very hard 

to diversify points of view and expertise on the 17-person committee, which is what it is by charter. And so there is an exchange, 

obviously represented on the committee. 

There actually is, at it turns out, two other representatives who 

were formally actually at primary listing exchanges as well. There 

is a representative who represents the retail brokerage point of 

view, although we still keep looking at that. And we have clearly 

had requests for others to join. 

One of the things that we have done, and again, this is something you just keep looking at because you really want that diverVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00059 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
56 

sity of perspectives, is to structure that committee so that we get 

input from others from every constituency, whether it is retail brokers or it is NASDAQ or it is the New York Stock Exchange. 

So each of the meetings, in effect, is a roundtable where we have 

NASDAQ, and the New York Stock Exchange, and so forth. 

And the subcommittees, that is something that the other advisory committees use to great effect to just get things done, but they 

don’t decide anything, and they are also able to open at least parts 

of their meetings, if they choose, publicly. 

Mr. HILL. Let me urge you to open those meetings or parts of 

those meetings. I only urge you to make sure you get the full complement of those who want to participate in this process in the retail industry, and particularly, so you include exchanges, but to not 

have the two leading exchanges, NASDAQ and the New York Stock 

Exchange, represented strikes me as short-sighted. 

Let me switch gears. Generally, in your experience—I know you 

have an enforcement and legal background and I have an investment management background, do you believe that retirement fund 

managers have the principal obligation of maximizing long-term returns for their beneficiaries and their plans? Is that a general thing 

you bring to the table, is a belief that is their primary objective? 

Ms. WHITE. Maybe it is because of that legal background and the 

SEC’s jurisdiction, you want to serve the best interests of your client is what you want to do. That is what your fiduciary duty is. 

Mr. HILL. Yes, but I think if you have full discretion over an account and you are an investment manager, you have to act in their 

best economic interest, wouldn’t you say? 

Ms. WHITE. Yes. 

Mr. HILL. That causes me concern about a recent decision by the 

Department of Labor, not the fiduciary standard, but Secretary 

Perez has recently encouraged and has given guidance to institutional managers that environmental, social, and governance issues 

are equal to economic return issues. We live in a world of underperforming of defined benefit plans that aren’t fully funded, and 

yet, we have direction from the guy who is in charge of ERISA to 

look at other things besides economic performance. 

Would you like to respond to that? 

Ms. WHITE. Do I want to? Or— 

Mr. HILL. We will, it is really— 

Ms. WHITE. —would you like me to? 

Mr. HILL. —so much fun to do it. 

Ms. WHITE. I don’t want to comment on his specific comment. I 

will say that I think what you, and it is a lot of my—but, yes. I 

think what you are trying to do is serve the best interest of your 

client. Obviously, you can have a client who says, ‘‘Look, I care 

about this, this, this, and this as you invest for me.’’ That is really 

up to your client. 

Mr. HILL. Yes, but economic return—we are not fully funded and 

economic returns are how we achieve that and I think the Department of Labor is way off track there. 

Last question, you have some vacancies on the Commission, and 

would you commit to this committee that you wouldn’t bring controversial elements up if you don’t have a fully functioning Commission that has bipartisan members on it? 

57 

Ms. WHITE. Anything can be controversial. I think what— 

Mr. HILL. True. But I mean any big, major issue follow on that 

we are working on. We are concerned that you are going to not 

have a fully functioning Commission with bipartisan appointees 

and we would like your commitment that you would be cautious 

about what you try to bring through the Commission without fully 

confirmed bipartisan appointees. 

Ms. WHITE. I do think the work right now—there are four of us: 

one independent; one Republican; and two Democrats, and we are 

moving forward with our agenda. I think we can. I am going to 

take everything into account, but I do think we should proceed. I 

don’t know how fast confirmations—assuming they occur, which I 

assume they will occur. 

But you obviously sort of read your agenda as you go along. 

Mr. HILL. Thank you. I yield back, Mr. Chairman. 

Mr. SCHWEIKERT. Thank you, Mr. Hill. 

I now recognize Mr. Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. And thank you, Chair 

White, for being with us today. 

I just want to touch on the—some of the folks have been talking 

about the bond market—corporate bond markets. I wanted to ask 

a question about that. 

Has the FSOC, again, of which you are a voting member, ever 

conducted any analysis of the systemic risk that could result from 

a lack of liquidity in the corporate bond market due to regulatory 

initiatives like the Volcker Rule, in Basel III? 

Ms. WHITE. I don’t think, as phrased that way. Obviously, the 

four or five of us who report quarterly to this committee do that 

kind of assessment, at least in terms of the Volcker Rule. 

Mr. ROTHFUS. As you know, the chairman reached out to you at 

the beginning of the year for a status update on a number of initiatives that are designed to facilitate capital formation and ensure 

that the U.S. capital markets remain the leader, rather than focusing on politically divisive issues. 

For example, the chairman asked for the status of potential SEC 

efforts to modernize the rules governing transfer agents. This topic, 

although highly technical, is of interest to me because the rules 

have not been updated since the 1980’s. I also think it is a rare 

occurrence when you have bipartisan support within the SEC, 

given that former Commissioner Gallagher and current Commissioner Aguilar—their statement in June of this year. 

In February 2015, you stated in your response letter to the chairman that the SEC staff is considering recommendations. I would 

like to follow up with the chairman’s request for a status update 

as of today? 

Ms. WHITE. We are actually quite actively focused on the transfer 

agent issues. I don’t want to get ahead of what we are going to do 

or give you a specific date, but I think you will see something coming out quite soon. I don’t want to say when, but I mean in the 

next couple of months. 

Mr. ROTHFUS. In what form would that be? 

Ms. WHITE. I don’t want to say that until it comes out, because 

one of the things that we are having to balance is that because we 

haven’t updated these rules for 40 years, you need some data to inVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00061 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
58 

form yourselves in terms of some of the things that you might propose. There may be other things that you can tee up as a direction 

you think you are going in as part of that. 

So that is really what we are trying to balance, to be as pinpointed as we can, but also make sure we get the input we need 

by whatever form we put this out in, so— 

Mr. ROTHFUS. So you haven’t made a determination whether it 

is going to be a concept release or some other release? 

Ms. WHITE. We have not, although we are thinking about maybe 

some combination. 

Mr. ROTHFUS. Mr. Gallagher and Commissioner Aguilar said, ‘‘A 

lengthy delay in updating the Commission’s transfer agent rules 

will be bad for the markets, investors, and issuers. A concept release may be warranted to gather additional information and viewpoints on certain topics, but there are critical reforms requiring immediate action that we can propose now.’’ Would you agree with 

that? 

Ms. WHITE. Yes, and not only do I agree with that, but I asked 

them to do it, in other words, to come back with areas of agreement. So I do agree with that. 

Mr. ROTHFUS. Let’s see. You have questioned whether SEC disclosure powers are best used to address societal ills, noting in a 

speech that, ‘‘Other mandates, which invoke the Commission’s 

mandatory disclosure powers, seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions. 

‘‘That is not to say that the goals of such mandates are not laudable, indeed most are. Seeking to improve safety in mines for workers or to end horrible human rights atrocities in the Democratic 

Republic of the Congo are compelling objectives, which as a citizen, 

I wholeheartedly share. But as the Chair of the SEC, I must question, as a policy matter, using the Federal securities laws and the 

SEC’s powers of mandatory disclosure to accomplish these goals.’’ 

What is the cost to investors when there is an overemphasis on 

mandatory disclosure requirements that seem to be targeting societal ills, rather than what may be considered ‘‘material’’ by a company? 

Ms. WHITE. It is hard to say what the cost is, obviously, and investors can see things differently. 

I think I went on in that speech to say, though, that if it is a 

congressional mandate, even if as described in the prior remarks, 

I do consider it our obligation to carry that out. 

Mr. ROTHFUS. As you know, last April the U.S. Court of Appeals 

found that the SEC’s conflict minerals rule violated the First 

Amendment because it required companies to shame themselves. 

Given the political and shaming nature of the pay ratio rule, is it 

unreasonable to assume that the pay ratio rule will likely also violate the First Amendment? 

Ms. WHITE. We certainly study that precise issue and we believe 

it comports with the First Amendment. 

Mr. ROTHFUS. This week, Commissioner Piwowar proclaimed 

that the SEC’s corporate disclosure regime has been hijacked by social activists. Do you agree with Commissioner Piwowar that the 

59 

SEC’s disclosure rules are meant to serve investors, not special interests? 

Ms. WHITE. I certainly agree that our disclosure regime is meant 

to serve investors. Again, I think that if they are mandated disclosure rules, we have an obligation to carry them out. It is the law. 

Mr. ROTHFUS. Can you explain how the SEC’s pay ratio rule 

serves investors over special interests? 

Ms. WHITE. I think—and again, it is in the release—what the 

pay ratio rule does is—and it is a mandated rulemaking obviously—to provide investors another data point in judging a CEO’s 

compensation. That is the finding in the release. 

Mr. ROTHFUS. I yield back. Thank you. 

Mr. SCHWEIKERT. Thank you, Mr. Rothfus. It looks like it is just 

us. 

Ms. WHITE. Okay. 

[laughter] 

Mr. SCHWEIKERT. A couple of things, Madam Chair. First off, you 

have always been very kind to me, and your staff has been terrific, 

and because of that, I am just going to yield myself as much time 

as I may consume because I have a lot of questions. 

Ms. WHITE. Okay. 

Mr. SCHWEIKERT. You already hit the clock on me. Okay, this 

is—I am going to ask you for almost a narrative answer on this, 

and pretend no one is watching or listening. Being someone who 

was both, I think, intellectually and emotionally vested in 

crowdfunding, in the JOBS Act, in Reg A-plus, but let’s use JOBS 

Act and the crowdfunding portion. 

Almost 4 years beyond when the rules should have been done, in 

something that from the IQ you have around you and yourself, 

should not have been very complicated. I beg of you, could you walk 

me through— 

Ms. WHITE. Sure. 

Mr. SCHWEIKERT. —what happened. 

Ms. WHITE. I don’t think it was 4 years; I think it was 3 years. 

Not that that is the answer here— 

Mr. SCHWEIKERT. Okay. It is 3-plus. I will give you—well, let’s 

call it 3. 

Ms. WHITE. Okay. 

Mr. SCHWEIKERT. Look, your staff and others were very kind to 

let us see some of the letters that were coming from certain union 

front groups and other groups that disparage crowdfunding. But 

help me understand, because as this hearing is supposed to be 

about resources, was this a resource issue, was this a political 

issue, was it an intellectual capital issue? Why so long? 

Ms. WHITE. I have already described how our need for resources 

is really across-the-board, but this is one where—and I believe I 

testified to this in March when I was here—we knew this rulemaking was going to be very complicated going into it because the 

statute is quite prescriptive in some areas, funding portals which 

are enormously important to investor protection is a complicated 

piece of that as well. 

And then, we did our proposal. I really tried to light a fire under 

the proposal. We got it out pretty quickly after I got here, I think. 

60 

And then the comments came in, and we were trying—and again, 

we have to work within the statute when it is prescriptive— 

Mr. SCHWEIKERT. But— 

Ms. WHITE. —but we try to make it— 

Mr. SCHWEIKERT. —but also the statute actually had some deadlines too. 

Ms. WHITE. No, no, no. I am not—I am just saying we do need 

to observe those, obviously. Some places give us discretion, some 

places don’t. And the goal is to make it workable and to safeguard 

investors in the new marketplace. And that proved to be very, very 

difficult. 

Mr. SCHWEIKERT. And what I was asking in my question design—and maybe I need to do this in writing because some of this 

is uncomfortable—is the power of certain activist groups to delay 

something at the same time both the right and the left here get behind these microphones and talk about the desperate need for economic growth and the new economy and the future that brings us, 

and then some of the things that we tell our constituents we are 

doing for them to grow the economy take 3 years to get a rule set 

done. 

Ms. WHITE. But again, I will give you my own perspective. We 

are talking in the context of crowdfunding. This was done purely 

on the merits to get it workable, to get it to protect investors. 

There is no politics, no activism, no anything. 

Mr. SCHWEIKERT. In that time, what, 2 dozen States actually did 

their own and produced their own rule sets and are up and running. 

Ms. WHITE. Yes, but they also did not have the same statutory 

framework we had to work with, and it is not a Federal rule. And 

I mentioned it earlier, one of the really important, I think, exciting 

things we did the same day we did crowdfunding are these amendments to Rules 147 and 504, because that is really quite solicitous 

of those State crowdfunding statutes too. Obviously, it is a proposal 

at this point, but I think that is a good thing. 

Mr. SCHWEIKERT. If done robustly, there is actually an 

interconnectivity there that actually could be very helpful for the 

economy. And this is one of those—just because as I was walking 

out to grab a meeting, I thought I heard something in a previous 

question, I think with Representative Luetkemeyer. And it sounded 

like the regulatory or additional regulatory scrutiny when an investment organization will pledge their holdings up for shorts or a 

loan on their book. Did I pick up something there— 

Ms. WHITE. I don’t think so. 

Mr. SCHWEIKERT. All right. Last one, it is also important to us. 

We accept that your Commission, the Board right now is short one 

Republican. There is a certain nervousness out there that in the 

waning days of an Administration, the independence of the SEC— 

this is more of just a request for your greatest prudence as rules 

are being brought for a vote of yourself and your fellow Commissioners that you are shorthanded and something that would be controversial, have a cascade effect policywise, be dealt in that light 

that there is a voice missing. 

Ms. WHITE. Again, I think literally and otherwise, I am extraordinarily independent. We try to do these rulemakings on the merVerDate Nov 24 2008 18:21 Dec 01, 2016 Jkt 099781 PO 00000 Frm 00064 Fmt 6633 Sfmt 6633 K:\DOCS\99781.TXT TERI
61 

its. Obviously, I think we have had an allusion to the 3–2 votes 

that we have had. And that is sort of part of the landscape, I think 

at this point in time. We need to move forward with the agenda, 

but I certainly will be sensitive to all things. 

Mr. SCHWEIKERT. And because I have no one else waiting, I am 

going to give myself a couple of extra moments here. For the SEC 

and your team, how much interest and focus is there, shall we say, 

on the new economy? As we see Silicon Valley is spending lots and 

lots of resources trying to find ways to provide financial servicetype products, lending products, crowdfunding platforms or other 

types of platforms, do you have someone on your team who actually 

now is specializing in trying to say, this is our future, this is coming at us, here is new technology— 

Ms. WHITE. Yes, is the answer to that. One of the things that we 

have been doing for the last several years is to make sure that we 

have, I am going to call it the market expertise, but really, the 

points of view that would encompass the new products, the new innovations on— 

Mr. SCHWEIKERT. Are there some things—because this is one of 

the things in our lives that actually may be bipartisan—we can do 

as policymakers to provide you with tools or statutory mechanics 

to allow you to embrace and run with those ideas that are good and 

do it as fast as possible so we are not slowing down what many 

of us believe is our future of our economic growth, and that is the 

new economy? 

Ms. WHITE. What really helps us is that outside expertise genius, 

that we make sure that we have in-house when we can. And we 

do try to do that. 

Mr. SCHWEIKERT. Okay. Chair White, thank you so kindly for 

your patience and the time you gave us today. 

Ms. WHITE. Thank you very much. Thank you. 

Mr. SCHWEIKERT. I would like to thank our witness. 

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. 

And with that, this hearing is adjourned. 

[Whereupon, at 1:09 p.m., the hearing was adjourned.] 

(63) 

A P P E N D I X 

November 18, 2015 

64 


99781.001
65 


99781.002
66 


99781.003
67 


99781.004
68 


99781.005
69 


99781.006
70 


99781.007
71 


99781.008
72 


99781.009
73 


99781.010
74 


99781.011
75 


99781.012
76 


99781.013
77 


99781.014
78 


99781.015
79 


99781.016
80 


99781.017
81 


99781.018
82 


99781.019
83 


99781.020
84 


99781.021
85 


99781.022
86 


99781.023
87 


99781.024
88 


99781.025
89 


99781.026
90 


99781.027
91 


99781.028
92 


99781.029
93 


99781.030
94 


99781.031
95 


99781.032
96 


99781.033
97 


99781.034
98 


99781.035
99 


99781.036
100 


99781.037
101 


99781.038
102 


99781.039
103 


99781.040
104 


99781.041
105 


99781.042
106 


99781.043
107 


99781.044
108 


99781.045
109 


99781.046
110 


99781.047
111 


99781.048
112 


99781.049
113 


99781.050
114 


99781.051
115 


99781.052
116 


99781.053
117 


99781.054
118 


99781.055
119 


99781.056
120 


99781.057
121 


99781.058
122 


99781.059
123 


99781.060
124 


99781.061
125 


99781.062
126 


99781.063
127 


99781.064
128 


99781.065
129 


99781.066
130 


99781.067
131 


99781.068
132 


99781.069
133 


99781.070
134 


99781.071
135 


99781.072