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95–054 PDF 2015

EXAMINING THE SEC’S AGENDA, OPERATIONS, 

AND FY 2016 BUDGET REQUEST 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 24, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–10 

( 

(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 

ROBERT DOLD, Illinois 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

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: 

March 24, 2015 ................................................................................................. 1 

Appendix: 

March 24, 2015 ................................................................................................. 67 

WITNESSES 

TUESDAY, MARCH 24, 2015 

White, Hon. Mary Jo, Chair, U.S. Securities and Exchange Commission .......... 4 

APPENDIX 

Prepared statements: 

White, Hon. Mary Jo ........................................................................................ 68 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Ellison, Hon. Keith: 

Letter to SEC Chair Mary Jo White, dated March 17, 2015 ........................ 95 

White, Hon. Mary Jo: 

Written responses to questions for the record submitted by Representative Fincher ................................................................................................... 99 

Written responses to questions for the record submitted by Representative Heck ........................................................................................................ 101 

Written responses to questions for the record submitted by Representative Huizenga ................................................................................................ 102 

Written responses to questions for the record submitted by Representative Luetkemeyer .......................................................................................... 106 

Written responses to questions for the record submitted by Representative Messer .................................................................................................... 108 

Written responses to questions for the record submitted by Representative Moore ...................................................................................................... 109 

Written responses to questions for the record submitted by Representative Royce ....................................................................................................... 110 

Written responses to questions for the record submitted by Representative Sinema .................................................................................................... 113 

Written responses to questions for the record submitted by Representative Waters .................................................................................................... 114 

Written responses to questions for the record submitted by Representative Sherman ................................................................................................. 120 

(1) 

EXAMINING THE SEC’S AGENDA, 

OPERATIONS, AND FY 2016 

BUDGET REQUEST 

Tuesday, March 24, 2015 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 9:49 a.m., in room 

HVC–210, Capitol Visitor Center, Hon. Jeb Hensarling [chairman 

of the committee] presiding. 

Members present: Representatives Hensarling, King, Royce, 

Lucas, Garrett, Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, 

Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, 

Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, 

Barr, Rothfus, Schweikert, Dold, Guinta, Tipton, Williams, 

Poliquin, Love, Hill; Waters, Maloney, Velazquez, Sherman, Capuano, Lynch, Green, Cleaver, Moore, Ellison, Himes, Carney, Sewell, 

Kildee, 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 2016 Budget Request.’’ I now recognize myself for 

3 minutes for an opening statement. 

This morning we welcome Securities and Exchange Commission 

Chair Mary Jo White back to the committee. This committee is indeed committed to conducting vigorous oversight to make certain 

that the SEC is accountable in fulfilling its three-part mission of 

protecting investors; maintaining fair, orderly, and efficient markets; and promoting capital formation. By holding today’s hearing, 

we hope to better understand the progress the Commission is making in its priorities for the remainder of the year. 

Now, I have no doubt the hearing will serve as deja vu all over 

again for Members who argue that the SEC has inadequate resources with which to carry out its mission. However, the facts are 

that the SEC’s budget has grown tremendously over the years. In 

fact, the SEC’s current budget of $1.5 billion represents an increase 

of almost 35 percent since the passage of the Dodd-Frank Act not 

yet 5 years ago. And, in fact, over a 20-year period, since 1995, the 

SEC’s budget has increased nearly 400 percent, and that is 3 times 

greater—3 times greater—than our national defense budget has 

grown at a time when we have to fight the international war on 

2 

terror. This growth in the SEC’s budget considerably outstrips 

most other government agencies over the similar time period. 

Furthermore, as I look to the monitors to my left and my right 

which show the rapidly rising and unsustainable red ink of our national debt, a debt that threatens to bankrupt our Nation, I am reminded that the hardworking Texans of the Fifth District of Texas 

whom I represent have not had the privilege of seeing their family 

budgets increase fourfold, and they are the ones who ultimately 

will have to pay for this unsustainable debt, which again underscores that in Washington, it is not always how much money you 

spend that counts, it is how you spend the money. And that leads 

to the SEC’s priorities and agenda for 2015. 

The bipartisan JOBS Act should be a priority, but regrettably it 

does not appear the SEC treats it as such. In a time when the 

American people continue to struggle with the slowest, weakest recovery of the postwar era, the SEC’s neglect of this makes no 

sense. Even President Obama, with whom I rarely agree, has called 

the JOBS Act, ‘‘a big bill,’’ and a ‘‘potential game-changer that will 

help smaller companies take a major step towards expanding and 

hiring more workers.’’ Surely we want companies on Main Street 

to hire more workers. So if the SEC will not finish the work on the 

JOBS Act, it is incumbent that Congress do it for them. 

Likewise, the SEC’s delay in completing its Dodd-Frank mandates, particularly in the derivatives area, has caused unnecessary 

uncertainty and allowed the Commodity Futures Trading Commission (CFTC) to dictate outcomes that I believe most Members of 

Congress did not intend. 

So as we discuss the SEC’s budget request today, our goal, as always, is accountability. It is this committee’s duty to ensure that 

SEC resources are used wisely and efficiently and for the benefit 

of the American people. 

I now yield 2 minutes to the ranking member of our Capital Markets Subcommittee, the gentlelady from New York, Mrs. Maloney. 

Mrs. MALONEY. Thank you so much, Mr. Chairman. 

And welcome, Chair White. 

The United States has by far the largest and deepest capital 

markets in the world. We also rely much more heavily on the capital markets as opposed to loans through commercial banks than 

any other developed country in the world. This makes the SEC, 

which is our primary capital markets regulator, one of the most important regulators in the world. 

Because of the breadth of activities that it regulates, the SEC 

must constantly evolve and adapt its regulations in order to respond to new innovations and trends in the markets. Sometimes 

this means modernizing a regulatory regime to take account of 

these new risks in the market. This is precisely what the SEC is 

doing in two of the most important areas of the markets: asset 

management; and equity market structure. Both of these areas 

have undergone significant change in recent years, and the SEC, 

under Chair White’s leadership, has initiated ambitious efforts to 

update the regulations governing asset managers and equity markets. 

It is worth noting that both of these regulatory initiatives reflect 

a greater focus by the Commission on the issue of systemic risk, 

3 

which is an important and welcomed development. I look forward 

to hearing an update on these important initiatives, as well as a 

potential timeline for moving these initiatives forward. 

Thank you. My time has expired. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

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

Subcommittee. 

Mr. GARRETT. Thank you, Mr. Chairman. 

The SEC is responsible for regulating the equity and fixed income markets, which we all know are vital for economic growth 

and the well-being of millions of hardworking Americans who invest every single day in order to buy a home, pay for their kids’ 

education, fund retirement. 

So I was encouraged, Madam Chair, when I read a statement 

you made earlier this year where you said, ‘‘Even though I am a 

political appointee—as Chair of the SEC—politics really don’t come 

with me.’’ And I was hopeful that under your direction the Commission would finally be able to agree on a regulatory agenda that 

first and foremost advances only the agency’s statutory mission. 

Unfortunately, as you know, some assert that the SEC is becoming a little more political and distracted from its core mission. For 

example, by my count, during your first 2 years as Chair, the Commission has already had 10 partisan 3–to–2 votes on major agency 

rulemakings, and according to a March 17th press report, ‘‘Recent 

objections by Republican Commissioners to certain SEC enforcement actions are highlighting the increasing partisan divide when 

it comes to policing bad actors in the financial markets.’’ 

So over the last 2 years you have what some would consider 

‘‘prioritized’’ thousands of hours and millions of dollars completing 

some special interest rules, like the CEO pay ratio and the conflicts 

mineral disclosure rules, and the SEC also recently issued a rule 

proposed, not called for in the JOBS Act, that has and will continue to deincentivize Reg D. These rules are fundamentally at 

odds with and distract the SEC from fulfilling its statutory mission. 

To see this, one must look no further than the SEC’s lack of 

meaningful progress on some critical activities such as reforming 

the structure of U.S. fixed income markets, finalizing the remaining provisions of the JOBS Act, conducting a comprehensive review 

to improve U.S. equity markets, and eliminating duplicative, outdated, or unnecessary disclosure requirements, particularly for 

these public companies. 

As your colleague Commissioner Dan Gallagher said, ‘‘You are 

what you prioritize.’’ So it is time for the SEC to prioritize its statutory ambition over the pet projects of some special interest groups 

and the political staff at the White House. 

With that, I yield back. 

Chairman HENSARLING. The Chair now recognizes the ranking 

member for 3 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. 

And welcome, Chair White. 

Chair White, the SEC has a lot on its plate as it works to protect 

America’s investors, young and old. That is why my Democratic colleagues and I support full funding for the Commission. 

4 

Chair White, I am pleased that you support a harmonized fiduciary duty rule that will protect America’s investors and retirees, 

but the devil is in the details, and we must take care not to weaken 

existing protections in pursuit of a uniform standard. 

I would also emphasize that while SEC and Department of Labor 

coordination is important, it is critical to recognize that the two 

agencies have different jurisdictions and mandates. I share your 

view that policing of fiduciary rule is vital. However, I support the 

approach endorsed by the former Republican chairman and Democrats of this committee, industry associations, and advocates to 

simply pay for more SEC examiners with a modest fee on advisers. 

Turning to another retail investor concern, tomorrow the SEC 

will vote on a rule allowing our small businesses to raise funds in 

a streamlined offering known as Reg A-Plus. I would like to reiterate that when Congress passed this provision, we rejected the 

preemption of State regulators, because they have vital expertise in 

policing these smaller issuances. 

Finally, as you and I have discussed, I am concerned with the 

SEC’s seemingly reflexive process of granting waivers of bad actor 

disqualifications. Currently, every publicly available waiver application has been granted, with large financial firms receiving the 

vast majority. 

This morning I released a draft of my legislation to address this 

problem by requiring the SEC to implement a more rigorous and 

more public process for granting waivers. The Bad Actors Disqualification Act would no longer allow the SEC to consider waivers at 

the staff level, would provide the public a notice-and-comment period, and would require the SEC to keep complete public records. 

Already, labor, consumer, and financial reform groups have expressed their support for the measure. 

So, Chair White, I look forward to working with you on additional steps that the SEC can take to best deter bad actors in the 

marketplace, and I thank you for the conversations we have already begun. I look forward to working with you. 

I yield back the balance of my time. 

Chairman HENSARLING. The gentlelady yields back. 

Today we welcome the testimony of the Honorable Mary Jo 

White, Chair of the SEC. Chair White has previously testified before our committee, thus 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 to give an 

oral presentation of your testimony. Welcome. 

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. Again, thank you for inviting me to testify about the recent activities and ongoing initiatives 

of the SEC and our Fiscal Year 2016 budget request. 

As you know, and as the chairman said in his opening remarks, 

the agency’s mission is critical to investors, our markets, and companies seeking to raise capital to support our economy. We take 

our extensive responsibilities very seriously at the SEC. 

5 

The U.S. securities markets are high-speed and constantly evolving, and the industries within our jurisdiction are not static. From 

Fiscal Year 2001 to the start of this fiscal year, assets under management of SEC-registered advisers increased approximately 254 

percent, from $17.5 trillion to approximately $62 trillion. Assets 

under management of mutual funds grew by 143 percent, to $15.6 

trillion, and trading volume in the equity markets more than doubled, to over $67 trillion, and the products traded have been become more sophisticated and complex. 

During this time the SEC’s responsibilities have also dramatically increased with new or expanded jurisdiction over securitiesbased swaps, private fund advisers, credit rating agencies, municipal advisers, as well as others. 

Since I testified before this committee last, the SEC has accomplished a great deal. Informed by rigorous economic analysis, we 

have made substantial progress in implementing a number of very 

significant rules, many mandated by the Dodd-Frank Act or the 

JOBS Act. These are detailed in my written testimony and include 

fundamental reforms of money market funds, securitizations, credit 

rating agencies, derivatives, and the integrity and resiliency of our 

equity markets. 

At my direction, the staff is also engaged in a number of very significant ongoing policy initiatives, including a broad equity market 

structure review focused on high-frequency trading and fairness, 

market transparency, trading venue regulation, mitigating broker 

conflicts, and critical market infrastructure, improvements to the 

market structure for trading fixed income securities, comprehensive measures for enhancing the asset management industry’s risk 

monitoring and regulatory safeguards, and improvements to public 

company disclosures. 

We have continued to aggressively and fairly enforce the securities laws, requiring admissions in appropriate cases, filing 755 enforcement actions, and obtaining orders for more than $4.16 billion 

in disgorgement and penalties in Fiscal Year 2014. 

We have made enhancements to make our examination program 

more efficient and effective, including adding industry experts, augmenting our data analytics capacities, and strengthening training 

programs. 

The agency’s emphasis on technology is also continuing to pay 

dividends across the agency, improving efficiencies while allowing 

us to cover more regulatory ground. 

The SEC’s Fiscal Year 2016 budget request seeks to address our 

current needs and the challenges we face by providing core resources. The SEC’s funding mechanism is deficit-neutral, fully offset by matching collections of nominal securities transaction fees, 

and will not impact the funding available to other agencies. 

As I believe we have demonstrated, we respect congressional 

oversight of the agency and its budget and our responsibility to be 

good stewards of the funds we are appropriated. 

Specifically, this budget would permit us to further address the 

pressing need for additional examination coverage of registered investment advisers and investment companies to better protect investors and our securities markets. It would allow us to continue 

to increase our focus on robust economic risk analysis, to support 

6 

rulemaking and oversight, and to further bolster our core enforcement functions to better detect, investigate, and prosecute wrongdoing. It would also permit us to continue our efforts to leverage 

technology, to improve agency programs, reduce filer burden, and 

enhance the security of the agency’s information technology. 

Last year was a year of important accomplishments for the SEC, 

but more remains to be done. Completing our congressional mandates promptly and well remains an important priority. We are 

continuing all of our work with intensity. Ultimately, our objective 

is to implement and enforce rules that create a strong and effective 

regulatory framework that protects investors and our markets and 

stand the test of time in rapidly changing financial markets. 

This committee’s support of the agency is very much appreciated. 

It allows us to build upon the significant progress we have 

achieved, which I am firmly committed to advancing and expanding. Thank you very much. I would be happy to take your questions. 

[The prepared statement of Chair White can be found on page 68 

of the appendix.] 

Chairman HENSARLING. Thank you, Chair White. 

The Chair now yield himself 5 minutes for questioning. 

Chair White, in your individual capacity you are a member of 

FSOC, and then the SEC is a member of the G-20’s FSB, correct? 

Ms. WHITE. That is correct. 

Chairman HENSARLING. I think it was approximately 18 months 

ago, give or take, that the FSB declared that any financial intermediary not regulated as a bank is part of the ‘‘shadow banking 

system’’ and must be regulated with bank-like prudential regulations. 

So your agency is the primary regulator of many of these entities, including asset managers, investment funds, and broker-dealers. Do you believe that the legislative framework is inadequate for 

the SEC to comprehensively and competently regulate these entities that the FSB apparently believes needs bank-like prudential 

regulations? 

Ms. WHITE. Speaking for me and the SEC, I don’t think that our 

regulatory framework is deficient. Clearly, if we saw a gap in what 

we needed to do and needed legislation to do it, we would be saying 

that. 

Chairman HENSARLING. Chair White, when the FSB made this 

pronouncement, did the SEC object? 

Ms. WHITE. Again, if I am thinking of the report in question correctly, what the process is within the SEC, the SEC has been a 

member of the FSB since 2009, and the staff is on various steering 

committees and working groups. To the extent that the subject 

matter pertains to things related to securities, let us say, a report 

on asset managers or whatever it may be— 

Chairman HENSARLING. But this does relate to the securities 

market. So at some point didn’t the SEC either have to consent or 

object? 

Ms. WHITE. What I would need to confirm by getting back to you 

is the precise report. What we do at the SEC with the FSB final 

records, to the extent that they relate to anything to do with securities or— 

7 

Chairman HENSARLING. If you could get back to this committee, 

I would like to have— 

Ms. WHITE. The Commission is asked to object or not. That is 

correct. 

Chairman HENSARLING. Has the SEC conducted any type of analysis on the impact of bank-like prudential regulation on our capital 

markets? 

Ms. WHITE. In connection with some of our rulemakings, some of 

our work that our economists do, there is some analysis of that. 

Clearly we also through the staff, and as you know, I am— 

Chairman HENSARLING. And briefly, what is your takeaway from 

that analysis? 

Ms. WHITE. I think there are several takeaways. Obviously, the 

set-up with FSOC is you can designate a non-bank as systemically 

significant so that it is subjected to prudential regulation. As part 

of that process, our staff does provide assistance to the committees 

of FSOC, but there are a lot of different analyses that are out 

there. 

Chairman HENSARLING. Let me move on to the Volcker Rule. In 

January of last year, your Division of Investment Management released guidance that said, ‘‘Primary dealer inventories of corporate 

bonds appear to be at an all-time low relative to market size.’’ Late 

last year The Wall Street Journal reported, ‘‘The bond market 

plumbing is clogged. Investment banks have pulled back from market-making due to regulation.’’ In February of this year Bloomberg 

reported, ‘‘Bond traders are vanishing.’’ They go on to say, ‘‘New 

regulations since the financial crisis, including the Volcker Rule in 

the U.S., and Basel III in Europe, appear to be the causes.’’ And 

last week The Wall Street Journal reported that the Bank for 

International Settlements warned that the bond market is becoming increasingly fragmented and fragile. Trading inventories of corporate bonds and other less liquid assets have fallen. This is partly 

a reaction to regulation. 

Do you agree that the Volcker Rule is a contributing factor, yes 

or no? And then I will give you a moment to provide context. 

Ms. WHITE. That can’t be answered at this stage. 

Chairman HENSARLING. This has been around for a while. At 

what stage might it be answered? And what do you say to the 

weight of evidence that was just presented? 

Ms. WHITE. I think there is no question that there are concerns 

about the liquidity in the fixed income markets. No question about 

that. No question about there being concerns on behalf of regulators, including the SEC, of whatever may be causing that, and 

then what to do if in fact there is an impact, for example, if interest rates rise. 

As you note, Chairman Hensarling, we do participate with the 

Fed, the OCC, and the FDIC in providing reports to your committee. 

Chairman HENSARLING. So you agree the phenomena is taking 

place, but as of today you have not found a corporate culprit. Is 

that a correct assessment? Is that a fair assessment of your view? 

Ms. WHITE. I think what we have not identified is the phenomena differs in different stratas of the fixed income markets. 

And I think there is no cause that can be pointed to at this point. 

8 

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

I would certainly encourage you, as I know you have, to speak to 

the market participants, because an incredible number cite the 

Volcker Rule and Basel III as the root cause here. And I hope at 

some point you and other members of FSOC will conduct an analysis to see what systemic risk could be posed by this incredible 

diminution of liquidity in our bond markets. 

The Chair now recognizes the ranking member. 

Ms. WHITE. Mr. Chairman, if I may just say, one of the things 

we do at the SEC, particularly our staff in Investment Management, but also in Trading and Markets, is we certainly are talking 

all the time to market participants. I just wanted to add that. 

Chairman HENSARLING. The Chair now recognizes the ranking 

member. 

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

I want to talk about investment adviser exams. As you are likely 

aware, I have long been concerned that the SEC is only able to examine investment advisers, on average, once every 10 years. Last 

Congress a bipartisan group of Members, including former Chairman Bachus, sponsored legislation to authorize the SEC to impose 

a user fee on investment advisers to increase the frequency of examinations. You and your predecessor both supported this approach, as well as the SEC’s Investor Advisory Committee, the 

SEC’s Investor Advocate, the State securities regulators, and the 

industry itself through the Investment Adviser Association. Nevertheless, our committee did not even consider this issue in a hearing. 

In your testimony, you note that you are considering the use of 

third party exams as a means of supplementing SEC examinations. 

When the committee last considered the use of third party exams, 

such as through FINRA, the Boston Consulting Group concluded 

that the cost would be twice as expensive as imposing a user fee. 

Do you think that third party exams will be more expensive than 

if the SEC were to impose a fee? 

Ms. WHITE. It is hard to judge that on sort of this side of doing 

it if we do proceed in that direction. I certainly share, and I have 

testified about it many times, the concern that I have about the 

gap in our examination coverage because of the lack of resources. 

That has been the situation at the SEC for a number of years, tens 

of years. And I think certainly the method, whether it is a user fee 

bill or some other method that would get us the funding to be able 

to close that gap, which I think is important to close. 

We are smarter about our use of resources, we have reallocated 

some. This past year we had I think a 20 percent increase in the 

number of investor adviser exams that we did, but still we have the 

10 percent coverage and 30 percent assets under management coverage. 

And so as the head of the agency I look at what I think we need 

to be doing for investors and to fulfill our duties at the SEC, and 

then look again, as the Commission has in the past, in 2003 and 

again in 2009, at the possibility of third party exams to supplement, complement our OCIE examiners. It is not an optimal place 

to go, but I think we really do need to complement our ability to 

9 

cover those investment advisers. That is very important, particularly to retail investors, but really to the entire marketplace. 

It has had lots of issues with respect to figuring that out. Who 

should do it? What is the expertise? What are the criteria? What 

are the costs? Does it apply to all investment advisers? On what 

subjects? But I do think the time is now to act. 

Ms. WATERS. How would the SEC mitigate conflicts of interest 

that may arise from such third party exams? 

Ms. WHITE. Clearly, that is one of the issues that has to be addressed and resolved optimally. You have that issue that is very 

present in any schema like that, and so you have to apply criteria, 

as well as disclosure requirements. 

Ms. WATERS. How much would it cost the SEC to oversee and examine these third party entities? 

Ms. WHITE. Again, that can’t be judged in a vacuum, but it is 

certainly something our economists will be studying. 

Ms. WATERS. So would you repeat one more time what percentage of the industry you are able to oversee and how many years 

on average is it that you can actually do these examinations? 

Ms. WHITE. It is a 10 percent coverage rate per year. 

Ms. WATERS. Only 10 percent? 

Ms. WHITE. Ten percent, and that is 30 percent of the assets 

under management. We obviously try to select where we go smartly, and we have gotten a lot better at that. And as I say, this past 

year we actually had a 20 percent uptick in the number of exams 

that we did, but it is still a 10 percent coverage, 30 percent assets 

under management coverage. 

Ms. WATERS. What is the danger that we are causing our constituents and investors with such little oversight and examination? 

Ms. WHITE. As an enforcement/compliance person for most of my 

career, I think you can’t overstate the importance of what we call 

‘‘boots on the ground.’’ If you are not present in a space, anything 

can be occurring in that space. 

We do, by the way, supplement what we do with boots on the 

ground by a lot more data analysis, what are called desk reviews 

of information that we receive. That is good, but it is not a substitute. 

Ms. WATERS. Thank you. 

Recently the SEC’s approach to waivers from automatic disqualifications triggered by enforcement actions has drawn some criticism, especially in cases involving the largest financial institutions 

where waivers have been granted by SEC, mostly staff we believe, 

on a seemingly reflexive basis. 

According to one study of well-known seasoned issuer and Regulations A and D waivers between July 2003 and December 2014, 

large financial firms received 82 percent of waivers, the vast majority. And as you know, today I released a draft bill that would address this problem by requiring the SEC to implement a more rigorous and more public process for granting waivers. 

In your opinion, what additional steps could the SEC take to engage the public, as the Department of Labor has done, in its waiver 

process by seeking notice and comment on waiver applications and 

providing the opportunity for a public hearing? 

10 

Ms. WHITE. Let me just say I think my bottom line is, and I actually talked about this at some length about 10 days ago outside the 

context of a specific case, is to try to bring more transparency and 

clarity to what I think really is a very robust process. 

And in terms of the Commission or the staff, some of the types 

of disqualifications and waiver decisions are made directly by the 

Commission. Some have been delegated by the Commission to the 

staff to make, but are always subject to the Commission, one Commissioner even, calling them up for Commission consideration. 

It is an issue we are quite focused on across the Commission. So 

I think it is a robust process. We continue to examine it. We continue to also—okay. I will have to finish my answer, I guess, in a 

QFR. 

I do look forward, Ranking Member Waters, to a further conversation on this with you, as I indicated last week when we spoke 

on the phone. 

Chairman HENSARLING. The time of the gentlelady has expired. 

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

Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. Again, thanks, Mr. Chairman. 

Chair White, I am going to run through several questions, so 

please answer as many as you can in 5 minutes. 

I am going to start where the chairman left off or started with 

the questions on the FSB. I am still trying to grasp how that all 

actually works in reality. First of all, do you personally attend 

those FSB meetings or do you send somebody else? 

Ms. WHITE. I attend the Steering Committee meetings. I think 

I have attended every one since I have been Chair. The steering 

committee of the FSB is kind of the highest level of the— 

Mr. GARRETT. You attend all those? 

Ms. WHITE. I attend all those. And the staff, by and large, attends what is called the plenary. They are on various standing 

committees and workstreams. The staff covers those, in close contact with me as well as the other Commissioners. 

Mr. GARRETT. And if the FSB comes up with something that you 

fundamentally disagree with, that is bad for our markets or the 

country in general, do you feel free to push back on that? 

Ms. WHITE. Yes, I do feel free to push back. 

Mr. GARRETT. And if they come up with a position that is—I will 

use the word ‘‘antithetical’’—not good for the United States, is that 

binding on you as far as your decision on FSOC? Has there ever 

been a case where they made a decision and you felt that way, and 

you pushed back? Have you pushed back at all? There are three 

questions, I guess. 

Ms. WHITE. I am not a quiet person, so I certainly have spoken 

up on various issues. But I think it is important, and this is very 

important to me as carrying out my responsibilities and, frankly, 

the agency’s responsibilities at FSB, that it is not binding. Even a 

report that we won’t object to, to have it released publicly that has 

various— 

Mr. GARRETT. You said something along that line that we never 

got from Secretary Lew at all, and we have asked him 100 times. 

You said they specifically asked you whether you want to object or 

not, I think were your words. So they present it to you that way? 

11 

Ms. WHITE. I don’t know that it is explicitly put that way, but 

when it is a final report it goes through the full Commission for 

our objection or non-objection to its being published. 

Mr. GARRETT. Right. 

Ms. WHITE. But what is in it, and certainly in my view and given 

the nature of the FSB organization, is not binding substantively on 

the Commission. 

Mr. GARRETT. Right. He says it is a consensus-driven organization, but he could never give an example of when he has ever objected to it. Have you ever objected to the publishing of their decisions? 

Ms. WHITE. The Commission has, I think, raised an objection on 

one or two of the reports, yes. 

Mr. GARRETT. Okay. 

Ms. WHITE. I think the objections were based on, frankly, not 

enough time for the Commissioners to consider the particular report rather than substance. 

Mr. GARRETT. Now, the Chair was also getting into the issue of 

the cumulative effect of Volcker and other rules. That was the one 

example where Secretary Lew actually gave us a direct answer of 

yes or no. He was aware that there was a problem in the corporate 

bond market back in October, as you were, of course. 

We asked him whether or not he or the FSOC has done any analysis of all the rules and their impact upon the market. His answer 

was, ‘‘No, but we could add up the cost if we wanted to.’’ 

Have you ever done a cumulative study of the effect of Volcker 

and the other rules on the corporate bond market or in general? 

Ms. WHITE. Not in those terms, I think. Our economists are 

working on various studies. Obviously if the issue is relevant to a 

rulemaking we are engaged in, we are going to be engaging in that 

kind of analysis. 

Mr. GARRETT. Right. And so you are more narrow, you might say, 

than the entirety of FSOC as far as your view on things. That is 

fair. So would you as a member of FSOC encourage FSOC to be 

doing what we were asking them to do, a thorough analysis of the 

cumulative effect both of Volcker and of their regulatory impact on 

the market? 

Ms. WHITE. I think that is an important analysis to do. 

Mr. GARRETT. But it hasn’t been done, right? 

Ms. WHITE. I think those issues are being looked at all of the 

time, but in the way you are articulating it, I don’t think it has 

generated a report on that. I don’t mean to be mysterious about it; 

I just think there are a lot of different workstreams going on. 

Mr. GARRETT. I was sort of taken aback when he said that each 

agency is doing their own little thing, but if you guys want to do 

your own adding up of the numbers, we can do it. And I thought, 

well, gee, I thought that is what FSOC was all about, that you 

guys would be able to see across the entire horizon and would be 

requesting that. Will you request that FSOC do that? 

Ms. WHITE. I will certainly consider doing that because I do 

think that all of those impacts ought to be being considered. I don’t 

think it is for somebody to add them up. 

Mr. GARRETT. Yes. And here is a quick question just offline, and 

that is, the Chair asked back in March, the middle of March, for 

12 

follow-up responses to a letter from February concerning release of 

information with regard to an investigation by members of FOMC 

as far as insider trading and what have you, and I don’t believe the 

committee has gotten any response to that letter from either March 

13th or February 5th. I know you may not see all the letters, but 

are you aware of those letters? Can we get a timely response? 

Ms. WHITE. I am not aware of those letters in particular, but I 

will certainly look into it and give you a response. 

Mr. GARRETT. That would be great. Thanks a lot. 

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. Thank you. 

Chair White, last December you gave a much publicized speech 

in New York where you outlined a sweeping plan to update the 

regulatory regime for asset managers. And at the time you directed 

the staff of the SEC to come back with recommendations in three 

key areas: first, more data reporting requirements; second, enhanced risk management rules; and third, resolution plans for 

winding down asset managers. 

My question is, where do these initiatives stand? Has the staff 

come back with concrete recommendations? Have these recommendations been shared with Commissioners? Exactly where 

does it stand? 

Ms. WHITE. Before I announce those initiatives, there was a 

great deal of discussion with my fellow Commissioners and the 

staff about what made sense for today’s markets and the risks in 

them. 

In terms of those particular initiatives, they are all very actively 

in process. I think the data reporting initiative is probably further 

along formally to some degree. But all of those, I hope, will be 

acted upon this year. 

Mrs. MALONEY. Do you have a timeline of when we might see 

some concrete results? Would you release the data first, since that 

is further along, and then the others? What is the timeframe for 

it? 

Ms. WHITE. I think what you will see is, as they are ready and 

voted upon, they will be done in sequence of when they are ready, 

and I think you will see those beginning to come out in probably 

the third quarter of this year. 

Mrs. MALONEY. Okay. Thank you. 

Following up on the asset management issue, in your December 

speech outlining the three asset management initiatives you said, 

and I quote, ‘‘We must take steps to enhance assessment managers’ 

risk management programs, particularly their liquidity management.’’ But in your written testimony today, on page 12, you said 

that the SEC staff is ‘‘considering whether enhanced risk management programs should be required’’ for assessment managers. 

Does this reflect a change of view, a change of focus? Do you 

think it is possible that enhanced risk management programs 

might not be required for asset managers? 

Ms. WHITE. I think the language does not mean that really in the 

same place. The staff is working on such recommendations until 

those are actually presented and voted upon. Obviously they are 

13 

not implemented at that point in time, but the wording difference 

does not suggest that. 

Mrs. MALONEY. So are you committed to developing enhanced 

standards for liquidity risk? 

Ms. WHITE. Yes. We do think that is a need and that is what the 

staff is working on. Again, until the Commission actually votes on 

the rules, they haven’t been implemented. But, again, yes, we are 

firmly committed. I am firmly committed to that. 

Mrs. MALONEY. And have you already started sharing this information with— 

Ms. WHITE. The staff has briefed the Commissioners on all of 

these initiatives. The next phases become proposals for 

rulemakings. 

Mrs. MALONEY. One of the main concerns of the businesses and 

financial institutions that I represent is cybersecurity concerns, 

and there have been some pretty high-profile attacks on companies 

like Target and Home Depot, but there have been many quiet attacks on financial institutions. What is the SEC’s role in addressing or combating cybersecurity? 

Ms. WHITE. Again, I think there could not be a higher priority 

for all of us, private sector, government sector, than to address 

these clearly long-term, very serious risks to our economy and really our Nation. 

The SEC’s specific responsibilities in cyberspace relate to our 

registrants in terms of their own systems and making them resilient, and then if there is an incident, reporting them. Obviously, 

they report them publicly if they are material. 

The SCI rule that we adopted in November, which is a very important rulemaking to enhance the resiliency of the systems of our 

critical market infrastructures, to some degree deals with the cyber 

subset of that as well. We also participate in a number of other 

government bodies where we all try to get together to make sure 

that we are coordinated. FBIIC, that the Treasury chairs, is one of 

those groups. 

We held a roundtable in March with government people and nongovernment people, really to bring everybody together in the same 

space to make sure it wasn’t like, you are doing this, and you are 

doing that, and then things are falling between the cracks. 

Mrs. MALONEY. I would like more follow-up in writing because 

this is, I would say, a concern on both the Republican and Democratic sides. 

And lastly, what are the minimum actions that a public company 

should take to prevent a cyber attack? 

Ms. WHITE. That is a big question. It depends on the company 

to some degree. But we have done, with respect to our registrants, 

one of the things we have also done is with our OCIE examiners, 

we have done a cyber risk initiative and looked at investment advisers and broker-dealers in terms of their preparedness. It varies 

by institution. There are certainly some common things that make 

sense to do. I could follow up on that as well. 

Mrs. MALONEY. Thank you very much. My time has expired. 

Chairman HENSARLING. The time of the gentlelady has expired. 

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

14 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Chair White, a recent March 8th Financial Times report indicates that you have about 100 SEC staffers who watch over the 

U.S. equity market. But monitoring the debt market is a little bit 

different. We have municipal debt—for a $3.7 trillion market, you 

have 6 people overseeing that. And in corporate bonds, the size of 

which, I think that market has grown 42 percent to $7.7 trillion, 

you have one employee who devotes his time to that. 

But when we look at your budget and what most of your increases that you call for are for enforcement examination, I think 

we all want to make sure that you have a strong, vigorous enforcement function at the SEC, but it kind of troubles me that you have 

so few people looking at a fairly large portion of our markets. 

First of all, why do you need so many more people for enforcement, basically for some of the rules from Dodd-Frank that haven’t 

even been written yet, but yet you have allocated such a small allocation to these other markets? 

Ms. WHITE. I have several responses to that. First, I think we always have to keep our enforcement function very strong. That was 

true before Dodd-Frank, and it is true after Dodd-Frank. 

But I will say that one of the things that I did when I first came 

to the agency was sort of look at the staffing, particularly, frankly, 

in Trading and Markets, where they are shouldering very heavy 

rulemaking burdens, Volcker, for one, and Title VII derivatives for 

another. They oversee the markets, equity and fixed income. They 

are responsible for broker-dealer financial responsibility. And to 

really zero in on what more staffing or restructuring of the staffing 

makes sense to do, I have continuing dialogues with Steve 

Luparello, who is our Director of Trading and Markets, on that. 

On the fixed income point, per se, it isn’t really organized in a 

way, and at least to this point Mr. Luparello thinks it is organized 

as it should be, in a dedicated, kind of stand-alone unit. But there 

are a number of people in Trading and Markets who are attending 

to the market, structural issues to the extent I have talked about 

some of those that we are working on to try to enhance that structure, increase the transparency, and also just the various issues 

that occur in those markets, whether it is with respect to brokerdealer or it is with respect to actually the trading practice rules. 

I could follow up on that if— 

Mr. NEUGEBAUER. Those markets have grown exponentially, but 

as I look back, I don’t see any SEC request over the years to beef 

up staffing in that area to keep up with a fairly substantial part 

of the market because the fixed income market has grown exponentially in the last few years. 

Ms. WHITE. There is no question that it has grown exponentially. 

There is no question about its importance. I think it has also not 

gotten the attention over the years that the equity markets have. 

I think we are giving it that attention. 

In terms of the staffing, the budget requests do not come through 

as requests for dedicated positions because of how that is structured, as I mentioned. I could explain that in more detail as a follow-up. 

Mr. NEUGEBAUER. I also want to follow up on something my 

other colleagues have mentioned as well, which is that I think 

15 

there is a growing concern about the liquidity in the fixed income 

market. For example, I think some other articles have been quoted, 

but in today’s Wall Street Journal, it indicates that an 84 percent 

increase since June 30th means that about $640 billion, or 1 in 5 

dollars in bank security portfolios, now can’t be sold because they 

are moving them from bonds that are for sale to bonds that are 

being held to maturity. 

And what we hear over and over again is that there is beginning 

to be or already is a liquidity problem. And so then the question 

with the Federal Reserve thinking about changing their interest 

rate policy and as they start to increase the interest rates, the 

question is, has anybody done an analysis of—again, pointing 

back—do you even have the staff to have people do an analysis of 

what the consequences would be if we begin to have higher interest 

rates and a lack of liquidity in the fixed income market? 

Ms. WHITE. We for some time have been talking to market participants, talking to dealers. We put out guidance, I think last January, in terms of risk management of the potential risks that could 

flow, the liquidity risks that could flow from a rise in the interest 

rates. And other regulators are doing the same there. 

I think there was also a piece perhaps today in the Financial 

Times on the same subject as well, kind of different views in the 

marketplace as to what is likely to happen from our point of view 

as the regulators. 

We want to make sure everybody under our jurisdiction is acutely focused on those possibilities at least. And we really did come 

out, as I say, in January with well-received guidance on risk management for those particular kinds of risks, but don’t understate 

the issue by any means. 

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, it has been about a year and a half since the SEC 

first proposed rule for equity crowdfunding. From hearings we have 

conducted in the Small Business Committee, I know many firms 

are eager to begin using this new type of capital formation. Yet we 

have also heard the rules could make the process prohibitly expensive. When can we expect the final rules to be published, and how 

will you address the high cost for small businesses? 

Ms. WHITE. The crowdfunding rules, and I have spoken about 

them before and had hoped to complete them actually last year, are 

a very high priority to complete for 2015. What we knew would be 

a very complex rulemaking has been even more complex to do to 

both carry out the statutory requirements and to make it workable 

and not cost-prohibitive. 

I actually coincidentally had a rather detailed meeting yesterday 

with the staff about this. It is advancing, but there are a number 

of issues that we are trying to solve optimally given both the statutory requirements, the costs, and making sure this works. Clearly 

there is a lot of excitement in that space. 

Ms. VELAZQUEZ. Do you anticipate a wave of new businesses 

jumping into the crowdfunding market? 

16 

Ms. WHITE. It is hard to predict that. You certainly have the excitement and the interest out there. The Reg A-Plus rulemaking we 

mentioned before is another expanded means of raising capital for 

smaller companies. There is certainly a lot of excitement out there, 

but I think it is one that is hard to predict until it is up and running and we see how workable and how costly it may be. 

Ms. VELAZQUEZ. Thank you. 

Chair White, you indicated that strengthening the SEC’s enforcement function will be one of your top priorities and will review policies like neither admit nor deny in settlements. Have you completed that review and were changes made? 

Ms. WHITE. Yes, shortly after I arrived at the Commission, and 

I did it in consultation with my fellow Commissioners as well as 

the Director of Enforcement and his supervisors. I think it was in 

June of 2013 we instituted a new policy to require admissions in 

certain kinds of cases, not permit a no admit, no deny settlement 

in a certain swath of cases where I thought, we thought, that public accountability was particularly important. 

We have set out some criteria for which cases that we sort of 

focus on for possible admissions. I think we have done approximately 20 cases in that vein. We still do the no admit, no deny for 

the bulk of cases, and like other civil law enforcement agencies do, 

you want to be able to do that because it is efficient, you don’t have 

litigation risks, and you get money back to investors faster. But I 

do expect the cases where we require admissions to evolve and 

grow over time. 

Ms. VELAZQUEZ. And how do you expect such changes to impact 

the behavior of Wall Street firms? 

Ms. WHITE. Again, it is one of the hardest issues to measure in 

law enforcement. I do think that having public accountability is an 

important element of deterrence, and I think that is why I made 

the change. 

Ms. VELAZQUEZ. Okay. 

Chair White, the Volcker Rule provided the financial industry 

with many exemptions, including on certain collateralized loan obligations. However, some in the industry are asking for broader relief, arguing the current rule will restrict access to capital for small 

businesses. I just would like to hear from you what type of business loans are packaged in CLOs. 

Ms. WHITE. That can vary. As you know, the compliance date for 

those sets of issues the Fed has postponed to give businesses a 

longer period of time in order to adjust to the requirements when 

they apply. We know there are other issues that are still out there. 

But that is the state of play at this point. 

Ms. VELAZQUEZ. With the Nation’s largest banks holding over 95 

percent of CLOs, is there any real risk to small business lending 

under this rule? 

Ms. WHITE. It is hard to say there is no risk. I will say this. I 

think the regulators are very cognizant of those issues and that 

possible risk. 

Ms. VELAZQUEZ. However, we know that the largest share of 

small business loans are made by community banks, not the largest banks, and the data is there, the numbers are there. So that 

17 

argument that it will impact small businesses, to me doesn’t hold 

water. 

Thank you. 

Chairman HENSARLING. The gentlelady yields back. 

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, thanks for being here today. I just want to go down 

a little different road and talk a little bit about your job as a member, a voting member of FSOC. And as I Chair the insurance part 

of our responsibilities here in this Financial Services Committee, 

we have three insurance companies designated as SIFIs. Can you 

give me the reason that you support or that you came up with or 

you believe that they were designated as SIFIs? What are the criteria or standards on which you based that decision? 

Ms. WHITE. As to those that I participated in, I was actually 

recused from one or two of them, I think. I was not recused in the 

MetLife matter. That, as you know, is a matter of litigation, but 

the FSOC put out the basis for that decision. It was made on what 

is called the first determination standard, which is basically material financial distress of this particular entity, if it occurred, and 

you assume under the statutes requirements— 

Mr. LUETKEMEYER. There is no list of criteria. You just look at 

the entity and see once there is an analysis whether— 

Ms. WHITE. No, there are also statutory factors that you consider. There are 10 statutory factors that FSOC considers under its 

interpretive guidance—actually, this was all done before I arrived 

as Chair, but it is existent still—these factors are considered in a 

framework of six categories. You look at size, interconnectedness, 

substitutability, leverage, liquidity. There are a number of factors 

that you look at before— 

Mr. LUETKEMEYER. Chair White, do you realize I have asked that 

question of Chair Yellen, Director Cordray, and Secretary Lew, and 

you are the first one who actually answered the question? Congratulations. 

Ms. WHITE. Well, it is a flaw, I guess, in my answer. I don’t 

know. But I am going to keep it. I think I will keep that flaw. 

Mr. LUETKEMEYER. Wonderful. But thank you for that. 

Ms. WHITE. But it is laid out, seriously, it is laid out in the public— 

Mr. LUETKEMEYER. Okay. Nobody else would actually give me 

that as an answer, but thank you for that. 

I assume, because it is laid out, apparently you have seen it 

someplace, there is a way to de-designate yourself, then, I take it, 

is that correct? 

Ms. WHITE. There is a yearly review, if you seek it, that could 

result in that. 

Mr. LUETKEMEYER. Wow. It is amazing. The three other ones 

couldn’t even answer that question. Fantastic. Wow, we have made 

some progress this morning. This is almost earthshaking. But I will 

stop before I get too far ahead here. 

With regard to that, because of FSOC, they also designate bank 

SIFIs as well. And I know that I have asked this question of some 

18 

other folks as well. Do you believe that we need to have some regulatory relief with regard to a threshold or a set of criteria as well 

that is designated to allow the banks who are not systemically important to not have to fall under this overzealous regulatory regime? 

Ms. WHITE. There is certainly a lot of focus on that. Without any 

question, I think that, frankly, kind of across our spaces the impact 

on whether it is community banks or other small businesses. 

Mr. LUETKEMEYER. The interesting part of this is one of the authors of the Dodd-Frank bill was sitting in front of us last summer, 

Mr. Frank, and he indicated it was never his intention or the intention of Congress to draw into their net of regulatory oversight 

all of the mid-size banks, the community banks, the credit unions, 

with regard to the SIFI situation, or insurance companies, for that 

matter, and yet we are going down that road. 

I guess my question is, would you support legislation, then, to 

rein in this apparent overzealousness of the Administration or anybody who is looking at this? 

Ms. WHITE. I really can’t comment on specific legislation. I do 

think it presents a set of issues that is very important to consider 

and appropriately address. I don’t mean to be hedging on that, but 

I can’t— 

Mr. LUETKEMEYER. Well, doggone, we were doing so well here, 

because not only did Mr. Frank support that position, Mr. Lew supported that position, and Chair Yellen supported that position. So 

I am sure that if you think about it just a little bit more, I am sure, 

Ms. White, you would support that position as well, would you not? 

Ms. WHITE. I don’t know. I was off on the other questions. But, 

seriously, it is clearly an important issue to address correctly, and 

I really can’t comment beyond that at this point. 

Mr. LUETKEMEYER. Okay. Very quickly, I just have a couple—I 

know some other folks want to talk to you about the fiduciary rule, 

and it is interesting that in your statement here you say that a significant study and consideration was done of the fiduciary standard. 

If you did the study, can you tell us what problem you found in 

the study that you need to go ahead and issue a fiduciary rule? 

Ms. WHITE. I think the reference in the testimony to study is I 

have been studying all the data that is there and the studies that 

have been done. 

Mr. LUETKEMEYER. Okay. Did you find a problem? 

Ms. WHITE. I have. And this, by the way, is something that I, 

from before I was confirmed, was very concerned about because, as 

I said at I think my confirmation hearing, and certainly thereafter, 

any time you regulate essentially identical conduct differently, particularly in the space where retail investors may be harmed, you 

have to think very long and hard about that. And the SEC staff 

did a study with recommendations, I think in 2011. 

Mr. LUETKEMEYER. This is a side comment, just I appreciate that 

also because the DOL is wanting to get into the space. Please don’t 

cede your position to them. You should be the regulator of this, not 

them. 

Ms. WHITE. We are separate agencies, and so I think each has 

to decide— 

19 

Mr. LUETKEMEYER. Yes, but don’t let them overtake or regulate 

in your space. That is my comment. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the ranking member as well. 

And thank you, Madam Chair, for appearing today. I would like 

to visit with you very briefly about proxy access. As you know, the 

proxy is something that many shareholders, major shareholders, 

seek to have an opportunity to impact. The proxy would give shareholders an opportunity to nominate candidates. And I am concerned and interested, if you will, in where we are with proxy access currently. 

Ms. WHITE. As you know, there was a rulemaking overturned by 

the D.C. Circuit. But what wasn’t overturned by the D.C. Circuit 

was our Rule 14a-8, which permits shareholder proposals to be 

sought to be put on the ballot. And this season, we have had a 

great many of those. I think almost 100 actually have been submitted. So you have a lot of private ordering that is going on with 

respect to proxy access. There has been a fair amount of attention 

on it in this particular season I think because of a no-action ruling 

that the staff made. And then I directed them to review the issue 

more broadly. And we are not actually issuing decisions on that 

particular exclusion in this proxy season. 

But there has been a lot of what I call private ordering movement in the proxy access space. And we are very closely following 

that. There is not a mandatory rule. But there is a lot of private 

ordering going on. 

Mr. GREEN. Will you be moving forward to produce a rule that 

will cover these issues in the near future? 

Ms. WHITE. I don’t have any current intention to do that. As I 

say, there has been a lot of activity in the space that we are monitoring very carefully. A number of proposals have actually succeeded, whether by ballot or by way of negotiation with companies. 

So, before we would make any decision, we are watching that very 

closely and analyzing it. 

Mr. GREEN. Thank you. Let’s move now to your real, your most 

meaningful, I suppose, responsibilities. You are, as it is often said, 

the cop on the beat. And currently you oversee 11,500 investment 

advisers; 9,000 public companies; and over 800 investment company complexes managing over 10,000 mutual funds. You manage 

about 4,400 broker-dealers, 450 transfer agents, 18 national security exchanges, 87 alternative trading systems, and 10 registered 

clearing agencies. That is a lot of responsibility. With all of that responsibility, you do need the cooperation of Congress. And you have 

so much as indicated today that you appreciate the support from 

this committee. What is it that you would like the committee to do 

to further support these efforts to maintain your position as a cop 

on the beat that is effective? 

Ms. WHITE. I think, again, the issue that most concerns me is 

having the adequate resources to be that very strong cop on the 

beat. It is not the cop on the beat, it is the compliance examiner 

20 

on the beat that is also so important to keeping that bar of compliance where it should be to protect investors and the markets. I 

have spoken earlier in response to other questions about the need, 

I feel, the compelling need to meet that gap in coverage at the examination level. But clearly that carries through to our enforcement function as well. 

Mr. GREEN. You have indicated, I believe, by way of the Adminis- tration that you are in need of $222 million as an increase for Fiscal Year 2015. How crucial is that $222 million? 

Ms. WHITE. It is critical to us. I spent a lot of time on reviewing 

this budget request for exactly where I think we need resources 

and could use those funds wisely in terms of being able to hire who 

we need to to meet our duties. And I appreciate the support we 

have gotten. We are in a position where we really need significant 

additional resources. We have tried to be very surgical about what 

we have asked for. 

Mr. GREEN. Let me thank you for your service. I know that you 

have a very tough job. But I do think that you are going about it 

in an appropriate manner. Thank you. 

And I yield back. 

Chairman HENSARLING. The gentleman yields back. 

All Members are reminded that we request you to silence your 

electronic devices. And somebody please share with Mr. Cleaver he 

may have a message. 

Mr. GREEN. Thank you for exonerating me, Mr. Chairman. 

Chairman HENSARLING. The gentleman from Texas, Mr. Green, 

was not the offending party. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you. Chair White, I want to quickly hit on 

three things: mergers and acquisitions; conflict minerals; and payratio rule. I am tempted to lead off with something else that I saw 

crawling across one of the cable news shows this morning about the 

markets being rigged, question mark. I think it had to do with the 

release of a certain book in paperback today. But we will leave that 

for— 

Ms. WHITE. These are timed by my hearings too. 

Mr. HUIZENGA. Yes. I wouldn’t doubt it actually. So, quickly, 

mergers and acquisitions, last Congress I had a bill, H.R. 2274, 

that passed this committee and the body unanimously. Two weeks 

after it passed the House, the SEC Division of Trading and Markets staff issued a no-action letter addressed to six mergers and acquisitions lawyers dated January 31, 2014, providing M&A brokers 

with relief from the broker-dealer registration under the circumstances, similar as to what we had described in my legislation. 

There was a Senate bill as well. But, in effect, the SEC and my 

legislation had clarified some of that exemption. 

Unfortunately, the Senate did not take up either my bill or the 

Senate companion, S. 1923. I have reintroduced the bill as H.R. 

686. So we are on the same page with that. I appreciate that. I do 

have a question, though. Does an SEC staff no-action letter giving 

relief from broker-dealer registration reflect the staff’s judgment 

that covered activities do not warrant direct SEC oversight? 

21 

Ms. WHITE. I am not sure it is literally phrased that broadly. 

What it certainly means is— 

Mr. HUIZENGA. In essence? 

Ms. WHITE. I would say substantially, yes. 

Mr. HUIZENGA. Okay. And part of that, there was no size limit 

of the privately owned businesses for which the no-action relief is 

available, is my understanding. 

Ms. WHITE. I would have to confirm that. 

Mr. HUIZENGA. That is my understanding. Would the absence of 

a size limitation reflect the staff’s judgment that business size is 

not particularly of concern to SEC? 

Ms. WHITE. I couldn’t go that far without actually looking into 

it specifically, which I didn’t do before I came here today. But I am 

happy to get back to you on that. 

Mr. HUIZENGA. Is a staff no-action position typically reflective of 

the SEC’s regulatory priorities and allocation of the resources and 

other regulated activities? In other words, if you are saying, hey, 

no-action letter, this is something we don’t particularly want to 

deal with. 

Ms. WHITE. It can mean different things. Obviously, there are noaction letters that are given kind of across our spaces. So it could 

be different things. 

Mr. HUIZENGA. Is a no-action letter legally binding on the Commission or the Commission views? Is that how the Commission 

views no-action? 

Ms. WHITE. It is not legally binding. 

Mr. HUIZENGA. Not legally binding? 

Ms. WHITE. No. 

Mr. HUIZENGA. Hence why I believe we need to pass H.R. 686. 

It looks like we are on the same page. And it makes sense to me 

that we need to fix this statutorily. So, quickly, if you have anything you would like to add on that? 

Ms. WHITE. No. I may supplement in getting back to you on that. 

Mr. HUIZENGA. I do intend to follow up with some written questions as well. 

And then, really quickly, conflict minerals: In October of 2013, 

you had a speech basically saying that this was not necessarily the 

territory that the SEC needs to be flying into, not that there aren’t 

issues with that, but the SEC is not really set up to deal with 

these, crafting trade sanctions and articulating and enforcing 

human rights policies. 

A letter that myself, Chairman Hensarling, Chairman Garrett, 

and Chairman Royce sent you, you responded to very quickly, and 

we appreciate that. But you laid out that there have been approximately 21,000 hours of staff time that has been put into this, about 

$2.7 million of some precious few dollars that you have in an area 

where you don’t have an expertise. So the D.C. Court of Appeals 

comes and vacates part of the rule and, for some reason, the SEC 

has decided to appeal that. Explain that. 

Ms. WHITE. First, I have to begin with it is a congressional mandate. And my view on congressional mandates is, it is my obligation to carry them out in the most cost-effective way we can, despite the numbers that you just quoted. It was actually a rule that 

was adopted before I arrived. The D.C. Court’s decision came out 

22 

largely validating the rule. The vast majority kind of went out of 

their way to say they were validating it. So we proceeded with enforcement on that. The one issue that they did not was on the naming part of what you can conclude in terms of whether you had conflict-free minerals. 

Mr. HUIZENGA. That is the shaming element. 

Ms. WHITE. It has been referred to as that. As a First Amendment issue, at the time of that ruling, there was an en banc decision in another case, totally separate—I think it was a DOJ case 

actually—on the same issues. And so we sought a re-hearing in defense of the rule that was mandated by Congress. 

Mr. HUIZENGA. Priorities as well, though. And I appreciate that. 

And I will follow up on the pay ratio. I have that same concern 

that the shaming element may be violating the First Amendment. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, the anxiously awaited Mr. Cleaver, ranking member of our Housing and 

Insurance Subcommittee. 

Mr. CLEAVER. Mr. Chairman, I apologize for Ms. Moore’s phone 

going off. 

Chairman HENSARLING. The gentleman just earned himself an 

extra 15 seconds. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Madam Chair, thank you for being here. As you know, there is 

seemingly always, at least since I have been here, the bubbling up 

of interest in somehow reinstating the Glass-Steagall provisions. 

And, actually, some of us at least struggled to try to get it inserted 

into Dodd-Frank—unsuccessfully I might add—in Sections 20 and 

32, which deal with the consumer protection component. But the 

argument has continued. And I am interested in your opinion, that 

some would say that the fact that we had the 2008 collapse was 

due in no small part to the failure to separate commercial banking 

from investment banking. And, by the way, as you probably know, 

there are bills pending now. There are bills that have been introduced. 

Ms. WHITE. I think on that issue, that is a legislative judgment. 

It really is a legislative judgment to make. Clearly all the regulators since the crisis have been very focused on reforming the existing system with the tools that we have been given to use. And 

I think they have been used quite effectively in most cases and 

quite vigorously. But I think that judgment really is for the Congress. 

Mr. CLEAVER. So the SEC obviously wouldn’t have a position; it 

is a legislative issue as you said. But I am wondering, does it—I 

will ask it another way; I think I can predict your answer—but 

would the SEC find it easier to do its job if we had a separation 

between commercial and investment banking? 

Ms. WHITE. It might depend on what else went with that, I suppose. I don’t think I can really comment on that. I would like to 

see the precise parameters of it. I think all of our jobs are difficult 

and challenging. But I think, under any regime, they are. 

Mr. CLEAVER. Thank you. And I appreciate your answer. I had 

hoped but didn’t think I would get an answer. In October of 2013, 

23 

you elaborated on your approach in the SEC in terms of the enforcement program. You stated at the time that investors do not 

want someone who ignores minor violations and waits for the big 

ones that bring media attention. So, as a result of that, you announced that the SEC would be taking a broken windows approach—I am assuming taking that from the book that Mayor 

Giuliani wrote during the 1990s. However, in the securities law 

context, other scholars have criticized that such an approach inappropriately diverts Commission resources away from major fraud 

and towards small-time offenses. Do you agree? 

Ms. WHITE. I don’t agree. And I also think there has been a fair 

amount of misunderstanding from that speech as to what the program is. The broken windows comments was meant to be an analogy. I do think it is important not to neglect smaller offenses that 

affect our small retail investors, for example. I also think it is important—and this was really kind of the core of what I was saying—to raise the bar of compliance. So if you have important rules 

out there, they are not necessarily directed at fraudulent conduct, 

but the rule is meant to protect the markets and investors. If there 

is massive noncompliance, you might as well not have those rules 

unless you enforce them. So what we have done—and it is really 

a very small part of our program—is to target some of those areas 

very efficiently and send a very strong message that these rules are 

meant to be followed and they are important to follow. In my judgment, we have not diverted any resources from the Ponzi schemes, 

or the accounting fraud cases, which we have also emphasized. I 

think it is a piece of our program. 

Mr. CLEAVER. I don’t think we will have time for my other followup question. 

So thank you very much for being here. I appreciate it. 

I yield back, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Chair White, welcome. 

Quickly, I want to ask you about the Tick Size bill. You can only 

imagine; we bring it up every time we meet. This committee passed 

that without objection. It passed on the House Floor with only four 

dissenting votes. I know you have been working on it. I am wondering if you can give us an update as to where you are with regard to, are we on our way to a final rule or what other steps may 

come before that? 

Ms. WHITE. Yes. The comment period on the Tick Size pilot has 

closed. I think, sometime in February, the staff, by virtue of its delegated authority, has given the Commission I think until May 6th 

to act. I think I heard Mr. Luparello testify at a subcommittee 

hearing that that is the date. The reason I think for exercising that 

delegated authority was because we have gotten a lot of comments 

in that are really—we want to make sure we get this right. It is 

a very important undertaking, I think, for the small cap companies. 

Mr. DUFFY. I appreciate that. So we take a final rule on May 

6th? 

Ms. WHITE. That is our date to act. And I think we will keep to 

that. 

24 

Mr. DUFFY. Okay. I would just put one last plug in, do you think 

you can get good data in a short period of time? I think the pilot 

program that you have is a year. I would just note that the pilot 

program that passed out of our institution was 5 years. And we 

want good data, but we also want good market participation. And 

I sent a letter to that effect. I would just reiterate that here today. 

Ms. WHITE. And that is one of the significant comments that we 

are boring into. 

Mr. DUFFY. Switching notes, still talking about capital formation, 

small businesses, venture exchanges, we have had a lot of conversations in the House. I know you have been somewhat supportive. Is there some form of a work stream on venture exchanges 

at the SEC? And, if so, could you give me an update on that? 

Ms. WHITE. There is a work stream in the Trading and Markets 

Division. They are considering that there is no decision made in 

terms of whether there will be rulemaking in that space, but they 

are studying whether there should be rulemaking in that space in 

order to, obviously, increase liquidity, secondary liquidity for smaller companies. The SEC has approved venture exchanges before. So 

we obviously encourage those kinds of solutions and other kinds of 

solutions that may address those secondary liquidity issues. But 

there are also some legal issues with respect to some aspects of 

that that the Trading and Markets Division, along with our General Counsel, ultimately will let us know whether to proceed in a 

particular kind of way. We may need some legislative change. 

Mr. DUFFY. Is the SEC aggressively working through the process 

of thinking through a venture exchange? Or are you saying right 

now you want Congress to start that action? 

Ms. WHITE. We are basically very much actively in the midst of 

considering that and what the various issues are, what we might 

be able to do on our own, so to speak, with regulation, and what 

we might need legislation for. No ultimate decision has been made. 

Mr. DUFFY. Let me quickly, I believe you are dealing with Reg 

A tomorrow; we have crowdfunding; we are dealing with Tick Size; 

and we are discussing venture exchanges. Anything else you are 

doing in regard to capital formation for small businesses? 

Ms. WHITE. We do a lot. Our disclosure effectiveness review is 

devoted specifically not only to that but to small business company 

disclosures, whether there should be further scaling in that space. 

I reinstituted our Small Business and Emerging Companies Committee that has been quite active in the last 9 months with recommendations and advising us on various issues. We have a dedicated unit in our Corporation Finance Division that is devoted solely to the small businesses issues. 

Mr. DUFFY. We had Mr. Ceresney in last week in our Capital 

Markets Subcommittee. And we were asking him questions about 

the process used at the SEC, whether you are going with the administrative process or going into Federal courts. He indicated 

there was a process that you use at the SEC. We haven’t seen that. 

If there is a process, we would like to see it. And if there isn’t one, 

we think you should have a process published that everyone can 

see how you are making decisions as to whether you go before an 

ALJ or you go into Federal courts. 

25 

Ms. WHITE. Just briefly on that, obviously, the decision is made 

in each case. But it is subject to the Commission’s approval where 

a case that is authorized is filed or a settled case may be filed. I 

think it is— 

Mr. DUFFY. Not to interrupt you, and I apologize— 

Ms. WHITE. Sure. 

Mr. DUFFY. —but our concern is—I know you don’t win 100 percent every year, but last year you won 100 percent of your cases, 

picking the forum in which you play and in front of judges that you 

hire and who are paid through the SEC, with the rules that you 

make. It gives us concern, number one. But, number two, there 

should be a process that we can all look at that determines how 

you pick the forum in which you litigate these issues. 

And if I could just make one last point, we heard a lot of complaints about the discovery. When you go through the administrative process, you don’t use the Federal procedure. I think it would 

be wonderful if you would adopt the same standards as the Federal 

courts in regard to discovery. 

With that, I yield back. 

Ms. WHITE. Just really briefly, and I will get back to you on 

these issues, obviously, we don’t even want the appearance out 

there that we are being arbitrary or unfair about anything we do. 

I do think—and obviously these AP cases come to the Commission. 

That really is a fair process. It is not identical to district court. 

But, for example, Brady and Jencks obligations apply in the administrative proceedings. Exculpatory evidence has to be provided. Witness statements have to be provided. You don’t get that in district 

court. But I take your points. 

Mr. DUFFY. There is a perception of unfairness. 

Ms. WHITE. Understood. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Wisconsin, Ms. 

Moore, ranking member of our Monetary Policy and Trade Subcommittee, who looks no worse for wear for being thrown under the 

bus by the gentleman from Missouri. 

Ms. MOORE. Thank you so very, very, very much, Mr. Chairman. 

We take turns throwing each other under the bus. 

Chair White, thank you so much for appearing. My first question 

to you is regarding any final fiduciary rule that would be promulgated. The SEC has been roundly criticized for not taking the lead 

on pushing this. Now that DOL has advanced its first draft, others 

are now telling you to stand down. And you have stated that Labor 

and SEC have ‘‘different missions.’’ So I was wondering if you see 

these different missions as being antagonistic to the goal of having 

a harmonized rule. 

Ms. WHITE. I think, first, it is important to note that we really 

are at the beginning of this process. It is something we have been 

studying a lot, looking at the studies that are there. I have reached 

my own personal conclusion. But the next step is for me to be discussing in detail all the aspects of my thinking with my fellow 

Commissioners so that a decision is made. We are really at the beginning of that process. It is a long process. There are lots of complex issues. We are separate from the Labor Department. They 

have proceeded or are about to proceed—nothing has been finalized 

26 

with a proposed rulemaking to OMB. And they have separate jurisdiction. They have important ERISA jurisdiction over retirement 

accounts. And the agencies can proceed separately and will presumably. We each have to decide what we need to do in our spaces. 

It doesn’t mean we don’t consult. We have and we will to try to 

avoid inconsistencies, but really separate agencies, separate jurisdictions, separate mandates. 

Ms. MOORE. And so separate—is there going to be a rule that 

sort of harmonizes— 

Ms. WHITE. My expectation is that we will soon see the publication of the Department of Labor’s rule. It has been put out for notice and comment. And then they will, presumably, proceed on the 

basis of that. We are at the beginning of our process. So that is a 

separate process. 

Ms. MOORE. Okay. Thank you for that. I would like to ask you 

a question about the municipal securities market. Although the 

SEC’s reach within the municipal market is constrained, I understand that we have seen some renewed interest by the SEC with 

the MCDC enforcement program as an example. What additional 

steps do you think you will take to strengthen the municipal market? 

Ms. WHITE. As you have indicated, we are more limited in our 

regulatory reach there. For example, we don’t have direct, what I 

will call disclosure jurisdiction, over the municipal issue, which is 

an enormously important market. It is enormously important to retail investors who are heavily invested in that marketplace. The 

MCDC initiative, which is a voluntary self-reporting initiative, was 

very important to that marketplace. It dealt with continuing disclosure obligations. I think it has already sent a very strong message. 

This raised the bar in that space. We are also looking at just the 

structural issues in the muni area as well, working with the 

MSRB, whom we oversee, in terms of approving a best execution 

rule, for example. Also, we are looking at better disclosure on what 

is called riskless principal transactions. We have brought a number 

of enforcement actions to really hammer home the point of investor 

protection. 

Ms. MOORE. I thank you so much. And, finally, forgive me if others have asked about the 7-percent increase in funding relative to 

your Fiscal Year 2015 budget for the enforcement program. Is there 

any particular activity that you are going to focus on with these 

extra resources? 

Ms. WHITE. There are a number of areas, but those are really 

targeted to getting more market experts and litigation, trial lawyers. We have more trials now. We have to be prepared to have 

more trials as we now require admissions in certain cases. It may 

or may not lead on a permanent basis to more trials. Those are two 

of the areas, as well as data analytics in that space. 

Ms. MOORE. Okay. Thank you so much. 

I yield back my time. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

27 

Chair White, as you are aware, in July of this year banks of all 

sizes, including community banks, are expected to be in compliance 

with the Volcker Rule. My question is related to covered funds and 

the legacy securities. As you may be aware, members of the financial industry have put forward a limited proposal to ease the compliance burden for banks of all sizes when it comes to the ability 

to invest in and make markets for certain securitized products. 

Basically, the proposal you should have received creates certain 

assumptions for legacy securitizations to determine whether they 

fall in or out of the covered fund definition. To me, it seems like 

a fairly straightforward proposal in order for the industry to comply with the Volcker regulations. Are you familiar with this proposal? 

Ms. WHITE. I am aware that there is one. But I would have to 

get back to you on specific reactions to it. 

Mr. PITTENGER. When do you think that there might be a response back to the industry that they submitted related to this 

Volcker compliance? 

Ms. WHITE. I can’t really answer that. But I can supply an answer to that question as well. 

Mr. PITTENGER. Okay. It does seem to me that failure to ease 

these compliance burdens threatens to harm the liquidity associated with the securities. Would you agree with that? 

Ms. WHITE. It certainly is a significant issue. I really can’t go beyond that because, obviously, it is something before us. 

Mr. PITTENGER. Sure. Chair White, do you expect that the SEC 

will issue a final pay-ratio rule in 2015? 

Ms. WHITE. The pay-ratio rule is, as I alluded to earlier, a congressional mandate that we expect to proceed on I think in 2015. 

Mr. PITTENGER. Sure. Does the SEC evaluate whether a specific 

regulation is tailored to impose the least burden to our society, 

would you agree with that, including market participants, individuals, different sized businesses and other entities? 

Ms. WHITE. We certainly are very sharply focused on that. Obviously, if we have a congressional mandate that is given to us, my 

responsibility, our responsibility is to carry that out but in the 

most cost-effective way we can. 

Mr. PITTENGER. Does the analysis consider the cumulative cost 

of regulations in evaluating whether the regulation is inconsistent 

with or incompatible with or duplicative of other Federal agencies? 

Ms. WHITE. We certainly include that as part of the analysis 

whenever the data is available. 

Mr. PITTENGER. Do you consider the potential regulation or investor choice, market liquidity for small companies? 

Ms. WHITE. We do. 

Mr. PITTENGER. I would like to talk briefly about the SEC budget 

request that your agency recently submitted, the $1.7 billion for 

Fiscal Year 2016. That is correct, you testified? 

Ms. WHITE. Yes. 

Mr. PITTENGER. Do you know what the SEC’s current budget is? 

Ms. WHITE. It is approximately $1.5 billion. 

Mr. PITTENGER. Yes, ma’am. How much has it increased since 

2010, about 35 percent, is that correct? 

28 

Ms. WHITE. I can’t give you the precise percentage, but there 

have been increases. 

Mr. PITTENGER. Since 2000, what would that percentage be, do 

you know? 

Ms. WHITE. I don’t know the precise percentage. I think I said 

a little bit earlier, trying to match up the percentages and change 

in our marketplace and responsibility. 

Mr. PITTENGER. It is 400 percent, to my understanding. The SEC also has about $75 million contained in its reserve fund, is that correct? 

Ms. WHITE. Yes. And I think $52 million of it would be usable. 

Mr. PITTENGER. And another $74 million in unused funds, is that 

correct as well? Did that carry over from the prior year? 

Ms. WHITE. We have no-year funds at the SEC. I think we have 

been working on spending those balances as currently as we can. 

But they are part of the current budget planning, yes. 

Mr. PITTENGER. Are you aware of the observations of many that 

there has just been a misuse of funds in recent years regarding office space and purchasing new computers and the like for nonexistent employees? 

Ms. WHITE. Not precisely that, no. 

I am certainly aware that there have been prior issues that have 

been raised in terms of leasing space, which I think has been corrected some time ago. And we are very focused on reducing our 

footprint. In fact, one of our cost savings has come from our real 

estate initiative that we have done to really reduce our space requirements even more. I think it is about a $3 million savings annually in that one space. 

There have been issues in the past that I think the agency has 

worked very hard on and successfully—I am not going to say there 

are no issues in any agency. 

Mr. PITTENGER. To the taxpayers that I represent, the gross increase in terms of the budget requirements—these are large numbers—and there is real concern in the accountability of how those 

dollars are spent. 

I yield back. 

Ms. WHITE. I take that accountability very seriously. 

Chairman HENSARLING. The time of the gentleman has now expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

And thank you, Madam Chair. Madam Chair, just a general 

question, if I owned a corporation, I had 100 shares of stock, and 

I sold them to 100 different people, who owns the corporation? 

Ms. WHITE. The shareholders always own the corporation. 

Mr. CAPUANO. The shareholders own the corporation. So they 

own the corporation. I have two issues then with the SEC. If you 

believe that, which I am glad you do because I was afraid we were 

going to have an argument on that, could you talk to me about 

why, then, the shareholders have no right to know what their, the 

thing that they own, their money, could you talk to me about why 

they don’t seem to have a right to find out what the thing they own 

is spending their money on politically? And could you also tell me 

29 

why the SEC has been—you did something good to begin with, but 

you got pushed back and did nothing in 5 years on proxy access. 

Why is it, if you own 3 percent of the stock and have owned it for 

3 years, which I think is actually a pretty high bar, you still don’t 

have the right to even nominate somebody to the board. If you own 

this company, why do you not have those rights? And why does the 

SEC not stand with the owners? 

Ms. WHITE. I think the SEC does stand with the owners in 

many, many spaces. We talked a little bit earlier about the proxy 

access, where that sits after the reversal of the rulemaking. It 

didn’t reverse— 

Mr. CAPUANO. That was 5 years ago. 

Ms. WHITE. It didn’t reverse the 14a-8 shareholder proposal piece 

of that, which is being very actively and I think successfully used 

by shareholders. This season is particularly active, and I think we 

have been impartial but supportive there. We have talked before 

about the political contributions issue. I appreciate the very strong 

views on that. And there is no specific disclosure requirement in 

that space unless, in the circumstances of a particular company, 

the matter is material. And so we have gotten a lot of letters on 

whether we should do a specific line-item disclosure requirement 

on that. There are very strongly held views on both sides. It is not 

currently—and I know that is a frustration—on our agenda. We 

are very focused on our congressional mandates. And so the other 

priorities— 

Mr. CAPUANO. It is not a frustration. It makes me wonder whose 

side you are really on. The words are fine. I like everything you 

said. But the truth is, like everything else, I judge people on what 

they do, not on what they say. And if you say you are with the 

shareholders, then let the shareholders do what they do with their 

own stuff. I wouldn’t come to your house and tell you what you 

should do with your money. Nor should you tell me what I should 

do with mine. And if I own 3 percent for 3 years, why shouldn’t 

I be able to nominate somebody to the board? 

Ms. WHITE. Again, there are provisions that permit that to happen. 

Mr. CAPUANO. Why doesn’t the SEC stand with the shareholders 

then? 

Ms. WHITE. Again, we talked about the proxy access rule. But we 

also talked about the shareholder proposal avenue for presenting 

proxy access proposals. 

Mr. CAPUANO. I understand what can be done. But I would argue 

that the SEC, if you actually do believe that shareholders own the 

corporation, you should be pushing harder for the shareholders to 

actually act as if they own the corporation. 

And I understand what they can do. I understand that some people are doing it on their own. Congratulations to them. 

But there are others who would like to do it but can’t get it done. 

And I would suggest that the SEC should stand with them, as opposed to stand by the side neutrally and say the right things but 

do nothing about it. 

Ms. WHITE. I don’t have a further response to that other than I 

think the shareholder proposal process is working very effectively. 

30 

We are very closely monitoring that to see where it goes by way 

of private ordering. 

Mr. CAPUANO. So you are not willing to take an active part? You 

are just watching it? I had a lot of professors who did that. But 

they are not the Chair of the SEC. 

Ms. WHITE. Certainly our Division of Corporation Finance is 

quite involved in every proxy season in terms of the shareholder 

proposals. But just to be clear, we are not, at this point, advancing 

a required disclosure rule in that space. 

Mr. CAPUANO. And here is the problem, most of my constituents, 

including people in the business, don’t really think that the SEC 

has ever, certainly not now, stood with them. They think that you 

are captured by the people that you are supposed to regulate. And 

I think that these two aspects of it—simple things, I am not trying 

to turn the boat upside down. I am not trying to put an underlying 

shake in the American financial system. I am simply trying to say 

that people who own something should have some say on what the 

thing that they own does, at least have some knowledge. And I 

would also suggest that if you believe that, you should be standing 

with the shareholders giving them this much more confidence, not 

less. And my time is up. 

And I appreciate your answers. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Ohio, Mr. Stivers, 

and he takes notice that today is the gentleman’s 50th birthday, I 

have been informed. He doesn’t look a day over 55. 

Mr. STIVERS. Thank you. Thank you, Mr. Chairman. 

Chair White, I am over here. It is good to have you here. Thanks 

for you what do. 

Really quickly, I want to hit proxy access, and then fiduciary 

rule, and then, if we have time, MCDC. With regard to shareholders, do shareholders get to approve or deny every proposal that 

comes up in every public corporation? And do they get a chance to 

either vote up or down every Director who comes up for a vote? 

Ms. WHITE. If that is on the proxy, yes. 

Mr. STIVERS. Yes. Thank you. That sounds like they are acting 

like owners to me. 

Can we quickly go through—the mission of the SEC says, from 

your Web site, that your mission is to protect investors; maintain 

fair, orderly, and efficient markets; and facilitate capital formation. 

Is that correct? 

Ms. WHITE. Yes, it is. 

Mr. STIVERS. And I want to talk about the fiduciary rule here for 

a second. The Commission did a study in 2011. In that Commission 

study on the fiduciary rule that was required under Dodd-Frank, 

did it look at the cost for investors, especially small retail investors? 

Ms. WHITE. That is certainly one aspect of what we continue to 

study. 

Mr. STIVERS. My understanding is it was not in the study in 

2011, am I wrong? 

Ms. WHITE. You may not be wrong. I can’t answer— 

Mr. STIVERS. I just want to put something out there for your 

thoughtful consideration. I just met with three young, fairly new 

31 

employees. And they participate in their company’s 401(k) plan. 

They put just a few dollars every paycheck away. If you change the 

standard for people like Linda and Mark, whom I just talked to, 

what could happen is they could be priced out of the market because the fees are going to eat up all their money. And they are 

not going to be able to form capital on their own. And I know capital formation is about business, but people form capital too. And 

they need to be able to save for their retirement. If you change to 

a standard that eats up all their cost with fees, it is going to kill 

them. And it is going to kill their chance to save for retirement. 

And these are 20- and 30-year-old folks I was just talking to. And 

we were talking about other stuff. But because I was getting ready 

to talk to you, I asked them about that. And all of them do participate in a 401(k) program. 

As you think through what you are going to do, I would hope you 

would think of folks like Linda and Mark and what your changes 

could mean to their ability to save for retirement because what 

happens when we make a standard that might work for big corporations and rich people is that it leaves the little guy out. And 

that is what I want to talk about on MCDC too. I just want you 

to think about that as you go through this because that is what 

could really happen. It is what we have done with too-big-to-fail. 

We have hurt our community banks by setting requirements for 

the big guys. It is what could happen in the fiduciary rule. And it 

is what I think is happening in the MCDC. 

So these fines that you are getting—and MCDC, I understand, 

you wanted to understand the disclosures of your municipal underwriting folks across the country. And for the big firms, the biggest 

firms, the fines that are about to be announced in three tranches 

for you are going to be a rounding error. But for little guys, it can 

put them out of business. And what we are doing by having a big 

government, through Dodd-Frank and other things, is we are 

squeezing out little guys. We are squeezing out the new entrants 

to the market. I just really worry about it. And I want to ask you 

what you have learned from the MCDC process—it is new—that 

maybe you could use to make sure you don’t create a system where 

you have to be big to be involved in municipal securities? What 

have you learned to make sure that the little municipal issuers 

aren’t going to get squeezed out and pushed out by the fines and 

the liability and the things they didn’t know? And I will give you 

a few minutes to answer that. 

Ms. WHITE. Again, I think we saw a significant problem in that 

space. I do think the MCDC initiative has been, even to this point, 

quite successful in addressing that issue and scaled in terms of 

how one would deal with any outcomes, for example, issuers not 

being subjected to civil penalties. And, obviously, size matters in 

that. We will always have to be careful about that. 

On the fiduciary duty, I think it is important to act in that space. 

But it is really for the benefit of retail investors. If we are acting, 

that is who we are acting for. And, at the end of the day, and I 

think I said this publicly, if we end up basically depriving small investors of reasonably priced, reliable advice, we obviously would 

have failed. It is a complex undertaking. 

32 

Mr. STIVERS. It is. And the same thing with the MCDC. I have 

heard from the small issuers. And I have a lot of small towns that 

dot my district. And they will have problems getting access to capital if you do things like the MCDC wrong because little towns 

won’t be able to issue municipal bonds. I’m sorry to go over, Mr. 

Chairman. Thank you. 

I yield back. 

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, and Ranking Member 

Waters. 

And I thank you, Chair White, for being here. You have already 

indicated that the SEC would issue a rule on CEO pay-median 

worker ratio in 2015. Thanks for that. I would like to simply submit this letter for the record, without objection— 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. ELLISON. —that we sent to you, Chair White. 

Chair White, you have received this letter. And it is the will of 

at least 58 Members of this body and perhaps even more than that. 

And, again, I think it is relevant to a lot of people, not just the 

public at large but investors. I think research shows that higher ratios correspond to more risky investments. It is something that I 

regard as important and I appreciate your attention to it. 

Also, I wish you would comment on a few other matters regarding the fiduciary rule. Conflicted investment advice costs investors 

more than $17 billion a year. And I am very concerned that workers are sold IRAs with high fees and hidden commissions that damage their retirement security. And I am supportive of the Department of Labor’s decision to move forward with the rulemaking to 

protect workers. I was wondering if you could comment on why you 

chose this month to announce that the SEC was going to move forward with its own fiduciary standard. 

Ms. WHITE. There is no connection, if I understand the question, 

to the Department of Labor’s announcement. This has been something that, as I mentioned earlier, I have been very focused on 

since before my confirmation. I think it is an enormously important 

area. I think the Department of Labor is addressing it in a very 

important area, their ERISA mandate over retirement accounts, 

with what they are doing. We are separate agencies. The SEC had 

been also studying this before I arrived. Obviously, there have been 

studies and reports that have been presented. I have spent an 

enormous amount of time with our staff dealing with really what 

are quite complex issues in order to be able to forward this. I think 

it is important to forward it. We are really in a sense at the beginning of our process. But I do think we should as a separate agency 

proceed with the rulemaking. 

Mr. ELLISON. Yes. I noted that, I think you made your announcement at the Securities Industry and Financial Markets Association, 

which, as is its right—it is certainly its right to spend more than 

$7 million lobbying Congress in part to kill a rule that protects 

hard-earned retirement savings for workers. And that is where you 

made the comments that you made. 

33 

Ms. WHITE. I said what my position was when I knew what my 

position was. I think I had indicated at a prior conference at the 

end of the year, I don’t know whether it was there or at a different 

conference, that I expected to be able to at least state my own personal position, which is all that I have stated, last year. In that 

particular audience, which has representatives of the investment 

adviser space as well as the broker-dealer space, both, I thought it 

was quite an appropriate place—since I was ready to say what my 

personal position was and people kept asking me for several 

months—to make that statement there. 

Mr. ELLISON. Is there any coordination with the DOL rulemaking 

process? Or are you just kind of going forward on your own? 

Ms. WHITE. Since their initial proposal, which was obviously long 

before I got to the SEC—I think their initial proposal was in 

2010—the SEC staff has provided technical assistance and expertise to the Department of Labor in terms of how this market space 

works in terms of our registrants, what potential impacts we see 

on investors and the availability of investment advice if certain 

rule changes are made. I would expect us, as we go forward, to continue to consult, which I think is very important. 

Mr. ELLISON. Do you think it makes any difference whether DOL 

goes first or your agency goes first? 

Ms. WHITE. I think we are separate agencies. And we need to 

proceed separately when we think the time is right and we have 

something we think we should be advancing. 

Mr. ELLISON. So that would be a yes? You do think—you said 

separate— 

Ms. WHITE. There is no reason that— 

Mr. ELLISON. Coordinate. 

Ms. WHITE. No, no, I’m sorry. There is no reason to coordinate? 

No. I am saying we are separate agencies. And, therefore, I think 

each agency has to decide when to go forward. Clearly, you take 

cognizance of whatever other regulators do all the time in 

rulemakings if they go first. We have a similar situation with our 

Title VII rulemakings for the CFTC for the most part, who has 

gone first, as I alluded to. 

Mr. ELLISON. I will have to follow up in writing because I am out 

of time. Thank you for your answers. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlewoman from Missouri, Mrs. 

Wagner. 

Mrs. WAGNER. Thank you, Mr. Chairman. 

Chair White, thank you for joining us today. In talking about the 

SEC’s agenda, you have had a very busy year so far. And I would 

like to start by bringing up a few things you said recently on the 

SEC moving forward with the uniform fiduciary rulemaking, my favorite topic. In a speech from February of this year, you stated that 

a priority for the SEC would be to determine whether to adopt a 

uniform fiduciary duty for broker-dealers. And my heart soared, 

Chair White. 

And just a month later, you announced that it was your own personal view that the SEC should act under Section 913 of DoddFrank to implement a uniform fiduciary duty and that the SEC 

would, in fact, move to implement these rules. Now, this seems like 

34 

a pretty quick turnaround on your part. Yet, in your speech, you 

didn’t mention any kind of what I would call formal analysis performed by the SEC that maybe would have prompted this kind of 

sudden change. Chair White, I would like to ask, what exactly did 

change over the course of just one month? 

Ms. WHITE. This isn’t an abrupt event. But let me explain. Essentially, Dodd-Frank gives the SEC the authority to decide whether to impose a uniform fiduciary duty. 

Mrs. WAGNER. Correct. 

Ms. WHITE. So the decision for the Commission is whether to do 

that and then what form it would take. What I have done—and, 

as I say, I have been very focused on this issue since before my 

confirmation. I have worked extensively with the staff on all of the 

many complexities, the data that is developed to date, and reached 

my own personal decision that I think the SEC should proceed with 

a rulemaking to impose a uniform fiduciary duty. Lots of challenges to that. 

The next steps—and this is not a quick undertaking—are to discuss in detail all aspects of this with my fellow Commissioners 

while the staff is working on— 

Mrs. WAGNER. Following up with what Mr. Ellison was talking 

about, that this, in fact, didn’t have anything to do necessarily with 

the Department of Labor announcement that they were moving forward on their own rulemaking in that time? 

Ms. WHITE. That is correct. 

Mrs. WAGNER. It has nothing to do with that? 

Ms. WHITE. No. And I have said, long before the Labor Department announced this, that I was going to soon say what my own 

position was. That was last year. And I have been working very intensively on it. 

Mrs. WAGNER. You mentioned that it was your personal opinion. 

Tell me about what kind of studies, analysis, some kind of empirical basis for moving forward with the rulemaking. 

Ms. WHITE. You have a number of studies, some of them actually 

accompanied the 2011 report that the SEC staff made, that talks 

about, one issue is—and it is just one issue—talks about investor 

confusion. I think there is no question that the standards under 

which broker-dealers and investment advisers operate are different, one being a suitability standard, one being a uniform fiduciary duty standard, where the best interests of the client— 

Mrs. WAGNER. Has there been any formal analysis done, any economic analysis done and presented for such a rule? 

Ms. WHITE. There are studies on this. But part of what we will 

be doing with this undertaking is continuing to have our economists study all aspects of this. 

Mrs. WAGNER. And you just mentioned it: Do you believe that a 

rule should demonstrate that there is actual harm, harm to the investors, rather than just confusion? 

Ms. WHITE. I think confusion is not a good thing in and of itself. 

But one would regulate differently, if that was the only issue. I do 

think when you have two very different standards where financial 

professionals under the same rubric can make different decisions— 

one is having to make the decision in the best interest of the client 

35 

irrespective of their own financial interest; the other doesn’t have 

to do that if the investment is suitable—that has an effect. 

Mrs. WAGNER. Being cognizant of my limited amount of time 

here, I would really encourage you, you said you would have your 

economists look at this, to actually, dealing with the area of harm 

versus the standard of care, as opposed to any other standard or 

confusion, true actual harm, has any study conducted by the SEC 

taken into account the potential for increased costs? I know that 

Representative Stivers mentioned this. You talked about both dealers, investment advisers and, more importantly, what I care mostly 

about, which is the retail investors, the Lindas and the Mikes and 

the Marks of whom he spoke. 

Ms. WHITE. There is no question that is part of the analysis. It 

is in all our rulemakings, but it is particularly acute in this one. 

Mrs. WAGNER. And just one other quick question. Many have argued that changes to disclosures, as well as simplifying the kinds 

of titles that can be used by financial advisers could help solve 

some of these issues. Has the SEC considered any such alternatives 

instead of a brand new, overarching new fiduciary standard? 

Ms. WHITE. Well, the answer is yes. I don’t think they are mutually exclusive though. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. 

And, Madam Chair, thank you for your attendance. I really appreciate it. My favorite topic is actually market structure. And I 

am happy to see that, in your testimony, you raise some concerns 

that I share. I recently drafted a bill called the Maker-Taker Conflict of Interest Reform Act. What we are trying to do is we have 

a system now where exchanges are offering all kinds of incentives 

for order flow. They are offering co-location for a fee. They are offering special order types that will allow traders, brokers to get to 

the top of the queue. And now they are offering significant rebates 

to brokers who will steer their order flow through their exchange. 

And the thing I worry about is that the brokers in some cases, not 

all cases, are chasing order flow and chasing those rebates instead 

of acting in the best interest of the investor. And I think that is 

very, very important for retail investors and pension funds, things 

like that. 

And so what I was trying to do is to figure out what the impact 

of these rebates really is. The least intrusive way I think to do it 

is to do a pilot program, to pick out 50 or so highly traded stocks 

and prohibit rebates to be offered on those stocks. So that we would 

see, obviously, if brokers are trying to chase rebates, we would see 

a lot of activity in the stocks that carry the rebate. And we would 

see far less activity in those that don’t carry the rebate. I am wondering if the SEC is considering anything like that where we could 

try to realign the interest of the broker with the interest of the investor. 

Ms. WHITE. Very much so. The maker-taker compensation model 

is very much in the core of what our market structure review folks 

are looking at. A pilot is a possibility to be able to come to grips 

with that issue. It is a very complex issue. We have our economists 

36 

deeply involved, and in those discussions they have said, there 

really are a number of complexities if we were to proceed with a 

pilot, a study, that you need to control for. There is certain nonpublic information, for example, that really would need to be a part 

of that. Getting the right cross-section and a large enough one 

would be very much a part of that as well. And so our staff in 

Trading and Markets is actually preparing quite a detailed analysis of that in conjunction with our economists. It will undoubtedly 

be on an early agenda for our Market Structure Advisory Committee, which is a cross section of experts and perspectives to give 

their feedback on it. But we really do think— 

Mr. LYNCH. Is that the Committee with the 17? 

Ms. WHITE. I think it is 17. I think the first meeting is May 13th. 

Mr. LYNCH. I would like to see some of the folks on that committee—I would like to see some of the folks who have been quite 

outspoken on this, Sal Arnuk, Joe Saluzzi, Haim Bodek, those are 

all real smart fellows who have been dealing with this high frequency, they probably don’t want to serve on it. But I would just 

like to see some people who are publicly suspect of this whole, the 

high-frequency trading advantage. 

Ms. WHITE. Clearly, our intent is to get that balance and those 

different perspectives. And, to the extent someone may not be on 

the committee who has perspectives and expertise—there are more 

than 17 quite expert representatives. We intend to structure those 

meetings with a large group, perhaps a roundtable at each meeting, in order to obtain additional inputs at those meetings so that 

we can get broader participation from folks such as you mentioned. 

But it is something we are very focused on, very deeply studying. 

It is complex. And I am happy to have the staff follow up with you. 

Mr. LYNCH. Yes, that would be great. I just want to say this, 

Madam Chair, this issue really affects the integrity of our markets. 

I know it is complex. Everything is complex. Sometimes I think 

complexity is an advantage for some people. And I just think, for 

the protection of our markets, we have to get a situation where a 

retail investor or a pension fund is not at a huge disadvantage to 

a high-frequency trader, who has a special order type and has colocation and has the advantages of speed. And, in some cases, there 

is an information advantage that they have as well. 

Ms. WHITE. There are a lot of issues like that, I will say, in this 

space. You basically have the concern about the conflict of interest 

for the brokers as it may impact the investor. But you have to consider whether it is yielding better prices and less cost for those retail investors. 

Mr. LYNCH. Thank you, Madam Chair. 

I appreciate the indulgence of the Chair. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. Ross. 

Mr. ROSS. Thank you, Mr. Chairman. 

Madam Chairwoman, thank you for being here, especially for 

your cooperation and your testimony today. 

I want to go back to what the chairman alluded to in some of 

his earlier questioning, and that has to do predominantly with the 

imposition of prudential banking regulations on non-bank financial 

institutions such as asset managers and life insurance companies. 

37 

Shouldn’t the FSOC’s primary focus be on making sure that 

these entities that may have systemic risks, that those are addressed properly rather than turning them over to the Fed to just 

say, here is a bank-centered prudential banking regulator, you assess it? Wouldn’t it be better to put them within the regulator that 

they already have? 

Ms. WHITE. Certainly one of the strong components of FSOC is 

to have primary regulators there in the process. 

Mr. ROSS. Right. 

Ms. WHITE. Clearly FSOC, by statute, was given the power to 

designate non-banks that are systemically important, to subject 

them to— 

Mr. ROSS. Correct. But it would be good to put them with their 

primary regulator for addressing their systemic risks. 

Ms. WHITE. Although it is not how it is structured under the 

statute. But one of the things that is clearly at the moment where 

the asset manager review is sitting is to get more information on 

activities. 

Mr. ROSS. Correct. And one thing I want to thank you for, I know 

that you mentioned back in December that you were going to help 

develop recommendations to address potential risks in the asset 

management industry. In fact, one of them is to improve, expand, 

and update the data and other information the SEC uses to draw 

conclusions about the risks of asset management industry and develop appropriate regulatory response. How is that coming? 

Ms. WHITE. Actively and productively. A proposal is being produced by the staff. 

Mr. ROSS. Let me ask you this. How did the asset management 

industry, if they did at all, contribute to the 2007–2008 financial 

meltdown? 

Ms. WHITE. I think everybody has different things that they 

point to, but I don’t see a lot of fingers pointing to them. 

Mr. ROSS. Yes, and they are really not. They manage other people’s assets. And I appreciate that. 

Ms. WHITE. It is an agency model predominantly. 

Mr. ROSS. I appreciate that. And last month, for example, FSOC 

came out and said, we have some transparency regulations we are 

going to follow. And I think that is a good step in the right direction. 

How would you feel about codifying those transparency requirements? 

Ms. WHITE. First, I think transparency is enormously important 

for FSOC as for any government agency. So I also applaud the 

steps that have been taken, and I think additional steps could be 

taken as well. I think one of the— 

Mr. ROSS. For example? 

Ms. WHITE. I was about to say one thing that I think is smart 

to do is, it is a relatively young organization and you want to make 

it stronger as you go. You don’t want to sort of freeze it in place 

maybe with codification. 

Mr. ROSS. And not only that, but also with the codification, you 

also don’t subject yourself to the whim of different Administrations, 

regardless of who may be in charge. But also when you are looking 

at the designation of a systemically or significantly important fiVerDate Nov 24 2008 18:02 Oct 30, 2015 Jkt 095054 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 K:\DOCS\95054.TXT TERI
38 

nancial institution, you want to be concerned, I think, at the very 

core of how they got there and to give them notice as to: one, that 

they are now being considered; and two, here is a path to get away 

from it. And if we were to codify some of this, I think it may give 

not only the entities themselves, but more comfort to the market. 

And so to that end I just wanted to make you aware of a particular bipartisan bill that I just introduced yesterday known as 

the Financial Stability Oversight Council Improvement Act of 2015. 

It codifies the transparency. It allows for the procedures for SIFI 

designation of non-bank financial institutions, it allows for the primary regulator to be provided the opportunity to address the systemic risks. 

So I just want to make you aware of this and I hope that you 

will take a look at this and have an opportunity to even, quite 

frankly, support it if you are in such a position. 

Also, earlier you talked about in your opening, you provide a robust economic risk analysis when looking at the market. Does this 

also include a cost-benefit analysis of the imposition of regulations? 

Ms. WHITE. It does for our rulemakings, yes. 

Mr. ROSS. And, for example, with regard to asset managers 

again, because I have been burying myself in this for a while, the 

American Action Forum did a study in 2014 that said that an asset 

manager of mutual funds designated as a SIFI could decrease investor returns by as much as 25 percent. 

When you look at a lot of investors that are utilizing asset managers to invest in retirement funds and college education funds, it 

almost becomes a cost prohibition to have this designation when, 

in fact, according to this study, an investor can lose as much as 

$100,000 over the life. So that is something I hope that you would, 

if you haven’t already, take into consideration with regard to the 

imposition of these non-bank-centered financial institutions. 

Ms. WHITE. The only thing I would comment on is what you are 

looking at in that process is the systemic risk as part of that as 

well. 

Mr. ROSS. Correct. 

Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes. 

Mr. HIMES. Thank you, Mr. Chairman. 

And thank you, Madam Chair, for being with us and for the good 

work that you do. 

I want to reserve the bulk of my time to talk a little bit about 

insider trading, but I do want to weigh in on this active debate we 

have on the question of a unitary fiduciary standard. 

I would hope that most of us would want the nature of that fiduciary standard to prevent people from paying money for products 

that are sold in which the intent in selling those is more about 

making money than it is providing the best product. 

But setting aside the substance, and I understand that you are 

statutorily constrained by a system that was set up a long time ago 

when people had pensions that were managed by other people, of 

course today we live in a world where more and more people are 

running their own IRAs and their own 401(k)s. 

39 

So my hope would be, and this is really a comment, not a question, that sensing as I do that the average retail investor doesn’t 

really know the difference between an investment adviser and a 

broker or really note all that much difference between their IRA 

and their regular brokerage account, that you would help us think 

through how we could go to a place that just feels like a smart 

place to be, which is a fiduciary standard, and not have the need 

for retail investors to need to think that in this account this is 

what my broker can do, but in this account this is what my adviser 

can do. That just strikes me as complexity that we ought to statutorily do away with, and I suspect it is statutory. 

With respect to insider trading, Congressman Lynch and I have 

been working on efforts to address obviously the problem that arose 

as a result of the Second Circuit’s Newman decision. As you know, 

the SEC and DOJ have been forced to operate in an environment 

where there is no explicit statutory prohibition on insider trading, 

leading to a body of common law that has I think created some odd 

characteristics in how one might go after insider traders. 

Mr. Lynch has submitted a bill. I have one that has similar intent but is slightly different in its mechanics. But I think this is 

important to get right. It is important to me because, unfortunately, my congressional district has been disproportionately a 

source of bad actors and alleged bad actors in this area. I am a day 

or two, I think, from dropping some legislation that I hope you will 

take a look at. But you made a comment about a similar Senate 

bill, and your comment was that it is critically important to investors and to our markets that we have strong insider trading laws. 

One question I would ask you, and then I have a slightly more 

technical question, is would it be optimal, if the goal here is to be 

very clear about prohibitions on insider trading and a fairly 

streamlined process to actually prosecute inside traders, should we, 

in fact, pursue an explicit statutory prohibition, or do you think 

that you can muddle by as you have under common law and the 

1933 Act antifraud provisions? 

Ms. WHITE. From 10b-5, and then the common law, is where we 

have our laws on insider trading, and I think it is a strong body 

of law. Obviously, we have the Newman decision that is there. I 

think it is challenging to codify. The Commission has also considered over its history whether it should actually write a rule as to 

the parameters of it. 

So, it is challenging. The bottom line, which I think you were 

quoting from me on, is that it is very important to have very strong 

insider trading laws. 

Now, what we are doing, as you mentioned, is we filed an amicus 

brief in the Second Circuit. We are continuing to bring insider trading cases, including in the Second Circuit, but clearly other circuits 

do not subscribe to what I think is the overly narrow view of the 

law that in some aspects the Second Circuit has held. We are proceeding with cases in the insider trading space. It is enormously 

important to do that, and we are seeing what that ruling is in the 

Second Circuit. 

In terms of statutes to define it, I think it is challenging to do 

it, but at the end of the day what I am for is the strongest insider 

trading law that we can have. 

40 

Mr. HIMES. But presumably if it can be defined in rules, as it is 

today, and in common law, it can be defined in statute. And presumably also, if we are talking about sending people to jail for long 

periods of time, it is probably better that we do that than administratively or regulatorily we do that. No? 

Ms. WHITE. That is certainly an argument for doing that. As I 

say, I think the devil is in the details maybe is not quite the right 

expression to apply to this, but I think it is challenging to codify 

it clearly in a way that is both not too broad and retains the 

strength of the common law. But I would be happy to work and 

have the staff provide technical assistance on that, because it is 

enormously important to us as well, obviously, at the SEC. 

Mr. HIMES. Yes. Thank you. I am almost out of time, so I am 

going to have to get your answer to this for the record. 

But this is not a legal question. This is really a question that 

gets to the heart of the Second Circuit’s Newman decision, and I 

am struggling to understand why the point that case hinged on, 

which is whether a tipee has knowledge of a personal gain on the 

part of a tipper, whether that should in any way, shape, or form 

be relevant. I understand under current common law it is, but 

whether it should as a matter of right or wrong determine whether 

that tipee would be liable. 

And I am out of time. So we will pursue that subsequently. 

Thank you. 

Thank you, Mr. Chairman. 

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. I appreciate 

it. 

Chair White, I had a question for you, but first I would like to 

thank you for the transparency the SEC provided in opening up the 

Office of Financial Research’s (OFR’s) study on asset management 

and financial stability for public comment. And I would like to ask 

if you think in general that it is a good idea for the OFR to seek 

comments on public reports like this, and also do you think it is 

important for the OFR to consult with agencies or departments 

with expertise in regulating financial services, like your own, when 

they are preparing public reports? 

Ms. WHITE. I think it is very important to bring to bear the expertise that is in the space in which anybody is acting. And I don’t 

know that anyone would disagree with that. I can’t tell another 

agency how they should handle their own reports. At the SEC not 

only are we bound by law certainly in our rulemakings to the APA 

notice and comment process, but we benefit enormously from those 

inputs. 

Mr. ROYCE. On a similar note, DOL has said that input from the 

SEC has resulted in what they call numerous changes to the proposed rule on fiduciary standards. Can you tell us exactly how 

many changes the DOL has made? And I am going now to the ones 

requested by the SEC, trying to figure out if they are taking those 

changes or not. And also, are there changes that were recommended by the SEC that were not incorporated by the DOL? 

41 

Ms. WHITE. I can’t comment on specifics because we don’t have 

a public proposal out there. I can say that our staff provided extensive technical assistance. We weren’t in the role of a commenter, 

but rather a provider of expertise and market knowledge to them. 

As reported back to me, I think our staff found the Labor Department staff quite responsive and receptive to the assistance and the 

expertise we were providing. I can’t kind of tally up precise responses on all of those discussions. It wasn’t really in the nature 

of providing specific comments on a proposal but rather— 

Mr. ROYCE. It was a dialogue. But I was just trying to see if recommended changes were actually being made or not. 

Ms. WHITE. My sense is that certainly to a degree, the staff reported they were quite responsive to what they were providing 

them. 

Mr. ROYCE. At a recent speech at Tulane University you mentioned a recent takeover bid where we saw a unique pairing of a 

strategic bidder and an activist hedge fund. And in the same 

speech you mentioned that highly sophisticated strategies have 

come to dominate proxy fights and takeover bids, but that it is time 

to step away from the gamesmanship and inflammatory rhetoric 

that can harm companies and shareholders alike. And that sounds 

like good advice to market participants. 

I was going to ask if you could expound on your comments. Specifically, I am interested in when the gamesmanship and rhetoric 

crosses the line into market manipulation. 

Ms. WHITE. That is obviously a facts and circumstances situation. And again, I was obviously expressing my own personal view 

on this. I do think a step back from the rhetoric and the gamesmanship would serve everybody very well on all sides. I think that 

you have had at least, maybe even beyond the beginnings a very 

positive development in terms of companies engaging with their 

shareholders, including activist shareholders in some situations, 

which can be very constructive. I wasn’t talking about any individual or situation, but that just sort of overlay I think is a very 

constructive one. 

Mr. ROYCE. Well, Chair Mary Jo White, I want to thank you 

again for your testimony here today. 

And, Mr. Chairman, I will yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Delaware, Mr. 

Carney. 

Mr. CARNEY. Thank you, Mr. Chairman, and I thank the ranking 

member, as well. 

Madam Chairwoman, thanks for coming in today. I am always 

impressed with your testimony, your attempts to be very straight 

with us and frank, and we certainly appreciate it, I think on both 

sides of the aisle. 

Most of my questions have been addressed, but I would like to 

touch on a few of those if I can in my 5 minutes. 

Mr. Duffy and I, just to illustrate some of the bipartisanship 

here, worked together on the Tick Size Pilot, and we know you are 

moving along with that. You answered the questions that he asked. 

I would just like a brief update on when you think we could have 

that in place, number one, and what is the major concern. One of 

42 

the things that we tried to work through in designing it and getting input was how to structure it so we got really good information. The objective of it, of course, is to get more attention to the 

smaller issue stocks. 

Ms. WHITE. And, again, I think it is an enormously important 

pilot to proceed with. I mentioned before that I think May 6th is 

the date on which the Commission needs to act on it in terms of— 

Mr. CARNEY. When you say ‘‘act,’’ you mean approved to go forward with it? 

Ms. WHITE. Yes, in whatever form is. Obviously, we have gotten 

comments on various features of it. Those comments are being 

studied very carefully. Two of the major areas of comment—there 

were many, frankly, or not many, but certainly several—one was 

the trade at feature where we got a lot of comments; the length 

that I was discussing with Congressman Duffy as well. But our 

goal is to get maximum information so we can actually gauge 

whether increasing these tick sizes will help— 

Mr. CARNEY. Yes, some of the commenters have kind of prejudged it, right, and said it is not going to be effective. Well, let’s 

find out and get good information, as you said. So we would encourage you to move forward with that. 

We have also been working, just learning more about venture exchanges, and I have talked to constituents in my district, some of 

whom have expressed some concern about that. These would be 

people who work for large institutions, concerns about maybe 

fraud. They had some issues with that in Canada. 

What concerns would you have? Could you share those concerns 

with me as I continue to look at this issue? 

Ms. WHITE. Yes, and I think the venture exchanges are also 

something we are seriously looking at. Obviously, no decision is 

made as to whether to proceed or how to proceed. We have approved prior venture exchange applications. 

But I think one of the reasons that at least is pointed to for the 

failure in Canada is, who are you actually having trade on those 

exchanges? Is it a race to the bottom, which you do not want? 

And so when you are setting your listing standards, even though 

they are not as high in some ways as on the major exchanges, you 

want to make sure that you are setting them where they ought to 

be set and you have the disclosures that you need so that you are 

not setting yourself up for failure and fraud, frankly. So those are 

issues that you do have to bore into when you are designing this. 

Mr. CARNEY. Great. So you have heard a lot on the fiduciary rule 

from various Members. I would like to associate myself with the 

comments that Mr. Himes made. What is your overall objective 

there in striking a balance between the various folks weighing in? 

Ms. WHITE. And, again, as I say, it is a complex, challenging 

rulemaking. The objective is that if you are providing, whatever 

your title is, investment adviser, broker-dealer, personalized securities advice to a retail investor, that you act in the best interest of 

that investor without regard to your own financial or other interests. 

Now, that is right out of Section 913 in Dodd-Frank. That is kind 

of the beginning of the rulemaking. You obviously have to specify 

43 

how do you define that standard, what kind of standard is it, what 

does it require, how does it impact on current business practices. 

And clearly we get parameters in 913 that say that principal 

transactions and being compensated transactionally are not in and 

of themselves a violation of a fiduciary duty, and you want to be 

sensitive, and indeed Dodd-Frank directs you to be sensitive to the 

existing business models so, as I was mentioning before, you don’t 

end up striking the wrong balance here. 

Mr. CARNEY. It strikes me that is the biggest challenge. Is that 

kind of your sense of it too, in terms of the existing business models out there? And it is one thing to have transparency—look, I 

know what I am getting into with this product or with that product—but that is, as Mr. Himes I think accurately pointed out, I 

don’t know that we differentiate very well among the various products that are out there. 

Ms. WHITE. There are a number of challenges, but I certainly 

think that is a primary one. 

Mr. CARNEY. And finally, I would just like to again associate myself with the remarks of Mr. Lynch and the seriousness with which 

you took his comments on, I think, very important issues. And you 

have a lot of important things on your plate. We appreciate your 

great work on each of them. Thanks. 

Ms. WHITE. Thank you. 

Mr. MULVANEY [presiding]. The gentleman’s time has expired. 

I am now in the uncomfortable situation, Madam Chair, of recognizing myself. I would like to assure all of my colleagues that before he stepped out, the chairman handed me the piece of paper 

that said I was up next. 

Mr. Schweikert, I am looking at you. It is not my fault. 

So I recognize myself for 5 minutes. 

Madam Chair, thanks again for doing this. I want to follow up 

on an exchange you had with Mr. Neugebauer from Texas earlier 

today. He asked you about concerns regarding liquidity in the bond 

markets, and you had indicated, rightly so, that you had recently 

issued guidance on that topic. I actually have the guidance, or at 

least I have guidance that the SEC issued in January 2014. I 

would like to read that to you. I’ll take just a second. 

It says, ‘‘While assets in bond market mutual funds and ETFs 

have grown rapidly in recent years, dealer capacity in the fixed income markets appears to have undergone fundamental changes. 

Primary dealer inventories of corporate bonds appear to be at an 

all-time low, relative to market size. This apparent reduction in 

market making capacity may be a persistent change, due to the extent it is resulting from broader structural changes, such as fewer 

proprietary trading desks at broker-dealers and increased regulatory capital requirements at the holding company level.’’ 

So given the fact that everybody seems to acknowledge there are 

concerns regarding liquidity in the bond markets, and given the 

fact that the SEC’s own guidance, which you correctly pointed out 

to Mr. Neugebauer earlier today, names increased regulation as 

one of the causes of that liquidity concern, what are you doing to 

lessen that burden at the SEC? 

44 

Ms. WHITE. I think two points there. One is I don’t think those 

were findings but clearly informed observations. I am not trying to 

split hairs, right? 

Mr. MULVANEY. I won’t put words in your mouth. I will just tell 

you what the document is. It is the January 2014 SEC Division of 

Investment Management Guidance Update. 

Ms. WHITE. Yes. Absolutely. I am familiar with the document. All 

I am saying is I don’t think there were findings made as to precise 

causes, but nevertheless informed statements about what the current state of play is on the regulatory side and in the marketplace. 

So first, I think you have to identify what actually is the cause. 

Mr. MULVANEY. Let me ask you this then, and, again, I don’t 

want to interrupt and I apologize, but do you agree with the guidance update that says that increased regulatory cap requirements 

at the holding company level contribute to liquidity shortages—not 

shortages, but lack of liquidity in the bond markets? 

Ms. WHITE. I certainly think that is the working assumption, if 

I could say it that way. 

Mr. MULVANEY. Is it your working assumption? 

Ms. WHITE. It is certainly a part of the working assumption. 

And, again, I wasn’t trying to split hairs. We control some spaces 

of regulation and we don’t control other spaces of regulation. That 

is point one. 

Point two is that there are various purposes and impacts in regulations. And so one has to decide, even if you come to identify a 

cause that is hampering liquidity, what are you gaining by that 

particular regulation. 

So, again, I hate to use the word ‘‘complex’’ again, but I think 

there are tradeoffs there, I guess is a better way to say it. 

Mr. MULVANEY. Everybody on this committee recognizes the fact 

that there are multiple layers of regulation and multiple layers of 

agencies that have oversight over various institutions. Have you 

shared that opinion and the opinion contained in the guidance update regarding the regulatory effects on liquidity in the bond markets with other the members of the FSOC? 

Ms. WHITE. That has been discussed extensively at FSOC. 

Mr. MULVANEY. And can you give us an interpretation as to what 

is going on? 

Ms. WHITE. What I would say is, and, again, FSOC’s primary 

purpose, and it is a really important one, is to, obviously, be focused on risks that are emerging and addressing those risks, and 

I think across the regulatory space, this probably is internationally 

as well as domestically, there is a concern about liquidity and particularly, obviously, of interest rates. 

Mr. MULVANEY. Is there a concern about overregulation? 

Ms. WHITE. I think there is certainly a concern about the effects 

of regulation in a number of ways. One of the risks that is identified in the FSOC annual report and has been, once you regulate 

it in one strata of the market, be it a bank, let us say, where does 

that activity migrate, is I guess, the operative word. And then what 

do you do about the risk that is there that is not controlled? There 

is certainly that kind of lens that is being applied. 

Mr. MULVANEY. Thank you for that. I want to take my last 45 

seconds and completely change topics on you, to something that 

45 

was near and dear to my heart, something that many of us worked 

on not only in this committee, but in a couple of other committees 

over the last couple of years, which was the JOBS Act of about 3 

years ago. A big part of it, something I was very excited about, was 

crowdfunding. You all still haven’t done the rules. It has been 3 

years. Can you tell us when— 

Ms. WHITE. Yes. Can I tell you when? I can tell you that it is 

a high priority to get done this year. It has proved, as I mentioned 

a little bit earlier, more complex, even though we knew it would 

be complex, to get it done so it is workable and still carries out the 

statutory requirements. 

Mr. MULVANEY. There have been some public comments in the 

markets that perhaps crowdfunding is dead, crowdfunding is not 

going to proceed. Would you like to take this opportunity to assure 

folks that crowdfunding is very much alive? 

Ms. WHITE. It is very much alive at the SEC. I had a very extensive meeting with the staff yesterday on that very subject. 

Mr. MULVANEY. Thank you, Madam Chair. I appreciate that. 

And I will yield back the balance of my time and recognize now 

the gentlelady from Ohio, Mrs. Beatty, for 5 minutes. 

Oh, I’m sorry. Mr. Sherman stepped in. I apologize. 

Mr. Sherman is recognized. Unless you want to give your 5 minutes to Mrs. Beatty. 

Mr. SHERMAN. Chair White, thanks for being here. I am going to 

ask you about FASB and its lease accounting. I am going to ask 

you about the Frank and Sherman amendment. I did that last time 

you were here. Not pulling any punches, but not necessarily getting 

great. 

Okay. Last time I asked you, you said you were aware of the proposal still kicking around the Financial Accounting Standards 

Board to add $2 trillion to the balance sheets of American business 

and the terrible impact that would have not only on the companies 

that you regulate, but many private companies as well that would 

be in violation of their loan covenants. 

FASB is in effect empowered by the SEC, and you were courageous enough last time—courageous may be overstating it—you 

stood up last time and said your agency has to take responsibility 

for what they do since you have empowered them. You also said 

at that time that you would provide a further response for the 

record. I don’t have that one yet. 

But what has the SEC done since the last time we talked to see 

whether the power that you have delegated to the FASB won’t 

come down like a ton of bricks on small companies and on real estate and on the many people engaged in construction? 

Ms. WHITE. And if I owe you a response, I will figure out what 

it is and give it to you. I apologize for that. 

Mr. SHERMAN. You just owe me a clear statement to the FASB 

that if they go forward with this, you will find somebody else to 

empower with this authority. 

Ms. WHITE. This is one, and I know we have had this aspect of 

the conversation before, where it was actually the SEC staff, I 

think in 2005, who suggested that FASB undertake this standard 

setting to capitalize leases. 

46 

Mr. SHERMAN. That makes you even more responsible for the disaster that looms. 

Ms. WHITE. I know. And, again, all the considerations that you 

voiced and continue to voice are things that we certainly have 

bored into. I have talked to our new Chief Accountant about them. 

But it is one we may not agree with each other on at the end of 

the day. 

Mr. SHERMAN. It is one thing to say, I checked with the Chief 

Accountant and he thinks that there might be some theoretical argument in favor of what they are doing. Do you have any economic 

studies that refute the ones that I brought to your attention that 

says this is an economic disaster in the making? 

Ms. WHITE. Again, I haven’t seen studies that refute that nor 

have I seen studies that set forth that thesis. 

Mr. SHERMAN. Oh, I have provided them to you and will provide 

them again. 

Ms. WHITE. No, no, and I should respond to those on the record, 

and I will and promptly because we have— 

Mr. SHERMAN. Last time you didn’t. 

Ms. WHITE. No, no, we have bored into this quite a lot, and I 

think I want to make sure I have answered all the questions even 

if we at the end of the day don’t agree on that analysis. 

Mr. SHERMAN. I would point out that while there may be some 

‘‘angels dancing on a head of a pin’’ theoretical reason for what 

they are doing—and I think they are wrong about how many angels can dance on the head of a pin; I am the only person here who 

actually enjoys accounting theory—the fact is that if you look at 

how they have treated research and development expenses, you see 

they don’t stick to accounting theory except when they want to. 

And so they violate accounting theory to destroy one part of our 

economy—not destroy, but significantly hurt one part of our economy—and then we have to spend billions of dollars encouraging research through a tax credit because FASB departs from accounting 

theory and discourages research. And now in the name of an accounting theory that they are wrong on, they are going to have a 

devastating effect on two other segments of our economy. 

And you can’t just say you will look into it, and the Chief Accountant assures you that he has bored into it and he likes what 

he is doing. We need to know that your agency will be a force for 

good in this area of our economy. 

Ms. WHITE. What I can assure you is that the meetings I have 

are not, are you okay with it. I do bore into them. 

Mr. SHERMAN. Since you have bored into them, can you tell us 

why we should capitalize leases if that means that tens of thousands of businesses will be in violation of the loan covenants and 

hundreds of thousands of construction workers will lose their jobs? 

Ms. WHITE. Again, I think there are different views on the extent 

of that impact. I also think there are transition periods that can 

be applied to minimize the impact. 

Mr. SHERMAN. The transition period is way too short for the 

small businesses, and the effect on construction is unchallenged by 

any other economic analysis. 

I will get you the studies again. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

47 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr. 

Mr. BARR. Thank you, Mr. Chairman. 

And thank you, Chair White, for your service and particularly 

your participation in prosecuting terrorists. 

Today, I would like to focus on the work of the Office of the Chief 

Accountant, to follow on the accounting theme, and then if we have 

time, get a little into the risk retention joint rulemaking. 

With respect to the Office of the Chief Accountant, I would like 

to focus on public remarks that you made and other SEC officials 

made suggesting that the SEC is considering requiring American 

companies to transition from GAAP accounting to International Financial Reporting Standards (IFRS). In particular, IFRS does not 

allow the use of last-in, first-out accounting, as you know, and in 

contrast the U.S. Tax Code requires the use of LIFO for financial 

reporting if it is used for tax purposes. 

My concern is that if U.S. businesses are required to use IFRS, 

they would be forced out of LIFO accounting and would be subject 

to a significant recapture tax that could drive them out of business 

or force them into debt in order to pay the tax. And this is of particular concern to industries like the bourbon distilling industry in 

my home State of Kentucky, and other inventory-intensive businesses. Effectively, the SEC here would be changing tax policy 

without congressional approval. 

So the question is, are you aware of this potential impact of moving toward IFRS? Has the SEC considered the costs of 

transitioning to these international standards for industries and 

businesses that use LIFO accounting? 

Ms. WHITE. I am aware of the issue and clearly have considered 

I think the range of issues, including those cost issues and, frankly, 

the legal issue as well, because it is an IRS set of rules as well. 

But just to be clear, what I have said publicly about the broader 

issue, and I still believe this should occur, is the Commission 

should make a statement as to where it is with respect to domestic 

issuers and IFRS. 

Where are we in that sequence? The last time the Commission 

spoke on that was in 2010. I will speak for myself, and I have the 

overall objective of a single set of high-quality global standards. 

That is the objective. I did not mean to imply what the statement 

will be would be a movement in that direction. 

Mr. BARR. In your prepared remarks you do reference Commission staff continuing in Fiscal Year 2014 to monitor and support 

the activities of FASB and the IASB as they made progress to converge GAAP with IFRS. 

Ms. WHITE. Yes, absolutely 

Mr. BARR. And so my question is, is this transition a priority? 

How much of a priority is it with the agency? And is a rulemaking 

forthcoming? 

Ms. WHITE. I can’t speak precisely to the rulemaking, our Chief 

Accountant, as you may know, on his own behalf, not on my behalf 

or the Commission’s behalf, spoke on this subject, I think, in December at the IACPA just in terms of some thoughts he has that 

he may want to present to the Commission. 

48 

But in terms of where we are with respect to the broader issue, 

we certainly do support the further convergence efforts of IASB. 

When I say ‘‘we,’’ I mean ‘‘me,’’ but I think the Commission supports the further convergence efforts that are going on. That is a 

different issue than do domestic issuers report in IFRS, which we 

have made no statement about at all. 

Mr. BARR. I would encourage you all to consider the LIFO impact 

on American businesses as you look at that issue. 

Really quickly, transitioning to the joint risk retention rulemaking, as you know, collateralized loan obligations are actively 

managed funds that invest in senior secured commercial and industrial loans to American companies. This is a $300 billion market. 

As you consider the SEC’s very important statutory mission to 

facilitate capital formation, I would be interested to hear your take 

on why the joint rulemaking did not carve out a safe harbor for 

qualified CLOs in the same way that regulators have carved out 

a safe harbor for qualified mortgages, especially considering that 

mortgages, mortgage-backed securities were the principal cause of 

the financial crisis? And we know that the cumulative impairment 

rate for CLOs experienced over the life of the asset for the last 17 

years, according to Moody’s, has been less than 1.5 percent. In fact, 

CLOs performed very, very well during the financial crisis. 

Why are regulators and the SEC in this rulemaking not taking 

that into account, especially as we talk about liquidity and capital 

markets and corporate bonds, CLO is another important source for 

financing? Why are the regulators not taking that into account? 

Ms. WHITE. That is an issue we spent a lot of time on in the joint 

rulemaking. I think the conclusions are set forth in the release, but 

I can certainly expand on that and get it back to you. 

Mr. BARR. Thank you. I yield back the balance of my time. 

Chairman HENSARLING. The gentleman’s time has expired. 

The Chair now recognizes the gentlelady from Ohio, Mrs. Beatty. 

Mrs. BEATTY. Thank you, Mr. Chairman. 

And thank you, Chair White, for being here today and answering 

a whole broad array of questions. 

My question will reference something that you mentioned not 

only in your written testimony, but earlier this morning, now afternoon, I think I can bring it up again, when you talked about advancing opportunities to small businesses to raise capital. 

Certainly, as we know, small businesses together produce a lot 

of the economic growth. While I hate to hone in on any one specific, 

I think if we don’t, oftentimes when we represent those groups, 

others might not. So as people give examples from their districts 

or from letters or stories that they have received, I am going to 

focus in on women in particular. Certainly looking at your background, having many firsts prior to coming here, and being the 

only female sitting here on my side of the aisle today, and looking 

at my colleague, Congresswoman Love, being the only female on 

her side of the aisle, I think I might have something we can agree 

on here. 

So when you talk about advancing opportunities, and you also 

mentioned the SEC’s government business form, I guess one of the 

questions I want to ask is, can you address what specific types of 

49 

opportunities your office is doing for businesses in general and for 

women in particular? 

Another reason I am focusing on women is just this morning, I 

received some statistics. I am from Ohio, the 7th largest State in 

this Nation, and there are 16 of us in our delegation, and I have 

the largest number of females in my congressional district. So 

today I speak for them, and it happens to be the end of Women’s 

History Month, so maybe you can help me out by giving us some 

information that we can use or help you with. 

Ms. WHITE. First, I applaud everything you just said on behalf 

of women. One example I would give you where I am actually rather pleased with the results is through our Office of Minority and 

Women Inclusion (OMWI) office, where one of the charges OMWI 

has is with our own contracting dollars. It is $350 million a year 

or in that range. We are charged with making sure that we are 

making it possible for minority-owned businesses and womenowned businesses to participate in the process of the contracting 

that we do. 

In fact, I think I brought the number with me: I think 33 percent 

of our contracting dollars actually went to minority- and womenowned businesses last year, which is a real uptick from all our outreach efforts. We try to also have, I think it is once a month, that 

our office actually has potential venders come in, potential businesses come in to kind of learn what they need to do to, in effect, 

to bid on those contracts, apply for those contracts, I think to 

broaden it out beyond that. But I think that is a good example of 

where I am pleased with the progress that we have made on it. 

When we are dealing with our small business committees, the office I mentioned earlier that is in our Division of Corporation Finance, is devoted solely, really, to the interests of small businesses. 

We certainly are very focused on encouraging women-owned businesses, and minority-owned businesses to participate. A lot of the 

questions that our staff answers, which they do, I don’t know, 1,200 

a year from small businesses, are questions put to us by minorityand women-owned businesses. 

So I don’t know if that is responsive, but that is a couple of examples at least. 

Mrs. BEATTY. Thank you. And thank you for the examples. 

Maybe we can pass some of those on to some of the other offices 

who aren’t doing as well. 

Lastly, I met with some constituents who have expressed some 

concerns about the effects of applicability of the fiduciary standards 

being applied to broker-dealers. In your written testimony you stated that the Commission has provided technical assistance to the 

DOL staff as they consider potential changes to the definition of ‘‘fiduciary’’ under ERISA. 

How do you see the SEC interacting with the DOL to ensure that 

low-and middle-income individuals keep their access to broker assistance regarding investment of retirement savings? 

Ms. WHITE. I think first with respect to the Department of Labor, 

what our staff has done really for several years is to provide technical assistance and expertise to the staff of the Department of 

Labor. And what is included in that is our judgment from our 

knowledge of the broker-dealer market spaces, in the retirement 

50 

area in particular, how a change in the rule might impact investors 

or the availability of investment advice. Separately, and it really is 

separately, we are proceeding, or my personal view is that we 

should proceed with a rule to impose a uniform fiduciary duty. But 

very much in my mind in doing that are all the complexities and 

all the impacts, and what we don’t want to do is end up with anything that would deprive retail investors of reliable, reasonably 

priced advice. 

Mrs. BEATTY. Thank you. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Arizona, Mr. 

Schweikert. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

And, Madam Chair, I go through the same thing. Many of the 

questions I wanted to ask have already been asked, but I want to 

go back to both Representatives Velazquez and Mulvaney. We 

asked you about crowdfunding. I was gone for 2 years, now I am 

back, and I am having the same conversation I had with you when 

you were kind enough to come talk to me when you very first were 

appointed in, what was that, April 2013? I would love a little bit 

of information to understand some of the rulemaking process, the 

political influence, the outside group influence. Why are we years 

behind on those rule sets from the JOBS Act, both for 

crowdfunding particularly and then the enhanced Reg A? We are 

what, 2-plus years behind the deadlines? 

Ms. WHITE. Actually, Reg A didn’t have a deadline, but it is a 

high priority and we may actually move on that as fast as tomorrow. 

Mr. SCHWEIKERT. But 2 years ago you used that exact same line 

with me that it was a high priority. 

Ms. WHITE. Yes, I did, and it was and it is a high priority. 

Let me talk about crowdfunding. I talked a little bit earlier about 

that. I think one of the things I did when I first arrived, because 

we had not proposed the crowdfunding rule, we had not proposed 

the Reg A-Plus rules, so I prioritized having them proposed, then 

you have your comment period. We have gotten a lot of comments 

on the crowdfunding rules, I think over 500, most of them unique 

comments on all sides of the issue. You don’t have enough investor 

protection in it; it is not workable; it is too costly. 

This is one where we knew it was going to be complex. We have 

the funding portal piece of that we are working very closely with 

FINRA on, but essentially in order to be as true as we must be to 

the statutory requirements, the costs, and the workability, it has 

proved more difficult and taken longer than we anticipated. 

I mentioned earlier that I actually had a meeting yesterday at 

some length with the staff— 

Mr. SCHWEIKERT. But, Madam Chair, to this point, would we 

help you help the public if we would be dramatically more prescriptive when we pass legislation? If we did self-executing deadlines 

and started to force these rule sets to actually happen, if you and 

your organization aren’t able to finish their work we know where 

we are? Because right now we have how many States that are 

doing State-based ones. So you do have incubators and examples 

51 

out there so you are not recreating the wheel. What am I not understanding? 

Ms. WHITE. I think the challenges vary in terms of being less or 

more prescriptive. Some of the challenges for us are created by the 

prescriptions because if they are prescriptive we need to carry 

them out. So, as we have been calling it, more technical assistance 

before the legislation is passed is needed. I think that is on us to 

be more interactive about it as well. Because what we are trying 

to do, a baseline, I don’t mean to use that in economic analysis terminology, but a baseline for us is to carry out the statutory mandates. But sometimes those mandates are hard to carry out. 

Mr. SCHWEIKERT. But you can understand from my side sitting 

here, in much of the rest of the world, or industrialized world, 

there are crowdfunding platforms. And for some reason from conception to today, I am, what, 3 years, and a couple of years behind 

in the rule sets. Because we hear lots of speeches around this place 

from many of us saying we need to be helping the little investor, 

we have income inequality, when actually what we seem to have 

is an opportunity gap. Oh, here is a way we are going to help that 

entry-level entrepreneur, and we sit here a couple of years later. 

So you can understand the frustration. 

One sort of side question: With the number of States that have 

gotten frustrated and just said they are going to do it on their own, 

will the SEC step in their path if Arizona decides to work with 

Texas and recognize each other’s platforms? Will States be allowed 

to sort of set up State compacts? 

Ms. WHITE. That is one set of issues that we now have because 

the States have proceeded, and that is not at all a critical remark. 

I think there— 

Mr. SCHWEIKERT. They didn’t have a choice. 

Ms. WHITE. No. Clearly, I think there is a benefit of a national 

rule, but once the States have moved constructively, as many of 

them have, what you want to try to do is accommodate as much 

of that as you can. 

Mr. SCHWEIKERT. Okay. Thank you, Mr. Chairman. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Hampshire, Mr. Guinta. 

Mr. GUINTA. Thank you, Mr. Chairman. 

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

This line of questioning has been discussed in the last couple of 

hours, but I want to go back to it because I still didn’t quite hear 

some of the answers that I was hoping to hear, and it goes back 

to the fiduciary duty on broker-dealers. 

I know it has been stated that back on February 20th at the SEC 

Speaks Conference, you noted that one of the priorities would be 

for the SEC to determine whether to adopt a uniform fiduciary 

duty for broker-dealers. And then approximately a month later, on 

March 17th, you had stated that it was your personal view that 

should be done. 

I am still trying to understand what happened in that period of 

time where it appeared that things changed. I was here for most 

of your testimony, but I didn’t hear a very specific and clear answer. 

52 

Ms. WHITE. The answer is that nothing really changed other 

than I had another month of study. I have been studying this issue 

in great depth for many, many months. 

And it frankly is still a ‘‘whether’’ question because it is up to 

the Commission. I am one of five votes on that Commission. But 

we need to make a decision whether to proceed, and then obviously, 

if so, how to proceed. 

But this is an issue that grabbed my attention, for want of a better expression, before I was confirmed. Basically, and I said it earlier, when you have essentially identical conduct regulated differently, particularly in the retail investor space, you have to think 

long and hard about why that regulation shouldn’t be the same. 

Mr. GUINTA. You mentioned that there was some analysis you relied on. Can you tell me what specific analysis and study you relied 

on? 

Ms. WHITE. It is really the body of analysis that has been done 

over the years at the SEC by various outside groups who have been 

studying this. Our economists continue to study it as well. 

Mr. GUINTA. Would you provide those analyses to me and the 

committee? 

Ms. WHITE. Sure. 

Mr. GUINTA. And then can you tell me what specific analysis you 

can point to that predicts the impact of the uniform duty for lowand middle-income families? 

Ms. WHITE. I can’t cite the particular studies that touch on those 

issues. Clearly, there is more data that our economists are focusing 

on, on issues including that one. But I can certainly include in the 

list the ones that touch on that. 

Mr. GUINTA. Okay. Do you know what analysis estimate, if they 

estimated the impact, would be on women and minority investors? 

Ms. WHITE. Again, there are several analyses kind of running the 

gamut in terms of what methodology they use that talks about— 

Mr. GUINTA. Did that go into your decision-making in that month 

here? 

Ms. WHITE. All that I studied did. And just in terms of rulemaking, if we advance it, inputs from all sources, including our 

own economists, will go into that. 

Mr. GUINTA. I think this is important because both sides have 

talked about it. Was there any analysis that you relied on that predicted what, if any, negative impacts there would be for investors 

that were valued under $50,000? 

Ms. WHITE. There absolutely are studies, articles, and academic 

papers on that I have looked at. 

Mr. GUINTA. But was there something specific that you relied on 

when you made this final decision? 

Ms. WHITE. Essentially what I relied on in reaching the view 

that I have at this point, my personal view, is the full body of evidence that is before the SEC. It is not just the SEC’s studies, although that is included in it as well. 

Mr. GUINTA. So the potential increase of broker commissions as 

a result of this was a consideration? 

Ms. WHITE. Anything that impacts on, are you depriving retail 

investors of reliable, reasonably priced advice is a very important 

consideration. 

53 

Mr. GUINTA. Was there anything specific about whether proprietary products would be continued to be offered to customers? 

Ms. WHITE. Again, Dodd-Frank Section 913 specifies a number of 

parameters, including that one. 

Mr. GUINTA. But I am trying to get to the analysis. The analysis 

that you utilized, that you said you utilized, were these items 

things that you specifically considered? 

Ms. WHITE. I don’t know how else to say it other than I— 

Mr. GUINTA. I know that you are saying it exists generally, but 

I am trying to get to whether you specifically looked at these analyses and did they have a determining factor in moving forward 

with these rules. 

Ms. WHITE. It is hard to say what moves you to your conclusions, 

I guess, but what I did was the deepest and broadest dive I could 

do before formulating my own personal view. 

Mr. GUINTA. Okay. I have heard the ‘‘broad.’’ I need the ‘‘deep.’’ 

That is what I am looking for. 

Ms. WHITE. Okay. Again, I think I have to provide you with the 

sources, is the only way I know to answer that. 

Mr. GUINTA. Would you be willing to provide communications 

that you had between February 20th and March 17th relative to 

this rule? 

Ms. WHITE. Yes, but I don’t think you will see anything. In terms 

of, you mean, like emails or something? 

Mr. GUINTA. Written email, absolutely, yes. 

Ms. WHITE. I will obviously take it back to the folks at the SEC. 

I am happy to provide whatever you need, frankly. 

Mr. GUINTA. Okay. I would love to see those communications. 

That would be great. 

Ms. WHITE. Okay. 

Mr. GUINTA. Thank you. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Mr. Chairman. 

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

I am a small business owner. I live in Texas. Now, last year you 

testified that the markets are not rigged. In July of 2014, a staff 

member from the Federal Reserve Bank of Chicago issued a research paper entitled, ‘‘Recommendations for Equitable Allocation 

of Trades in High Frequency Trading Environments.’’ 

Now, first question, are you aware of this paper? 

Ms. WHITE. I do recall the paper. It was approximately a year 

ago, right? Yes. 

Mr. WILLIAMS. My second question: Does the Federal Reserve 

Bank of Chicago have any regulatory responsibility for the conduct 

of equity markets? 

Ms. WHITE. Not to my knowledge. 

Mr. WILLIAMS. Did you ask Chair Yellen or the President of the 

Federal Reserve Bank of Chicago to write this paper? 

Ms. WHITE. No. 

54 

Mr. WILLIAMS. Has the staff of the Division of Trading and Markets analyzed the paper’s nine recommendations, and does the Division have concerns with any of the recommendations? 

Ms. WHITE. The answer to that is certainly to a degree the staff 

analyzed it, because I asked the staff about it, and they had a 

number of comments about it. I can’t give you the detail as I sit 

here right now, but certainly they have analyzed it. 

Mr. WILLIAMS. Do you have any concerns? 

Ms. WHITE. About the study or about the— 

Mr. WILLIAMS. With some of the recommendations. 

Ms. WHITE. I think the answer to that is yes, but I have to get 

back in and look at what that is so I can be more specific for you. 

Mr. WILLIAMS. I think we would like to hear what they are. 

Ms. WHITE. I am happy to do it. 

Mr. WILLIAMS. All right. Just last year, you stated that the SEC 

owes a duty to Congress, the staff, and the American people to use 

the funds they are appropriated prudently and efficiently. 

Now, do you believe the SEC has a responsibility to demonstrate 

that it is a good steward of its current resources before it asks for 

additional funding? And I am always amazed as a private sector 

guy how we just have unlimited money up here, at the unlimited 

line of credit just drawing the people’s money until it dies. 

So with that, before you answer that, I will note where I come 

from in Texas my constituents are not overly concerned about the 

rules, for instance, that we talked about earlier that deal with the 

CEO pay ratios, which the SEC spent over 7,000 staff hours and 

$1.1 million in labor costs for a rule that we don’t even have implemented yet. 

Ms. WHITE. I think all I can say in response to that, and I alluded to it earlier I think as well, is that is a congressional mandate, as are many of other our rulemakings, that I do feel an obligation to carry out and carry out in the most cost-effective way 

given the statutory requirement. Clearly, there are costs and workability concerns in that rulemaking that require a lot of staff time 

in order to achieve that objective. 

So that is, I think, the explanation. It is the explanation for the 

resources that have been applied to that. It is a congressional mandate and we want to carry it out because it is our obligation to, but 

do it in the most cost-effective way we possibly can. 

Mr. WILLIAMS. Next question: Earlier this year JPMorgan Chase 

indicated it would cut back on its fixed income trading desk because of the regulatory requirements and capital costs following the 

lead of what other investment firms are doing. Are you concerned 

about these new regulations, that they are reducing liquidity in the 

U.S. fixed income market? 

Ms. WHITE. I have a concern about all impacts, including those 

that are being occasioned by regulation. 

Mr. WILLIAMS. Regulations are killing small business, I will just 

tell you that. They are choking it to death. 

One more question: Last week, the SEC lost a case that it ran 

through its administrative hearing process. The administrative law 

judge called the SEC’s claim wildly exaggerated. 

Will the SEC enforcement staff who did this, who received bonuses for bringing that case, have to pay them back? Because I 

55 

have listened to your testimony today that you are short of funds 

to get the job done. If they paid that back, that would help your 

cash flow, wouldn’t it? 

Ms. WHITE. I guess I have to say at the outset that case may 

come to me on appeal. So I can’t really talk about the specifics of 

it. We are also limited by various civil service rules and other 

things in terms of what we might be able to do in that space were 

we to make a decision to do that, but I am not commenting on the 

merits or demerits of that situation. 

Mr. WILLIAMS. Right now, it has been deemed wildly exaggerated. 

Ms. WHITE. I heard that. 

Mr. WILLIAMS. Mr. Chairman, I yield back. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. 

And, Chair White, thank you for taking the time to be here. I 

think many of my questions have probably been answered. But just 

to follow up, quoting you, you just talked a little bit about how confusion is not a good thing, and that you think that you are doing 

good cost-benefit analysis. I would like you to expand on that for 

me. I understand your charge is obviously safety, soundness, making sure we have good markets that are moving forward. But talk 

to me a little bit about that cost-benefit analysis, because right now 

we are seeing $2 trillion a year nationwide in terms of regulatory 

compliance in this country. 

I share common ground with my colleague out of Texas, Mr. Williams. I am a small businessman. We are seeing more small businesses shut down than there are new business startups. While we 

want to be able to have those cost benefits, let’s look at outcomes. 

Is the economy really moving? We have the lowest labor participation rate in 37 years right now. Are we stimulating the economy, 

creating that opportunity for America to be able to succeed? 

Ms. WHITE. We certainly want to be doing that. I will say, just 

in terms of the small business space, the small cap companies, as 

we would call them at the SEC, I really have tried virtually from 

the month I arrived here to focus on that space. One size doesn’t 

fit all. And that probably applies across all kinds of spaces, including our equity market spaces. That is one of the reasons we are 

doing the Tick Size pilot. When it comes to cost benefit, we certainly do that analysis with respect to all of our rulemakings, including those that are mandated. 

Mr. TIPTON. When you are talking about benefit, what do you 

perceive as benefit? 

Ms. WHITE. There are a range of benefits: does it protect investors; does it facilitate capital formation; does it prevent the next financial crisis? 

Mr. TIPTON. Have we succeeded in capital formation? 

Ms. WHITE. We are certainly devoting a lot of effort to trying to 

succeed there. But, obviously, there are things in the marketplace 

that I think are impediments to that. 

Mr. TIPTON. I just visited—when we are talking about some of 

the rules and regulations that are going on, some of the stress tests 

56 

that are going on for banking institutions, last year one of the regional banks in the Western United States had 7,000 pages to complete for the stress test that had been submitted. This year, it was 

12,000 pages. 

Is that complexity, is that cost, is that impact—because obviously 

the bank has to be able to take that into consideration in terms of 

its ability to be able to have capital, to be able to issue loans to 

the small businesses that you are talking about wanting to be able 

to help, what is the thought process there? 

Ms. WHITE. I can speak from the perspective of the SEC that one 

of the things that we really do bore into when we are doing our 

rulemakings is not only the Paperwork Reduction Act, but obviously the impact of administering whatever the rule is on who it 

is going to be imposed on. But I take your point obviously. 

Mr. TIPTON. We haven’t succeeded too well when we are going 

from 7,000 to 12,000 pages in paperwork reduction, obviously. 

I would like to shift gears. You are talking about the mission of 

the SEC, that under Dodd-Frank, it requires the FSOC to do an 

analysis before it determines that a particular financial institution 

becomes a SIFI. However, the SEC, Treasury, and the Federal Reserve are members of the Financial Stability Board. And you participated in the designation of insurers like Prudential and MetLife 

as SIFIs prior to considering the same issues under the Financial 

Stability Oversight Council. Presumably, a prior decision by the 

FSB would taint any decision that is going to be coming out of the 

FSOC. Could you explain to me how you are going to be able to 

avoid some sort of conflict of interest in terms of predesignating, 

if you will, when it goes to the FSB than to the FSOC and it happens? 

Ms. WHITE. As I mentioned earlier, I didn’t actually participate 

in all those decisions at FSOC, but I did with respect to MetLife, 

as I think I mentioned before. The SEC’s role on the FSB, which 

has been in existence since 2009, along with Treasury and the Fed 

as the three U.S. representatives, our staff, basically, as a matter 

of practice, does not participate in work streams that are solely related to insurance or non-securities areas. 

Mr. TIPTON. Actually my point, Chair White, is it seems like the 

FSB makes a pronouncement and it just flows down. I would like 

to be able to see some of the independence that is coming through. 

Can you speak to that? 

Ms. WHITE. I can certainly speak on behalf of myself, and that 

I am totally independent, I think across-the-board, I hope, when it 

comes to any decision that I make. And certainly were the FSOC 

to take some action—again, this would be a space at the FSB I 

wouldn’t be participating in. So it is not that kind of a direct connector. And it is up to the national authority, to be defined probably as to what we do domestically. But I feel like I am an independent decision-maker. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Chairman. 

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

very much you coming before us. We all know that America’s free 

57 

market, capitalist system has produced some tremendous lifestyles 

and standards of living for millions of Americans, generations past. 

It pulled so many people out of poverty going forward, not only in 

America but in different parts of the world. It also provides us with 

the tax revenues we need to defend ourselves and to take care of 

the poor who really need help. 

Now, the bloodline of our economy, as you well know, Chair 

White, is in part the financial services industry and the capital 

markets because if our small businesses are unable to raise capital 

to expand, then they have a problem being successful and hiring 

our people and providing better lives for everybody. Now, in the 

2008 recession that hit, that was caused in great part by the collapse of the housing market, the result of that, in part, was a wide 

net, Dodd-Frank regulations that now has been expanded it seems 

like more and more over our entire financial services industry. 

And one of the results of Dodd-Frank, of course, as you know, is 

the Financial Stability Oversight Council, on which you sit. And 

you folks are responsible for designating which financial institutions here in our country are systemically important financial institutions or SIFIs. Now, a great concern I have, Chair White, is that 

in our mutual fund industry or pension investment industry, the 

money management business, I am very concerned that this wide 

net of Dodd-Frank is now about to engulf them and designate them 

as SIFI organizations. And here is why I am concerned. If there are 

2 money managers and they are both managing, pick a number, 

$100 billion for their clients, and one manager has poor performance for a period of time and the other manager has better performance for a period of time, then the first manager is going to 

be fired and the clients are going to go over to the second manager. 

But all the assets that they run are housed at a trust department 

down the road somewhere. So there is clearly no systemic risk to 

the economy or to the capital markets by these investment management firms being designated and so regulated as SIFIs. 

So my concern is that if you have a middle-class family up in 

Ellsworth, Maine, that I represent in our Second District, and you 

have a paper maker from the Bangor area and his wife is a teacher, and they are putting aside $50 a week to save for their retirement, and they want to have a nest egg at the end of 20 or 30 or 

40 years of working very hard in their professions. But, all of a 

sudden, if you have these investment companies that are helping 

their nest egg grow such that they can retire in dignity, without 

being dependent on the government, if we cast that net, Chair 

White, over these pension investment firms, these mutual fund 

companies that represent no risk to our capital markets, no risk to 

our economy, I am fearful that the products they will offer will 

shrink and the fees that they charge will go up. And then the rates 

of return that they generate for their clients who are trying to save 

for retirement will go down. 

In fact, Dennis Ross, a little bit earlier, mentioned a report by 

the former Director of the CBO, Mr. Holtz-Eakin, saying that, in 

fact, if that happens, you could see a 25 percent reduction in the 

growth rate, the rate of return of these savings for college kids 

going to school or people trying to retire. So my plea to you, Chair 

White, is that you sit on FSOC, along with Treasury, along with 

58 

the Federal Reserve, you have the authority, and I hope you will 

speak up, to make sure the pension fund business, the mutual fund 

business, those that are responsible for helping our families grow 

their nest eggs and retire in dignity won’t be held under this umbrella because it will only hurt them. Do I have that commitment 

from you today? 

Ms. WHITE. You certainly have my commitment that I will speak 

up on all those issues and others. 

Mr. POLIQUIN. I appreciate that. Thank you very much, Chair 

White. I would also like to encourage you to resist any temptation 

from the Federal Reserve or the Department of Labor or anybody 

else to take the authority that you have at the SEC to regulate 

non-bank financial institutions. You folks have been doing it for 80 

years. You have the experience. You have the tools. And I am concerned that if these money management firms that are trying to 

provide savings, power, if you will, for our middle-class families, if 

they fall under regulations or under the regulatory authority of the 

Fed or the DOL that has no experience doing this, it will only hurt 

the people we are trying to help. So I would encourage you, please 

stand up and be heard—I know you will—and make sure that you 

regulate these money managers as you always have. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you, Mr. Chairman. 

And thank you, Chair White, for being here today. Those of us 

who are freshman Members really appreciate you staying and answering some questions for us. So I want you to know I really appreciate it. I want to talk a little bit about Dodd-Frank and then 

try and get into capital formations if I can. Our time is limited. So 

I just wanted to get through these as quickly as possible. 

During the implementation or the development of the proposal to 

implement Section 619 of the Dodd-Frank Act, commonly known as 

the Volcker Rule, the banking regulators, led by the Federal Reserve, attempted to write a rule addressing trading and investment 

practices, activities that fall within the core competencies of the 

SEC. In your opinion, should the SEC have taken more of a leadership role in developing the Volcker Rule to ensure that the final 

rule was consistent with the SEC’s mission and maintenance of robust capital markets? 

Ms. WHITE. Again, the Volcker Rule provided some prescriptive 

steps and rules that were required under that rulemaking. It did 

not actually require the regulators to act jointly. It did require us 

to act in consultation. We ended up, which I think is a very good 

thing, acting jointly. From my perspective, I think the SEC was 

quite active; the staff was quite active; and I was quite active in 

providing inputs from our market-making, underwriting markets 

perspective. 

Mrs. LOVE. Okay. Would you agree that the final Volcker Rule 

makes it difficult for banks to buy or sell securities for their own 

inventory in anticipation of clients’ demand because managing the 

inventory can look like proprietary trading? 

Ms. WHITE. Certainly, that is an implementation challenge. But, 

obviously, there are prohibitions and there are exemptions. We 

59 

tried to make the exemptions as workable as possible given those 

constraints. 

Mrs. LOVE. Okay. In 2009 and 2010, as Congress drafted the 

Dodd-Frank Act, it rejected proposals to strip the SEC of its market oversight authority and declined to transfer the registration of 

investment products to what ultimately became the Bureau of Consumer Financial Protection. Would you agree that the SEC regulates markets that are inherently risky? 

Ms. WHITE. Yes. The markets are built on taking risk. That is 

what fuels innovation, the economy. You want it to be prudent risk. 

You want to have the disclosures you need to have, but yes. 

Mrs. LOVE. Would you also agree that the risks taken by investors are essential to capital allocation, which, in turn, is critical to 

economic growth? 

Ms. WHITE. Again, I think the kind of risk I am talking about 

underlies our capital markets. You want to disclose to investors 

what they need to know. 

Mrs. LOVE. So, is that a yes? 

Ms. WHITE. I think that is a yes. 

Mrs. LOVE. Okay. Does the bank-dominated FSOC reject your 

authority to propose and possibly adopt changes to oversight of 

asset managers? 

Ms. WHITE. No. What FSOC is doing at the moment on the asset 

managers is requesting information on various activities of asset 

managers. SEC staff was very much a part of that. We have proceeded—as I think I said earlier, we are proceeding with a number 

of regulations in that asset management space. That is the SEC, 

not FSOC. 

Mrs. LOVE. Okay. I have just a little over a minute. And I wanted to really get back to this because this is obviously very important to this body. We are approaching the 3-year anniversary of the 

JOBS Act without several of the major components being effective. 

Can we expect the Commission to finalize the JOBS Act rulemaking for crowdfunding? 

Ms. WHITE. The answer to that is yes. 

Mrs. LOVE. Okay. Will you commit to finalizing this rule by the 

end of Fiscal Year 2015? 

Ms. WHITE. What I will say is it is a high priority for 2015. And 

I had a huge meeting on it yesterday to move it forward. 

Mrs. LOVE. You are asking for $1.77 billion, and this is incredibly 

important. 

Ms. WHITE. I agree that it is incredibly important. 

Mrs. LOVE. And I would like to know if you would commit to finalizing this rule before the end of Fiscal Year 2015? 

Ms. WHITE. It is on our agenda to complete by then. And we are 

working very hard to make sure we can make good on that commitment. 

Mrs. LOVE. Okay. So no commitment to do that? 

Ms. WHITE. My commitment is that we are according it the highest priority to get it done in 2015. 

Mrs. LOVE. Okay. I am out of time. Thank you. 

Chairman HENSARLING. The gentlelady’s time has expired. 

The Chair now recognizes the gentleman from Arkansas, Mr. 

Hill. 

60 

Mr. HILL. Thank you, Mr. Chairman. 

Chair White, thank you for being here. Thank you for your long, 

wonderful service to our country. We appreciate your leadership. 

You made a comment a few minutes ago—you said you had pride 

in your independence, independent thought as it related to the 

FSOC. And I presume that you and your fellow Commissioners believe at the SEC that you are an independent regulatory agency? 

Ms. WHITE. Yes, we do. 

Mr. HILL. And the fact that your budget comes to appropriation 

before the Congress doesn’t in any way limit or cause you to feel 

less independent, I wouldn’t think? 

Ms. WHITE. No, it doesn’t. 

Mr. HILL. Thank you. My friend Rick Ketchum over at FINRA 

has a proposal that I think you are familiar with, which is referred 

to by the acronym CARDS. I wonder what your view is on that? 

Ms. WHITE. That is, again, by virtue of the regulatory structure, 

a rulemaking that will come to the SEC to pass on. So I can’t really 

comment on the merits of it. I can say I am familiar with it. I am 

familiar with the many comments that have been made in response 

and I am familiar with the fact that FINRA is working through, 

taking very seriously those comments. Should they advance the 

rule, it will come to the SEC for approval, notice and comment and 

so forth. 

Mr. HILL. One thing that I think we have talked about, liquidity, 

and I think a lot of my fellow members of the committee were primarily talking about the government securities market and issues 

around the Volcker Rule, but I want to turn to the liquidity of another market that is extremely important to millions of investors 

and then all of our cities and towns, and that is in the municipal 

finance market. I am interested in your views on the MSRB’s rule 

G-23, which limits the financial advisory arms of BDs from participating in anonymous auctions for municipal securities. Can you 

give me your views on that? 

Ms. WHITE. I might have to come back in detail on that. It is one 

that the SEC has approved, I think at this point. So that is some 

indication of my position on it, although that is done by the staff 

and by delegated authority. One of the things that I mentioned at 

one of the two speeches I gave in June on some of these market 

structure issues is that I thought it was very important for the 

MSRB to advance the best execution rule. I also thought that it 

was very important for both FINRA and the MSRB to forward 

what is referred to as the riskless principal disclosure rules. That 

entire market I think bears the attention and priority that it is getting now. We, again, are more limited in that space from a regulatory point of view than we are in other spaces. 

Mr. HILL. It is my view, as somebody who has some familiarity 

with those markets for some period of time, that if one were to increase potential buyers in a competitive bid, an anonymous, competitive bid process, that you would increase liquidity and benefit 

the issuers, the public entities, and the revenue or GO market and, 

obviously by virtue of that, the investors that buy the issue at the 

offering price. From what I can tell from looking at the data, the 

rule, when you exclude that FA side of a BD’s business, you are 

limiting market participants and, therefore, limiting competitive 

61 

bids, maybe cutting them in half potentially. So I ask you to look 

at that from a competitive and liquidity point of view because in 

our capital markets and the public finance arena, we want more 

business. And our investors are benefited by having more bidders 

because these are mostly long-term, as you know, buy-and-hold investors. And that improves best execution. So I would encourage 

you to look at that. 

The final topic I would like to raise with you today is this issue, 

again, on what I have sort of described as the war on savings. And 

I group all of those things together, the 529 proposal that was 

withdrawn, the DOL proposal that is in discussion, the increasing 

capital gains taxation, the removing of stepped-up basis, the cap on 

IRA accounts. Back in the ancient history when I served at Treasury, we were demanded to increase savings and to create more 

ways to encourage Americans of all income levels to save and improve our capital markets that way. And I would like to talk to you 

a little bit about the fiduciary standard and just add my views. You 

have heard a lot about it today. 

I think that there are the suitability rules that we have, the 

know-your-customers rules that we have. The elaborate performance that brokers and financial advisers go through with their clients is more than sufficient to let the customer make a decision 

whether they want that fiduciary relationship or an agency relationship. And I want to add my weight of my comments, that I 

don’t think there is an automatic benefit to the capital markets by 

going fiduciary only. And I really urge you to reconsider your 

thinking there. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

And thank you, Chair White. Not only are the freshman glad 

that you are sticking around, but this sophomore is glad as well. 

So, thank you. I read an article earlier this year from Gallup entitled, ‘‘American Entrepreneurship: Dead or Alive.’’ The article begins by saying that the United States ranks 12th in terms of business start-up activity when compared with other developed nations. 

This is a pretty troubling statistic at a time when we are trying 

to grow the economy and create more jobs. This is where I turn 

back to one component of the SEC’s statutory mission: facilitating 

capital formation. I understand the SEC held its annual small 

business capital formation seminar this past November. Can we expect to see the SEC taking any action on its own to move forward 

with any ideas raised at that forum? 

Ms. WHITE. There were a lot of ideas discussed at that forum, 

and as we speak, the staff is analyzing those for my benefit and 

the benefit of my fellow Commissioners. 

Mr. ROTHFUS. Will we be seeing any kind of public statement 

about it, taking those ideas and— 

Ms. WHITE. I think we have to complete the review and analysis 

of them. But again, as I said earlier, I am certainly very focused, 

as are a number, if not all, of my fellow Commissioners on intensifying what we can do for capital formation by small businesses. 

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62 

tiveness review, are examples of that. Some of those recommendations, by the way, came from that forum as well as our Small Business Committee. 

Mr. ROTHFUS. We have had some good success in Pittsburgh. It 

is one of the top cities attracting new technology companies in recent years. This sector is growing, thanks to venture capitalists, 

angel investors, and others. A large part of the positive progress is 

related to the top-notch educational institutions in our area and 

local firms that are willing to support the local startups. This 

growth is certainly welcome in western Pennsylvania. But we need 

to have this going across the country. That leads me to a question 

about what the SEC may be doing, if anything, with respect to 

looking at its rules and regulations and how you are keeping those 

updated. Has the Commission taken steps to consolidate or eliminate rules that are out-of-date or ineffective? 

Ms. WHITE. We certainly do a retrospective review under the Reg 

Flex Act. And we also take input from all kinds of sources as to 

rules we ought to either consolidate or change in some way. 

Mr. ROTHFUS. Can you give some specific examples of some of 

the regulations you are taking a look at? 

Ms. WHITE. We basically look at them periodically. If they are 

major rules, every year. It is sort of a rolling basis. 

Mr. ROTHFUS. Is there one or two that you could highlight? 

Ms. WHITE. I can get back to you on some specifics and where 

we have moved on them. 

Mr. ROTHFUS. I would appreciate that. Looking at the topline 

summary of the SEC’s budget justification, there is a significant 

emphasis on enforcement versus rulemaking. The Commission’s request states that the top priority would be to hire 225 additional 

examiners. This is significantly higher than the proposed resources 

dedicated to economic and risk analysis and rulemaking. Why is 

the SEC making its top priority hiring 225 additional examiners instead of the SEC focusing on furthering the delayed rulemaking 

process? 

Ms. WHITE. I think to go for the economic analysis, our DERA 

unit, if we can call it that, which houses our economists who obviously participate in the analysis, including cost-benefit analysis of 

all the rulemaking, is our fastest growing division. They are one of 

the great success stories of the SEC, and we have sought additional 

resources for them as well. I think we now have 90-plus economists, up from about 40 just a few years ago. So you can only hire 

so many well and smartly. In terms of the examiners per se, and 

I spoke about this a little bit earlier as well, that is an area where 

I think we really have a responsibility to try to meet that gap in 

terms of our ability to cover exams. It is not enforcement but 

exams of investment advisers which are also for the benefit of the 

markets and the investors. 

Mr. ROTHFUS. Again, as has been said, we are concerned about 

the JOBS Act and getting those rulemakings done. 

Ms. WHITE. Absolutely. 

Mr. ROTHFUS. You have noted previously that when disclosure 

gets to be too much or strays from its core purpose, it could lead 

to what some have called information overload. By allowing our 

disclosure regime to become the de facto vehicle for more and more 

63 

human rights campaigns, do we run the risk of compounding the 

information overload problem that you previously highlighted? 

Ms. WHITE. Again, as part of our disclosure effectiveness review, 

we are trying to deal with a number of those issues to make our 

disclosures more effective. It really is not reducing it, but making 

it more effective and more investor-friendly but— 

Mr. ROTHFUS. Would you agree that the information overload in 

SEC filings may actually be confusing and distracting to investors 

who are seeking to make informed investment decisions based on 

material information? 

Ms. WHITE. The core of our disclosure powers should be directed 

to what is material to investment decisions and voting decisions. 

And certainly one of the things we look at is whether we have information in there that is distracting from that core purpose. 

Mr. ROTHFUS. Thank you. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Illinois, Mr. Dold. 

Mr. DOLD. Thank you, Mr. Chairman. Chair White, I certainly 

appreciate you sticking around. 

Thank you so much for your testimony and for being here, and 

thank you for your service to our country. This is I think the end, 

so a short little time here—at least for today, I hope. 

I want to associate my comments, first of all, with my colleague, 

Mr. Hill from Arkansas. And I certainly hope that we all are looking for ways to try to encourage more savings. And so his words, 

the war on savings, I hope that we are all looking to try to make 

sure that we can put policies in place that encourage more savings 

throughout our country at all different levels. 

I wanted to talk for a second about accredited investors. And certainly the definition of ‘‘accredited investor’’ purely on income or 

net worth, I think is somewhat antiquated and counterproductive. 

And, as I am sure you are aware, the United Kingdom added another mechanism and measurement really revolving around education so that they are actually able to go through and take a test 

to be able to be considered an accredited investor. So I just wanted 

to say, is the Division considering an educational component as you 

begin to update the definition of ‘‘accredited investor?’’ 

Ms. WHITE. The Division of Corporation Finance, together with 

our economists, is doing a very deep dive into an ‘‘accredited investor’’ definition and considering all possible parameters, beyond net 

income, net worth, sophistication, licensing, education, and testing. 

The entire range is being considered. 

Mr. DOLD. I certainly hope so. It seems odd to me that you could 

have a law degree, an MBA, have graduated from college, and just 

because you don’t have the income or net worth, you are not going 

to be considered able to invest in certain securities. 

I wanted also to talk to you for a second about your written response in September of 2014 to Chairman Hensarling regarding 

the SEC’s post-JOBS Act capital formation agenda, which really 

didn’t have a whole lot of Commission-generated ideas to enhance 

capital formation beyond the congressionally mandated 

rulemakings and JOBS Act. What are some of the specifics that the 

Commission is looking at to improve capital formation? 

64 

Ms. WHITE. I guess I would mention three. I think there are 

more than that. And some of the JOBS Act provisions are also ones 

that both our advisory committees and the staff were working on 

as well. And they are obviously very important ones and important 

ones for us to finish also. The Tick Size pilot is one example, as 

well as the disclosure effectiveness review, and the consideration of 

venture exchanges. And then we do have our dedicated unit in Corporation Finance that really is focused in the rulemaking sense, 

and in the service sense exclusively on small businesses and what 

their needs are. 

Mr. DOLD. I certainly appreciate that, being a small business 

owner. Small business is vital to Main Street and, frankly, for job 

creation. 

I wonder if I might be able to switch to Business Development 

Companies (BDCs). Business Development Companies have seen a 

fairly rapid increase in growth over the past few years, from about 

$4.7 billion in assets under management in 2002 to about—at least 

my calculations are $73.1 billion in 2014, providing loans to small 

and middle-market businesses, again, going back to that idea that 

most of the net new jobs are created by these small businesses. 

This growth stems from the demand capital that the BDCs are filling. So what is the SEC doing to help support the growth in this 

important industry? And, in particular, what efforts are under way 

to modernize the regulations? 

Ms. WHITE. That is being looked at by our staff, in part in connection with one or more bills that I think were pending last session. So it is area where I think there are a number of ideas that 

are out there, some that might give us some concern, but it is 

clearly a very important segment of the economy. 

Mr. DOLD. Okay. So there is nothing— 

Ms. WHITE. There is nothing imminent, no. But I can, again, get 

back to you with sort of the outlines of what we are doing on that. 

Mr. DOLD. In a letter you wrote to the committee in October of 

2013 regarding some proposed BDC legislation, you indicated that 

a number of those provisions in a bill—and I do believe that one 

of my colleagues is going to also offer some legislation; if he doesn’t, 

I will—posed no investor protection concerns. These also happen to 

be provisions that have not been updated for 30-plus years. And 

you have the authority right now to modernize and fix it. What 

have you done or what do you plan to do to help modernize these 

rules? 

Ms. WHITE. Again, it is something that the staff is reviewing. We 

obviously have a very full agenda. I am not minimizing the importance of BDCs on that. But I think I would have to really probably 

follow up for the record in terms of where that fits into our planning. 

Mr. DOLD. I would appreciate it if you would do so. 

My time has expired. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

There are no other Members in the queue. So I would like to thank 

the witness for her testimony and her patience today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legisVerDate Nov 24 2008 18:02 Oct 30, 2015 Jkt 095054 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 K:\DOCS\95054.TXT TERI
65 

lative days for Members to submit written questions to this witness 

and to place her responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 1:34 p.m., the hearing was adjourned.] 

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A P P E N D I X 

March 24, 2015 

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