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95–064 PDF 2015

OVERSIGHT OF THE FINANCIAL 

INDUSTRY REGULATORY AUTHORITY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS AND 

GOVERNMENT SPONSORED ENTERPRISES 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MAY 1, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–20 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

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) 

SUBCOMMITTEE ON CAPITAL MARKETS AND GOVERNMENT SPONSORED ENTERPRISES

SCOTT GARRETT, New Jersey, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

CAROLYN B. MALONEY, New York, 

Ranking Member 

BRAD SHERMAN, California 

RUBE ́ N HINOJOSA, Texas 

STEPHEN F. LYNCH, Massachusetts 

ED PERLMUTTER, Colorado 

DAVID SCOTT, Georgia 

JAMES A. HIMES, Connecticut 

KEITH ELLISON, Minnesota 

BILL FOSTER, Illinois 

GREGORY W. MEEKS, New York 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

PATRICK MURPHY, Florida 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 1, 2015 ....................................................................................................... 1 

Appendix: 

May 1, 2015 ....................................................................................................... 29 

WITNESSES 

FRIDAY, MAY 1, 2015 

Ketchum, Richard G., Chairman and Chief Executive Officer, Financial Industry Regulatory Authority (FINRA) ............................................................... 5 

APPENDIX 

Prepared statements: 

Ketchum, Richard G. ........................................................................................ 30 

(1) 

OVERSIGHT OF THE FINANCIAL 

INDUSTRY REGULATORY AUTHORITY 

Friday, May 1, 2015 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS AND

GOVERNMENT SPONSORED ENTERPRISES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:48 a.m., in room 

HVC-210, Capitol Visitor Center, Hon. Scott Garrett [chairman of 

the subcommittee] presiding. 

Members present: Representatives Garrett, Hurt, Royce, Neugebauer, Huizenga, Hultgren, Poliquin, Hill; Maloney, Sherman, 

Lynch, and Himes. 

Chairman GARRETT. Good morning. The Subcommittee on Capital Markets and Government Sponsored Enterprises will come to 

order. I appreciate everyone’s indulgence for votes, for those important pieces of legislation. 

Today’s hearing is entitled, ‘‘Oversight of the Financial Industry 

Regulatory Authority.’’ I will begin with opening statements and 

then turn to our panel. 

I now yield myself 3 minutes. 

Today we will hold, as I said, an important hearing, to provide 

for much-needed oversight of the Financial Industry Regulatory 

Authority (FINRA). But despite its status as a self-regulatory organization (SRO), some would argue that it hardly resembles what 

would many call an SRO, and is what now appears to be more of 

a quasi-government regulator. Some even call it a deputy SEC. 

Indeed, its recent actions are closer to that of ever-expanding 

Federal bureaucracies that we have become accustomed to now in 

Washington, that seek to go further into people’s lives and businesses. 

And so, despite FINRA’s enforcement of rules for the broker-dealer community that it regulates, it recently has come out in favor 

of the SEC moving forward with a uniform fiduciary standard, a 

sentiment shared by SEC Chair Mary Jo White. 

I should point out that when Chair White was before the full Financial Services Committee in March, she was unable to provide 

this committee with any studies or any other data, especially as it 

relates to the proposal’s impact on low- and middle-income investors, which convinced her of the need for the new proposal in the 

first place. 

So I hope that Mr. Ketchum can elaborate today on the studies 

and any empirical data that he may have reviewed which has perVerDate Nov 24 2008 13:49 Sep 03, 2015 Jkt 095064 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\95064.TXT TERRI
2 

suaded him and FINRA that the SEC should move forward on 

sweeping regulations and reconstruction of our security laws. 

As I previously noted elsewhere, and in other conversations, 

FINRA’s comprehensive automated risk data system, also called 

CARDS, is a solution in search of a problem. Even after changes 

to the original proposal, I remain far from convinced that this costly, intrusive, and burdensome proposal is actually needed. The 

costs will far outweigh any potential benefits, and will further 

squeeze out small broker-dealers who are already facing increased 

regulatory compliance costs. 

Additionally, CARDS would establish a new government database that would retain sensitive information about millions of 

Americans that can be, as we have been told, re-engineered to determine their personal identity. This, as some have said, amounts 

to the CARDS proposal being ‘‘a few cards short of a full deck.’’ 

As FINRA is attempting to stand up CARDS, it is also bidding 

to become the operator of something called the consolidated audit 

trail (CAT). In bidding for CAT, FINRA is in a unique position to 

the other bidders on this proposal. 

Why is that? Because it sits on the SRO committee that will recommend a winner to the SEC. This would appear to be a blatant 

conflict of interest. 

But, notwithstanding that, I think having a single financial regulator with the data held by CAT and CARDS, should give every 

American some pause. 

In all, FINRA continues to step far beyond, I believe, the bounds 

of its originally intended jurisdiction and into personal investing 

decision-making of everyday Americans. It is this committee’s duty 

to ensure that FINRA supplements, but does not supplant, the 

SEC. So, with that said, I want to thank the panel, which consists 

of one witness, Mr. Ketchum, for your appearance today at the 

hearing. 

The gentleman from Massachusetts is now recognized for 2 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. I appreciate your indulgence. 

I think there has been some recent activity that, indeed, does call 

into question FINRA’s conduct. While some may suggest it is hyperactivity, I think that the events going back to the May 6, 2010, 

‘‘flash crash’’ when the Dow Jones Industrial Average rapidly 

dropped about 600 points in 5 minutes before quickly rebounding, 

that event has brought further evidence to light. 

Recently, on April 21, 2015, the CFTC and the Department of 

Justice announced that the agencies were bringing civil and criminal charges, respectively, against Navinder Singh Sarao, a U.K. 

trader who had been manipulating the global financial markets 

from his home for years, for allegedly helping to cause the May 6, 

2010, ‘‘flash crash.’’ 

As reported in the New York Times, Mr. Sarao is accused of entering and withdrawing thousands of orders, worth tens of millions 

of dollars each, on hundreds of trading days, in an attempt to push 

down the price of futures contracts tied to the value of the Standard & Poor’s 500, a practice known as ‘‘spoofing.’’ 

3 

Once the price fell, Mr. Sarao would buy the contracts and reap 

the profits. However, on the day of the ‘‘flash crash’’ on May 6, 

2010, prosecutors contend that Mr. Sarao placed large orders repeatedly over several hours, leaving the market vulnerable to big 

moves when another big trade came in from an investor in the 

United States. 

Reports indicate that the regulators completely missed Mr. 

Sarao’s activity, because they weren’t looking at complete data. As 

a result, it took regulators 5 years—5 years—to track down the actual culprit of the ‘‘flash crash.’’ 

The equity markets have rapidly evolved. Now, there are thousands of stocks and over 1,000 exchange traded funds (ETFs) trading on 11 stock exchanges. There has been the introduction of over 

40 dark pools. 

And I think what we would like to hear from the witness is 

whether the fragmentation of liquidity has hurt your cross-market 

surveillance methods, and do you think there are too many venues 

in which to trade securities? 

FINRA is responsible for regulation in the securities industry, 

and can reach across securities markets centers to look for manipulative behavior. And I am just wondering with the evolution of the 

markets, does FINRA still have the ability to do that, to reach 

across asset classes, like futures and currencies. 

Since many strategies today employed by proprietary traders 

reach across various asset classes, do you think it would make 

sense for the CFTC and the SEC to work more closely together and 

share that information? Those are some of the questions that I 

think the ‘‘flash crash’’ investigation has raised. It will be interesting to hear the answers from our witness. And I yield back the 

balance of my time. 

Chairman GARRETT. The gentleman’s time has expired. 

Mr. Hurt is recognized for 2 minutes. 

Mr. HURT. Thank you, Mr. Chairman. Mr. Chairman, I want to 

thank you for holding today’s hearing. I am pleased that the subcommittee has taken the time to conduct oversight of the Financial 

Industry Regulatory Authority and its activities. Making sure that 

we have fair and effective regulation is vital to maintaining efficient capital markets, especially for smaller firms that are subject 

to FINRA’s supervision. 

While a larger firm may be able to absorb FINRA’s compliance 

costs, smaller broker-dealers are often hampered by them. FINRA’s 

proposed CARDS initiative is one example of an idea that I believe 

is too costly and burdensome, particularly for smaller firms. 

Investors in both Virginia’s Fifth District, my district, and across 

the country rely on FINRA to regulate broker-dealers in a responsible way. FINRA also has responsibility to operate in a fair, consistent, and transparent manner, given the authority that it exercises. 

FINRA must be mindful of the potential economic impacts its 

rules may have, particularly at a time when economic growth remains vitally important. 

I believe FINRA should focus on streamlining its duplicative systems and improving its operations, so as to better serve the brokerdealer community and their customers. I hope that today’s hearing 

4 

gives us an opportunity to examine the work that FINRA is doing 

and the ways in which we can ensure that broker-dealers continue 

to efficiently regulate and to remain vibrant for years to come. 

I look forward to the testimony of Mr. Ketchum, and I thank him 

for his appearance before the subcommittee today. 

And, Mr. Chairman, I yield back the balance of my time. 

Chairman GARRETT. The gentleman yields back. 

The gentlelady from New York is recognized for 3 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman, for holding this important hearing. 

We talk a lot about investor protection on this committee, and 

FINRA plays a central role in protecting investors in our securities 

markets. Investor protection takes many forms, but in general we 

focus on two main areas: first, ensuring that investors have enough 

information to make fully informed investment decisions; and second, making sure that investors are treated fairly by the securities 

professionals with whom they deal. These categories do overlap. 

Sometimes investors get their information about a security from 

their broker. In that case, ensuring fair treatment means making 

sure that the broker discloses all the pertinent information to the 

investor and it is in this second category of investor protection, ensuring fair treatment, that FINRA plays an enormously important 

role. 

Every broker and brokerage firm that sells securities to the investing public must be licensed and registered with FINRA. The 

regulation of broker conduct is extremely important because of the 

inherent informational advantage that brokers have over ordinary 

investors. 

Brokers by their very nature have access to a great deal of information that investors do not have. Most importantly, since brokers 

take orders from both buyers and sellers all day, they know which 

products are in demand. 

As a result, it is important that appropriate standards are in 

place to ensure that brokers don’t use that informational advantage 

to the detriment of investors. That is where FINRA comes in. 

FINRA ensures that brokers don’t mislead investors and that they 

don’t sell investors products that are inappropriate for them or are 

deliberately designed to be too complex for them to understand. 

And while this is a critically important role, it is not the only 

role that FINRA plays in our markets. It also plays a key role in 

market surveillance by identifying red flags and trading patterns 

that suggest possible insider trading or fraud. 

For instance, if there is an unusual amount of buying in a particular stock right before a company announces it is being acquired, 

it is FINRA that usually detects that activity and refers it to the 

SEC’s Enforcement Division. 

In 2014 alone, FINRA referred over 700 matters to the SEC for 

possible enforcement. So without these kinds of red flags and referrals from FINRA, the SEC would be significantly less effective. 

Also, it is an independent relationship and one that we should 

periodically examine to ensure that everything is working properly. 

That is why we are here today to conduct this necessary oversight 

of FINRA. 

5 

So I look forward from hearing from our witness, and I yield 

back the balance of my time. Thank you for calling this hearing. 

Chairman GARRETT. I thank the gentlelady. 

Now, we turn to our witness, Mr. Richard G. Ketchum, Chairman and CEO of FINRA. Thank you very much for your indulgence 

and your patience, and you are now recognized for 5 minutes. 

You have been here before, so you know that your complete written testimony has already been submitted to the record. And you 

are recognized for 5 minutes. 

STATEMENT OF RICHARD G. KETCHUM, CHAIRMAN AND 

CHIEF EXECUTIVE OFFICER, FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) 

Mr. KETCHUM. Chairman Garrett, Ranking Member Maloney, 

and members of the subcommittee, I am Richard Ketchum, Chairman and CEO of the Financial Industry Regulatory Authority, or 

FINRA. 

On behalf of FINRA, I would like to thank you for the opportunity to testify today. 

FINRA oversees approximately 4,000 brokerage firms and over 

600,000 registered brokers. FINRA’s programs range from registering individuals to examining securities firms, writing rules, enforcing those rules and the securities laws, and educating the investing public. 

FINRA carries out this work under authority from Federal law 

and oversight by the SEC. Our work is informed by a board and 

advisory committee structure that incorporates both public and industry representation. 

In addition to regulating brokers and brokerage firms, FINRA 

monitors approximately 99 percent of all trading in U.S. listed equities markets, or nearly 6 billion shares traded each day. In fact, 

FINRA’s market surveillance systems process approximately 30 billion market events each day to closely monitor trading activity in 

equity options and fixed-income markets in the United States. 

And I would note to the question raised earlier in the statements 

that FINRA has, for decades, looked at order information of surveillances, and for a period of 5 years, has had surveillances with 

respect to spoofing and layering that has resulted in multiple disciplinary actions. 

The programs we operate are continually evolving to improve 

and reflect relevant changes in industry operations and technology. 

In my written statement, I describe our rulemaking process, as 

well as the economic analysis we build in through our Office of the 

Chief Economist, as well as our retrospective rule review process, 

which has just resulted in the first set of rule changes approved by 

our board in April. 

Our examination program has shifted over the past few years to 

a far more risk-based system, one that is built on gathering information prior to examinations, evaluating the risk areas posed by 

an individual firm, and focusing resources on the areas where the 

most risk to investors lies. 

Alongside these efforts, however, we have maintained our commitment to regular on-site examinations, and we conduct these 

6 

exams on cycles that range from annually to every 4 years, depending on the firm. 

We have also enhanced programs such as our Office of Fraud Detection and Market Intelligence, and added new ones, such as our 

high-risk broker program, in an effort to develop new ways to 

quickly identify and address potentially harmful conduct. 

When we find this conduct and bring disciplinary actions, we 

focus not just on fines, but importantly, on restitution to harmed 

investors. Last year, we ordered over $32 million in restitution to 

customers. And cases brought by other authorities based on referrals from FINRA resulted in even more money returned to investors. 

In the market regulation area, the primary challenge is to ensure 

that regulation is effective in today’s increasingly fragmented marketplace. Through our work for exchange clients, FINRA has been 

able to aggregate trading data across the markets to conduct comprehensive cross-market surveillance. This cross-market surveillance enables FINRA, in partnership with exchanges and the SEC, 

to better protect investors and promote market integrity. 

FINRA also is working to design surveillance programs that will 

span equities and options markets together to identify potentially 

manipulative conduct across products. 

And, of course, when the SEC’s consolidated audit trail is functional, that will be the most complete picture of market activity 

and a vital tool for effective regulation. 

Complementing these regulatory and examination programs are 

efforts to enhance the information available to investors. 

FINRA created important transparency for the corporate bond 

market with the launch of our trade system over a decade ago, significantly reducing spreads in that market. We have now expanded 

trades to include agency debentures and many asset-backed securities, with more to come over the next 12 to 18 months. 

We also recently began collecting and making public reported 

volume and trade count information for all dark pools. Market participants, investors, regulators and academics are now able to see 

with unprecedented granularity volume information and trends regarding dark pool trading on a security by security basis. 

Finally, I would note that 10 years ago FINRA established the 

FINRA Investor Education Foundation to provide investors with 

useful information and tools. Since its inception, the FINRA Foundation has approved nearly $100 million in grants in targeted 

projects. And these efforts have led to tangible benefits for investors in all parts of the country. 

In all of these areas and others, FINRA remains committed to 

working closely with investor and industry representatives, fellow 

regulators, and our oversight committees, as we continue to carry 

out our mission of protecting investors and safeguarding market integrity. 

I appreciate the opportunity to testify today, and I would be 

happy to answer any questions you may have. 

[The prepared statement of Chairman Ketchum can be found on 

page 30 of the appendix.] 

Chairman GARRETT. Great, thanks. I appreciate your testimony. 

I will now recognize myself for 5 minutes for some questions. 

7 

So the predecessor of FINRA was the NASD. I would argue, and 

many would argue, that the NASD was a true self-regulatory agency. And I would argue that FINRA today is neither a true self-regulator, nor is it a government regulator. It acts more like a deputy 

of the SEC, than it does as a self-regulator. 

In the beginning of this year, a witness from the Mercatus Center, Hester Peirce, suggested several ways to look at this issue that 

I just laid out, and suggested several ways to improve—maybe to 

restore FINRA’s structure, if you will, and to improve its accountability, and, as she put it, ‘‘to reshape FINRA into a true self-regulatory organization.’’ The regulators actually run by the industry it 

regulates and allowing the emergence of competing self-regulatory 

organizations. 

So I will give you a minute here to respond. 

Should the membership, if you will, of FINRA have a greater say 

in its operations, a greater say in its organization, a greater say 

in the policies that it proposes? A greater say in the rule proposals? 

A greater say in its agenda, than it does now? And I understand— 

and you laid out in your written testimony—the advisory committees and that sort of thing, that exist today. So I am asking, should 

there be greater say than what already exists as in the current 

structure? 

Mr. KETCHUM. The short answer would be that I think the balance is correct today. I was honored to work and serve at the 

NASD throughout the 1990s. 

Chairman GARRETT. Right. 

Mr. KETCHUM. And I saw the evolution of the NASD into a balance that I think is very similar to FINRA in those 1990s. 

I think what is left is a board that has a majority of public members, but has industry members that reflect each of the segments 

of the industry to ensure that there is input with regard to any 

rules or questions with respect to our program. 

Chairman GARRETT. So this— 

Mr. KETCHUM. That is built across committees, both of small 

member firms, and I recognize the points made earlier that absolutely require our attention, as well as committees on a subject 

matter basis. So I believe what— 

Chairman GARRETT. But those committees—and there are a 

whole slew of them. I understand that. 

Mr. KETCHUM. Yes. 

Chairman GARRETT. Would you honestly say that those committees are the ones that actually shape the policy and the rules that 

come out—that get proposed? 

Mr. KETCHUM. Yes, I would say they have a great deal of input. 

The decisions are fundamentally decisions that have to be made by 

the staff and the board, which is absolutely the way it was at the 

NASD. 

Chairman GARRETT. So where— 

Mr. KETCHUM. But the input of those committees get directly 

communicated to the board. 

Chairman GARRETT. Right, so where— 

Mr. KETCHUM. Not something we do, but directly communicated 

to the board. 

8 

Chairman GARRETT. So since you were around both times, now 

and then, where today do the actual ideas or the proposals—where 

do the actual proposals come from? Do the actual proposals come 

from the committees? Or, as you just said, the staff and the board? 

Does the staff say, ‘‘Here is the idea. Here is the proposal,’’ and 

then go to the committee and say, ‘‘Hey, give us your two cents on 

this?’’ Or it is the other way around? Is it from the bottom up? Yes? 

Mr. KETCHUM. Chairman Garrett, I think the answer is both. We 

get ideas from committees that lead to rulemaking. We get reaction 

to suggested proposed rules from committees that profoundly 

change and adjust what the rulemaking is because of the valuable 

input they provide— 

Chairman GARRETT. And what— 

Mr. KETCHUM. —as well as input from the standpoint of investors. 

Chairman GARRETT. And so, to take a particular example, such 

as the CARDS idea, where did that come from? Did that come from 

the bottom up, from the small broker-dealer suggesting that? Or 

did that come from staff and the board? 

Mr. KETCHUM. No, the CARDS proposal came from staff and its 

experience in using data analytics with respect to the exam program. 

Chairman GARRETT. I’m sorry? 

Mr. KETCHUM. It— 

Chairman GARRETT. Wait, I just— 

Mr. KETCHUM. —the CARDS proposal came from the staff as a 

result of our experience in using our data to analyze and try to target our exams, and looking to ways to do that more effectively from 

the standpoint of an early warning system. 

The proposal has consistently evolved as a result of comments 

made by folks in the industry. 

Chairman GARRETT. And do the committees at the end of the day 

have a—I don’t want to use the term ‘‘veto,’’ which is too strong of 

a term, but something akin to that when these things come down? 

Mr. KETCHUM. No, and they should not. Fundamentally, FINRA 

should—and what FINRA provides should be an independent organization that is informed by the industry, that provides a level of 

formal and informal input that is dramatically different than government, but its decision should be independent. 

Chairman GARRETT. So why do you think it is when I meet with 

a lot of the smaller guys, that they say that they feel that FINRA 

is something with which they have no communication, no contact, 

no influence? That it is just—my word, not theirs—‘‘aloof, separate 

from them?’’ Why do you think I get—why do I hear that from the 

folks? 

Mr. KETCHUM. I feel badly that you do get it from the folks. 

Small business—small broker-dealers have a challenging environment. We try to interact with them regularly. Both I and my staff 

meet with small firms around the country. And we have a small 

firm advisory board that regularly changes. It includes both members who are elected by small firms, as well as additional members 

who provide great value. So we try to get as much—and we have 

three representatives of small firms on our board as a matter of requirement at all times. 

9 

So, I do believe small firms provide a lot of input into FINRA. 

Chairman GARRETT. All right. My time has expired. And I also 

want to recognize Mr. Hill for his expertise and experience on these 

matters, and his advice to me on these issues going forward. 

Thank you, Mr. Hill. 

With that, I now recognize the gentlelady from New York, Mrs. 

Maloney. 

Mrs. MALONEY. Thank you. And thank you, Mr. Ketchum, for 

your testimony. I would like you to comment on this article that 

was in The Financial Times earlier today. It said that U.S. banks 

push for a delay in reporting corporate bond trades. And, apparently, they are saying that there is a lack of liquidity in the bond 

market. And that if you delayed your 15-minute requirement of reporting trades to the TRACE system, it would help the liquidity 

problem. 

So I would like you to comment on this proposal, and on whether 

or not you believe there is a lack of liquidity in the corporate bond 

market or municipal bond market. And do you think that a delay 

in the reporting time for large corporate bond trades would improve liquidity? 

Mr. KETCHUM. We are reaching out to the industry. So it is an 

excellent question, Ranking Member Maloney. And we regularly 

have conversations over the impact of TRACE reporting. 

As you know, there have been dramatic changes with respect to 

the fixed-income market in recent years. Many of them come in the 

reaction of the failures and market impact coming out of the credit 

crisis. 

That has led to much higher capital requirements, the Volcker 

Rule that limits the ability for proprietary trading with respect to 

bank holding companies, a range of other issues that have all had 

significant impact from the standpoint of the liquidity of the fixedincome market. 

So we will—most of the comments we have heard focus on the 

least actively traded issues. We are going to do—I think they 

should be analyzed from a matter of data, and we are going to do 

additional analytical work to look at whether there has been a 

measurable change in liquidity with respect to those types of 

issues. And consider very closely several of the suggestions, most 

of which focus on the timing with regard to the reporting of larger 

trades. 

I will note the other side, though, and I know you are very familiar with this, which is TRACE has resulted in the dramatic reduction of spreads that, from the standpoint of the fundamental retail 

investor or those of us who invest indirectly through mutual funds, 

has dramatically reduced the cost of trading in the fixed-income 

market. 

That is not something we should want to lose anymore than the 

transparency TRACE provides to allow you to evaluate the quality 

of the execution you receive. 

But we take liquidity concerns seriously, and we will do both statistical analyses and reach out more to the industry. 

Mrs. MALONEY. Thank you. 

I would also like to ask about the report that FINRA and the 

SEC recently published on the treatment of investors who are senVerDate Nov 24 2008 13:49 Sep 03, 2015 Jkt 095064 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\95064.TXT TERRI
10 

ior citizens. In that report, you found that some brokers are still 

making investment recommendations that are totally inappropriate 

for seniors. And as you know, we have had such a low interest rate 

return since 2008. And while I believe that this monetary stimulus 

has been necessary to lift the economy out of our deep recession, 

low interest rates mean low yields, and that has hurt the savings 

accounts and conservative investments of our seniors. And they 

usually rely on it. 

So my question is, do you think that this extended low-interest 

rate environment is the main reason why broker-dealers have been 

recommending riskier and possibly unsuitable securities to our senior centers—in our senior centers and our senior citizens? 

Mr. KETCHUM. It is an excellent question, and yes— 

Mrs. MALONEY. And senior investors? 

Mr. KETCHUM. I think it has been a contributing factor for exactly the reasons you so eloquently mentioned. 

Senior investors, who are often dependent on a fixed-income and 

very dependent on their investments, have been dramatically impacted with regard to low yields. The temptation to reach for higher yields with respect to a range of complex or less liquid investments is very real. And the temptation of the industry to sell them, 

even when they are not suitable, is something that we have a great 

concern of, and we have certainly seen in some instances. 

I would emphasize that generally speaking, the industry is very 

careful from that standpoint and has worked, I think, considerably 

harder from the standpoint of the quality of controls and disclosures they use. 

But the concerns are real, the abuses have happened, and our 

focus is very much on senior investors. And indeed, we just, with 

Susan Axelrod, who is sitting right behind me, her leadership 

opened up a senior help line to try to give seniors the opportunity 

to have a place to go to ask questions, whether about their accounts or otherwise. 

So, the concerns you raise are very real. 

Mrs. MALONEY. Thank you. 

Chairman GARRETT. Thank you. 

The vice chairman of the subcommittee, Mr. Hurt, is now recognized for 5 minutes. 

Mr. HURT. Thank you, Mr. Chairman. 

Thank you, Mr. Ketchum, again, for appearing before our committee and for the contact that you have been in with us as we try 

to work through some of these issues. 

Obviously, from the big picture, when we look at proposals such 

as the CARDS proposal, the uniform fiduciary standard proposal, 

what we are trying to balance—and I know you are sensitive to 

this, but what you are trying to balance, it seems to me, is a regulatory scheme that is efficient and is necessary, on the one hand, 

and that, on the other hand, does not limit consumer choice and 

jack up consumer cost, because that is ultimately what happens, it 

seems to me, when you have over-regulation. 

Following up on Mrs. Maloney’s questions, one thing I would 

point about the uniform fiduciary standard—and I ask you to comment on this—is that if there are abuses already under the suitable 

11 

standard, it seems to me that you all already have the power to 

be able to go after folks who violate those standards. 

And if that is the case, then why would—and we all know 

broker-dealers have all kinds of requirements they have to live up 

to—we risk the possibility of higher costs and fewer choices by imposing a higher standard that is not necessary? 

Mr. KETCHUM. Congressman, first, I want to say I think you set 

out the balance absolutely correctly, and I completely agree with 

the way you phrased it. I think that has to always be the way we 

look at each initiative, certainly from a rulemaking standpoint. 

On the fiduciary standard, I think some of the references here 

refer to my statements in a variety of conferences saying that I believe that the right way to move forward is with Chair White’s 

leadership, for the Commission to look at the possibility of a balanced fiduciary standard across all products and that I regret the 

possibility of having different standards with regard to the Labor 

Department proposal and what exists in the securities market. 

I absolutely agree with you that the present regulatory structure 

is strong. We bring, as was noted, over 1,000 enforcement cases 

each year. The rules, with respect to suitability and supervision 

that exist in the securities markets for broker-dealers, combined 

with regular examinations and oversight with regard to FINRA 

and the SEC are things that investors should feel very good about 

and result in strong protection. 

Mr. HURT. Let me quickly ask you a couple of questions about 

the CARDS proposal, relating to a study that was mentioned in a 

Wall Street Journal piece this morning, something that has been 

referred to in the past, relating to the MIT study, that you can 

take—you don’t need personally identifiable information if you 

have date, location, and four transactions. 

What is your opinion of that study, and how does that affect 

FINRA’s thinking on the proposal? 

Mr. KETCHUM. As we have said in the written statement, we absolutely are committed to take no steps with respect to creating a 

new centralized database where there is significant risk with respect to reengineering. One of the values of the comment process 

was it brought things to our attention and raised issues. We have 

stepped back very much to evaluate those things. 

And as I indicated in the statement, we don’t plan to move forward with CARDS— 

Mr. HURT. Until those concerns are addressed. But what does 

that mean? Can you—what can you share with us in terms of what 

that means when you say, ‘‘our concerns are addressed?’’ Because 

I think that we would like to know, to have some idea of what the 

timeline is and how you get to that place. 

What are the things that you are looking for in terms of addressing those concerns, specifically? 

Mr. KETCHUM. Let me be, first, absolutely clear. I think the first 

step in the goal around CARDS, how it is delivered, is to create a 

more effective early-warning system so that we can identify serious 

frauds, serious sales-practice matters that we can step in and react 

more quickly to— 

Mr. HURT. Got it. 

12 

Mr. KETCHUM. —before investors are hurt. We don’t believe that 

account-level information is necessary for that, as we have reflected 

on it. 

So we are stepping back, having a number of conversations— 

Mr. HURT. What are the security, because two issues are—it 

seems to me there are costs and the need for it, the cost-benefit 

issue. 

But also, the security issue is significant. And how important is 

that? 

Mr. KETCHUM. The security issue is absolutely critical. That is 

why I say anything we look towards doing from this standpoint will 

be done without account information. And we are looking at the alternative information that we already have in place, what information may come someday with respect to the consolidated audit trail 

and evaluating those as alternatives as well. 

Mr. HURT. Thank you, Mr. Ketchum. 

I yield back my time. 

Chairman GARRETT. The gentleman yields back. 

The gentleman from California is recognized. 

Mr. SHERMAN. I first want to pick up on the comments of the 

gentleman from Virginia and these Department of Labor standards. 

We have kind of a choice. We can provide the maximum protection to investors and, in that way, eliminate investment choices. 

You can only invest in plain vanilla. 

Or we can say, ‘‘You get a little protection, and you get a little 

more freedom, and you can invest.’’ 

We now have a system in which we provide—some would say 

more protection, some would say less options to my IRA than to my 

widowed mother’s life savings. 

Is there any reason why middle-class people controlling their brokerage accounts should have different protection standards, depending upon whether those accounts are IRAs? And if so, why 

would you provide—why are we developing a system to provide 

more of a straitjacket for me and less protection for my mother? 

Mr. KETCHUM. First, I think it is a very fair question. I want to 

underline at the beginning, I am passionate from the standpoint of 

protecting investors, and I also agree with you that our system 

works because investors have a range of choice with respect to 

products built around a lot of requirements to ensure that what is 

provided to them is suitable. 

I do agree with, I think, your central premise. I think any of us, 

when we go about investing, don’t think about investing with respect to tax-advantaged accounts differently than we think with respect to our other investments. 

And I think that a proper environment that properly protects investors builds the right level of disclosure requirements, the right 

focus with respect to the industry in managing their conflicts and 

ensuring those conflicts don’t result in recommendations that harm 

investors, should look across products. 

And that is why I have tried to say that I believe the right direction forward here, with great confidence in Chair White, is for the 

SEC to look and reach its determinations as the Dodd-Frank Act 

provided the capability across all products. 

13 

Mr. SHERMAN. I would hope that the agency that could provide 

the same level of logical protection and or options to both the IRA 

account and the widow’s savings, would step forward. 

We have had some frauds. Often, these frauds are perpetrated by 

well-mannered, well-dressed gentlemen. And then we have rules 

that seem to work only if someone behaves as a ‘‘gentlemen’’ in the 

standards of England a couple hundred years ago. For example, it 

is important that your—the broker-dealers be audited. 

Do you make sure, when you get the audit report, that it was actually signed by the auditor by contacting the auditor? Or do you 

just need a good inkjet printer to forge the stationery? 

And second, do you make sure that the auditor is large enough 

to handle that size client? If that had been done, of course, Bernie 

Madoff never would have gotten away with it. Do you take those 

two very elementary steps, which would be unnecessary if everybody behaved like a gentleman or a lady? 

Mr. KETCHUM. Audits are important. I think the exams we produced— 

Mr. SHERMAN. Do you do those two steps, those two simple 

steps? 

Mr. KETCHUM. We do check with respect to the auditor. The 

PCAOB does have requirements as to what required levels of audits are and—register audits—auditors at this point. 

We don’t have any rules that restrict size of auditors with respect to— 

Mr. SHERMAN. The accounting profession has a rule. It says you 

have to be independent, you have to be big enough to do the job, 

you have to be big enough to do the job without that job constituting 50 or 80 or 100 percent of your fees that you can generate 

in a year. So one person, a CPA firm, can’t do it. 

So you make sure that the auditors sign the report? You don’t 

just take a look at the piece of paper and think that is good 

enough? 

Mr. KETCHUM. No, we don’t go back to each auditor. 

Mr. SHERMAN. You don’t bother. You trust everybody. 

Mr. KETCHUM. If I can clarify, the PCAOB has a regular oversight coming out of Dodd-Frank with respect to all auditors. 

Mr. SHERMAN. Yes, but they don’t make sure that the report was 

actually signed by the auditor. Just all you need to do is steal a 

piece of stationery. It shouldn’t be that tough if your name is 

Madoff. 

But let me also ask you, you have this broker check system. 

Mr. KETCHUM. Yes. 

Mr. SHERMAN. You have a lot of people you are asking about possible bankruptcies, criminal convictions, et cetera. When I have a 

tenant, I can spend $50 and use a commercial service to make sure 

that the person reporting to me is telling me about bankruptcies, 

unlawful detainers, criminal—do you use that or is it just—or do 

you just count on the broker to tell you about these matters? 

Mr. KETCHUM. No, we do both. We—the Commission has now approved a rule that requires additional broker checks before—by the 

broker at the time the employee comes in, and we do exactly those 

reviews and have just completed reviews of that across the entire 

broker check database. 

14 

Mr. SHERMAN. And do you have an integrated system, since 

many of the people who are with broker-dealers are also involved 

in other investments like real estate, insurance, et cetera, do you 

have a centralized system of all those who have been disciplined 

by the various State regulatory bodies that deal with real estate 

agents, insurance agents, et cetera? 

Mr. KETCHUM. Those disciplinary reports are required to be reported as part of the U4. We would love to have a unified system 

but we don’t have the jurisdiction to do that. 

Mr. SHERMAN. Do you contact each State and get the data? 

Mr. KETCHUM. We—the firms are required and the brokers are 

required to put it in. We would love to have it, and we have proposed it, but the States have been unwilling to have a uniform system. 

Chairman GARRETT. The gentleman’s time has greatly expired. 

The other gentleman from California? 

Mr. ROYCE. Thank you, Mr. Chairman. 

I would just like to follow up on Mr. Hurt’s comments and some 

of your thoughts, again, on this risk-based surveillance and how 

your early warning system would work. And I take it from your 

comments—and by the way, I share his concern about the way the 

CARD program was going. From your comments it seems there is 

a—do you still feel there is a way to collect data in the aggregate 

that is going to allow you to go forward without putting individual 

account level data at risk? 

Could you explain a little bit more about the timing, how long 

this is going to take, and what you have in mind there? 

Mr. KETCHUM. First and foremost, it will take whatever time it 

requires, and part of that whole decision is to whether we build a 

new system or not. One of the things we are doing, Congressman, 

is looking closely at the other information we have, the information 

we pulled down before exams and the information that is available 

from firms’ financial reports to reach a decision. 

But if we do move forward with any proposal, it will go back to 

our board. It will be put out as a new notice to the industry and 

to other segments, investors and the like, and all of that will be 

done with a public comment period before we make a decision, before the board makes a decision as to whether to file the rule with 

the SEC. 

Mr. ROYCE. Thank you. 

Mr. KETCHUM. I would say it would take a considerable amount 

of time. 

Mr. ROYCE. And then the short question, I was going to ask you 

here about this United Kingdom rule that was implemented there 

last year to ban commission payments from mutual funds to brokers, and some of the statistics on that, about 310,000 clients 

stopped being served by their brokers because their wealth was too 

small for the broker to advise profitably. And then you had another 

60,000 investors who were not accepted as new clients since then 

for that same reason. 

And I was going to ask you, are these statistics concerning? And 

do you believe that the Labor Department’s fiduciary duty proposed 

rule could lead to similar impacts here? 

15 

Mr. KETCHUM. I think the statistics are certainly concerning and 

should be part of the review of the Labor Department’s rule. We 

are still in the process of reviewing the rule. I think the Labor Department made significant strides in creating a more balanced rule, 

but there are parts of the release and the description of brokerdealer business that we don’t think is accurate. 

So I completely agree with your premise that moving to an environment where fee-only advisory accounts are the only effective 

way to operate in the United States is a very bad step and that 

with respect to middle-class investors the availability of both—the 

choice between fee-only and commissions is important. 

And any steps taken should look carefully at ensuring that type 

of environment remains in the United States. 

Mr. ROYCE. And I would also ask you how you respond to criticism that SROs are becoming a fifth branch of government, and 

FINRA is starting to look a lot like a deputy SEC, as somebody 

said? 

Mr. KETCHUM. I don’t think we are anything like a deputy SEC. 

I do accept that FINRA has a unique position that is different than 

other self-regulatory organizations, and that—and with the merger 

with New York Stock Exchange regulation and our responsibilities, 

that does deserve very careful oversight. 

FINRA is way different than a government agency. It has industry members on the board, it has the ability for informal access 

through committees and otherwise with regard to industry members. Those persons get the opportunity to look on an informal 

basis at any rule that we propose or are considering proposing. We 

respond to those comments and we also pass those comments onto 

our board. 

So I think FINRA is an independent organization that is informed in a very effective way from the standpoint of industry concerns. 

Mr. ROYCE. Let me ask you one last question. It appears that we 

are moving towards expansive quasi- or direct government regulation in retail securities markets. And I was going to ask if you 

think similar regulation is needed for private trading platforms 

known as dark pools or is there a difference, in your view, between 

regulation of retail markets and areas where sophisticated institutional investors are the market participants? 

Mr. KETCHUM. That is an excellent question. I do believe there 

is need for greater transparency with respect to dark pools that are 

an integral part of the U.S. equity markets. And we, in fact, have 

had that occur from the standpoint of reporting requirements we 

have built in. 

I believe there is a necessity for effective and aggressive oversight. And we try to provide that. I do think dark pools have a role 

in the complicated and sophisticated marketplace that we have, 

and we should ensure that role continues to occur and provides 

competitive balance and choice that is valuable. 

But to your point, I think it is a good time and I am glad that 

the SEC has indicated their intention to step back overall and look 

at the equity market structure. 

Mr. ROYCE. Thank you, Mr. Ketchum. 

Thank you, Mr. Chairman. 

16 

Chairman GARRETT. The gentleman yields back. 

The gentleman from Massachusetts is recognized. 

Mr. LYNCH. Thank you, Mr. Chairman. 

And thank you, Mr. Ketchum, for your willingness to testify and 

help the committee with its work. 

I realized—there is some friction here that is underlying some of 

the questions here and that is I think because some people see you 

as an SRO and as an organization that is meant to serve your 

broker members, your members, and then some of us think that 

your overriding mission is really to protect the investor. 

So let me posit something. Suppose you have brokers out there 

that are doing high-frequency trading. And they are chasing rebates and fees instead of pursuing best execution on behalf of the 

investors. Okay, so your members are chasing fees and rebates and 

the investor is being disserved by that practice. 

Where is FINRA’s loyalty? Are you protecting your members or 

are you protecting the investing public? That is the question. 

Mr. KETCHUM. Our statutory responsibilities and our passion is 

investor protection and market integrity. That always comes first. 

High-frequency trading is not one thing. Much of it is proprietary 

and doesn’t involve customer accounts, but you are right, some of 

them do. 

Many are sophisticated, but the concerns around high-frequency 

trading is a huge focus of our surveillance program. And while 

much high-frequency trading is effectively market making in the— 

Mr. LYNCH. Let me—I don’t have a lot of time— 

Let me just ask you that, though. You have raised a good point. 

In your current toolbox, are you able to properly surveil the conduct of high-frequency traders to make sure that in the course of 

executing those trades, the investor is getting the best execution? 

Mr. KETCHUM. Where that manipulative activity would be occurring in either the equity market, fixed-income market, or options 

market, yes we do. And we have had for years surveillances particularly looking at things like spoofing, layering, marking the 

close, and wash sales and brought numerous cases. 

You raised in your opening statement, Congressman, a valid concern with respect to the fact that we do not have a common jurisdictional program and a common program with regard to interest 

rate swaps and with regard to futures. 

I would note for one thing it would be great if futures activity 

was included in the SEC’s proposed consolidated audit trail. 

Mr. LYNCH. Yes, let me just jump in here. This is—the SEC has 

stated that FINRA is unable to monitor the off-exchange market 

activity of non-member firms and detect potentially manipulative 

or other illegal behavior as efficiently or effectively as it can 

FINRA members. Do you agree with that? 

Mr. KETCHUM. Yes. That relates to a recent SEC— 

Mr. LYNCH. Are you operating with a full set of data? 

Mr. KETCHUM. We would—where the consolidated audit trail 

goes, which includes customer information— 

Mr. LYNCH. That is not up yet, though, right? 

Mr. KETCHUM. No. The steps that the SEC is proposing— 

17 

Mr. LYNCH. I don’t want to burn all my time here. I am just trying to get a sense of where you are at and where you might need 

help. 

Mr. KETCHUM. Yes. The SEC has a proposed rule that addresses 

that and we support it. 

Mr. LYNCH. Okay. And what is the timing on the consolidated 

audit trail? We have been doing this for several years and we are 

still some distance away, I imagine. 

Mr. KETCHUM. I am on the other side of an information barrier. 

The exchanges and FINRA have filed a plan. The next step is for 

the SEC to publish it and that has not yet occurred. 

Mr. LYNCH. Okay. In your recent brokerage inspections, FINRA 

found that some firms do not have active best execution committees. So I don’t know if the firms themselves are actually paying 

as much attention as they should. Is there a way—now, you say we 

have some tools, although we are not acting—we are not operating 

with full or complete data. Is there a way currently where we can 

find out whether brokers are chasing the rebate and fees? Or—and 

that should show in a pattern or whether the preponderance of the 

brokers are actually providing best execution? 

Mr. KETCHUM. One of the things we particularly look at is 

whether brokers can justify where they place most of their customer orders. As you know, they tend to route them often to a predominant market site and that is absolutely a concern of ours. 

Most firms do, but where firms don’t, we look at the—at either 

changing behavior or enforcement actions. 

Mr. LYNCH. Okay. Thank you. My time has expired. I yield back. 

Thank you, Mr. Chairman. 

Chairman GARRETT. Thank you. 

Mr. Hultgren is recognized for 5 minutes. 

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

Chairman Ketchum for being here today, as well. I would like to 

focus my comments and questions on the SEC and the Department 

of Labor, its effort to expand the definition of fiduciary which further extends Federal regulatory control into Americans’ financial 

planning decisions. This move could restrict the number of investment products financial advisers could offer to their Main Street 

customers, making it harder for average Americans to invest. I 

have heard loud and clear from my constituents about the negative 

consequences of a fiduciary standard, including the tens of thousands of small investors throughout the district I represent, the 

14th Congressional District of Illinois. 

They tell me that this change would not represent true consumer 

protection but would, instead, make it harder for Americans to plan 

for their future, put money away for their children’s education and 

invest. While customers need enough information and options from 

their financial adviser to decide what products they need, I believe 

there is a danger that a fiduciary rule would strip their ability to 

get advice and help. 

This is why I co-sponsored the Retail Protection Investor Act, 

which delays the proposed rule until the Securities and Exchange 

Commission issues its own fiduciary rule and also requires the 

SEC to study alternatives to a uniform fiduciary standard and the 

impact of such a standard on everyday investors. 

18 

Fiduciary proponents argue that a higher standard is needed because the current broker-dealer supervision regime is insufficient. 

Mr. Ketchum, my questions are really to that. Given that FINRA 

plays a significant role in broker-dealer supervision, can you describe the current regulatory and compliance regime with which 

FINRA-registered broker-dealers must comply? 

Mr. KETCHUM. Yes, Congressman. We have a rigorous examination program in which all members, depending on their size and 

complexity, are examined between once every year or 4 years. We 

regularly are oversighting from a surveillance standpoint to identify instances that suggest that there is a problem with respect to 

how they are operating. 

We bring over a thousand enforcement cases a year. As was 

noted earlier, we provide referrals to the SEC with respect to regulatory concerns that are outside of our jurisdiction and we bar over 

400 persons each year who are operating inappropriately from the 

standpoint of their position as registered persons. 

We also have rules focusing on suitability and on supervision and 

on written supervisory procedures that provide a very strong environment for investor protection. I can’t say that it couldn’t be better, but I agree with you that the care has to be taken exactly as 

you describe, to—and it certainly would be preferable with my 

standpoint for the SEC to be the expert agency moving these type 

of issues forward. 

Mr. HULTGREN. Let me dig a little deeper. What steps must 

broker-dealers take to ensure that their customers are not confused 

about broker-dealer services? Are broker-dealers required to disclose to the customers material information about potential conflicts of interest? Must they also refrain from engaging in certain 

transactions if potential conflicts are acute? 

Mr. KETCHUM. Yes. The broker-dealers have an obligation to 

know their customers, evaluate their recommendations, ensure 

they are suitable and there are numerous obligations from the 

standpoint of disclosure, with respect to third-party payments or 

other issues from the standpoint that—where a conflict may exist, 

absolutely. 

Mr. HULTGREN. Thank you. Even if investors are confused about 

the differences between broker-dealers and investment advisers, is 

the only solution to impose a fiduciary standard of care on brokerdealers? Would additional disclosure to investors better protect 

them? Are there other ways to improve disclosure without creating 

information overload or imposing unnecessary regulatory burdens? 

Mr. KETCHUM. Yes. I think there are a number of ways. And I 

think it is a challenge for all of us from a regulatory standpoint to 

look for ways to increase the understandability of disclosure. And 

I think those are important points. 

I would note that a large part of the best interest standard 

should fundamentally be ensuring that firms manage their conflicts 

and provide proper disclosure. It should always have the balance 

that you describe from ensuring that it also doesn’t impose unnecessary cost. 

Mr. HULTGREN. Yes. Fiduciary advocates have argued that 

FINRA has a conflict of interest in their supervision of broker-dealVerDate Nov 24 2008 13:49 Sep 03, 2015 Jkt 095064 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\95064.TXT TERRI
19 

ers, which makes your supervision lenient. Can you respond to 

that? 

Mr. KETCHUM. Yes. And it is just absolutely not true. We are 

funded—one of the upsides of FINRA is that we are not funded by 

taxpayer dollars. We are funded by user fees with respect to the 

industry. But industry members that do business with customers 

are required to be a member of a securities association. While they 

have the ability to start a new one, today there is only one, and 

that is FINRA. 

Mr. HULTGREN. My time is almost up. I do appreciate your time 

here and bringing some clarity for me and for others hopefully here 

as well. As I do talk to advisers and broker-dealers that I know in 

Illinois, they certainly don’t feel underregulated. Sometimes, they 

complain maybe that it is too much. But I think it is important, 

again, for that confidence to be there. So my time has expired. But 

thank you very much for being here and thank you for your help 

on these questions. 

I yield back. 

Chairman GARRETT. The gentleman yields back. 

Going down to the very first row, Mr. Poliquin is recognized for 

5 minutes. 

Mr. POLIQUIN. Thank you, Mr. Chairman. 

Mr. Ketchum, thank you very much. I appreciate your willingness to be here today. Thank you. 

There are many of us on this committee, sir, and throughout 

Congress who are getting concerned about the expansion of regulators throughout our Federal Government. There are all kinds of 

examples of this, Mr. Ketchum, that are beyond the lines within 

which you operate. 

For example: the Internal Revenue Service intimidating taxpayers, law-abiding citizens because they share different political 

views; and the EPA is repeatedly overreaching, making it more difficult for some of our companies, our manufacturing businesses, to 

grow and hire more people. 

We had a fellow from the FDIC who was a regulator before our 

Committee about a month ago. And it was disclosed that the examiners at the FDIC are putting pressure on community banks to stop 

lending money to lawful businesses they deem undesirable, like 

firearms dealers or folks who sell tobacco. 

And now we have the FSOC group that seems to want to put 

more and more taxpayers at risk in the event that a significant financial institution goes under. So it is a real concern of mine. And 

I come from the general industry that you are involved in now, sir. 

Would you agree with me that when you increase regulations 

like this, you drive up fees, you drive up complexity, and those 

folks who are trying to save for their retirement and invest for 

their kids’ college savings, that this could be an impediment to the 

choices they have with respect to the investment vehicles they 

want to have and the rates of return that they need to save for 

their kids’ education and also plan for their retirement? Can we 

agree on that, sir? 

Mr. KETCHUM. I can certainly agree on the goal. I can’t speak to 

a—on a variety of other regulatory agencies, but I can tell you that 

is very much the goal from FINRA’s standpoint. We don’t want to 

20 

take any regulatory action where the burden exceeds the cost. And 

that seems to be a serious concern. 

Mr. POLIQUIN. Good. And I also have a concern, Mr. Ketchum, 

that it looks like now the Department of Labor and the SEC are 

sort of competing over who in the heck is going to regulate the investment management community and the mutual fund industry. 

Why in the world would the Department of Labor want to get involved in that space where they have no experience regulating the 

investment business? 

And to that end, if I may, now we have this discussion about imposing fiduciary standards on brokers. The same fiduciary standards that maybe a pension fund manager who is running $50 billion. We had a fellow here from Rockland, Maine, just over the border—I represent Western, Central, down east. 

Mr. KETCHUM. Rockland, Maine, is beautiful. 

Mr. POLIQUIN. Thank you, sir. I appreciate it. If you haven’t been 

there recently, you ought to go back. And I appreciate that very 

much. But this gentleman came in. He is a broker in a small shop 

and he has about 200 customers. And his customers, they maybe 

move some snow in the wintertime. They do a little lobstering and 

they do a little bit of logging. And they are saving the best they 

can for their retirement. 

And this fellow is very concerned because if these regulations get 

too burdensome on him, he is going to stop meeting with this couple that he is helping plan for their retirement. And all of a sudden, that advice leaves this couple, and his clients may become 

more subject to scams that could hurt their nest egg going down 

the road and put this couple more at risk to become more dependent on the government. 

So don’t you agree that it probably makes sense to have the folks 

at your organization who have the experience of regulating brokers—and I think you regulate 640,000 brokers across this country—don’t you have the tools to continue to do this? Why do we 

need to have other folks like the DOL involved in doing something 

like this? 

Mr. KETCHUM. Congressman, as I have indicated, I believe that 

this would be better if the SEC led and FINRA worked with them, 

to have a review across all products. And I think your concerns are 

very real and appropriate to be focused on. Of course, it is also important to look to where we can improve disclosures— 

Mr. POLIQUIN. Sure. 

Mr. KETCHUM. —and where we can improve handling of conflicts. 

But I agree that there has to be a careful focus. And I believe the 

SEC is the right agency. 

Mr. POLIQUIN. Mr. Ketchum, will you commit today to me and 

to this committee that you will speak up loud and clear when it 

comes to other folks who want to go beyond their lines, such that 

the right people are making sure they regulate the right participants in this industry? 

Mr. KETCHUM. I believe there should be a best interest standard, 

and I do believe the SEC should lead it. And everything I have said 

today, I have said earlier, and will continue to say. 

Mr. POLIQUIN. And do you believe that the 640,000 brokers that 

you folks regulate are fairly regulated? 

21 

Mr. KETCHUM. Yes, sir, I do. 

Mr. POLIQUIN. Okay. You don’t think they need any additional fiduciary standards imposed upon them. Is that correct, sir? 

Mr. KETCHUM. There are always opportunities to improve the 

regulatory structure— 

Mr. POLIQUIN. Have you looked at the proposed regulations? 

Have you looked at the proposed rules coming out of the DOL, do 

you agree with them? 

Mr. KETCHUM. We are still reviewing them. 

Mr. POLIQUIN. And when will you make that decision? 

Mr. KETCHUM. We certainly are considering the possibility of providing a comment letter to the Labor Department. 

Mr. POLIQUIN. Okay. And I am also assuming that every time 

you consider a new rule imposed on any market participants that 

are trying to help our families save for their retirement, that you 

look at what the cost will be in imposing that new rule? Is that correct? 

Mr. KETCHUM. Yes, sir, as well as the alternatives that may be 

less costly. 

Mr. POLIQUIN. Great. Thank you very much for being here. I appreciate it. 

I yield back my time. 

Chairman GARRETT. Thank you for your questioning and your 

advertisement for Maine. 

[laughter] 

Mr. Hill is now recognized for 5 minutes. 

Mr. HILL. Thank you, Mr. Chairman. And, Mr. Ketchum, it is 

nice to see you before the committee. I have certainly enjoyed my 

over 2 decades of friendship with you. 

I want to associate myself with Mr. Poliquin’s line of questioning. 

I thought it was excellent. Do you think that DOL has stepped outside their box? Their ball has landed outside the fairway in terms 

of the scope of what they are trying to do? In other words, they 

have the right to oversee a group retirement plan. No one argues 

with that, and they can set those standards. But what about the 

relationship between an individual investor in deciding to roll it 

into an IRA or what the composition of it is, and whether it is a 

fiduciary standard or not? 

Mr. KETCHUM. My understanding is, they do have the jurisdictional ability to take that step. As I indicated earlier, I believe that 

while the investor protection issues around the decision to roll into 

an IRA are meaningful things that we have addressed, as you 

know, with respect to investor alerts and with respect to our exam 

and enforcement program, they are part of a wide range of issues 

for investors. And I think that there would be great value in looking at these issues from the standpoint of the SEC as the expert 

agency. 

Mr. HILL. Would you commit to write a letter to the committee 

that outlines all the existing rules and regulations that govern investor protection in the retirement arena now that brokers and financial advisers are already living by that protect investors? Because I think it is extensive. I think your work there has been exceptional. 

22 

You were—FINRA was the first organization to lead a senior 

sweep effort of the financial industry. That was over a decade ago. 

And you have been focused on educating brokers and broker-dealers and managers on this issue for years. And I think it has demonstrated the results. 

I think the committee needs to know that this is already being 

done, and that the DOL’s effort is a redundant unnecessary exercise. 

Mr. KETCHUM. Congressman, first, thanks for those words. And 

yes, we can certainly provide a description of all of our programs. 

I would be glad to. 

Mr. HILL. Thank you. 

I want to talk a little bit also about how small firms—of which 

you have many among your 4,000—have absorbed the Y2K 

hysteria process from FINRA. TRACE reporting, OATS and RTRS 

reporting. Mutual fund pre-sale planning, VA pre-sale planning, 

written whole documentation, which is the latest of the continuing 

hits from FINRA. 

How do you balance—despite your Small Firm’s Advisory Committee, how do you balance this issue that we are losing small 

firms like we are losing small banks? I think 3 percent or 4 percent 

of the firms exit membership every year. How sensitive is the agency to that? And how sensitive is the SEC to that? 

Mr. KETCHUM. While I can’t speak for the SEC, it is certainly a 

focus from the standpoint of FINRA. We care very much about the 

burden of our rules. In fact, one of the areas where we are taking 

initiatives now is the retrospective rule review. We have just done 

it and taken an initial proposal with respect to a variety of amendments to our advertising rules in response to that. 

I think that we always have to keep analyzing the rules that are 

already in the books and determine whether they are imposing burdens across-the-board, particularly the small firms that could be 

less. We are going to do that with respect to our membership and 

change of business rules that you are very familiar with, I know, 

from your days in the industry—again, looking for ways to maintain the investor protection capability—benefits that come from 

those rules to reduce burdens. 

Mr. HILL. I was pleased to hear you talk about the difference between the agency business and the fiduciary business. And one of 

my concerns across the regulatory system has been that we ignore 

the customer here. Washington consistently ignores the customer. 

For 70 years, we have had a disclosure-based, caveat emptor, 

suitability, management-focused securities regulatory system, 

where the individual investors do have to take some responsibility 

for their own investments, wealthy or not wealthy. And some people want an agency-broker relationship, not a fee fiduciary relationship. They don’t want it. They don’t demand it. And yet, I feel like 

we are compelling and pushing the industry as if that is going to 

be a savior for something that I am not even sure what we are 

being saved from. 

Would you elaborate just for a minute on this issue between 

agency business and fee or fiduciary-oriented business? 

Mr. KETCHUM. Certainly, there are a variety of characterizations 

of fiduciary— 

23 

Mr. HILL. We want both, don’t we, for our customers across the 

country— 

Mr. KETCHUM. I think it is— 

Mr. HILL. —whether they are rich or poor or middle income? 

Mr. KETCHUM. I certainly think it is important for customers to 

have choices. And I think it is important that no steps are taken 

that reduce the ability for customers to choose—particularly who 

are relatively inactive—to have access to commission-based accounts. I do believe there are ways to improve the disclosure and 

management of conflicts today. But yes, it is very important to 

make sure that is balanced in a way that continues to allow customers to have choices. 

Mr. HILL. I really think that it looks convenient to have a feebased product for people, and that somehow commissions have this 

bad reputation. And yet, in many cases, I think if you were to analyze your account, the people on commission pay far less in managing their money on an annual basis potentially than someone 

who is on a—particularly, a small account—say under a half a million dollars would pay if they were in a fee account. 

Mr. KETCHUM. I think that is a very real concern. And I think 

that for many customers, commission-based is—given the fact that 

they are maybe making a couple of transactions or investing in one 

mutual fund in a particular year—commission-based is absolutely 

critical to— 

Mr. HILL. One final quick question. ETFs—when I was in the business, there were only maybe 100 funds and $100 billion. Now 

there are 1,600 funds and $1.6 trillion or so in exchange traded 

funds. Do you think it would be useful to have greater research— 

more access to research on exchange traded funds for retail investors? 

Mr. KETCHUM. I know there is legislation that is put up there, 

and that has been a point made by a number of industry representatives. I do believe properly designed, an environment that encourages more research, addresses some of the Section 5 offering issues 

with regard to ETFs, where that is not—the research is not designed to push the ETF, but to provide sector-based information 

that allows investors to make better and more knowledgeable 

choices. That is certainly an area we would be very glad to talk 

with your office about and look for solutions. 

Mr. HILL. Thank you, sir. 

I yield back. 

Chairman GARRETT. The gentleman yields back. 

Mr. Messer, you are now recognized for 5 minutes. 

Mr. MESSER. Thank you, Mr. Chairman. And thank you, Chairman Ketchum. I appreciate your testimony. I appreciate your stamina, as well. 

I wanted to take a moment or two and talk a little bit about the 

importance of arbitration and ask for your comments. As you know, 

arbitration of broker-dealer disputes has long been used as an alternative to the courts, because it is a prompt and inexpensive 

means of resolving often complicated issues. 

Broker-dealers advocate strongly for FINRA to continue its role 

as the primary forum for the resolution of consumer disputes in arbitration. 

24 

Some have claimed, as I know you are well-aware, that mandatory securities arbitration is unfair, and prevents retail investors 

from exercising their rights to a jury trial to resolve disputes. But 

the broker-dealers that I hear from back in Indiana believe that 

FINRA’s direct market knowledge and your real world experience 

make you the best suited to continue the role as the primary forum 

for the resolution of consumer disputes in arbitration. 

If the SEC—this is the question I want to get to—exercises its 

authority in Section 921(a) of Dodd-Frank, and either restricts or 

eliminates arbitration agreements, do investors win? Or do lawyers 

win? 

Mr. KETCHUM. Congressman, I am very proud of our arbitration 

and dispute resolution system. I think it has sought to continue to 

improve, to continue to provide the right balance with respect to 

public arbitrators. And I think that any system that did not ensure 

that investors had access to that arbitration system would be a 

very bad impact on particularly middle-class investors. 

Mr. MESSER. Yes. Do you have any reason to believe that securities arbitration contributed to the financial crisis? 

Mr. KETCHUM. No, I don’t believe securities arbitration contributed to the financial crisis at all. No system is perfect from the 

standpoint of its performance. But I think securities arbitration is 

in many, many ways very different from the rules around it from 

consumer arbitration otherwise. And I think it provides an independent, balanced, and fair resolution of concerns in a quicker and 

lower-cost environment for investors. 

Mr. MESSER. Yes. And could you comment on any specific improvements that you tried to make at FINRA to deal with the consumer experience in arbitrations? 

Mr. KETCHUM. I would be glad to. We have taken steps to improve the—and to address concerns with respect to the motion to 

dismiss in the discovery process. We have provided the capability 

for either side to demand an all-public panel that does not include 

anybody with respect to industry background. 

We have also changed the definition of public arbitrator to ensure the absolute independence of those persons. 

I believe that the steps taken and the input from both the industry and plaintiffs’ lawyers have been enormously valuable. And the 

steps taken have been true positive steps for investors. 

Mr. MESSER. I appreciate that. In my final minute or 2 here, 

some earlier testimony talked about the Equity Market Structure 

Advisory Committee. SEC Chair Mary Jo White has talked about 

trying to make that comprehensive and data-driven. I believe that 

you are a member—will be a participating member of that Structure Advisory Committee. Is that correct? 

Mr. KETCHUM. That is correct. 

Mr. MESSER. Starting on May 13th. And I think you already testified that you are looking forward to that, and believe it should 

be a holistic review of market structure. 

Mr. KETCHUM. I am very much looking forward to it. And I think 

the regulatory steps the SEC has taken over the last 15 years on 

the whole have provided real benefit for investors. But the markets 

have evolved in ways that raise real concerns. 

25 

I was on an earlier advisory committee of the SEC and the CFTC 

when we made a number of suggestions to review, including on 

things like maker taker fees, often referred to as rebates. And I 

think this is a great time to step back and look at those issues, as 

well as look at the impact of SEC rules in the new market environment. 

So, yes, I am very much looking forward— 

Mr. MESSER. And in the limited time I have, I just—in that spirit 

of some of the suggestions you made there, would ask you about 

regulation NMS, which of course, many believe may be an underlying factor behind increased market fragmentation, the proliferation of ending trading venues, fee models, complex order types, and 

advanced trading strategies, including high-frequency trading. 

Could you comment at all as to your belief in the impact of regulation NMS? 

Mr. KETCHUM. Regulation NMS had many positive impacts from 

ensuring best execution and encouraging competition. But it certainly has resulted in more fragmented markets and it doesn’t distinguish between marketplaces that are very, very small and other 

markets. So I think this is a good time to step back and look at 

Reg NMS. And I congratulate Chair White in including that as a 

key early focus of the committee. 

Mr. MESSER. Thank you. 

I yield back. 

Chairman GARRETT. The gentleman yields back. 

It looks like all the Members have asked questions. We obviously 

had a smaller number of Members here, I think due to the votes. 

So, without objection, I would ask if a couple of other Members 

have any additional questions? No? No? No? I do. Just a couple. 

And it sorts of throws off of Mr. Lynch’s reference to the approach to SROs in general. I will put words in his mouth, and he 

was saying something to the effect of how some people want SROs 

to be regulated or be controlled by the industry, and other people 

want it to be more of not SROs at all, just a regulator doing things. 

And I think the answer is obviously somewhere in the middle. 

So, two things. One, back at the end of last year, around October, 

the New York Exchange took back some of their authority—not 

their authority—took back some of the responsibilities that had 

been with FINRA since 2010, I guess it was, right? 

And they are now setting up their own—what? Surveillance system, I guess you would call it. So they are going to be doing it all 

in-house, if that is the right— 

Mr. KETCHUM. No, they are not going to be doing it all. They 

haven’t begun anything. They took back on a going-forward basis 

looking at their floor-related New York Stock Exchange-only rules. 

We continue to do the cross-market surveillance for the New York 

Stock Exchange and all the markets. It allows us to look across 

markets to address and identify manipulative activity. 

Chairman GARRETT. So exactly what are they taking back? 

Mr. KETCHUM. They are taking back rules with respect to how 

orders are handled in the small amount of trading that occurs on 

the floor, and some of the New York-only rules that relate to how 

firms handle orders away from the floor. 

26 

Chairman GARRETT. So that is what they are doing now? So they 

are not— 

Mr. KETCHUM. They are not doing anything now. We continue to 

do all of it now. They are in the process of building the surveillance 

capability to do that with respect to their own rules. Cross-market 

rules we will retain, and we are very grateful to New York that 

they have allowed us to do that. 

Chairman GARRETT. Okay. And so they have no—because I am 

just going by press reports. The press reports seem to be more that 

they were going forward with more of a full surveillance system 

that they would be setting up eventually. 

Mr. KETCHUM. The press reports overstated it. They will have a 

surveillance system for their own rules. It is not likely that will 

occur until the end of this year. 

Chairman GARRETT. Okay. Ms. Peirce from the Mercatus Center, 

who was referenced earlier, discussed proposals to make SROs 

more shaped by, reflective of the industry, if you will—my words, 

not theirs. And she has had a number of proposals in that respect. 

And I didn’t go through all of her proposals. 

Are you familiar with that at all? 

Mr. KETCHUM. I read Ms. Peirce’s study some time ago, so I am 

not sure I am positive with respect to each one of them. 

Chairman GARRETT. Okay. I am not going to go there at all. 

But part of it is the broad 30,000-foot level to allow for—and this 

sort of follows off my NYSE statement—additional third-party entities to be able to compete, if you will, with FINRA to allow for, if 

we go down the road to additional standards as far as the industry 

is concerned, independent entities to be able to perform the examinations, as opposed to FINRA. 

These are not new ideas. Can you just respond to those ideas? 

Mr. KETCHUM. From the standpoint of market surveillance, obviously much of the responsibility— 

Chairman GARRETT. Oh, not on the surveillance— 

Mr. KETCHUM. Oh, but on examinations— 

Chairman GARRETT. Examinations—right. 

Mr. KETCHUM. —I think one person with respect to the lack of 

resources, the SEC and investor adviser side, Commissioner Gallagher has made I think very thoughtful suggestions about the part, 

and Chair White has indicated her interest and support about the 

possibility of third-party exams for investment advisers to deal 

with the fact that the SEC doesn’t have the resources. 

The statute itself allows any group of firms to set up a separate 

National Securities Association if they wish to have an alternative 

to FINRA. 

Chairman GARRETT. Okay, so that would be for investment advisers. That is what they are talking about. Is that a— 

Mr. KETCHUM. At least the proposals I know about are for investor advisers. 

Chairman GARRETT. Right. Is that a possibility if they can flesh 

that out? Is that a possibility, then, to expand that over to brokerdealers as well, so you have a competing network, but both are regulated as well in the broker-dealer realm? 

27 

Mr. KETCHUM. I would view a possibility of for-profit, third-party 

examiners that are paid by the firm to do the exam, as a least-good 

solution. 

Chairman GARRETT. That is the same situation you would have 

if Chair White goes ahead with— 

Mr. KETCHUM. If there aren’t enough resources, which certainly 

exists with respect to investment advisers, it is certainly better 

than nothing. I think having firms who are paid directly by the entity to do exams is—speaking of conflict of interest—a larger conflict that I wouldn’t choose. I think it is much better for firms if 

they are not happy with FINRA to create their own national securities association, which they have the right under the statute to do. 

Chairman GARRETT. With that, I will yield to Mr. Hill. 

Mr. HILL. New Members of Congress get so little time to ask 

questions. I can’t resist. 

Chairman GARRETT. I yield the gentleman 30 minutes. 

[laughter] 

Mr. HILL. Plus, it is Friday. The staff has nowhere to go. 

Mr. KETCHUM. We could do lunch if you want. I mean— 

Mr. HILL. Just to follow up on Mr. Messer’s point about arbitration, in your aging of arbitration cases from start to finish, have 

you seen the length of time to come to a conclusion and issue a decision lengthen out? Could you supply me sort of—I use the word 

‘‘aging’’ analysis in a business sense, because I have heard from 

constituents about one year and then 2 years, and we don’t have 

a decision. And the concept of speedy trial, even for an adviser that 

has a serious matter, is of concern to me. 

Could you respond to that and provide some data on that? 

Mr. KETCHUM. We would be glad to provide data. I think there 

was a challenge a few years after the credit crisis, I believe because 

of the good things about up-markets are there are less arbitrations. 

I don’t think we have an aging problem now, but I can’t speak confidently on that. We would be glad to provide you information. 

Mr. HILL. And then just one other thing on my favorite subject, 

CARDS, and you know my personal views on the CARDS proposal 

in detail. I won’t burden the world with them here. 

But could you—it is my premise that FINRA can achieve the 

CARDS level intel with your existing authorities and your existing 

powers. 

And so, through sweeps and through access of clearing firm data, 

you can certainly satisfy your curiosity about looking for patterns 

and potential fraudulent activity with that data stream you have 

now. 

Isn’t that accurate? At a big picture level, maybe not at the exact 

design level? And I am asking you as the CEO, not the IT director. 

So, even if your enforcement or IT people say it can be done—people told me that in my company all the time, but as chief executive 

officer, I didn’t go along with them. 

So I am curious, can’t you achieve your public policy objective in 

a different way, if you didn’t have CARDS? 

Mr. KETCHUM. We could certainly achieve a lot. We can achieve 

a lot by using the data we have and the data that may become 

available over time more effectively, you are absolutely right there. 

28 

I would love to have more capability for an early warning capability to jump in on serious frauds and sales factor pieces. But, as 

I said in my written testimony, we are going to step back and look 

at all of that, because they are fair questions, and we should complete that analysis before making any decision. 

Mr. HILL. Thank you, sir. 

And thank you, Mr. Chairman. 

Chairman GARRETT. Sure, thanks. So, that concludes today’s 

hearing. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place his responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

Mr. KETCHUM. Thank you, Mr. Chairman. 

Chairman GARRETT. Thank you very much. 

With that, the panel is excused, and Mr. Ketchum, thank you. 

And this hearing is adjourned. 

[Whereupon, at 12:10 p.m., the hearing was adjourned.] 

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