Captioning performed by vitac by those we regulate, and of course, by this committee and congress. Whether were making changes to the staffs longstanding review process for shareholder proposals, assessing the duties of Investment Advisers or considering how to strengthen company disclosures, we must be fair and transparent about the policy choices we make and the data and information on which we rely on making those choices. I thank the committee for its oversight of these important issues. And i stand ready to answer your questions and listen carefully to your thoughts and concerns. Thank you. Commissioner lee. Chairman clayton you are now recognized. And i want to echo the thoughts of my colleagues on the opportunity we have to testify today and note that their testimony demonstrates the wide range of issues that the Commission Deals with every day. I want to thank this committee for your support of the commission and in particular the dedicated women and men who are our most important asset. The funding that you provide to us for fiscal year 19 allowedtoallowed us to lift our hiring freeze, market oversight, cyber security, and Small BusinessCapital Formation. The fiscal 19 funding that you provided us also allowed us to continue to make significant investments to our i. T. Infrastructure. Weve made progress in these critical areas. However, our Information Technology needs and the related risks are ever changing and let there be no doubt, substantial work remains. Turning to our mission. For me, the interests of our longterm main Street Investors are front of mind. I believe our 4,300 colleagues share this perspective. I want to highlight just a few examples of the recent work starting with our division of enforcement. Our teachers and military which invest resources on behalf of teachers, and active duty personnel. Unfortunately these hardworking americans are too often targeted and fall victim to fraud, shady and shelf serving practices and other misconduct. My message is simple, if youre ripping off teachers, Service Members or veterans, we want to catch you, we want to punish you and we want to get them their money back. Returning funds to harmed investors continues to be a priority for me. I testified about challenges including legal impediments we face in obtaining funds from bad actors in cases with longrunning frauds such as ponzi schemes. I want to recognize this committee for its bipartisan work to address these challenges. Enhancing main Street Investors has been a priority. In june, the Commission Adopted a package of rules and interpretations to inquire candor and other responsibilities on Investment Advisers. As a result, for the first time, regardless of whether investor who investor choices, it will be in the interest of the investor. This strong rule making package was informed by the commissions expertise and decades of experience bringing Enforcement Actions in this space. It benefitted from unprecedented direct, shareholder engagement including seven town hall style round tables held across the country. We are already seeing the benefits of this work. We are also focused on the implications for main Street Investors of the substantial changes that have taken place in our markets over the past two decades. For example, 25 years ago, the Public Markets dominated the private markets in every measure. Today the private markets outpace the Public Markets. In our private markets, main Street Investors do not have the same access to investments as sophisticated investors and two where they have access, they typically do not have the same alignment of interest with sophisticated professionals as they do in our Public Markets. We continue to explore initiatives to increase the attractiveness of our Public Markets. At the same time we are also exploring whether we can increase the type and quality of opportunities for main street inve investors. In closing, i would you to refer you to our written testimony which details a number of the risks which we are monitoring along with our fellow u. S. Regulators and regulators around the world the globe. Thank you and i look forward to your questions. Thank you very much. Im going to deal with two issues here as i recognize myself for five minutes for questions. First, i want to deal with Insider Trading. Im going to you commissioner jackson. Current loopholes in the law allow corporate insiders to enrich themselves. Theres evidence that insiders are misusing sec rules to engage in legal Insider Trading by trading their plans. My bill would require the sec to study this misuse and amend its rules accordingly. This bill passed the house on a broad bipartisan basis. Can you discuss why its important for Retail Investors and market integrity for loopholes to be fixed. Do you agree that the standards for corporate insiders act is a common sense fix to the apparent loophole . Insider trading has been a problem historically. What do you think . I want to thank you and this committee for focusing on this issue. The rule was adopted some time ago and its always a Good Practice for us to dig back into our role and is see if theyre serving their intended purpose. That rule was intended to allow insiders to make decisions long in evidence and theres evidence to the degree that theyre taking advantage of the investors. Without commenting on any particular legislation, im glad this committee is focused on this issue. Thank you very much. And now, chairman clayton, im concerned about crypt t cryptocurrencies. Other concerns have been raised. Just this month, regulators from france and germany agreed to block libra from their countries. The two governments stated that, quote, no private company can claim monetary power which is inherent to the sovereignty of nations, unquote. Can you talk about the risks to investors that libra would pose . Thank you, chairwoman. Im not going to comment on any specific crypto asset. I do think that crypto assets, they have benefits, they can present a great deal of risk. Particularly in cases where in form, they are the same as securities or payment systems, but theyre not regulated in the same way. We have developed that what i would say is an ecosystem of Financial Regulation over the years, securities, commodities, currencies, the deals with a great deal of risk to investors and our markets, to the extent a crypto asset would be used, i have a real problem with it. What are you doing now to take a look at libra . Have you set up a committee, a commission . An Advisory Group . Are you looking at it so you can understand what those risks are . Yes. We have a group at the commission that is focused on Digital Assets, both the potential they have to add efficiency but also the risk they said. We saw this in the ico space, 4 billion, pick your number, raised. Most of it gone. Not complying with our rules. I think we had a great effort from our division of Corporation Finance as well as our Enforcement Division to say if youre selling securities, youve got to follow our rules and were going to do the same thing across all so you do have a committee of some sort thats taking a look at what is happening with the development of libra yes. All Digital Assets that come to our attention what about the entire block chain phenomenon . What do you know about that . What work has been done on that . Is there an opportunity to perhaps brief the legislators on the work that you may be doing both looking at libra and looking at all of the block chain . I would be very happy to do that. I would be very happy to do that with my colleagues at the commission. I cant speak for my other regulators, but jointly with them, happy to do it. Thank you very much. I now yield to the gentleman from north carolina, the Ranking Member, mr. Mchenry. Why dont we start there. Lets start with digital currencies. Chairwoman, i have similar thought process on raising the question. Based off your current analysis of the libra project, which is just an idea at this point, on white paper, do you believe that libra is a security . Im not prepared to make a decision like that here. We have to see how different assets function to decide whether they would be a security, a commodity, a currency or not. But if what youre doing is using a Digital Asset to raise capital for a project with the idea that youre going to get a return as a result of investing in that project, sounds like a security. Okay. Lets acknowledge there is theres a larger ecosystem to raise money globally outside the u. S. Jeurisdiction, but we need to have regulation, but too much drives off innovation for the United States. Is that correct. That is correct. Youve done a significant amount of work in this space. But for cryptocurrencies, we see the block stack had it approved. Walking through that process, do you believe we have a solid ecosystem for cryptocurrencies to exist in the United States and raise capital in a regulated environment . I think we still have work to do to make sure that people can develop Digital Assets in the u. S. , in compliance with our rules. I would like to see us be a little bit more forward thinking in ways we might accommodate unique assets. For example, Digital Assets that are utility tokens, i dont know that the Securities Law framework that we have right now is the appropriate framework for them. And so i would like to see us think about creating a safe harbor. The idea is to allow is there current law for that sec to write regs around them . I think we have an authority that would enable us to work on Something Like that. I think we have authority that could allow us to do that. How would you respond . We have a lot of discussions about this. I agree with the commissioner. To the extent this facilitates capital rising, i think its its been pretty good in the private space. I would like to have more access for individual investors if we can use it to have more access in a protected way, im good with it. And im good with exploring ways to do that. But what we saw in the ico space was something that, you know i dont think anybody thinks that was a success. Okay. Lets move to crowd funding. I raised this in my opening statement. 11 pages that we passed in a bipartisan way. We had fewer than 15 votes on the house floor. Investment crowd funding, regulation crowd funding, such as the limits on individual investment limits, the total amount raised and the overall goal of this. Is the sec willing to relook at the extensive onerous regulations . Yes. And i think we should. If you look at the market for Small Business capital, crowd funding shows you can get started. You can get up to and im going to talk to about large valuations. You can get up to a Million DollarCompany Going with the right crowd funding. Its really hard to grow a business from a 1 million business to a 50 million business because youre talking about individual investors and crowd founding, professional investors at 50. Theres a big gap there. Things we can do to facilitate that so our Small Businesses can become larger, i think thats an area we should focus on. To go much more broadly. We have fewer public listings than we did 20 years ago. Retail investors dont have the same potential they did 20 years ago for their long term savings. Is this a concern for you . Its a very big concern of mine. The great thing about Public Markets, mom and pop investors invest along side with professional investors. I like seeing Capital Raising in that environment. This group passed the jobs act. I think the jobs act helped encourage companies to go one of the things weve been doing is looking at the jobs act provisions and seeing if we could extend them. The gentlewoman from new york, mrs. Maloney, is recognized for five minutes. Ive long been an advocate for using structured data in Financial Reporting and i think it helps both investors and Public Companies and it actually makes it easier for companies to raise capital. Last year the sec adopted a rule requiring Public Companies to report certain financial and risk formation information in. Today im going to be introducing a bill with Ranking Member mchenry called the financial Transparency Act which would direct final regulators, including the sec, to require the Companies Make their filings in structured data format. I would like to ask you, chairman clayton, in light of the secs work in this area, do you think that this bill is a step in the right direction and compliment it is good efforts of the sec in this area . And the question of making data more usable, accessible, to various market participants, yes, and in particular, doing it in a way depending on whether youre very sophisticated or Retail Investor, you can have access to that data, very supportive of that. I will note that how data gets scraped and used has changed over time and i would just encourage everyone in this space to be forward looking and allow flexibility in achieving the objectives of making data more accessible. Commissioner jackson, i want to ask you about the commissions recent interpretation of the advisers act that was adopted along with regulation best interest. But i want to remind my colleagues why we passed so many regulations in the first place. We did it because 8 Million People lost their jobs, 6 Million People lost their home, and the financial crisis destroyed over 15 trillion in wealth for middle class americans, their pensions, their savings, devastating effect on our economy and country. So given all of this, the very last thing the sec should be doing is weakening rules that would perfect investors against these kinds of losses. But unfortunately thats exactly what the commissions interpretation of the advisers act would do. It would weaken the long standing standard for Investment Advisers and increase risk for Retail Investors. I know you voted against this, you opposed the final interpretation of the advisers act. Can you explain why you think the interpretation weakens existing law and poses more risk to investors and our economy . Thank you, congresswoman. Yes, i dissented and the reason is straightforward. The law in the United States should be clear that when theres an a conflict between an ordinary investor and the financial adviser, the investor comes first. The rules that we adopted including the interpretation you mentioned had a muddled standard. We should be clear that american investors come first. And my Office Released data showing that wall street has been staying in brochures for years that they would come first. My own view is not only it was a mistake for us not to make that clear in the interpretation, but also that we upset the prevailing expectations investors have when they entrust other people with their familys financial future. How do we correct this . Well, so a number of the things that i mentioned in my statement would address this problem. One of them would be to use the Authority Congress gave us in dodd frank. Theres authority that would allow us to set a uniform and strong standard with respect to Investment Advice in this country. I continue to think that thats an approach that we should give more consideration to. And i look forward to seeing how it plays out and we need to be much stronger in this area. Thank you very much and we possibly the sec should revisit this and come back with a the standard that president obama supported and worked so hard for. I yield back. Thank you. The gentleman from oklahoma, mr. Lucas is recognized for five minutes. Thank you. I would like to commend you and the commissioners for the tremendous progress the sec has made. And as a final step, sec will need to address the cross border application of these rules. My first question would be along the lines of, in a transaction that occurs between parties outside of the United States, a u. S. Employee will help to execute the transactions. Ive long been an advocate of harmization between the fec. I would like to urge the fec to harmonize with the other on how theyre treated. I hope the sec recognizes the need to safeguard against this. Could you speak to the issue of harmonization with a cross border rule . Either or. I would love to hear from you both. I want to thank the commissioner for taking the lead on these rules. Shes done a terrific job. And you raise one of the difficult issues. You have a transaction between two parties outside the United States. But lets say it is arranged in the u. S. Because, you know, thats where the expertise for this transaction is. And in fact it may involve what we would consider an asset or a security thats important to the u. S. Like u. S. Interest rates or in our case a u. S. Security. At what point do we say that transaction thats the risk is offshore on the parties is something that we still have an interest in regulating because it happens here in the United States and commissioner purse and i are working with our colleagues here on trying to draw that line in a way that makes sense not only for regulating the parties but dealing with systemic risk. And i would add that we have been working very closely with the cftc and i think we can draw from their experience whats happened in their markets because obviously their regime has been up and running whereas ours has not. Were talking with them. Were learning from them. And we are trying to achieve harmonization as well as allow compliance in other areas where thats appropriate. We live in a world where both talent and resources are easily moved around the globe. Again, i want to express my appreciation for the work in serving u. S. Investors. We spoken several times on your active engagement with the cftc. Could you elaborate on any other areas where you hope to see further coordination. I think an area where theres room for improvement is on inspections as we we both inspect some of the same firms. And on further harmonization including on reporting of information, it doesnt make a lot of sense to require people to report two different sets that essentially have the same information. Those kinds of things we can improve. Thank you, chairman. And i will yield back the balance of my time. Thank you. The gentleman from california is recognized for five minutes. Thank you for your presentation. It is outrageous that shareholder money is used to pursue political objectives that may not only contradict what the shareholder wants, but is done in totally secrecy. The chair talked about cryptocurrency and i do have a few comments. The u. S. Dollar is an extremely good currency. It fails, however, to meet the needs of tax evaders, terrorists, sanctions evaders and drug dealers, hence, theres a market for the alternative based on those four market and is the tax evader market is the giant share of that market. The sec is going to have to construe laws in the Public Interest. It is not in the Public Interest for you to facilitate the creation of a device chiefly used by tax evaders, terrorists and sanction evaders. It is pretty clear that the l libra will be a mutual fund. I would put it Mark Zuckerberg has a lot of money, but he doesnt have the power to print more. He will have that power if libra fulfills all of its expectation. I call it the zuck buck. Please do what you can to stop this. It meets no need for anyone who wants to follow our laws and if you read the statement of those who want to disempower the federal government, they are thrilled with cryptocurrency in each of its developments. Now a Small BusinessInvestor Alliance questioned this Congress Last year in a house report said that exempting bdcs from being covered by the afe rule dealing with expense reporting, given their similarities to operating companies, it will result in positive result for managers, improving Corporate Governance and transparency. I hope there was a positive develop when you issued your proposed fund of funds rule. I hope that you would take steps so that bdcs can once again be Portfolio Investments of mutual funds and get the kind of analysis by analysts who are doing the work that will benefit others as well. Any comment . I think you framed it well. Its part of our fund to funds proposal. There is the tension there. Its at multilayers of fees or closer to an operating company. I think were i want to commend our staff for the thorough way that theyre looking at this. I think its closer to an operating company. Its not just me. Thats a house report. I understand and just wanted to frame the issue. Speaking of cecil, our constitution calls for government power to be exercised by those who are elected. Exercise of government power but not only are they not elected, theyre not even Government Employees. They derive their power from you. And im of the view that perhaps you shouldnt exercise any oversight over their decisions. That would be a institutional travesty to think that you could go to jail for violating a rule promulgated by someone who doesnt even that isnt a Government Employee or elected official and that rule has not reviewed by anybody who is. Worst than a constitutional travesty, its an accounting theory travesty. It is a terrible proposal and its only defense is that its adoption will cause banks to have higher reserves than the Bank Regulators think they want to impose. And i would say please do not use your power to delegate power to some folks up in norwalk to impose Bank Regulation that they think is appropriate when we have established Bank Regulators. I have a lot of questions for the record and i yield back. Thank you very much. The gentleman from florida is recognized for five minutes. Thank you very much, madam chair. I appreciate your and the Ranking Members leadership in holding this hearing. Its important to protecting investors and i want to thank each and every one of you for appearing today. Its been nearly ten years since Alan Stanford was arrested for running the second largest ponzi scheme in the history of the United States and the collapse of the stanford financial group. Over 21,000 victims of mr. Stanfords crimes, mostly hard working middle class americans, some of which reside in my district, have yet to be repaid in any meaningful way at all. The stanford victims have received approximate 4 1 2 cents on the dollar while the seemingly more influential or wellconnected victims to thave received a higher recovery. This is difficult for the public and me to understand and obviously it is not acceptable. Of the more than 5 billion in losses, the Court Appointed receiver has recovered just 750 million. But what is more appalling than that is that nearly 50 has gone to the pocket of the receiver. If it couldnt get any worse, the receiver recently barred individual investor claims against the banks who potentially aided and abetted the fraud. In fact, one of my constituents and a dozen other victims recently wrote to the receiver and asked them if they might consider changing their course to which the receiver did not even give them the curtesy of a reply. I would like each of you to express to me or respond to the question of whether or not you think its appropriate to bar investor claims in a case that has returned investors only 4 1 2 cents in ten years. And we can start with mr. Roy mr. Royceman and go right down the line. Thank you for bringing this topic up. Obviously its a travesty. If there is a means for collecting for wrongdoing, we need to ensure that that is something that people can count onto collect. If we dont have an adequate system, it creates questions and shakes our confidence not only in the Financial Service industries, but the oversight of it. Im happy to look into that issue. Im not familiar specifically with the issue of the receiver barring investors from pursuing claims against banks. Im happy to look into it and get back to you. Thank you. Chairman . Ill try to be brief to give my colleagues time. But ive spent a lot of ive spent a lot of time on this. Ive met with the victims, victim groups, i meant with the receiver and examiner about ten days ago. This is not an acceptable result at all. With respect to your specific question about the bar, theres a judgment to be made there. Minds can differ. Im aware of the issue and were continuing to look at it. But rest assured, ive been briefed on this issue. Do i have your the understanding that youre going to do more than observe it . Do you foresee any engagement . Do you foresee the calvery coming to help them . Well talk about it more in the meantime. This is a travesty, and like commissioner purse, id be happy to look into this more deeply. Whats most troubling is that you have a constituent who didnt get a response and any american investor whos been involved in this situation is entitled to that. And im happy to look into that further, sir. I agree and i will say that in my experience as an enforcement attorney ive seen the damage thats done victims such as your constituents and i find it extremely troubling. I wholeheartedly support any effort we can make to return more money to those investors and will work with my colleagues to do so. My time is about to expire, so i wont get to ask the other questions, but i would appreciate it if you would let my office know of possible solution that is you play have or anything you think congress can do to empower you more. My time is up. I yield back. Thank you, madam chair. The gentleman from new york was also the chair for the subcommittee on Consumer Protection and Financial Institutions is recognized for five minutes. Thank you. Let me try to get into i got a few issues that i want to deal with. One is a practice that im concerned about is growing the growing practice of hedge funds attacking closed in funds. These contests and related lawsuits are not about improving governance but about coercing funds that cannot protect themselves. These hedge funds are evading the 3 limit specified in the 1940 act through the use of multiple intermediaries. It causes them to be liquidated or impaired for short term profits. The losers are the mom and pop Retail Investors. So, commissioner jackson, would you agree that this practice is, one, illegal and, two, what is the sec doing to curtail these activities . Thank you, congressman. Without commenting on any particular practice, heres what i want to say. I share your concerns, sir, and in fact one of the things thats most troubling about this is that closed in funds are held by Retail Investors, ordinary mop and pop investors who bought the fund on the understanding that it wouldnt be attacked in just this way. I helped to write a paper to show that when takeover defenses were called in some time ago, this hurt ordinary investors. Im committed to working on this subject sir and i look forward to working with my colleagues to make sure that those funds are protected. Thank you. Let me move to the next issue which was just last week, and i Interest Rates in the repo market skyrocketed causing the federal reverse saying it would invest funds in the market. The secs proposal stated that a critical component of a companys liquidity and Capital Resources is often its access to short term borrowings. If this rule had been finalized, investors and the public would have much greater information about the repo market. Given the concerning market fluctuations of the past few weeks, dont you believe the sec should finalize a repo disclosure rule . Thank you for that question, and i agree that understanding liquidity needs is lets put it this way, its essential to good oversight, understanding the liquidity needs of our market participants. That rule that was proposed, in the time since it was proposed, there have been a number of developments including Disclosure Requirements by our other federal regulators and at the sec and accounting rules. In fact, just the other day we put out revised guide three which addresses some of these issues. But youre right to raise the question as to whether we have sufficient insight into the liquidity in the repo market. We and other federal regulators should be looking at. Many of the issues that were to be addressed in that proposal have been addressed in other ways. Should we be nervous about the economy of this going over, leveraging over so that it has an effect. We dont want to go back to what took place in 2007 and recently in an article that came out last week, i know theres a number of financial newspapers, et cetera, has risen some concerns about where we are. Liquidity is the life blood of modern economies which is what we have and we should always be mindful of whether theres sufficient liquidity in our important markets, including our overnight markets. Let me ask another question in the little time that i have left. The sec has a volunteer Assessment Program but theres a Response Rate of only about 5 . I have a bill that would make such zoedisclosures mandatory. What can the sec do to make sure that companies are releasing this information to investors and the public . I think it was decided in 2015 that ill call it a survey, would be done on a volunteer basis. I have met with our director on several occasions to try and facilitate greater responses. I think the 5 Response Rate is the number of firms but not the number of employees covered. I dont have the exact number. But were working to try and improve those numbers. Thank you. The gentleman from missouri is recognized for five minutes. Thank you, madam chair. Mr. Clayton, i want to follow up on something that congressman sherman was discussing with regards to cecil. His conversation dealt with mr. Royceman and ive written a letter to you with regards to sec asking for a delay in study of cecil whether its appropriate or not. And you stated that the mission doesnt involve macro level studies on Financial Market and is the u. S. Economy. This is an endeavor best pursued by the financial regulators. They all seem to think that nobody should be doing this. Nobody wants to do anything. I get the regulator twostep. Lets say i agree with you, the sec does not do Macro Economic studies. Your a member of fsoc are you not . Have you requested to do a study . I have not. That is their job. Why have you not done that . The question lets take a step back. I agree with you that if something is going to have an adverse impact, if were going to choose a measure and then people are going to manage to that measure for a nonprudential reason, we should be rethinking that measure. In the area of cecil, what weve seen is fasb say for a number of entities, this would apply to, maybe we should take a step back. I think thats been a wise step. If youre proposing this rule, would you do a study . Mr. Jackson talked about he required data to make a decision. Generally in our rule making we do economic analysis. If somebody brought to you a problem, im sure you would ask them to document the problem, show us the data. Would you not look for the data there to support their assertion . In most cases, yes. Im very interested in relevant data. This one is, you know, report how youre doing, report how youre managing it. You and i have discussed this. I think you have a very valid point here which is were trying to provide insight into loan losses and the question is, in providing that insight, are you changing behavior when that should be lets analyze that for a moment. Fasb says the reason theyre doing this is to have better transparency on the balance sheet. The problem with that, as investors have been telling me, its supposed to be for the investors. If the investors are saying now as a uniform model across all of the institutions that reserve exactly the same, now we have a different model. Now its more confused and more difficult to look at than it ever was before. This is going to confuse and make the issue more difficult to assess risk than it is to be helpful. And a study would show this. I guess my question to you is, would you be willing to go to the board and request that they do a study to see if this is something that we need to take a look at . Im not going to commit to that specific course of action. I will commit to continue to discussion this with my fellow fsoc members raising the points youve raised. Im going to give you an example i gave to some of the other regulators. We celebrated the 50th anniversary of the man on the moon, how would you like to know that the previous market, which did not have any study or any analysis on it, the rocket wasnt tested, blew up on the launch pad. Now youre sitting on the launch pad with another rocket, a study or a cost benefit analysis. Are you ready to light that rascal . I would not want to be on that. Thats the same answer i got from every single regulator. Im not asking to do away with the rule. Im asking to see the impact of this. This is going to be huge, the impact its going to have on this economy and to not do our oversight job here which is to make sure this is going to be something thats going to be helpful. I think were dropping the ball. One last comment. Look, i will continue to engage on this and i think that the points youre making are one that is we should think about. I hope you were able to go to fsoc and request the study. Thank you very much. The gentleman from missouri was also the chair for the subcommittee on Housing Community development and insurances. Recognized for five minutes. Thank you for your participation today. Commissioner jackson, the use of the practice of stock buy backs skyrocketed after the enactment of president trumps tax cuts and jobs act. The tax bill provided significant tax benefits to large corporations such as a lower Corporate Tax rate and an incentive to repatriot offshore cash and according to one study, led to a 64 increase in stock repurchases while real wages for workers remained flat. Indeed, analysts estimate that in 2018, corporations used nearly 60 of their Corporate Tax cut to repurchase stock, in other words, at a time when wages for average workers have failed to keep up with inflation, corporations have used the Corporate Tax break to collectively pay 1 trillion to executive boards of directors and large shareholders. Seemingly at the expense of small investors. Instead firms could dedicate this capital to other investments necessary for innovation and growth. What is your view of stock buy backs and should they be curtailed when used in a way that contravenes Public Policy . Thank you, congressman. I want to make two points in response to all that youve said. First, i released research to show that our rules right now allow executives to use a buy back as an opportunity to cash out their personal shares. If i were an ordinary investor, i would be confused that the Company Thinks the stock is cheap enough to buy, but the ceo would like to sell it. That raises a conflict of interest problem. Youre right, the use of buy backs has skyrocketed and we havent looked at those rules in long over a decade. I think its time for us to dig into those rules and see whether theyre protecting investors and thats why ive called for an open comment period. You lay out an analogy thats really troubling when you think about it. Is the confidence going to be there by those smaller investors. Interesting. Commissioner clayton, many Pension Funds including some in the state of missouri invest in private equity. Can the taxpayers and retired workers in my state be assured that theres oversight of equity by the sec . So i think what people should understand is that our oversight of the private markets including private equity is not the same as our oversight of the Public Markets. Its one of the reasons why it bothers me that more Growth Capital is being raised in the private markets. To your specific question, we do inspect and regulate that market al be albeit in a different way. And i was talking to our head of inspections recently and it continued to be a to be a focus particularly in the area of disclosure of fees. Yes, we do regulate it. Not the same extent as the Public Markets. Can retirees and taxpayers be confident that those investments are protected and that there will be a dollar for dollar retirement for people that depend on those retirements . Look, what im going to say here is i think if you look over a 20 year period, Money Managers who have had a mix of private equity, public equities, thats been a fairly standard and successful way to do it. If im looking out over the range of options as a professional investor and a greater amount is being raised in our private markets, i think ive got to think about allocating money to that. So we need to be cognizant in that in the way we look at regulation. Im not going to substitute my judgment for the judgment of a money manager. Looking at a macro basis, if i were in that position id be looking at that as an asset cla class worthy of consideration. I thank you for your response and i yield back. The gentleman from kentucky, mr. Barr is recognized for five minutes. Thank you, chairman clayton. Business companies are an important source for businesses. I dont need an extensive response on this, but i want to express my support for rationalizing how bdcs are treated under the acquired fund fees and expenses role. I understand the s. E. C. Staff is presently considering this issue and im interested in a favorable resolution because bdcs have been so important in financing for kentucky businesses. I want to ask you a question about leverage lending and alarm about rising corporate debt. Private credit fund managers, clo managers and other nonbank lenders must register as Investment Advisors with the s. E. C. This reports in regular s. E. C. Examinations and activity limati limitations. In my view, these concerns fail to take into account the role that the s. E. C. Plays in overseeing participants in this market. Chairman clayton, can you discuss how your agency oversees the activities and how youre sharing this information with regulators. Im going to do this on a little bit broader basis. What we should recognize is that our economy has grown since 2010. Its a credit based economy. But the amount of credit thats provided directly from the Banking Sector has gotten relatively smaller. The nonBanking Sector has to have gotten larger, by simple math. We recognize that. Were discussing that with our colleagues at the fed, the fdic, occ and others. But that is the reality. More of the credit that is underpinning our economy is outside the Banking Sector and private sector. Gido you see a systemic issu . If i did i would be doing something about it. The answer is no. The answer is no. Commissioner, purse, the business round table published a revised statement of purpose, despite that its a restatement of existing practices. Some on this committee, have interpreted this as a shift away from the bedrock principle that they owe a fiduciary duty. Its not to engage in politically correct causes, its to maximize shareholder value. Thats not to say that a companys environmental considerations or activities to insure the well being of employees, suppliers or customers are irrelevant. It means that shareholders may care about those issues and the market may dictate they help drive profitability. Can economies effectively serve their customers and communities without an undivided focus on maximizing shareholder value . I think the singular purpose is very important. It holds managers, it disciplined managers and focuses them to focus. As theyre fulfilling that mandate theyre going to think about the communities they work in. Theyre going to think about their employees and theyll think about suppliers as well. The focus is really important. The ancillary goals like those set forth in the statement of purpose, arent those ancillary goals, secondary goals, arent they predicated on a business delivering a profit in maximizing shareholder value. Yeah, this is how companies have always run. They wanted to serve their customers well so they can serve their shareholders well. You noted that lumping es and g together is difficult because theyre quite different. Commissioner purse, you have described esg as scarlet letters that stand for shareholder graft. Shouldnt the central focus of s. E. C. Disclosures be to provide Material Information to the investing public. Chairman clayton, can you discuss what the commission is doing to insure that remains the touch stone of the markets. Well, i very much believe that materiality should be the tou touchstone. What may be material may change which is why we need to have a principles based approach. I yield back. Thank you. The gentleman from georgia, mr. Scott is recognized for five minutes. Thank you, very much, ms. Chair lady. Chairman layton, let me ask you this, i want to talk to you about the liber transition. Very critical for our Financial System. As you know, the banks who are submitting their reporting information to determine the liber rate will no longer be compelled to use that in 2021. Th t this is very critical. Its the benchmark thats undermined 400 trillion in contracts globally and 200 trillion in contracts right here in the United States. What is the impact this will be on our Financial System . Look, its good that you raise this. This is an issue that requires attention. Shifting to an alternative rate, one of the rates thats been proposed is uhhuh. Theres going to be some friction. One is sort of a bank rate, the other is a secure funding rate or we need to reduce those frictions as much as possible. There are a number of ways to do it. But the numbers you cite are exactly right. If were talking about 200 trillion outstanding now or 40 trillion thats going to survive the date, even small frictions create big numbers. Now, you raise an interesting point. Because one of the very Critical Issues were faced with now is the need for Financial Education. Its very critical. We have 58 million, 60 million underbanked folks. And here is my point. I grew up in a little town in new york called scarsdale new york. When i was in the sixth grade, our sixth grade project at Fox Meadow Elementary School was for us kids to go out, earn our own money, and do the research and then as a class we went down to the New York Stock Exchange and bought stock. That was so profound in my life. It was pivotal. And it led me on to being able to buy stock every year. I used that to start my own business. Made it to the Wharton School of finance. Put me on the executive board of directors. Do you know what . When john scully was chairman of apple and he was chairman of our committee, and we would go across this country into africanamerican communities, building wealth. And the number one tool we used was investing in the stock market. Now, do you know that there are less than 17 state School Boards associations who require teaching a Financial Education. That is so critical. I wanted to ask you, nobody can come out and be an advocate for Financial Education mandatory in our schools. It can start in Junior High School before the kids they dont even know about a checking account. Who are they left with . The predators. The people out there. So tell me, are you all as serious about this issue as we are. We on this committee are making that a priority. Ms. Beatty, ms. Maxine waters and all of us are dealing with this issue. Just passed the bill to mandate the cf the communities financial Consumer Financial protection agency. Can you help us . Can we start a National Movement to mandate the teaching of Financial Education in our schools . Id love for it to start at the sixth grade. What are your thoughts on that . I try very carefully to stay in my lane, department of education, s. E. C. I could not agree with you more about the importance of Financial Literacy and education in our country. Its not just for investing. Its for opportunities. If you dont have the vocabulary and tools, your opportunities are limited. I wanted to ask you, ms. Purse, about financial harmonization. Mr. Waters and i are working on a bill for that. You gave a speech in singapore on that. Can you tell us what is the state right now of Regulatory Affairs . Give the gentleman the courtesy of a short response. Youre so kind. We have to take into account theres a lot of activity happening outside of the United States and id like to try to bring more regulatory clarity in the u. S. So development and innovation can happen here. Thank you, shachairman. The gentleman from colorado, mr. Tipton is recognized for five minutes. Madam share, i appreciate you all taking the time to be able to be here today. Chairman clayton, i would like to associate myself in regards to be able to pick that ball up and carry it. Talking to a lot of our banks, folks in our district. This is an important issue. I think that while the intent wasnt to be able to do some harm as the potential. It impacted us back home. And i think being able to mr. Jackson noted to be able to do the studies is something thats incumbent on us. I wanted to make that comment. I did want to note the pleas that youd establish the office of advocate for Small Business capital. And would you maybe expound a little bit on what that office is doing and what you will do for the commission Going Forward . So thank you for the opportunity to do that. I think this office is an Important Office for the commission and our economy. Capital formation, we all know its important. Are there regulatory impediments that we can lift without jeopardizing Investor Protection is one of the things were focused on. What are the elements of an environment that drives that . You see pockets of entrepreneurship around the country. Bostons coming on, nashville. I dont want to leave anybody out. What are the elements that exist in those places and how can we replicate them in different parts of the country . Particularly in the middle of the country, entrepreneurship is anemic in the middle of the country compared to the coast and we want to do something about that. I appreciate that particularly looking into the segments that youre mentioning. One area, myself and my colleagues through the Small Business caucus have been dealing with is in terms of lending to women owned businesses. There is a huge gap in terms of the lack of participation in terms of loaning to women owned businesses or areas youre seeing, your opportunity to be able to expand and encourage that. I agree. I agree thats an area we should focus on. Okay. You made comments and i think it falls in line with the chairmans comments in looking at the regulations we have in place. Are they a burden or not. You were talking about the Data Collection in your opening statements. Do you see the opportunity, we all want to be able to have guardrails in place to make sure the economy is moving. We know the rules of the road, but we can get to that burdensome point. Were inhibiting the ability to be able to invest dollars, raise capital. Can you expand on that a little bit more . I think the chairman and his director of Corporation Finance bill have been taking a close look to see where we can get rid of duplicative requirements. The chairman mentioned trying to focus on principles based requirements. They last better over time because they change with the different reality that economies are facing. Things like that can seem small but they can make a huge difference for companies that are engaged in trying to raise capital here in the u. S. Thanks. Chairman clayton, with states like california coming out with extensive privacy laws, has the s. E. C. Considered developing rules and regulations to make sure that americans, regardless of the state they live in understand what can and cant be done with their data . I cant tell you theyve had a specific focus i think what youre talking about is a data privacy disclosure for, say, broker dealers, Investment Advisors. We have not taken up understand the issue youre talking about is what kind of i think thats also in the consumer space, but you make a good point. Okay. Thank you, i yield back, madam chair. The gentleman from texas, mr. Green, who is chair for the committee of oversight and investigations is recognized for five minutes. Thank you, madam chair. Mr. Chairman, is it fair to say we have two products that were dealing with, the libra coin being one and the libra investment token being another . I dont generally talk about specific products or assets. As i understand your question, it sounds like theyre two different products. All right, thank you. And is it true that in your opinion if the coin does not have a return on investment its not subject to s. E. C. Regulation . Again, im going to step back and talk about assets generally, crypto assets. A statement such as if it doesnt produce a return, its not a security. I think thats a bit of oversimplicification lets not have it be a crypto currency. If a product does not produce a return on investment, is it something you regulate . If what youre saying by a return on an investment is it does it give you rights in an enterprise or is it somehow packages as a protect thats designed tod give you a return i use that terminology because you used it earlier when you were giving your statement. Okay. Let me walk through something because this is worthy of consideration. As proposed libra will be backed by the libra reserve and the reserve will be managed by the libra association. The association will have members, the members of the association will invest some 10 million into something called the token. The investors will receive dividends generated by the yield of the assets held in the reserve. Im sure youre familiar with this, because of the position you hold. If all of this comes together, it seems that we have integrated the token into the coin in some way, such as to produce a return which would then deem it to be a security. Not specific to libra and the token, the coin and the token. Generally speaking, would that kind of transaction make it a security . I want to commend you on your understanding of the Securities Laws and the question you asked. Because its quite a sophisticated question. I believe a lot of lawyers have spent a lot of time trying to figure out where that line is, whether theres a sufficient amount of integration that would be a store of value to become a security. Im not going to make a judgment, particularly when we cant see how its used. You have articulated very well the kinds of issues were going to be looking at when we look at assets of this type. Thank you, ill write a letter giving you my opinions if i may. Please, please. Mr. Jackson, if i may, pursuant to s. E. C. Rules that were finalized on june 5th, 2019, reg b 1, with are ve Investment Advisors true fudoucheiari fiducia fiduciaries. I dissented from that. Ordinary american investors have the following understanding. When someones a fiduciary to me theyve got to put my interest first. And my own view is that the rule we adopted was not clear enough. For that reason, i dissented from the package you just described. I understand this is your position. Let me ask a chairman if i may. Im not trying to put you at odds with each other. Im trying to get a better understanding. Is it your position that theyre not true fiduciaries . Heres the thing about a question like that. The term fiduciary means a lot of Different Things and a lot of different contexts. Would they put my interest ahead of theirs if im the investor . In both the investor space and broker dealer space, a professional cant put their interests ahead of the clients. For the first time weve made that clear. If youre an investment professional, you cant put your interests ahead of your clients. Thank you, madam chair, my time has expired. The gentleman from arkansas, mr. Hill, is recognized for five minutes. Thanks for having this hearing and i want to thank the witnesses for being here, what a treat to have the full commission before the committee. Certainly want to thank all of you for the Public Service youre doing and continuing in the 85 year tradition of the s. E. C. In protecting investors and maintaining a remarkable Capital Formation across all of our markets. Its been a very interesting discussion this morning. My friend from colorado, a few things of interest. I, too, want to associate myself with mr. Sherman on demonstrating leadership in the regulatory system about proposals when they didnt even follow the rules under their pronouncements. Thank you for that discussion. I have constituents who suffered in the ponzi scheme. That led me to support the clarification that came before our committee. Im not sure im keen on 14 years, but that was the compromise. I think ten years is more in keeping with the traditional under these kinds of frauds. But i definitely appreciate his leadership on defining fine versus discouragement versus restitution. All nine justices couldnt figure out. I appreciate that. I want to compliment mr. Scott on Financial Literacy. Dr. Foster and i have been leaders on Financial Literacy bills in congress. In arkansas we have economics arkansas. Were proud to be one of those 17 states that encourages economic curricula for our kids. Commissioner purse referenced the consolidated auto trail. I was very considered by the cards proposal four years ago. This is turning the card over and its a picture of a cat. Its all the same issue, which is does government need to micromanage and have every trade for every person every day when you already have the authority in my view of the commission to look for trades under your market regulation, market surveillance functions with the power you have now. Im not a fan. During this congress, weve had a lot of discussion about Capital Formation. And its interesting and Corporate Governance over the past nine months, almost every proposal drives up cost of compliance and drives up costs of preparing a 10q or a 10 k for investors. I find that frustrating, because for the prior ten years, this committee from both sides of the aisle talked about how do we lower maintain transparency, maintain materiality but lower accounting costs, disclosure costs. How do we get at lowering liability, corporate liability expenses. How do we lower the cost associated with going public from a market reg point of view . So im concerned that were going in the wrong directions in the debates here. I urge the commission to use your economic analysis, your cost benefit power that you have to be focused on lowering the cost of being a Public Company reduced barriers. Lets not blame reg d, stream lining in the 1990s for why we have fewer Public Companies. Lets say ive embraced more of the jobs act and jobs 3. 0 approach. This slide i wanted today put up because over the last few days theres been a lot of conversation about this business round table report, this release back in august. Those on the left jumped on screaming victory that by god they had cowered the fortune 200 into doing things their way to having a more socially sensitive boardroom. Those on the right screamed oh, my gosh were going to abandon shareholder returns. Then this morning on cnbc, a new scynical theory, which is becaue ceos cant maximize earnings anymore, now theyre going to tie earnings to some of these social goals. I put this up from 1992. This was our publicly traded company in little rock. We had shareholders, customers and bankers all priorities of our company in the communities we serve to do what . Drive financial performance. We were a top rated, Top Performing bank holding company. I dont think the brt change was that big a deal. Thank you, the gentleman from missouri plr missouri, mr. Cleaver. Thank you, madam chair. Thank you for being here today. On the 27th of february, i sent a letter to the oversight council, and the office of Financial Research and to the ceo of Facebook Dave marcus. And i received an interesting response and id like to have it entered into the record, madam chair. Without objection, such is the order. Let me share a bit of it. Its critically important. The chairman says the u. S. Department of treasury requesting a review of libra by fsoc and ofr, we agree with you that these projects should be subject to regulatory review. And they said they would agree to furnish any and all information needed for any investigation or any review of fsoc, a review that fsoc or ofr made be interested in conducting. And i thought that was significant. We agree with your view that fsoc and ofr qualified to assess the development of this work and that fsoc can play a valuable role in coordinating among its member agencies to insure regulatory concerns are addressed. Then it concluded by saying well not launch until we have addressed all u. S. Regulatory concerns. Now, ms. Chairman i know you said you didnt want to become involved in any product. I have a bloomberg article where you address this issue of sorts. You said and i quote, if it looks like an etf and operates like an eft the law says it should be regulated like an etf. Can you provide some greater clarity . I think thats a i like that statement. I do, too. I like that statement because if what the product is is something that is like an eft on currencies, then we regulate it. So theyre saying theyre not going to launch until theyve addressed all regulatory concerns. Is there any concerns that have been expressed to facebook as it relates to whether or not theyre going to imlplement libra. We have a group thats looking at these things. Our doors are open. People should understand that as a general matter, if a digital or crypto asset is looking like or a substitute for something thats a security, they should come in and talk to us and find out whether their view of the world is the same as our view of the world. So it would be its not anything that would be initiated by the s. E. C. , is that what youre saying . It can go both ways. I want to make it clear that our doors are open to talk about these things. If someone wants to launch something before coming to us, i think thats a bad idea. I do, too. I yield back the balance of my time. Thank you, the gentleman from georgia is recognized for five minutes. Thank you, madam chair. Thank you for taking time to be here today. I want to start off talking about something thats been slightly touched on here that i think of all that you and we have a responsibility for is probably the greatest threat to businesses, investors as well as average americans and thats cybersecurity. Its the greatest and growing threat to our nation, to individuals. The threat of identity information personally identifiable information, critical business, government, personal data. Sometimes im a voice in the wilderness on this issue. Its significant in this nation. We have to spend a lot of time and attention to it. When i bring it up in different committees, usually the response i get is this is the investment wee making in cybersecurity but we overlook a basic premise in data security. I spent part of my time in the air force and intelligence where we dealt in securing data. There was a basic principle, you dont have to secure what you dont have. Meaning if you dont absolutely need the information then dont keep it, dont keep it. Im getting to the consolidated audit trail. I have grave concerns over the consolidated audit trail. Youre talking about getting 60 billion records per day with a lot of pii in there, information on individuals on businesses, transactions. This, in my opinion, makes you a prime target for cyber criminals. And in this environment its more than a full time job to stay ahead of the bad actors. I mean, if you drop your guard for one second, a lot of people are harmed. Ask the elimination of Social Security numbers, account numbers and dates of birth moving forward with the consolidated audit trail. But theres still discussions of including investor names and addresses which is a concern of mine. So mr. Clayton, does the s. E. C. Support the sros proposal of eliminating at least that information . Backing up, i agree with you that you have to ask yourself in this society, do we need the information to do our job . And fast forward, i support it because i think we need that information, name not date of birth, but year of birth, to do our job. I dont think we need much more than that. Im supportive of that outcome. I think that there was a lot more personally identifiable information that was in there that as we drilled down we realized that eliminating those fields, we were not eliminating our ability to surveil the markets. Okay. So the question is, do you need it. But the follow up question from a cybersecurity perspective, is is it data that you need to store, or is it data you can obtain when you need it without having the risk of actually storing the data . Thats a question that we asked ourselves, do we have some kind of retrieve function to get the data. You do need enough data to retrieve something. At that point youre going from just account number, name and year and birth. We got to reach out for name and year and birth. Were trying to strike the right balance. Okay. I know youve expressed concerns about consolidating data. I want to give you a chance to opine. We have to ask do we need the data. If we dont need it, we shouldnt collect it. We have a system that allows us to get data when we need it. Its the blue sheet system. It still needs work but i think its a workable alternative. Query why we need all this Retail Investor information, i dont think we need it. And i worry about it being an extremely attractive target. Thank you both. Im going to keep our eye on this and how it progresses, because i see in a lot ofstan instances in our government, we just love collecting data. 90 of that data sits and it never goes anywhere. So thank you, i yield back my time. The committee will stand in recess for five minutes. The gentleman from connecticut, mr. Himes is recognized for five minutes. Id like to thank the commissioners for appearing before us today. Mr. Chairman ive had the privilege of serving with three chairs and a bunch of commissioners. Id like to thank you for your work. This was as transparent and helpful a commission as ive had the privilege to work with. Thank you for