[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                    OVERSIGHT OF THE U.S. SECURITIES
                        AND EXCHANGE COMMISSION:
                      WALL STREET'S COP IS FINALLY
                            BACK ON THE BEAT

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 5, 2021

                               __________

       Printed for the use of the Committee on Financial Services
             
                           Serial No. 117-51
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
46-010 PDF                 WASHINGTON : 2022                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 5, 2021..............................................     1
Appendix:
    October 5, 2021..............................................    75

                               WITNESSES
                        Tuesday, October 5, 2021

Gensler, Hon. Gary, Chair, U.S. Securities and Exchange 
  Commission (SEC)...............................................     5

                                APPENDIX

Prepared statements:
    Gensler, Hon. Gary...........................................    76

              Additional Material Submitted for the Record

Gensler, Hon. Gary:
    Written responses to questions for the record submitted by 
      Representative Budd........................................    88
    Written responses to questions for the record submitted by 
      Representative Davidson....................................    90
    Written responses to questions for the record submitted by 
      Representative Gonzalez....................................    91
    Written responses to questions for the record submitted by 
      Representative Hollingsworth...............................    92
    Written responses to questions for the record submitted by 
      Representative Kustoff.....................................    96
    Written responses to questions for the record submitted by 
      Representative Loudermilk..................................    97
    Written responses to questions for the record submitted by 
      Representative Lucas.......................................    99
    Written responses to questions for the record submitted by 
      Representative Maloney.....................................   101
    Written responses to questions for the record submitted by 
      Representative McHenry.....................................   102
    Written responses to questions for the record submitted by 
      Representative Steil.......................................   117
    Written responses to questions for the record submitted by 
      Representative Williams....................................   119
    Written responses to questions for the record submitted by 
      Representative Zeldin......................................   120

 
                    OVERSIGHT OF THE U.S. SECURITIES
                        AND EXCHANGE COMMISSION:
                      WALL STREET'S COP IS FINALLY
                            BACK ON THE BEAT

                              ----------                              


                        Tuesday, October 5, 2021

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 12:02 p.m., via 
Webex, Hon. Maxine Waters [chairwoman of the committee] 
presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Meeks, Scott, Green, Cleaver, Himes, 
Foster, Vargas, Gottheimer, Gonzalez of Texas, Lawson, Axne, 
Casten, Pressley, Torres, Adams, Tlaib, Dean, Ocasio-Cortez, 
Garcia of Illinois, Garcia of Texas, Williams of Georgia, 
Auchincloss; McHenry, Lucas, Posey, Luetkemeyer, Huizenga, 
Wagner, Barr, Williams of Texas, Hill, Emmer, Zeldin, 
Loudermilk, Mooney, Davidson, Budd, Kustoff, Gonzalez of Ohio, 
Rose, Steil, Timmons, and Taylor.
    Chairwoman Waters. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    As a reminder, I ask all Members to keep themselves muted 
when they are not being recognized by the Chair. The staff has 
been instructed not to mute Members, except when a Member is 
not being recognized by the Chair and there is inadvertent 
background noise.
    Members are also reminded that they may only participate in 
one remote proceeding at a time. If you are participating 
today, please keep your camera on. And if you choose to attend 
a different remote proceeding, please turn your camera off.
    I now recognize myself for 4 minutes to give an opening 
statement.
    Good afternoon, and welcome back to the committee, Chair 
Gensler. You have a lot to restore and rebuild.
    During the Trump Administration, the Commission provided 
minimal oversight and eliminated key protections for investors. 
Trump's SEC impacted Regulation Best Interest that brokers 
loved and investors hated. Trump's SEC approved proxy adviser 
and proxy access rules that corporate executives loved and 
shareholders roundly rejected to favor multi-billion-dollar 
corporations. Trump's SEC did nothing to standardize reporting 
of environmental, social, and governance (ESG)metrics.
    Even though the financial sector's growth exploded, the 
number of SEC staff under Trump was reduced by 5 percent, and 
enforcement actions against Wall Street fell to historic lows.
    And, more troubling, working families and retirees, whose 
hard-earned savings helped fuel the capital markets, were 
ignored.
    Those are only a few examples, but the point is clear: Most 
of the policy and administrative decisions the Commission made 
under Trump unsurprisingly favored Wall Street, large 
corporations, and their lobbyists.
    The SEC, under your leadership, also finds itself in the 
midst of a radically-changing marketplace. Millions of new and 
often young investors are entering the markets, but the rules 
of trading are stacked against them, providing larger, 
established participants, like hedge funds and others, 
exclusive access to information and trading venues not 
available to everyone.
    In addition, the incredible growth of unregistered and 
volatile cryptocurrency assets, as well as the emergence of 
cryptocurrency intermediaries, market exchanges, and 
decentralized protocols, present your Agency with historic 
challenges.
    Earlier this year, when the GameStop trading event raised 
significant questions about our markets, I convened a series of 
hearings to understand exactly what happened.
    We also passed several bills addressing some of our initial 
findings, including my bill, H.R. 4618, the Short Sale 
Transparency and Market Fairness Act, which provides our 
markets with greater and more timely transparency regarding the 
positions of Wall Street hedge funds and other large asset 
managers.
    We also marked up legislation related to gamification, 
payment for order flow, and legislation prohibiting market 
makers from trading ahead of their clients.
    I look forward to hearing an update from you about what the 
SEC is doing, and I would like to make it clear that our 
investigation into the GameStop event is ongoing, and we will 
issue findings when our review is complete.
    As chairwoman, I expect the SEC will bolster the stability 
of our markets. However, I am gravely concerned that the 
largest risk to the capital markets and the economy in the 
coming weeks is a train wreck we see coming: Republican Members 
of Congress blocking the U.S. Treasury from paying its debts.
    We are now less than 2 weeks away, and my Republican 
colleagues are once again playing a dangerous game of chicken, 
even though fully one-fourth of the increase in the debt comes 
from Trump's tax scam, a $2-trillion unpaid tax cut for the 
wealthiest Americans and billion-dollar Wall Street firms.
    I hope that you, Chairman Gensler, will discuss from your 
vantage point what the effect will be on America's investing 
public and small businesses if Republicans' insistence on a 
government default succeeds.
    I thank you for appearing before us today.
    I now recognize the ranking member of the committee, the 
gentleman from North Carolina, Mr. McHenry, for 4 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman.
    And, Chairman Gensler, thanks for being here. It is good to 
see you again.
    The last time you were here, the Senate had just confirmed 
you, and it made sense that you were reluctant to speak about 
the direction of the Commission's agenda. But now that you have 
had some time to get your sea legs, I am looking forward to 
your discussion about regulatory priorities.
    You have not been shy in the press, so I hope we can have a 
frank and transparent conversation here today.
    On digital assets, you have made, in my view, a number of 
concerning and contradictory public statements regarding crypto 
assets and other innovative technology. When you were here in 
May, you stated that there was a need for additional 
legislation to appropriately regulate and define digital assets 
and digital asset exchanges.
    Then, just a few weeks ago, when you testified before the 
Senate Banking Committee, you stated there was, ``a great 
deal'' of clarity in the law. You implied that many digital 
asset exchanges are underregistered security exchanges and even 
threatened one digital asset exchange by name.
    So, which is it? Does the SEC want more legislative 
authority, or is it about to unleash a regulatory tsunami under 
existing laws?
    To be frank, I have strong concerns about how you will 
regulate in the digital asset space and whether the law is on 
your side. I believe it is time for Congress to step up and 
provide clear guidelines that will not allow an SEC Chair to 
change the law by interview or statement or a statement posted 
on the Commission's website.
    That is why earlier today, I introduced the Clarity for 
Digital Tokens Act of 2021. We need to nurture innovation and 
technology in this country, not send it overseas. This bill, 
which borrows from the great work of SEC Commissioner Hester 
Peirce, helps bring legal certainty to digital asset projects 
that we badly need regulatory clarity to launch.
    Two other points before my time runs out. First, much of 
your broader agenda appears to be no more investor-friendly 
than the bad bills that the Majority in the House here continue 
to push in this committee. There is a bipartisan concern that 
you will use, ``investor protection,'' as a guise for limiting 
everyday investor choice and run roughshod over appropriate 
processes in implementing your regulatory agenda.
    Along the same lines, following appropriate processes 
doesn't seem to be your strong suit. Your move to politicize an 
independent Accounting Oversight Board by terminating the Chair 
has raised concerns about your commitment to transparency and 
process.
    Second, it is a point you and I have spoken about, but I 
want to raise here. I have sent several letters that you have 
received that, frankly, received less than a fulsome response. 
That is not acceptable.
    Members of this committee rightly have concerns and 
questions about your Agency and what it is doing and why it has 
undertaken certain actions. The SEC needs to respond in a 
timely and substantive manner.
    I hope that with more time on the job, this problem will 
correct itself, and my expectation is that it will. Thank you 
for making it a priority.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. Thank you very much.
    I now recognize the gentleman from California, Mr. Sherman, 
for 1 minute.
    Mr. Sherman. Welcome back, Chairman Gensler.
    Your Agency oversees $100 trillion of trades each year, and 
your budget request--and I know I echo the chairwoman on this--
is quite reasonable. It accounts for less than $1 for every 
$46,000 of trade you oversee.
    The Pandora Papers have shown the world that all too often, 
billionaires are able to easily evade taxes, and dictators then 
steal what tax money is collected. We need a financial system 
that is less accommodating to the corrupt.
    Frances Haugen showed us what is behind Facebook. She is an 
SEC whistleblower. And I hope that you give her disclosures 
full consideration, given the fact that she will probably face 
lawsuits from Facebook.
    You exercise tremendous power, but particularly over bond 
rating agencies and the Financial Accounting Standards Board 
(FASB), the two most powerful, almost completely unknown 
agencies in our society. And investor protection is not a 
guise, it is your guide, and I support [inaudible].
    Chairwoman Waters. I now recognize the gentleman from 
Michigan, Mr. Huizenga, for 1 minute.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    And Mr. Gensler, congratulations on your new Twitter 
account. It appears that you, like a lot of folks, including 
me, were watching the Olympic Games this summer, because in one 
of your tweets, you compared adding company public disclosure 
requirements to the Olympics adding new sporting events, 
responding to the desires of fans.
    My problem with this analogy is, frankly, you seem to think 
that the SEC's power and expertise in disclosure is as 
unlimited as the International Olympic Committee's (IOC's) 
power over the Games.
    Well, I disagree. Just because the SEC generally does a 
solid job regulating disclosure about financial statements 
doesn't mean it is well-qualified to regulate around 
environmental topics.
    I have a different analogy for you. To me, the SEC 
requiring disclosure on ESG metrics is like if we required the 
gymnastics judges to judge the diving events--similar, but they 
are not qualified.
    I hope that you are going to be able to reconsider that. I 
look forward to this process. And I do question the wisdom of 
the direction that you are going on a few of these things.
    I yield back the balance of my time.
    Chairwoman Waters. Thank you very much.
    I want to welcome today's distinguished witness, the 
Honorable Gary Gensler, the Chair of the United States 
Securities and Exchange Commission.
    You should be able to see a timer on your screen that will 
indicate how much time you have left, and a chime will go off 
at the end of your time. I would ask you to be mindful of the 
timer, and quickly wrap up your testimony if you hear the 
chime.
    And without objection, your written statement will be made 
a part of the record.
    Chair Gensler, you are now recognized for 5 minutes to 
present your oral testimony.

STATEMENT OF THE HONORABLE GARY GENSLER, CHAIR, U.S. SECURITIES 
                 AND EXCHANGE COMMISSION (SEC)

    Mr. Gensler. Good afternoon, Chairwoman Waters, Ranking 
Member McHenry, and members of the committee. It is good to be 
back with you, and I look forward to the day when we can be 
there in person in that wonderful hearing room.
    I am honored to appear here today for the second time as 
Chair of the Securities and Exchange Commission. It is 
customary, I will note, that my views are my own. I am not 
speaking on behalf of my fellow Commissioners or staff.
    I have worked in and around markets my entire adult life. I 
believe the U.S. capital markets are the best in the world, and 
there are many reasons that we represent 38 percent of the 
world's capital markets.
    But we can't take our remarkable capital markets for 
granted. New financial technologies continue to change the face 
of finance for investors, and for businesses around our 
country. Also, more retail investors than ever are accessing 
our markets, and other countries are developing deeply 
competitive capital markets as well.
    Although I provide greater detail in my written testimony, 
I would like to just flag three policy broad-brush areas.
    The first is market structure. Our mission at the SEC is 
about capital formation and facilitating capital formation on 
one side, and investor protection on the other, but what is in 
the middle, that third prong of our mission, is about fair, 
orderly, efficient markets.
    I think that we can drive more efficiencies in these 
markets in the middle, and to the extent we can, and are able 
to, that helps capital formation, and it helps investors.
    I have asked staff to look at projects in a number of areas 
in the Treasury markets, which have had some hiccups in 
resiliency over the years, and in non-Treasury fixed-income 
markets, where possibly we could drive more efficiency, equity 
markets, and securities-based swaps and so forth.
    In these critical markets, I think companies and investors 
alike will benefit if we get greater competition, lower cost, 
and bring transactions out of the dark.
    The second is the rapid changes in technology. We are 
living in transformational times, perhaps as transformational 
as the internet itself. I know you might be thinking I am going 
to say something about crypto--and I will--but I think the 
transformational side is actually in data analytics.
    Predictive data analytics, artificial intelligence, and 
machine learning are really shaping a lot of parts of our 
economy. And with these developments, how can we increase 
access and choice, which is net positive, but also ensure that 
we make sure we are still achieving our public policy goals of 
investor protection and promoting capital formation and the 
like and ensuring that we protect against conflicts of interest 
or biases in the data or systemic risk.
    Separately, as the ranking member said, and we have had 
some good private conversations on this as well, I don't think 
that we have enough investor protection yet in the crypto 
finance, issuance, trading, or lending areas. I have asked the 
SEC staff, working with fellow regulators at our other 
Agencies, to see what we can do here.
    The third issue is disclosures. Since the 1930s, we have 
had a basic bargain: Investors get to choose what risk they 
take as long as it is based upon full and fair disclosure of 
the issuers.
    Over the decades, we have updated what those disclosures 
are, and I look forward to talking about this further with 
Representative Huizenga. But today, investors are looking for 
consistent, comparable, and decision-useful disclosures around 
climate risk, human capital, and cybersecurity.
    I have asked staff to serve up ideas that we would, if the 
Commission supports those ideas, put out for public comment and 
see what investors think, because it is all about investors at 
the core of this.
    I have also asked staff to develop proposals around 
potential issues--as you know, Sarbanes-Oxley passed about 20 
years ago, and there was a basic bargain there as well. To 
issue to the public in the U.S., your auditor has to open up to 
inspections by the Public Company Accounting Oversight Board 
(PCAOB). And although 50 jurisdictions have allowed this, 
currently China and Hong Kong do not.
    The SEC, working with the Public Company Accounting 
Oversight Board, has quickly put in place things to meet the 
challenges that Congress asked us to work on to ensure that 
this would happen.
    Separately, I want to say that last month, we authorized 
voluntary return to the office. We have worked remotely for 
about 19 months now. But it speaks to the dedicated staff of 
the SEC, and I can't compliment them enough.
    The last thing I would say is, as Chairwoman Waters said, 
we have shrunk about 4 or 5 percent in the last 4 or 5 years. I 
would have hoped that we might have grown 4 or 5 percent in 
this period of time. I know resources are tight, but it would 
help us to do our mission.
    I thank you, and I look forward to your questions.
    [The prepared statement of Chairman Gensler can be found on 
page 76 of the appendix.]
    Chairwoman Waters. Thank you very much.
    I now recognize myself for 5 minutes for questions.
    Chair Gensler, as I mentioned in my opening statement, I am 
deeply concerned about the recklessness of Senate Republicans 
refusing to vote for any legislation that would allow the 
Treasury to pay the debt those same Republicans already voted 
to incur.
    Last week, Treasury Secretary Janet Yellen said on several 
occasions that failing to raise the debt ceiling would lead to, 
``a catastrophe,'' and Fed Chair Powell said it was essential 
for Congress to act quickly.
    Chair Gensler, as a former Treasury Under Secretary and 
Assistant Secretary focusing on financial markets, as well as a 
former Chair of the Commodity Futures Trading Commission 
(CFTC), and as the Chair of the SEC, you are uniquely 
positioned to describe what will likely happen if Treasury is 
blocked by Republicans from paying its bills.
    Can you describe what you expect would happen in our 
markets, both in the coming days and if Treasury does default?
    In particular, I would like to know what would likely 
happen to people's retirement investments and to America's 
businesses trying to raise capital and create jobs.
    Mr. Gensler. Madam Chairwoman, I think we would be in very 
uncharted waters. The uncertainties abound around this.
    At the base of our entire capital markets are Treasuries. 
It is one of the reasons why we are working so hard to build 
the resiliency there. But in an actual default, we would be in 
a period of uncertainty. What would happen to money market 
funds? What would happen to the banks that rely on that 
marketplace? The mortgage market is priced off of the 
marketplace, and the automobile loans that people take out on a 
daily basis.
    And those uncertainties would be very significant. I think 
that, although we don't know for sure, we would have 
significant volatility in the markets, and we would see some 
breakages in the system. But I couldn't predict which firms and 
the like.
    We do know that there is such a base of Treasuries that 
underpins our entire capital markets that if that were to go 
into default, we would be in for some of the greatest 
challenges we have seen in our financial sector, much greater, 
probably, than what we have seen in the past.
    Chairwoman Waters. Thank you.
    As I mentioned, one-fourth of the increase in the debt is 
directly attributable to the former President's tax scamz, when 
he passed the tax cuts for the ultra wealthy and Wall Street 
firms without offsetting it at all.
    Simultaneously, the Trump Administration reduced the 
staffing of the SEC by 5 percent, and did not provide funding 
to cover the SEC's rising operating costs. This occurred as our 
capital markets grew significantly, including the huge growth 
of the crypto assets.
    Chair Gensler, as you know, the Obama Administration sought 
to double the budget of the SEC and the CFTC, but those plans 
were thwarted by Trump.
    Please describe how your current budget request, if passed 
by Congress, would help the Agency to fulfill its indispensable 
mission of protecting those whose savings and work fuel our 
economy?
    Mr. Gensler. I thank you for that.
    At the core of what we are in this three-part mission--
helping companies, investors, and the markets themselves--we 
are effectively a cop on the beat.
    And we, right now this year, I think, have a boom in 
initial public offerings. And the more resources we have, the 
more ability we have to help the public and help those 
companies that want to go public, ensuring that their filings 
provide the disclosures to the public.
    We help the public in multiple ways. And the markets, as 
you mentioned, are larger now than 5 years ago. And this is not 
just about the crypto markets; this is about the base of 
capital formation for innovators, for the entrepreneurial 
spirit of the country.
    I really believe in the basic bargain in the last 90 years 
that with our laws and the SEC, we help enhance economic 
activity with a robust SEC.
    Chairwoman Waters. Thank you very much.
    I have always been concerned about what appears to be the 
Republicans' actions to not adequately fund the SEC. And I know 
that you are the cop on the beat, and we need you to be funded 
in order to do your job. We are working as hard as we can to 
give you that kind of support. And I thank you again.
    It is now time for me to bring on the gentleman from North 
Carolina, Mr. McHenry, who is the ranking member of the 
committee.
    You are now recognized for 5 minutes, Mr. McHenry.
    Mr. McHenry. Thank you, Madam Chairwoman.
    Chair Gensler, I am concerned that you are operating on the 
edges of existing law. You stated in 2018, before this 
committee that, ``Clear rules of the road will allow firms, 
both incumbents and startups, to more fully explore investing 
in blockchain technology or crypto assets.''
    You also indicated in an interview following the GameStop 
hearing that the SEC will be working with Congress to bring a 
regime to crypto exchanges.
    What has changed?
    Mr. Gensler. Thank you, Representative McHenry.
    I think that working with Congress would be a help. And as 
we have talked about a number of times, I think that the SEC's 
authorities in this space are clear.
    But what we could work with Congress on is, along with our 
sister agency or sibling agency, the Commodity Futures Trading 
Commission, we both have market oversight. They have oversight 
over derivatives. We have it over securities. They also have 
enforcement authority over commodities.
    And I think that coordination, and working not just with 
this committee but with multiple committees of Congress, we 
could address it.
    I also think--
    Mr. McHenry. In your view, there is a limitation, though, 
around what the CFTC, your former job a few years ago, and the 
SEC, what permit they have under law to regulate these regimes. 
Is that what you are indicating?
    Mr. Gensler. What I am indicating is I think that Congress 
painted with a broad brush for the definition of security and 
included 30 or 35 separate areas that are within the definition 
of security to protect the public against fraud.
    But they also wrote in other laws for the Commodity Futures 
Trading Commission to have authorities. And I think that 
coordination, in working with Congress, we can fill some gaps.
    Mr. McHenry. Okay.
    Mr. Gensler. We could also fill gaps around stablecoins and 
the banking regulatory regime.
    Mr. McHenry. Okay, filling those gaps. Along those lines, I 
think it is important that we have some regime in place under 
existing law, and I think we have to have clarity in the law 
around what is a digital asset.
    And I do think, as you noted back in 2018--you noted in 
your testimony at the time that the SEC did not view Bitcoin 
and Ether as securities. Is that still your view?
    Mr. Gensler. I think you are referring to when I was at 
MIT, testimony I gave in front of this committee in 2019, if I 
remember, and I was speaking to what the SEC career staff had 
said.
    Mr. McHenry. But I am asking your view now. I understand 
all that context. I have done the research, and in fact, I was 
at that hearing. But is it your view now that Bitcoin and Ether 
are not securities?
    Mr. Gensler. No. I am not going to get into any one token. 
But I think the securities laws are quite clear. If you are 
raising money from somebody else, and the investing public 
believes, or has a reasonable anticipation of profits based on 
the efforts of others, that fits within the securities law.
    Mr. McHenry. Okay. That is why today, along those same 
lines, Chairman Gensler, I introduced the Clarity for Digital 
Tokens Act with Representatives Davidson and Budd, based on 
Commissioner Peirce's digital token safe harbor proposal.
    I asked about this before. Have you had a chance to review 
her proposal?
    Mr. Gensler. Commissioner Peirce and I talk actively about 
these matters, but I have not yet reviewed--I think you just 
introduced your bill this morning, and I look forward to 
looking closely at that.
    Mr. McHenry. Yes, but the bill is based off of her 
proposal. I was asking if you have reviewed her proposal.
    Mr. Gensler. Commissioner Peirce and I have had a number of 
conversations about her thoughts on that.
    Mr. McHenry. Okay. So, you are not willing to answer that 
question.
    Mr. Gensler. But, no, she and I have talked about her 
thoughts on this around a potential safe harbor.
    Mr. McHenry. Okay. But again--
    Mr. Gensler. I think that the challenge for the American 
public is that if we don't oversee this and bring in investor 
protection, people are going to get hurt.
    Mr. McHenry. I understand. This is a horrible format for 
cross-talk here. But what I am trying to get at here is a 
broader-brush view. You have done a number of media interviews. 
And, so far, we have seen some of those comments that you have 
made have raised questions in the marketplace made things less 
than clear.
    And I would point to a couple of things. You have made 
seemingly off-the-cuff remarks that moved markets, you 
disregarded rulemaking by putting a statement out without due 
process, and you have essentially run roughshod over American 
investors, and that is before we even talk about summarily 
firing the PCAOB members without cause.
    My question is the general broad brush here. Is it your 
intention to follow the Securities and Exchange Commission's 
long-held practice of notice and comment on rulemaking and 
procedures?
    Mr. Gensler. I believe in the Administrative Procedure Act.
    Chairwoman Waters. The gentleman's time has expired.
    Mr. Gensler. I think we have benefited by getting the 
public's input.
    Mr. McHenry. Is it your intention to follow through with 
that?
    Chairwoman Waters. The gentleman's time has inspired.
    Mr. McHenry. Is it your intention to follow the 
Administrative Procedure Act?
    Mr. Gensler. We follow it, and we put out a proposal last 
week on fund disclosure, and we look forward to doing that on 
many of the things on our unified agenda.
    Chairwoman Waters. Thank you, Mr. Gensler.
    The gentleman's time has since expired.
    The gentlewoman from New York, Ms. Velazquez, who is also 
the Chair of the House Committee on Small Business, is now 
recognized for 5 minutes.
    Ms. Velazquez. Thank you, Chairwoman Waters.
    Chair Gensler, volatility surrounding the trading of 
GameStop and other stocks earlier this year has renewed calls 
for increased transparency and regulation of short selling.
    Section 929A of the Dodd-Frank Act requires the SEC to 
develop a rule to increase public reporting of short selling 
activity, but more than 10 years later, the SEC has yet to 
promulgate a rule.
    Where does this rulemaking stand on your list of priorities 
as Chairman? And when do you think the SEC will propose this 
rule?
    Mr. Gensler. I thank you for highlighting that, 
Representative, and I have asked staff to propose it to our 
five-member Commission. And yes, as we were just discussing, if 
we vote on it, we put it out for notice and comment.
    Around short-selling disclosure, this was a mandate 
Congress laid out, I believe, in the seven or eight places that 
we have unfulfilled mandates, whether it is on executive 
compensation, short selling, stock loans, and some mandates on 
securities-based swaps.
    All of those are on our unified agenda. I would hope and 
anticipate that, although we have an active agenda, we will put 
this out for notice and comment sometime early next year, and 
then hear what the public has to say on it.
    Ms. Velazquez. Great. As you know, increasing the 
transparency of short-selling activities is a very important 
issue for me, as I have consistently seen this practice used 
against retail investors and working families. We have waited 
too long for this rulemaking, and I would really appreciate if 
you could keep my staff updated as the SEC moves forward.
    My office has also heard strong and consistent demand from 
a wide group of market participants about the need for 
mandatory climate risk disclosure rulemaking at the SEC. Has 
the SEC heard a similar type of demand?
    Mr. Gensler. We have. There are hundreds of companies. A 
majority of the 500 biggest companies currently do voluntary 
disclosures in this space, and trillions of dollars of assets 
under management have asked for disclosure.
    I think this is a place where there is a real role to help 
bring consistency and comparability, some standardization that 
would help both the companies and the investors.
    And, again, we will put it out for notice and comment and 
see what the public says on, what do investors really want when 
they are making these decisions on climate risk, as you say, 
but also on human capital, and we have a project on cyber risk 
as well.
    Ms. Velazquez. You have previously stated that the SEC will 
propose a rule on climate risk disclosure by the end of the 
year. Do you still feel that this is an appropriate timeframe?
    Mr. Gensler. Yes. Whether it is towards the end of the year 
or early next year, because these things--we want to finish up 
our economic analysis, and take comments from each and every 
one of our Commissioners. And, again, I don't want to prejudge 
voting something out.
    Deep respect, and I think that the Commission process is 
good, but in the next handful of months.
    Ms. Velazquez. Great, so we don't have to wait 10 more 
years, like the other rule.
    Chair Gensler, this committee passed my bill, the Greater 
Accountability in Pay Act, which builds on Dodd-Frank's CEO pay 
ratio disclosure requirement by requiring public companies to 
disclose the ratio between the pay rate percentage of its 
executives and its median employees over the previous year.
    Can you explain how this bill will help increase the 
accuracy of equity prices, allow investors to make more 
informed decisions, and allow the SEC to provide better 
oversight of our capital markets?
    Mr. Gensler. Congresswoman, if I could go a little broader, 
I think that investors benefit by understanding and having 
transparency about executive compensation, and there are a 
number of features included in your bill to do that.
    We still have three important rules that Congress asked us 
to do and to finish up on, and so we are moving forward on each 
of those.
    The first is called, ``clawbacks,'' a simple concept that 
if executives got paid on financials that had to get revised, 
then some of their pay would go back.
    Second, there is something called, ``pay for performance,'' 
and we are going to try to--staff is working on that to propose 
that out.
    And third, last week we even had more disclosure with 
regard to, ``say on pay,'' that funds would disclose their 
votes.
    But I think, all in all, it helps the efficiency of markets 
when investors get to decide when they have that full and fair 
disclosure on executive compensation.
    Chairwoman Waters. Thank you very much. The gentlewoman's 
time has expired.
    Ms. Velazquez. Thank you.
    Chairwoman Waters. The gentlewoman yields back.
    Mrs. Wagner is now recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman.
    Chair Gensler, welcome back.
    In much of your commentary on payment for order flow, you 
suggested that investors may not be receiving best execution.
    Can you provide us with more specificity on why it is you 
believe the duty of best execution may have been violated by 
retail brokers?
    Mr. Gensler. Thank you for asking that.
    There is the potential for the conflict of interest when my 
order or anybody's order is not routed in competition with 
other orders but is routed to a wholesaler or broker who is 
purchasing that order flow.
    So, when we back away from order-by-order competition, and 
it may well be about algorithms or formulas between a broker 
and a wholesaler without transparency, there may not be best 
execution.
    Mrs. Wagner. One leading brokerage firm found that last 
year, they had billions of dollars of price improvement by 
executing through wholesalers, with 90 percent of trades 
finding price improvement.
    This particular broker received payment for order flow, but 
ultimately, the retail trader received a better price than they 
could have received, say, via an exchange.
    Isn't that a good thing, Chair Gensler?
    Mr. Gensler. Price improvement is a good thing, but I think 
the measuring rod of that price improvement is off of something 
called the National Best Bid and Offer (NBBO), that does not 
reflect the full market. Sixteen years ago, when these rules 
were put in place, they may have been fit for 2005, but so much 
has changed in those 16 years. I have really asked staff to 
say, what can we do to update this for the 2020s?
    And that National Best Bid and Offer has constraints in it. 
A lot is not in it. It also has an increment that it can't be 
narrower than penny size. There are a lot of reasons why this 
may not be the most efficient method.
    Mrs. Wagner. Chair Gensler, you received significant 
attention recently when you were quoted as saying that a ban of 
payment for order flow is, ``on the table.''
    Can you explain what banning payment for order flow would 
achieve? And if payment for order flow were banned, do you 
anticipate that retail trading would remain commission-free?
    Mr. Gensler. We are motivated by our three-part mission, 
and the core in the middle is efficient, competitive markets. 
So, I have asked staff, how can we help ensure, and even 
enhance that efficiency?
    Right now, as you mentioned zero commission, zero 
commission does not mean it is free. It does have some cost 
inside. Some brokers have payment for order flow, but I would 
note that some do not and also offer zero-commission trading.
    Mrs. Wagner. I would have to say pennies. I would certainly 
hope that a ban of payment for order flow is not, ``on the 
table.''
    Chair Gensler, turning to Regulation Best Interest (Reg 
BI), the SEC adopted Reg BI on June 5, 2019. It was the 
culmination of a comprehensive, years-long effort to enhance 
the standards of conduct for financial professionals that 
advise retail investors.
    The benefits of Reg BI to the capital markets are 
abundantly clear, and there is little doubt that investors are 
better off today than they were previously.
    Chair Gensler, you have brought on staff with a clear 
public record of opposing Reg BI. You can understand how that 
would give the investing public the impression that the SEC, 
under your leadership, is not committed to Reg BI.
    And I would like to point out that during your confirmation 
process, you committed to working with Commission staff to 
ensure that Reg BI, ``lives up to its best-interests label.''
    Do you still commit, sir, to fully supporting the continued 
implementation of Reg BI?
    Mr. Gensler. I think that is as true today as when I said 
it, that to ensure that our regulations, Regulation Best 
Interest and others, live up to what is written down on the 
page and really is Regulation Best Interest, is that investors 
are getting the best interest when a broker is making 
recommendations.
    Mrs. Wagner. Great. I am very relieved to hear that.
    I have run out of time, so I will yield back. I have some 
other questions, but I will submit them for the record.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentleman from California, Mr. Sherman, who is also the 
Chair of our Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets, is now recognized for 5 
minutes.
    Mr. Sherman. Before I begin my 5 minutes, I have a 
unanimous consent request. I request unanimous consent to enter 
into the record letters from the Los Angeles County Employees 
Retirement Association, the Healthy Markets Association, 
Railpen, and the Certified Financial Planners Board of 
Standards, which express support for certain discussion drafts 
that are in front of us today, including those to improve the 
Office of the Investor Advocate.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Sherman. I will now begin my 5 minutes by focusing on 
the PCAOB.
    Chairman Gensler, thank you for mentioning that in your 
opening statement. And thank you for your work in implementing 
the Holding Foreign Companies Accountable Act, legislation that 
Senator Kennedy and I led in Congress last year.
    During your testimony to the Senate Banking Committee, you 
expressed support for a revision to this law, which would 
shrink the amount of time from 3 years to 2 years for U.S.-
listed foreign companies, basically Chinese companies, to 
provide the PCAOB with the access it needs to ensure that the 
company's audit was done accurately.
    As you know, the primary purpose of the bill is to give the 
PCAOB and the SEC the leverage needed to reach agreements with 
market regulators in China. Do you believe that this 2-year 
timeframe is consistent with the objective of ensuring that 
companies listed on U.S. exchanges have accurate audits?
    Mr. Gensler. It has been, I guess, 18 years now since this 
basic bargain was put in place, and 50-plus jurisdictions have 
allowed the Public Company Accounting Oversight Board access to 
the work papers.
    And access means unfettered access, that they can pick 
which work papers to see. They see it. They are not redacted. 
They can talk to the audit staff, and talk to them openly, and 
assess whether the audit is up to the standards. And there has 
been a challenge, that has not been the case with China, or 
more recently, with Hong Kong.
    I think that if Congress decided to shorten it from 3 years 
to 2 years, I am supportive of that. That is up to Congress.
    We are going to continue to work with the PCAOB to make 
sure that everything is in place. Year one is 2021. If there is 
any ambiguity about that, year 2, right now, would be 2022, and 
so forth.
    Mr. Sherman. Thank you. And having been an auditor myself, 
I have prepared a lot of work papers, so I understand why you 
need that or the PCAOB needs that unfettered access.
    I have a couple of comments about points that have been 
raised. The ranking member argues that crypto is somehow not an 
investment or not subject to SEC oversight. I would say 
cryptocurrency is not at this stage a currency. The vast 
majority of people who are buying it are not buying it in order 
to go out and buy a ham sandwich with it. They are buying it 
because they think it will go up, and they can sell it for more 
dollars than they invested in it. It is an investment like many 
other investments, and investors need protection and deserve 
protection.
    As to commission-free trades, free is very expensive, if 
free is illusory, and being told that their trades are free can 
lead to high-frequency trading.
    The investor deserves more than, ``best execution,'' 
because, ``best execution'' is a misnomer. They deserve not 
only price improvement, but the most price improvement. And a 
system which tells them it is free but doesn't give them the 
most possible price improvement is certainly illusory.
    We looked at Archegos, as many people focused on that as a 
family office issue. I focused on it as a margin issue. Every 
investor in the country is told, okay, you have so much in your 
brokerage account, you can borrow up to half of what is in that 
account. That is your margin limit. And that has been the law 
since people were jumping out of the windows in the 1930s when 
they saw their stocks go precipitously down.
    But we found with Archegos that they figured out a way to 
use total return swaps to give themselves 8 times rather than 
put up only one-eigth or even one-tenth of the money.
    Should we either allow ordinary investors to borrow 10 
times the value of their portfolios, or should we prevent big 
guys like Archegos from doing it, or should we have one rule 
for small investors and another rule for those sophisticated 
enough to engage in total return swaps?
    Mr. Gensler. I think that the events of March in the family 
office you mentioned raised a number of questions.
    I think that we should have, in terms of your central 
question about margins, some more consistency. We do have, with 
Congress' authority, rules that are going into effect in 
November.
    The Commission, prior to my getting there, voted out that 
securities-based swap dealers had to register as of November 
1st. They have to report their trades as of November 8th. Some 
of that will be reported publicly next February.
    I have also asked staff to do more work, and recommend to 
us, can we put out for public comment a rule around the 
aggregate positions, a family office that you mentioned, 
Archegos, their aggregate positions of total return swaps?
    Chairwoman Waters. Thank you. The gentleman's time has 
expired.
    The gentleman from Oklahoma, Mr. Lucas, is now recognized 
for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman, for holding this 
hearing.
    Chairman Gensler, as always, it is good to be with you 
again. Perhaps only a few of our colleagues remember the amount 
of time when you were the CFTC Chairman, and I was the House 
Agriculture Committee Chair, that we spent in quality hearings.
    Of course, you will always note that I focus on things that 
are important at home, and today I would like to put my 
particular perspective on the upcoming climate risk disclosure 
rulemaking that has generated a lot of interest here in 
Oklahoma, since we are both producers of traditional and 
renewable energy, and an agricultural area that consumes a 
great deal of energy.
    Mr. Chairman, publicly traded companies are at varying 
stages of climate and ESG disclosure, and the related reporting 
and climate modeling is still an evolving practice.
    Are you concerned that the upcoming climate risk framework 
could have an outsized burden on small to medium-sized 
companies? And how might the SEC account for this?
    Mr. Gensler. I am really looking forward, with the support 
of my fellow Commissioners, to try to put something out for 
public comment, and a question that you just raised, to include 
questions like that to the public as to large issuers versus 
small issuers, as you mentioned.
    And also, I think implicit in what you are saying is some 
reporting will be easier to do sooner.
    I have asked staff to take a look at qualitative disclosure 
about governance and strategy, but also quantitative disclosure 
to make sure that the disclosures people are making, 
particularly around greenhouse gas emissions, have consistency, 
but also, how to potentially even phase in the implementation 
amongst large and small issuers and also amongst the different 
types of disclosures.
    Mr. Lucas. Because many would argue, I think quite 
correctly, that the small and medium-sized companies are the 
real generators of opportunity, are the real generators of 
growth. We don't want to harm their ability to compete with 
their big brothers and sisters, so to speak.
    That said, continuing to think about this issue, you said 
your staff was considering quantitative factors, such as 
metrics related to greenhouse gadgets emissions, climate 
change, financial impacts, and advancements towards climate-
related goals.
    You have also mentioned many times today about the 
importance of staff, and we all know that they are critical to 
whichever branch of the Federal Government you are in.
    Could you describe the current depth of climate expertise 
at the SEC? Are there currently climate environmental 
scientists on staff? And is the Commission engaged with 
agencies, such as NOAA, the EPA, and the Department of Energy, 
regarding the climate risk rulemaking process?
    Mr. Gensler. The expertise of the SEC is around disclosure 
about ensuring that the public--looking at the disclosures that 
are currently. And, again, hundreds of companies are making 
voluntary disclosures now, trying to bring some consistency and 
comparability to those disclosures.
    To your second question, yes, we have been in conversations 
with other important parts of the U.S. Government.
    Mr. Lucas. It is absolutely important. And as much faith as 
I have in the MBAs and the attorneys and the political science 
people, it is important that these other scientific disciplines 
be involved in this process, whether it is consulting with the 
other entities in the Federal Government that have that 
expertise or drawing on it from somewhere else.
    This is too important just to create rules and regulations. 
It has to be done, I think, Mr. Chairman, you and I both would 
agree, in a very thoughtful fashion.
    With that, Chairman Gensler, you have announced that the 
SEC is considering a review of Treasury market structure. Could 
you discuss what this review might entail, how you are 
coordinating it with the Fed and the Treasury Department, and 
how you might think about the costs and benefits of potential 
changes?
    Mr. Gensler. We have had a number of challenges in our U.S. 
Treasury markets dating back to 2014, when there were problems 
in the pricing in the market, but then in 2019 and 2020, where 
literally our central bank, the Federal Reserve, was providing 
liquidity to the market because there were challenges in the 
financial resiliency.
    Working closely with our colleagues at the Federal Reserve 
and Treasury, and also the Commodity Futures Trading Commission 
has a role here, what we are trying to think through is, how we 
could build greater resiliency into the market?
    With a $22-, to $23 trillion market, it is at the base of 
everything else we do in the capital markets. And right now, if 
I can use the term, we have kind of a multinodal system where 
we have a clearinghouse, we deal with brokers, we have big 
market makers, both principal trading firms and big banks. And 
if any one of those got into challenges, as we saw last spring 
and in the fall of 2019, our central bank tends to get pulled 
into providing resiliency.
    So, we are looking at, can we do this better around 
potentially central clearing? Former SEC Chair Jay Clayton took 
up, could we put some rules in place about the trading 
platforms themselves and the like?
    Chairwoman Waters. The gentleman from New York, Mr. Meeks, 
who is also the Chair of the House Committee on Foreign 
Affairs, is now recognized for 5 minutes.
    Mr. Meeks. Thank you, Madam Chairwoman.
    Chair Gensler, I first want to start out by saying that I 
am extremely pleased to see that you are serving as the Chair 
of our SEC. I appreciate that you and I have had an open 
dialogue on issues that touch on both the House Financial 
Services Committee, as well as the House Foreign Affairs 
Committee, in my capacity as Chair there, including the costs 
and the benefits of the widescale Chinese delistment of 
American markets.
    But I also want to commend you on moving the needle to 
increase more diversity and transparency in corporate 
boardrooms, and also overall promoting better diversity in 
human capital practices in the industry as a whole.
    The SEC's recent vote to approve new listing rules to 
enhance corporate board diversity disclosures is a necessary 
first step, not only because diversity of thought is a proven 
positive factor for companies who succeed, but also because 
investors are demanding that their boards be diverse.
    As you know, my bill, the Improving Corporate Governance 
Through Diversity Act, passed through the House recently, and I 
am grateful that you are continuing these efforts.
    The newly-approved rules, however, are just the beginning, 
since that is specific to NASDAQ, and there are companies 
listed on other exchanges that will not need to comply with 
these rules.
    My question to you, Mr. Chairman, is, can you please 
elaborate on what other types of actions the SEC is preparing 
to take with respect to promoting diversity specifically?
    Mr. Gensler. Thank you, and it is good to see you. I think 
we first worked together when I was a staffer to Paul Sarbanes 
some 20 years ago.
    I have asked staff to serve up to us two important 
potential rulemakings in this area, one related to the 
workforces of America in public companies. Human capital is 
probably one of the most critical assets of a company, and 
building upon what the Commission did last year to give more 
specific disclosures about the workforce, part-time versus 
full-time labor rates, and the like, but also about the 
diversity of the workforce.
    U.S. companies now disclose through the Department of Labor 
through EEO-1 filings and the like around their diversity, and 
I have asked the question, would it be helpful to investors to 
understand that?
    In addition, you raised the question about board diversity, 
and I have asked staff for recommendations around the boards. 
There are only 10 or 15 people usually on these boards, or 6 to 
15, but it is the leadership. And what it is really about is 
what investors want to know, and whether we should do a rule to 
be considered by our Commission on board diversity as well.
    Mr. Meeks. Thank you for that. I look forward to you 
continuing to work on that.
    You have also expressed serious concerns over the loopholes 
and potential abuses that exist within the 10b5-1 plan 
framework, which serves as an affirmative defense for insiders 
so that they make trades according to specific plans without it 
constituting insider trading.
    But the existing framework allows for a lot of different 
types of opportunistic trading, where they could have had 
material nonpublic information. But because they had set up a 
10b5-1 plan, it is not considered insider trading.
    And we have seen that executives of large companies 
canceled their plans or implemented plans and have the trade 
executed a few days later, and they end up netting significant 
amounts of money.
    But the question we should ask is, why did they cancel 
their plans or why did they implement a plan that allows them 
to trade shortly after the plan was put in place? If it is 
because they have some inside information, then we need to 
address that loophole in the framework. Is there an obvious 
need for the 10b5-1 framework to change?
    Chair Gensler, can you please describe the types of 
loopholes that exist in the 10b5-1 plan framework and what 
Congress can do to assist the SEC in addressing these 
loopholes?
    Mr. Gensler. I do think that there are gaps in this, in 20 
years of this so-called safe harbor affirmative defense for 
insiders to sell their securities. Right now, they can have 
multiple plans. They can, as you said, cancel them on a daily 
basis, put up a new one, and the like.
    One of the best practices that is out there, and there are 
many best practices out there, is to have a cooling-off period, 
and I think my predecessor wrote to Congress about this as 
well.
    I have asked staff for recommendations around whether we 
should have a required cooling-off period, if you want to say 
you have this affirmative defense, whether you can have just 
one plan rather than multiple plans and the like.
    So, I think there is work to be done here.
    Chairwoman Waters. Thank you very much. The gentleman's 
time has expired.
    The gentleman from Florida, Mr. Posey, is now recognized 
for 5 minutes.
    Mr. Posey. Thank you, Chairwoman Waters. One of the charter 
purposes of the SEC is to facilitate capital formation. Last 
week, a member of the committee asked Secretary Yellen how the 
Administration's proposals to increase capital gains taxes, 
qualified dividends, and corporate tax rates would affect the 
competitiveness of American companies. Given your 
responsibility for capital formation and the research of the 
SEC, my question is, how would those new taxes impact the 
competitiveness of the United States to attract capital 
investment in the world economy?
    Mr. Gensler. Congressman Posey, I think that our remit is 
about the capital markets, and if it is okay, I think I should 
leave it to Congress and the other parts of the Executive 
Branch to sort through taxes.
    But, in terms of our markets, it is about transparency. It 
is about disclosure. It is about protecting against fraud. And 
it is facilitating these vibrant capital markets regardless. 
Over the decades, Congress has decided on high capital gains 
and low capital gains, but we sort of leave that to others and 
then try to facilitate, through our rules, the most vibrant 
capital markets for capital formations.
    Mr. Posey. That is a good walk around the block, but one of 
your charter purposes is to facilitate capital formation, and I 
am just trying to find out if more taxes on corporate America 
and working Americans is the right direction to go, from your 
perspective?
    Mr. Gensler. Again, I do appreciate the question, and if I 
weren't in my current role, I might have a lively discussion as 
a professor at MIT, but in the role that I have right now, it 
is really to facilitate capital formation through the tools 
that Congress has given the SEC, the tools of antifraud, 
antimanipulation, and a focus on registering exchanges so that 
there is really efficiency in the middle of the market. Those 
are the important tools, whether Congress raises the tax rate 
or lowers the tax rate.
    Mr. Posey. Okay. And just an assumption, I am sure nobody 
else in the world is thinking this right now, but the refusal 
to say yes or no kind of indicates that the answer is probably 
one you don't want to give, and that, in fact, the higher taxes 
are going to actually hurt your ability to--
    Mr. Gensler. I respect that. I just think there are things 
that you want me to discuss--crypto, China disclosures, the 
PCAOB, the structure of equity markets, and the structure of 
Treasury markets--but I think you would want me to leave tax 
policy to Congress and the Executive Branch.
    Mr. Posey. Setting the policy is definitely the job of 
Congress and the Executive Branch. I just think the average 
person in the street would think that the Chairman of the SEC 
would have an opinion about whether we should tax American 
companies and American people and American families more, if 
that helps you do your job or if it doesn't help you do your 
job?
    Mr. Gensler. What best helps do the job is discussions like 
this, of course, and trying to get the right resources to the 
SEC and then working with my fellow Commissioners to try to 
enhance our capital markets, given the rapidly-changing 
technology. I think tax rates, again, are the remit of Congress 
and the Executive Branch.
    Mr. Posey. I am not trying to beat you up, and I don't want 
to beat a dead horse. We will just leave this subject for now.
    Given the time you have been at the SEC, have you 
identified any regulations or restrictions on capital markets 
that you think could actually be relaxed? If so, what 
restrictions could be relaxed?
    Mr. Gensler. I think in each of these reviews, and 
particularly as we review the Treasury market structure and the 
equity market structure, what I have asked is, how can we, in 
the 2020s, ensure that they are most resilient and efficient, 
and I think that is really a critical thing that we can do, and 
the efficiency in the capital markets might, as you said, be 
turning a dial or changing some of our current rules.
    I would also say, in the crypto space, when I have said 
publicly that these platforms come in, talk to us, get 
registered, these trading and lending platforms, it is highly 
unlikely, with 50, 100, or sometimes thousands of tokens, that 
they don't have securities, but if they come in and they say, 
``You know, that transfer agent rule doesn't quite fit or this 
custody rule doesn't quite fit for these new forms of capital 
formation,'' we should get into those discussions and talk 
about how we stay true to the mission that Congress wants us to 
do, but if we need to adjust some of these sometimes very 
technical rules that were written in a different environment, 
we should see what we can adjust.
    Chairwoman Waters. Thank you very much. The gentleman's 
time has expired.
    The gentleman from Georgia, Mr. Scott, who is also the 
Chair of the House Agriculture Committee, is now recognized for 
5 minutes.
    Mr. Scott. Thank you.
    Chairman Gensler, how are you? The first thing I want to 
say, Chairman Gensler, is congratulations. As both you and I 
are graduates of the Wharton School of Finance at the 
University of Pennsylvania, in Philadelphia, where we received 
our Master of Business Administration (MBA) degrees, we all are 
very proud of you. And, plus, I think, you are the only one now 
who has been both Chairman of the CFTC and Chairman of the SEC. 
What an accomplishment.
    I am so excited that one of the first things that you have 
done at the SEC is to establish climate change as one of your 
top priorities. And as Chairman of the House Agriculture 
Committee, I make climate change a very important part. We just 
had credit carbon hearings to get us started in that, but my 
question is that you have released a newly-proposed 
Environmental, Social, and Governance (ESG) regulation. Tell 
us, how exposed are our financial and security systems to these 
weather patterns and monetarily, investment, equipment, the 
floods up North in New York, and the fires burning up half of 
the West? This is serious. What is the economic and financial 
impact in your arena in terms of securities?
    Mr. Gensler. Thank you for asking that. I would note that I 
am the second person to have this honor, and the first was Mary 
Schapiro, who chaired both of these great Commissions. And the 
reason I mention is that is she has also, subsequent to being 
at the SEC, done a lot of work on climate risk disclosure. So, 
we are trying to build upon the work of something that 
investors have come to look to, the Task Force on Climate-
Related Financial Disclosures (TCFD), where Mary is now 
working.
    I also want to say that it is really up to investors. 
Investors are looking for this disclosure because climate risk 
can affect a company, and it can affect their physical risk if 
a flood comes, hurricanes come, or other physical indicia of 
climate risks hit a company. And then, there is also transition 
risk. The companies may be adjusting their business models for 
their own self-declared goals.
    Many companies have said publicly that they are going to 
have lower emissions or net-zero emissions at some future date, 
but also jurisdictions have--what they might be doing, what 
their jurisdictions might be doing, what their customers and 
competitors might be doing could affect their transition paths 
in the future. Investors want to know more.
    Mr. Scott. Mr. Chairman, I want to get to this other 
question, because it is so important, too, and much has been 
made about GameStop and Reddit and Robinhood and all of that. 
What are you doing to protect investors, and to protect our 
security systems? And what can and must Congress do to stop 
this, put punitive measures, making it a felony?
    We have to get tough so that we can protect--our financial 
system is the heart and soul, and within that, it is our 
investment, our stock markets, that must be held away from this 
mess. So, what can we do, what can Congress do to put some 
strong punitive measures in to stop this fraudulent behavior 
with our social media?
    Mr. Gensler. The GameStop events raise numerous issues, 
some of which are in the plumbing and the infrastructure of 
clearinghouses, but you are at another level about whether 
there were things that Congress could do to address the 
challenges there. What we are doing at the SEC is three or four 
different projects: first, the plumbing, which I talked about, 
the clearing, trying to shorten the clearing cycles; second, we 
put out for comment for the public to weigh in on use of 
digital engagement practices; and--
    Mr. Scott. I know my time is getting short here, but I do 
want to say this, Chairman Gensler. I have asked my staff to 
begin putting together a bill so that we can have strong 
enforcement powers, put fines in, put jail sentences in, make 
it tough, so we will not allow these social media platforms to 
abuse the basic foundation of our great nation. Invest in our 
stock exchange. You and I both studied that. We have to protect 
our financial system. I would like to call upon you at some 
point--
    Chairwoman Waters. Thank you very much.
    Mr. Scott. --to get further ideas.
    Thank you, Madam Chairwoman.
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Missouri, Mr. Luetkemeyer, is now 
recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    And thank you, Chairman Gensler, for showing up today. I 
appreciate that. I wish Secretary Yellen would adhere to her 
constitutional and legal authority to actually show up at the 
Small Business Committee. It would be nice if she would do 
that. Maybe you could talk to her about that.
    My question starts out with, there was an article in The 
Wall Street Journal yesterday outlining how private companies 
are urging the Financial Accounting Standards Board (FASB) to 
create accounting standards related to cryptocurrency and ESG. 
I know you are examining some of the rulemakings with regards 
to subjects, and specifically through Current Expected Credit 
Losses (CECL), standards are being set by FASB in which they 
ignore industry participants, as well as the financial well-
being of the American consumer.
    I am currently working on legislation to enhance the 
transparency of the FASB standards-setting process, and so my 
question is, do you think FASB is the appropriate entity to 
determine how assets related to crypto and ESG are treated and 
not regulators, who must follow the Administrative Procedure 
Act and significant notice and comment?
    Mr. Gensler. There are three parts to your question.
    With regard to climate risk, with regard to other matters 
on crypto, I think that we are going to put things out for 
notice and comment. Disclosure mandates over the decades have 
really been the remit of the Securities and Exchange Commission 
where appropriate, and we enhance them based upon the process 
of notice and comment, as you discussed. On crypto, as well, I 
think that is not just the SEC, but also the CFTC and the bank 
regulators. I think we have a lot of work to do and maybe even 
as earlier discussions with other Members, Representative 
McHenry, and with Congress as well.
    I am not familiar with what FASB is doing specifically with 
regard to crypto or climate risk, but if it relates to the 
financial statements, the footnotes to the financial 
statements, it may well be that they have a project on how, for 
instance, crypto assets are reflected on the financials. I 
would be glad to work with you and your staff to better 
understand that.
    Mr. Luetkemeyer. I appreciate that. While The Wall Street 
Journal canned the article yesterday, it is something you and 
your staff could review, and see if it is appropriate for you 
to get involved. Along that line, you and I talked offline a 
while ago with regards to the ESG situation. I have some broker 
friends who are talking to me and telling me: Look, now there 
is a bunch of companies that want to be able to be--for people 
to invest in if they are going to be the green companies, and 
so they fill out forms or they add onto their website nothing 
more than they are now green or they support green activities 
or they are doing this or that.
    Are you going to set some standards so that these companies 
that say that they are green companies, that people are 
investing in because of that, are actually doing something 
along that line? Because I think, to me, this is misleading the 
investors. Retirement funds and certain investors want to 
invest in green companies. And if they are just putting this on 
their website saying, ``Hey, I am a green company,'' without 
doing the things to qualify for that, I think they are 
misleading the public. What is your concern about that?
    Mr. Gensler. We have a project also about investment funds, 
investment managers, if they name themselves something, whether 
it is green, sustainable, climate-free, et cetera, what stands 
behind that? I think that the markets would benefit, and it 
sounds like we might agree that this would benefit if there is 
rigor behind that, the same way as if you named yourself to 
say, ``I am a high yield bond fund,'' that you are actually 
buying high yield bonds underneath it, and I think that would 
help.
    When I walk into a grocery store and something says, ``fat-
free'' on it, I can look at a label and there is something 
behind that, that is actually meaningful. On the company side, 
we are looking at disclosures as well, and I would love to work 
with you to understand if you think, on the company side, there 
is something we could do as well.
    Mr. Luetkemeyer. Thank you for that. The last time you were 
in front of the committee, we discussed the SEC issuing a 
rulemaking on guidance similar to the prudential regulators. 
You said that you would review what the prudential regulators 
have done and get back to me. Have you reviewed what the 
prudential regulators have done with regard to guidance?
    Mr. Gensler. I'm sorry. Guidance, I just want to make sure 
on which of the topics. Are you still speaking about climate--
    Mr. Luetkemeyer. Some regulators want to go out there and 
use guidance instead of rules, and then they go out and enforce 
guidance, which is not--basically, guidance, as you well know, 
should be something more than clarification or to be an FAQ or 
something that they can give some guidance on, not a rule on 
which you can enforce the law.
    Mr. Gensler. I have, as it relates to the SEC, done as we 
had talked about in the past. I didn't know if you were asking 
about guidance from bank regulators on other subjects, for 
instance, around climate. But as it relates to the SEC, yes.
    Mr. Luetkemeyer. Okay. Thank you very much. I see my time 
has expired, Madam Chairwoman.
    I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Missouri, Mr. Cleaver, who is also the 
Chair of our Subcommittee on Housing, Community Development, 
and Insurance, is now recognized for 5 minutes. Mr. Cleaver? 
Mr. Cleaver is not on the platform.
    Next, we will have Mr. Green. Is Mr. Green on the platform? 
No?
    Then, we will move to the gentleman from Florida, Mr. 
Lawson. You are now recognized for 5 minutes.
    Mr. Lawson. Thank you, Madam Chairwoman. And thank you for 
this hearing. This is a very good hearing.
    Chairman Gensler, the committee has held three hearings on 
GameStop, and you have testified on this issue surrounding 
January the 28th. In each of those hearings, the payment of 
order flow has been raised as a topic. You have stated that the 
SEC is looking into the order flow and will make a 
determination on how to further regulate the product.
    Do you agree that the commissions of free trading have, 
indeed, increased market participation among minorities and 
women? I am particularly concerned about the impact on zero-
commission trades and whether those will be valuable in the 
absence of the payment for order flow? How will you ensure that 
any changes made by the SEC do not create additional barriers 
of entry for those in new market participation?
    Mr. Gensler. I think you raise an important point. The 
projects that we work on are trying to drive towards lower 
cost, greater efficiency, and greater competition in our 
markets, the stock market, in this case. And payment for order 
flow has been used by some brokerage firms, not all, but some 
brokerage firms, and they say this helps them provide a zero 
commission. There are other brokerage firms that have zero 
commission and don't use payment for order flow. Our focus will 
be on the overall market structure and, as you say, access to 
the capital markets. We have growing retail participation in 
the markets. That is good. Investing tends to be good, over 
time, but active trading on a daily basis often lowers returns, 
and some of these are also facilitating and even promoting that 
with the way they use behavioral prompts and the like.
    Mr. Lawson. Okay. Thank you very much.
    As you know, under your predecessor, the SEC approved 
changes through the exempt offering private security framework 
that would increase the limit for how much an issuer can raise 
in a single offering, establish new safe harbors for 
integration, and ease some restrictions on communication 
between issuer and investors. Today, two-thirds of capital 
raised in the United States is done through the exempt 
offering. Could you elaborate on that please, sir?
    Mr. Gensler. You are absolutely right that over the 
decades, the SEC has facilitated through various exemptions, 
which are called exempt offerings, capital raising, both in the 
public market and in the private markets. And we have both that 
are facilitating capital formation, and I think what is 
important is to ensure that investors get full and fair 
disclosure in our public markets. That has been our basic 
bargain, but even in the private markets, there are pension 
funds that stand behind it, and working families and retirees 
who stand behind it that ensure that there is an appropriate 
set of regimes that help them as well.
    Mr. Lawson. Okay. Thank you. Let's see if I can get this 
other one in. Until recently, most broker-dealers that serve 
retail investment are not transacting cryptocurrency. In fact, 
they wanted nothing to do with it for a host of reasons. 
However, over the last year or two, this has changed 
drastically. In some cases, the crypto investment are traded on 
the same platform as securities. They are almost tradeable in 
the sense that an investor can buy one and sell the other, and 
yet the crypto market is underregulated. Can you comment on 
that?
    Mr. Gensler. I think you are right. And I think, if we 
don't get these exchanges, these lending platforms inside of 
the public policy framework, a lot of people are going to be 
hurt. It is a highly speculative idea that a token that may not 
have any ownership, they are all structured differently, and 
its trading in the marketplace on the efforts of others, the 
potential that in the future it might be worth something 
because others will pay for it, is highly speculative, and it 
is not inside of our--they are not registering yet, and we are 
going to use our authorities. I think it is clear that many of 
these projects are within the securities laws, and we are going 
to use our authorities and try to get more of these projects 
and companies to register and be within the investor protection 
framework.
    Mr. Lawson. Thank you, Madam Chairwoman.
    I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Michigan, Mr. Huizenga, is now 
recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman.
    First, I want to associate myself with the comments from 
Mr. Lawson about his concerns about access for trades. Free 
stock trades is something that is apparently an anathema to 
some, and it may go the way of the free checking account if we 
are not careful with the Dodd-Frank Act Dodo Bird being 
released here. I do also need to comment: It might be Tuesday, 
but it is wacky Wednesday here on the Financial Services 
Committee, where stock trades aren't free, but spending 
trillions of dollars has no cost and is free, yet allowing 
taxpayers to keep their own money is a, ``cost to government.'' 
So, it is an upside-down world for many Americans who are 
looking in.
    Mr. Gensler, I want to talk about the PCAOB. You have heard 
a lot about ESG. We can have that conversation later. When the 
creation of the PCAOB happened, the word, ``independent,'' 
appeared in the statute 10 times. I am concerned about your 
unceremonious dismissal of Mr. Duhnke, and then soliciting 
nominations for all five board positions. Obviously, that 
prompted a couple of other Commissioners to resign, with doubts 
about the independence of this. To date, you haven't provided a 
satisfactory explanation for removing Mr. Duhnke or your 
overhaul of the board, and, frankly, our investigation hasn't 
turned up any good reason for those actions. All of this, I 
believe, creates the appearance that you fired Mr. Duhnke to 
appease partisan groups on the left and people like Senators 
Warren and Sanders.
    So, Mr. Gensler, is the PCAOB truly independent and does 
it, frankly, need to be?
    Mr. Gensler. Thank you for the question.
    And I think the Supreme Court actually addressed this in a 
case about 11 years ago, on free enterprise, and my 
predecessor, Chair Clayton, used those authorities; the Supreme 
Court said that the five member Commission of the SEC has 
reporting to it this PCAOB. We review its roles. We review its 
standards. And, yes, as Chair Clayton did, we can remove the 
board.
    Mr. Huizenga. And the ranking member is right. This is why 
this format is terrible. We can't get our questions answered. 
How does Mr. Duhnke's successor make decisions without thinking 
that the SEC Chair is looking over their shoulder?
    Mr. Gensler. In fact, I think that is what Congress put in 
place, that all of the standards and rules are reviewed by the 
SEC. I think, actually, that is what the statute says, that we 
are supposed to do that.
    Mr. Huizenga. That is the structure. Okay. As long as we 
have that established, that is understood. So, here is what I 
would like to know. If the Commission has the review of the 
SEC, can you confirm that either your office or the Office of 
the Chief Accountant at the SEC has reviewed press releases or 
other materials from the PCAOB or its members before those 
materials have been made public?
    Mr. Gensler. I would be glad to chat with your staff to 
understand the question better. I don't think it is done press 
release by press release, but there are rules. For instance, 
when the Holding Foreign Companies Accountable Act came up to 
us, we put it out for notice and comment. We will vote on that 
in about a month or a month-and-a-half's time. I have a process 
around these.
    Mr. Huizenga. Have you systematically required the PCAOB to 
run things through your office before they are cleared?
    Mr. Gensler. Again, as it relates to the rulemaking and the 
standards--
    Mr. Huizenga. No.
    Mr. Gensler. --there is a process.
    Mr. Huizenga. This is why it is important for us that the 
material that has been requested by the ranking member has been 
ignored. At this point, I would actually like to call on the 
Chair to join with that so that we can get all of this 
information. So, we will follow up on that.
    Along those lines, I have actually dropped a bill today 
that is called the Streamlining Public Company Accounting 
Oversight Act. It will get rid of the PCAOB, and fold it into 
the SEC. I would like your review of that. I don't expect your 
reaction right now. I think that might get at what you are 
talking about, so we can just be honest with everybody that it 
is a political appointment and a political organization.
    Quickly, is Facebook a utility? Should it be treated as a 
utility?
    Mr. Gensler. I think you are talking about a social media 
company and all social media companies, as private companies, 
that would be up to Congress to address--
    Mr. Huizenga. No. The definition of what a public utility 
is, it clearly--because they are publicly traded companies as 
well. There are certain criteria which makes publicly held 
companies utilities. I want to know whether or not you think 
Facebook is a utility?
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Illinois, Mr. Casten, who is also the 
Vice Chair of our Subcommittee on Investor Protection, 
Entrepreneurship, and Capital Markets, is now recognized for 5 
minutes.
    Mr. Casten. Thank you, Chairwoman Waters.
    Chairman Gensler, it is lovely to see you again. You and I 
have spent a lot of time talking about gamification, and it 
certainly seems to be in the news a bit today, and particularly 
in the ways that social media uses psychological triggers to 
drive some fairly self-destructive behaviors. There was the 
comment that Ms. Haugen made on, ``60 Minutes,'' earlier this 
week, ``If you make the algorithms safer, people will spend 
less time on it.''
    And at least for me, that sort of felt like a gut punch in 
our Robinhood hearings, because what the algorithm is to 
Facebook is what gamification is to Robinhood, and, of course, 
the pernicious incentives created by ad revenue for Facebook 
are quite similar to the pernicious incentives created by 
payment for order flow to Robinhood especially, when they are 
earning a percent of the spread in the PFOF, not just a flat 
fee.
    My question for you is, in your digital engagement 
practices work you are doing, I am hoping you can confirm for 
me that those issues, and specifically the conflicts between 
looking out for investors' best interests in the ways that 
those companies earn money, that that will be a subject of your 
investigation. And if you can confirm that, that is great. I 
can go on to the next question. And, if not, I would love to 
hear, why not?
    Mr. Gensler. Yes. I think it is central. I think it is the 
issue of our day that digital analytics are being used to not 
only optimize for our returns but may be used to optimize for 
the company, the platform's revenues. And, if they are being 
done by a robo adviser, an investment adviser, or brokerage, 
then that creates a conflict. It might create a more fun 
environment for us. That is okay. But is it also creating more 
revenues, and what is that conflict there, and how do we 
protect investors?
    Mr. Casten. Okay. I am delighted to hear that, and we can 
follow up offline.
    I want to shift to climate. Some of my colleagues across 
the aisle seem to think that the primary question in our 
climate is whether disclosure might increase the compliance 
cost for small mom-and-pop businesses. I would suggest that 
that is not even in the top 100 issues that are caused by 
climate [inaudible].
    Putting that aside, the bill that I introduced that we, of 
course, passed on the House Floor to direct the GAO--not your 
Agency but very similar to the work you are doing on climate 
risk disclosure--was really driven by three issues. Number one, 
there is massive investor demand. There are going to be almost 
a third of assets under management in ESG funds, so let's give 
investors what they want as long as we are espousing the 
supporting interest of investors.
    Number two, investor protection. I would echo what Mr. 
Luetkemeyer said, that as long as a company can stand up and 
say, ``I will be net-zero by 2035,'' and their auditor has no 
way of knowing what that means, that we have a gap and I am 
delighted to see you starting to put some boundaries around 
what those rules are.
    Number three, I am not sure if this is subject to your 
jurisdiction or others, but it is a broader question of 
financial market stability. If we don't have the data from the 
affected firms, then we don't know where the risks are parked 
in our financial structures, where these cash flows are going 
to happen from--we are looking at huge cash flows from 
transition risks, from physical risks, and we have a separate 
bill that we have been working on with Senator Schatz, which is 
really more directed at Treasury to figure out how to sort of 
calculate that and monetize it and put barriers around those 
financial risks.
    But one of the pieces that, as we have dug into this is, I 
haven't been able to get a good answer to is--figuring out 
where the monetary flows are going to be is the easy question. 
Figuring out the capital structure of those flows is really 
hard. So, if I know that a certain company is going to see a 
huge loss of value, but I don't know how much of their capital 
structure is tied to senior debt, junior debt, and equity in 
trying to figure out where that sits because even for public 
companies, sometimes the precise rules of their credit 
agreements are not always disclosed.
    My question is, in your work on climate disclosure, are you 
going to be requiring companies to provide details of their 
capital structures in addition to their contribution or 
exposure to climate change, or is that a question better asked 
to other financial agencies?
    Mr. Gensler. Given that the clock is ticking, it might be 
good to follow up, and we can chat offline after this hearing, 
but our focus is really, what do investors demand and want to 
make their investment decisions? So, for public companies, it 
is around that and the climate risk, qualitative and 
quantitative disclosures, but I would like to better understand 
about the capital structure because companies already have to 
disclose--public companies--a lot about their capital 
structure, and it sounds like you have had some thoughts that 
that is,--how shall I say, falling short in some way. I would 
like to understand where that is falling short with investors 
as, in essence, our clients are the investors.
    Mr. Casten. I apologize for rambling on so long, but I am 
out of time, and let's follow up offline.
    Madam Chairwoman, before I yield back, I would like to 
request unanimous consent to include in the hearing record the 
following letters supporting many of today's discussion drafts 
from Americans for Financial Reform, Public Citizen, and the 
Ohio Public Employees Retirement System.
    Chairwoman Waters. Without objection, it is so ordered. 
Thank you.
    Mr. Casten. Thank you.
    And I yield back.
    Chairwoman Waters. The gentleman from Kentucky, Mr. Barr, 
is now recognized for 5 minutes.
    Is Mr. Barr on the platform?
    If Mr. Barr is not there, we will go to Mr. Williams.
    The gentleman from Texas, Mr. Williams, is now recognized 
for 5 minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman. And, 
first of all, I want to say, just in full disclosure, that I 
didn't go to Wharton, but I am a business guy, and I know that 
when you increase taxes, that is bad, and when you cut taxes, 
that is good. Maybe that will help some of your thought 
process.
    In any industry, allowing the private sector to innovate is 
key to bringing new products and services to the marketplace. 
This has been especially true in the capital market space with 
the advent of zero-cost trading because of payment for order 
flow. This partnership has allowed an entire generation of 
investors to enter the marketplace for the first time and has 
made zero-commission trading the new industry standard. And, in 
the past, you have been recognized for how payment for order 
flow has created a significantly lower-cost environment for 
retail traders to place trades. There are studies which have 
shown that this practice has resulted in a price improvement of 
over $3.7 billion in the last year alone for retail investors.
    Despite these benefits, the SEC is still contemplating a 
complete ban on this practice and even expanding the definition 
to include rebates being offered by the exchanges. This seems 
like a drastic measure that is a response to misdiagnosing the 
entire GameStop saga that happened earlier this year.
    Mr. Chairman, it is good to see you, again, and as you look 
at making changes to this practice, I urge you to also consider 
the benefits that this has given all retail investors. My 
question is, can you describe the overall growth trends of 
retail investor participation since the advent of zero-
commission trading, and what you think would happen if payment 
for order flow or these rebates were eliminated?
    Mr. Gensler. I thank you for that. And retail investing has 
increased. It has increased probably for multiple reasons, but 
zero commission and, frankly, just even the ability to trade on 
a mobile phone with ease has facilitated it as well, regardless 
of the price. There are a number of brokers that offer zero 
commission and do not do payment for order flow. What I have 
asked staff is, these payment for order flows and, yes, rebates 
on the platforms, the stock exchanges, and the like, is this 
the best way to promote competition and efficiency? Is it the 
best way to promote fast execution?
    And you mentioned price improvement. Price improvement is 
being measured against an old measuring stick, this thing 
called National Best Bid and Offer, which doesn't include what 
is in the dark markets, what is being internalized. It doesn't 
even include everything on the New York Stock Exchange or on 
NASDAQ. So, I have asked, how can we look at this, and look at 
this for investors and companies raising money to be more 
competitive, transparent, and efficient?
    Mr. Williams of Texas. Okay. Thank you. We have seen a 
troubling trend within the Democratic Party of calling on 
financial regulators to enact their agenda when they realize 
they will never be able to pass it in Congress. We have seen 
lawmakers urge the banking regulators to force their regulated 
entities to debank legal industries that have fallen out of 
their political favor, such as oil and gas or the gun industry. 
We are now seeing similar calls coming to your Agency, which is 
in charge of reviewing the disclosures of over 7,000 publicly 
traded companies and $100 trillion traded annually within our 
capital markets, to expand your footprint into climate process. 
So, by calling on a more stringent ESG regime, we are trying to 
turn the many economists and financial experts at the SEC into 
environmental scientists who will force companies to adhere to 
a moving target of climate change goals coming from whichever 
party controls the White House.
    And, as we create more uncertainty surrounding what 
information will be deemed material, I am really concerned that 
everyday investors will ultimately be hurt by the activists who 
might be the loudest in the room but are not personally 
invested in some of these companies. Quickly, Chairman, how 
will you ensure that investors are not going to be harmed 
because of activists pushing their agenda into a space where 
they do not care about any individual security?
    Mr. Gensler. I would just say how I will be motivated and 
what I will ask the staff. It is about investors, and it is 
what Congress has asked us to do. Within our chalk lines, 
disclosure, full and fair disclosure, is what Congress has 
asked us to do. And what we have now in the 2020s is that 
increasingly large numbers of investors want information about 
climate risk. So, we can play a role at the SEC to bring some 
consistency, comparability, and make sure those disclosures are 
decision-useful as earlier discussions in this committee today 
were, to make sure that folks aren't just saying they are green 
or sustainable and they are not. I think it can help companies 
and investors, and so, to me, it is staying within what 
Congress has asked us to do.
    Mr. Williams of Texas. I thank you for your testimony, and 
I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Connecticut, Mr. Himes, who is also the 
Chair of our Subcommittee on National Security, International 
Development and Monetary Policy, is now recognized for 5 
minutes.
    Mr. Himes. Thank you, Madam Chairwoman.
    And I have a question for Chairman Gensler, but I do want 
to take just a second to try to--I am not a witness here, so I 
can probably use more blunt language than the chairman can use. 
My friends on the other side of the aisle are obsessed with 
this preservation of payment for order flow. I can say it more 
bluntly: Yes, when a broker uses payment for order flow, you do 
see price improvement, but you see price improvement off of a 
really lousy price, a terrible price.
    And it is a truism in our capital markets that big 
institutional players get much better pricing--by the way, 
across-the-board on everything--than retail players do. And 
there are entire segments of the industry that are designed to 
sort of make profits out of that gap between the pricing that 
retail investors get, retail investors meaning individuals and 
others, and what institutional investors get. What I would 
really love to see happen here, rather than seeing my friends 
on the other side of the aisle stand up for the preservation of 
a cynically-misleading concept like price improvement, to 
actually dive into the question of why institutions get such 
better pricing on almost every product than individuals do?
    I just want to make that point, but what I want to do with 
my remaining minutes--Chairman Gensler, it is great to see you 
again. I am going to ask you to step a little bit outside of 
your comfort zone, because you are more knowledgeable than 
almost all of us, and probably all of the regulators on the 
issue of cryptocurrency regulations, something of interest to 
my subcommittee and Mr. Sherman's subcommittee.
    I want to turn over my remaining--I can't see the clock 
from here, but 3\1/2\ minutes or so, to ask you to give us some 
guidance on the topic. And what I mean by that is, there is 
legislation flowing around. Mr. Beyer has a piece of 
legislation that sort of departs from the traditional Howey 
construct of what would be a security. You have focused us on 
exchanges. Congress is demonstrating its ability to do very 
little these days. I am going to ask you to take the rest of my 
time to give us some guidance on how we should prioritize the 
legislation that we propose between exchanges, between the 
arduous work of defining who should regulate what type of 
cryptocurrency.
    Let me just turn over the time to you so that you can give 
us some guidance on how you think we might most fruitfully use 
our time to try to address those areas in which there is likely 
to be bad behavior?
    Mr. Gensler. Thank you. At 2 minutes and 20 seconds, I 
think that what we have here is a number of innovations--why I 
am focused on the platforms, the trading platforms and the 
lending platforms, is because investors basically are giving 
ownership rights up. They transfer what is called a private key 
to the platform in most of them, and the platforms take 
custody, and those platforms then either trade on our behalf or 
lend to us and the like.
    So, I think such a tremendous amount of activity happens 
there, and it is a place where we could get better investor 
protection and customer protection alike, even in the 
decentralized platforms, or so called DeFi platforms, there is 
a centralized protocol. Although they don't take custody in the 
same way, I think those are the places that we can get the 
maximum amount of public policy, whether it is for anti-money 
laundering, whether it is for tax compliance, or whether it is 
for investor protection, which we so care about at the SEC. I 
do think that these platforms would like to say: Oh, not us. We 
are regulated by 49 States under money laundering.
    But I think regulating these platforms like we regulate 
MoneyGram--right there that sort of shines a spotlight that 
that doesn't make much sense if we are talking about financial 
stability and we are talking about investor protection and the 
like.
    Mr. Himes. Chairman, regulating exchanges and 
clearinghouses is not a foreign concept to us. Would you have 
us skew closely to analogies between the cryptocurrency 
exchanges and currently-existing legacy exchanges, or do we 
really need to craft a whole new structure? Coinbase is out 
there with an idea of setting up yet another regulator. Should 
we sort of use current existing regulations of exchanges as our 
basis for--
    Mr. Gensler. It will be for Congress to decide, and some 
were quoting my testimony of prior years. Congress could 
decide, but we have two really great market regulators, the SEC 
and the CFTC, and I have been honored to Chair each of them, 
and we have different authorities, derivatives, commodities, 
and securities. I don't think that we need another regulator. 
There are things that could be done to ensure the smoothness 
between the two agencies, and CFTC Chair Rostin Behnam and I 
have been talking about that, even if Congress doesn't act.
    Chairwoman Waters. Thank you very much.
    The gentleman from Kentucky, Mr. Barr, is now recognized 
for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman.
    And I appreciated your comments, Madam Chairwoman, earlier 
in the hearing that you wanted to make sure we were adequately 
funding the Securities and Exchange Commission because they 
were the cop on the beat. I just want to note for the record 
that the chairwoman is for funding the police, and I just 
appreciate that.
    Chairman Gensler, thank you for appearing before us, and I 
appreciate our conversations about the importance of 
materiality with respect to climate risk disclosure. Earlier 
this year, you and the Commission issued a request for 
information (RFI) on climate risk disclosure. A common theme 
among respondents to that RFI was the importance of maintaining 
this long-held materiality threshold.
    I agree with these suggestions. Materiality must be 
preserved, but I want to point out that materiality is 
determined by investors' need for that information to make 
informed capital allocation decisions. It is not in order to 
satisfy the leadership of some large institutional investors 
who are not necessarily aligned with retail investors in terms 
of their demand to name and shame companies or bias the market 
against certain politically-unfavored industries. That is the 
difference between the standard of materiality versus what some 
large institutional investors demand.
    How do you plan to ensure that the SEC climate disclosure 
rule maintains the threshold of materiality and does not burden 
investors and issuers with an avalanche of extraneous 
information?
    Mr. Gensler. I share your view that it is about investor 
demand, whether it is somebody buying 50 shares of stock or a 
fractional share even or the large asset managers and pension 
fund managers that are investors as well. The pension fund 
managers, the asset managers are representing the rest of us, 
representing the public, and I share your point there--
    Mr. Barr. How well do you think they represent the rest of 
us, and how well do you think that proxy process actually 
accurately reflects the demands and the wishes and the desires 
of those retail investors?
    Mr. Gensler. Our job at the SEC is to make sure that it 
represents it through what is called the duty of care, the duty 
of loyalty, the two laws passed back in 1940 that are really 
important, that investment managers are representing through 
their fiduciary duties--
    Mr. Barr. The reason why I asked that is because as we 
discussed, and as I talked to the investment advisers and 
broker-dealers in my district, ESG is a very low priority of 
most retail investors. Retail investors care about returns, and 
what troubles me--and I want to ask you if you agree with this, 
the analysis that is public record--is that many of these ESG 
funds have fees that are 43-percent higher than non-ESG funds 
and cut into those retail investor returns. Does that trouble 
you?
    Mr. Gensler. I think that there are two parts to that. One 
is that I have asked staff to make sure that fund managers that 
are claiming to be green or sustainable or climate-free, what 
stands behind that, that we should put out some rules on that. 
And, if my fellow Commissioners agree, we will put that out for 
public comment.
    But a second thing is, how do we promote greater 
competition to bring down some of those fees in the fund 
management space? And I think that being clear on the naming 
and what stands behind those names can also help in the 
competition on the fees themselves.
    Mr. Barr. As you move forward with your climate risk 
disclosure rulemaking, I just want to stress the importance of 
this materiality standard and what it actually is, because to 
rely solely on the comments that come in and just ignore the 
legal definition of materiality, I think would miss the mark, 
because materiality is about the investors actual need for that 
information to make informed capital allocation decisions; it 
is not just about large institutional investors' desire to name 
and shame politically-incorrect companies. I encourage the 
Commission to look at materiality from the traditional, 
conventional, legal standard of what materiality actually 
means.
    In terms of liability protections, I do worry about the 
subjectivity of this, the concept of climate risk disclosures 
relying on subjective and untested metrics. Do you have plans 
to provide liability protections for issuers? What are your 
plans to ensure that these disclosures are preserved 
exclusively for informing investors and making the risk/reward 
decisions and not hijacked by enterprising trial lawyers for 
frivolous lawsuits?
    Mr. Gensler. Like all of our disclosures, they are based 
upon, as you say, what do investors want, what do they take 
into consideration, or, as the Supreme Court has said, what 
is--if I remember correctly, the substantial likelihood that a 
reasonable investor finds significant in the mix of information 
for an investment decision, and that investment decision is 
really the important thing. And that is why we put it out for 
notice and comment. Investors get to weigh in.
    Chairwoman Waters. Thank you.
    The gentlewoman from New York, Mrs. Maloney, who is also 
the Chair of the House Committee on Oversight and Reform, is 
now recognized for 5 minutes.
    Mrs. Maloney. Okay. Thank you. I apologize. I had to Chair 
an Oversight and Reform Committee hearing, and we just 
finished.
    Chairman Gensler, it is great to see you, again, and I want 
to first ask you about cryptocurrency. You called it a, 
``highly speculative asset class.'' Do you think--and it is 
really a speculative investment--it should be treated like a 
security, regulated like a security?
    Mr. Gensler. Congresswoman, it is good to see you again. 
And I think it is always based on the facts and circumstances, 
but many of these projects--and there are 5,000 or 6,000 of 
them--but many of them are basically saying to the investing 
public, give us your money, and we have a small group of 
entrepreneurs and computer scientists who are going to build 
something. And, based upon that, there is a hope or an 
anticipation of reward or profit in the future. Jay Clayton, my 
predecessor at the SEC, said in congressional testimony that 
most of these, or many of these fit that definition.
    Mrs. Maloney. D you think it should be regulated like a 
security?
    Mr. Gensler. I think that I have asked projects to come in 
and talk to us because I can't say that it all fits together 
well, let's say, in our transfer agent rules and some of the 
intricate underpinnings of our capital markets. But Congress 
painted with a broad brush to protect the public against fraud, 
and that is done through our securities laws when people are 
raising money from the public.
    Mrs. Maloney. Okay. Do you believe the SEC has all the 
authority that it needs to regulate this cryptocurrency if you 
should decide to do it or does Congress need to give you more 
authority to be able to regulate the cryptocurrency?
    Mr. Gensler. Thank you, and it is a question that the 
ranking member asked in a little bit different way earlier, 
which is, I think our statutes are clear, and Congress painted 
with a broad brush what is a security, but I think working with 
Congress, there are some gaps and there are some places that we 
can work, whether it is our relationship with our sibling 
agencies in the market regulatory space but also as it relates 
to, for instance, what has come to be known as stable value 
coins and how to think through that with the bank regulatory 
regime as well.
    Mrs. Maloney. I would be happy to work with you in this 
area, and it is a growing prevalence in the district that I 
represent. Can you give the committee an update on your current 
banking with Regulation Best Interest, the so-called fiduciary 
rule, and whether you intend to take further action to 
strengthen this rulemaking?
    Mr. Gensler. I think it is important that this rule live up 
to its potential, that, ``best interest,'' really does mean 
best interest. So, working with our examination staff, working 
with our Division of Corporation Finance, working with--we just 
hired an excellent person who is a senior adviser to me 
directly, to ensure that the retail public gets the best, but I 
am also asking the staff to consider, how do we ensure that the 
brokers and the investment managers understand their duties 
under that rule and to ensure that best interest means best 
interest.
    Mrs. Maloney. Okay. That sounds good. Lastly, this summer 
the SEC approved NASDAQ's board diversity proposal, and they 
have implemented it. And earlier, with the support of 
Chairwoman Waters, Representative Gregory Meeks, and many 
others, we passed a bill that would call upon the SEC to 
disclose the diversity on boards, both for gender and for 
minorities, and other information. And do you intend--you could 
do a lot in that area just on your own. It has passed the 
House; it is now in the Senate. Do you intend to do anything in 
the board diversity area?
    Mr. Gensler. Again, I say this probably more than you would 
like to hear, but I have asked staff for recommendations, and 
in two areas related to this, one with regard to the boards and 
board diversities, what recommendations that we, as a 
Commission, meeting investor demand could do, but also more 
broadly, the workforce, the entire workforce of what we have 
come to call human capital disclosure. That is not just about 
part time versus full time and the pay rates and the like, but 
it is also about the diversity of the workforce as a whole. And 
on the earlier point, if I might just say, on regulation best 
interest, if the rule doesn't work, ultimately, we are going to 
look to make sure that brokers ensure that the investing public 
truly gets best interest. I want to make sure that I put a real 
comment on that.
    Mrs. Maloney. Okay. Thank you so much for your time.
    I yield back.
    Chairwoman Waters. The gentlelady's time has expired.
    The gentleman from Arkansas, Mr. Hill, is now recognized 
for 5 minutes.
    Mr. Hill. Thank you, Madam Chairwoman. I appreciate that, 
and I appreciate the hearing. It has been a very educational 
hearing.
    I also appreciate Mr. Gensler's responses to our questions, 
and following up on Mr. Barr and also Mr. Luetkemeyer on the 
ESG industrial complex out there in the mutual fund asset 
management industry on advertising, branding, and analysis for 
ESG type funds, I think that is an important part of your 
testimony. I am glad you referenced it, both in the stock 
selection, and the asset allocation [inaudible].
    Mr. Gensler. Did you go mute?
    Ms. Garcia of Texas. Madam Chairwoman, we cannot hear him.
    Mr. Hill. I don't know what happened there. It just kind of 
reverted to mute. I apologize. It is unmuted.
    Chairwoman Waters. We can hear you now.
    Mr. Hill. Okay. I don't know what happened there. So, I 
don't know what you heard and what you didn't hear.
    Mr. Gensler. I heard you compliment the gaming--
    Mr. Hill. Thank you for that. I appreciate Representatives 
Luetkemeyer and Barr bringing that subject up, and I don't know 
why it went on mute, as I said. So, I am glad that is being 
looked at, because I think, truth in labeling there is 
important under the securities laws, that we are not misleading 
investors and we are providing a product that has real value 
and not overcharging for a product. When I look at an ESG fund 
that has a .9777 percent correlation with the S&P 500, it does 
make me question whether or not it is an ESG fund.
    Mr. Gensler, we talked when you were last before the 
committee about materiality, and you recognized that, under 
12b-20, all public issuers have a duty to disclose every 
material aspect in their business on their financial 
statements. Is that correct?
    Mr. Gensler. I would have to look at those provisions, but 
there is a requirement [audio malfunction].
    Mr. Hill. Yes. You talked today about asking the staff to 
look at both qualitative and quantitative issues, and on the 
quantitative issues, have you personally read the [audio 
malfunction].
    Madam Chairwoman, this thing keeps muting without me 
touching the computer, so my irritation level is rising, but 
let me continue. That time, I noticed it.
    On the issue of quantitative, Mr. Gensler, have you read 
the task force disclosure report, the so-called Bloomberg 
report on the quantitative analysis on climate disclosures?
    Mr. Gensler. [Audio malfunction].
    Mr. Hill. Good. Thank you for that.
    And in that, you note that they question the viability of 
the Scope 1, Scope 2, and Scope 3 emissions report and 
recommend other changes, and yet, we have legislation demanding 
that use and mandating it.
    You are asking the staff to look at all sources of emission 
types, not just Scope 1, Scope 2, and Scope 3, I presume?
    Mr. Gensler. We are, and I hope that after public comment 
[audio malfunction].
    Mr. Hill. And on the qualitative focus that you have when 
you try to have companies describe in their financial 
statements qualitative factors about their climate resiliency 
and planning, how do you establish a liability standard for 
that? Is that the same as a material statement and the 
financial statements?
    Mr. Gensler. We currently have [audio malfunction] 
financial statements, called management analysis, risk, and the 
like [audio malfunction] Qualitative risk [audio malfunction]. 
And so, I think it would be [audio malfunction] see what 
happens after public comment.
    Mr. Hill. And one of the biggest challenges in the 
financial task force report on climate disclosures is that it 
really is not possible to do make it comparable and accurate 
[audio malfunction].
    There it goes again.
    Madam Chairwoman, I am going to yield back, because this is 
too frustrating.
    And let me say again, I hope that we will have hearings in 
person and that we will stop these kinds of online issues. You 
have heard Members today talk about how they can't have a fair 
and open interchange with witnesses. And when we have 
technology that simply mutes itself, we ought to all question 
any technology the committee is using.
    I yield back.
    Mr. Huizenga. And if the gentleman will yield, frankly, all 
of Mr. Gensler's answers to you were in a three-part echo on my 
end. I doubt I am the only one [audio malfunction].
    Chairwoman Waters. The gentleman is out of order.
    The gentleman from Illinois, Mr. Foster, who is also the 
Chair of our Task Force on Artificial Intelligence, is now 
recognized for 5 minutes.
    Mr. Foster. Thank you. Am I audible and visible here?
    Chairwoman Waters. Yes, you are.
    Mr. Foster. Okay.
    Thank you, Chair Gensler.
    First, are you making contingency plans for dealing with 
the market chaos that may result if Senate Republicans force us 
into default?
    Mr. Gensler. I thank you for the question.
    I do want to say, if Representative Hill would like to meet 
with me one on one or anything next week, or in the next few 
days, I would be glad to do that.
    And Representative Huizenga, I thank you, because I was 
hearing that echo as well.
    But on your substantive point, Representative Foster, I 
think that as we get closer to October 18th, we need to 
understand that markets can get pretty--they can do things that 
we don't expect. That as mutual funds, as big banks, as hedge 
funds, as capital market participants start to anticipate what 
will Congress do, and what will Congress not do, we will be in 
uncertain times in those last several days.
    And God willing, everything works out. But if we were to 
end up with a default, we will have a whole lot of uncertainty 
in major market participants in the several days before as we 
would move into that uncertainty as various participants react.
    Mr. Foster. I understand that you can't go into details 
now, but would you be willing to provide a confidential 
briefing to interested members of this committee on that 
scenario planning as it approaches, as the deadline approaches?
    Mr. Gensler. If we could follow up, I would certainly want 
to work with the Chair and probably with Secretary Yellen on 
that, because that is really where the main authorities and so 
forth are, but I would say that--
    Mr. Foster. You will have to deal with the market chaos.
    Mr. Gensler. I do not take lightly the uncertainties that 
will start to develop right around that time.
    Mr. Foster. Now, from the point of view of the markets, is 
there any downside that you perceive in response to all of this 
brinkmanship that the debt limit is just either outright 
repealed, or through reconciliation, simply raised to an 
Avogadro's number of dollars or some enormously high number 
that makes it irrelevant?
    Mr. Gensler. However Congress addresses it, it would lower 
uncertainty in the market, and by lowering uncertainty in the 
market, you usually lower the cost of capital for those raising 
it.
    Mr. Foster. Okay. I would just like to mention that in 
terms of an outright repeal, I have a bill, the End the Threat 
of Default Act, with over 50 House cosponsors, which will 
simply do just that. And I invite and welcome all support from 
all corners on just getting rid of this silly rule that we made 
up for ourselves.
    I would like to return once again to payment for order 
flow. As we all know, zero-commission trading is not free, 
because the retail customer often pays for it in terms of less 
than optimal order execution.
    The difficulty here, as I see it, is that there is no 
transparent market between trading platforms that includes good 
knowledge for investors of the quality and the total cost of 
order execution.
    Now, there are two possible responses to this that I would 
like to get your reactions on, that either the SEC or Congress 
could contemplate.
    The first is simply requiring that retail customers 
receive, along with their order confirmation, a summary of any 
fees or commissions plus a summary of how the price they 
actually receive compares to some fair estimate of the market 
price, for example, midpoint of the NBBO or some more 
sophisticated estimate.
    This would allow investors to see over time whether the 
total cost of trading on one platform was better or worse than 
another, and to move their business to the platform that gave 
them the best total cost of trading.
    That is the first suggestion to which I would like you to 
react.
    A second possibility is simply to allow retail investors to 
request that their order and the platform that it was executed 
on be made public, not the investor identity but the platform 
identity. Also, the time they placed the order and the price 
they received.
    This would allow third parties looking at this additional 
publicly-available data to give very high-quality, high-
statistics evaluations of which platforms are giving the best 
total cost to retail investors in different market segments.
    Do you have any reactions to these? Are they implementable? 
Would they work as I would imagine they would in making a more 
transparent market?
    Mr. Gensler. If it would be okay, I would like to suggest 
that your staff and some SEC staff could review this. You have 
really raised, how can we make these markets more efficient, 
more competitive? I think it would probably help to hear these 
ideas and sort them through outside of the hearing just to see 
whether they could be part of the mix.
    Mr. Foster. Thank you. I am out of time here, but I think 
transparency on total cost of trading should be our guide star 
on this.
    And I yield back.
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Minnesota, Mr. Emmer, is now recognized 
for 5 minutes.
    Mr. Emmer. Thank you, Madam Chairwoman. Can you hear me?
    Chairwoman Waters. Yes, I can hear you.
    Mr. Emmer. Thank you.
    Chairman Gensler, like everyone else, I want to thank you 
for appearing before the committee today. I appreciate your 
time.
    You have already covered this topic with some other 
members, but I want to go into it again. There are millions of 
Americans, as you know, who hold cryptocurrency. Specifically, 
over 55 million Americans are now engaged in this asset class, 
and the value of these cryptocurrencies, the value of the 
market, is approximately $2 trillion.
    You have been outspoken in that you think most 
cryptocurrencies on the market are securities. I couldn't 
disagree with you more thoroughly. I believe most 
cryptocurrencies are commodities or currency.
    But for the purpose of better understanding your 
perspective, I have several quick questions I would like to run 
through during my time, and I would appreciate quick responses 
to each question.
    Chair Gensler, let's say someone who issued a token agrees 
with you and thinks that their token is a security, and they 
want to register it with the SEC. If they register it, can they 
trade it on the New York Stock Exchange, or could they trade it 
on NASDAQ?
    Mr. Gensler. It would somewhat depend on NASDAQ's and the 
New York Stock Exchange's listing rules and how they register 
it. But there are multiple ways to register it. If they 
register it, and the New York Stock Exchange and NASDAQ said 
yes, that might facilitate it. Nobody has asked to do that, as 
far as I understand.
    Mr. Emmer. Actually, the answer is, ``No.''
    Another question, can a broker-dealer, like Charles Schwab, 
deal in a digital asset that has gone through SEC registration? 
In other words, would they be able to trade these digital asset 
securities in custody?
    Mr. Gensler. The custody is really the issue that you have 
mentioned. We have not been able to sort through that. There is 
a feature of crypto assets which is that a private key 
transfers ownership. That is a feature, but it also creates 
challenges, or some would say it is both a feature and a bug of 
the custody of those crypto assets.
    Mr. Emmer. Again, I believe the answer is, ``No.''
    And I think earlier today you used the term, ``stable value 
coins.'' There is no such thing. Value is a term that you put 
in there. There are stablecoins.
    Chair Gensler, as you know, there are about 100 tokens with 
a billion-dollar market cap. Let's say you deem one of these 
coins with a billion-dollar market cap and tens of thousands of 
investors as secure. What happens to those investors, sir?
    Mr. Gensler. If the coin were to come in and to actually 
register, then those investors get the benefit of our 
securities laws. Right now, they don't have the benefit of that 
basic bargain that we protect people against fraud and 
manipulation in our capital markets is that they get full and 
fair disclosure. They are not getting that right now, and it is 
falling short, and people are going to get hurt.
    Mr. Emmer. Chair Gensler, actually, what will happen under 
that scenario is that the value of the token will plummet, and 
retail investors, the very people you are supposed to protect, 
will not be able to trade it.
    I guess where I am going to go with this is, if there is no 
path for them to be traded anywhere, wouldn't investors be hurt 
by your enforcement actions? And what are you doing to solve 
this problem? What are you going to do?
    Mr. Gensler. What I have said publicly, and I mean this, is 
come in and work with us. If the rules that were written in 
other decades don't quite fit these digital investment 
contracts--and that is what many of these are; they are 
entrepreneurs, computer scientists who are raising money from 
the public, and the public is anticipating profits.
    And that is why Congress painted with a broad brush, and 
the investing public is relying on some group of entrepreneurs 
and computer scientists for their profits.
    And I am glad to work with Congress, if you want to repeal 
the laws as they are, so that fewer people are protected 
against fraud in these markets.
    Mr. Emmer. Actually, Chair Gensler, I appreciate the 
answer. I don't know--at the end, we still disagree on the 
securities aspect. I think the vast majority are currency or 
commodities.
    But this is why it is really important for the SEC to 
develop a framework in which the crypto industry can operate. 
Crypto is one of the highest-performing asset classes in 
decades. Retail investors got into this space before 
institutional ones.
    Your job, the SEC's mandate, is to protect investors; 
maintain fair, orderly, and efficient markets; and facilitate 
capital formation. When you make conclusory public statements, 
and regulate through enforcement actions, you jeopardize that 
mandate.
    I encourage everyone to take a look at my bipartisan bill, 
the Securities Clarity Act, which amends securities law with a 
new definition, the investment contract asset, so the SEC can 
work with issuers to swiftly determine when a token is offered 
as part of a securities contract and when it is not.
    Thank you again, Chair Gensler.
    Madam Chairwoman, I yield back the balance of my time.
    Mr. Gensler. Thank you.
    Chairwoman Waters. Thank you very much.
    And, Mr. Gensler, I want you to know that I appreciate your 
known expertise on cryptocurrency.
    With that, the gentlewoman from Iowa, Mrs. Axne, who is 
also the Vice Chair of our Subcommittee on Housing, Community 
Development, and Insurance, is now recognized for 5 minutes.
    Mrs. Axne. Thank you, Madam Chairwoman.
    And thank you, Chair Gensler, for being here. And thank you 
for your willingness to work on modernizing our corporate 
disclosures that, of course, look at gamification on our 
trading platforms.
    I am very focused on equity for the people who want to 
invest, and I appreciate you wanting to make sure that this is 
an opportunity for people across our country.
    But I want to dig into a different aspect of investor 
protection, and we are talking a lot about crypto today.
    Chairman Gensler, can you briefly describe what the 
Securities Investor Protection Corporation does?
    Mr. Gensler. The Securities Investor Protection 
Corporation, or SIPC, as it is sometimes known, was set up by 
Congress to protect the retail public who left money at a 
brokerage firm, and if that brokerage firm wasn't properly 
keeping that money segregated and protected, it went bankrupt, 
in essence, the losses that might come. I don't claim to be a 
full expert, and I am sure I have missed some parts of it, but 
I think that is the basic bargain.
    Mrs. Axne. Okay. So, basically, when someone owns a 
security in their brokerage account, they have some protection 
if the broker goes bankrupt. Is that correct?
    Mr. Gensler. That the broker didn't take that security and 
give it to somebody else and the like. You still have market 
risk. Individuals have market risk that SIPC doesn't protect 
them from, as I understand it.
    Mrs. Axne. Okay. But what I want to get here is, I don't 
think that applies to commodities or some other assets. Is that 
correct?
    Mr. Gensler. I would want to work with you on that, but I 
think that is correct.
    Mrs. Axne. Okay. Here is what I am wondering. On some of 
our platforms, you can trade crypto literally right next to 
stocks for a token that isn't a security. What are the 
differences in protections for those investors?
    And we have these up on our platforms. Do you think these 
investors on these platforms are likely to know that these 
protections are different? I am hearing you say they are 
different. What is the difference between crypto and a stock? 
And do you think our folks even realize that when they come on, 
as far as protections go?
    Mr. Gensler. I think you are right, that the investing 
public is not getting protected right now, whether it is a 
digital asset that is a security. And many of them, I think, 
would--while Representative Emmer and I have a little 
difference of opinion on that--pass the Howey Test and our 
securities.
    But some, as you say--a few might be commodities. And the 
Commodity Futures Trading Commission (CFTC) does have 
enforcement authorities around commodities. CFTC Commissioner 
Dawn DeBerry Stump put out a paper recently which highlighted 
that they don't have the regulatory authorities to write the 
rules of the road for those exchanges.
    There are gaps there, both if they are a commodity, and 
gaps if the exchanges are not registered as the New York Stock 
Exchange is registered.
    Mrs. Axne. Okay. So, if we tie this back to the payment for 
order flow, on securities, the broker has to disclose, of 
course, how much they are paying and how those orders do. I 
think those disclosures aren't really sufficient and could be a 
lot better.
    But, Chair Gensler, are there any such disclosures like 
this for crypto assets?
    Mr. Gensler. There are not required disclosures. Some of 
the brokers are trying to do some voluntary disclosures on 
things that are basically similar to the payment for order flow 
for crypto. But you are absolutely right, they are not doing so 
with the fullness as under our securities laws.
    Mrs. Axne. Something that caught my eye is just how much 
money some brokers are actually making from payment of just 
their crypto orders. If I am correct, and I think this is true, 
Robinhood made more than half of their revenue from crypto in 
the second quarter. And, yet, we don't have the same 
disclosures about how that is earned for them and how their 
users might be doing these orders.
    Are there steps that the SEC can take to ensure that 
investors understand the protections they have when trading 
certain things, and information that they might lose in certain 
areas on the platform? Or do you think that we should just make 
sure that anyone trading on those platforms has the same 
protections regardless of what they trade? And is just 
disclosure enough there, or do we need to be moving in a 
different direction?
    Mr. Gensler. I think that decisions Congress made long ago, 
in the 1930s, still stand true today, that the trading 
platforms, the exchanges of the day back then that come in and 
register and follow a set of rules, how they expose orders to 
each other, how they compete in the marketplace, how we protect 
people against front running, and how we protect and promote 
markets through transparency.
    So, these platforms, in a regulated space, would be better 
for investors. And right now, we don't have that, and this is a 
highly-speculative class of crypto tokens.
    I truly think people are--we are probably going to have 
hearings in the future on what went wrong here, and one of the 
things will be that these platforms didn't come in and get 
regulated with the appropriate authorities.
    Chairwoman Waters. Thank you very much. The gentlelady's 
time has expired.
    Mrs. Axne. Thank you.
    Chairwoman Waters. The gentleman from Georgia, Mr. 
Loudermilk, is now recognized for 5 minutes.
    Mr. Loudermilk?
    If not, is Mr. Zeldin on the platform here?
    If not, let's go to Mr. Mooney.
    Mr. Mooney, you are now recognized for 5 minutes.
    Mr. Mooney. Okay. Thank you very much. I appreciate the 
hearing and the opportunity to participate. These are some 
important issues here that we are discussing.
    Chairman Gensler, I would like to focus on the difference 
between what is considered guidance and what are considered 
rules.
    Changes in rules and enforcement have large ramifications 
for market participants, both large and small. That is why it 
is important for investors to understand the difference between 
binding and nonbinding directives from the SEC.
    Now, your predecessor, Chairman Clayton, was very clear on 
this issue. He released a statement in September of 2018 
explicitly clarifying that, ``All staff statements are 
nonbinding and create no enforceable legal rights or 
obligations.''
    Chairman Gensler, will you commit to releasing a similar 
statement clarifying that all staff statements are nonbinding?
    Mr. Gensler. Let me say it in my own words.
    I think that rules put out through notice and comment to 
the public benefiting from economic analysis is what we are 
trying to do on many of these issues we have talked about 
today.
    Guidance can also be an important tool of an agency like 
the SEC where market participants come in and say, ``There is a 
rule already. Can you please issue guidance within that rule?''
    And we have been using this for many decades, whether it is 
in the accounting area, the auditing area, sometimes investor 
alerts, investment management. I think this is an important 
tool, but it is always within the rules that are already 
outstanding.
    Mr. Mooney. Okay. Thank you for that answer. I encourage 
you to release a similar statement. I think doing so would 
provide clarity for investors who want to make sure they 
understand the rules they need to follow.
    Let me just give you an example. Whistleblower reforms that 
were adopted in 2020 codify existing procedures and improve the 
SEC's ability to provide awards that incentivize whistleblowers 
to step forward. In August, the SEC, under your leadership, 
released a statement regarding the whistleblower rule.
    The SEC is able to revise and visit old rules and make 
changes, obviously, to the notice and comment rulemaking 
process, as we just discussed. But in this case, it appears the 
Commission attempts to nullify an existing rule simply through 
a public statement.
    In response, SEC Commissioners Peirce and Roisman said that 
this action raised a dangerous precedent and, ``reduces the 
certainty of law.''
    Chairman Gensler, in this case, it seems you adopted a 
significant change in policy simply through a Commission 
statement. How is that not a way to avoid the notice and 
comment rulemaking process we just discussed?
    Mr. Gensler. The whistleblower program is a really 
important program to help protect the markets, and what I asked 
staff to do is look at our program and ensure that that 
whistleblower release of last year and the prior rule set are 
the things that we could do to ensure that whistleblowers in 
such a critical program have not only the basic protections, 
but also, as Congress laid out, that they, when it is 
appropriate under the rules, get their awards, which range from 
10 to 30 percent. And this had to do really with the nature of 
the awards.
    Mr. Mooney. Okay. Thank you, Chairman Gensler. It seems the 
whistleblower changes could lead to more and more changes of 
rules, and attempts to change rules through simply making 
public statements. I worry that the Commission could set a 
precedent that public statements override established 
rulemaking, and that would cause our markets and investors to 
suffer.
    Notice-and-comment rulemaking forces regulators to take 
their time, and listen to the public before finalizing 
regulations, and this comment period is important for getting 
rules right.
    Chairman Gensler, I have heard you talk about the big, 
ambitious plans you have for your tenure at the SEC. I remind 
you that Congress makes the laws, not the agencies. It is not 
within your power to create new policy and avoid the notice and 
comment rulemaking process.
    Thank you, Madam Chairwoman, and I will yield back the 
balance of my time.
    Mr. Gensler. Yes. And I will say, I like notice-and-comment 
rulemaking. You hear from the public. The consultation is a 
constructive part of our Agency's work.
    Mr. Mooney. Okay. Thank you.
    Chairwoman Waters. Thank you.
    The gentleman from Texas, Mr. Green, who is also the Chair 
of our Subcommittee on Oversight and Investigations, is now 
recognized for 5 minutes.
    Mr. Green. Thank you very much, Madam Chairwoman.
    And, Chairman Gensler, I thank you very much. I am greatly 
appreciative of what you have been able to accomplish.
    I am especially gratified that you have supported the 
Whistleblower Protection Reform Act of 2021, something that our 
office has been able to sponsor and to work with the General 
Counsel over at the SEC to strengthen. It means a lot to do 
this, and it means a lot also to have the level of cooperation 
that we have received from you.
    As you well know, and for the edification of others who 
might not know, this legislation expands upon what we did in 
the last Congress with the Whistleblower Protection Act, and 
that passed the full House with only 12 persons dissenting, 12 
folks in opposition.
    This Act revises the burden of proof, it authorizes 
compensatory damages for whistleblowers who are not fired but 
who suffer some other forms of retaliation, and it protects 
them. It protects whistleblowers who report orally rather than 
doing so in writing.
    I think it is a significant piece of legislation. I am very 
grateful that Public Citizen has expressed its support for the 
legislation.
    If you can, Mr. Gensler, given that we have legislation, 
what do you think this legislation will do in terms of being 
helpful to the extent that other legislation that we did not 
get through could not accomplish?
    Mr. Gensler. Congressman, I look forward to looking at the 
details of the legislation. But I think in the direction that 
you just outlined, the support we can give to whistleblowers so 
that they will come forward, is a hard thing to do. Say, you 
are working inside of a company, inside of an asset manager or 
others and say, ``Something is going on here that is amiss.''
    And to come forward, to talk to an agency like the SEC, 
takes a fair bit of gumption. So, anything that we could do to 
help encourage individuals to do that, is a really important 
part of our oversight of markets.
    We, of course, get other sources of leads. We see things in 
the media. We have a terrific staff of examiners and 
enforcement personnel and economists. But the whistleblower 
piece is an important piece of our overseeing the markets.
    Mr. Green. Thank you. I concur with you totally. And I 
would add something in addition.
    Knowing that whistleblowers are protected will also act as 
a deterrent within the corporate structure. I think that 
whistleblowers who have this added protection will come 
forward, but it is knowing that they can come forward with the 
added protection that I think will make a difference as well.
    Any comments on just the deterrent effect?
    Mr. Gensler. I think it is an important deterrent effect. I 
remember when Senator Grassley was leading this back in the 
Dodd-Frank Act and working across the party lines.
    I think having whistleblowers be part of our examination 
and enforcement regime and having a cop on the beat helps deter 
fraud and manipulation in our markets. It also helps companies, 
good faith actors, do their jobs better because it lowers 
uncertainty for investors.
    Mr. Green. Thank you.
    And finally, I am inviting and requesting my colleagues to 
please support this legislation. It is a means by which 
Congress can weigh in and have a significant impact in a very 
positive way.
    I am grateful to you, Mr. Gensler, and I thank my 
colleagues who will support it, and I look forward to working 
it through the House.
    Thank you, Madam Chairwoman, for your support as well. 
Thank you.
    Chairwoman Waters. Thank you very much.
    The gentleman from Georgia, Mr. Loudermilk, is now 
recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman. Can you hear 
me now?
    Chairwoman Waters. Yes.
    Mr. Loudermilk. Okay. Thank you. I had maybe the same thing 
that was happening to Mr. Hill. But thank you for this 
opportunity.
    Chairman Gensler, when you testified before this committee 
in May, you and I discussed the Consolidated Audit Trail (CAT). 
And you assured me that most of the investors' personally 
identifiable information (PII) that was originally going to be 
collected in the CAT, including Social Security numbers and 
birth dates, will not be collected because the SEC was working 
on amending the CAT plan to remove that data.
    However, it appears that those changes still haven't been 
finalized. And unless they are, the PII will be collected.
    The question is, when will the SEC finish the rulemaking to 
remove most of the PII from CAT?
    Mr. Gensler. If I could follow up after the hearing and 
find out our exact dates, but I concur with you that removing 
that data from the CAT is important. I know that it is on our 
docket. I have met with the people in our Trading and Markets 
Division who are working on that a number of times since you 
and I last spoke. But I would have to follow up with an update 
as to which month we think we will finalize that.
    Mr. Loudermilk. I would appreciate itif you could follow up 
with us because, as you can see and as we all can see, 
cybersecurity is a critical issue right now with all that is 
going on, and it is just going to continue to get worse. And I 
think that we definitely have to protect the PII of investors. 
So, if you will get back with us, I would appreciate it.
    On another note, last year the SEC finalized amendments to 
its rules regarding proxy voting and whistleblowers. However, 
soon after you became the SEC Chair, it appears to me you 
unilaterally decided that the SEC was not going to enforce 
those rules. Those decisions were announced via a Commission 
statement and not a rulemaking.
    Two of the other Commissioners noted that the SEC has a 
reputation as a steady regulatory machine because it has 
generally avoided [inaudible] Rules and is not [inaudible] 
Rulemaking when there is no new [inaudible] To justify 
reopening them.
    It appears that there may be some picking and choosing of 
which rules to enforce and which rules to ignore, based on 
which ones you like and which ones you don't like. Is this the 
direction that you are going? Is this the SEC Chair's job, to 
selectively enforce the rules based on personal preference? How 
do you justify that?
    Mr. Gensler. I think that at the heart of shareholder 
democracy it was really an important feature that many fund 
managers get advice from proxy advisers, and as you rightly 
said, there was a rule that was finalized last year.
    What I asked staff to do was to take a look at that, to 
take a close look at that, and make any recommendations--again, 
through the five Commissioners, through notice and comment--
about whether there should be any changes to that.
    Again, through the notice-and-comment period, and that is 
what I announced earlier this year, that I asked them to do.
    Mr. Loudermilk. Okay. Finally, I would like to note that 
President Obama's SEC Chair, Mary Jo White, opposed hijacking 
securities laws to push social and cultural issues. But based 
on the SEC's agenda, which includes issues like climate change 
and diversity, it appears you intend to do exactly that.
    You often say that investors want ESG disclosures, but in 
2020, shareholders made 140 ESG proposals, and all but 6 of 
them failed, and in the average vote, only 30 percent were in 
favor.
    Only a relatively small number of activist investors want 
mandatory ESG disclosures. I hope you will avoid using 
securities disclosures to push a left-wing political agenda and 
recognize that all companies are already required to disclose 
all material information to investors.
    And with that, Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Massachusetts, Ms. Pressley, who is 
also the Vice Chair of our Subcommittee on Consumer Protection 
and Financial Institutions, is now recognized for 5 minutes.
    Ms. Pressley. Thank you, Madam Chairwoman, for convening 
this hearing.
    Since the 2008 financial crisis, the private equity 
industry has exploded, tripling the amount they manage from 
$1.5 trillion to $4.5 trillion.
    Now, while banks are subject to certain SEC reporting 
requirements on their private assets, private equity firms do 
not have to provide that same level of transparency, and are 
not subject to the same regulatory scrutiny, and they benefit 
from that.
    Chair Gensler, what tools is the SEC using to better 
monitor the activities that a lot of these nonbanks, like 
private equity firms and hedge funds, are engaging in, 
considering they have great impacts on the economy and 
consumer-facing business?
    Mr. Gensler. Thank you, Representative Pressley. It's good 
to see you again, by the way.
    But in terms of private equity, you are right, our capital 
markets have the public markets, have the private markets, and 
then the intersection of the two.
    And I have asked staff to ensure, the best we can, that the 
arrangements between the general partners, the people managing 
this money, the investment managers, and their investors, often 
their limited partners, that those arrangements have the 
appropriate transparency and that the investment managers are 
living up to their responsibilities, their duties, their 
contractual duties, but also their duties under the law in 
terms of representing those investors. I think that is really 
important.
    I have also asked staff whether we should update some of 
the data that we collect, and it might not have been the center 
of your question, but on Form PF, or on private fund, in that 
regard.
    Ms. Pressley. Yes, that actually is the center of my 
question, which is, would you be expanding reporting 
requirements? That sounds like a, ``Yes.'' And if that is true, 
could you speak to the timeline? How soon do you plan to take 
those steps?
    Mr. Gensler. In terms of timelines, again, I would need to 
come back to you because I sometimes can't remember every month 
and everything. But I have been meeting--last week, I had some 
more meetings with staff on enhancements, potential 
enhancements to what we Form PF, or private fund, and also a 
separate project in terms of the responsibilities and 
obligations between the investment manager, GP, and the LP. But 
I would have to come back and say when staff will serve up 
recommendations to our Commission.
    Ms. Pressley. That is fine, and we look further to speaking 
further offline, certainly just looking for bold and necessary 
action here as soon as possible.
    The affordable housing and eviction crises are racial and 
economic justice crises, and stable housing has been a matter 
of life or death for millions of people vulnerable to eviction 
during this pandemic. And in 93 percent of the counties in the 
U.S., including in the district I represent, the Massachusetts 
7th, a full-time minimum wage worker cannot afford a one-
bedroom rental home.
    Nationwide, over 40 percent of Black and Brown households 
spend more than a third of their income on rent. In 
Massachusetts, a minimum wage worker must work 87 hours a week 
to afford a one-bedroom rental home.
    Meanwhile, private equity CEOs are living lavishly, and 
pocketing billions of dollars in profit off of the backs of 
these hard-working families struggling to keep a roof over 
their heads.
    It has been well-documented how private equity firms were 
protected from the 2008 economic crisis. After millions of 
people lost their homes to foreclosure, private equity firms 
bought residential properties at a deep discount, and later 
raised rents, gouging tenants with fees, skimping on 
maintenance, and using aggressive collections and eviction 
strategies.
    Now, private equity landlords control at least one million 
apartment units and at least 250,000 single-family homes. And 
these aren't high-end homes. These are the entry-level homes in 
once-affordable housing units that low-income families, 
disproportionately Black and Brown families, occupy.
    This is why families can't afford to buy homes. When the 
economy is down, private equity buys up the neighborhood, guts 
it, and rents it for twice the price.
    So, we have reason to be concerned that the private equity 
industry will seek to profit off of the displacement of 
families during a global pandemic, no less. For example, 
Blackstone, the world's largest private equity firm, has 
previously been called out by the United Nations for inflating 
rent, aggressively pursuing evictions, and fueling the global 
housing crisis.
    Chair Gensler, it doesn't have to be like this. Housing is 
a human right. I know our chairwoman agrees. I implore you to 
take action to help address these egregious behaviors, and I 
look forward to following up with you offline.
    Thank you. And I yield back.
    Chairwoman Waters. Thank you so very much, Ms. Pressley.
    The gentleman from Ohio, Mr. Davidson, is now recognized 
for 5 minutes.
    Mr. Davidson. Thank you, Madam Chairwoman, and thank you, 
Ranking Member McHenry.
    And Chairman Gensler, thank you for your time here today.
    In 2018, there was a New York Times article that discussed 
your views on blockchain and various cryptocurrencies. One of 
the cryptocurrencies discussed in the article was Ethereum. In 
the article, you said that Ether could have problems with 
securities laws because some of the first tokens were sold by 
the Ethereum Foundation before the network was actually 
functional. You went on to say that Ethereum could get off the 
hook from securities laws due to the fact that it developed 
into a decentralized network.
    You have repeatedly said that you believe initial coin 
offering tokens are securities. But right here, it sounds like 
you are acknowledging that Ether transitioned from what would 
have been a security into a commodity once the network was 
adequately decentralized.
    Can you clarify when a token is sufficiently decentralized 
to no longer be a security, in your view?
    Mr. Gensler. I thank you for that, and for digging back to 
an article from 3 years ago. But I was honored to study and 
research these issues at MIT. And what I was commenting on then 
was a process that the SEC was going forward on, and I think 
the then-head of Corporation Finance was talking about in that 
timeframe.
    So, without going into any one token, what I think the core 
test is, and it is the test the Supreme Court has taken up 
numerous times with a broad brush, is that you are raising 
money from others and the investing public, and anticipating 
profits based upon the efforts in some collective group of 
individuals.
    That central test is called the Howey Test. There are other 
broad brushes with regard to this as well, as to when something 
is a note, called the Reves Test, that Thurgood Marshall wrote 
a few decades ago.
    Fundamentally, the SEC is here to help protect the public 
from fraud, and that is why Congress painted with a broad 
brush.
    Mr. Davidson. Yes. Thanks for the clarification. 
Unfortunately, Congress didn't create the Howey Test; the 
courts did. And the same with the Reves Test. And, frankly, we 
are dependent on this patchwork of regulation by enforcement. 
Obviously, there are people who feel that a particular token, 
like Ether, is treated differently than one like XRP, for 
example, a matter that is before you right now, because of the 
same thing. Is it centralized, or is it decentralized? Who has 
control?
    And I think that really gets to the issue. Congress really 
should clarify. We have had a bipartisan legislation called the 
Token Taxonomy Act drafted since 2018, and we can't get a 
hearing on it. It would provide a bright-line test that would 
apply a 1950s case law, the Howey Test, to modern digital 
assets and provide some of that clarity.
    But could you, generically speaking, talk about the 
shortcomings of enforcement actions or even threatened 
enforcement actions versus the need for clarity, maybe a 
rulemaking process that would establish a bright line?
    Because, really, what you referred to was, well, come talk 
to us in a one-on-one kind of Third World way, where every 
individual firm cuts their own deals.
    What the market really needs is clarity. Wouldn't that be 
better than threatened enforcement?
    Mr. Gensler. I actually think that the securities laws are 
pretty clear on this, sir, and I think that firms should just 
come in and register.
    But what has happened over the last 4 or 5 years is they 
have either chosen not to or they have stood up in Singapore or 
Malta or Hong Kong or other countries and offered their 
services indirectly through virtual private networks. Not all 
of them; some of them are here in the U.S. as well.
    And I think that our securities laws were written for a 
reason: to protect the public, the investing public.
    Mr. Davidson. Yes, I think you are right, we should protect 
the public, but we need to do so with clarity. And frankly, we 
should do it in a way that doesn't destroy the market. You are 
talking about fintech being the leading innovation.
    America has led in market after market after market in the 
field of technology, from the agricultural revolution, to the 
industrial revolution, and on up through the internet age. Why 
would we want to destroy the fintech revolution and push it 
outside the United States when we can foster it?
    I refer to your threatened enforcement action on yield 
products, for example. We should go through a rulemaking 
process--or, frankly, Congress should act--which is why I am 
drafting a bill that should be submitted shortly to clarify 
yield products and how they should be protected.
    The last thing I would say is, certainly not all 
stablecoins should be considered securities, and I think you 
have referenced that. But I look forward to working with you 
and your office to provide clarity for our markets.
    And I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from North Carolina, Ms. Adams, is now 
recognized for 5 minutes.
    Ms. Adams. Thank you, Madam Chairwoman.
    And thank you, Mr. Chairman, for being here.
    As you may know, I recently introduced the Registration 
Index-Linked Annuities Act (RILAA). In recent years, there has 
been an increase in demand for RILAAs, and these products, 
which provide the benefits of market exposure while 
simultaneously offering protections against extreme downward 
market volatility.
    I have heard from issuers of RILAAs, including companies 
located in my district here in North Carolina, that the lack of 
a tailored form of registering these products has complicated 
their ability to market these products effectively.
    The Consumer Federation of America, the American Council of 
Life Insurers, and others have endorsed the bill, and it has 
strong bipartisan support from members of the committee. I 
wanted to just flag this for you, like Senator Smith of 
Minnesota did in your last hearing. But I look forward to 
working with you to advance this legislation.
    I would be happy to hear any thoughts that you have on this 
matter.
    Mr. Gensler. No, I thank you. I thank Senator Smith for 
flagging it in the last hearing as well. And I think that 
index-linked annuities have come under the securities laws for 
quite some time, but what you are flagging is the forms that 
they fill out, could we find a way to basically change the 
forms they fill out at the SEC?
    Since the Senate hearing, I have actually asked the staff 
to consider some of the things that you and the Senator have 
raised and to make some suggestions.
    Ms. Adams. Wonderful. Thank you very much.
    This committee has been advocating for the creation of 
Offices of Minority and Women Inclusion (OMWI) across financial 
regulators. These offices are to ensure that internal staffing 
and procurement policies are inclusive and encourage all 
regulated entities to follow suit.
    What are you and the OMWI Office doing to increase 
participation?
    Mr. Gensler. The OMWI Office, headed by Pam Gibbs, is a 
terrific ally internally in terms of trying to promote more 
minority and women inclusion in our hiring, and in our 
promoting, in our senior ranks. I think, while we have made 
some progress at the SEC, there is still a lot more progress to 
make in this regard as an agency.
    We are also, beyond that, looking to see what we can do to, 
as we talked about earlier, in terms of various questions that 
we put out to the industry as to what they are doing in the 
same regard.
    Ms. Adams. Okay. Have you considered making these 
assessments mandatory? Or do you have any other inducement to 
encourage greater participation?
    Mr. Gensler. I think it would be good to have greater 
participation. I have asked counsel and so forth.
    I think while we are moving forward, and I hope that staff 
will make recommendations, and that my fellow Commissioners 
will support some notice and comment on disclosures around 
diversity, disclosures around the board and the workforce 
diversity, I think until we were to do that, it would really be 
up to Congress to have participation, as you said, mandatory 
participation in some of these current industry surveys.
    Ms. Adams. Okay. Great. Thank you very much.
    Madam Chairwoman, I am going to yield back.
    Chairwoman Waters. The gentleman from North Carolina, Mr. 
Budd, is now recognized for 5 minutes.
    Mr. Budd. Thank you, Madam Chairwoman.
    And thank you, Chairman Gensler.
    China has been on a warpath against cryptocurrency, it 
seems, since 2013. And we have seen them implement bans on 
mining, initial coin offerings, cryptocurrency exchanges, and 
their most recent move, an outright ban on cryptocurrencies 
themselves.
    Chairman, do you support what China has done? And is the 
SEC planning on implementing similar bans?
    Mr. Gensler. I am familiar with a number of the things that 
you have mentioned in terms of the People's Republic of China. 
I think our approach is really quite different, and it is a 
matter of, how do we get this field within the investor and 
consumer protection that we have, and also, working with bank 
regulators and others? How do we ensure that the Treasury 
Department has it within anti-money laundering, the tax 
compliance, and of course, the financial stability issues that 
stablecoins could raise as well?
    Mr. Budd. But no bans that you are interested in 
implementing via the SEC as China has done really to funnel 
everyone through their own digital currency?
    Mr. Gensler. No, that would be up to Congress. We are 
really working with the authorities you have given us, and I 
have said this. I think that many of these tokens--and it is 
based on the facts and circumstances--but many of these tokens 
do meet the test of being an investment contract or a note or 
some other form of security, that we bring them within the 
investor protection remit of the SEC.
    Mr. Budd. Thank you.
    Let's talk about innovation for a moment, which has made 
the U.S. markets the envy of the entire world, the nature of 
the innovation that we have here.
    In referring back to the Senate Banking hearing that you 
were in, I think you stated before you were in your current 
role, you said, ``Innovation is what supports access, economic 
activity, and gives so many of us better opportunities in 
life.''
    As the Commission continues to review proposed changes, 
will you commit to balance any changes with the impact it will 
have on everyday investors?
    Mr. Gensler. I think that is at the core of our mission, 
our three-part mission, but also to balance the economics.
    Innovation, as I said then and will say now, does help 
increase our economy, increase access to capital. It is why I 
studied it. I was fascinated to study this at MIT, the 
intersection of finance and technology.
    But I think that new technologies rarely last long if they 
try to stay outside of whatever public policy goals that a 
society lays out. Investor protection has worked for us for 90 
years, and I think it is an important piece of whether 
cryptocurrency is going to survive or not and meet its 
potential, whatever that potential might be.
    Mr. Budd. Thank you.
    You said multiple times that the SEC has a great deal of 
clarity on what exactly is a security. Given the SEC's approach 
to using enforcement as a way to regulate, you stated before 
the Agriculture Committee, in 2018, ``The SEC will need to 
decide if they might issue rules and interpretations specific 
to the crypto space.''
    Now that you are leading the SEC, will you describe areas 
in which you plan to provide additional guidance and even 
enforcement?
    Mr. Gensler. I want to say that I think the enforcement 
actions, the 6 or 7 dozen enforcement actions over 4 or 5 years 
that the SEC has brought in this space, by my predecessor, and 
that we continue to do, help to protect the public.
    In terms of working with exchanges, platforms that come in 
to try to register, it is really to look at our rule set to 
ensure that we achieve the core of our rule set. But if there 
are some pieces of it that don't fit, I use things like 
transfer agents and others because they are easier for some to 
understand, that might not fit particularly with these new 
digital investment contracts.
    Mr. Budd. Okay. I just have a few seconds left.
    Madam Chairwoman, I yield back.
    Thank you, Chairman Gensler.
    Chairwoman Waters. Thank you very much.
    The gentleman from California, Mr. Vargas, is recognized 
for 5 minutes.
    Mr. Vargas. Thank you very much, Madam Chairwoman. I thank 
you, and I thank the ranking member for this committee hearing, 
and I especially thank our witness today, Chairman Gensler.
    Chairman Gensler, I believe public companies regularly fail 
in the potential cost of climate change and environmental 
exposure. Many companies, many public companies, fail to 
disclose what I believe is key material information surrounding 
corporate governance policies, such as employee and management 
diversity or the lack thereof.
    In response, the House passed H.R. 1187, the Corporate 
Governance Improvement and Investor Protection Act. The bill 
included my ESG Disclosure Simplification Act of 2021, which 
requires public companies to annually disclose to shareholders 
certain environmental, social, and governance metrics and their 
connection to their long-term business strategy.
    Chairman Gensler, on March 4th, the SEC announced the 
creation of the Climate and ESG Task Force in the Division of 
Enforcement. The task force focuses on developing initiatives 
to, ``proactively identify ESG-related misconduct,'' and, 
``identify any material gaps or misstatements in issuers' 
disclosure of climate risks under existing rules.''
    Chairman Gensler, could you provide the committee with an 
update on the task force findings and the scope of their 
investigations?
    And, additionally, do you believe that all public companies 
should be required to disclose relevant ESG concerns? I know 
that you talked a little bit about big and small companies, but 
could you elaborate a little more on that?
    Mr. Gensler. Thank you.
    I do think that investors have increasingly, over the 
years, asked for greater disclosures on climate risk and on the 
workforce. We have a separate project which might not fit into 
your question on cyber.
    The last time that the SEC put out guidance on this was in 
2010, and the task force that was stood up in March of this 
year was to ensure that investors were getting the benefit, not 
just of that 11-year-old guidance, but that companies were 
following their responsibilities under this disclosure regime.
    But I think that really now is the time to put something 
out to the public. The public can weigh in. How can we as the 
SEC play a role to bring consistency, comparability, and, yes, 
decision-useful information around the physical and transition 
risks in climate that many of these companies are facing, and, 
yes, around the workforce, including the diversity of that 
workforce?
    I think investors are asking for it, but, again, we will 
find out when we put things out for notice and comment. We will 
see what people say.
    Mr. Vargas. You say that investors are asking for it, and 
even some companies are already providing it. It is a different 
level, different things. But aren't they already doing that, 
some of these companies?
    Mr. Gensler. Yes. I thank you for saying that, because you 
are absolutely right. Of the top 500 companies by market cap, I 
think 80 to 85 percent are right now putting out climate risk 
disclosure on a voluntary basis.
    It helps those companies, if we bring some consistency and 
comparability to it. Imagine if companies, 400 or 500 of the 
leading companies in the U.S., were just putting out 
disclosures about their financials, but they were all deciding 
different ways to report their financials or a different way to 
report their executive compensation.
    We have a role, and Congress gave us a role to try to 
standardize that and bring some comparability. And it helps the 
companies as well as the investors to bring some 
standardization.
    Mr. Vargas. I agree, and I think that is why the investors 
are asking for it, and I think that is why a lot of the large 
companies are giving it.
    I do want to ask with the last minute that I have, I know 
that a number of my colleagues are really hot on this crypto 
stuff.
    I have to tell you, people ask me all the time, ``Juan, 
what is crypto? And how does that help the dollar? How does 
that help the United States? How does that help anybody other 
than traffickers, narcotraffickers, terrorists, or people 
trying to make a quick buck? How does it help us to have this 
cryptocurrency?''
    I understand if the United States had a digital currency, I 
could see how it could help the dollar. But how does that help 
us, all of these cryptocurrencies?
    Mr. Gensler. We have, around the globe, 180 fiat 
currencies, meaning 180 different countries have one. But each 
country has one. We have the U.S. dollar, and it happens to be 
the leading currency around the globe.
    It is unlikely that 5,000 or 6,000 private forms of 
currency are going to persist. Economic history tells us that 
is unlikely.
    And a lot of these are not really currencies. They are not 
being used to buy a cup of coffee at Starbucks. What they are, 
most of them, are investment vehicles, ways to raise money for 
entrepreneurs, and thus, they should come in, and they should 
be within the securities laws.
    The handful that might be competing with gold or silver as 
a digital speculative store of value, as gold is a speculative 
store value over the centuries. But not many of them. Most of 
them are investment vehicles.
    Mr. Vargas. My time has expired.
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Tennessee, Mr. Kustoff, is now 
recognized for 5 minutes.
    Mr. Kustoff. Thank you, Madam Chairwoman. Thank you for 
calling today's hearing.
    And thank you, Mr. Chairman, for appearing today.
    I read your column that you wrote several weeks ago, 
``Chinese Firms Need to Open Their Books.'' I am just going to 
ask you very broadly, what exactly are you saying? Of the 270 
companies, you said they need to be prohibited from trading 
here by 2024. What are you seeing, or what are you not seeing 
with those companies?
    Mr. Gensler. There was a basic bargain entered into on a 
bipartisan basis about 20 years ago, the Sarbanes-Oxley Act, 
that President Bush signed into law. And it said that to 
instill greater trust in our markets after the Enron and 
WorldCom fiascoes, and that was about accounting fraud in that 
case, that companies' auditors needed to open up their books 
and records to a new entity, the Public Company Accounting 
Oversight Board (PCAOB), and we at the SEC oversee the PCAOB.
    Nearly 20 years later, 50-plus jurisdictions have allowed 
that to happen, from Europe, from Asia, from Africa, from South 
America, and from North America, but two jurisdictions 
currently are not: China and Hong Kong.
    Congress came back together last December and said, let's 
set a clock, a 3-year clock, for the PCAOB to see those 
records.
    In essence, there are three or four key things. Number one, 
the PCAOB has to select which companies they are inspecting. 
Number two, they have to see the work papers and see those work 
papers of the auditors not redacted, not selected, but they 
actually need to be able to talk to the auditors to basically 
instill greater trust in the financials, in this case of these 
China-related issuers.
    Mr. Kustoff. As a follow-up, you did mention a specific 
number, 270 companies, by 2024. Who are some of those 
companies?
    Mr. Gensler. These are the companies that I call China-
related companies, because many are actually incorporated in 
the Cayman Islands and don't actually own anything directly 
related to these companies, but many are the large internet 
service providers in China or internet companies similar to our 
large internet companies here that provide online retailing, 
online services, but there are also some insurance companies, 
and some oil and gas companies that are related to China as 
well.
    Mr. Kustoff. Let me, if I can, ask the same question a 
different way. You did identify a specific number, 270--
    Mr. Gensler. Oh. May I say that is just the number of 
companies right now that are China-related, based upon 
statistics that we can see from outside services. NASDAQ and 
others just list a whole list of companies, and I could 
certainly follow up and give you that. But we as an Agency, the 
SEC, actually have a congressional mandate that, each year in 
this 3-year clock that is ticking, we would publicly identify 
specific companies. In the early part of 2022, if China and 
Hong Kong are not yet compliant, then we would identify the 
specific names of companies, and then do this a year later, and 
a year after that.
    Mr. Kustoff. Do you anticipate that number could grow?
    Mr. Gensler. It could grow if there are more companies from 
China or they are affiliated companies in the Cayman Islands 
because many of these are actually Cayman Island issuers that 
enter in arrangements called variable interest entity (VIE) 
arrangements with China's companies. So, it could grow, but we 
have actually--we at the SEC put a pause on that until we could 
enhance the disclosures around these so-called VIE structures.
    Mr. Kustoff. Lastly, Chair Gensler, in my remaining time, a 
couple of months ago you stated before the Investor Advisory 
Committee that you wanted your Commission staff to work on new 
disclosure requirements for Special Purpose Acquisition 
Companies (SPACs). Have you gotten those recommendations yet? 
And, if not, when do you expect to see those recommendations?
    Mr. Gensler. I have gotten them in terms of preliminary 
recommendations, but not a full rule that I can put in front of 
my fellow Commissioners. But I think that we can try to address 
some of the disclosure issues around the SPACs that the retail 
public--really, these are very costly vehicles for companies to 
raise money and for the retail investing public. And I think we 
can bring greater transparency and address some of the 
conflicts, but I could follow up as to which month, I think, 
that will be in front of our Commission.
    Chairwoman Waters. Thank you so much.
    The gentleman from New York, Mr. Torres, is now recognized 
for 5 minutes.
    Mr. Torres. Thank you, Madam Chairwoman.
    It is a pleasure to see you, Chair Gensler. I have a 
question about the neither-admit-nor-deny policy. If you, as a 
public regulator, find that a company has engaged in wrongdoing 
and then take enforcement action accordingly, is it fair for 
the SEC to allow a company found to have engaged in wrongdoing, 
is that fair and transparent and accountable?
    Mr. Gensler. I think you raise a really important point for 
agencies like our civil law enforcement agencies that, with a 
group of limited resources, no matter what Congress gives us, 
it is always a limited set of resources on how to best protect 
the marketplace, and that is why I think it is so important to 
have a remarkable Enforcement Division. I have said this, that 
we hold, not only companies accountable but individuals 
accountable; that we have a full rendition of the facts so that 
the public understands why we might enter into a settlement--I 
think what you have raised is usually in the context of 
settlements; and that we even use all the authorities in terms 
of individual bars; and where appropriate on occasion to--
    Mr. Torres. Mr. Chairman, if I could just intervene, I am 
asking if it is fair? Before we get to the resource question, 
do you think that is fair? Do you think it is fair to have a 
policy of settling cases without requiring admissions of 
wrongdoing? Because I believe, and I suspect the majority of 
Americans [inaudible] engaging in wrongdoing? Because there are 
reputational consequences that come from admissions of 
wrongdoing; if you defrauded your customers, I have a right to 
know. Because if you allow them to settle and neither admit nor 
deny, then a company can easily say, ``I never did anything 
wrong. I never admitted to doing anything wrong; I just simply 
paid off the SEC to go away.''
    Mr. Gensler. I think you will find that I am largely in 
agreement. It is the hard challenges of an agency like ours and 
other agencies. We are not the only Federal regulatory agency 
that is faced with this challenges of resources that what is 
really important is to have a real, robust rendition of the 
facts, to use the authorities around individual bars as your 
right to go beyond fines because fines, all too often, are just 
viewed as a cost of doing business.
    Mr. Torres. Are you just--I want to move on to a new topic, 
but are you saying that [inaudible].
    Mr. Gensler. I'm sorry. You are cutting out.
    Mr. Torres. Do you think that resource constraints make it 
impossible to rethink the policy of settling cases without 
requiring admissions of wrongdoing?
    Mr. Gensler. I think I heard most of what you said. I 
apologize because you were cutting out, but I do think that 
what is really critical is to use the resources that Congress 
gives us as best we can to lean in to ensure that we have a 
full rendition of the facts of the case; use our industry bars; 
and, yes, from time to time, as you said, to consider whether 
to include that in a settlement. And, as you know, we also take 
many cases to litigation and into the courts where that is not 
the case, where in the courts, you find different things. The 
court decides, and opinions are written.
    Chairwoman Waters. Mr. Gensler, I don't know whether Mr. 
Torres is still on the platform. It looks as if he dropped off.
    Mr. Torres, can you hear me? I think something has 
happened. I don't know if it is a technology problem, but--
    Mr. Torres. Hello?
    Chairwoman Waters. I think he is coming back now.
    Mr. Torres, you may continue.
    Mr. Torres. Chair Gensler, are you suggesting that resource 
constraints make it impossible to settle cases without 
requiring admissions of wrongdoing? I just want to be clear 
about your position.
    Mr. Gensler. I think that, as we have had in this lively 
discussion, there are challenges and tradeoffs, and it is part 
of why sometimes we take cases directly into the courts. What 
you are highlighting, and I think we have a shared vision here, 
is to use all of the tools that we have in our tool kit to 
ensure that market participants stay on the right side of the 
law. And that is at times taking things into the courts and 
litigating them fully. Occasionally, that is also settlements. 
It has been ensuring when we do settlements, if there is a full 
rendition of the facts, that we also use industry bars, that 
we, when appropriate, also have very serious undertakings by 
those--
    Mr. Torres. Mr. Gensler, I see my time is about to expire. 
I just want to quickly ask you about stablecoins. Do you 
consider stablecoins a systemic risk, because obviously, the 
nature of stablecoins will determine the nature of regulation? 
What is your conception of stablecoins? Is it securities or a 
systemic risk?
    Mr. Gensler. I would say this: We already have--oh, the 
gavel is coming down.
    Mr. Torres. Is it a systemic risk? Yes or no?
    Mr. Gensler. I think the $125 billion of stablecoins we 
have right now are like the poker chips at a casino, and I 
think they create risk in the system that we have digital 
lending, crypto lending, crypto trading that, yes, I do think 
that if this continues to grow and it has grown about tenfold 
in the last year, it can present those systemic risks.
    Chairwoman Waters. Thank you. The gentleman's time has 
expired.
    The gentleman from Ohio, Mr. Gonzalez, is now recognized 
for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Chairman Gensler, for your 
time today. I also want to thank you for our time last week. I 
thought it was a very good conversation. As I mentioned in our 
call, I am extremely excited about the opportunities from 
emerging blockchain technology for our economy and opening up 
finance opportunities to the unbanked and underbanked.
    Additionally, when I look at those who have done the best 
financialing in the crypto space, it seems to be a much more 
diverse set of players, which is completely unlike the 
traditional finance world, that is almost exclusively dominated 
by those who happen to have attended the best schools and have 
the right pedigrees. This tells me that crypto is enabling 
wealth creation opportunities in a way that the traditional 
finance world simply has not been able to accomplish in many 
respects.
    Recently, we have seen a boom in DeFi products that give 
individuals the power to lend, borrow, and earn interest 
through the Ethereum platform, and somewhat on Solana, that far 
exceed the zero percent rates that U.S. Treasuries provide. I 
have been speaking with multiple companies in the space and the 
common theme in these discussions is that they want to come in 
and describe their product to the SEC. However, they are 
concerned that these meetings could lead to a potential 
enforcement action. They also see some of the comments, similar 
to the ones you just made, about many of these products, in 
particular, stablecoins, being the poker chip at a casino as 
unnecessarily demeaning and suggesting there is a presumption 
of guilt on the part of the SEC. And so, this sort of friendly, 
open-door conversation is not something that they believe they 
are experiencing.
    I guess my first question--well, first, I want to start on 
stablecoins. It seems to me that when you are thinking about 
stablecoins and whether they are a risk or not, a lot of that 
falls back on the quality of the reserves and what ultimately 
backs up the stablecoin should be determinative in whether it 
is a true stablecoin or it is a junk coin.
    Would you disagree with that characterization? And, if so, 
please explain why, if we agreed on what constitutes a high-
quality set of reserves, why that would, in effect, somehow 
necessitate calling them a poker chip at a casino?
    Mr. Gensler. Let me just comment on that last point. We 
have regulations in many States of the land--Nevada started, 
and New Jersey, but my home State of Maryland had to take this 
up some 2 decades ago regulating casinos, and it ensured for 
certain safety and protection for the public. I think that we 
found our way through that set of public policy issues, and we 
can find our way through this as well.
    Mr. Gonzalez of Ohio. If I could really quickly on the 
casino route--really quickly, Mr. Chairman, there is a key 
difference between a casino and a DeFi product. In a casino, 
you are guaranteed to lose 100 percent of the time. If you play 
long enough, you will lose. The odds are against you, unless 
you are cheating. That is not true in crypto. It is not true in 
blockchain technology. But I will let you proceed.
    Mr. Gensler. In terms of a number of these platforms, you 
have tempted me in here, a number of these platforms are 
saying, ``Come hither, and we will give you a return on your 
crypto if you leave it with us, and we will give you staking 
returns or lending returns.'' And often they are, as you said, 
above what you can get in a money market fund or what you can 
get with investment advisers.
    Within a transparent way, how are people, sort of, 
advertising 4 percent returns, 7 percent returns, sometimes up 
to 21 percent returns on these crypto platforms? I think that 
is what we are trying to do is to ensure that the public is not 
defrauded and what stands behind those claims. In terms of 
stablecoins, I do concur with you that there are different 
types of coins. Wrapping something computer graphically around 
fiat money could be different. It could be directly around 
deposits at a bank, or, on the other end of the spectrum, it 
could look a lot like a money market fund because it could be 
like our money market funds around Treasuries, commercial 
paper, certificates of deposit, and so forth.
    So, it really depends on what the underlying assets are, 
but I do think, as you have just said, that there is a way to 
ensure the reserves are tightly and appropriately tied to the 
banking system, but that might raise other issues because we 
already have digital money in this country. We have for decades 
had digital money. It is called digital bank deposits. So now, 
the question is, what is stablecoins giving you more if they 
are not just giving you a way to avert tax collection, tax 
compliance, and anti-money laundering? And I do think a lot of 
these stablecoins are--excuse me for saying it--they grew up 
over the last 8 years inside of trading platforms around the 
globe to avert anti-money laundering laws and tax compliance.
    Mr. Gonzalez of Ohio. I see my time is up.
    With that, I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Pennsylvania, Ms. Dean, is now 
recognized for 5 minutes.
    Ms. Dean. Thank you, Madam Chairwoman.
    And, Chair Gensler, it is a pleasure to have you here 
before us. Thanks for providing testimony to the committee to 
discuss the priorities, the mission, and the needs of SEC. So, 
to take a bridge from that conversation around resources and 
your budget requests, I wanted to give you an opportunity to 
talk about your budget requests. SEC is requesting a little 
more than $2 billion in appropriations for Fiscal Year 2023, a 
little more than an 8 percent increase compared to 2022. In 
fact, the final statement in your written testimony says, ``As 
more Americans are accessing the capital markets, we need to be 
sure that the Commission has the resources to protect them.''
    I agree with you completely. How we budget reveals our 
priorities. With the amount of funds in your budget request, 
will that offset the staffing level decreases that the SEC has 
suffered since 2016, which I believe your Agency has reported 
at about a 4 percent decrease, and what key areas of staffing 
are needed with this budget request?
    And I guess one final piece of that, I believe it is a 
deficit neutral budgeting statement in terms of SEC budgeting, 
if you could address that.
    Mr. Gensler. Thank you for that. Yes, to go in reverse 
order, we are, because under congressional authorities, the SEC 
sets an annual fee on various securities transactions. And so, 
from the point of view of the U.S. taxpayer, it is paid for, in 
essence, by the market itself and the market transactions.
    In terms of levels of staffing, we did work with the Office 
of Management and Budget (OMB) on that 2023 request, but it 
doesn't quite get--we had shrunk several hundred people or 200-
plus people since 2016, and this gets us just below where we 
were in 2016. I would have preferred to have been asked to take 
on an agency that had grown 4 or 5 percent and not shrunk 4 or 
5 percent, and this doesn't quite get us above where we were 5 
years ago. And this is a market that is continuing to grow.
    The last thing I would say is technology. We spend, give or 
take, $350 million a year on technology at the SEC, which is 
probably what some of the big banks spend in a couple of weeks, 
if you just take the numbers. That is one systemically 
important bank or something like that. Certainly, most of them 
spend more than that in a month, and so it is just the nature 
of congressional appropriations. We are where we are. We have 
asked for a bit more, but it doesn't quite get us to where we 
would like to be.
    Ms. Dean. Can you speak to the focus at the SEC as you, I 
hope, staff up a focus on diversity across-the-board at all 
levels of the SEC?
    Mr. Gensler. It is a really important focus in terms of 
recruiting people, but also promoting into the senior ranks. I 
have tried to do my best with the handful of people that we 
have hired, whether in my front office or as Division 
Directors, but also to work with our Office of Minority and 
Women Inclusion, and work with our senior officers every time 
that we have a possibility of promotion, to really look across 
the Agency. We are advertising externally and internally, and I 
think that is important to allow people to have an opportunity 
for those senior roles as well.
    Ms. Dean. That is terrific. And, finally, we have spoken a 
lot about the mission of investor protection. With the notion 
and the spirit of the ultimate investor protection as we see as 
inching toward this potential catastrophe in reaching the debt 
ceiling, do you recommend a lifting or elimination of the debt 
ceiling?
    Mr. Gensler. Of course, I have to leave some of that to 
Congress and the Executive Branch, but I would say this, as the 
chairwoman asked me earlier in this hearing, I think as we get 
within a couple of days--if, I should say, and hopefully we 
don't--but if we get to a couple of days before that fateful 
October 18th--my God, it is my twin brother's and my birthday. 
What a fateful October 18th that would be.
    Ms. Dean. Oh, dear.
    Mr. Gensler. But as we get closer to that, I think we will 
start to see fraying in the marketplace, and there are great 
uncertainties if we actually defaulted on our debt, terrific 
uncertainties because Treasuries are the base upon which the 
rest of our capital markets stand. It is like saying, ``Let's 
test the foundation of a house and let's make sure the 
foundation of the house defaults, the rest of the house is 
going to have problems.''
    Ms. Dean. I wish you and your brother a happy birthday free 
of this burden, and it is irresponsible that any Member of 
Congress would want to walk us toward that brink.
    And I yield back.
    Chairwoman Waters. Thank you very much. The gentlewoman's 
time has expired.
    The gentleman from Tennessee, Mr. Rose, is now recognized 
for 5 minutes.
    Mr. Rose. Thank you, Madam Chairwoman and Ranking Member 
McHenry, and thank you, Chair Gensler, for your testimony and 
participation in today's hearing. I want to welcome you, again, 
to the committee and to, once again, remind you that 
historically, the SEC has administered the Federal securities 
laws in a bipartisan fashion, and it is my hope that you will 
continue that tradition, as I believe our securities laws are 
not where they should be, in holding debates about climate 
change or things like racial inequality.
    Obviously, as we reviewed market events in January, we 
restarted the conversation regarding payment for order flow. 
Now, I am not necessarily in favor of banning payment for order 
flow like the legislation that my Democratic colleagues have 
proposed, and that you have said is, ``on the table,'' 
especially without the proper due diligence of studying its 
benefits and costs. I know we have talked about payment for 
order flow a lot in this hearing, but I feel like we haven't 
gotten a lot of answers.
    Chairman Gensler, in the previous hearing, you agreed with 
me that transparency is key and said that your staff would be 
examining payment for order flow. That was in May. In your 
testimony, and throughout this hearing, you have said that you 
have asked for staff recommendations over the last 5 months. 
How far have they gotten in that examination, what were their 
findings, and when can we expect a report from you and the SEC 
on those findings?
    Mr. Gensler. I thank you for that. If I can separate out in 
terms of the January events, the staff of the Trading and 
Market Division and the Division of Economic Risk Analysis have 
put together a report, and shared it with the five 
Commissioners, and through that Commission discussion, I would 
anticipate we will have that report out shortly. Again, there 
are five of us, so there is a little bit of moving around.
    In terms of the broader public policy issues--because that 
is just a report--I still share the view, that this is driven 
by economics, what is best to make our markets most efficient 
and whether it is, as you mentioned, payment for order flow or 
other parts of the stock market, what is critical, I think, are 
a couple of principles.
    One is order competition, having my order compete with 
yours. And most people don't realize, if you go to a trading 
app or on your computer and you put a market order in, it is 
not likely--in fact, it is highly unlikely that it will go to 
the New York Stock Exchange or NASDAQ or a LIT stock exchange. 
It is being bought by an internalizer and a handful of 
internalizers. So, we are really looking at, is that the best 
way to instill competition in this market and efficiency and to 
address some of the inherent conflicts that can be in this 
system?
    Mr. Rose. In a hearing earlier this year, I asked one of 
our witnesses what reforms he thought the SEC could implement 
with respect to payment for order flow to increase transparency 
for retail investors, and he suggested more granular 606 
reports, specifically doing more to provide better public 
transparency of best execution.
    Is your staff looking into additional changes to these 
reports? And, if so, what changes?
    Mr. Gensler. I will use terms that I have used earlier. 
That is on the table as well, sir, but I think that the 
question is whether disclosure alone, by enhancing the 
disclosure around payment for order flow, really will address 
it. The United Kingdom, Canada, and Australia all have banned 
payment for order flow. I know we have different markets, 
different systems. We even have letters that we have gotten 
over the years dating back over the last 20 years articulating 
why it is not good for our system.
    So, I asked staff to consider that but also to consider it 
only in the context of the entire market structure in terms of 
the exchanges and what they are paying on what is called, 
``rebates.'' How do we look at what is called the National Best 
Bid and Offer,'' because that is often what is used to measure 
price improvement. Is it the right measuring stick or measuring 
rod to look at?
    Mr. Rose. I see my time is short. In a challenging global 
economy, the strength of our capital markets is vital to long-
term economic growth, yet regulatory burdens and increasing 
amounts of red tape prevents small business from thriving and 
stifles American innovation. The advances we have seen over the 
past decade in technology have improved the way Americans and 
our businesses perform financial activities. Due to these 
investments, we are seeing more investors who have historically 
been left out, now active in the markets. We should not stand 
in their way.
    With that, Madam Chairwoman, I yield back.
    Thank you, Chairman Gensler.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from New York, Ms. Ocasio-Cortez, is now 
recognized for 5 minutes.
    Ms. Ocasio-Cortez. Thank you, Madam Chairwoman, for hosting 
this hearing.
    And thank you, Chair Gensler, for joining us today.
    I want to take a few minutes to discuss stock buybacks. 
During the pandemic, I and many others on this committee and 
beyond introduced pieces of legislation either banning the 
practice of stock buybacks or regulating them in a broad kind 
of spectrum of possibility, and one of the issues that I had 
brought up was actually banning the practice of stock buybacks 
for any corporation receiving public assistance, essentially 
getting bailed out, while also mandating workers be granted an 
equity stake or the public being granted an equity stake in any 
of those kinds of public buy-ins to those companies.
    Now, I want to dig into this issue a little bit more. For 
folks following this at home, would you say it is fair to 
describe stock buybacks as the practice of a company using its 
profit or margin to purchase shares of its own stock as opposed 
to other uses of its margin like investing in raising wages, 
research and development, et cetera?
    Mr. Gensler. If I could just broaden it out, I think the 
companies that use dividends and stock buybacks have made some 
decision to send money out of the company to their shareholders 
or to buy back their shares rather than investing. I think it 
is usually a two-step process. One decision is whether to 
invest, as you say, more in the factories, the innovation, and 
so forth, or to send it out to shareholders, and then usually a 
second decision on whether to do it through dividends or share 
buybacks.
    Ms. Ocasio-Cortez. Thank you so much, Chair Gensler. And 
what we saw during the pandemic was that some of these same 
corporations that spent about $6.3 trillion on stock buybacks 
between 2010 and 2019, also denied their workers hazard pay and 
personal protective equipment, claiming that it was too 
expensive. On top of that, production of medical equipment that 
was necessary during the pandemic was also delayed due to many 
years of underinvestments, in part, in research and development 
from these companies that were using some of their funds to 
purchase their own stock instead.
    Would you agree that stock buybacks make no real 
contribution to the productive capabilities of a firm?
    Mr. Gensler. Again, both dividends and stock buybacks are a 
way that management and boards send money out of the company to 
shareholders, and so there is, as you say, some tradeoffs 
between that and what they are investing. Our role at the SEC 
is to make sure that we bring transparency to these 
considerations. Of course, those of you in Congress might 
debate whether to change those rules, but we try to bring 
transparency and ensure that there is not fraud or buybacks in 
circumstances where the company has insider information and the 
like.
    Ms. Ocasio-Cortez. Thank you. President Reagan's SEC 
adopted Rule 10b-18, which limits stock buybacks under certain 
volume, broker, and timing conditions, although the amount that 
a large company can spend on buybacks on a daily basis under 
this rule is often in the hundreds of millions of dollars. 
Conforming to these conditions allows a company entry to a, 
``safe harbor.'' Does the SEC actively monitor whether 
corporate buyback activity remains within its safe harbor?
    Mr. Gensler. You raise a good point. It relates to earlier 
debates about resources, but we try to use our resources across 
the Agency to ensure compliance with the laws. I have asked 
staff in terms of stock buybacks, could we also use some 
authorities that were put in place under Dodd-Frank about the 
disclosures--
    Ms. Ocasio-Cortez. I apologize, Chair Gensler, but is that 
a, ``no,'' due to resource issues that the SEC does not 
actively monitor?
    Mr. Gensler. It is more nuanced than that.
    Ms. Ocasio-Cortez. Okay.
    Mr. Gensler. We pursue, and we use the Enforcement and 
Examination and Corporation Finance staff to look at what we 
can, but there are 7,000 public companies in the United States.
    Ms. Ocasio-Cortez. Understood. Would the SEC consider 
rescinding Rule 10b-18 and issuing new guidance which clearly 
states that corporations may be held liable for stock buybacks 
that constitute potential market manipulation?
    Mr. Gensler. I think it is clear right now that if it is 
market manipulation, you can be held accountable. What I have 
asked the staff to do is to look at this more broadly because 
we have new authorities under Dodd-Frank to actually get more 
transparency in this area as well.
    Ms. Ocasio-Cortez. Great. Thank you very much.
    Chairwoman Waters. Thank you.
    The gentleman from South Carolina, Mr. Timmons, is now 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Madam Chairwoman. And thank you, 
Chair Gensler, for taking your time to be with our committee 
today. Back in May, the Securities and Exchange Commission's 
Small Business Capital Formation Advisory Committee made two 
specific recommendations to you, not simply to stimulate 
capital formation for new small businesses, but also to make it 
easier for women- and minority-founded enterprises to raise 
capital for their entrepreneurial endeavors. The advisory 
committee noted that traditional institutional investors are 
known for pattern matching or making investment decisions that 
replicate patterns of who a successful entrepreneur has looked 
like in the past, but, unfortunately, this often locks out 
women and minorities, who are often different from 
traditionally successful entrepreneurs.
    The changes recommended by the advisory committee were: 
number one, increasing the cap on the aggregate amount of 
capital contributions in uncalled committed capital from $10 
million to $150 million; and number two, increasing the 
allowable number of investors or beneficial owners from 250 to 
600 for qualifying venture capital funds.
    Following their recommendations, I introduced the Improving 
Capital Allocation for Newcomers Act of 2021, or the ICAN Act, 
which would codify these recommendations. We all know capital 
is the life blood of all businesses, but especially so for 
small businesses in their formative stages.
    Chairman Gensler, would you support codifying these 
recommendations, increasing the aggregate amount of capital 
allowed from $10 million to $150 million and increasing the 
allowable number of investors from 250 to 600 for qualified 
venture capital funds that your advisory committee made?
    Mr. Gensler. I would want to take a look at your 
legislation, sir, and try to work with you on it. I think that 
there is a balancing act in all of these as to, how do we 
ensure that investors get the appropriate disclosure, whether 
it be in a venture capital fund or otherwise? And it is 
important that investors get that disclosure, but I look 
forward to working with you and to looking at your legislation 
more specifically.
    Mr. Timmons. I really appreciate that, and I look forward 
to working with you as well. We will get you a copy here after 
this hearing.
    I want to end my time by responding to some of the comments 
that Chairwoman Waters made in her opening statement today 
regarding the debt limit. She said that the Republicans are 
insisting on a debt default, and that we are playing a 
dangerous game of chicken. Two things are obvious here: First, 
no one wants a default; and second, if there is a game of 
chicken going on, it takes two to tango. Yesterday, President 
Biden said that Republicans refusing to raise the debt limit 
for him was hypocritical, dangerous, and--this really got me--
disgraceful. I find that statement to be the height of 
hypocrisy since then-Senator Biden voted against raising the 
debt ceiling 3 times during the George W. Bush Administration 
in 2003, 2004, and 2006--3 separate times.
    The Republicans' position on raising the debt ceiling has 
been clear for months now. If Democrats want to spend trillions 
of dollars on their reckless tax and spending spree in a 
partisan manner, then they should have to raise the debt 
ceiling in a partisan manner as well. They have completely 
rejected us as governing partners from the time President Biden 
was sworn in up until now, when they want to raise the debt 
ceiling. This is not how that works. Congress has raised a debt 
ceiling through reconciliation before; it can do it again. Just 
last week, the Senate Parliamentarian laid out the process for 
doing so.
    Republicans will not be complicit in the Democrats sprint 
towards socialism in America. If we default in a few weeks, 
there will be no one to blame except the unified Democratic 
government in the White House and Congress. They control both 
Houses of Congress and the Executive Branch. They will own this 
default if it happens, but I don't think it will. I do believe 
the Democrats will come to their senses and use reconciliation 
to get this done.
    The only reason Democrats in Congress have not already gone 
down the path of reconciliation is because they know it will be 
a tough vote since, when using reconciliation, they will have 
to specify the exact dollar amount they want to raise the limit 
instead of simply suspending the debt limit for a period of 
time. Admittedly, that is a tough vote. No one wants to be on 
the record voting to raise a debt limit by several trillion 
dollars, and if my Democrat friends are going to pass this 
reckless tax and spending spree, that is exactly what they will 
have to do. I just hope my friends figure out exactly how much 
money they are going to spend on this thing soon because I 
would hate for them to not raise the debt limit high enough and 
find themselves in the same position, again, in a matter of 
months when the bill comes due.
    With that, Madam Chairwoman, I yield back.
    Thank you.
    Chairwoman Waters. Thank you very much.
    The gentleman from Illinois, Mr. Garcia, is now recognized 
for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Madam Chairwoman.
    And good afternoon, Chairman Gensler. Thank you for joining 
us. I represent a working-class district in Chicago. Many of my 
neighbors lost their jobs during the COVID-19 pandemic and many 
lost their businesses. But, so far, we have avoided a financial 
crisis. That wasn't luck. That comes from the robust 
protections that Congress put on our banking system with Dodd-
Frank and active intervention from our regulators, but we 
aren't safe yet. People in my neighborhood still worry about 
losing their homes, but the stock market and cryptocurrency 
markets are slinging up and down. You can see the instability.
    For instance, with respect to stablecoins, they are valued 
at nearly $70 billion, but they are bigger than that. They make 
up a tremendous part of the market for cryptocurrency, and the 
same investors who buy cryptocurrency are in the stock market, 
which affects our whole economy. We know the risks are there, 
and it is up to us to protect our markets because my 
constituents can't afford another financial crisis.
    Chair Gensler, are you worried that stablecoins might pose 
a systemic risk to our economy, and is that something that the 
Financial Stability Oversight Council (FSOC) is looking into?
    Mr. Gensler. Thank you. I think that my colleague, my good 
friend, Secretary Yellen is leading this, and we are looking at 
stablecoins right now in terms of a number of matters. You 
asked whether it could impinge upon financial stability. We are 
also looking at how it relates to guarding against illicit 
activity and investor protection.
    And I think there are issues in all three buckets, not just 
financial stability. There is about $125 billion of these coins 
right now. There are four or five big ones, and those coins are 
intertwined in a crypto trading system where, while they are 
only about 6 or 7 percent of the market value of 
cryptocurrencies, they represent probably three quarters or 80 
percent of all of the transactions in crypto versus a 
stablecoin. That is why I said it is like the poker chip at the 
gaming tables, but they are used to buy and lend other 
cryptocurrencies. The other thing is, it has grown about 
roughly tenfold in the last 15 months, so you could see where 
it could start to undermine things if it continues to grow, to 
undermine traditional banking payment systems if it is not 
brought inside of the remit of banking, and also undermine some 
of that which we do in investor protection at the CFTC and the 
SEC.
    Mr. Garcia of Illinois. Thank you for that. And, as we have 
seen to the south of us in El Salvador, with President Bukele's 
announcement that he would make Bitcoin a national currency 
last month, thousands of people took to the streets of the 
capital to protest this move as dangerous and unconstitutional. 
Given the volatility that we have seen in Bitcoin prices, it 
seems to me like a risky move.
    Mr. Gensler, you have seen how much the price of Bitcoin 
moves in response to announcements from U.S. regulators. Do you 
think speculation and regulatory arbitrage are important 
drivers in the price of Bitcoins?
    Mr. Gensler. Bitcoin, which was the first cryptocurrency 
based upon Satoshi Nakamoto's paper in the middle of the 
economic crisis in 2008, is a highly-speculative asset, but it 
is a stored value that people wish to invest in, as some have 
invested in gold since antiquity, but I think you are also 
right that it is used, not just Bitcoin but other 
cryptocurrencies, stablecoins, as you said, as arbitrage 
between regulatory regimes. I think that is why stablecoins and 
cryptocurrencies became intertwined, frankly, to avoid another 
digital type of money, and it is called the U.S. dollar. The 
U.S. dollar is a digital form of money. We already have digital 
money, but this has been used in part for these other reasons. 
So, it is a speculative store value, yes, Bitcoin. Many of 
these 5,000 or 6,000 other projects are also weighed to raise 
money, and they are digital investment contracts depending upon 
the facts and circumstances, and they are a way to arbitrage 
some of our rules.
    Mr. Garcia of Illinois. Thank you.
    Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from New Jersey, Mr. Gottheimer, who is also 
the Vice Chair of our Subcommittee on National Security, 
International Development and Monetary Policy, is now 
recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Madam Chairwoman.
    And thank you, Mr. Gensler, for being here today. We heard 
Federal Reserve Chairman Jerome Powell testify how the Fed was 
not seeking to ban stablecoins and other cryptocurrencies, even 
as they continue to examine the potential creation of a central 
bank digital currency. You previously stated how stablecoins 
could be treated as securities, and criticized them as poker 
chips, as you referred to them several times today.
    Given your skepticism, how do you envision stablecoins 
being integrated into the broader U.S. financial system, 
particularly the digital payment space? And what do you feel 
should be the SEC's role in this process?
    Mr. Gensler. It is good to see you again, Congressman. 
Thank you. Look, even poker chips in a regulated environment 
are a good thing. Poker chips at a casino do serve a purpose 
that provides greater transparency at the gaming table, and 
they even lower the security risk about money being stolen at 
the casino. I just want to caution, I am saying how it is being 
usedeconomically. I think working with our colleagues across 
the President's Working Group, we are going to come up with 
some recommendations, but I do think, to the extent that a 
stablecoin is directly tied to deposits, cash in a bank, and it 
is one to one, and it has clear and clean reserves, that type 
of digital payment system, if that is all it is, then we can 
put banking remit around it.
    I think that many of these, at the other end of the 
spectrum, might be investing in securities, and they start to 
take on characteristics like money market funds or others, and 
we have had some challenges, particularly since money markets 
are larger, about instability in money markets when there are 
kind of stressed periods and runs on money markets during 
periods of stress. We wouldn't want to move that type of 
instability into these stablecoins.
    And then, lastly, yes, I think they have been used inside 
the trading platforms and lending platforms--crypto, that is. 
They have been used, in part, to avert laws around tax 
compliance and illicit activity.
    Mr. Gottheimer. Thank you, Mr. Chairman.
    I have opposed the concept of a financial transaction tax 
in the past, particularly because of the potential negative 
impacts on the U.S. as a leader in the financial industry, 
including many businesses that are in my district.
    In March of this year, you stated in your written follow-up 
to the Senate Banking Committee that you have not previously 
studied any current proposals for imposing a financial 
transaction tax. I would just like to ask if you have any 
follow-up to that statement, and also inquire if you have any 
thoughts on how financial transaction tax might negatively 
impact the broader U.S. economy and our leadership in this 
space?
    Mr. Gensler. I haven't had occasion to study more. As you 
are probably aware, we are an Agency of about $2 billion a year 
that is funded by securities fees, transaction fees, and at 
that level, the $2 billion to fund the Agency, I think has 
worked smoothly in the markets. But I haven't studied anything 
that would be--of course, the debates have been about something 
much larger than that.
    Mr. Gottheimer. I am eager to hear back from you when you 
spend some time with it. And it is always good to see you. 
Thank you for your leadership, Mr. Chairman.
    Mr. Gensler. Thank you. I hope you and your family are 
staying well during these times.
    Mr. Gottheimer. You too, sir. Thank you.
    I yield back.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Michigan, Ms. Tlaib, is now recognized 
for 5 minutes.
    Ms. Tlaib. Thank you so much, Madam Chairwoman. I am so 
sorry I had to do this in the car like this. Thank you so much 
for holding this important hearing. As you know, I have been 
incredibly passionate about accountability and especially, 
Chairman Gensler, I am very alarmed, as you all know, about the 
recent disclosures, if you haven't watched some of my comments, 
regarding several Federal Reserve officials who have made 
transactions during the pandemic that I believe violated the 
Fed's ethics guidelines and may have violated the law.
    As you know, in February 2020, Fed Vice Chair Clarida 
traded between $1 million to $5 million out of a bond fund into 
stock funds. The next day, as you may know, Mr. Chairman, Fed 
Chair Powell issued a statement on the pandemic that was, ``the 
first step in a wide-ranging central bank rescue that would 
ultimately push up stock prices.'' We also learned that Robert 
Kaplan, the president of the Dallas Fed, and Eric Rosengren, 
the president of the Boston Fed, made major transactions 
involving securities and markets supported by the Fed during 
COVID. The Fed's own ethic guidelines state that officials 
should avoid, ``even an appearance of conflict between the 
personal interest, the interest of the system, and the public 
interest.''
    I want to ask you: These trades don't have, ``the 
appearance of a conflict''; in my opinion, they are a conflict 
of interest. Chair Gensler, are you aware of these three 
instances, and is the SEC looking into these transactions as 
potential insider trading?
    Mr. Gensler. Congresswoman, I hope I can speak to this in 
the generic, because it wouldn't be appropriate to speak about 
any individual circumstance, but we at the SEC have a broad 
remit, and it is one that you have put in place in Congress 
that we would pursue what is known as trading on material, 
nonpublic information, whether people are at a company or even 
if people are within other agencies, and we have done so in the 
past. We will continue to do so in the future to help protect 
the integrity of the markets.
    Ms. Tlaib. Chairman, so do you need an official letter from 
me to ask you to look into something? What do you need from me 
or from others? I know Senator Warren has been very public 
about some of the concerns, and I am telling you, the American 
people are very angry--it is [inaudible] where, again, they are 
in the position of public trust and folks are using that 
position for their own personal interests.
    Mr. Chairman, tell me what I need to do so I can get a, 
``yes,'' answer, that you are looking into these three 
instances?
    Mr. Gensler. Let me be precise. We, as an Agency, look into 
things that are brought to our attention on many matters, but 
we are not allowed, in this setting or in other settings, to 
say that we are investigating or are not investigating 
something. That is the thing that protects the public as well. 
But I want to say, generally speaking, whether somebody is in 
the government or outside of the government, one is not to 
trade on material, non-public information, and that is what our 
laws are about.
    And we pursue those. We have pursued them in the past when 
there have been members of the administrative or official 
sector, as well as even occasionally State and local actors in 
the official sector.
    Ms. Tlaib. Okay. Let me ask you in a different way. Would 
prohibiting government officials like Members of Congress, the 
President, or members of the Board of Governors from holding or 
trading individual stocks limit conflict of interest and 
potential insider trading?
    Mr. Gensler. I think that as a policy matter, Congress took 
up--at least Members of Congress, in an Act 8 or 10 years ago, 
if I remember correctly, that taking it up more broadly could 
help instill greater confidence in this. We are going to do 
what we do at the SEC, and do well, with regard to holding 
people to our laws as you would want, but Congress could do 
even more. There is public transparency that Congress has 
already put in place, public transparency that those of us in 
the official sector have to file--
    Ms. Tlaib. --by the time they file, we find out there was 
some conflicts or some obviously--that is the thing. Chairman 
Gensler, I want transparency in people filing. I am always 
about complying with that, but then what happens afterwards? We 
don't find out that they were held accountable, and then it 
continues and really taints our process to the point where 
people don't trust us anymore. And the chairwoman knows how 
incredibly passionate I am about this, but I don't think we 
should be allowing public officials to be trading stock, 
period. And, if you are going to be put in this position, that 
is a sacrifice you are going to have to make, because it is 
about the public's trust.
    And so I just appreciate--I hope it is relayed, but I do 
appreciate you coming before the committee, but I hope you do 
go back to your team and let them know that this Member from 
Michigan is very concerned in the hopes that you are 
investigating these three instances. Thank you.
    I yield back.
    Chairwoman Waters. Thank you very much.
    The gentlewoman from Texas, Ms. Garcia, who is also the 
Vice Chair of our Subcommittee on Diversity and Inclusion, is 
now recognized for 5 minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman.
    And thank you, Chairman Gensler, for being here with us 
today, and the end is in sight, the end is in sight. Thank you 
for your patience and your perseverance with us today. I 
appreciate the great work you have done so far in leading the 
SEC back in the direction of strong investor protection. The 
issues presented by crypto assets in stablecoins are far 
ranging, and while these discussions are evolving continually 
and there has been much discussion today, of course, I wanted 
to get some insight on how you and your colleagues at the SEC 
are framing the discussion.
    As of yesterday, The Block reported that the total 
stablecoin market is estimated to be worth $127 billion--I 
think you mentioned that--compare this between 2017 and 2019 
when the stablecoin market grew from $10 million to $5 billion. 
So, it has skyrocketed, as you noted, in the last couple of 
years. Despite the intricacies of stablecoins and their 
proposed merits, it is absolutely imperative that we recognize 
the systemic significance of this to the market.
    Chairman Gensler, in your August 5th letter to Senator 
Elizabeth Warren, you stated, ``In my view, the legislative 
priority should be center of crypto trading, lending, and DeFi 
platforms. Regulators would benefit from additional plenary 
authority to write rules for and attach guardrails to crypto 
trading and lending. ''
    Could you discuss a couple of examples of legislative 
measures you have in mind for protecting the financial 
sovereignty of our markets, particularly as it pertains to 
stablecoins?
    Mr. Gensler. As it pertains to stablecoins, I think that 
they have provided an alternative way to trade on these trading 
platforms, and they are intertwined inside of crypto trading 
around the globe. They initially came along around 8 years ago, 
frankly, so that not only to be efficient, but also to avoid 
some of the overseas--some of the anti-money laundering 
protections that were around the globe when these trading 
platforms were unable to get bank accounts at various banks 
around the globe.
    I think they have evolved now to be at the center of the 
trading and lending platforms and that it would be really 
helpful to work with Congress around these. Again, at one end 
of the spectrum, it might just be something digital around the 
digital dollar. Remember, we already have a digital dollar. It 
would be sort of misleading to say we don't, but this is 
something, an additional digital wrapper around the digital 
dollar, and the question is, what does it provide and how do we 
protect the public still for tax compliance, anti-money 
laundering, and financial stability?
    At the other end, they start to look like money market 
funds and how do we, the SEC, protect the public for investor 
protection and the like. I think that there is a range of these 
different coins, and even if they are all the way over on one 
end, we have to protect the public in terms of these, guarding 
against solicitous activity, tax, and financial stability. And, 
lastly, I do think that the platforms, the lending platforms, 
the crypto trading platforms where there are 5,000 or 6,000 
other cryptocurrencies, non-stablecoins, so to speak, are 
highly volatile, speculative, usually investment vehicles, we 
need to get our arms around that.
    Ms. Garcia of Texas. Thank you. I want to shift gears a 
little bit, too. I think you characterized it as human capital 
in your written remarks, and this committee has been advocating 
for the creation of Offices of Minority and Women Inclusion 
across all financial regulators. In 2018, the SEC asked almost 
1,500 of those entities regulated by the SEC to complete a 
voluntary diversity assessment. Only 5 percent responded to the 
request and submitted data.
    What are you in, the OMWI Office, doing to increase 
participation? Have you considered making these assessments 
yearly and mandatory or using some other inducement to 
encourage greater participation in these assessments?
    Mr. Gensler. Thank you for flagging that, and I do think 
that we could do better than the 5 percent, but what--we would 
have to sort of encourage and--shall we say--make it easier to 
participate. Separate from that, because that initiative is 
really important, but separate from that, we are also looking 
at investor demand to know more about the work forces of 
American companies or listed companies. This includes many 
overseas companies as well listed here. And in those 
disclosures, I have asked staff to consider whether we should 
also have this disclosure of the forms that are shared with the 
Department of Labor, the EEO1 diversity disclosure forms--
    Ms. Garcia of Texas. I am familiar with that. I have worked 
at the EEOC before, but would you consider doing them yearly 
rather than every other year?
    Mr. Gensler. I like that suggestion. Could I get back to 
you and work with staff and see because--
    Ms. Garcia of Texas. You are breaking up.
    Chairwoman Waters. Thank you very much.
    The gentlelady's time has expired.
    Ms. Garcia of Texas. Madam Chairwoman, he froze there for a 
minute. I didn't get his response clearly.
    Chairwoman Waters. Yes. You are way over time.
    Ms. Garcia of Texas. Okay. Thank you.
    Chairwoman Waters. Will you please follow up in writing?
    Ms. Garcia of Texas. Yes, ma'am. I will.
    I yield back. And I apologize.
    Chairwoman Waters. Thank you. The gentleman from Texas, Mr. 
Taylor, is now recognized for 5 minutes.
    Mr. Taylor. Thank you, Madam Chairwoman.
    Can you hear and see me?
    Mr. Gensler. I can see you, and I can see the Texas flag.
    Mr. Taylor. Okay. Thank you, Mr. Chairman. I appreciate 
this hearing, and the opportunity for us to discuss important 
issues, and I had wanted to talk about crypto, but I think that 
has been covered very well by my colleagues. So, I will skip 
ahead.
    In your opening remarks, you talked about the use of 
artificial intelligence (AI) and machine learning in the 
markets. Did I hear you correctly that you are using it at the 
Securities and Exchange Commission presently?
    Mr. Gensler. We have a really good analytics group, but I 
would say our use of machine learning is limited compared to 
the capital markets, which are really using them increasingly 
to even follow a hearing like this. Everything that we are 
saying could be followed by artificial intelligence for 
sentiment analysis and, depending upon how you or I speak, 
could be fed into the computers and to see whether markets move 
up or markets move down.
    But we have a very limited, at this stage, in 2021. I hope 
to do better in the future.
    Mr. Taylor. Are you using AI, and machine learning, in your 
stock watch, in your anti-insider trading efforts?
    Mr. Gensler. We are using data analytics, which I would 
rather not discuss in public, the data analytics we use. But I 
would say that we are at this stage, frankly, behind the 
capital market participants, the high-frequency trading shops, 
the big asset managers and their use of sophisticated data 
analytics like machine learning.
    Mr. Taylor. And the reason I ask this is that I was 
actually in New York yesterday--and of course, I am back in 
Texas today--meeting with Bloomberg. And they have an 
incredible data analytics operation in the valuation of bonds.
    And they are doing that as a market service, actually 
selling their service in terms of valuing bonds. And they have 
150 people working around the clock trying to value bonds, and 
they are tweaking a machine, AI, to figure out what is the 
proper value for a bond.
    And it seems to me that there are some applications for AI 
within the Federal Government. I think the Securities and 
Exchange Commission comes to mind.
    Have you given any thought to where you think you could 
expand the efficiency of your operation at the Securities and 
Exchange Commission, whether it is at stock watch? That is what 
comes to my mind, is the anti-insider trading operation where 
you are trying to track a tremendous [inaudible].
    Mr. Gensler. I think that there are multiple places. And I 
am sort of a finance person, a markets person, but I had this 
opportunity at MIT for a few years, and I really studied this 
more closely.
    I think we could use it not only in market surveillance, 
which is actually what you are talking about, market 
surveillance, but also throughout our examination, and 
potentially enforcement, where we can look at troves of data to 
look at patterns.
    What machine learning, what artificial intelligence is so 
good at is extracting patterns from data and finding those 
patterns in market surveillance or in other examination. And 
right now many--Bloomberg, as you mentioned--but many market 
participants are using it and using it to basically maximize 
their returns.
    I think we have a second thing at the SEC that we are 
looking at, which is how are platforms using it to engage with 
the public, and are they optimizing their revenues based upon 
the data, whether it is social media or elsewhere, but are they 
optimizing for their revenues?
    If they are optimizing for our engagement, that can be a 
positive, but it also can raise some conflicts if they are 
maximizing for their revenues rather than for the public's 
investment returns.
    Mr. Taylor. Sure, Chair Gensler. I look forward to working 
with you to identify areas where you can modernize the SEC, use 
AI, artificial intelligence, machine learning, to find better 
ways to do your job. Whether it is high-frequency trading, 
finding irregularities within markets, I think that is an 
important opportunity.
    And as you have so eloquently pointed out during this 
hearing, we enjoy the greatest capital markets in the world, 
and I think having a sophisticated SEC that is prepared to do 
its job and make sure that they have advanced tools to go do 
that only makes sense.
    With that, Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Massachusetts, Mr. Auchincloss, who is 
also the Vice Chair of the committee, is now recognized for 5 
minutes.
    Mr. Auchincloss. Thank you, Madam Chairwoman.
    And Chair Gensler, I appreciate your thoughtful answers and 
your persistence today. You are almost done.
    You have been very clear in your written and in your verbal 
testimony that you want to bring crypto into the basic bargain, 
as you describe it, where investors get to make their own 
decisions about how much risk they take on, and companies have 
to report consistent and decision-useful information. You want 
to bring crypto into that bargain.
    You have also been clear that you think most of the major 
crypto players have at least some elements of their businesses 
that are securities and should operate on that default 
assumption, and that you would like each of these crypto actors 
to be coming to speak with the SEC on a one-on-one basis to get 
feedback from you, and also, I think from what you have said, 
to give you feedback on what kind of regulations make sense.
    I think everything that you have outlined sounds like a 
reasonable way to approach a nascent, promising industry. I 
think we are reaching a tipping point, though, where we need 
more stable, broad-based law that does not require a phone call 
with the Chairman of the SEC, but that a startup with their 
counsel can understand the risks that they are getting into 
from a regulatory perspective. And so, from that end, we need 
Congress to act.
    My question to you is, would it be most helpful for 
Congress to create and delineate a new class of security that 
had a separate regulatory apparatus, or would it be most useful 
for Congress to divide explicitly crypto assets between the 
CFTC and the SEC?
    Mr. Gensler. I think, actually, the laws are pretty clear 
with regard to these and that those entrepreneurs and their 
lawyers could look. And they don't even have to squint. They 
can look. The Supreme Court has really said what is an 
investment contract.
    In terms of your question, I think that between the CFTC 
and SEC, we have good authorities. Chair Behnam and I have been 
talking a lot about how we can coordinate better.
    I don't think there is a need to set something new up, but 
I do think that if something is a security, people have raised: 
Well, but can we follow everything that was written for 
traditional bonds and stocks?
    And so, we want to hear that. We want to think about that, 
and Congress would probably want to think about that as well.
    I would add a cautionary note: If Congress were to carve 
something out of the securities law, it could also undermine 90 
years of economic success and undermine the 7,000-plus issuers 
now who would say, well, wait a minute, there is regulatory 
arbitrage. Somebody else is raising money in the capital 
markets, operating like a security, but they have a different 
regime.
    Mr. Auchincloss. I fear that, but then I guess I would come 
back to you, because I have been listening this whole hearing, 
and I haven't really heard an ask from you about what Congress 
can do to make your job easier as it comes to regulating 
crypto.
    I think you and I are in agreement that we need to regulate 
crypto. I agree with you just intuitively that a new regulatory 
agency doesn't sound like it makes a whole lot of sense. I 
believe you that a lot of the law is settled if entrepreneurs 
and their counselors would examine it in good faith. But there 
clearly are gray areas, and businesses, and especially 
investors, don't like uncertainty. They deserve some certainty. 
So, how can we help you?
    Mr. Gensler. Let me raise two areas, I think.
    One is with regard to stablecoins, the stablecoins that are 
all the way over this end that are really just investing in 
cash, not operating more like a money market fund.
    I know, and I let them speak for themselves, but my 
colleagues, the bank regulators, think there is more that we 
can do with Congress' help on that end of the spectrum in terms 
of stablecoins. Even the ones that are all the way over and 
operating more like money funds have to be taken into 
consideration.
    I think in terms of working with the CFTC and the SEC, we 
have robust authorities over exchanges, over somebody that is 
trading securities on their platforms. The CFTC does not. They 
are a derivatives regulator, but they have enforcement 
authorities over commodities.
    What happens when we have a platform that has a few 
commodities but mostly securities on it and the coordination 
between the two of us and that oversight, and also authorities 
in that regard? There are many, I would say, secondary and 
third-level issues as well.
    Mr. Auchincloss. I appreciate that.
    And then, just a final point before I run out of time, we 
have heard some colleagues on the Republican side of the aisle 
talk about ESG investing, and they are worried that it is 
getting politicized. I think one of them mentioned the debate 
about climate change.
    I would just say for the record that there is a debate 
about climate change to the extent that there is a debate about 
evolution by natural selection. You can debate it, but the 
science is clear. And I think what your Agency is doing by 
making ESG more transparent and market actionable is important 
and should be continued.
    Madam Chairwoman, I would like to yield back my time. And I 
would like to request unanimous consent to include in the 
hearing record a letter from the Investment Adviser Association 
and the National Association of Personal Financial Advisors.
    Chairwoman Waters. Without objection, it is so ordered.
    Thank you very much.
    Are there any Members on the platform who were not 
recognized because of their absence early on, and they have 
returned now?
    If not, I would like to thank our distinguished witness for 
his testimony today.
    And without objection, letters from the North American 
Securities Administrators Association, the Council of 
Institutional Investors, the California Public Employees' 
Retirement System, and the Consumer Federation of America will 
all be included in the record.
    Without objection, it is so ordered.
    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.
    I ask Chair Gensler to please respond as promptly as you 
are able.
    I would also like to thank Chair Gensler for the time that 
he has given to us today and for the way that he has shared 
information that has been so important to all of our Members.
    Mr. Gensler. Thank you, Madam Chairwoman.
    Chairwoman Waters. And I thank you all so very much.
    This hearing is adjourned. Thank you.
    [Whereupon, at 4:07 p.m., the hearing was adjourned.]

                            A P P E N D I X

                           October 5, 2021
                           
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