[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                        OVERSIGHT OF THE SECURITIES
                          AND EXCHANGE COMMISSION

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 27, 2023

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 118-49
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                               __________

                   U.S. GOVERNMENT PUBLISHING OFFICE                    
54-314 PDF                  WASHINGTON : 2024                    
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

               PATRICK McHENRY, North Carolina, Chairman

FRANK D. LUCAS, Oklahoma             MAXINE WATERS, California, Ranking 
PETE SESSIONS, Texas                     Member
BILL POSEY, Florida                  NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         BRAD SHERMAN, California
BILL HUIZENGA, Michigan              GREGORY W. MEEKS, New York
ANN WAGNER, Missouri                 DAVID SCOTT, Georgia
ANDY BARR, Kentucky                  STEPHEN F. LYNCH, Massachusetts
ROGER WILLIAMS, Texas                AL GREEN, Texas
FRENCH HILL, Arkansas, Vice          EMANUEL CLEAVER, Missouri
    Chairman                         JIM A. HIMES, Connecticut
TOM EMMER, Minnesota                 BILL FOSTER, Illinois
BARRY LOUDERMILK, Georgia            JOYCE BEATTY, Ohio
ALEXANDER X. MOONEY, West Virginia   JUAN VARGAS, California
WARREN DAVIDSON, Ohio                JOSH GOTTHEIMER, New Jersey
JOHN ROSE, Tennessee                 VICENTE GONZALEZ, Texas
BRYAN STEIL, Wisconsin               SEAN CASTEN, Illinois
WILLIAM TIMMONS, South Carolina      AYANNA PRESSLEY, Massachusetts
RALPH NORMAN, South Carolina         STEVEN HORSFORD, Nevada
DAN MEUSER, Pennsylvania             RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York
ANDREW GARBARINO, New York           SYLVIA GARCIA, Texas
YOUNG KIM, California                NIKEMA WILLIAMS, Georgia
BYRON DONALDS, Florida               WILEY NICKEL, North Carolina
MIKE FLOOD, Nebraska                 BRITTANY PETTERSEN, Colorado
MIKE LAWLER, New York
ZACH NUNN, Iowa
MONICA DE LA CRUZ, Texas
ERIN HOUCHIN, Indiana
ANDY OGLES, Tennessee

                     Matt Hoffmann, Staff Director
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 27, 2023...........................................     1
Appendix:
    September 27, 2023...........................................    81

                               WITNESSES
                     Wednesday, September 27, 2023

Gensler, Hon. Gary, Chairman, Securities and Exchange Commission 
  (SEC)..........................................................     4

                                APPENDIX

Prepared statements:
    Gensler, Hon. Gary...........................................    82

              Additional Material Submitted for the Record

Donalds, Hon. Byron:
    ``Retail Investors-Curiously-Jump Into SEC Activist Battle,'' 
      dated July 13, 2023........................................    94
Garcia, Hon. Sylvia:
    Chart of Securities and Exchange Commission Chair History....   101
Hill, Hon. French:
    Letter to Hon. Charles Schumer, Senate Majority Leader; Hon. 
      Mitch McConnell, Senate Republican Leader; Hon. Kevin 
      McCarthy, Speaker of the House; and Hon. Hakeem S. 
      Jeffries, Minority Leader of the House, from the States of 
      Arkansas, Florida, Georgia, Kentucky, Iowa, South Carolina, 
      Utah, and West Virginia supporting the Protecting 
      Investors' Personally Identifiable Information Act, dated 
      August 15, 2023............................................   102
    Editorial from The Wall Street Journal, ``The SEC Wants to 
      Spy on Your Portfolio,'' dated September 24, 2023..........   108
Lucas, Hon. Frank D.:
    Letter to SEC Chair Gary Gensler from various Members of 
      Congress, dated July 12, 2023..............................   110
Nunn, Hon. Zach:
    Letter to SEC Chair Gary Gensler from Hon. John Boozeman, 
      Hon. Glenn ``GT'' Thompson, Hon. Debbie Stabenow, and Hon. 
      David Scott, dated July 20, 2023...........................   112
    Letter to SEC Chair Gary Gensler from various trade groups, 
      dated September 12, 2023...................................   114
Pettersen, Hon. Brittany:
    Bloomberg, ``How Fake AI Photo of a Pentagon Blast Went Viral 
      and Briefly Spooked Stocks, '' dated September 5, 2024.....   119
Rose, Hon. John:
    Letter to SEC Chair Gary Gensler from various Members of 
      Congress, dated May 1, 2023................................   124
Tlaib, Hon. Rashida:
    Letter to SEC Chair Gary Gensler from various Members of 
      Congress, dated September 26, 2023.........................   128
Gensler, Hon. Gary:
    Written responses to questions for the record from 
      Representative Donalds.....................................   171
    Written responses to questions for the record from 
      Representative Fitzgerald..................................   182
    Written responses to questions for the record from 
      Representative Foster......................................   208
    Written responses to questions for the record from 
      Representative Garbarino...................................   194
    Written responses to questions for the record from 
      Representative Gottheimer..................................   205
    Written responses to questions for the record from 
      Representative Himes.......................................   212
    Written responses to questions for the record from 
      Representative Lawler......................................   174
    Written responses to questions for the record from 
      Representative Loudermilk..................................   168
    Written responses to questions for the record from 
      Representative Meuser......................................   187
    Written responses to questions for the record from 
      Representative Mooney......................................   200
    Written responses to questions for the record from 
      Representative Nickel......................................   208
    Written responses to questions for the record from 
      Representative Nunn........................................   176
    Written responses to questions for the record from 
      Representative Sherman.....................................   204
    Written responses to questions for the record from 
      Representative Steil.......................................   199
    Written responses to questions for the record from 
      Representative Timmons.....................................   170
    Written responses to questions for the record from 
      Representative Velazquez...................................   205
    Written responses to questions for the record from 
      Representative Wagner......................................   136

 
                      OVERSIGHT OF THE SECURITIES
                        AND EXCHANGE COMMISSION

                              ----------                              


                     Wednesday, September 27, 2023

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:08 a.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick McHenry 
[chairman of the committee] presiding.
    Members present: Representatives McHenry, Lucas, Sessions, 
Posey, Luetkemeyer, Huizenga, Wagner, Barr, Williams of Texas, 
Hill, Emmer, Loudermilk, Davidson, Rose, Steil, Timmons, 
Norman, Meuser, Fitzgerald, Garbarino, Kim, Donalds, Flood, 
Lawler, Nunn, De La Cruz, Houchin, Ogles; Waters, Sherman, 
Meeks, Scott, Lynch, Green, Cleaver, Himes, Foster, Beatty, 
Vargas, Gottheimer, Gonzalez, Casten, Pressley, Horsford, 
Tlaib, Torres, Garcia, Nickel, and Pettersen.
    Chairman McHenry. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``Oversight of the Securities 
and Exchange Commission.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Welcome back, Chairman Gensler. The last time you were 
before this committee, I voiced my concerns regarding your 
reckless approach to rulemaking, including the lack of a 
capital formation agenda, a crusade against the digital asset 
ecosystem, and unresponsiveness to Congress. Many things have 
changed, but so many things remain the same. Those are the same 
issues on the docket today. This means that in the last 5 
months, you have done nothing to remedy the legitimate and 
often bipartisan concern expressed by this committee and these 
committee members, and it is disgraceful. So, let's run through 
them again.
    Let me be clear, Chairman Gensler, our patience is wearing 
thin. First, the Securities and Exchange Commission's current 
approach to rulemaking jeopardizes the integrity of our 
financial markets and puts investors at risk. There is a 
critical need for comprehensive economic analysis of the rules 
you have proposed and their interaction with one another. Under 
your leadership, the Commission has failed to adequately assess 
their interplay and cumulative impact. That is shoddy work for 
an important agency and does not adhere to the SEC's mandatory 
statutory authority.
    While the Securities and Exchange Commission has engaged in 
a wide-ranging regulatory agenda, you seem to have overlooked 
the importance of public input, resulting in bipartisan and 
bicameral concerns.
    First, Members on both sides of the aisle have raised valid 
concerns regarding the Markets in Financial Instruments 
Directive (MiFID) relief, swing pricing, and hard close, as 
well as your equity market structure overhaul. The Securities 
and Exchange Commission has taken no action to address these 
concerns.
    Second, you continue to fail to prioritize capital 
formation. Among your expansive rulemaking agenda, there is not 
a single initiative aimed at improving access to capital or 
enhancing market competitiveness.
    Third, your efforts to choke off the digital asset 
ecosystem, which has created real harm for consumers and our 
markets overall. You said the law is clear, but your actions 
have created more confusion and lasting damage. Chair Gensler, 
you have also said your goal is consumer protection, yet your 
actions have pushed legitimate digital asset activities outside 
of regulated financial institutions where consumers are best-
protected.
    On one hand, we have seen bipartisan votes in Congress and 
in this committee to provide clear rules of the road and real 
consumer protection, and on the other, we have seen your ad 
hoc, regulation-by-enforcement approach to digital assets on a 
losing streak in the courts. You refuse to be transparent with 
Congress regarding your interactions with FTX and Sam Bankman-
Fried. That is the investigation we started last Congress.
    Finally, your lack of responsiveness to this committee's 
legitimate oversight continues to be unacceptable, and I want 
to finish here. In February, this committee made multiple 
requests for documents to the Securities and Exchange 
Commission. This is normal congressional oversight. Yet, 7 
months later, the committee has not received a single non-
public document that was not part of a Freedom of Information 
Act (FOIA) production. As I said, our patience is wearing thin. 
The SEC is not above the law nor is it unique. Other financial 
regulators have routinely complied with congressional 
oversight, so let me be clear: I do not want to be the first 
chairman of this committee to issue a subpoena to the 
Securities and Exchange Commission, and you should not want to 
be the first SEC Chair to receive a congressional subpoena.
    Either we find a path forward where the SEC recognizes 
Congress as a co-equal branch of government and is responsive 
to our oversight duties, or my only option is to issue a 
subpoena. It is time for you to consider the lasting 
consequences of your actions and what that means to the 
Securities and Exchange Commission's reputation in the long 
term. While your time in this role may be temporary, the 
repercussions for your actions may be permanent for the sgency. 
I yield back.
    I now recognize the ranking member of the committee, Ms. 
Waters, for 4 minutes for an opening statement.
    Ms. Waters. Good morning. The chairman just indicated that 
his patience is running thin. Mine is thinner with the opposite 
side of the aisle and the extreme MAGA Republicans who have 
taken over the House of Representatives and who are gleefully 
forcing the government of the greatest country in the world to 
shut down and forcing millions of government workers, including 
U.S. servicemembers protecting the country, to work for free or 
not at all. Likewise, in 3 days, the Securities and Exchange 
Commission, which is in charge of overseeing our $110-trillion 
capital markets, will also be shuttered. This extreme MAGA 
shutdown would cripple the SEC's ability to stop fraud, help 
businesses raise money, or finalize rules that are critical to 
investors, but you won't hear the Republicans today express any 
concern about the SEC or the countless businesses, workers, or 
investors that may be harmed when Republicans unilaterally 
defund Wall Street's cop on the beat.
    Chair Gensler, I know that you and your agency are likely 
concerned about what will happen later this week. I, too, am 
concerned. Earlier this year, we saw Fitch downgrade the U.S. 
credit rating after Republicans tried to force a default, and 
now Moody's is also considering downgrading the U.S. rating if 
Republicans and Trump get the shutdown they so desperately 
want. I hope we can discuss today how undermining the SEC's 
mission by furloughing 90 percent of your staff will affect 
this country and your ability to protect our markets.
    That said, I want you to know that you are doing exactly 
the job that the American people want. Under your leadership, 
the SEC is providing investors with the information they need 
to evaluate climate change risk, you are reforming the stock 
market, which failed investors during the GameStop trading 
event, and you are working to empower investors to exercise 
their votes over companies they own.
    I am also pleased to see that you are finalizing rules that 
will bring transparency to private funds, like private equity 
funds, and although Republicans will likely claim that the SEC 
is implementing too many rules, too quickly, the fact is that 
you are moving thoughtfully and effectively. In fact, your SEC 
has issued fewer rules than the Trump, Obama, and Bush 
Administrations at this point in their tenure, and you have 
provided twice as much time to comment than is required by law. 
The SEC is very much implementing the priorities that I and my 
Democratic colleagues championed when we were in charge and is 
shaping up to be the most pro-worker, pro-investor, and pro-
small business SEC since FDR created the agency.
    Chair Gensler, I appreciate that you are here today, even 
as you and your staff prepare to close the agency. I hope that 
if nothing else comes of this hearing, the American people will 
understand that this extreme MAGA Republican shutdown is the 
biggest threat to our nation's investors, small businesses, and 
working families. My patience is wearing thinner than the 
chairman's patience. Let's get on with it. I yield back.
    Chairman McHenry. The ranking member yields back. The Chair 
now recognizes the gentlelady from Missouri, Mrs. Wagner, who 
is also the Chair of our Subcommittee on Capital Markets, for 1 
minute.
    Mrs. Wagner. Thank you, Chairman McHenry. Yes, let's get on 
with it. The SEC's mission is to protect investors; maintain 
fair, orderly, and efficient markets; and to facilitate capital 
formation. Unfortunately, your leadership has undermined these 
core objectives, sir. None of the 50-odd proposals that your 
SEC has proposed promote capital formation. Instead, the focus 
has shifted towards imposing costly regulatory and disclosure 
requirements, and equally troubling, potential violations of 
the Administrative Procedure Act (APA), as recent SEC proposals 
lack a comprehensive analysis of market dynamics and their 
consequences, especially for SEC rules that have been changed.
    Here is the way forward, sir: one, begin with a robust 
engagement with market participants to shape your thinking 
before proposing rules; two, conduct investor testing; three, 
conduct economic analysis looking not just at the individual, 
but the cumulative; and four, do not ignore Congress when we 
send bipartisan letters expressing concerns about detrimental 
effects of the proposals. We need market integrity. I yield 
back.
    Chairman McHenry. The gentlelady's time has expired. I will 
now recognize the ranking member of our Capital Markets 
Subcommittee, Mr. Sherman of California, for 1 minute.
    Mr. Sherman. Mr. Gensler, you have done more than anyone in 
government to thwart the creation of a deficient ecosystem that 
would allow corrupt politicians to not have to have hundreds of 
thousands of dollars of cash and gold bars in their home where 
they could be discovered by the FBI. You prevented a system 
where we could have anonymous unhosted wallets, providing an 
efficient method for the corrupt politicians of the future. You 
are providing additional regulations which provide clarity to 
the market participants and protect investors, but according to 
a Bloomberg study, you are actually producing fewer regulations 
than your recent predecessors. You are generally right, we 
accept swing pricing, and finally, ESG is material to 
investors. It will affect trillions of dollars of investment 
decisions. That is why corporate America is trying to prevent 
you from getting that information to the investors who want 
to----
    Chairman McHenry. The gentleman's time has expired. We will 
now turn to our witness.
    I now recognize the Honorable Gary Gensler, the Chair of 
the Securities and Exchange Commission, for 5 minutes for an 
oral presentation of his testimony. And without objection, his 
written statement will be made a part of the record.
    Chair Gensler, you are now recognized for 5 minutes.

 STATEMENT OF THE HONORABLE GARY GENSLER, CHAIRMAN, SECURITIES 
                 AND EXCHANGE COMMISSION (SEC)

    Mr. Gensler. Good morning, Chairman McHenry, Ranking Member 
Waters, and members of the committee. Thank you for inviting me 
here today. As is customary, I would like to note that my views 
are my own as the Chair of the SEC, and I am not speaking on 
behalf of my fellow Commissioners or the SEC staff.
    For 90 years, the Federal securities laws and our work to 
oversee them have played a crucial role for the public both in 
good times and in stress times. The core principles of the U.S. 
securities markets regulation have contributed to America's 
economic success and geopolitical standing. At this remarkable 
agency, we serve investors building for a better future and 
issuers raising money to fund innovation, while overseeing the 
$100-trillion capital markets where investors and issuers meet. 
The essence of this is captured in our three-part mission: 
protecting investors; maintaining fair, orderly, and efficient 
markets in the middle; and facilitating capital formation, as 
Chairwoman Wagner mentioned earlier and Chairman McHenry.
    The SEC is the cop on the beat watching out for 
constituents. The dedicated staff of the agency does an 
extraordinary job with limited resources. America is blessed 
with the largest, most sophisticated, and most innovative 
capital markets in the world, but we cannot take this for 
granted. Even a gold medalist must keep training. That is why 
we are updating our rules for the technology and business 
models of the 2020s. My written testimony details those 
efforts, and I am sure I will get questions on this rule or 
that rule, but I would like to just point out, overall, a 
context.
    We are updating our rules to promote the efficiency, 
integrity, and resiliency of the markets in the middle, and 
that helps capital formation on one side, and investors on the 
other. And we do so with an eye on those investors and issuers 
and making sure the markets work for them rather than issuers 
and investors working for Wall Street and the markets in the 
middle.
    We are working to help lower costs, increase access, and 
promote financial stability, and each of the proposals we have 
made in the last 2 years further this three-part mission, given 
the authorities granted by Congress, and our Division of 
Economic and Risk Analysis provides robust economic analysis, 
which considers the cost and benefits as well as effects on 
efficiency, competition, and capital formation as Congress 
mandated. We greatly benefit also from public input regarding 
economics.
    The policies themselves are legal authorities, and we get 
that feedback. And in the last 2 years, we provided the public 
ample time to comment, with an average of 70 days to comment 
from the time the proposal is published. And since January of 
last year, 2022, we have always had a minimum of 60 days from 
when it is on our website, and sometimes as long as 100 days. 
When comment periods close, we often continue to get additional 
comments through meetings and otherwise, which staff has 
considered as well, including really helpful letters from 
members of this committee.
    Based on the public feedback, the staff and the Commission 
consider possible adjustments to the proposals and whether it 
is appropriate to move forward with the final rule. This 
process normally takes 12 to 24 months, and we move to adopt 
rules only when the staff and the Commission think they are 
ready to be considered. We are focused on getting it right 
based upon the economics, and the authorities promoting the 
mission, not against the clock. The SEC now has issued 
proposals for most of that unified agenda 2 years ago. We 
finalized 24 rulemakings, nearly all of which have changed from 
the proposals based on the public feedback, including from 
members of this committee. I am grateful to work alongside a 
remarkable staff and fellow Commissioners to promote 
efficiency, integrity, and resiliency.
    With the possibility of a government shutdown, I would 
note, as you are our oversight committee, that we would be down 
to a small, skeleton staff, about 7 to 8 percent of our staff, 
with everybody else being furloughed. Normal oversight of the 
markets, given this, will not be possible in the SEC during the 
pendency of a shutdown, so we look forward to the day when we 
can get back to work, hopefully, and fulfill our mission in 
support of the public. Thank you.
    [The prepared statement of Chair Gensler can be found on 
page 82 of the appendix.]
    Chairman McHenry. The gentleman yields back. I will now 
recognize myself for 5 minutes for questions.
    Chair Gensler, the last time we were here, I asked you 
about Ether. In 2018, you said that Bitcoin, Ether, Litecoin, 
and Bitcoin cash were not securities, so I want to focus today 
on Bitcoin. Why do you believe bitcoin is not a security?
    Mr. Gensler. Thank you, Mr. Chairman, and I think you are 
referencing remarks I made as a professor at MIT. And as I 
wrote in that paper, at that time, it was really about 
something called the Howey Test. And the Supreme Court, as the 
law of the land, talks about if the public is anticipating a 
profit based on the efforts of others. And I think I noted in 
that paper back in 2018 that I didn't see that Bitcoin met that 
standard.
    Chairman McHenry. But your review on Bitcoin--you have made 
comments that you believe Bitcoin is not a security. Is that 
true?
    Mr. Gensler. I think the staff of the SEC have also and the 
prior Chair----
    Chairman McHenry. I am just asking you this question, and 
this is not a, ``gotcha.'' I thought this was going to be an 
easy softball into harder questions. Do you think Bitcoin is a 
security?
    Mr. Gensler. I think I have said in the past that I think 
that----
    Chairman McHenry. I am asking you to answer my question 
now. This is not supposed to be hard.
    Mr. Gensler. I know. I said it does not meet the Howey 
Test, which is the law of the land about being an investment--
--
    Chairman McHenry. It doesn't meet the Howey Test, so, 
therefore, it is a commodity. Is that fair?
    Mr. Gensler. I would say it is not a security, and the test 
is otherwise for other laws.
    Chairman McHenry. The Commodity Futures Trading Commission 
(CFTC) says they don't have the authority over Bitcoin and 
digital commodities. Do you think legislation is necessary to 
protect consumers in the world of digital assets, in 
particular, given that gap around just Bitcoin?
    Mr. Gensler. I think as I have testified here in this 
committee room 4 years ago as a private citizen, that for the 
parts of the crypto ecosystem that are not securities under the 
Commodity Exchange Act, the CFTC has some anti-fraud 
authorities. They don't have what is called plenary authority 
to write rules around that, and as I have said in the past--I 
have been supportive of our sister agency, if I can say that, 
an agency that I once was honored to chair and I liked quite a 
bit--doesn't have that plenary authority. And if Congress moves 
forward, that can help them.
    Chairman McHenry. So, the spot market lacks a regulatory 
paradigm and established law? Should we take action there?
    Mr. Gensler. I'm sorry. I am not sure I follow. The U.S. 
stock market, you are talking about the securities market?
    Chairman McHenry. No, the CFTC. I am continuing with your 
answer. My follow-up there was because there is not a 
regulatory remit. The Congress has given them clear regulatory 
remit. We should step in--let me just move on. I have talked 
about your noncompliance with document requests made by this 
committee. You believe the Commission must vote in order to 
produce nonpublic information to this committee, do you not?
    Mr. Gensler. Under the Exchange Act, I do believe that the 
Commission needs that vote.
    Chairman McHenry. Okay. Have you scheduled the vote 
necessary to provide the non-public documents to this 
committee?
    Mr. Gensler. We, I think, have been working with your staff 
and believe in the oversight of this committee. We have 
provided somewhere over 40,000 payments documents.
    Chairman McHenry. Yes. As I said in my opening statement, 
you did not provide anything that was nonpublic. In fact, you 
produced one of the letters that we wrote to you as a 
responsive document, which shows the absurdity of it.
    So, the General Counsel's office has indicated to my staff 
that after a 10-week review process, these documents are ready 
to be transmitted. It just needs a vote. When do you intend to 
schedule that vote?
    Mr. Gensler. We continue to work with you and your staff. 
The Commission has approved that some senior staff will be 
taking transcribed interviews, I think, with your staff and 
we----
    Chairman McHenry. But that is not responsive to my document 
request. This should not be the hard work of a chairman to 
answer these questions. You have 30 major rulemakings, but you 
won't even provide basic documents to us. Your unresponsiveness 
is noncompliance, and we will have to take action if you are 
not willing to comply. You have a 10-week review process, and 
you have not provided documents. Furthermore, you haven't even 
done the economic analysis of your interplay of these major 
rulemakings that are going to affect anybody who owns a stock, 
bond, or any type of security.
    So, you have serious questions to answer to the public and 
to Congress, and we intend to get your compliance. We can do it 
the easy way or the hard way.
    And with that, I yield back. The ranking member is now 
recognized for 5 minutes.
    Ms. Waters. Thank you very much. There are a number of 
questions that I would like to ask, but since we started out on 
Bitcoin, let's go further into crypto. Chair Gensler, I have 
heard you often say there is mass noncompliance by crypto firms 
in the marketplace today. I am very concerned with what sounds 
like gross violations of the law that end in investors getting 
ripped off. The failures and fraud of crypto firms like Terra 
Luna, for example, cost investors as much as $60 billion, which 
was larger than the Madoff Ponzi scheme in 2008. I know that 
the SEC has brought enforcement actions against Sam Bankman-
Fried and FTX, the failure of which caused investors $9 
billion.
    Since we are talking about everything today, can you please 
describe the actions that the SEC has taken to shut down crypto 
firms and recover funds of our harmed investors? How much in 
penalties have defendants paid, in cases you have set up? Are 
crypto firms getting the message?
    Mr. Gensler. Thank you. I do share your concerns that this 
is a field that is rife with fraud and manipulation and scams, 
and the American public is still getting hurt by the 
noncompliance in this field. In terms of the SEC's approach, it 
is through both policy and rulemaking, and, yes, enforcement. 
The SEC had finalized rules with regard to Special Purpose 
Broker-Dealers (SPBDs) in crypto, and we also addressed 
questions that came up about crypto exchanges, the custody of 
crypto in a custody rule that I imagine we will chat a little 
bit about later today, and even best execution. But 
unfortunately, as you noted, we have brought numerous cases in 
this field to try to protect the American public and be a cop 
on the beat with regard to so many of these schemes.
    Ms. Waters. Thank you very much. I just wanted to make sure 
that the opposite side of the aisle, who protects too often, in 
too many different ways, crypto firms, knows what you are 
doing.
    Let me move on. I am going to ask a few questions about the 
impact of the government shutdown on the SEC's operation. Chair 
Gensler, approximately how many people work at the agency, and 
what percentage will be furloughed during a government 
shutdown?
    Mr. Gensler. We have just under 5,000 employees, and 
probably 92 or 93 percent will be furloughed, so we will be 
down to a skeleton staff.
    Ms. Waters. Which divisions would most be impacted, and 
describe for us what these divisions do?
    Mr. Gensler. It is really across the whole agency, but the 
bulk of our workforce is in examinations and enforcement and 
disclosure review, but let me say what the public won't have: 
They won't have somebody really at full force overseeing the 
market. For companies that want to go public, we won't be able 
to really review the documents or what is called documents 
going effective if you want to do an initial public offering 
(IPO), which is so critical to capital formation. I want to say 
this for the public. We will keep open our tips, complaint, and 
referral lines, and we will keep open comment files so people 
can still submit comments on our rulemakings and the like, but 
we won't really have individuals behind the scenes to follow 
up, except for a skeleton staff.
    Ms. Waters. I, too, am worried about public offerings. I 
have worked with the opposite side of the aisle to improve the 
ability of those who want to do IPOs, but as you explain it, 
this will have a negative impact, this shut down, on the 
ability of IPOs to be initiated. Is that correct?
    Mr. Gensler. I think that is just a practical reality, yes.
    Ms. Waters. What happens if a whistleblower comes to the 
Commission with urgent information that could protect 
investors? Would there be staff to process this? Could the 
Commission deploy resources in response to this information?
    Mr. Gensler. Although we will be able to do intakes, there 
won't be the usual investigative force of individuals to follow 
up as readily unless it is an emergency and it is specifically 
about protection of property.
    Ms. Waters. What will happen if there is a major disruption 
in the capital markets' operations and infrastructure during 
this shutdown? Could the SEC be there to respond?
    Mr. Gensler. It is a very good question. If there were 
market events, as you say, senior leadership would be there, 
but again, we would be down to a skeleton staff.
    Chairman McHenry. The gentlelady's time has expired.
    Ms. Waters. Thank you.
    Chairman McHenry. I will now go to the Vice Chair of the 
committee, Mr. Hill of Arkansas, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman. Mr. Gensler, it is good 
to have you here. I want to start out today and talk about 
equity market structure as a topic. Just yesterday, Congressman 
Foster and I sent you a letter signed by 16 Democrats and 16 
Republicans to express our concerns about the equity market 
structure proposals that the Commission has initiated. The 
letter urges you, quite simply, to stop your rulemaking on that 
broad set of proposals until you finalize the trade execution 
data rule, the so-called Rule 605, and that that be done first 
so that you can rely on that data for an appropriate 
rulemaking.
    And this speaks to Chairman McHenry's point about the 
interplay between the rules, which, contrary to the ranking 
member, I think there are 50 pending proposals. Many of them 
interact. They are confusing and sometimes in conflict with 
each other, and I think this is a classic example. And I think 
it is particularly true where you are failing to do a rigorous 
cost-benefit analysis for many of the rules. For instance, the 
SEC's dealer proposal, which uses the word, ``uncertain,'' 15 
times to describe its impact on efficiency and competition for 
the most important financial market in the world: U.S. 
Treasuries.
    So, Chairman Gensler, I would just say that this is not 
MAGA Republicans who are sending you a critical letter of 
concern, it is a very bipartisan view, and 32 Members of this 
body that think the SEC should reconsider. Would you wait for 
the Rule 605 data before you finish the other equity market 
proposals?
    Mr. Gensler. I thank you for the letter. I did read it last 
night around 9:30 when it came in, and it is part of our 
comment file, and we will take it and think of it very 
seriously. But I would say, in terms of the equity markets, the 
rules have largely not been updated since 2000.
    Mr. Hill. That may be, but that means that we need to do it 
in a comprehensive way, in an interoperative way to make sure 
we have the right data. So, I will take it that your short 
answer is, no, that it is a comment, but I really urge you to 
get these equity markets' proposals in order and to rely on 
data and not just emotion or one memes talk event to make 
policy.
    Let me change subjects. Let me talk about my favorite kitty 
cat, which is the Consolidated Audit Trail (CAT). For over a 
decade, this bad idea has been floating around the Commission 
since the flash crash in 2010, to collect and store private, 
personal information on every American, and every American with 
a brokerage account, and every broker-dealer. In my view, this 
is massive overkill. This is an unnecessary invasion of 
privacy. This is a massive new tax on the brokerage accounts of 
individual American citizens. And maybe worst of all, 
considering the 9 years I have been here, this is another 
massive, centralized government database that is going to be 
hacked, like the IRS, like the CFPB, and like OPM. I have real 
concerns about it, and I expressed those concerns to previous 
SEC Chairs Mary Jo White and Jay Clayton, and now to you. In 
fact, you inherited this albatross. Why don't you just bury it 
and say that we are not going to do the CAT?
    Mr. Gensler. I not only inherited that from them, but I 
inherited from my dad, a real allergy to cats, and it is 
really----
    Mr. Hill. Oh my god.
    Mr. Gensler. Oh my god.
    Mr. Hill. Yes, but we don't have time for that. I am 
reclaiming my time. We can do the kitty part later. Do you know 
what a targeted exam letter is by the Financial Industry 
Regulatory Authority (FINRA)? Do you know what that is?
    Mr. Gensler. I am familiar with exam letters.
    Mr. Hill. Yes, and do you know what a Blue Sheet is?
    Mr. Gensler. Sure, I am generally familiar--I don't know 
where you are headed, but I am generally familiar with it.
    Mr. Hill. And you know that all of our markets have 
regular, daily, inter-day, and overnight global market 
surveillance on trading, right? That is a general feature of 
all of our self-regulatory organizations (SROs), right? Do you 
agree with that?
    Mr. Gensler. SROs are responsible to do that, sir.
    Mr. Hill. Yes, I understand that, and you regulate the 
SROs. So what I am suggesting to you is, there is no 
justification for capturing all of these trades when you have, 
right now, market surveillance data available to your 
Enforcement Division. And you can right now do a sweep exam 
through a Blue Sheet, which is where you go to large traders 
and you look at everybody who traded in Apple, you can get all 
the personally identifiable information (PII) you want because 
you have a probable cause for doing that, and that is why CAT, 
I think, exceeds what you should be doing. Why is the Blue 
Sheet targeted exam process inadequate for you to do your job?
    Mr. Gensler. I think you raise a good question, but the 
Consolidated Audit Trail gives the self-regulatory 
organizations and the SEC a look at those orders and matches up 
sometimes across.
    Mr. Hill. They have the ability to do that now. They don't 
need to capture every trade in every retail brokerage account 
in America. Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman yields back. I will now 
recognize the gentleman from California, Mr. Sherman, who is 
also the ranking member of our Capital Markets Subcommittee.
    Mr. Sherman. As the chairman points out, it is about 
capital formation. You are at the nerve center of the world's 
capitalist system, where capital is deployed to the operating 
businesses. If we have a shutdown of the government, I think it 
has already been pointed out by the ranking member that we will 
stop all IPOs in their tracks. Does this also apply to 
companies that are already public but are issuing additional 
shares, and would this also apply to new bond issuances?
    Mr. Gensler. I would be glad to follow up and have staff 
chat with you. It is more nuanced. It really depends on whether 
they have filings that they can----
    Mr. Sherman. So, a few of them are sophisticated----
    Mr. Gensler. Many public companies would be foreclosed from 
doing additional offerings. Others would be allowed. It really 
depends on the nature of their filings.
    Mr. Sherman. So, a huge portion of our $100-trillion 
capital markets would not be available to raise additional 
capital, or a huge portion of the initial capital that would be 
raised for operating businesses would be blocked. We also, as I 
understand it, as far as providing assurance for the honesty of 
markets, you would continue to collect emails as they come in, 
but you won't be doing any investigations or opening any 
additional investigatory files, correct?
    Mr. Gensler. It is really prescribed and narrow. It relates 
to a 19th Century law called the Energy Efficiency Act, but we 
can protect public property, but it is really----
    Mr. Sherman. Okay. So, nobody is going to be stealing your 
computers, but it is going to be the Wild West on Wall Street, 
all while we are fighting for capital with other countries and 
other capital market systems and we put up a sign that says, 
``closed.'' I can't think of a worse thing we could do to 
American capitalism.
    Next, I don't think swing pricing achieves its purpose. We 
should want people to invest in mutual funds and diversify and 
invest in America. But the swing pricing rule you have put 
forward has been criticized by a letter signed by the vast 
majority of Democrats on our Capital Markets Subcommittee, and 
many Republicans, I think the vast majority, as well as the 
Consumer Federation of America. It seems to be an unfair rule 
in that giant players can participate in collective investment 
trusts (CITs) rather than mutual funds, get the same benefits, 
and not be subject to this rule. Investors will be told, you 
may not get your net asset value. People who live in the 
Pacific Time Zone are disadvantaged. Any chance you will be 
taking this rule back to the drawing board?
    Mr. Gensler. We have a lot of comments. I am very familiar 
with the letter that you and Representative Wagner co-authored. 
It is really going at a core feature that when you have a 
mutual fund, if you redeem that mutual fund, you should redeem 
at the right price so that the remaining shareholders don't get 
dilution. It works well in normal times, and less well in 
stress times, but we are taking all of that into consideration.
    Mr. Sherman. I understand. I will simply point out that for 
many years, thousands of mutual funds, all competing for 
capital, could have adopted this rule, and not a single one of 
them thought, oh, this is what investors want. This is what 
will seem fair to investors. You have the safeguarding rule. I 
will simply comment that I think we need a safeguarding rule 
for intangible assets. I would hope if you feel tangible assets 
such as real estate need a safeguarding rule, that you would 
write a separate rule. Is the safeguarding rule that you are 
writing pretty much structured around the intangible assets, 
such as crypto?
    Mr. Gensler. No. Its genesis came from Congress itself as 
part of the Dodd-Frank Act 12, 13 years ago. There was a new 
provision that the SEC address the custody of all customer 
assets by investment advisers, so it expanded it from just 
funds and securities to all assets. That was the genesis of 
this.
    Mr. Sherman. I would hope that the rule would have separate 
sections and a completely different approach for real estate on 
the one hand and crypto on the other. In real estate, the title 
is public, and the asset isn't moving anywhere, and intangible 
assets and crypto are very different. I believe my time has 
expired.
    Mr. Gensler. It does have separate sections, but we will 
take that under advisement, and it is so good to see 
Representative----
    Chairman McHenry. The gentleman's time has expired. We will 
now recognize the gentleman from Oklahoma making his valiant 
return after tussling with a bull. We're happy to have you 
back, Frank.
    [applause]
    Mr. Lucas. Thank you, Mr. Chairman, and I very much 
appreciate that. And I would note to my colleagues, it has been 
a long time since I have sat this far down in the committee 
hearing.
    [laughter]
    Mr. Lucas. But after my interaction with a 1,000-pound 
bull, I am just happy to be here. So with that, thank you.
    Chairman McHenry. I ask unanimous consent to restore the 
gentleman's time. We are happy to have you back, Frank.
    Mr. Lucas. Thank you.
    Before I begin my questions, I would like to reiterate a 
few points made in the bipartisan letter that I sent regarding 
the SEC's two proposed rulemakings on security-based swaps and 
security loans, and I would like to enter that letter into the 
record, Mr. Chairman.
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Lucas. These proposals, I believe, could impair market 
liquidity while increasing risks and costs. And to avoid 
unintended negative consequences, the SEC should study the data 
for regulatory purposes before moving forward with public 
dissemination. This is consistent with the Dodd-Frank Act, and 
I hope the Commission will give serious consideration to this 
approach.
    Now, Chairman Gensler, I would like to focus on the 
proposed rule branded as the safeguarding advisery client 
assets. The proposed rule would impose requirements that are 
inconsistent with the CFTC rules--and you have spent a good bit 
of time working on CFTC rules in your past life--and would 
indirectly give the SEC, I fear, authority over the CFTC's 
regulated markets. And in addition to being outside of the 
SEC's authority, this would create significant problems, I 
think, across the entire financial markets. Have you consulted 
with the CFTC on the impact of the proposed rule, and if so, 
for curiosity, what was their feedback?
    Mr. Gensler. First, Representative Lucas, it is so good to 
see you, and your letter with regard to securities-based swaps 
not only gained my attention, but there are many people at the 
SEC who would say, this is Representative Lucas' letter, will 
you please take a close look at it.
    Mr. Lucas. Thank you.
    Mr. Gensler. But on your topic and your question about 
safeguarding of assets, the staff has consulted with fellow 
regulators at the CFTC about that safeguarding rule, and taken 
their thoughts into consideration. We are some time away. This 
was only proposed earlier this year, and it usually takes 12 to 
24 months before we even consider adoption, but I think that 
there are paths forward in terms of the intersection between 
their Rule 1.25 and these custody rules.
    Mr. Lucas. I just think it is imperative that the SEC 
refrain from applying the proposal to CFTC-regulated markets. 
And I hope that you will be able to commit to that, even if it 
means perhaps at some point withdrawing the rule entirely.
    Now, second question. The Commission has also recently 
proposed a rule regarding the use of predictive data analytics 
used by broker-dealers and investment advisers. The proposed 
rule cast a broad net over what is considered a covered 
technology: ``A covered technology is defined as an analytical, 
technological, computational function, an algorithm, model, a 
correlation matrix, or similar method or process that 
optimizes, predicts, guides, forecast, or directs investment-
related behaviors or outcomes.'' What a mouthful. The included 
economic analysis explains that the rule would require 
substantial resources to comply with and would prevent smaller 
firms from entering the market or adopting new technology at 
all.
    So, Chair Gensler, could you clarify what technologies are 
covered, and is the intent of the rule to make it difficult for 
firms to employ certain kinds of technology?
    Mr. Gensler. The intent of Rule A is to be technology-
neutral, and one really core thing is that when investment 
advisers or broker-dealers interact with investors, that 
interaction that if they are using, as you said, a covered 
technology for predictive data analytics, that they continue to 
put the investors' interests ahead of their own, and not the 
reverse, putting the investment advisers' interests ahead of 
the investing public. That is the core of this proposal.
    Mr. Lucas. I would simply add that given the rapid advances 
in machine learning and generative artificial intelligence 
(AI), the United States should lead the way in the development 
of innovative technologies that would unlock new economic 
opportunities. And we should be careful not to be so hostile to 
new technologies that we stop innovation in its tracks.
    With that, I will simply say thank you, Chairman Gensler. 
And Chairman McHenry, I spent 7 weeks being calm and at home. I 
have not been that calm and that long at home since 1986, so I 
am happy to be back with all of you, and with you, Mr. 
Chairman. I yield back.
    Chairman McHenry. Well, Frank, we are happy to have you 
back and as a current Chair of one committee, and a former 
Chair of another committee, we honor the old bulls.
    Mr. Lucas. And I missed the ranking member, too.
    Chairman McHenry. I will now recognize Mr. Meeks of New 
York for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman, and thank you, Chairman 
Gensler, for appearing before us today.
    Over the course of the last few months, I have had the 
opportunity to ask both the SEC's Director of the Division of 
Economic and Risk Analysis, and the Director of the Division of 
Investment Management about the private funds rules. In 
particular, I am asking about revisiting the economic analysis 
to ensure that it adequately considered the disparate impact on 
emerging minority- and women-owned asset management firms, 
minority- and women-owned businesses, and historically-
underinvested communities. Dr. Wachter assured me that the SEC 
shared my concerns, and Director Birdthistle testified that the 
economic impact analysis was expanded to look into these 
concerns.
    So my question to you is, one, can you confirm that the 
economic analysis was expanded, and if so, can you speak to the 
specific changes that were made in response to the findings 
from that expanded analysis?
    Mr. Gensler. The rule, as other rules do, considers the 
effect on small businesses. And in this rule particularly, the 
economic analysis looked at small businesses, including those 
that are women-owned and minority-owned investment advisers 
running private funds.
    Mr. Meeks. I would like to follow up on that, but I have so 
many questions I want to ask you because it is really important 
to get more details of what those findings were. But I will ask 
you more about that in writing and get a response because I 
want to shift to a related issue that I find to be disturbing.
    On page 553 of the private fund rules, the Commission seems 
to seriously suggest that smaller investment advisers, whom we 
know are likely to be predominantly minority- and women-owned, 
consider reducing their assets under management to avoid 
registering with the SEC to help mitigate the impact of the 
rule to them. Now, Mr. Gensler, we know that minority-owned 
firms are 3 to 4 times more likely to fund minority enterprises 
and their portfolio companies. So wouldn't telling these firms 
to stifle their own growth perpetuate the lack of diverse 
representation in the industry and, therefore, decrease the 
amount of funding going to diverse entrepreneurs?
    Mr. Gensler. As the economic analysis noted and you just 
read, there are often some firms, whether it is in a rule like 
this or other rules, that are right at a cutoff point where 
they might be registered and regulated, that they might make 
different choices. But overall, this rule is actually really 
helpful because it promotes competition and transparency. The 
biggest fund managers would have to provide greater 
transparency to their investors. And the smaller asset managers 
can actually benefit from that greater transparency and 
competition around the side letters that they might be cutting 
with large asset pension funds and the like.
    So, it is really a balancing of these economic 
considerations. It was pro-capital formation, it was pro-
investor because it promotes transparency in the middle of the 
market, that asset managers would have transparency about their 
fees, their performance, and the so-called side letters that 
they enter into.
    Mr. Meeks. I just have problems with it because it seems to 
me, again, you are telling these asset managers to not grow, to 
not continue to build where they can do more because of the 
people that they serve, so it is an issue for me, which I will 
follow up on.
    Under your leadership, the SEC has been incredibly active, 
and I will leave it to others to discuss the pace and the 
breadth of the Commission's rulemakings. But what I wonder is 
whether or not the SEC considers how their proposed rules will 
interact with existing and draft rules during the rulemaking 
process, particularly when it comes to the economic impact of 
the finalized and pending rules, and do you think there would 
be any value to doing a holistic analysis?
    Mr. Gensler. We do in each economic analysis, which often 
runs between 100 and 250 pages. Each of those considers other 
rules that may have been adopted and adjusts the baseline in 
each of those analyses.
    Mr. Meeks. I yield back.
    Chairman McHenry. I will now recognize the gentleman from 
Texas, Mr. Sessions, for 5 minutes.
    Mr. Sessions. Mr. Chairman, thank you very much, and I 
appreciate the gentleman, my friend, Mr. Meeks, for his 
conversation with the chairman. Chairman Gensler, welcome once 
again to the committee.
    Mr. Gensler. It's good to see you, sir.
    Mr. Sessions. Thank you very much. Chairman Gensler, I 
think there is a lot of happy talk and smiling that takes place 
from you and your agency as they come up here, and they try and 
talk about the two principles of listening to stakeholders and 
industry participation. And yet, I think you are hearing across 
this committee that we wish we could have a better relationship 
with you and your entire organization. And we have applauded 
them, sent letters, done everything nice that you can do, and 
yet we show up here and we find a way to provide feedback. We 
would like to sincerely turn that around.
    As you know, you and I spoke a couple of years ago about an 
issue that is still unresolved because the SEC would not even 
let this firm know what their problem was, and you told me it 
would take at least 214 days, because that is how long it takes 
before you are able to turn issues around, when your Fort Worth 
office already knew the answer. And I think it is this kind of 
action on behalf of the SEC that causes Members of Congress to 
react the way we do.
    Last November, the SEC announced a massive increase in 
enforcement fines--$6.4 billion in 2022, up from $3.8 billion 
in 2021--and you have launched a regulatory crusade against the 
financial services industry through enforcement. You have told 
us that. We see that. Can you please tell me what you have done 
with the money from these enforcement actions, and where that 
money goes?
    Mr. Gensler. First, sir, if I may, I think in the matter 
you talked to me about a week or so ago, we filed a civil 
litigated matter against that company, so I think that is all a 
matter of public record.
    Mr. Sessions. Then, I have learned that now. Thank you.
    Mr. Gensler. Right.
    Mr. Sessions. But for the 2 years prior to that, there was 
attempted resolution. And you even blocked that company from 
their counsel, who was very capable, from engaging in that, 
knowing what that was, where they could have corrected that or 
found a way to work with it because it put at least $50 million 
directly at risk. Mr. Chairman, can you explain where the money 
from these enforcement penalties is winding up?
    Mr. Gensler. There are a number of places. Much of it goes 
into what is called fair funds. Congress helped set up a 
process where the public can actually get money back. Those 
that are harmed can get money back, and some of the penalties 
and so forth go into the U.S. Treasury, so some in fair funds 
and back to those who have been hurt, but some, of course, also 
go into the U.S. Treasury.
    Mr. Sessions. So, the SEC takes the money and follows the 
laws that have been established.
    Mr. Gensler. Yes. We are funded separately, of course. We 
are appropriated----
    Mr. Sessions. I didn't know that.
    Mr. Gensler. ----in that we are funded by fees that are 
fees on transactions and----
    Mr. Sessions. Yes, sir. I just wanted to make sure that it 
is as a result of what Congress has established with the fair 
funds about what they would do with that money, and testimony 
today is that is what you have done with the $6.4 billion?
    Mr. Gensler. Not all of it, sir.
    Mr. Sessions. Then, please add a comment and add the rest.
    Mr. Gensler. We can follow up with the details because of 
that----
    Mr. Sessions. I am interested in following up on the 
details, and I would ask that your staff--just like Congressman 
Lucas sends a letter and your staff knows, oh, we got a letter 
from Congressman Lucas, let's respond very quickly here, I 
would like to send you a letter today asking for those details.
    Mr. Gensler. Thank you. The actual breakdown is a matter of 
public record. We put it in our financials each year. I just 
don't have it memorized.
    Mr. Sessions. That is fair. I would not either. Mr. 
Chairman, we really, I think, would like to, on a bipartisan 
basis up here, have better interaction with your organization 
and with you, and I think what you have heard today is another 
calling on a bipartisan basis for us to do that. We believe if 
we express our opinion, you should express yours back, not just 
delay that. I want to thank you for being here, sir, and I will 
engage you on this matter. Mr. Chairman, I yield back.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman yields back. The gentleman from Georgia, Mr. Scott, 
is recognized for 5 minutes.
    Mr. Scott. Thank you very much. First of all, Chair 
Gensler, I agree with our ranking member, Ms. Waters. I believe 
you are doing an excellent job at a very difficult and 
challenging time facing our economy and especially our 
securities markets.
    On July 12th, my good Republican friend, Congressman Frank 
Lucas, and I sent you a follow-up letter with respect to the 
SEC's proposed rule regarding the impact of publicly disclosing 
proprietary positions in large security-based swaps above 
certain reporting thresholds. And specifically, Congressman 
Lucas and I raised concerns with how this move could impair 
market liquidity and hinder the SEC's core mission to maintain 
fair, orderly, and efficient markets.
    My question to you is, first, I know you have previously 
said you understood the law to require some public availability 
of this sensitive information. But where can you expand on 
whether widespread public access to large security-based swap 
(SBS) positions could in any way impair the ability of market 
participants to operate their trading business or limit their 
ability to hedge effectively?
    Mr. Gensler. We continue to consider at the staff level and 
the Commission level, not just your comment letter with 
Representative Lucas, but others about this, that securities-
based swaps can be used to basically replicate the positions 
that are taken in the stock and bond markets, but particularly 
in the stock markets. And you might recall about 2 years ago, 
there was a family office called Archegos that did that and did 
that in quite some size. That is one of the reasons, not the 
only reason, but one of the reasons as we look at this, we say, 
Congress gave us this authority. This is one of the remaining 
authorities we had not addressed from Dodd-Frank.
    And so, we took it up. We put a proposal out about the 
possible requirements to report to the Commission, and then in 
some cases report publicly these large either credit default 
swaps or total return swaps that, of course, credit default 
swaps were at the center of the 2008 crisis, and total return 
swaps were at the center of this one example, this Archegos 
example.
    Mr. Scott. Yes. Now, let me ask you this question. Do you 
see any risk in allowing the public to take advantage of this 
information, for example, by facilitating front-running and 
copycat trading, which could drive up the costs for all market 
participants?
    Mr. Gensler. I believe we have gotten that comment from a 
number of commenters. It is taken up in our economic analysis, 
but it is an important issue of all public transparency. The 
markets can benefit from transparency, but sometimes, there is 
somebody that had an advantage of the opacity. When I was on 
Wall Street, we used to have a saying at the firm I was at, 
that darkness was our friend, and it was about how sometimes 
opacity helps make more money as a dealer. But it is not 
necessarily the case that the markets themselves--economists 
tend towards the transparency, which helps the proper pricing 
in the markets and also helps capital formation.
    Mr. Scott. I am delighted with your presentation. I 
understand with low economic and finance that I handle at 
times, particularly with the stock market. Keep up the good 
work. Don't get discouraged. We will get out of this mess in 
our financial markets. Thank you.
    Chairman McHenry. The gentleman's time has expired. I will 
now recognize the gentleman from Florida, Mr. Posey, for 5 
minutes.
    Mr. Posey. Thank you, Mr. Chairman. And it's good to see 
you, Chairman Gensler.
    Mr. Gensler. It's good to see you, sir.
    Mr. Posey. In spite of the SEC Inspector General and 
Government Accountability Office (GAO) recommendations, the SEC 
continues to assert that as an independent agency, the 
Commission is not required to do the same kind of regulatory 
analysis and cost-benefit analysis as other agencies. Why is 
the agency so defiant about the suggestion to be as accountable 
as other agencies?
    Mr. Gensler. Actually, sir, we follow the mandate. In 1996, 
Congress put in our statute that we had to do economic 
analysis, and we follow that. And then, after a number of court 
cases 20 years ago or so, we updated our guidance to ensure 
that we followed Congress' mandate, so we do economic analysis, 
again, sometimes measuring in a couple of hundred pages. In 
every one of our releases, we get feedback from the public, and 
then we adjust, and we modify.
    Mr. Posey. So, the Inspector General is wrong? You don't 
need to do any further analysis?
    Mr. Gensler. In fact, we do need to do analysis because 
Congress mandated it. We have to analyze the efficiency, the 
competition, and the effects on capital formation, and in doing 
so, we lay out an economic baseline. And then, we have to look 
at alternatives to the proposal, reasonable alternatives, and 
we look at cost and benefits. We do all of that.
    Mr. Posey. And any rules are in conformance with the 
Administrative Procedure Act?
    Mr. Gensler. Yes, we do that in compliance with the 
Administrative Procedure Act, but also, Congress added these 
other provisions in 1996, and, as I say, after a number of 
court interpretations, so that in 2005 and so forth, we updated 
how we did this, and we follow guidance that has been in place 
since 2012. I think I am the fourth Chair who has been 
following similar guidance for 11 years now.
    Mr. Posey. Does the Commission assess and analyze 
cumulative economic impacts of the rules that it makes and the 
interrelationship with other agencies?
    Mr. Gensler. We analyze for each one a baseline, as I 
mentioned. So if, for instance, there was an interaction and we 
finalize a rule, then we necessarily update the baseline for 
the next consideration for the world as it exists at that point 
in time.
    Mr. Posey. Okay. In your climate disclosure rule, are you 
requiring that firms pursuing ESG-directed investments also 
disclose the risks they face from favorable regulations not 
materializing or climate subsidies drying up or slowing down?
    Mr. Gensler. The proposal is really to capture the risks 
that investors want to understand. The proposal was about both 
the opportunities and the risks, and I think you did use this 
word--it is about, ``materiality.'' We are not a climate 
regulator. We are really a disclosure-based regulator, and 
thousands of investors, more than thousands but representing 
tens of trillions of dollars of assets today, are making 
investment decisions, and I will share a statistic with you. Of 
the Russell 1000, the top thousand companies in the U.S., 81 
percent currently make climate risk disclosures, and 57 percent 
disclose their greenhouse gas Scope 1 and Scope 2. So, what we 
are trying to do is just try to bring some comparability to 
that, in a sense, too, for investors, but also to avoid some 
greenwashing, frankly, so to bring some comparability to that, 
which is already happening.
    Mr. Posey. Based on your strategic planning, which of your 
proposed rules is most vulnerable to the major questions 
doctrine set down in West Virginia v. EPA.
    Mr. Gensler. We really do everything we can to stay within 
the laws as Congress had passed and how courts interpret them. 
We are familiar with the case, the Supreme Court case. It is 
the law of the land, as you mentioned, and we take a very close 
look at that to ensure that when we finalize rules, it is 
within the laws and how the courts interpret it.
    Mr. Posey. Are you trying to resolve any of those major 
questions at this time?
    Mr. Gensler. I would broaden it out, sir. It is like any 
time the Supreme Court speaks to us broadly, the administrative 
state's authorities, we take a look at that, and we take a look 
at every comment we receive from the public to stay within our 
authorities.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Posey. Thank you.
    Chairman McHenry. I will now recognize the gentleman from 
Missouri, Mr. Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman. And thank you, 
Chairman Gensler, for being here today. I am one of those 
people who believes that there is such a thing as climate 
change, and I agree with the scientists, I guess. Most of the 
warming that we are experiencing actually took place over the 
last 40 years, and the last 9 years are the warmest 
temperatures that we have had since keeping track of the 
weather temperatures.
    And I am from Kansas City, Missouri. The Missouri is the 
second-longest water system in North America. The water heads 
up in Montana, snakes its way all the way through Missouri, and 
then meets up with the Mississippi in St. Louis. It goes 
through seven States. And the only reason I am mentioning that 
is that we are experiencing all kinds of events along the 
Missouri River system. We have had droughts, flooding is 
becoming more volatile, and weather events are becoming more 
extreme and are impacting the Missouri River, and this becomes 
uneconomical in the sense that the low water levels, which are 
reaching sometimes record lows, disrupt business.
    We do a lot of barge trafficking on the Missouri and 
Mississippi Rivers, and that is being disrupted, and the crisis 
puts into question our viability and long-term dependability. 
So, I was pleased that in March of last year, the SEC released 
the proposed rules to require public companies to make a 
variety of quantitative and qualitative disclosures regarding 
climate-related risks. Is there any company, any kind of 
economic interest in the United States that you think would be 
immune from climate risk as we are dealing with this? We may 
not be dealing with it as powerfully as we should, but are 
there any exemptions that you can think of--companies or 
corporations--that would not be impacted or are not being 
impacted today?
    Mr. Gensler. Again, I understand your views. We are not a 
climate regulator.
    Mr. Cleaver. I understand.
    Mr. Gensler. It is a matter of investors making investment 
choices, and for some companies, investors are getting 
disclosures, and we are trying to bring some comparability to 
those disclosures. For some companies, it is viewed as 
material, and for some companies, it is not. That is an 
important distinction, of course. But there are so many 
different sectors and so many different industries in this 
country, and we are merit-neutral, but we are not disclosure-
neutral. And right now, 80-plus percent of the housing 
companies are already making disclosures. It is really our 
responsibility to bring some consistency and comparability for 
investors to get decision-useful information.
    Mr. Cleaver. Yes. I am not suggesting that you are the EPA 
or some kind of climatologist. I just want to make sure that 
the SEC continues to measure the impact through its disclosures 
of what is going on dangerously with climate change and that it 
will all impact corporations.
    Mr. Gensler. I would say this. We have 16,000 comments. We 
have heard very consistently from investors that they find this 
information decision-useful and they would benefit from more 
consistency and comparability in the information they are, 
frankly, already receiving, so that is what we are focused on.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman McHenry. The gentleman's time has expired. We will 
now recognize the gentleman from Missouri, Mr. Luetkemeyer, who 
is also the Chair of our National Security Subcommittee, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Chairman Gensler, 
my good colleague here, Mr. Cleaver, and I wrote to you in May 
regarding the SEC's re-proposed Rule Number 192, prohibition 
against conflicts of interest in certain securitizations, and 
our concerns about the potential treatment of mortgage 
insurance-linked notes (MILNs). Our letter was filed under the 
bulk of all comment letters, and the first sentence asked for a 
clarification of the language that is in your rule. So, we are 
disappointed with the interpretation of our letter, which is 
pretty plain from the standpoint that we would like to have an 
answer. But mortgage insurers are a significant source of 
private capital in the housing finance system, and these 
transactions are an important tool to reduce taxpayer risk 
exposure and cost.
    Question number one, do you agree that Federal policy 
should encourage more private capital in the housing market, 
especially when it involves well-capitalized and highly-rated 
entities?
    Mr. Gensler. I think there are other agencies that are 
responsible there, but certainly our role at the SEC is to 
facilitate a mortgage market. We oversee, I don't know, an $11-
trillion or $13-trillion mortgage securitization market. And 
what we are trying to do in that market, like other markets, is 
to drive for greater efficiency and, as you say, opportunity 
for homeowners.
    Mr. Luetkemeyer. The question is, can you be a partner with 
the private sector? In other words, reinsurance for these 
companies is very important to allow the spread of risk and 
then, of course, the reduction of cost. The question is pretty 
simple: Would you support something like that?
    Mr. Gensler. I think, if I understand the question, it's 
that mortgage originators also rely on mortgage insurance, and 
I agree that is an important part of the market.
    Mr. Luetkemeyer. Okay. In our letter, we say that the 
rulemaking may unintentionally prohibit private insurers from 
procuring reinsurance by the capital markets through these 
MILNs, which would negatively impact homebuyers, lenders, and 
taxpayers. Are you considering changes to the rule to clarify 
the treatment of mortgage insurance-linked notes?
    Mr. Gensler. Without prejudging any adopting release, we 
are considering all the comments, including yours, these 
individual letters you reference. Congress gave us a mandate 
that we had to help ensure that underwriters and sponsors of 
certain mortgage securitizations be bet against their 
investors, and that is what we are trying to do.
    Mr. Luetkemeyer. Mr. Gensler, the letter should not be 
canned with the comment letters. It is a request for you to 
clarify what you are trying to accomplish here, and the letter 
pointed out what we need clarification of, so we would 
appreciate a response. Thank you for that.
    I also sit on the House Select Committee on the Chinese 
Communist Party. And as a result of my position there, and the 
chairmanship of our National Security and Illicit Financing 
Subcommittee, in 2022, the Public Company Accounting Oversight 
Board (PCAOB) inspection reports of Mainland China and Hong 
Kong accounting firms, which audit U.S.-listed Chinese 
companies, were scathing, and a reminder that financial 
statements produced by the Chinese Communist Party (CCP)-
controlled companies should never be trusted. Both reports 
showed unacceptable rates of Part I.A deficiencies, which are 
deficiencies so large that PCAOB staff believe the audit firm 
failed to obtain sufficient audit evidence to support its work 
on the public company's financial statements. Essentially, the 
audits were useless. Is it correct that under the Holding 
Foreign Companies Accountable Act, these two firms, which 
failed so spectacularly, will not be inspected again by the 
PCAOB for another 2 to 3 years?
    Mr. Gensler. I am not familiar enough with the PCAOB's 
rotating schedule, but it is accurate that when the PCAOB goes 
to inspect an auditing firm in any country, they don't have the 
staff to go in on an annual basis.
    Mr. Luetkemeyer. The premise is correct that they only have 
to do it every 2 to 3 years, so Mr. Sherman and I have 
introduced a piece of bipartisan legislation that would require 
them to have an annual audit. In 2020, there were 1,000 
companies on the exchange, and it now stands between 250 and 
300. A lot of them are shell companies, and when were 
threatened with an audit, they suddenly disappeared. The 
funneling of our capital to Chinese companies/the Chinese 
Government and the Chinese Communist Party has to stop, and we 
would appreciate your support for something like that, and just 
a quick comment, yes or no?
    Mr. Gensler. Look, I think it is really important. If 
somebody wants to issue stock in the U.S., they need to comply 
with their laws.
    Mrs. Wagner. [presiding]. The gentleman's time has expired.
    Mr. Gensler. Usually, with China, that is very important.
    Mr. Luetkemeyer. Thank you very much. I yield back.
    Mrs. Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from Connecticut, Mr. Himes, for 5 
minutes.
    Mr. Himes. Thank you, Madam Chairwoman, and thanks for 
joining us today, Chairman Gensler. I want to talk with you for 
3 minutes or so about my ongoing efforts to codify insider 
trading into law, but I do want to take a minute here, since we 
are on the verge of a government shutdown, to just see how that 
affects you and your organization.
    It is sort of taken for granted around here that a shutdown 
is going to occur because my friends on the other side of the 
aisle can't find the coherence to pass a rule on the House 
Floor, much less do what we know needs to be done to avoid a 
shutdown, which is to pass a bipartisan continuing resolution. 
The Senate has figured that out. They are working on that. We 
will figure that out eventually. In the meantime, to 
demonstrate the importance of doing that, we are going to shut 
down the government because of some MAGA extremists.
    Now, we get asked all the time about the very visible 
stuff. We will be treated in the next couple of weeks to the 
sight of 19-year-old Marines and sailors lining up at food 
banks because they won't know if they are getting paid. The 
Small Business Administration (SBA) will be shut down, and they 
will not be able to lend to small businesses, and those small 
businesses may go under. We could go on with all of the public 
stuff.
    But you lead an organization that has an awful lot of 
people who could be making a lot more money at a bank or at a 
law firm, who are going to be told that they are nonessential, 
and who may be furloughed. So, let me just give you a minute or 
so here. I am curious, even though it is not going to make 
headlines, what would a shutdown do to morale and capability 
inside the Securities and Exchange Commission?
    Mr. Gensler. It is a remarkable, dedicated staff. We are 
looking at probably 90 to 93 percent of our staff will be 
furloughed, so we will be down to a skeleton crew of about 7 to 
8 percent of our staff. In terms of what it would do for 
morale, I think that history shows, because we had one of these 
in 2018, for 35 days at that point in time, that it is hard on 
people. It is hard because they are not getting a paycheck. It 
is hard because, as you rightly say, they can get jobs at law 
firms and elsewhere, and they are just really dedicated public 
servants.
    In terms of the markets, I would say if a company were 
deciding to go public or raise offerings, they would want to go 
effective before Friday if they are ready to. If not, they 
might be in a sort of a subliminal state where they can't 
access the markets because we can't effectively review those--
--
    Mr. Himes. Let me redirect you for a second to, a company 
is raising capital, but your SEC is a whipping boy. You know 
that, but the truth is the organization is full of people who 
are out there prosecuting fraud, who are stopping insider 
trading. Are we going to see, if there is a meaningful 
shutdown, fraud go unprosecuted, and insider trading? You won't 
have the capacity to address these things which hurt the 
American public, correct?
    Mr. Gensler. Yes. While somebody can still file a tip, 
complaint, and referral, or somebody could file as a 
whistleblower, there won't be the people on the other side to 
really review it and investigate it.
    Mr. Himes. Thank you. Okay. Speaking of insider trading, I 
want to just briefly discuss with you something I have worked 
on for 7 years now, which, as you know, is trying to define, 
``insider trading,'' in law. It is not defined in law today, as 
you know, and as a result, we have court-made law, Newman, 
Solomon, and Martoma overturning each other, creating a great 
deal of uncertainty, prosecutions being overturned, convictions 
being overturned, a great deal of uncertainty. I am a believer 
in this idea that if we are going to send somebody to jail, we 
should be very clear about why we are doing that.
    So, I would love to get a minute or so from you about, 
where are we? Would we benefit from a codified statute on 
insider trading law? Would that remove some of the uncertainty 
and remove some of the chance that the courts will overturn 
your traditional activities?
    Mr. Gensler. I think that we have had the benefit at the 
agency of robust, as you said, largely court-made law from the 
1980s on, and you referenced some cases even in the last 6 to 7 
years. But I think we have provided you and other Members, if I 
remember correctly, technical assistance on a legislative 
package that you had last year, if I recall, that almost made 
it into the National Defense Authorization Act (NDAA), if I 
recall. But again, I think that we have good, robust 
authorities, but the technical assistance, I recall, supported 
what you were trying to achieve.
    Mr. Himes. And I think you gave us this technical 
assistance if we could preserve those authorities that are 
legacy authorities, if you will, but if we could----
    Mr. Gensler. That was the key, that we didn't want to in 
any way lose the authorities all the way up to the Supreme 
Court that we had had.
    Mr. Himes. Right, but I see you nodding. If we could codify 
a definition of, ``insider trading,'' and reduce some of the 
risk of overturning of case-made law, that might, in the long 
run, simplify your task and create confidence in the in the 
markets, correct?
    Mr. Gensler. Yes, and, again, we should follow up with 
staff, but our major concern was that we not somehow undo some 
of the really good law that is in place.
    Mrs. Wagner. The gentleman's time has expired.
    Mr. Himes. Thank you, Chairman Gensler.
    Mrs. Wagner. The gentleman yields back. The Chair now 
recognizes herself for 5 minutes. Chair Gensler, while you were 
a professor at MIT, you spoke at length about how technology 
could be used to democratize finance. In fact, in a podcast 
entitled, ``Paying it Forward with FinTech with Professor Gary 
Gensler,'' you stated, ``What I was drawn to at MIT was this 
sense that maybe we can democratize capitalism a bit more, that 
we can use technology to make finance more inclusive and more 
accessible to many more millions of people in our country and 
many more hundreds of millions of people around the globe.''
    Now, sir, as Chair of the SEC, you have put forward a 
predictive data analytics proposal that jeopardizes the 
innovation and technology that has made investing available to 
millions more Americans than ever before.
    And I am confused as to which Gary Gensler the American 
public should believe, the academic version, who spoke 
glowingly about the power of technology to help more investors 
participate in U.S. and global capital markets, or the SEC 
version, who apparently thinks all use of any technology by 
broker-dealers and investment advisers is inherently conflicted 
and that firms should just stop using technology altogether. 
Chair Gensler, could you please briefly explain this change in 
your views?
    Mr. Gensler. I thank you for the question. It's a clever 
question. It is the same Gary Gensler. It is not my identical 
twin brother, Rob, or anything. It is me, and I believe 
technology is so transformative, and I think artificial 
intelligence and machine learning is transforming this decade 
and so forth. I think robo advisers and brokerage apps, whether 
they are using these new technologies or some of the older 
predictive data analytics, should just stand by the basic 
concept that the investor is first, not the investment adviser 
is first. That is all.
    Mrs. Wagner. We agree there. And this proposal fails to 
acknowledge the already-existing and well-functioning SEC 
regulations, such as Regulation Best Interest (Reg BI), and the 
fiduciary standard that protects investors. I would really urge 
you to withdraw this regulation, as we already have this in 
place.
    During your last appearance in front of this committee, I 
asked you, sir, if you were planning to rewrite Regulation Best 
Interest (Reg BI), and you said that it was not currently on 
your agenda. However, the Commission's proposal on conflicts of 
interest associated with the use of predictive data analytics 
effectively rewrites Reg BI by holding broker-dealers and 
investment advisers to a higher standard of conduct and 
conflict neutralization than Reg BI. Were you intentionally 
withholding your plans to supersede Reg BI, sir, with a new 
proposal, when you testified in April?
    Mr. Gensler. I feel the same as I did in April. I think 
this doesn't change Regulation Best Interest or the fiduciary 
interpretation. This does build on them an important area 
around using predictive data analytics. It is a little bit of a 
math thing, but if the math is basically putting the investment 
advisers interest ahead of the investors, if it is making a 
recommendation or it is giving a nudge, a behavioral nudge, to 
steer somebody somewhere, therein lies a conflict. That is what 
we are trying to----
    Mrs. Wagner. It is too broad. We don't even know what 
technology would be applied here, and at the core, Reg BI has a 
fiduciary standard, the best interest, that is already there. 
You are now superseding that, and it is not just duplicative; 
it potentially throws out the fiduciary rule in Reg BI, so I, 
again, would encourage you, and I think we have bipartisan 
support, to withdraw this rule as soon as possible.
    And let me just ask you this question since I have limited 
time, because this is a question I have sent you to which we 
haven't received a response: How many staff with the Division 
of Trading and Markets, the Division of Investment Management, 
and the Division of Economic and Risk Analysis were actively 
involved in drafting the predictive data analytics proposal?
    Mr. Gensler. I don't have a number, but I would say that 
generally speaking----
    Mrs. Wagner. Do they have advanced degrees in computer 
science, data science, or engineering, sir?
    Mr. Gensler. A number of them have advanced degrees in 
economics and computer science, but I don't know how many of 
them do.
    Mrs. Wagner. I have sent you a list of questions, and I 
would love to have those answers. My time has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman, and I want to 
thank our witness for staying up until 9:30 p.m. to accept and 
analyze the just-in-time delivery of our bipartisan letter with 
16 Republicans and 16 Democrats on it, that French Hill and I 
prepared.
    I want to make sure that you understand what the meaning of 
that letter is. It is not that you should stop working on the 
market reforms in parallel with 605 upgrades. Our intention is 
that you actually get the 605 done so that you have upgraded 
reporting of quality of order execution and so on and have that 
in place so you can have a look at the data, then finalize the 
market reforms and watch, hopefully, the quality of order 
execution improve. And so, the meaning of the letter is to 
sequence those in that way, but not to cease all work on the 
planning and so on of the market structure reforms, so please 
read the end of the first paragraph carefully. One of the 
reasons it was late is that we did a certain amount of 
wordsmithing to get that right.
    And I also want to comment a little bit on, it was on your 
shift when we had the flash crash, right? You were running the 
CFTC during the flash crash. I remember when we had a hearing 
maybe 4 days afterward. The CFTC had, the night of the flash 
crash, 30 people with the entire trading history on their 
laptops figuring out what the heck happened, and 4 days later, 
the SEC, which did not have a Consolidated Audit Trail-like 
structure in place, was still collecting the data to figure out 
what the heck happened. And I think that is why we should not 
lose sight of making the Consolidated Audit Trail a success and 
really do it, and I think that is a separable discussion from 
the beneficial owner and cybersecurity issues there.
    And in particular, one of the things that I raised with you 
last time you were in front of our committee here, was I asked 
you about the possibility of actually using the Consolidated 
Audit Trail to simplify much of the reporting requirements 
under Rule 605, so that instead of making a requirement of 
every one of the zillions of companies that would have to do 
it, that you would simply use the fact that the Consolidated 
Audit Trail has the information necessary to make a public 
report on a quality of order execution for the different 
brokerages so that you could simply have either FINRA or some 
competent private subcontractor, like an S3 or similar, just 
have them write a piece of software that is run that provides 
this report based on the Consolidated Audit Trail. This 
actually will relieve the regulatory burden on a lot of the 
market participants and get something that was guaranteed to be 
an apples-to-apples, well-defined comparison of the quality of 
order execution.
    Have you had time since we spoke on this to put any thought 
into that idea and see if that is a useful way to simplify and 
speed up the 605 reporting?
    Mr. Gensler. I want to compliment you on your excellent 
memory of 13 years ago when I was at the CFTC----
    Mr. Foster. It was seared in pain.
    Mr. Gensler. What did you say?
    Mr. Foster. It was seared in pain when----
    Mr. Gensler. Seared in pain?
    Mr. Foster. It was like we were in a car accident.
    Mr. Gensler. It was the very next morning that the CFTC had 
all that information. The SEC did not. You are raising an idea 
as to whether the Consolidated Audit Trail could be used for 
data about the quality of order execution. And although it is 
possible that technologists could figure and sort that through, 
that in and of itself would raise costs and benefits as well, 
and everybody has encouraged us to always look at cost and 
benefits. I would just say, currently, market participants, 
brokers, can quantify their order quality. That is what this 
Rule 605 actually----
    Mr. Foster. That is right, but then you have to make sure 
it is an apples-to-apples comparison. If there is an ambiguity, 
they will resolve it in favor of making their numbers look 
good. You are going to have to have some of your employees 
looking over that, whereas if you just say, okay, find a 
competent entity, S3 seems to have a pretty good market share 
of doing that already or FINRA, to just write one piece of 
software, make it public, and run that piece of software in the 
Consolidated Audit Trail so that everyone understands exactly 
what numbers are being reported.
    Mr. Gensler. One thing is the Consolidated Audit Trail does 
not capture and compare the orders--you put an order out and 
here is the actual quality, so more requirements, I think, go 
into the Consolidated Audit Trail, but we can follow up on that 
further.
    Mr. Foster. No, I think it actually could----
    Mrs. Wagner. The gentleman's time has expired. The Chair 
now recognizes the gentleman from Kentucky, Mr. Barr, for 5 
minutes.
    Mr. Barr. Chairman Gensler, have you ever spoken to Senator 
Menendez about the Security and Exchange Commission's Director 
of Enforcement, Gurbir Grewal?
    Mr. Gensler. No.
    Mr. Barr. On May 20, 2021, your public calendar notes a 
call with Senator Menendez. What was discussed during that 
call, if you can remember?
    Mr. Gensler. It was 2 years ago, sir, but if I recall, 
there was a discussion about possible disclosure by public 
companies of political contributions.
    Mr. Barr. You hired Mr. Grewal as the SEC's Director of 
Enforcement shortly after that May 20th call. Are you aware of 
the glowing statement in support that was put out by Senator 
Menendez praising your hire?
    Mr. Gensler. I thank you for letting me know that, but 
until you told me or until today----
    Mr. Barr. I am deeply concerned about this, and I will be 
following up with your office with additional questions, and I 
expect a written response.
    Mr. Chairman, I really liked your colorful testimony. And 
you are right, we are blessed with the largest, most-
sophisticated, most-innovative capital markets in the world, 
but we cannot take this for granted. Even a gold medalist must 
keep training. With all due respect, Mr. Chairman, if the U.S. 
capital markets are a gold medalist, you are the Tonya Harding 
of securities regulation because you are kneecapping the U.S. 
capital markets with the avalanche of red tape coming out of 
your Commission.
    On your climate disclosure rule proposal, you say that the 
SEC is merit-neutral, that your focus on consistency and 
comparability of disclosure is not the merit of the investment, 
so that is just not believable. Requiring Scope 3 emissions 
will lead to wildly inaccurate and immaterial disclosures that 
will be of little practical use to investors. They would also 
unfairly and inaccurately portray companies as major polluters 
that, in reality, have very low carbon footprints.
    Let's be honest, the agenda here is not to provide 
investors with relevant information but instead to redirect 
capital away from fossil energy. Your proposal would 
discriminate against fossil energy. And you have repeatedly 
claimed that these disclosures are rooted in investor 
protection, but the largest U.S. energy exchange-traded fund is 
up 15 percent over the last 3 months. It is near its highest 
level in 9 years. How is it protecting investors to deter 
investment in profitable companies?
    Mr. Gensler. This is not doing that, with all due respect. 
All it is about is trying to bring some comparability to 
disclosures being made. We are not a climate agency.
    Mr. Barr. I know. I have heard you say that.
    Mr. Gensler. We are really not, sir.
    Mr. Barr. Let's be honest. We know what is going on. You 
are trying to, ``Scarlet Letter,'' fossil energy.
    Mr. Gensler. We are not. We are not, sir.
    Mr. Barr. I know you say you are not, but we got the joke. 
Everybody knows what you are doing. You are trying to redirect 
capital away. You are trying to discriminate against fossil 
energy, notwithstanding your protests. Most American investors 
find all of the Scope 3 emissions nonsense and immaterial. It 
is immaterial. I know institutional investors talk about this, 
but this is about an agenda to discriminate against fossil 
energy, which is profitable. That is not protecting investors. 
That is hurting investors. It is steering them into less-
diversified lower-performing funds.
    Let me move on to the perfect storm of regulations. Have 
you consulted with Vice Chair Barr about the Basel III Endgame 
and the interplay between what you are doing on capital markets 
regulation and what is happening in commercial real estate? I 
am very concerned about this because Basel III will increase 
the cost of credit, diminish lending capacity, and undermine 
the role that banks play in lending and financial 
intermediation in commercial real estate.
    Have you talked to the Federal Reserve about how this 
interacts with the conflicts of interest in securitization 
rule, the Rule 15c2-11 private funds custody rule, and others, 
because I am really worried that Basel III Endgame and all of 
your regulatory proposals would lead to a death by a thousand 
cuts for commercial real estate, when we are looking at 
maturities of $1.5 trillion in commercial real estate over the 
next 3 years. And it is not just about refinancing from 3 
percent to now 8 percent. It is the fact that Basel III and 
then all of the non-bank activity is going to be sidelined as a 
result of the interplay between Basel III and your regulations.
    Mr. Gensler. We have ongoing conversations with the Federal 
Reserve about a number of our rules, but they really have the 
lead on Basel III. That is not something we consult with them 
on.
    Mr. Barr. Okay. I think----
    Mrs. Wagner. The gentleman's time has expired. I would ask 
you to submit the answer for the record.
    Mr. Barr. ----the interplay is important. I yield back.
    Mrs. Wagner. The Chair now recognizes the gentlewoman from 
Ohio, Mrs. Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Madam Chairwoman, and thank you, 
Chairman Gensler, for being here today. I am going to get to a 
question that I would like to ask you on the proposal regarding 
predictive data analysis. But in light of the colorful 
questioning and use of language with, ``discrimination,'' and, 
``kneecapping,'' I want to ask you about the shutdown, because 
I think my Republican colleagues are kneecapping the American 
people and those who serve this country and those that we took 
an oath to protect, and certainly, at least the last five 
government shutdowns have happened under Republican leadership. 
You represent this large organization, and if there was a 
government shutdown, would that grind the SEC to a halt, yes or 
no, in your opinion?
    Mr. Gensler. We would have a skeleton staff.
    Mrs. Beatty. And does that mean if there was a shutdown 
with your approximately 4,600 employees, you would be left with 
maybe only 400 employees who were not furloughed?
    Mr. Gensler. That is correct.
    Mrs. Beatty. And the remainder would be furloughed without 
pay?
    Mr. Gensler. Yes, that is correct. Even though they are 
working, it would be without pay.
    Mrs. Beatty. Right. And these are hardworking American 
people with families and children who would be considerably, 
``kneecapped,'' by my Republican colleagues, who have so much 
concern about what we are doing. And would that have some 
effect on the registration statements for new users, and offers 
of securities, and surveilling the functionings and operations 
of capital markets?
    Mr. Gensler. I think you could say, largely, the initial 
public offering market would be shut down with the government.
    Mrs. Beatty. And would you say investors would be 
vulnerable to fraud, and businesses would be deprived of their 
opportunity to access capital markets?
    Mr. Gensler. I would say that while we will have a skeleton 
staff, it will be hard for us to oversee the markets.
    Mrs. Beatty. And that is what you are charged with doing, 
like we are responsible for keeping the government open and 
protecting the American people. You probably would agree with 
that. I am not going to ask you to answer that.
    So now, let me get on to my question, after I feel a little 
renewed in letting the American people know that while we are 
here, we can ask all kinds of questions. But if we want to talk 
about economic analysis, if we want to talk about threats of 
subpoenas for not being direct, let's talk about what is 
happening to the American people in real time. But with that 
said, I am going to give you an opportunity to talk about this 
proposal that we have heard a lot about.
    I understand that the proposal is currently very broad in 
scope, covering the range of investor interactions, including 
communications through covered firms' public websites. There is 
concern that it could even encompass financial education tools 
for investors, and it could cover things such as an application 
that analyzes an investor's future retirement assets by 
changing the inputs for different mixes of assets. Can you 
address the concerns or take the rest of my time to talk about 
this proposal so we can understand it better?
    Mr. Gensler. One thing I would say is this hearing comes at 
a timely moment, because the comment period is open until 
October 10th on this particular rule. But this rule really just 
has a basic concept that if you are engaging with investors, 
that those investors' interests come before that of the 
investment adviser or broker-dealer, and if you are using 
predictive data analytics to determine how to nudge them or 
guide them, you should be not putting your interest.
    Look, in my downtime, I like to watch romantic comedies on 
streaming apps. If the streaming app figures out that I am a 
romcom guy, which I am, and they are doing it because they make 
more money because I watch the streaming app more----
    Mrs. Beatty. There you go.
    Mr. Gensler. Okay. But in finance, if you are doing it and 
you are nudging somebody to trade more and churn up their hard-
earned assets, or nudging them to margin or options trading or 
higher fees on a robo adviser, and it is not in their interest, 
but it is in the investment adviser's interest, therein lies a 
conflict. That is what we are trying to address.
    Mrs. Beatty. Thank you.
    Mrs. Wagner. The gentlelady's time----
    Mrs. Beatty. And my time is up.
    Mrs. Wagner. The gentlelady yields back, and the Chair now 
recognizes the gentleman from Texas, Mr. Williams, for 5 
minutes.
    Mr. Williams of Texas. Thank you, Madam Chairwoman. The 
SEC's recent climate rule proposal was 500 pages of mandatory 
disclosures that will now require companies to report on 
emissions data and climate risk management strategies. Now, 
this proposal is a major concern for business owners back in my 
district, who are worried--I am a small business owner also--
about the SEC's recent push to implement costly environmental, 
social, and political regulatory requirements that are not even 
relevant to the company. The SEC's proposed climate 
requirements will cost companies millions of dollars to ensure 
they properly comply with these burdensome rules. This will 
force business owners to hire more lawyers and compliance 
officers rather than investing back in their employees and 
operations, which would help their businesses grow and bring 
more in revenue, and I have seen that happen in my business.
    So, businesses are already struggling to operate within 
tight margins, and an increase in compliance costs could be 
their tipping point. And on top of that, the Scope 3 emissions 
disclosure will direct companies to speculate on the emissions 
output for their suppliers and products, which requires 
substantial information in order to get a proper estimate. This 
could lead to smaller businesses being left out due to how 
difficult it is for them to obtain this complex information. 
And the SEC crusade is extremely out-of-touch and exceeds their 
intended missions and statutory authority, so the SEC needs to 
stop their abuse of the rulemaking process before they cause 
any further damage to the industry.
    Mr. Chairman, what is the average amount of time and 
resources everyday companies will need to ensure they are 
properly complying with the excessive climate risk disclosures, 
and how can mandating companies to file on indirect emissions 
related to their company provide consistent information for 
investors?
    Mr. Gensler. Mr. Barr, sitting behind you, asked a similar 
question. Let me just put it in context, if I may. Investors 
today are making investment decisions based on climate risk 
disclosures. We are trying to bring some comparability. You and 
other members have raised this question about greenhouse gas 
emissions, so-called Scope 3, and for the listening public, 
this is of the value chain. It is not about the company itself. 
It is about their suppliers or their customers.
    And we got a lot of comments in the public file about this, 
not just from Members of Congress, but from small and mid-sized 
enterprises in your district and other districts, from farmers 
and ranchers, and the like. We are taking a very close look at 
this. Our remit, our legal authority is about public companies. 
It is about the public companies, and over half of the top 
1,000 are already making disclosures around their emissions, 
but we understood even in the proposal that so-called Scope 3 
is less-developed, and is less-used. And we got a lot of 
feedback, and we are taking that under consideration and 
looking at it very closely.
    Mr. Williams of Texas. Because when you make small 
businesses smaller because of regulations, it is not going to 
work.
    Mr. Gensler. And let me assure you, sir, and I said this in 
the Senate hearing 2 weeks ago as well, our remit is just about 
those public companies. It is not the private companies in your 
district. My dad had a very small company, too. That is not the 
remit of the SEC.
    Mr. Williams of Texas. Okay. The SEC's rulemaking process 
is unprecedented, proposing over 50 rulemakings since the 
spring of 2021. The SEC has failed to understand the impact of 
these rules and how they will each affect the industry, as well 
as the aggregate amount of impact. It is crucial that the SEC 
conduct cost-benefit analysis, and solicit industry feedback of 
these proposals and what it will cost for the participants that 
the Commission oversees. I was proud to sign on to a letter led 
by Chairman McHenry to you highlighting our concerns with the 
rulemaking agenda in substantial volume. It is vital that the 
SEC understands the regulatory and financial burdens that they 
are unjustly placing on market participants, just like we 
talked about.
    In closing, Chair Gensler, has the SEC engaged in any 
roundtables, field hearings, or investor testing to really 
solicit feedback before rulemaking?
    Mr. Gensler. Again, it was good to read your letter at 
about 8:00 p.m. last night. It was a good letter. But in terms 
of your question, we solicit feedback in the formal way through 
the comment period. We solicit feedback and have hundreds of 
meetings sometimes on any one rule with market participants, 
and then we detail them in the files, and we benefit from that 
feedback.
    Mr. Williams of Texas. Thank you. I yield back.
    Mrs. Wagner. The gentleman yields back. The Chair now 
recognizes the gentleman from California, Mr. Vargas, for 5 
minutes.
    Mr. Vargas. Thank you, Madam Chairwoman, and I want to 
thank the chairman and the ranking member for giving me the 
opportunity to speak. And I want to say, Chairman Gensler, it 
is good to see you, but I have to say it is even better to see 
Chairman Lucas. Chairman Lucas was the chairman of the 
Agriculture Committee when I first came to Congress 11 years 
ago. He was eminently fair and a good person to work with. And 
we have an 1,800-pound bull on our property, on our ranch, and 
I have to tell you, don't mess with those animals. Those are 
big animals. They can do a lot of damage. So, it is great to 
see him here today. Like I said, I think everyone on this 
committee has great respect for him.
    But it is great to see you here. You were asked somewhat of 
a Catch-22 question earlier, and that was you were supposed to 
produce some documents. And within those documents was a letter 
that was given to you by this committee, and then in that 
situation, it is either you disclose that letter is in there 
and they say, ha, you disclosed the letter that we sent you, 
how typical, or if you didn't, he would say, boy, he didn't 
even disclose the letter that we sent him. So, you were sort of 
caught in a Catch-22 no matter which way you answered. I am 
glad you disclosed the letter.
    But then you were asked, I think, a very ugly and 
unfortunate question about a recent Senator and your 
interactions with him, because he has been indicted. I think 
there was an insinuation there that something that you did was 
inappropriate or improper. Could you comment on that, please?
    Mr. Gensler. I can't comment about a criminal prosecution.
    Mr. Vargas. No, not about the criminal prosecution, but the 
insinuation that you possibly did something that was 
inappropriate in your conversation with him on the phone.
    Mr. Gensler. No. I didn't discuss anything with the Senator 
in May of 2021, except for his concerns about Federal 
securities laws and disclosure, if I recall, but there might 
have been other topics that he talked about around disclosure, 
around diversity by investment advisers.
    Mr. Vargas. Yes. I just wanted to give you an opportunity 
to say that because, again, I think that was a bit of an unfair 
question.
    Mr. Gensler. In a role like mine, I engage with Senators 
and Members of the House of Representatives, and we benefit 
from those engagements.
    Mr. Vargas. No, I agree, but, again, thank you for being 
here, and thank you for answering that question. Now, I take a 
very different view of climate-related risks, of course, on 
this side, and I think it is one of the biggest issues that we 
face as a world and certainly as a country. And the reasonable 
standard, again, was created by Thurgood Marshall, and that is, 
on materiality, what would a reasonable person want to know? 
And it seems to me with all the headlines that we have and all 
the information that we have about climate-related risks, and I 
could go through a whole bunch of headlines here, which I 
won't, but it seems to be that this is a gigantic issue, and 
people want to know, and, in fact, people do want to know, and 
companies have been disclosing this for a while, so I think you 
are on the right track. But you are not a climate change 
organization, are you? You are not the cop on the beat for 
that?
    Mr. Gensler. No, no, we are a securities regulator and a 
disclosure-based regulator, and that is what we are trying to 
do here. As I have often said, investors are making decisions 
today about public companies based on their climate risk 
disclosures, and it is trying to ensure that it is truthful, it 
is accurate, and it is decision-useful.
    Mr. Vargas. Yes, and, in fact, this is what people want to 
know today, isn't it? Any investor today who reads the 
newspaper, especially if they are invested in insurance or a 
company like that, they say, well, why isn't my company 
insuring in California or along the areas in Florida that get 
swamped all the time with these huge hurricanes, and it is 
because of climate change.
    We used to have climate deniers who said, no, we have the 
scientists who say that climate change isn't real. Now, 
basically, all of the scientists agree. Then, you have some 
knuckleheaded column writers who say this isn't true, but they 
are not scientists. Pure scientists don't dispute it anymore, 
and it is real, and it is a big deal. And I am glad you are 
looking into it because investors want to know about this, 
especially long-term investors.
    Mr. Gensler. I would say from the SEC's perspective, it is 
about whether investors are making investment decisions and 
find it material, as you mentioned, the Supreme Court, the law 
of the land, that a substantial likelihood that a reasonable 
investor finds it significant in the total mix of information, 
and that is what we know to be the case today. If 80-plus 
percent of the top 1,000 companies are making some climate risk 
disclosures, they are not all making Scope 3.
    Mr. Vargas. Right.
    Mr. Gensler. We had lively discussions about that, but in 
terms of climate risks, a lot of companies are making 
disclosures already.
    Mr. Vargas. Thank you again for being here. My time is up, 
so in my last 7 seconds, I thank the Chair again. Thank you, 
Mr. Chairman.
    Chairman McHenry. The gentleman yields back. The gentleman 
from Minnesota, the Whip, Mr. Emmer, is now recognized for 5 
minutes.
    Mr. Emmer. Thank you, Mr. Chairman. Chair Gensler, I have a 
series of questions that require a yes-or-no answer, and in the 
interest of my limited time, I would appreciate it if you would 
comply with that.
    Mr. Gensler, is it fair to say generally that large 
institutions in any given industry benefit more from regulatory 
uncertainty than everyday market participants or smaller 
institutions which don't have the scale or the capital to fund 
expensive compliance teams?
    Mr. Gensler. Large institutions could benefit from 
uncertainty.
    Mr. Emmer. Reclaiming my time, the answer is, ``yes,'' sir. 
Mr. Gensler, you had an 18-year career at Goldman Sachs where 
you were partner and co-head of finance, correct?
    Mr. Gensler. Yes, sir.
    Mr. Emmer. Thank you. And is it correct to say that you 
made most of your personal wealth directly through your 
employment at this bank, Goldman Sachs?
    Mr. Gensler. I have done well since then, too, sir.
    Mr. Emmer. I will take that as a, ``yes,'' as well. You 
describe the SEC under your leadership as the cop on the beat 
watching out for our constituents, correct?
    Mr. Gensler. I think that is the mandate that Congress has 
given us.
    Mr. Emmer. Reclaiming my time, the answer is, ``yes,'' sir. 
If you could just comply with what I have asked, I would 
appreciate it. But given your 18-year career at one of the 
biggest banks in the world and the personal financial fortune 
you amassed there, do you think it is possible for you to serve 
as an impartial regulator and not favor large financial 
intermediaries?
    Mr. Gensler. Absolutely, sir.
    Mr. Emmer. Mr. Gensler, do you believe the vast majority of 
digital assets meet the investment contract test and are, 
therefore, securities operating illegally outside of the U.S. 
regulatory umbrella?
    Mr. Gensler. As I have said, many of these assets, 
basically, the public is anticipating----
    Mr. Emmer. Sir, is that a, ``yes?''
    Mr. Gensler. ----profits based on the efforts of others.
    Mr. Emmer. Is the answer then, ``yes?''
    Mr. Gensler. Again, without prejudging anyone, I do think 
that the significant majority are investment contracts.
    Mr. Emmer. Reclaiming my time, I will take that as a, 
``yes.'' And to be clear, sir, this perspective has nothing to 
do with a concern you noted in a speech last year, where you 
said, ``Over the past year, several bank executives have shared 
their concerns with me about the sheer number of depositors who 
have moved money from their bank accounts into crypto-related 
exchanges and wallets,'' right?
    Mr. Gensler. The concern that those bank executives raised 
was that those customers----
    Mr. Emmer. Again, I am reclaiming my time, sir.
    Mr. Gensler. ----were getting hurt.
    Mr. Emmer. No. I have asked you to answer the question as 
briefly as possible so I can I can use the time I have, and it 
is clear that you would like to avoid answering the question, 
in my opinion. An Obama-appointed judge in the Southern 
District of New York, a bank-friendly jurisdiction where you 
bring most of your cases, recently found that decentralized 
financial technology, ``not only removes the so-called 
middlemen from these transactions, but it also allows users to 
interact through a variety of methods in an easy and efficient 
manner.'' The court also said underwriters, like the ones at 
banks where you work, sir, are, ``precisely the types of 
individual roles that decentralized exchanges were designed to 
eliminate.''
    Mr. Gensler, can you assure this committee that your style 
of regulation by harassment towards digital assets innovation 
is for the benefit of every American and not driven by your 
desire to protect industry incumbents?
    Mr. Gensler. This is a field that is rife with fraud and 
manipulation, and I am looking out for the American investors 
who have been hurt by the crypto fraudsters and scammers.
    Mr. Emmer. I will reclaim my time. Mr. Gensler, despite 
your years of rhetoric, like today, I am convinced you are not 
an impartial regulator. Instead, it is clear that you are 
working to consolidate your own power, even though it means 
crushing opportunities for everyday Americans, and, frankly, 
the financial future of this country. Even the Federal courts 
are highlighting the damage you, sir, are doing to our 
constituents, and they are telling you that you don't have the 
legal authority to accomplish your goal of squashing 
competition in the financial markets. Congress has been telling 
you that, too.
    Now, Mr. Gensler, I believe our great financial system is 
the definition of freedom in this country, and congressional 
policies must provide room for the traditional financial system 
to evolve alongside the disruptive digital asset ecosystem. 
That said, it cannot be understated that a common theme 
throughout your career, sir, is your relentless loyalty to the 
largest financial institutions at the clear expense of 
innovation, competition, and everyday Americans. I yield back.
    Mr. Gensler. I suspect some large financial institutions 
would not agree with that.
    Mr. Emmer. There is no question now, sir. I have yielded 
back my time.
    Chairman McHenry. The gentleman yields back. The gentleman 
from New Jersey, Mr. Gottheimer, is recognized for 5 minutes.
    Mr. Gottheimer. Thank you, Mr. Chairman, and Chairman 
Gensler, L'Shana Tovah. It is good to see you.
    Mr. Gensler. L'Shana Tovah. May this year bring you health 
and happiness.
    Mr. Gottheimer. You, too, sir. If I can begin, in your 
testimony, you said that it generally takes 12 to 24 months for 
the SEC to proceed from issuing a new rule proposal to adopting 
it as a final rule. That may seem like a long time, but I 
assure you it is not a very long time for some of the smaller 
stakeholders that I speak to, who are spending so much of their 
time and resources in running their business and trying to 
compete. And, of course, I am getting concerned, and I wanted 
to get your thoughts on this as well. Are you worried that all 
these rules are putting small and mid-sized businesses at a 
disadvantage and inadvertently benefiting the larger ones that 
can better handle the deluge of all the proposals? Is there an 
unintended consequence of actually limiting the flow of capital 
to small and mid-sized businesses and favoring the larger ones?
    Mr. Gensler. We have talked about this in your office as 
well. I think that we benefit from hearing from the small 
businesses. We often then look to adjust the rules based on 
those comments, and also, if the rule is adopted, the 
implementation and compliance dates, and sometimes we stage 
that, whether it is over 12 to 24 months after a rule is 
adopted.
    Mr. Gottheimer. Part of my concern is, and I appreciate 
there are ongoing discussions on this front, by my count, you 
have issued 50 separate rules, and there are another 14 new 
rules on your most recent unified agenda that are scheduled to 
be proposed in the coming months. And I was just trying to 
figure out the volume, what this means for the smaller 
stakeholders who just don't have the regulatory backend to 
engage with the SEC and don't know how to engage with the SEC 
in some ways. What do you think about that? How are you trying 
to shape the agency to really allow for them to also have a 
fair shot at the comment period?
    Mr. Gensler. In part, by putting out the agenda itself 2\1/
2\ years ago. We have now proposed the bulk of that. We take 
meetings even after comment periods all the way up to sometimes 
a few weeks before we adopt so they can keep engaging with us, 
and certainly, if there is not a shutdown, we are here. We are 
ready to take those meetings.
    Mr. Gottheimer. Yes. You should know, just some feedback, 
that they often feel they don't know how to come into the 
agency, how to utilize the agency, and that it can be 
intimidating. Especially if you are a smaller player, you just 
don't know really how to do it, and they don't have these big 
regulatory teams.
    Mr. Gensler. I would say that sometimes those are the best 
meetings. They are not necessarily the meetings that show up on 
the calendar as much, but they really are very helpful to hear 
from those smaller asset managers, those smaller broker-
dealers, or public companies.
    Mr. Gottheimer. I would like to shift gears to digital 
assets. In July, I was proud that this committee passed 
comprehensive digital asset legislation, bipartisan, including 
my amendment directing the SEC and the CFTC to do a joint 
rulemaking, creating a process for delisting an asset. Since 
2019, I have said that clear rules of the road for digital 
asset firms are critical to protect consumers and promote 
innovation here in the United States. You have claimed that you 
have all the authority you need, but a rulemaking process 
hasn't started yet. Can you explain to us why, please?
    Mr. Gensler. Because there are already laws and rules on 
the books that apply to cryptosecurity tokens like they apply 
to others. There is nothing incompatible because you are 
storing something of value on a blockchain ledger. We talked 
earlier about being technology-neutral. Whether you are storing 
that at DTCC, the public clearinghouse, or you are storing it 
on an accounting ledger called blockchain, it is still a 
transfer of value, and the public is maybe depending on the 
token, anticipating a profit based on the efforts of others. As 
it relates to the so-called crypto exchanges, they are doing 
what we wouldn't even allow anywhere else. They are 
commingling, co-bundling, trading against the public, and 
sometimes front-running the public on their platforms.
    Mr. Gottheimer. Memorandums of understanding (MOUs) have 
long been used and adopted in a number of contexts. In June 
2022, you told the Financial Times that you are working on an 
MOU with the CFTC to avoid regulatory gaps for crypto. Can you 
give us an update on the status of the MOU, please?
    Mr. Gensler. I was hopeful that we would do something 
there, but what we do, on a case-by-case basis and an issue-by-
issue basis work, is with the Commodity Futures Trading 
Commission with regard to this crypto field. They have 
important authorities. They execute against those authorities. 
We do against our authorities, really both with the same goal 
of protecting the public.
    Mr. Gottheimer. Thank you. May you have a sweet New Year. 
Thank you. I yield back.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Michigan, Mr. Huizenga, is recognized for 5 
minutes.
    Mr. Huizenga. Thank you, Mr. Chairman, and it's good to be 
back. I was out of order here because I was in a bipartisan 
meeting with the Speaker talking about a debt commission, and I 
hope that is going to be part of the path forward that we are 
dealing with for government funding and our long-term debt. But 
I want to move quickly.
    I want to follow up on some of Chairman McHenry's questions 
and remarks, and I am not going to belabor the whole situation, 
where the public documents that you have given us on our 
request that has been out there for over 7 months, with no real 
information except for that which was already available through 
Freedom of Information Act (FOIA) requests by the public. Our 
request simply seeks to obtain information to better understand 
the black box of the SEC's activities on climate-related 
measures and its rulemaking authority, and you had said in your 
own remarks, ``based on authorities granted by Congress.'' 
Well, I dispute the assertion that you have been granted that 
authority in this particular case, and we are a co-equal branch 
of government, and this is routine congressional oversight.
    Let's talk a little bit about the Commission vote for the 
climate request. When Chair McHenry asked if you have scheduled 
a vote for the Commission, I did not hear an answer on that or 
when a vote will be scheduled. I did not hear an answer on 
that. There are 13,000 emails and documents we have been told 
are ready to be produced but are being held up by a provision 
within the Exchange Act that requires a vote of the SEC 
Commissioners, is your assertion or the Commission's assertion. 
Lawyers differ on that, and it is my understanding that you 
claim that you don't have the votes necessary on the 
Commission, but Mr. Gensler, I want to ask you this: Are you 
personally ready to vote, ``yes,'' to produce these documents 
to this committee?
    Mr. Gensler. We continue to work with your staff. We have 
voted as a Commission on the, I think they are called 
transcribed interviews of----
    Mr. Huizenga. The transcribed interviews are very different 
than the documents that we have requested. I am not asking you 
about the Commission. Are you voting, ``yes,'' and will you 
vote, ``yes,'' on giving that information to our committee as 
requested?
    Mr. Gensler. Again, as I have said, I truly believe in the 
oversight of this committee and working with the committee 
and----
    Mr. Huizenga. Yes or no?
    Mr. Gensler. ----working with my fellow Commissioners, and 
we are----
    Mr. Huizenga. I want to know what you are going to do, not 
speaking for anybody else. You.
    Mr. Gensler. Again----
    Mr. Huizenga. Yes or no?
    Mr. Gensler. Sir, again, we are working through this at the 
Commission level and with your staff.
    Mr. Huizenga. Come on. This is ridiculous. Okay. So, let's 
assume your answer now is, ``no.'' What have you done to try to 
produce a vote of any sort? Are you talking to your fellow 
Commissioners? Are you asking them to vote for that?
    Mr. Gensler. We have ongoing discussions. We, of course, 
have to have it one-on-one because of the Government in the 
Sunshine Act.
    Mr. Huizenga. Okay. Frankly, we have been pretty cloudy 
over here on the congressional side. You are fulfilling FOIA 
requests, but you will not give that same information to 
Congress. That is a problem. Under 24(c), the delegated 
authority by the Commission allows you to do those FOIA 
requests without a vote of the Commission. It seems to me that 
maybe we need to help you out. Does that seem reasonable? 
Because here is our problem, what happens if you never get the 
votes? What is your plan, to ignore Congress?
    Mr. Gensler. We are going to continue to work with you.
    Mr. Huizenga. What is your plan, because we have a plan. 
The chairman outlined the plan, and it begins with a, ``P,'' 
and ends in, ``oxy,'' and it is not a fun word that any of us 
want to fulfill.
    Mr. Gensler. Again, we are continuing to work and trying to 
get you documents on a regular basis.
    Mr. Huizenga. But you are not. You are giving us publicly-
available documents. That is not the role of oversight. Are you 
open to legislation that would clarify that the SEC is not 
required to have a full Commission vote to comply with the 
requests from Congress or this committee?
    Mr. Gensler. Again, I would have to have staff look at the 
legislation. We would give technical assistance as we have 
given on other provisions of----
    Mr. Huizenga. I am pretty sure we don't need your technical 
assistance because so far, the technical assistance has gotten 
us nothing. I enthusiastically support the Chair's discussion 
of using compulsory process, and it is shameful that you are 
hiding behind this 24(c) process and that the Commission is, 
and we are going to have to remedy that apparently based on 
your lack of cooperation. One last quick question: Did you ever 
receive a memorandum or agency document in writing assessing 
the Supreme Court's decision on West Virginia v. EPA on the 
SEC's rulemaking authority?
    Mr. Gensler. I know that we have had discussions. I don't 
remember any memo.
    Mr. Huizenga. I am going to ask you to follow up.
    Mr. Gensler. I have the Supreme Court's----
    Mr. Huizenga. My time has expired.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Huizenga. We are going to have you follow up in 
writing.
    And with that, Mr. Chairman, I yield back.
    Mr. Gensler. Thank you.
    Chairman McHenry. The gentleman from Illinois, Mr. Casten, 
is recognized for 5 minutes.
    Mr. Casten. Thank you, Mr. Chairman. It's nice to see you 
again, Chair Gensler. I want to talk about your climate 
disclosure rule. I know it surprises you that I want to talk 
about that, and I realize that with it coming out soon, we are 
not going to be able to get into specifics, but I do just want 
to expand a little bit.
    You had mentioned to Mr. Cleaver that investors were asking 
for more clarity because of all of the voluntary disclosures 
that are out there, and I think, but I don't want to be 
presumptuous, that there is some history there that I am hoping 
you can share, because I think in 2010, the SEC entered a draft 
that is sort of interpretive guidance regarding more voluntary 
disclosures. Can you clarify what happened between 2010, and 12 
years later in March of 2022, when the SEC decided that it was 
necessary to provide some more disclosure, and specifically, if 
you can comment on what was industry asking you for?
    Mr. Gensler. A lot changed in the 12 years particularly. 
Investors got more and more interested making investment 
decisions, and here in the U.S., companies responded. Their 
investor relations and their CFOs and corporate executives 
responded to meet those requests by investors, and they started 
following something that was called the Taskforce on Climate-
related Disclosures (TCFD) framework. You are probably familiar 
with this international framework, which, interestingly, was 32 
people who were mostly from industry. They weren't from the 
government sector. And by 2021, 80-plus percent of the top 
1,000 companies were making some climate risk disclosures. That 
is what really changed--investor demand for investor decision-
making--and that is where the SEC has a role.
    Mr. Casten. I appreciate that. That certainly is consistent 
with my experience in the private sector, and I think it is sad 
that we need to keep reminding folks that this was really an 
industry-led initiative in the first instance. I want to move 
to the State level, because a little while ago you had 
mentioned to The Wall Street Journal that if California 
finalized some rules, I think you said, ``This may change some 
of the economic baseline of the Commission as it relates to the 
pending order.'' And of course, last month, the California 
legislature did pass a package of climate disclosure bills, 
which I understand only relate to companies beyond a certain 
size that do business in California. But given your earlier 
comments, can you speak to how, if at all, that is factoring 
into how you are thinking about the disclosure and whether you 
are still on pace for an October release, as you had earlier 
indicated?
    Mr. Gensler. We look at the economics very seriously, and 
that law that was passed in California is not yet signed. But 
if it were signed into law, as I understand it, that would 
require companies of a certain size to report on their climate 
risk, I think over half a billion dollars in revenues and those 
over a billion dollars in revenues to report greenhouse gas 
emissions, and for the listening public----
    Mr. Casten. And on a Scope 1, Scope 2, and Scope 3 basis. 
That is what you are pointing at.
    Mr. Gensler. Yes, all three of these scopes, but for the 
listening public, it is estimated that somewhere between 1,400 
and 1,500 public companies might need to report under that law. 
We have not confirmed that number. That is just an estimate 
that is in the press, and that may change the baseline. If 
those companies were reporting to California, then it would be, 
in essence, less costly because they have already been 
producing that information. It is also important, because the 
investing public is making decisions based on those public 
reports, that the reports are accurate, and that they are 
truthful, because the investing public benefits by making sure 
of the accuracy of the disclosures.
    Mr. Casten. And you had indicated that you are targeting an 
October release date for the final rule. Are you still on that 
pace? Can you speak to that? And do California's actions in any 
way change that?
    Mr. Gensler. Let me just put this a little in context. 
Twice a year, working with the Office of Management and Budget 
(OMB), we put out what is called a Unified Agenda, and we put 
dates on all of the proposals really and two different dates of 
the year, so I wouldn't, with all due respect, put too much 
emphasis on that. With 16,000 comments, we have gone through it 
15, 16 months since we made the proposal. It tends to take, 
again, 12 to 24 months, but we are not doing this against the 
clock, but when the staff is ready, and when the Commission is 
ready.
    Mr. Casten. Thank you. I have more questions, but I am out 
of time, so I yield back. Thank you again for being here.
    Chairman McHenry. The gentleman yields back. We will now go 
to the gentleman from Georgia, Mr. Loudermilk, for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. Chairman Gensler, 
thank you for being here.
    Mr. Chairman, without objection, I would like to submit for 
the record a Wall Street Journal article by Warren Stephens and 
Paul Reilly, entitled, ``The SEC Wants to Spy on Your 
Portfolio.''
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Loudermilk. Thank you, Mr. Chairman. Chairman Gensler, 
as the op-ed points out, prior to the Consolidated Audit Trail, 
the government needed legal cause to force financial 
institutions to report their customers' personally identifiable 
information. In your opening statement, you refer to the SEC as 
the cop on the beat, but law enforcement has to comply with due 
process.
    And I am concerned--no, I am convinced--that the 
Consolidated Audit Trail has the potential to become another 
warrantless surveillance program. And as we have all 
experienced, if you extend the government power, that power 
will inevitably be abused, as we saw with the FISA courts, 
especially if that power does not have direct oversight and 
control by Congress.
    My first question, Mr. Gensler, is, have you read this 
article that just came out the other day in The Wall Street 
Journal about the Consolidated Audit Trail?
    Mr. Gensler. I may have. I feel like in the last 2 days, I 
saw the headlines.
    Mr. Loudermilk. Okay. It goes on to explain the problems 
that I have laid out several times when you have been here 
before about the collecting of personally identifiable 
information and, quite frankly, a lot of information about 
individuals and their buying of stocks. In fact, when you were 
here last time, I believe that you expressed that the purpose 
of this is so you could peruse to look for any potential 
illegal activity. That is a blatant violation of the Fourth 
Amendment. That is what this article is spelling out, and it 
has gotten the attention of a lot of people, even outside the 
financial services arena. So I would encourage you to please 
read it, because I think it explains the concerns that many of 
us have about this program.
    Also, Mr. Chairman, I would like to submit for the record a 
letter that was sent by me and my colleagues to Mr. Gensler----
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Loudermilk. ----regarding the Consolidated Audit Trail.
    Thank you, Mr. Chairman. And, Mr. Gensler, regarding this 
letter, in the letter, I ask about the 3,000 individuals, the 
estimated number of people or institutions that would have 
access to the Consolidated Audit Trail or the customer account 
information system, and 3,000 would have access to it. Who are 
these individuals, and how will they be vetted for access to 
such sensitive information?
    Mr. Gensler. One, I will read the article that you 
mentioned. Two, in terms of individuals, this Consolidated 
Audit Trail is only allowed to be used at the SEC and by the 
self-regulatory organizations. At the SEC, it is our Division 
of Enforcement, our Division of Economic and Risk Analysis, and 
our Division of Trading and Markets.
    Mr. Loudermilk. How are all these 3,000 individuals getting 
access to personally identifiable information and details about 
stock transactions by even just a factory worker who has a 
Robinhood account? What is the vetting process on this, and how 
are we going to ensure that they do not use this in violation 
of personal rights?
    Mr. Gensler. I just want to say I am not familiar with that 
number, but in terms of at the SEC, these are people who are 
dedicated public servants, who are full time at the agency, 
either in our Division of Enforcement, our Division of Economic 
and Risk Analysis, or our Division of Trading and Markets----
    Mr. Loudermilk. Okay. Well, if you respond to the letter, 
that may be helpful, and I would like to move on because we are 
getting short on time. This is really just a yes-or-no 
question. Will the SEC use data collected via the Consolidated 
Audit Trail and the customer account information system to 
bring enforcement actions?
    Mr. Gensler. We have already, and we anticipate doing so in 
the future.
    Mr. Loudermilk. Okay. Let me make sure I have this right. 
Well, let me ask you this. How has the Consolidated Audit Trail 
been funded? Is this being appropriated by Congress?
    Mr. Gensler. It is by industry funding.
    Mr. Loudermilk. Okay. So, private industry is funding this. 
The cost of this has gone up exponentially since it started, 
but just to close out, I want to make sure I understand. You 
are saying that the Consolidated Audit Trail is a comprehensive 
database of transactions used for Federal enforcement purposes, 
but it is not subject to congressional oversight or through 
appropriations. This is lining up to be another surveillance 
program without any control, without any constraint, and 
without even the power of the purse. I yield back.
    Chairman McHenry. The gentleman's time has expired. We will 
now go to the gentleman from New York, Mr. Torres, for 5 
minutes.
    Mr. Torres. Thank you, Mr. Chairman. Mr. Gensler, good 
morning. I worry that the term, ``investment contract,'' has 
become so infinitely malleable and manipulable that it means 
whatever you unilaterally think it ought to mean, right? I 
worry that when it comes to crypto, your interpretation of the 
term, ``investment contract,'' has no limiting principle and, 
therefore, could invite arbitrary and capricious enforcement 
actions. So, I want to take a few minutes to explore the 
concept of investment contract in greater depth, and I want to 
start with an obvious definitional question. We know that an 
investment contract requires an investment. Does an investment 
contract require a contract?
    Mr. Gensler. I will quote Thurgood Marshall, ``Congress 
painted with a broad brush,'' and when Marshall said that, he 
was writing the law of the land. So, we follow this Howey Test 
and how, not just Marshall, but other courts interpreted it, 
and it has four components----
    Mr. Torres. Again, I did not go to MIT, but in the Bronx, 
if I ask whether an investment contract includes a contract, 
the answer is typically either yes or no.
    Mr. Gensler. Actually, sir, under the Supreme Court law of 
the land, they do not write that in. They say it is an 
investment of money in a common enterprise, and you are 
anticipating profits based on the efforts of others. I took an 
oath to follow the law of the land, and that is the Supreme 
Court law of the land.
    Mr. Torres. In Howey, the Supreme Court refers to an 
investment contract as a contract, scheme, or transaction. That 
was the terminology that I saw in the case. And as far as I can 
tell, there is nothing in the Supreme Court's jurisprudence 
that suggests that a scheme or transaction means the absence of 
a contract. And by way of illustration, consider the landmark 
case of SEC v. Howey. In the Howey case, there was not a single 
contract, but there were two contracts: a land sales contract 
with the Howey Company; and a service contract with Howey-in-
the-Hills. And the Court found that the combination of those 
two contracts, the total scheme, the total transaction, the 
total economic reality was constitutive of an investment 
contract, and so a scheme or a transaction does not mean the 
absence of any contract at all. It means as it did in Howey, a 
multiplicity of contracts.
    In August, there were six law professors from law schools 
as preeminent as Yale who came to the following conclusion: 
``No decision of the Supreme Court has ever found that a scheme 
that does not involve a contract could qualify as an investment 
contract.'' Do you disagree with that statement, and if so, 
could you please cite a decision of the Supreme Court that has 
found an investment contract in the absence of an actual 
contract?
    Mr. Gensler. The SEC has been in front of multiple courts, 
and investment contract has been----
    Mr. Torres. What is the name of the case, Mr. Gensler, the 
Supreme Court case that has found an investment contract in the 
absence of an actual contract? Can you cite a case?
    Mr. Gensler. The SEC over the decades, whether it is----
    Mr. Torres. Can you cite a case?
    Mr. Gensler. ----whiskey caskets, whether it is crypto, if 
the public is investing based upon the efforts of others----
    Mr. Torres. I find it telling that you cannot cite a single 
case----
    Mr. Gensler. ----that is a security.
    Mr. Torres. How about a Second Circuit case? Can you cite a 
single Second Circuit case that has found an investment 
contract in the absence of a contract?
    Mr. Gensler. I understand where you are trying to go, and I 
am going to leave that to the very fine attorneys at the SEC in 
front of courts, but I am saying the core principle is----
    Mr. Torres. Mr. Gensler, let me finish.
    Mr. Gensler. This is a field that is filling the pocket of 
the public.
    Mr. Torres. This is a question to which you should know the 
answer because the definition of an investment contract is the 
central issue. That is what determines the extent of your 
authority, that is what determines the applicability of Federal 
securities law to crypto transactions, and your inability to 
answer that question is baffling to me.
    Mr. Gensler. I am answering it consistent with what the 
Supreme Court has said, which is the law of the land, is a 
four-part----
    Mr. Torres. And yet, you cannot cite a single case to 
support your argument.
    Mr. Gensler. It is called Howey. It is called Reeves. It is 
called many cases at the Supreme Court, sir. Eight or nine 
times, it has been affirmed by the Supreme Court.
    Mr. Torres. Suppose I were to purchase a Pokemon card. 
Would doing so constitute a security transaction?
    Mr. Gensler. You could purchase a Pokemon card. I don't 
know what the context is, but if you are purchasing a Pokemon 
card----
    Mr. Torres. If I purchase a Pokemon card, is that a 
security transaction?
    Mr. Gensler. ----at a retail store, that is not a security.
    Mr. Torres. Okay. If I were to purchase a tokenized Pokemon 
card on a digital exchange via a blockchain, is that a security 
transaction?
    Mr. Gensler. I would have to know more.
    Mr. Torres. Okay. So for you, the process of tokenization 
is what transforms a non-security transaction into a security 
transaction?
    Mr. Gensler. Look, if the investing public----
    Mr. Torres. I thought you were technology-neutral.
    Mr. Gensler. If the investing public is anticipating 
profits based upon the efforts of others and they are 
exchanging funds, that is the core----
    Mr. Torres. I see my time has expired.
    Chairman McHenry. The gentleman's time has expired. We will 
now go to the gentleman from Ohio, Mr. Davidson, for 5 minutes.
    Mr. Davidson. Chairman Gensler, recently a Federal court 
called your rejection of a Bitcoin exchange-traded fund (ETF), 
``arbitrary and capricious.'' In a subsequent interview, you 
dismissed the judge's opinion. Asked a follow-up question, ``If 
anything a judge says would change your mind,'' you responded, 
``Well, no, not really.'' It seems that you don't really 
recognize the authority of the Judicial Branch. You seem to 
have a love for the Howey Test selectively applied, as 
illustrated by Mr. Torres, but in light of those reactions, 
what should people think about the Bitcoin ETF? How will the 
SEC revise its approach?
    Mr. Gensler. We have great respect for the courts. I 
personally have great respect for the courts. We are 
considering that. It is still an act of consideration at the 
Commission, and we are familiar----
    Mr. Davidson. So, you haven't made up your mind.
    Mr. Gensler. ----with the case.
    Mr. Davidson. Yes. I have to tell you that many market 
participants have reached out and are concerned that you will 
arbitrarily, perhaps also capriciously, pull recent filings 
ahead of others who have been working with the SEC for years to 
get an approval for a Bitcoin spot ETF. Will this resemble some 
sort of free pass for one favored company while others remain 
locked out? And I ask that because it seems that has happened 
before at the SEC.
    Mr. Gensler. Sir, I am not sure if I am following. We are 
still considering that court case and the application, as you 
say, to Bitcoin exchange-traded products.
    Mr. Davidson. Are you going to preserve people's places in 
line, or are you going to pull ahead a favored transaction or 
another on the consideration of a Bitcoin spot ETF? Are you 
going to preserve the place in the queue? Because timing 
matters. People have worked on this for years, and then you get 
a recent filing by somebody big in the market, and it seems 
like, oh yes, let me take your calls. How can I help? 
Meanwhile, you have given the stiff arm, as I have said, Hotel 
California-style regulations, where you can check in with the 
SEC, but you can never leave with clarity. And how about the 
Legislative Branch? Do you recognize the authority of Congress 
or the laws that we pass?
    Mr. Gensler. Yes. We comply with the laws that Congress 
passes every day.
    Mr. Davidson. I have heard you say that about the courts 
and now Congress, which is encouraging, but I am inclined to 
judge your deeds more than your words. And I will pick up where 
one of my colleagues, Mr. Huizenga, left off with the Supreme 
Court decision in West Virginia v. the EPA. Are you are 
familiar with that case?
    Mr. Gensler. Yes, sir, I am familiar with it. It is an 
important case.
    Mr. Davidson. I'm glad to hear you say that, and it would 
be binding, correct?
    Mr. Gensler. It is the law of the land, sir.
    Mr. Davidson. That is right, and it introduces the major 
questions doctrine. You told Mr. Barr that you received tons of 
feedback on your proposed ESG disclosure rules, feedback that 
should make it clear that the proposal for ESG disclosure is a 
major question, and it should make clear that you don't have 
the legal authority to do that. So, I would ask you to knock it 
off, cease and desist, and work with this body to pass a law if 
you want to regulate something.
    Frankly, your time as Chair has highlighted two problems: a 
Gary Gensler problem; and a structural flaw in the SEC. And as 
I told you in April, I proposed a solution called the SEC 
Stabilization Act. You are making the case for this bill easier 
every day. You are acting as the Chair by doing rulemaking 
after rulemaking without any regard to the impact of these 
rules, or maybe that is the feature for you, I don't know, but 
it is having a massive impact on our markets. We have markets 
that truly are the envy of the world. Why would you disrupt 
them with processes that are driving capital out of our 
markets, not to avoid our laws, but to find some place where 
they can get clarity, where they can work with a regulator and 
get a decision and a path forward?
    So instead of selectively applied, you are not providing 
clarity with a rule that is evenly applied. You are 
intentionally shortening comment periods to limit feedback, and 
the courts have even called this arbitrary and capricious. You 
are pushing a woke political and social agenda, and, I think, 
abusing your role in the authority of the SEC as cover. I 
think, fundamentally, the SEC Stabilization Act would remove 
the role of Chair. It would preserve the current Commissioners, 
and we would add a sixth Commissioner, so there would be no 
more than three from any one political party, and that would 
provide a path that would make the SEC do what you are 
avoiding. Frankly, you are front-running Congress, you are 
front-running the courts, you are front-running even the 
Administration, and no one has held you to account for that. I 
wish the Biden Administration would say, you are fired, but the 
list of folks they need to do that for is long. Congress 
hopefully will with the SEC Stabilization Act. I yield back.
    Chairman McHenry. The gentleman's time has expired. We will 
now recognize the gentleman from Nevada, Mr. Horsford, for 5 
minutes.
    Mr. Horsford. Thank you, Mr. Chairman, and thank you to the 
ranking member for the hearing, and to Chair Gensler for being 
here. While investor protection remains paramount for my 
colleagues and myself, it should not be lost on anyone here 
that the largest risk our investing public is exposed to at 
this moment is the risk of a government shutdown. We hear time 
and again in this committee that our capital markets are the 
deepest and most efficient in the world, and yet, a large part 
of why they were able to reach their presently-enjoyed imminent 
status is because investors around the globe have confidence 
that the SEC has the power necessary to maintain fair and 
orderly markets.
    Without proper funding in place, the SEC cannot carry out 
that critical investor protection mandate, and I fear that as 
funding disruptions become increasingly more common, we risk 
losing the world's confidence. And I will continue working 
earnestly with my colleagues to avoid a counterproductive MAGA 
Republican-inflicted government shutdown, but I ask all of my 
colleagues to consider the far-reaching consequences of this 
short-sighted path.
    Chairman Gensler, when we last spoke, I raised concerns 
regarding the open-end fund liquidity rule, and I appreciated 
your willingness to consider that the vast majority of my 
constituents do the bulk of their investing through their 
retirement plans. These hardworking Nevadans should not be at 
risk of losing out on today's price simply because they live on 
the West Coast.
    Chairman Gensler, as the SEC continues to evaluate its 
economic analysis for the open-end fund liquidity proposal, 
what have you been able to ascertain about the disparate impact 
for investors based on geographic location?
    Mr. Gensler. It has been raised by you, and it has also 
been raised by members of the public.
    Mr. Horsford. Have you resolved it in the rule? And I only 
have 3 minutes.
    Mr. Gensler. No, I appreciate it. I am not trying to 
prejudge where we will end up. The overall rule had three key 
parts. You are focused on one, which is what was called the 
close or hard close, but there are two other really important 
parts, liquidity, just what is the liquidity behind----
    Mr. Horsford. So, will the geographic location be factored 
in your final rule? Yes or no?
    Mr. Gensler. It is an aspect of it. All funds today close 
at 4:00 p.m., Eastern Standard Time, so it is already----
    Mr. Horsford. Which disproportionally impacts Nevadans and 
people on the West Coast. So, I am going to keep pressing the 
issue until you understand that it is a disparate impact on 
those of us who live on the West Coast, and Nevadans should not 
be treated unfairly because of where they live. That needs to 
be factored into the final rule.
    Mr. Gensler. No, I agree, sir.
    Mr. Horsford. Chairman Gensler, as Mr. Meeks pointed out 
earlier, minority- and women-owned firms still tend to be 
smaller, as they work to overcome their traditional 
underinvestment and lack of working capital. As you heard 
previously, these smaller, more-diverse firms will have more 
difficulty complying with the new disclosures required and will 
have less ability to absorb the cost associated with doing so.
    Earlier, you had begun discussing the expanded analysis the 
SEC made for the disproportionate impact on diverse and women-
owned funds when the Commission considered the private fund 
adviser rule. Would you be able to expand upon your earlier 
answer that these funds were included in the analysis of small 
business, and give us any specifics that your team found on the 
potential impacts on these funds?
    Mr. Gensler. I would be happy to have staff follow up with 
the actual pages and the parts of the economic analysis, but it 
was considered as part of the effects on small investment 
advisers, including women- and minority-held firms.
    Mr. Horsford. The issue of waning diversity in our equity 
markets is of great concern and we must be careful about adding 
any additional burdens on these small firms. I look forward to 
working with the SEC specifically on this issue. As I said, it 
is a wider issue, Mr. Chairman, and I worry that at a time when 
attacks on diversity, equity, and inclusion initiatives, not, 
``woke,'' like my colleague just referred to--the next time 
someone uses that word, would you define what you mean by it, 
because to me, it means anti-diversity. It means anti-
inclusion, and if that is what you stand for, then you don't 
represent me or my constituents.
    We are working hard to hold the line. There is nothing in 
any court decision by the Supreme Court or anywhere else that 
should quell the private sector's commitment to diversity, 
equity, and inclusion. We must use every tool available to us 
to not only bring new entrants into the financial system, but 
to also promote their successes----
    Mr. Meuser. [presiding]. The gentleman's time has expired.
    Mr. Horsford. ----within our financial institutions as 
well. I will yield back at this time.
    Mr. Meuser. The gentleman yields back. The gentleman from 
Tennessee, Mr. Rose, is now recognized for 5 minutes.
    Mr. Rose. Thank you, and thank you, Chair Gensler, for 
taking the time to leave your virtual office in Maryland to 
attend today's hearing, and I was also glad to see that you 
held an in-person, open meeting last week for, I think, the 
first time during your chairmanship. I say that because, Chair 
Gensler, you are rarely in the office and conduct most of your 
meetings from the comfort of your home, and what I wonder is, 
how can we be sure of whom you are meeting with on a daily 
basis? If perhaps someone from Better Markets comes over for 
dinner to discuss, ``Europeanizing,'' our U.S. capital markets, 
would that be logged and made publicly available on your 
calendar?
    Mr. Gensler. I haven't had any of those dinners, but 
hypothetically, if I had that dinner, it would be logged.
    Mr. Rose. I hope so, and I am glad to hear that. Chair 
Gensler, in your written testimony, you state that, ``We also 
have finalized 24 rulemakings, nearly all of which have changed 
based on public feedback.'' Approximately how many hours per 
week do you personally spend reading public comments submitted 
to the unprecedented number of proposed rulemakings issued by 
the SEC?
    Mr. Gensler. I work a lot of hours during the week. My kids 
are grown and out of the house, and my girlfriend lives in a 
different city, so I don't know how it breaks down. I usually 
get summaries of the comments. If they are from a Member of 
Congress, I read all of the Members of Congress' comments 
personally, but then I get examples in each of the rulemakings, 
a handful on each of the issues.
    Mr. Rose. I am glad to hear that as well. Chair Gensler, in 
May, I co-led a bipartisan letter to you, along with my 
colleague, Jennifer Wexton, and 22 of our colleagues, regarding 
troubling accusations that the China-backed fast-fashion 
retailer, Shein, allegedly engages in human rights violations, 
including utilizing materials that may have been made using 
Uyghur forced labor. Do you believe that Shein should be 
required to certify via independent verification that the 
company does not use Uyghur forced labor as a condition of 
being registered to issue securities in the United States?
    Mr. Gensler. If I might step away from one registrant and 
go a little broader, Congress passed a law--the Uyghur Forced 
Labor Act, I think was the name--and that is the law of the 
land. The staff put out guidance earlier this year to all 
public registrants that they have to speak to if they are in 
compliance with that Act of Congress. Again, materiality 
matters, and we have been very clear with that with individual 
registrants in their filings, and our Division of Corporation 
Finance makes that abundantly clear in each of those registrant 
discussions.
    Mr. Rose. Thank you. Mr. Chairman, I ask unanimous consent 
to have the text of that letter entered into the record.
    Mr. Meuser. Without objection, it is so ordered.
    Mr. Rose. Chair Gensler, regarding cryptocurrencies and 
shifting gears, I am interested in why you have pursued a 
litigation-heavy strategy, despite the fact that neither you 
nor any of your senior staff are litigators, neither your Chief 
of Staff nor your Policy Director or even your General Counsel. 
Why have you settled on such a litigation-heavy strategy to 
address the cryptocurrency market?
    Mr. Gensler. Frankly, it is because the field is so rife 
with hucksters and fraudsters and non-compliant parties. But we 
have also done rulemakings, one related to broker-dealers that 
was completed a number of years ago, and then others related to 
the definition of, ``exchange,'' and the custody role that has 
been discussed a bit here, and even something called best 
execution. But this is a field where the American public is at 
risk and being harmed every day on these platforms that are 
commingling and often trading against their customers.
    Mr. Rose. In my view, it seems that these cases are brought 
with an explicit political agenda, not a substantive legal one.
    Mr. Gensler. Nothing could be further from the truth. The 
only thing political is protecting the American public, which I 
think Members of both sides of the aisle will probably agree 
with; they don't want to see constituents hurt, and in a place 
where a lot of crypto projects are not properly disclosing, 
there have been too many bankruptcies, and in the bankruptcies, 
investors are just lining up at the bankruptcy court.
    Mr. Rose. Thank you. In my opinion, I would like to see you 
do more from the regulatory and guidance side----
    Mr. Meuser. The gentleman's time has expired.
    Mr. Rose. ----because this industry is so important, and we 
need to foster it, in my view. Thank you, and I yield back.
    Mr. Meuser. The gentleman yields back. The gentlewoman from 
Michigan, Ms. Tlaib, is now recognized for 5 minutes.
    Ms. Tlaib. Thank you. And thank you, Chair Gensler, for 
being here. I know that you have been pretty public about or 
maybe you made an argument or took a position that it is too 
costly for firms if the SEC establishes a robust climate 
disclosure rule. Is that correct?
    Mr. Gensler. There are many comments in our comment file 
that have raised that, and that is what I am talking about 
because we, under the Administrative Procedure Act, have to 
take all of those comments----
    Ms. Tlaib. I understand.
    Mr. Gensler. ----and do an economic analysis that takes 
into consideration the cost.
    Ms. Tlaib. In those comments, I think about 1,000 companies 
have already voluntarily reported emissions from their 
customers and suppliers. We call it Scope 3 emissions, as you 
know, where most of the firms' greenhouse gas emissions can 
originate. On top of that, we also are now seeing that 
thousands of additional U.S. companies will soon be required to 
report Scope 3 emissions to comply with the EU standards. And 
California, I think, just passed a bill that would require 
roughly 5,000 public and private companies to report Scope 3 
emissions, correct?
    Mr. Gensler. Yes, I believe both Europe, and if the 
governor signs the law in California, that will be the case, 
and it will change the economics because, in essence, it 
changes the baseline----
    Ms. Tlaib. Just looking at those moves by California, of 
course, and the EU's Scope 3 emissions disclosures, would it 
undermine the argument that such reporting will be overly 
burdensome if required by SEC?
    Mr. Gensler. While it may change the economics over the 
course of the years, California's rule wouldn't be in place 
until 2027, I believe. The SEC still has to stay within our 
remit and the laws as Congress has passed, and it is about 
investor decisions and what is being disclosed.
    Ms. Tlaib. Sure. If I may, Mr. Chairman, I would like to 
submit for the record a letter signed by 25 of my colleagues 
from the House and the Senate, urging you, Chair Gensler, to 
finalize a robust climate disclosure rule that includes Scope 3 
emissions.
    Mr. Meuser. Without objection, it is so ordered.
    Ms. Tlaib. It is pretty simple why we need a robust 
disclosure rule, Chair Gensler. At least, it is simple for me. 
I know this is what you do every day, but I think the impact on 
the ground for my family is pretty clear. Currently, U.S. 
companies can and do obscure their exposure to climate risks, 
as you probably already know, and threaten the investments that 
retirees and workers depend on. For example, you look at 
Brookfield Renewable, an affiliate of a giant asset manager, 
and Brookfield describes itself as, ``one of the world's 
largest publicly-traded, pure play, renewable power 
platforms.'' That sounds like a choice that would avoid 
climate-related financial risks, right? Wrong. A recent report 
found that Brookfield Renewable has invested in a fund that 
holds fossil fuel infrastructure assets, including Alberta oil 
sands' pipelines, which the firm does not disclose in its SEC 
filings.
    This is just one example among many, Chair Gensler, of 
financial greenwashing which regularly involves emission of 
Scope 3 emissions. So again, I really think such practices 
jeopardize the hard-earned life savings of many of my residents 
and of workers across our country, retirees who invest paycheck 
after paycheck year after year to secure their financial 
future. So just please know, and I want to be on record that I 
really would urge you to move forward on having a robust 
disclosure rule, but with that, Mr. Chairman, I would like to 
yield the rest of my time to Mr. Foster.
    [Chart]
    Mr. Foster. Thank you. I just have a quick question. I take 
it that you are familiar with this graphic from Bloomberg that 
shows you lagging significantly behind your three predecessors 
in terms of the number of rules you finalized in the first 2 
years of your tenure?
    Mr. Gensler. I did read that in Bloomberg Law 2 weeks ago.
    Mr. Foster. Okay. Now, when your Republican predecessor, 
Harvey Pitt, finalized 34 rules in his first 2 years and 4 
months, I guess, was that preceded by the sort of detailed 
cost-benefit analysis of all the possible interplays between 
all of these rules that our Republican colleagues are asking 
for?
    Mr. Gensler. It included cost-benefit, but we benefit 
from----
    Mr. Foster. But the interplay between the 34 rules, which 
now is apparently the bar.
    Mr. Gensler. Oh, thank you. As best I understand it, they 
did it rule by rule, individually.
    Mr. Foster. Individual, yes. And when Mary Shapiro did 28, 
or under Trump, Jay Clayton did 25 rules in the first 2 years, 
was there any comprehensive analysis of the interplay that is 
now being demanded?
    Mr. Gensler. Again, we are following----
    Mr. Meuser. The gentleman's time has expired.
    Mr. Foster. Thank you.
    Mr. Meuser. The gentleman yields back. The gentleman from 
South Carolina, Mr. Timmons, is now recognized for 5 minutes.
    Mr. Timmons. Thank you, Mr. Chairman. Chair Gensler, thank 
you for being here today.
    Mr. Gensler. It is good to see you again.
    Mr. Timmons. Yes, sir. The SEC's onslaught of rulemaking, I 
think, is severely impeding U.S. markets in the name of 
protecting investors from themselves. Your regulatory approach 
is an insult to the intelligence of Americans and their ability 
to make risk-based decisions when investing. Quite frankly, we 
have never seen market participation at the levels we see 
today. The current ecosystem represents a thriving financial 
sector where people, no matter their income levels, have access 
to investment opportunities previously unseen in human history.
    And this is why I struggle to rationalize why the SEC 
continues down this warpath of rushed and quickly-written 
proposed rules. I could go down the list and probably name 
dozens of proposals that I think are too broad and lack 
quantitative analysis or have reduced comment periods, but I am 
just going to talk about a couple of them.
    On December 14, 2022, the SEC released four proposals that 
would overhaul the regulations governing equity markets. These 
proposals make sweeping changes to how stock orders are priced, 
executed, and reported. This is despite the fact that there is 
no indication of a market failure that would warrant such a 
sweeping overhaul of the U.S. equity markets. Traditionally, 
regulatory agencies introduced new regulations in response to 
market failures or when directed by Congress. Regulators 
tailored solutions to address the specific problems identified. 
There is no clear need for change in the market, nor has 
Congress mandated such sweeping reforms.
    The SEC cites the October 2021 SEC staff report on meme 
stock as a rationale for the proposed rulemaking. However, the 
report does not recommend any equity market structure reforms. 
To this point, you have repeated this buzz phrase, ``The 
playing field isn't level,'' but you haven't explained what 
that means or cited how it harms investors. Investors have the 
best user experience and the lowest cost in history. The 
industry says you are just picking favorites between exchanges 
versus wholesalers and that retail investors may not actually 
benefit from these proposals.
    That was my long intro. How concerned should we be about 
the potential for increased costs to investors, especially in 
scenarios where retail brokers may need to reinstate 
commissions due to changes like the suggested increase in price 
improvement?
    Mr. Gensler. The proposals were put out to address 
individual problems, but they really are about driving greater 
competition and efficiency. Right now, our equity market on any 
given day depends on the stock. Between 30 and 50 percent is 
not in the lit markets, it is being traded in what are called 
the dark markets, and so we are trying to bring more 
competition in that. One of the rules that actually has a 
tremendous amount of support in the comment file for many 
market participants is about lowering the minimum increment. 
You can trade at a penny down to half a penny, for instance, 
and things like that, so we are looking at these comments and 
we are looking through to update our rules.
    Mr. Timmons. Currently, tens of thousands of Americans can 
trade for free and at their fingertips. Do you think that your 
proposal will result in the reintroduction of commissions?
    Mr. Gensler. Zero commission does not mean it is 
necessarily for free. There are a lot of things that are going 
on behind the scenes. When you send a market order, that is a 
very sweet order, because most investors doing 100 shares are 
not going to invest another 100 shares or another 10,000 shares 
behind it.
    Mr. Timmons. It is going to result in increased fees for 
the people who currently have no fees, but----
    Mr. Gensler. Actually, what our economic analysis shows is 
that in each of these rules, it would benefit. We believe that 
the benefits are significant.
    Mr. Timmons. Sorry. So, you are saying that if this rule 
goes into effect, the people who are currently trading for free 
will not have to pay commissions? Because I think they will 
have to, because that is how the market is going to inevitably 
function. You are not going to be able to continue providing 
free trades if this rule goes into effect.
    Mr. Gensler. Again, there are separate rules, but the one I 
was talking about is in terms of lowering the minimum 
increment. There is a lot of support for the other rules as 
well to say that brokers have to give their clients best 
execution seems pretty straightforward to many of us.
    Mr. Timmons. I just think that if we are going to try to 
provide inclusion and participation in the markets for all 
Americans, we need to do this with a scalpel, not a 
sledgehammer, and I think you have been using a sledgehammer 
during your time at the SEC. With that, Mr. Chairman, I yield 
back. Thank you.
    Mr. Meuser. The gentleman yields back. The gentlewoman from 
Texas, Ms. Garcia, is now recognized for 5 minutes.
    Ms. Garcia. Thank you, Mr. Chairman, and thank you, Mr. 
Gensler, for joining us here today. I always look forward to 
your visits, and I am thankful that you are here and we are 
still all here to finish to the end.
    I want to bring back the chart that was referenced by Mr. 
Foster. This comes from an article written by Bloomberg Law 
entitled, ``Gensler Lags Predecessors in SEC Rulemaking as ESG 
Plans Linger.'' In fact, they stated that you have the slowest 
pace in decades. We see that under Bush, it was 34; under 
Obama, 28; and under Trump, 25, but you have only had 22 rules 
for the same period of time in the first 2 years. We have had a 
lot of talk from the other side of the aisle about all these 
rules, there are too many rules too quickly, you are not 
listening, you are not doing enough investigations, but 
Bloomberg seems to think you are a slacker. Are you a slacker, 
Mr. Gensler?
    Mr. Gensler. I don't know. I will leave that to others to 
comment on, but we do things thoughtfully. We do it by the 
book. We take the economic advice that we get, and Bloomberg 
Law has these numbers, so they speak for themselves. I think 
Chair Clayton, under President Trump, did 64 final rules by the 
time he finished his 4 years, so our rule agenda is----
    Ms. Garcia. So, you are not even at half of what the Trump 
Administration did?
    Mr. Gensler. The chart says we have done 22. We are now at 
24, and he had done 25, I believe. We just do it thoughtfully. 
We do it under the law, under the economics, and I will leave 
it to others to comment. But we are doing it on behalf of the 
American public and for investors and issuers, and making sure 
that they don't work for the markets, that the market should 
work for them. And all too often in this country, it is turned 
around that somehow investors and issuers are there so that 
some market intermediary makes a profit.
    Ms. Garcia. So, it is all about transparency.
    Mr. Gensler. Sure.
    Ms. Garcia. And could you just in a few words explain to 
the average viewer who may be watching today why transparency 
is so important in this area, particularly in this area?
    Mr. Gensler. Transparency helps foster competition in 
markets. When you have transparent pricing of products or if 
you know that performance of an investment adviser is more 
transparent, it tends to lower the cost in the middle, and that 
again helps you, the average working or retired American, to 
invest, but it also helps the people with good ideas if you 
lower the cost in the middle. And that tends to come from 
transparency, just like when you are buying an automobile, it 
is good to know the transparency of what a few different auto 
dealers are charging for that same automobile.
    Ms. Garcia. Okay. The other issue that you and I have 
discussed many times is how important financial literacy and 
education is in this sector, and the last time you were here, I 
told you of my concern about financial literacy, not only in my 
district, but in all of Texas. The Federal Reserve Bank of 
Dallas reports that 8 percent of Texans do not have a bank 
account and 37 percent of Texans have not planned for 
retirement. Financial literacy, of course, is key. Chair 
Gensler, could you provide an update on the SEC's educational 
efforts to improve financial literacy not only in Texas, but 
across the nation, to improve people's understanding of the 
work that your agency does?
    Mr. Gensler. We have an Office of Investor Education and 
Advocacy. It is a very important office. We also put out 
investor alerts often on our website, and we try to engage with 
the public, the broad investing public, to help them understand 
the markets, but also to protect themselves against wrongdoers 
in the markets, and if you have something to tell us, to also 
tell us through the tips, complaints, and referral.
    Ms. Garcia. Right. I also have a follow-up question on the 
financial inclusion regarding literacy--not literacy, but the 
language barriers. What are we doing to address any language 
barriers on behalf of members of our communities and our 
constituents in terms of investors?
    Mr. Gensler. That's a very important issue. We have 
certainly done some things recently with regard to shareholder 
reports, but I think I would want to get back to you, because 
it is an important issue about language.
    Ms. Garcia. Thank you.
    And, Mr. Chairman, I also would like to offer for the 
record the articles that I referenced earlier.
    Chairman McHenry. That is available to Members generally, 
and without objection, it is so ordered.
    Ms. Garcia. Thank you.
    Chairman McHenry. We will now recognize the gentleman from 
Pennsylvania, Mr. Meuser, for 5 minutes.
    Mr. Meuser. Thank you, Mr. Chairman. Chairman Gensler, it's 
good to see you.
    Mr. Gensler. It's good to see you, Mr. Meuser.
    Mr. Meuser. Thank you. The SEC's climate rule's Scope 3 
provision mandates reporting on emissions from activities not 
directly controlled by a company up and down its supply chain, 
as you all know, so supply chains, let's say, from China or 
some other offshore source, for example, which are perhaps less 
scrutinized and submit data which could be suspect as opposed 
to from a U.S. resource, is an example of how Scope 3 data 
could be flawed and the system as a whole. What are your 
thoughts on that, and is this capital towards certain 
industries as opposed to something else? What is the intent?
    And the other thing I would like to ask is, now it is 
rattling many companies, right? This rule won't go into effect 
perhaps until next year. Companies are preparing for it. 
Private companies are preparing for it, and there are is a lot 
of additional compliance that goes along with it. Could you 
comment on that?
    Mr. Gensler. Those are two very good questions. First one, 
many investors are looking at what is the risk of companies 
with potential climate change, and one of the measures of that 
risk is the greenhouse gas emissions of the company and 
possibly their supply chain or so-called value chain. Although 
many companies know their own greenhouse gas emissions, they 
don't necessarily know, as you rightly pointed out, their 
entire supply chain, and fewer public companies are currently 
publishing that. We put out a proposal to bring consistency to 
the disclosure, but we heard a lot of comments coming in to say 
Scope 3 disclosure is not as well-developed. It is not as many 
companies are putting out. It is, frankly, not yet as reliable, 
and so we are taking that into consideration.
    And I would say another thing is some people have raised 
from the farm belt, for instance, agriculture interest. We 
don't want to have to do this, we don't need to do this. And 
we, the SEC, don't regulate those private companies, those non-
public companies, and so staff is looking very closely to 
ensure that we stay within our authorities, and it is about the 
public companies.
    On your second question about cost, we take that very 
thoughtfully into consideration, and we got a lot of comments. 
I was chatting with the Member across the aisle about this, and 
we need to take that into consideration.
    Mr. Meuser. Can you give us the analysis of some of those 
costs? That was a follow-up question. Can you give us the 
analysis on the costs that you are taking into consideration? 
Have you run the numbers and----
    Mr. Gensler. We are, in essence, adjusting our economic 
analysis because we got so much feedback from the public on 
that particularly important point.
    Mr. Meuser. On the safeguarding rule as well, you mentioned 
you were on and off. Director Birdthistle mentioned that he 
talks extensively with banking regulators. There are many 
regulators, however, in that field--and this is regarding the 
safeguarding rule--that if you talk more often with them, this 
rule would be written differently. What is your reaction to 
that?
    Mr. Gensler. We have good, ongoing discussions with our 
colleagues at the bank regulators. We continue to engage on 
this rule and on other rules and, of course, on market 
oversight. And the safeguarding rule is one where we have heard 
a lot from not only the investment advisers that it applies to, 
but from the banks that act as qualified custodians.
    Mr. Meuser. Okay. Thanks. I am changing gears a little bit 
here. There was a recent shareholder vote to extend the 
deadline for the DWAC and TMTG merger, which demonstrated that 
nearly 400,000 investors want this merger to happen. Can you 
give me your assurance or feedback that a revised S-4 handled 
in regular order will be expedited, whether for this merger or 
any others?
    Mr. Gensler. Again, as you are aware, that is a company 
that recently settled an enforcement action because it 
initially had a material misrepresentation of when it went 
public in its S-1. I don't think they have filed an S-4 with us 
yet, but when they do, our Division of Corporation Finance 
would handle it in regular order.
    Mr. Meuser. I appreciate that very much. I yield back, Mr. 
Chairman.
    Chairman McHenry. The gentleman from North Carolina, Mr. 
Nickel, is recognized for 5 minutes.
    Mr. Nickel. Thank you, Mr. Chairman. Chairman Gensler, 
thanks for being here. I want to start by applauding the 
important work of the SEC and the public servants who work 
under you. You have a lot to be proud of. But a lot of the 
decisions you have made, frankly, have me scratching my head to 
try to understand your thought process and what goes into the 
decisions that you make. And I tried to figure out, how can I 
understand Chairman Gensler a little bit more, and I read and 
saw that you are a marathoner and an ultra-marathoner? Is that 
right?
    Mr. Gensler. In my day, yes, I did the John F. Kennedy 50-
miler.
    Mr. Nickel. I looked and found that less than a quarter, 1 
percent of the world's population, has done a marathon. I did 
the New York Marathon, so I have at least accomplished one. And 
being here now for over 3 hours testifying before Congress in a 
hearing like this probably isn't one of the things on your 
schedule that you are super excited about. But how would you 
rate testifying in Congress versus a marathon? Which is easier?
    Mr. Gensler. I love being in front of this committee. I 
have been here probably 20 times in my life. It is a great room 
and a great committee. Marathons are a little harder.
    Mr. Nickel. Thanks. Okay. I want to get into 
securitization.
    Chairman McHenry. If the gentleman suspends----
    Mr. Nickel. I yield for the question.
    Chairman McHenry. We ask the witness to answer the 
question.
    Mr. Gensler. I think that this is easier than running the 
New York City Marathon.
    Chairman McHenry. Okay.
    Mr. Nickel. Thank you. So, securitization is a cornerstone 
of affordable access to credit for families and businesses in 
my district. I represent North Carolina's 13th district. For 
example, securitization funds around 70 percent of residential 
mortgage loans every year and provides funding for auto loans 
and credit cards. I am concerned that your rule proposal on 
conflicts of interest will impair the ability of securitization 
markets to function by outlawing activities that have no 
connection with securitization transactions and reducing 
participation in those markets. This would increase the cost 
and reduce the availability of consumer mortgage and business 
credit for my constituents, which is a real problem. And, 
frankly, we have an economy that doesn't work for everyone, and 
it is so hard for so many of the constituents I represent to 
get credit and to get a loan and to do those things.
    The SEC said it was, ``unable to reliably quantify many of 
the economic effects,'' of the proposed rule, given these 
uncertainties and to avoid compounding the credit crunch that 
is already, again, hitting my constituents incredibly hard. 
Will you commit to re-proposing a rule that is more tailored to 
the feedback that SEC has received from the public?
    Mr. Gensler. One, the capital markets are really important 
for credit cards, auto loans, and mortgages through this 
securitization market. Two, Congress mandated that we actually 
do a rule to address potential conflicts that sponsors of those 
asset securitizations might have if they are on the other side, 
taking positions in conflict with the investors. That is what 
we are doing. We have a robust, good comment file on that. We 
are looking at that closely. I can't prejudge it, but I think 
that the comments that we received, we can hopefully sort 
through.
    Mr. Nickel. Thanks, and I certainly urge you to re-propose 
the rule as it threatens to disrupt the housing market in North 
Carolina and across the country. I want to move on to our 
Grayscale letter. I sent a letter to you yesterday along with 
my colleagues, Congressmen Flood, Torres, and Emmer, urging you 
to approve the listing of spot Bitcoin ETPs after your recent 
loss in court to Grayscale. Now that the SEC has the court's 
decision in hand rejecting your rationale for denial, does the 
SEC plan to approve the current pending spot Bitcoin ETF 
applications?
    Mr. Gensler. Thank you for your letter. I did read it last 
night. Again, we are still taking this under advisement. It is 
a recent court action, and staff and Commissioners will take it 
up as appropriate.
    Mr. Nickel. The court concluded the SEC's denial of 
Grayscale lacked, ``a coherent explanation,'' and then, ``falls 
short of the standard for reasoned decision making,'' and was, 
``arbitrary and capricious.'' How do you explain the SEC's 
actions there?
    Mr. Gensler. We do that which we do under the law as best 
we can. Sometimes, things go to court. We are still considering 
that court decision. I think it was a district court--I'm 
sorry--it was an appellate court, but we are still considering 
that appellate court decision, and I don't want to get ahead of 
the staff or my fellow Commissioners.
    Mr. Nickel. Thanks so much, and I will note that 3 hours is 
far below my marathon time. Not even close, but I yield back.
    Chairman McHenry. The gentleman yields back. I will now 
recognize the gentleman from Wisconsin, Mr. Fitzgerald.
    Mr. Fitzgerald. Chairman Gensler, thanks for being here. 
Congressmen Lucas and Posey talked about this earlier, but I am 
going to bring it up again. It deals with the proposals 
regarding predictive data analytics. Could you distill it down 
again? Is there a lack of economic analysis, and is that 
consistent kind of with the SEC's mission to protect investors? 
How do you see those two kind of meshing?
    Mr. Gensler. Those are good questions. One, there is a 
robust economic analysis, but we are going to benefit from 
public feedback on it. But two, the rationale, and the 
rationale comes to a really key thing, investment adviser, 
whether it is through a robo-adviser or a broker-dealer, that 
they continue to put the investing public's interests first 
when they are engaging with us, what is called investor 
interaction, and they are not putting their interest in front 
of ours. So they can use data analytics and use math to put 
their interest ahead of ours, and that is not good for the 
investing public.
    Mr. Nickel. Are you afraid it will be applied to directly 
on just about everything? It could go down to the level of 
Excel spreadsheets. It somehow it has to be applied, right?
    Mr. Gensler. Here is the sort of balancing act. We are 
technology-neutral, so whether you use, as you say, an Excel 
spreadsheet or you use machine learning, sort of the core 
question is, are you engaging with the investors and pushing 
them for your profits, not your personal profits, but the 
investment adviser's profits or the investor's? But we have a 
lot of comments. The comment file is open until, I think, 
October 10th, so we are still hearing from the public, and this 
hearing today is a very important part of that.
    Mr. Nickel. A couple of times, you have said that in the 
SEC's rulemakings, you are just kind of simply doing what 
Congress has asked for. Do you think that is consistent? There 
are 40-some rule proposals, and I don't know that Congress sked 
for all of those, so how are you measuring that right now?
    Mr. Gensler. You raise a good point. It is not that you 
asked for it last week or last month, but our laws embodied by 
Congress are on the books. And we need, I think, really, to 
stay competitive in the world, to update our roadblocks to make 
sure that the markets, the Wall Street broker-dealers, the 
exchanges, and the investment advisers are working on behalf of 
your constituents, the investors, and the people with good 
ideas who want to raise money. And it is trying to drive 
greater efficiency in the middle of that market, and sometimes 
the middle of the market doesn't love that because greater 
efficiency might mean a little less economic rents, a little 
less profit in the middle.
    Mr. Nickel. Let me switch gears again. I think we are 
concerned about the Financial Stability Oversight Council's 
(FSOC's) recent proposal regarding the designation of the non-
bank financial institutions as systemically important, 
particularly the elimination of a cost-benefit analysis 
requirement. Given your position as a FSOC member, why would 
the FSOC eliminate the requirement to do a cost-benefit 
analysis when determining whether or not a nonbank financial 
institution should be designated as systemically important?
    Mr. Gensler. Thank you. I am a member of the Financial 
Stability Oversight Council, but I am only one voting member, 
and what we put out for public comment was really just to 
ensure that we get back to the guidance that was out there in 
2012. I was a proud FSOC member back then, also. And we have 
really gotten public feedback, in essence, could there be 
financial institutions that were so important to the system, 
systemically relevant, that they would be designated so and 
then come under the Federal Reserve for oversight.
    Mr. Nickel. Very good. I am going to squeeze in one more 
here. I would like to reiterate, Congressman Luetkemeyer talked 
about it earlier, about the proposed securitization conflicts 
rule. When you were here last--I think it was in April--you 
mentioned that the proposed rule was new and you hadn't looked 
at the comment file. At home, Wisconsinites rely on private 
mortgage insurance for access to affordable and sustainable 
homeownership. How can you differentiate between managing risk 
and betting on both sides of the transaction without capturing 
necessary business activity like this? How is that going to 
work?
    Mr. Gensler. Congress gave us the challenge to do that, and 
that is why we put it out to public comment, but you are 
allowed to hedge, you are allowed to do other transactions, but 
not bet against the investors. We are still working through the 
comments to try to finalize it. It is a mandate from Congress.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Nickel. I yield back.
    Chairman McHenry. I will now go to the gentlewoman from 
Colorado, Ms. Pettersen, for 5 minutes.
    Ms. Pettersen. Thank you, Mr. Chairman, and welcome back, 
Chairman Gensler. I can't believe it has already been 6 months. 
Time flies when you are having fun, but it doesn't feel very 
fun this week. I just want to thank you for your time today and 
your expertise.
    I know you have discussed this at length today, and it has 
been a big focus in all of the areas of the key functions that 
our agencies play in helping support and advocate for our 
constituents. And Ranking Member Waters touched on the real 
harm that a government shutdown would do, specifically to your 
agency, and should there be a government shutdown, only around 
400 employees will be retained to maintain minimal functions, 
with nearly 4,200 employees being furloughed.
    The barebones staff that will remain working during a 
shutdown cannot perform all the responsibilities adequately. 
And you have spent time discussing a number of the functions 
that the SEC will not be able to manage, like protecting 
Americans from fraud, allowing investors to access our capital 
markets, and conducting investor outreach and education, among 
other important roles of your agency. And it is deeply 
concerning for me with the long-term implications of the chaos 
and dysfunction here in Washington, and the perception globally 
around what role the United States is going to play, and if we 
are a market that people should continue to invest in, and the 
real concerns out there. In your opinion, how do you think that 
a government shutdown would impact America's capital markets 
and the global gold standard that we have always had?
    Mr. Gensler. In the short term, there is a risk that we, 
the government's important market regulator, wouldn't have the 
resources to oversee the markets, whether it is a day, a month, 
or whatever it is. In the longer term, it is just the 
confidence in our capital markets and our confidence in our 
system of deciding the fiscal choices that Congress and the 
Administration does, and we see those challenges in terms of 
investors around the globe. We are 40 percent of the world's 
capital markets, but we are only 23 percent of the world's 
economy. That is a good thing. We are punching above our weight 
class, so to speak. That is a good thing, but the confidence in 
our system can be shaken as well.
    Ms. Pettersen. And we saw that recently, with not actually 
coming to an agreement and potentially going off a fiscal 
cliff. Even though that didn't happen, we know that we were 
downgraded with one bureau. There are going to be long-term 
economic consequences. But we know that there are billions of 
dollars of damage because for the first time, people are 
questioning whether or not the United States will pay their 
bills, and so these political games have long-term risks. This 
is an area that I know you have a background in, and it is 
going to be absolutely essential that we are working in 
partnership to address the opportunities and challenges that 
artificial intelligence (AI) poses for this country, and 
specifically for our financial system.
    On the morning of May 22nd of this year, an AI-generated 
image of an explosion near the Pentagon spread widely 
throughout social media. Immediately, the stock market dipped, 
and we saw a significant decline. We were able to recover when 
we were able to confirm that it was, in fact, fake, but we know 
that these are challenges that we are going to have to address 
together.
    And, Mr. Chairman, I would like to enter the Bloomberg News 
article, ``How Fake AI Photo of a Pentagon Blast Went Viral and 
Briefly Spooked Stocks,'' into the record.
    Chairman McHenry. Without objection, it is so ordered.
    Ms. Pettersen. AI has the potential to significantly impact 
our financial system and our capital markets and our banking 
system, and this needs to be addressed at every level on how we 
can mitigate against some of the negative consequences. I am 
proud to be joining my colleague and friend in introducing a 
bill to examine how artificial intelligence will impact the 
financial sector and how we need to regulate this. I want to 
hear from you, though, on what we can be doing, what you 
recommend that we do to address the challenges that AI poses in 
the future?
    Mr. Gensler. It is probably going to drive productivity and 
so forth, but in the financial sector, I do think that there is 
a risk of deep fakes. Look, fraud is fraud. Even if you are 
using artificial intelligence, there is usually some human 
behind it, but that is a real challenge to focus on.
    Ms. Pettersen. Okay. I yield back. Thank you.
    Chairman McHenry. The gentlelady yields back. The 
gentlelady from California, Mrs. Kim, is now recognized for 5 
minutes.
    Mrs. Kim. Thank you, Mr. Chairman, and Chairman Gensler, 
thanks for being with us today. I am concerned that the SEC, 
under your leadership, has not carefully considered the 
aggregate costs of an overlapping nature of your proposed rules 
and regulations, and, as you heard, there is an erratic pace of 
your proposals. I want to paraphrase your own words, the 
erratic pace of your proposals undermines the finest capital 
markets in the world, and each proposed rulemaking, now over 50 
since the spring of 2021, will make it more costly for small 
businesses to raise capital in the markets and more difficult 
for hardworking investors in my district to benefit from gains 
in the markets and to save for retirement.
    And I remember when you came before our committee early 
this year, you said that the SEC's hardcore proposal would 
level the playing field for my constituents, but I completely 
disagree with that notion, and I urge you to please revisit the 
swing pricing and hard close proposals. I know some of my 
colleagues across the aisle also raised this issue.
    So please tell me, how would the hard close proposal level 
the playing field for my constituents in Southern California 
when you are proposing a hard close at 4:00 p.m. Eastern Time, 
which s 1:00 p.m. Pacific Time? Could you answer that?
    Mr. Gensler. Again, what we are trying to address is to 
ensure that when somebody redeems from a mutual fund, they 
don't leave everybody else in that mutual fund with losses or 
what is called dilution. I would say, given the clock, right 
now, anybody in your district already has to put the redemption 
order in at 1:00 p.m., and we are not changing that.
    Mrs. Kim. Let me reclaim, and I want to tell you that I am 
specifically talking about my constituents being put at a 
competitive disadvantage compared to someone operating in 
Eastern Time. So, you don't believe that a fund or an investor 
in California would be put at a disadvantage when they have to 
stop trading at 1:00 p.m. Pacific Time, whether it is mutual 
funds or whatever you are talking about?
    Mr. Gensler. I am just observing currently, because the New 
York Stock Exchange is closed by 4:00 East Coast Time, and 
mutual funds redemptions are by 4:00 p.m., and we are not 
changing that. That already exists.
    Mrs. Kim. Again, 4:00 Eastern Time is 1:00 p.m. Pacific 
Time, so in my home State of California, obviously, we are very 
concerned about this because we have to stop trading at 1:00 
p.m., but let me move on.
    I know in my home State of California, Silicon Valley Bank 
(SVB) failed largely because it wasn't hedging its interest 
rate risk, and you have proposed a rule on conflicts of 
interest for securitization that will make hedging this exact 
type of risk much more difficult. Surely, this is not the 
intent of the statute or your proposal, but it is what the rule 
as written would do. And I heard your response, your engagement 
with Congressman Fitzgerald, that hedging is mandated, but that 
is not what I am hearing. So, I would like to ask you if you 
can commit to working with me to ensure that the final rule 
clarifies that risk mitigating hedging is allowed because the 
current rule is unclear on that point.
    Mr. Gensler. Again, I think it was Congress that has that 
risk mitigation hedging but not trading against the investors, 
and so we put it out to public comment. But you have raised an 
issue of just broad general interest rate hedging.
    Mrs. Kim. I am talking about that hedging issue, which is 
very important, and with all due respect, I believe the lawyers 
outside every office disagree, and I think the last thing we 
want is a chilling effect on hedging. And let me remind you, 
SVB is a glaring example of how to get things wrong, and I hope 
we can work together to ensure that the final rule leaves the 
important risk mitigation tools intact.
    I want to talk about the 34 items on your proposed rules 
list for 2022, which is triple that of the previous year and, 
in fact, over the past 2 decades, 2021 was the only time the 
Commission proposed more rules, which obviously was mandated by 
the Dodd-Frank Act. The October Inspector General report said 
that the staff believe that your more aggressive agenda 
potentially limits the time available for staff resources and 
analysis and increases the litigation risk, so can I just throw 
in the question of, what sort of things increase litigation 
risk? Would you be able to respond to that?
    Chairman McHenry. The gentleman can answer in written form 
for the record.
    Mrs. Kim. Okay. Thank you.
    Chairman McHenry. Ms. Pressley of Massachusetts is now 
recognized for 5 minutes.
    Ms. Pressley. Thank you, Chair Gensler, for joining us 
today. There are unrelenting people, institutions, forces at 
work that seek to dismantle gains that have been made in 
diversity and equity and inclusion from corner offices, State 
legislatures, the Supreme Court, and my colleagues across the 
aisle. In fact, when they got the gavel, the very first thing 
that they did, one of their very first actions was to dissolve 
the Diversity and Inclusion Subcommittee of this Financial 
Services Committee, that was stood up by Ranking Member Waters, 
the Committee Chair at the time, and that subcommittee was 
headed by Joyce Beatty. The other side isn't taking any days 
off, so I am not taking any days off either. And that is why I 
want to talk to you about diversity on corporate boards and 
understanding the importance of disclosure and transparency 
when it comes to gender, racial diversity, and other data, 
along with the ways in which that can impact financial 
performance.
    We all know that corporate boards are powerful. They play a 
critical role in determining the mission of a company, its 
values, its vision, its strategy, everything from who the 
company will hire to which stakeholders it listens to. Now, for 
decades, White men have made up the majority of corporate board 
members, and they still do. Across the S&P 500 companies, 
nearly a third of boards of directors are women, despite women 
making up 50 percent of the country. Only 22 percent are people 
of color, despite people of color making up 41 percent of the 
country. These gender and racial disparities should not be 
ignored. The Securities and Exchange Commission plays a 
critical role in overseeing corporate governance, and that 
includes work related to diversity and transparency.
    Chair Gensler, research shows that diverse boards better 
reflect our country, and--I want to underscore this--lead to 
improved financial results for companies. I could sit here and 
debate fairness and morality and the right side of history all 
day, but as my good friends, and Black women on boards so often 
say, this is not a matter of Black or White; it is a matter of 
green, so this is about improved outcomes. What is the SEC 
doing to increase disclosures on corporate board diversity and 
inclusion?
    Mr. Gensler. Early in my time at the SEC, we had in front 
of us a filing from the stock exchange called Nasdaq. It is a 
self-regulatory organization that actually has a listing 
requirement. Nasdaq addressed these issues. Under the Exchange 
Act, under the laws we approve, that is still a matter of court 
challenge in the Fifth Circuit, if I recall, and I know that is 
out there, but I think that----
    Ms. Pressley. Let me reclaim my time, because I am running 
out of it here. That is right. The Nasdaq proposal that was 
approved by the SEC calls for two diverse board members based 
on gender, race, and LGBTQ status. So, this information is 
important, do you agree? Yes or no?
    Mr. Gensler. We approved it under the Exchange Act, under 
the guidance there. I have to be very careful about that.
    Ms. Pressley. Okay. At the end of the day, disclosure of 
this data is necessary because we know that that which gets 
measured, gets done, so we need that transparency. And I also 
think that the SEC needs to go much further and require greater 
disclosure of diversity, such as disability status, and greater 
disclosure of the company, including senior management and the 
workforce. So, will the SEC commit to looking into expanding 
diversity and inclusion disclosures?
    Mr. Gensler. Staff has continued to work not only on this, 
but, more broadly, also in human capital disclosures.
    Ms. Pressley. Yes or no, Chairman Gensler, my time is 
running out, so can you make that commitment? This shouldn't be 
a hard commitment. Can you make that commitment to look to 
expand diversity and inclusion disclosures beyond just the 
Nasdaq proposal?
    Mr. Gensler. The staff of our Division of Corporation 
Finance continues to review alternatives there.
    Ms. Pressley. Okay. Thank you. Just a quick history lesson. 
The first Black woman on a corporate board was Patricia Roberts 
Harris, and she was only appointed in 1971, roughly 50 years 
ago. The year is 2023, and it is well past time that we have 
corporate boards that reflect the true diversity of our 
country, not only from a place of justice and fairness, but for 
improved financial outcomes. My colleagues across the aisle 
have already made it clear they don't care about diversity. 
Their first action when they took back the gavel of this 
committee was to scrap the Diversity and Inclusion Subcommittee 
established by Ranking Member Waters. They are on the wrong 
side of history when it comes to this issue, as are so many 
others. Chairman Gensler, it is important that the SEC be on 
the right side of history and press forward with the corporate 
board diversity.
    Chairman McHenry. The gentleman from Nebraska, Mr. Flood, 
is recognized for 5 minutes.
    Mr. Flood. Thank you, Mr. Chairman. Chair Gensler, I would 
like to continue our discussion about the SEC's Staff 
Accounting Bulletin No. 121 (SAB 121) that would potentially 
have significant effects on the ability of banks to custody 
digital assets. Let's briefly begin by following up on 
something that was raised the last time you were in front of 
this committee. You previously said that prior to the issuance 
of SAB 121, your staff did not confer with any of the 
prudential regulators. Is that correct?
    Mr. Gensler. You would have the transcript, but I think 
that our staffs do talk to the prudential regulators.
    Mr. Flood. Prior to the issuance of SAB 121, did your staff 
confer with any of the prudential regulators?
    Mr. Gensler. With regard to that particular staff bulletin, 
I don't recall that they did. I know that they have----
    Mr. Flood. Let's let the record reflect that the SEC staff 
did not think to confer with the prudential regulators before 
issuing the staff accounting bulletin. In response to my 
question for the record from April on this topic, you stated, 
``SAB 121 provides nonbinding staff guidance on the application 
of existing accounting and disclosure requirements under U.S. 
GAAP.'' Prior to the issuance of SAB 121, did the Financial 
Accounting Standards Board (FASB) issue anything related to the 
custody of digital assets, and if so, what was issued?
    Mr. Gensler. I would have to get back to you, but if you 
are asking about the Financial Accounting Standards Board, I 
don't know that they have done something on custody, but we 
could get back to you.
    Mr. Flood. Since you cited the generally accepted 
accounting principles (GAAP) in your response, I decided I 
would take a look at this myself. Prior to SAB 121's issuance, 
FASB had not published anything related to the custody of 
digital assets. In fact, the Board added accounting standards 
for digital assets to its agenda in May of 2022, 2 months after 
the issuance of SAB 121. Your response to my question for the 
record from April also indicated that SAB 121 provides guidance 
on the application of existing accounting and disclosure 
requirements under the SEC rules, so here is a question: Prior 
to the issuance of SAB 121, what rules had the SEC finalized 
relating to the safeguarding of digital assets?
    Mr. Gensler. We have on the books a rule from 2009 that 
applies to the custody of digital assets by investment advisers 
because it covers all funds and securities. That rule is on the 
books. We also had finalized something around special purpose 
broker-dealers, which relates to crypto broker-dealers.
    Mr. Flood. I took a look at this topic myself. The answer, 
quite frankly, is none. There were no SEC rules on the books 
that directly addressed the topic of custody of digital assets. 
As you well know, the SEC issued a proposed rulemaking on 
custody, including digital asset custody, in February of 2023, 
and that rule has not been finalized to this day. So to recap, 
the SEC failed to confer with prudential regulators, despite 
the fact that anything changing the rules around the custody of 
assets for banks, regardless of whether the bank is publicly 
traded, would be of obvious consequence to them.
    Then, when justifying the bulletin, the SEC cited the GAAP 
and SEC rulings. However, at the time the bulletin was issued, 
there was no action by FASB, and no rulemaking from the SEC on 
this topic. In April, you said you wanted the SEC to, ``stay in 
our lane,'' with regard to SAB 121's potential effects on a 
bank's balance sheet. It is fair to say that the fact pattern 
we have is that the SEC is not just going out of its lane, but 
it failed to comprehend the existence of any conflict with 
prudential rules.
    Additionally, the SEC's justification for issuing the 
bulletin is based on accounting guidelines that did not exist 
when the bulletin was issued, and rulemaking that was not even 
started until nearly a year after the bulletin was issued. It 
is pretty obvious that one of two things happened, and both are 
bad. On one hand, it is possible that the SEC was well aware 
that there was no strong justification for issuing the bulletin 
and chose to do it anyway. That would show a pretty 
straightforward case of regulating by guidance and 
unsubstantiated theory.
    On the other hand, the SEC made some obvious basic mistakes 
in the issuance of this bulletin. In light of these mistakes, 
it is worth mentioning the SEC Inspector General's report on 
management and performance challenges. Among other things, the 
report indicated that very high attrition has required the SEC 
to rely on detailees with little or no experience to contribute 
to the core regulatory tasks such as rulemaking. The case of 
SAB 121 raises the question of whether the SEC is compromised. 
Thank you, Mr. Chairman. I yield back.
    Chairman McHenry. The gentleman yields back. I will now 
recognize the gentleman from Massachusetts, Mr. Lynch, for 5 
minutes.
    Mr. Lynch. Welcome, Chairman Gensler. I don't know if you 
need time to respond to that?
    Mr. Gensler. I would just say, Mr. Flood, if I can, because 
the other Member allowed me to, that the SAB 121 guidance is 
based on GAAP. GAAP already exists. It doesn't need a new FASB 
statement, and the custody rule at the SEC from 2009 already 
covers funds and securities. To the extent it might be crypto 
securities, it was already covered. It wouldn't have covered 
something like Bitcoin. As the Chair and I have talked about, 
that is not a security, but it would have covered crypto 
securities. Thank you.
    Mr. Lynch. Again, welcome, and thank you for your 
willingness to enforce the law where it applies. I appreciate 
that, especially in the crypto space.
    After many, many decisions in favor of the SEC's position, 
the SEC saw its first split decision, I would say, in a major 
crypto case in court with the July 13th ruling involving 
Ripple's XRP. In a partial victory, I guess, for Ripple, the 
Southern District of New York held that XRP was not a security 
when sold on a public exchange, but it is when sold to 
institutional investors, which I found surprising and 
counterintuitive, given the vulnerability of individual 
investors versus institutional investors and also the asymmetry 
that invites into the legal analysis involving crypto.
    But the wider picture is that I worry that we are heading 
towards a pattern of court battles to determine if each 
individual token is either a security or not, and I just wanted 
to know what your thoughts were on that decision. I know it is 
far from over. This case is far from over, but I just want you 
to express to the committee what your views are on that issue 
and on that decision, to the degree you can do so.
    Mr. Gensler. I appreciate the opportunity, Congressman, but 
as we, as a Commission, actually have filings in front of that 
court on this matter right now, I think those filings speak for 
themselves, and I just don't want to in any way speak to 
something, even choosing a word differently than the Commission 
voted to make filings in that, following----
    Mr. Lynch. Okay.
    Mr. Gensler. In essence, we filed to potentially do an 
interlocutory appeal.
    Mr. Lynch. Okay. Fair enough. I suspected as much. One of 
the major proposals in the recent digital assets market 
structure legislation involves allowing a crypto firm to 
provisionally register and to be held harmless for a post-
registration period. By now, we are all well aware of the 
damage caused by FTX when its CEO, Sam Bankman-Fried, defrauded 
millions of customers. More recently, the SEC took action 
against Binance for potentially, I think, similar behavior from 
lots of things.
    The Binance complaint contains damaging allegations, 
including operating an unregistered securities exchange, broker 
and clearing agency. Further, Mr. Zhao of Binance's operation, 
control of customer assets, permitted them to commingle again, 
just like FTX customer assets, and divert customer assets as 
they pleased. There are some concerns about this bill that we 
did, the digital asset microstructure bill, that it opens up a 
vulnerability for consumers to be harmed. And I was wondering 
if you had a view on that, and is there any concern that we 
should have with the way the bill is currently structured?
    Mr. Gensler. If I can speak about the field itself, rather 
than speaking about the bill, it is a common practice in the 
crypto field right now to comingle that which we don't allow to 
be commingled elsewhere, and with commingling, what you might 
think of is an exchange like the New York Stock Exchange. With 
brokers, you can think of your own individual brokers, and 
maybe a hedge fund, or even a high frequency trading shop, and 
even a clearinghouse, and maybe even some bank-like functions, 
and it is a recipe that has not led to good results in the 
crypto field and a lot of investors being harmed. So if 
Congress did anything, it would be separating out those 
conflicts.
    Mr. Lynch. Thank you.
    Chairman McHenry. The gentleman's time has expired.
    Mr. Lynch. My time has expired. I yield back, Mr. Chairman.
    Chairman McHenry. The gentleman from South Carolina, Mr. 
Norman, is recognized for 5 minutes.
    Mr. Norman. Thank you, Mr. Chairman. Mr. Gensler, are you 
aware of Prometheum company?
    Mr. Gensler. A company? I have heard of that company, yes, 
sir.
    Mr. Norman. They testified before us back on June 13th. The 
CEO and founder of Prometheum testified before us, and he 
assured us that only 20 percent of the company is owned by 
China. Does that concern you at all? And I assume you know they 
are a broker-dealer, a special purpose broker-dealer for 
digital asset securities.
    Mr. Gensler. Any registrant in our markets has to comply 
with our laws, and whether they are partially owned or wholly 
owned by China----
    Mr. Norman. But I am saying, in your position, does that 
concern you, 20 percent owned by China and the information that 
could be easily transferred to China, which is an enemy of this 
country?
    Mr. Gensler. Sorry. What is really important, regardless of 
whether it is China or any other country, is that it is a 
privilege to be in our capital markets, and that those 
companies comply with our laws, whether it is the company you 
mentioned or any other company, controlled or partially owned 
by Chinese entities.
    Mr. Norman. They may comply with the laws, but still the 
threat is there that information is being shared on investors. 
We sent a letter to you back on September 25th, Senator 
Tuberville and I. Do you know how long it took us to get this 
reply?
    Mr. Gensler. I'm sorry. September 25th, yesterday?
    Mr. Norman. Of 2023, yes. Yes, that is right. We sent it 10 
weeks earlier. It took 10 weeks, which is my point, to get this 
back. And what we asked you to do is look into that, into the 
China connection, which is of serious concern, should be of 
yours in your role. Basically, and I am not going to read it, 
this is just a nonresponse. It is just words, and what is 
concerning to me is if somebody in your role is just shuffling 
paper, it is a danger to this country.
    Mr. Gensler. There are a number of broker-dealers in our 
country that have an affiliation with China. You named one. It 
is not the only one. I think your letter and some other letters 
from the Senator name some of the others, and those broker-
dealers have to comply with our laws. They actually have to, 
under our laws, have their books and records here so they can 
be inspected and looked at by FINRA, which you mentioned.
    Mr. Norman. Does China go by the rules? Does Communist 
China go by the rules?
    Mr. Gensler. They have a different set of laws there. They 
have a different government. But I am saying, if you are here 
in the U.S., they have to comply with----
    Mr. Norman. And 10 weeks to get this letter that was two 
paragraphs long, is really an insult. Are you familiar with 
Meta Materials (MMTLP)?
    Mr. Gensler. Yes, I am, sir, not very deeply, but it is a 
company that I have heard of.
    Mr. Norman. Do you know what the aggregate shares are, the 
audited shares count of MMTLP is as of close of market on 
December 8, 2022?
    Mr. Gensler. I don't know. I know that it is a company that 
then exchanged into something called Next Bridge, I believe.
    Mr. Norman. Okay. Does the SEC have this information on the 
audited shares?
    Mr. Gensler. It may be a matter of public record. It was a 
company that did an exchange and became another company.
    Mr. Norman. We will try writing you another letter, and if 
you would look into it, we would appreciate that.
    Mr. Gensler. Thank you.
    Mr. Norman. As has been said earlier, the arbitrary 
rulemaking that is occurring under your rule on theoretical 
assumptions is really getting our constituents who are involved 
in the financial markets very upset. And considering your 
weight, you are going way past the boundaries that need to be 
going, and I think you have made the SEC a crusader of 
rulemaking by enforcement rather than modernizing the 
regulatory guidance which isn't something new that you haven't 
heard before. You blame it on staff turnover, you blame it on a 
lot of things, but my only request is that you prioritize this 
rulemaking and actually make the case for reductions, if you 
would even consider something. I yield back.
    Chairman McHenry. The gentleman's time has expired. The 
gentleman from Texas, Mr. Green, is now recognized for 5 
minutes.
    Mr. Green. Thank you, Mr. Chairman. I thank the ranking 
member as well, and, of course, I am grateful to the Secretary 
for appearing today. Thank you very much. It has been an honor 
to work with you. Mr. Secretary, if----
    Mr. Gensler. I am honored to have another title, but it is 
just, ``Chair,'' or ``Gary.''
    Mr. Green. ``Chair.'' Okay. ``Mr. Chairman,'' excuse me. 
The traditional services of an exchange, if you perform those, 
a broker clearing agency, these are the kinds of things that 
should be registered. Is that a fair statement?
    Mr. Gensler. Yes. If you are a broker in America, if you 
are a dealer in an exchange, not only registered, but then 
comply with the laws so that the public is protected.
    Mr. Green. And in your capacity as a chairman, if you have 
the opinion that these things are not taking place, are you 
duty bound to do what is within your authority to protect the 
public?
    Mr. Gensler. Yes, and we end up being a cop on the beat, 
and it takes a five-member Commission, but sometimes we bring 
enforcement actions if people are not properly complying with 
the laws and registering.
    Mr. Green. Public Citizen has indicated that crypto amounts 
to a giant Ponzi scheme, whose victims disproportionately 
include low- and moderate-income individuals as well as people 
of color. I am concerned about that. I appreciate your being 
the cop on the beat. I want to protect people from what may be 
a Ponzi scheme. There are different opinions about this, but 
what are some of the consequences of having a poorly-regulated 
digital currency?
    Mr. Gensler. There have been billions of dollars of losses, 
and, in fact, there are some studies that suggest that lower-
income communities and communities of color have lost more and 
that it has not been to their advantage at all to be investing 
in these assets, on average. Really, it is a matter of, the 
American public can decide what investment risks they want to 
take, but they should have the full and truthful disclosure 
about those investments if they are under the securities laws. 
And then, the trading platforms themselves should comply with 
the laws and not be entering into a bunch of conflicted 
services where they sometimes are trading against their 
customers on those exchanges.
    Mr. Green. Do you consider the American dollar to be an 
effective, efficient digital currency?
    Mr. Gensler. The American dollar, which is the sort of the 
leading currency around the globe, most of it is digital; we 
buy a cup of coffee at Starbucks or we get paid or we pay our 
rent digitally. Occasionally, we still use paper cash.
    Mr. Green. And do you believe that properly regulated, we 
can have digital currencies that won't amount to a Ponzi 
scheme?
    Mr. Gensler. I think the U.S. dollar is quite strong, and I 
think the U.S. dollar, because we use it digitally already, is 
a form of a digital dollar. Crypto tokens are really quite 
something different, sir. They are not a currency. This is 
going back into economic history, but they don't fulfill the 
three functions of a currency: a store value; a unit of 
account; and a medium of exchange. Maybe in another day, but 
not in 2023, frankly.
    Mr. Green. And our failure to act, or your failure because 
you are really the person who is in the hot seat, as it were, 
can cause a lot of harm to a lot of people, as we have seen 
with one circumstance, and I thank you for what you are doing 
to prevent that harm. I really do. Thank you.
    Mr. Gensler. Thank you.
    Mr. Green. I yield back.
    Chairman McHenry. The gentleman from Wisconsin, Mr. Steil, 
is recognized for 5 minutes.
    Mr. Steil. Thank you very much, Mr. Chairman. And thank 
you, Chairman Gensler, for being here with us today.
    This past summer, I asked Director Gerding, of your 
Division of Corporation Finance, about whether or not the SEC 
staff conducted legal analysis of shareholder proposals, and 
Director Gerding seemed to have a tough time answering the 
question. And I walked away understanding that the SEC does not 
conduct much of any legal analysis of a shareholder proposal. 
That is troubling to me because I think that should be one of 
the roles of the SEC, in particular, following the SEC's review 
of the particular Travelers shareholder proposal, the racial 
equity audit that I think could have driven that company to be 
forced to engage in illegal behavior. So, I'm asking you if you 
can give me a clear answer, does the SEC conduct legal analysis 
of shareholder proposals?
    Mr. Gensler. In preparation for the hearing, I watched the 
testimony between Director Gerding and you, and I don't do this 
on a day-to-day basis. But I think when staff looks at 
sometimes companies come in and ask the staff's opinion on 
things, one of the components they look at is the legal----
    Mr. Steil. So, not every time. When you say, ``sometimes,'' 
I think it is just important for us to understand whether or 
not we should make that explicit. I think it should be 
explicit. So sometimes, the SEC looks at whether or not a 
shareholder proposal is legal and sometimes, they do not review 
whether or not a shareholder proposal is legal.
    Mr. Gensler. As I understand it, I believe it is one of the 
components of the review, but I would be glad to have staff 
work with your staff and get you the details of the----
    Mr. Steil. I would like you to. The fact that you reviewed 
it in advance of this committee hearing, which I appreciate the 
amount of time and effort you put into preparing for a hearing, 
but you don't have an answer specifically to whether or not the 
SEC conducts a legal review, not even a legal opinion. But just 
a legal review on each shareholder proposal to me would be a 
baseline review for the SEC to conduct.
    Mr. Gensler. I am here saying I believe that it is part of 
the review, but I don't know if it is on every shareholder 
proposal because it depends on the nature of the shareholder 
proposal, of course.
    Mr. Steil. Okay. I would like you to come back with that 
information about the process in which you review shareholder 
proposals in light of probably two key things. One is, we 
brought in the two largest proxy advisers, ISS and Glass Lewis, 
and they specifically said on the record that they do not 
conduct a review for legality. They instead rely upon the SEC's 
analysis for legality. On the record, in this committee room, 
Director Gerding, and now you, kind of go back and forth as to 
how you conduct that legal review. I think it is really 
important for us as policymakers to understand whether or not 
anyone, the SEC or proxy advisers, we can get to how they are 
registered with the SEC, but who is conducting the legal 
review, because it has a significant impact on companies.
    And if we build upon that and we look at Staff Legal 
Bulletin No. 14L, we have seen a dramatic increase in the 
number of shareholder proposals. We are seeing more proposals 
focused on social and political concerns, and I go back and 
look at the underlying language of that legal staff bulletin 
saying that they would consider whether or not proposal concern 
is a matter of widespread public debate. Can you define, 
``widespread public debate?''
    Mr. Gensler. I think, sir, that it is really, and this goes 
back all the way back to the 1960s of shareholder proposals, 
that investors can make shareholder proposals on the term you 
used on widespread------
    Mr. Steil. Widespread public debate is your legal staff 
bulletin.
    Mr. Gensler. And that goes back many decades.
    Mr. Steil. But can you define it? I understand there is a 
history to it, but the staff legal bulletin came out under your 
chairmanship. Can you define the term, ``widespread public 
debate?''
    Mr. Gensler. The staff does, when asked, give their 
informal advice, but, ultimately, it is between the company and 
the investors.
    Mr. Steil. Understood. But don't you think that it is 
concerning that you can't define what, ``widespread public 
debate,'' is when your staff bulletin says that is a point of 
review for shareholder proposals? I will offer you that it 
concerns me, in particular in light of the dramatic increase in 
the number of shareholder proposals we have seen that are based 
on social and political objectives rather than governance of 
the nation's largest companies.
    I will see if I can get this in really briefly. We have 
discussed your use of email. You have had an aggressive 
enforcement campaign on off-channel communications for 
financial firms. Have you used anything other than official SEC 
resources to conduct your government business?
    Mr. Gensler. No, I comply with the laws, but also, if 
somebody sends me an email, then I forward it into the SEC.
    Mr. Steil. Thank you very much for your time. I yield back.
    Chairman McHenry. The gentleman from New York, Mr. 
Garbarino, is recognized for 5 minutes.
    Mr. Garbarino. Thank you, Mr. Chairman. Chairman Gensler, 
thanks for coming today. The financial services sector, in the 
Biden Administration, has made harmonization of cyber incident 
reporting a top priority. In fact, the Department of Homeland 
Security's Cyber Incident Reporting Council (CIRC) recently 
recommended that the Federal Government coordinate among 
themselves to reduce the burden on the reporting entity. But 
instead of reducing the burden, the SEC has finalized rules 
that CIRC has called, duplicative cross-sector reporting 
requirements that overlap with congressionally-mandated cyber 
incident reporting requirements in the Cyber Incident Reporting 
for Critical Infrastructure Act (CIRCIA). Given CIRCs 
designation, why didn't the SEC harmonize its cybersecurity 
disclosure requirements with existing regulations, and, more 
importantly, wait until the Department of Homeland Security 
(DHS) and the Center for Internet Security (CIS) developed the 
rulemaking under the recently-signed-into-law CIRCIA?
    Mr. Gensler. One, we have had good discussions with the 
Department of Homeland Security, but we finalized the corporate 
disclosure piece because it was important for the public 
investors to know if there had been a material cyber breach.
    Mr. Garbarino. Is investor information more important than 
Homeland Security? And I ask that question because the reason 
we want to harmonize, and the reason we as a Congress have said 
to harmonize, and the reason the Biden Administration has said 
to harmonize these incident reporting rules is because we have 
heard from the private sector that their cyber employees are 
spending 40 to 50 percent of their time--and we have spoken 
about this before--on complying with cyber regulations, not 
just yours, but with all sorts of different cyber regulations.
    And we talked about this the last time you were here, 
specifically the rule that was just finalized in July, and you 
said at the time that you had been having good discussions with 
DHS. But, again, this rule came out, and DHS said that, ``This 
current rule is duplicative cross-sector reporting.'' It is a 
duplicative cross-sector reporting requirement. So even though 
you have had good conversations, I guess they didn't lead 
anywhere, because you still came out with the rule.
    Mr. Gensler. Actually, it did, because it is only reporting 
to the public if it is a material cyber event. It is 4 business 
days, which actually is longer than CIRCIA's 72 hours, and it 
has important considerations in there that if the Department of 
Justice thinks for reasons of national security or public 
safety, it should be delayed, it will be delayed.
    Mr. Garbarino. It is longer. Four days is longer, but 
within material breaches, there are different requirements 
there. I have to ask, because there is also concern that you 
have companies that are reporting a possible material 
cybersecurity breach that might not have been able to fix that 
breach, and if they are publicly reporting it, it could: one, 
put that company at further risk; or two, put other companies 
using the same system at risk because the same backdoor can be 
found. We just saw over the summer there was an attack on a 
company, they announced this attack before the patch was 
released, and you saw other companies and three Federal 
agencies get hacked under the same vulnerability.
    So I am concerned that having this public reporting before 
the breach is fixed, before the patch is fixed, is going to 
cause more harm than good, and I am not saying, don't regulate 
cybersecurity. I think it is very important. I just think when 
our goal is harmonization, when the Biden Administration's goal 
is harmonization, when everybody is saying harmonization, 
having these rules come out that are just going to be 
duplicative and cause more harm on the companies that are 
supposed to be protecting information, is not a great idea. I 
am running out of time, so I do want to move on to something 
else.
    Between 2019 and 2022, the annual cost of operating a 
Consolidated Audit Trail (CAT) increased by 900 percent. In 
March, CAT unveiled a 2023 budget exceeding $223 million, which 
is 10 percent of the SEC's entire budget. The SEC recently 
approved the funding model that would pass nearly all of these 
costs onto market participants. What is the SEC doing to 
control the cost of CAT? I understand SROs control and operate 
them, they are owned-operated, but it is under your umbrella. I 
need to know what you are doing to control those costs, and if 
you would support moving CAT onto the SEC's budget?
    Mr. Gensler. I don't know, Mr. Chairman, what you are going 
to tell----
    Chairman McHenry. If the gentleman would respond in written 
form to the gentleman's question. And I appreciate the 
gentleman's leadership in cybersecurity issues, the Wigwam 
protocols and the work he has done over the years on those 
policies. He has worked in other committees.
    Mr. Garbarino. And one that is very important.
    Chairman McHenry. We will now recognize the gentleman from 
New York, Mr. Lawler, for 5 minutes.
    Mr. Lawler. Thank you, Mr. Chairman. Chair Gensler, you 
have embarked on a rapid and extensive campaign to reform every 
facet of our markets. It is evident that your rules will 
significantly change our markets. For example, your equity 
market structure rules will impact all retail investors, 
encompassing over 228 million retail accounts. The swing 
pricing rule will have implications for every mutual fund, 
involving over 100 million American investors. The climate rule 
imposes new costs on every public company. The predictive 
analytics rule will encompass virtually every type of 
technology. The private funds rule fundamentally reshapes the 
regulation of private institutions in a potentially unlawful 
manner. The pace and scope of your rules is unprecedented. Have 
you taken the time to do a comprehensive economic analysis 
examining the cumulative impacts of all of these rulemakings on 
the markets and the broader economy?
    Mr. Gensler. Representative Lawler, actually our pace is 
about the same as prior Administrations and----
    Mr. Lawler. Respectfully, we can disagree on that, and that 
is not what I asked you. I asked you a very specific question. 
Have you taken the time to do a comprehensive economic analysis 
to examine the cumulative impact of all of these rulemakings on 
the markets and the broader economy? Yes or no?
    Mr. Gensler. On each of the rules, we do a robust economic 
analysis, and then if another rule is finalized, we incorporate 
that. We take into consideration that interaction in the 
possible further rulemaking and adjust the economic baselines.
    Mr. Lawler. So, you are saying for the record that you have 
taken the time to do comprehensive economic analysis, examine 
the cumulative impact of all of these rulemakings on the market 
and the broader economy? Yes or no?
    Mr. Gensler. For the record, what we do is we take into 
consideration as and if a rule is finalized the interaction 
with other rules as it changes what is called the economic 
baseline.
    Mr. Lawler. Yes. So, have you done the cumulative impact? 
Have you studied that? Have you done an economic analysis on 
all of it?
    Mr. Gensler. We do them rule by rule individually. And 
also, the interaction as it relates to other rules. If we were 
to finalize a rule, then we take that in consideration and----
    Mr. Lawler. Can you explain your engagement with market 
participants before putting out significant rule proposals? Are 
you holding public roundtables?
    Mr. Gensler. We meet with the public extensively before the 
equity market rules. We had numerous meetings from when I came 
on in the summer of 2021 all the way through December of 2022.
    Mr. Lawler. Chair Gensler, California Governor Newsom 
recently confirmed his intention to sign two bills mandating 
climate disclosure into law. You mentioned to the press last 
week that the SEC staff is, ``going to take a look if it were 
to become law because it may change some of the economic 
baseline for our rule.'' It is evident that the law will indeed 
alter the economics of your rule. So, can you make a commitment 
to allowing the public an opportunity to provide feedback on 
the Commission's updated economic analysis before finalizing 
the rule?
    Mr. Gensler. We take the comments into consideration. We 
have had 16,000 comments, a lot of comments on the economics, 
and we often will adapt based on those comments.
    Mr. Lawler. No, no, no. What I am asking you is, based on 
the reevaluation, based on the potential change in law, will 
you commit to allowing the public an opportunity to provide 
feedback on the Commission's updated economic analysis before 
finalizing the rule?
    Mr. Gensler. I would say this. We are compelled. This is an 
important thing.
    Mr. Lawler. It is a pretty straightforward question. Will 
you allow the public to comment on the updated economic 
analysis before finalizing the rule? Yes or no?
    Mr. Gensler. We would put it----
    Mr. Lawler. Sir?
    Mr. Gensler. If we finalize a rule, it would be part of 
that finalized rule.
    Mr. Lawler. Okay. I know you would like to obfuscate, but I 
am honestly asking you a very straightforward question.
    Mr. Gensler. Sir, I understand where you are heading.
    Mr. Lawler. Can you commit?
    Mr. Gensler. No. The answer is, no.
    Mr. Lawler. So, you won't commit. Thank you. At least, you 
answered the question. Thank you. I want to touch on another 
factor here. The SEC recently proposed amendments to expand and 
update regulation systems' compliance and integrity. The 
proposal would expand the scope of Regulation Systems 
Compliance and Integrity (Reg SCI) entities to include certain 
registered broker-dealers for the first time. Feedback from 
market participants on this proposal suggests that the actual 
costs for this proposal are in the billions of dollars as a 
result of the SEC attempting to micromanage the technology 
setup of individual firms, yet these enormous compliance costs 
are conveniently absent from the SEC's cost-benefit analysis. 
Why did the Commission fail to acknowledge these costs in its 
economic analysis?
    Chairman McHenry. The gentleman's time has expired. Chair 
Gensler, please respond in written form.
    Mr. Lawler. Thank you.
    Chairman McHenry. We will now go to the gentleman from 
Iowa, Mr. Nunn, for 5 minutes.
    Mr. Nunn. Thank you, Mr. Chairman. Chairman Gensler, thank 
you, and welcome back to the committee. I know each time, we 
get to have a lot of questions on this. The last time we spoke, 
I addressed swing pricing and hard close proposals with you. I 
also want to reemphasize here the devastating impact that has 
had on many of my hardworking constituents from their 
retirement plans, their 401(k)s, my nurses with 457 plans, my 
teachers with 403(b) plans; I think you get the gist of where 
we are going with this. As you are well aware after this 
morning's rule, I believe it needs to be withdrawn, and I look 
forward to your team's response to both Chairwoman Wagner and 
Ranking Member Sherman on the letter that we signed on to and 
are still waiting to hear back on.
    But I want to talk specifically here about the agricultural 
and small business communities that I represent. The extra 
regulations that the SEC is potentially proposing in this 
regulation under the guise of consumer protection are going to 
add $6 billion in ncreased annualized cost to the industry, and 
an additional 6 million compliance hours, many of these being 
small family farms and mid-sized Main Street businesses. I hope 
you appreciate this has a tremendous impact on my constituents 
back home. Along with four other members of the House 
Agriculture Committee, on which I serve, we have signed a 
letter here moving forward a conversation, which brings me to 
my question on the February 15th proposal rulemaking on 
safeguarding client assets aimed at reshaping custody assets.
    As you know, we worked hard with you in your former role 
with the CFTC on how this can be successful, but dozens of 
trade groups have signed up and identified that this rulemaking 
would represent trillions of dollars of assets that our 
constituents back home face. Both of these letters, Mr. 
Chairman, highlight significant errors with the proposed 
rulemaking, and I am going to begin this conversation by asking 
you to consider withdrawing it until these things get fixed. 
Your definitions of, ``custody,'' and, ``asset,'' would expand 
so greatly that they would encompass derivatives and future 
markets that have been overseen by the CFTC, your former 
organization, for decades. So with these bipartisan letters 
specifically, I believe that they would upend our markets 
overseen by the CFTC, eroding their essential risk management 
functions and putting our nation's farmers and producers at 
risk.
    Now, Chairman Gensler, in your 432-page proposal on 
economic analysis, do you know how many times, ``agriculture,'' 
was mentioned as part of this review?
    Mr. Gensler. I don't recall, but I suspect you are going to 
let me know.
    Mr. Nunn. Would it surprise you to know, not once? In fact, 
it was only mentioned as a subcategory within a footnote. 
Clearly, this is concerning, particularly for my farming 
constituents, but this is something the CFTC has been doing for 
decades. So Chair Gensler, earlier you answered Representative 
Lucas' question. Has there been any coordination with the SEC 
and the CFTC on this issue?
    Mr. Gensler. Yes, we have been in dialogue, but prior to 
the proposal in subsection, there is a proposal, and I think 
that----
    Mr. Nunn. Can I get some specifics on that? When did you 
send a request over to the CFTC for this coordination: the day 
before the proposal; a week before the proposal; or after the 
proposal was already out?
    Mr. Gensler. Representative, it is usually just a staff-to-
staff dialogue.
    Mr. Nunn. Great. I look forward to your staff providing me 
the date on which you actually asked for this information from 
the CFTC. Did the CFTC provide you with any recommendations on 
your rulemaking?
    Mr. Gensler. We engaged with multiple Federal regulators on 
this rule, and we will continue to do that, because we have 
been happy to have feedback.
    Mr. Nunn. I am very happy to hear that, Mr. Chairman. I 
would like to see that feedback being transparently provided to 
this committee then. Did you read these comments, and were they 
incorporated into your final proposal?
    Mr. Gensler. Sir, we haven't finalized a proposal yet.
    Mr. Nunn. Did you incorporate any CFTC recommendations?
    Mr. Gensler. We haven't finalized an adoption yet.
    Mr. Nunn. Mr. Chairman, did you incorporate any of the CFTC 
proposals into your recommendation?
    Mr. Gensler. We have put out to public comment to get 
feedback, and we get feedback and it is benefiting this, and I 
think that we can----
    Mr. Nunn. I haven't heard anything about the CFTC on this. 
You are putting it out to the public, which brings me to my 
next question. It is my understanding that you recently 
reopened the comment period without re-proposing the rules. 
Specifically, what value does this add to the agricultural 
community and my constituents for their grave concerns if you 
are reopening it but you are not listening to the CFTC, the 
Agriculture Committee, or even what is happening on a 
bipartisan basis within this committee?
    Mr. Gensler. I think we reopened this because we had 
another role that may intersect with this, the discussion we 
have had a lot here today. And so, we reopened it formally to 
get further comment.
    Mr. Nunn. It might suggest to some that you didn't get the 
answers you wanted, so you reopened it to others. Let me end 
with this: I urge you to withdraw this rule, as my bipartisan, 
bicameral colleagues have argued the same. Thank you, Mr. 
Chairman. I yield back.
    Mr. Gensler. Thank you. It was good to see you.
    Chairman McHenry. The gentleman from Florida, Mr. Donalds, 
is now recognized for 5 minutes.
    Mr. Donalds. Thank you, Mr. Chairman. Chairman Gensler, 
welcome back. Do you remember where we left off, you and I?
    Mr. Gensler. I do. You are a very good questioner, sir. I 
remember it.
    Mr. Donalds. Okay. Let's bring some things up. Where we 
left off was, did you facilitate the payment for the Steele 
dossier for the Hillary Clinton campaign back in 2016, because 
you were the CFO? You acknowledge that. You also said in 
response to my question that, ``This payment was not something 
that I was aware of.'' Those are your words. Interesting things 
have occurred since then.
    John Podesta actually testified to a committee of Congress 
and John Podesta testified to a question about, was Gary--
meaning you--day to day, hands-on signing every check. 
Actually, he was under a deposition with a committee here in 
Congress. He says, ``Yes, I don't know if he signed the checks, 
but he was there every day,'' meaning you. So, let's circle 
back. Were you aware of the fact that the Hillary Clinton 
campaign actually paid for the Steele dossier, which unleashed 
one of the worst issues of intelligence malfeasance that our 
nation has ever seen?
    Mr. Gensler. Sir, I answered this 6 months ago, and it is 
the same answer today. No.
    Mr. Donalds. You weren't aware of what was going on? Mr. 
Gensler, I find that very interesting, because if I listen to 
some of the people, the staff who have left the SEC, you are 
very aware of everything that is going on. It is actually your 
MO. You are very hands-on. So, you are going to tell this 
committee right now that you had no idea that the Hillary 
Clinton campaign, of which you were the CFO, sent money to 
Perkins Coie for a dossier that was phony and led to the spying 
on of a Presidential campaign in 2016? You were not aware of 
any of this?
    Mr. Gensler. Sir, as a chief financial officer in a 
political campaign, I was not aware of what a law firm was 
doing with some of the monies that they got.
    Mr. Donalds. I find that interesting because in some of 
your other rhetoric about CFOs in the public sector and the 
private sector of our economy, you are very tough on CFOs. You 
have said on the record on many occasions that CFOs have a 
fiduciary responsibility to the organizations that they cover, 
that they should be aware of everything that is going on. So, 
how is that a standard you hold CFOs to in the private sector 
but you don't hold yourself to that same standard?
    Mr. Gensler. That is not a standard that the SEC holds CFOs 
to. It is about their financials, and that the financials are 
put together in accordance with GAAP, and that the numbers are 
accurate, and that they are----
    Mr. Donalds. Did you accurately pay for the Steele dossier 
out of the Hillary Clinton campaign?
    Mr. Gensler. Sir, I learned about that way after President 
Trump was the President and Hillary Clinton was a private 
citizen.
    Mr. Donalds. Okay. Let's move on. We will probably circle 
back to that another time. I want to reference a story in 
Capital Account from June 13th. Mr. Chairman, I ask unanimous 
consent for the story to be entered into the record.
    Chairman McHenry. Without objection, it is so ordered.
    Mr. Donalds. The story notes that you met with Senator 
Tammy Baldwin in May about the SEC's proposal related to the 
13D beneficial ownership disclosure, at which time you 
allegedly and Senator Baldwin staff allegedly--I am going to 
say allegedly--contacted an organization called, We The 
Investors, to submit comment letters in favor of the 13D 
proposal. Subsequently, the SEC was flooded with 350-plus 
comment letters from so-called individuals, but mostly form 
letters stamped with the moniker, We The Investors, in favor of 
their proposal. It appears to me that you have engaged in 
astroturfing to advance your own agenda. Is this true? If this 
is true, it is a serious breach of impartiality that would 
violate the spirit, if not the letter, of the law of the 
Administrative Procedure Act.
    Mr. Gensler. Sir, again, I don't know what the press is 
talking about. I remember the meeting with the Senator was a 
good, thoughtful----
    Mr. Donalds. Did you meet with Senator Baldwin in May with 
respect to 13D?
    Mr. Gensler. I think that it is on my public calendar that 
I met with Senator Baldwin. I meet with Senators and 
Representatives on a regular basis.
    Mr. Donalds. Okay. I need to get from your public calendar 
if you actually met with Senator Baldwin. I think the committee 
would like to know that. In this meeting with Senator Baldwin's 
staff, did you speak to an organization called, We The 
Investors?
    Mr. Gensler. I have no memory of that.
    Mr. Donalds. Mr. Gensler, the no-memory routine from a lot 
of appointees is really getting old. You all are discussing and 
leading some of the various regulations facing our economy, so 
to come before a committee of Congress and have no idea what 
you talked to with a Senator's staff member about 13D----
    Mr. Gensler. The meeting was with the Senator, sir.
    Mr. Donalds. Okay. If you don't remember, if you don't 
recall what she said, a United States Senator, about key issues 
facing our economy from a regulatory basis----
    Mr. Gensler. Sir, no. Please, sir.
    Mr. Donalds. ----that is a real problem, don't you think?
    Mr. Gensler. You are a good questioner, but please, sir, 
that story is not one that I would confirm. It is not a story 
that I believe is accurate.
    Mr. Donalds. Let me ask you a question. Broad-based, do you 
think it is appropriate for the Chairman of the SEC or, 
frankly, the head of any agency to engage with outside groups 
to accomplish the agenda they want to see through rulemaking?
    Mr. Gensler. We are responsible under the Administrative 
Procedure Act to hear from outside parties, market 
participants, constituents in your districts, and Members of 
Congress.
    Mr. Donalds. No, that is not my question. We want to hear 
from outside groups.
    Mr. Gensler. We are obligated----
    Mr. Donalds. Is it okay to engage with outside groups to 
help you accomplish what you want to see?
    Chairman McHenry. The gentleman's time has expired. The 
gentleman's time has expired.
    Mr. Donalds. Thank you, Mr. Chairman.
    Chairman McHenry. The gentlelady from Indiana, Mrs. 
Houchin, is recognized for 5 minutes.
    Mrs. Houchin. Thank you, Mr. Chairman and Ranking Member 
Waters, and thank you to Chairman Gensler for speaking with us 
today.
    Chair Gensler, under the last Democrat Chair of the SEC, 
Mary Jo White, the Commission adhered closely to the statutory 
authority of Congress. During her time as Chair, 59 percent of 
the SEC's proposals were mandated by Congress. By contrast, 
under your leadership, only 17 percent of the Commission's 
proposals are mandated by Congress, according to a report from 
Professor Hal Scott of Harvard. Why is there such a rush under 
your chairmanship to promulgate so many rules without specific 
mandates from Congress?
    Mr. Gensler. It is because technology and the markets have 
changed so much. She was coming in as Chair right after a 
financial crisis, so naturally, there were, I think, 120 
mandates that Congress placed, but you are accurate, and we 
have picked up about 10 of those from the Dodd-Frank Act, and 
one from the Holding Foreign Companies Accountable Act.
    Mrs. Houchin. Chair Gensler, there is a perception that the 
SEC is neglecting public input, particularly bipartisan letters 
that Members of Congress have sent to voice valid concerns 
regarding individual rules and the rulemaking process. The 
concerns encompass the bipartisan concerns about insufficient 
comment periods and a general response to bipartisan concerns 
regarding proposals on swing pricing, liquidity risk 
management, and equity market structure. Are you aware of 
similar bipartisan concerns being raised with previous SEC 
Chairs? If not, could you elaborate on why the opinions of 
Congress don't factor into your consideration?
    Mr. Gensler. The opinions of Congress most definitely 
factor into my consideration.
    Mrs. Houchin. It doesn't seem so, Mr. Chairman. It does not 
seem so, when only 17 percent of the proposals that you have 
brought forth are the result of mandates from Congress. I find 
it incredibly frustrating that anytime we provide comment or 
send what we call strongly-worded letters about our opinions on 
how the SEC should behave, it seems like these must be 
immediately thrown in the trash and disregarded.
    I want to turn to Reg SCI. The SEC originally adopted 
Regulation Systems Compliance and Integrity, otherwise known as 
Reg SCI, in 2014, in response to several market disruptions at 
national securities exchanges. Earlier this year, the 
Commission proposed to expand Reg SCI to certain broker-
dealers. However, unlike in 2014, the Commission fails to 
provide a single instance of a broker-dealer systems disruption 
that had a significant market-wide impact in the securities 
markets. In fact, the SEC's own proposal acknowledges that 
broker-dealer systems performed well during the unprecedented 
trading volumes and volatility at the height of the COVID-19 
pandemic. Further, the Commission admits that it, ``finds it 
impracticable to quantify the many benefits associated with 
amended Regulation SCI.'' Once again, this seems like the 
Commission is providing a solution in search of a problem.
    Chairman Gensler, given that the Commission cannot point to 
a single broker-dealer systems disruption or any tangible 
benefits to applying Reg SCI to broker-dealers, how can you 
justify that proposal?
    Mr. Gensler. As we outlined in the proposal itself, which 
is still out for public comment, some broker-dealers may have 
such size and scale and standing in the markets that if they 
were taken down, that could be disruptive to the markets. That 
is the important thing, and these so-called systems' compliance 
integrity is about those most consequential or central parts of 
the market.
    Mrs. Houchin. The SEC's Regulatory Flexibility Agenda for 
2023 indicates that you intend to finalize a proposed 
rulemaking to expand the definition of an exchange in short 
order. Although the SEC has reopened this rulemaking, the 
proposed rule is still fraught with insufficient economic 
analysis and ill-defining scope, among other things. Given 
Congress' ongoing and unaddressed concerns with the rulemaking, 
as well as concerns of hundreds of stakeholders, it seems 
irresponsible for the SEC to finalize this rulemaking. Could 
you comment on the expected timeline for finalization of this 
rule?
    Mr. Gensler. You will be pleased to hear that we don't do 
it against a clock. It is really when we get the comments and 
the economics right and the legal authorities right and then 
discuss it with the Commissioners.
    Mrs. Houchin. And finally, I want to raise an alarming 
issue that I think needs further attention: The timing of 
various actions by the SEC while Congress is seeking to 
establish a regulatory framework on digital assets. To name a 
few, on January 12, 2023, this committee announced the 
formation of the Digital Assets, Financial Technology, and 
Inclusion Subcommittee. It was subsequently announced that the 
SEC pursued enforcement actions against two firms.
    On March 9, 2023, the committee hosted its first hearing on 
the Biden Administration's approach to digital assets. An hour 
before the hearing, you published an op-ed in The Hill.
    On April 27, 2023, the committee hosted another hearing on 
digital asset regulation. You tweeted an, ``Office Hours,'' 
video on your view that most digital assets are securities.
    And on May 3, 2023, this committee and the House 
Agriculture Committee, led by my colleague Chairman Thompson, 
announced our first joint hearing on digital asset legislation, 
which was unprecedented. You published another, ``Office 
Hours.''
    I am not one to connect dots, but it seems like you are 
actively trying to undermine the work of Congress. You must not 
impede our work to do our job, even though you won't do yours. 
I yield back.
    Chairman McHenry. Would the gentleman care to respond?
    Mr. Gensler. I very much respect the work of this 
committee, and particularly the work of this committee around 
crypto assets. We have a robust time because this is a field 
that is rife with fraud and abuse, so our enforcement agenda 
sometimes does roll out while you are doing your good work here 
as well.
    Chairman McHenry. Mr. Ogles of Tennessee is recognized for 
5 minutes.
    Mr. Ogles. Thank you, Mr. Chairman. Mr. Gensler, thank you 
for being here. I do want to echo the chairman and support the 
chairman that I think we have come to this crossroads where 
subpoenas may be necessary. It seems that compliance in 
requests for information and documentation has been kind of 
shortcoming, and so with that, Mr. Chairman, you have my full 
support when and if you decide to move forward.
    But, Mr. Gensler, one of the things that concerns me is 
sometimes this subjective or perception of subjective and 
arbitrary nature of the rules. On May 25, 2022, the SEC 
proposed amending the Names Rule to further regulate the names 
of investment funds. I think everyone would agree that it is 
misleading. The fund called the Mexico Growth Fund made most of 
its investments in Japanese value stocks. Many names may be 
subject to differences of opinion. The proposal specifically 
mentions ESG funds. Mr. Gensler, is the SEC equipped to 
determine what, broadly speaking, is good for the environment 
as it pertains to ESG?
    Mr. Gensler. No, sir, we are not an environmental 
regulator.
    Mr. Ogles. Again, going back to the subjective nature of 
some of the rules and the compliance that is forced, it is kind 
of like, what is better for our environment, paper or plastic 
bags? And when we should be focusing more on the fiduciary 
aspects of a fund versus its environmental compliance, I have 
concerns. When you look at the social component of ESG, whom 
would you entrust, or how will you determine whether or not a 
company is compliant with the social portion of ESG?
    Mr. Gensler. In terms of this Names Rule, it was basically 
truth in advertising, that if you are going to say you are a 
social fund, to use that, you have to actually then describe 
what the marketer of that fund means by, ``social,'' and then 
ensure that you invest as you are marketing to the public. This 
was really a rule, in most regards, the Names Rule adopted in 
2020, 3 years ago, to protect the investing public, to ensure 
that the advisers they pick are doing what they say and saying 
what they mean.
    Mr. Ogles. But again, to my point, this creates a very 
subjective nature to the rules process, because you just said 
that basically, you don't have the capability to judge the 
environmental components. You don't have the capability to 
judge the social component. So, if there is a clear definition 
and disclosure in the prospectus, who is to determine whether 
or not they are compliant? And you now have a rule that can be 
abused or a rule that is completely useless. So why even have 
the rule, when at the end of the day it should be about----
    Mr. Gensler. It is sort of like, as one of my fellow 
Commissioners said when we voted on this rule, to ensure that 
if you say you are selling pepperoni pizza, there is actually 
pepperoni on the pizza.
    Mr. Ogles. I like pepperoni pizza, don't get me wrong. But 
yes, and forgive me, these rules outlive any given 
Administration, but under this current Administration, the 
Biden Administration doesn't necessarily have the greatest 
track record of trust with word definitions. And I don't mean 
to be contrarian here, but if the Administration can't figure 
out what a woman is, how do I trust them to have any kind of 
bearing or judgment on----
    Mr. Gensler. I totally understand what you are saying. What 
adopted in a Names Rule is that if you are marketing to the 
public that you are, let's say, environmental or a green fund, 
you describe what that means. You can describe what a pepperoni 
pizza is, but if you describe it, you better comply with it.
    Mr. Ogles. But again, I just----
    Mr. Gensler. It is a fund manager's----
    Mr. Ogles. When you look at, for example, the climate 
disclosure and the burden that is being put on businesses to 
track their supply chains, you are now creating an enforcement 
mechanism that the company has to enforce on its supply chain. 
Again, these rules that you are pushing on businesses, that you 
are pushing on these instruments, only do one thing: drive up 
costs. And at the end of the day, the end user, the very people 
that you are trying to protect, you are hurting, because of the 
arbitrary nature of the rules that you have put in place. It is 
very frustrating.
    And again, Mr. Chairman, I am about out of time, but I am 
just going to say that I would say open up the floodgates, hit 
him with subpoenas, and get the information we need. The 
obfuscation and not answering questions, I am sick and tired of 
it. I have sat back here, and I have listened to this entire 
hearing. You wear tap dancing shoes better than Fred Astaire, 
and enough is enough. And I don't mean any disrespect, but it 
is time the questions are answered so that we have the 
information we need. Mr. Chairman, I yield back.
    Chairman McHenry. Thank you.
    Thank you, Chairman Gensler. It is 2:29, so it is not your 
longest day in a committee, but thank you for being here.
    As I stated at the outset, it is my request of you and your 
agency to comply with our requests as a committee. I don't want 
to use the compulsory process for the first time in our history 
between this House of Representatives, this committee, and your 
agency, so I think it would be a purposeful act on your part if 
it resulted in us issuing a subpoena.
    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.
    Chair Gensler, I ask you to please respond no later than 
October 30th to those written questions.
    This hearing is adjourned.
    [Whereupon, at 2:30 p.m., the hearing was adjourned.]

                            A P P E N D I X

                           September 27, 2023
                           
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