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tv   [untitled]    April 10, 2012 12:30pm-1:00pm EDT

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implementation, the creation of the otc detrivtives regulatory ra smeem and issue oos, high frequency trading, dark pool, the response to the may 6th crash and all of those efforts. >> can i assume that one of your roles there, one of your functions, is to continually evaluate the structure and the investment that the federal government is making in the organization to ensure that the proper resources for the proper emerging issues are being effectively and appropriately allocated? >> absolutely. i view that as one of the most important parts of what i'm there to do, is to make sure we are good stewards of the resources that we have. that we are acting smarter and faster than we of have before. the last three years have required significant rebuilding of the infrastructure of the agency to support these major
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initiatives to reorganization our enforcement an our examination program, and to build the technology to support them, but we are very much, i think, headed in the right direction. >> i have one more question, madam chairwoman if i may, and that is, the relationship between the, and i call it an information technology platform, whatever you call it in your agency, what can you just briefly describe -- what your request, what you're attempting to do insofar as your automated platforms are designed to do and how that may be able to save the agency money, and at the same time reduce our continued dependence on more and more additional personnel? >> sure. we believe we can dramatically cut our o & m costs by mode modernizing and getting them off 10 and 15-year infrastructure
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and those savings for edgar and to be as much as 40%. two quick thing. i believe by eeliminating and allowing our staff to access one layer of data warehouse without having to go in and out of multiple different systems to do their job could save us tremendously on staff efforts and increase productivities. those are just a cousin examples. couple of examples. thank you for your answers. i yield back. >> thanks, mr. womack. i would like to ask for us to have a separate meeting with your i.t. director, please, because i want to know exact exactly -- i want to know how fast we could work together to get that i.t. system unsiloed, because i think, obviously, perhaps in the past for, you know, in between the times that you were there, if you had been
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able to put in the name bernie madoff, just for example, and had found any kind of filings that he and his company did in several different places, maybe we could have found something faster, but i would like to have a separate meeting so we can discuss how much it would cost to get this up and running and to totally modernize your system in the shortest amount of time possible. >> and if i could just add to that, we'd be happy to actually demonstrate four the new examination system calmed trends that allows examiners to have access to all information about a particular retchs traunt at their fingertips instead are searching multiple data bases and also to talk about the tips, complaints and referral system we talked about a lot in this hearing last year, that the agency deployed last year, and we intend to spend some of our technology dollars to enhance and refine that system. so that, again, tips that come
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in from disparate places into the agency come into one place and can be linked together so that bernie madoffs name would show all of the tips that might have come in about his conduct. excuse me. >> all right. i'll look forward to doing that because i think it's absolutely critical and we've been able, by doing that at the internal revenue service, just for example, it's made life a lot easier and it's become more efficient, and quite frankly, they need fewer people to do a lot -- run a lot of those tests. >> i'd be happy to do that thank you. mr. die aez balart? >> thank you very much. good to see you again and thanks for your service. >> thank you. >> i'd like to go back to the, to the proposed 298-page volcker rule. it's my understanding that the sec and other agencies received more than 17,000 public comments, that was already spoken about a little while ago. commissioner gallagher from the sec said in a speech yesterday and i'm going to quote him, that even a quick review of the many
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substantial comment letters the commission received revealed widespread fears regarding the fact of the proposed rule on the proper functioning of global markets and the competitiveness of the u.s. financial industry. goes on to say these fears, these are fears that i share. so with so many concerns surrounding the proposed rule and so much at stake, wouldn't you agree it would be a good idea to take a step back and pretty much go back to the drawing board and start all over again? we're dealing with a very substantial rule here obviously? >> congressman, we did get 15,000 or 17,000 comment letters which is a lot, but i will say what's actually more striking to me on volcker is the length and depth and quality of the comment letters we did receive, a smaller number, not bsh bsh d-- that offered very real concern and issues for the agencies to collectively think about. so whether we start right from the beginning again or not, i
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can tell you that we will very carefully and are very carefully reviewing the comment letter, and i certainly have not read them all, and rethinking how we should approach the statute other requirement. our goal at the sec and i believe i can speak for all regulators in this is try to fulfill the obligations of the statute, but not to the detriment of our markets. particularly not to the detriment of market making, we as a capital markets regulator in particular fully appreciate and understand is absolutely critical to capital formation and the fuxzful operation of markets. >> and fears that could happen? >> absolutely we've ladder those. as you know, wheev hundreds of meetings with industry and a lot of issues to work through. i think chairman bernanke said last week it would be very unlikely and impossible for us to get this done by the statute other deadline of july, and i think our goal would be to take the time to get it right, not get it fast. >> great. and now, separate question,
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dodd-frank requires the sec and the cftc, right, to issue joint rules defining swap entities and products, and are the agencies working together to make sure that the definitions are consistent? >> yes, we are. and one reason it's taking so long is that it is -- it is a challenge. we have different -- we have one bod frank act but we have different statute other regimes upon each of us are building and frankly distinctions between the security based swap market for which we have responsibility and the swap market for consider the ftc has responsibility. so it's created a lot of challenges in the joint rulemaking, but we are working together to try to make those deskses as consistent as we possibly can. i don't want to tell you we'll be identical on every single thing but appreciate the goal of kivs kirchtsy assistantsy and are working between the two
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agencies. >> lastly, my time is running out. regarding the mf global issue what actions has the sec taken to recover those missing funds? >> well, you know, it is tremendous tragedy what has happened with respect to mf global, and i will say that the sec has been deeply involved, although there were only about 318 active securities accounts at the firm while there were close to 40,000 futures accounts. so our role is necessarily been somewhat more secondary. we've closed closely with the trustee, marshalling assets and trying to determine exactly what happened, what the final days of the firm were like and where money has gone and then we'll seek to recall that money will appropriate. applying on the securities side, under sipc, not to futures accounts, the trustees expectation is 85% of customers will get 100% of their funds back. when the firm is finally
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resolved, but we're working very closely with both the cftc and the trustee and of course an enforcement view into this as well. >> and thank you for that. you're right, it is a huge tragedy for so many -- so many people. lastly, section 5 -- 953, the dodd-frank act, requires that the sec promulgate regulations for the so-called pay ratio disclosure provision. have you heard and what have you heard from stakeholders in terms of compliance issues and the corresponding costs related to the implementation of those, of the pay ratio provisions? >> well, we've heard a lot from stakeholders. you can imagine, we've had many meetings. the statute is fairey prescriptive and quite prexreptive, i should say, creating challenges, i think, for us as we write the rule. it did not have a deadline. so we haven't miss add deadline yet, although there's obviously interest in our getting this done. but some of the challenges relate to the fact that many
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companies have hundreds or thousands or tens are thousands of employees overseas. how to count them. how to arrive at an average compensation number. whether to count employees who are part time or employees that have joint ventures, for example. there are a lot of technical issues, but there are a lot of burdens to making the calculation, because it's an average of all employees that firms are really struggling with, and we're trying to work through. >> thank you. obviously, it highlights the complexities of these issues. >> yeah, as a matter of fact i've heard nightmares i'm trying to accumulate some of the data that takes much longer for those people that haven't worked in the private sector, for example, it takes a lot longer and you're a multi-national corporation, it's very lard to accumulate the data, because you have to go to different governments. >> there are many operational issues.
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we -- >> always sounds easier on the surface, but when you kind of dig into it, sometimes i think we ask for more than we can expect to get. >> in this case particularly, because it's quite a prescriptive provision. it's not just that we could take the w-2 forms and come up with an average, and then compare to the ceos' compensation. it's much more complex than that t. is subpoena thank you. mr. yo -- >> it is. thank you. mr. yoder? >> thank you. i want to pick up where the chair was leaving off there regarding some of the heavy burdens that congress ultimately placed in your lap. i mean, we send a lot of direction your way, certainly with dodd-frank and other proba you spinning a lot of plates in the air. we spent time talking with entrepreneur, folk whose create the jobs that make the country go and ultimately create the type of prosperity they everyone
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in this room, in this country, wants to see for their kids and grandkids. with that mutual stated goal in mi mind, there's a twin set of challenges that really can be faect affected by agencies like yourself. first of all, the regulatory uncertainty in this country, many business owners, many folks throughout country, many investors express concern with the regulatory uncertainty and its impact on the economy, and certainly when the rules of engagement through dodd-frank, the volcker role, whatever we're working on remain up in the air, many folks express a concern how that impacts investment risktaking when the rules of engagement aren't fully known by the folks expected to take risks and invest and make our economy go. second, a huge budget crisis in washington that is pertinent to this conversation as we try to
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find ways to cut spending, we are asking your agency essentially to quickly resolve and make clear information to the free market system that we want to promote in this country, while at the same time finding ways to do it in a cheaper fashion. in a sense what we're asking you to do is what entrepreneurs have to do every day in this country which is produce a better product with less resources and less time. so my question for you is, how do we work together with congress and with the sec to find ways to produce better results in a more predictable fashion, and one that doesn't require additional federal resources? is it that we are creating too many demands upon the commission at once? is it that we need to work together reprioritize some of the things making sure some of the very important critical things that affect the economy and affect job creation that
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we're emphasizing those and not other items? is it duplication? asking too many agencies to do too many things? when i'm out of my district, i understand it's not just the sec, it's agency after agency. we are under a mountain of new uncertainty, i hear it from banks, small business owners, from whoever. and we're expecting these people to create jobs. putting that all together, how do we work together to resolve in in a way to reduce expenditures in agencies like yours and promote confidence in the economy? >> a couple points. i absolutely agrees it impacts the willingnesses of businesses to take risk, invest, because it's uncertain what the reward might be or whether they might not be able to follow through on something they've started. and that's intentioned with -- it's in conflict with our desire to get these rules right. so when congress pass as statute and asks us to implement
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something like the volcker rule, when we get that done, there will be some more certainty, but it's taking a long time to get it done, because we want to do it the right way. so there is, i think, always going to be a certain amount of uncertainty coming from washington, that makes it harder for businesses to plan and perhaps there's more now just because of the volume of work that's come to all of the bankingened -- banking and financial laeger to agencies as a result of dodd-frank. on the small business aspect i mean, we are very focused. one of the, not dodd-frank things we're working on today are areas where we think we can relieve some of the burden on small business capital formation, at the same time not reducing critical investor protections so that people are comfortable allocating their money in the market, but that small businesses have the opportunity to maybe to get their feet on the ground before
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we are subject to the full panoply of ideas like on ramping, scale disclosure, looking at things like whether the 500 shareholder trigger for public reporting is the right number, or it should be higher and higher for community banks, for example. and looking at restrictions on communi communications in the offerings. a full plate of capital initiatives we are looking at. we're also looking at areas within the sec where we can cut spending, where we can save money. we have two things in that regard. we have a continuous improvement program. one of the recommendations out of a large stud they was done of the sec by boston culton group was to create a continuous improvement program and through that initiative as well as others, we've identified $8.3 million in savings just over the next two years with a relatively small lift in terms of other savings that we think that we
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can find. and then we have in our technology group a very conscious effort to spend money to save money. an example. we spent $7.6 million to replace 500 servers, with virtual servers. we will recoup that $7.6 million in 15 months and over the next five years save close to $19 million. we can take that money and redeply it towards better, more useful purposes within the agency and are doing that on a consistent basis throughout our technology program, tightening up contracts, putting in higher service level agreements and performance metrics that will allow us to catch problems earlier, so we have much less utilization under our support, contract support agreements, and, therefore, lower our costs of delivering technology. so it's a long-winded way of answering a multiple parts of your question, but the last thing i would say is that, while this is -- we must be good
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stewards of the appropriation we receive, ow funding is fully yuf set by fees paid on securities transactions about two cents per $1,000 of transactions. >> i noted that in your testimony and certainly appreciate that and i also appreciate your acknowledgement that many of these investors and these businesses and folks that we hope will create jobs are dependent upon the -- the, or affected by the regulations coming out of the sec and other agencies. so our ability to work with private industry and to come up with regulations that make sense that are acceptable, that create certainty, i think is just really critical towards getting our economy back on track. not all of the folks on this panel were supporters of the. of the things thrown your way. we certainly know some of these are politically divisive topics but in general i think we could agree across the aisle and across executive and legislative
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branch that anything we can do to create a certain environment will help capital flow and help put people back to work and so wepartners on that. >> i agree with that. wherever we are, we think about delay implementation dates and do other things that put less burden on small businesses while, of course, being conscious of the fact that we want to protect investors, because fraud in this area will not help anybody. >> right. certainly. i appreciate that and then one other question related to some of your proposed rules related to conflict minerals. i don't know if you recall last year when you appeared before the committee i asked you a little about this as well bp there is a concern among some companies in the country related to really minimal amounts of materials that are very, increasingly difficult for a small device manufacturer to be able to track, and just a few questions, and just buzz through them, you can answer. what is the anticipated date for
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the adoption of the final rule regarding conflict minerals? has there been conversation give ton setting clear minerals? has there been any consideration for the amount of the conflict mineral that would trigger the proposed reporting requirements and last year we discussed if it's possible to create a di min mus level. there's some broad discretion in terms of implementation of these amounts. and then also with the sec consider to moving to a category for indeterminate origin in these minimal amounts. is there a way we can resolve that so some of these companies that make small devices, i have garmin in my district who's affected by this. are there situations where companies like that could work with the sec to come up with a rule that was feasible to be
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implemented? >> congressman this is a particularly complex rule. again, a fairly prescriptive provision requiring companies to disclose. it is so complex and out of the order mare for the sec. commission's working to finalize the adoption and i'm hopeful in the next couple of months we will be done. we met with many industry participants as well as many ngos, the jes it conference, the conference of catholic establish ops, the enough project. people on the ground in the congo who understand as we all do the good intention, the important intention behind this provision. so we're working to finalize it. we held a round table where we could hear from industry about
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the particular issues that they were concerned about. i don't believe a di min vus exception is possible under the statute. the rule will try to give latitude and flexibility in some areas that i think will be helpful to different kinds of businesses in order to comply. we will have a phase in period. i don't know how long that will be to give sufficient time for some supply chain due diligence mechanisms to be developed and put in place. we are looking closely with the oecd has done in terms of guidelines. it's still a bit of a work in progress. >> i appreciate your efforts to work with industry to try to find a rule that can be workable and feasible and certainly, you know, the conversation we're having previously related to just that regulatory uncertainty. this is another thing that affects privacy and industry's ability to create jobs and grow in this country.
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so these rules frustrate and effect sometimes very negatively some of our folks that we're asking to grow and be great companies. anything you can do to resolve these in a way that actually sometimes you know these companies look at these rules and just say i can't implement this. this is just infeasible. your response might be congress needs to give us new direction. the law was written very prescriptively. maybe congress does need to take another look at that. in some cases it's just an i'm possiblity for some of these companies way down the chain with a very minimal amount to try to track this way back to the point of origin. you can imagine the amount of expense and effort and not understating the impact to the region that we're trying to protect and make sure that there's not this happening. but the effort to pinpoint every single mineral that's coming into a small device multiple steps down the chain can be very, very cumbersome and difficult. so, but thank you for your efforts there. thank you madam chair. >> i might add that oftentimes
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these things come about because people who are writing the laws don't have a clue what it's like to work in the private sector. and that begs the question then chairman shapiro, with regard to your division or department in the sec that houses your economists, if you will. i'm curious because i don't know how often you utilize your economists in determining the economic impact of a certain type of regulation, certainly with regard to what mr. yoeder is saying it seems to me that regardless of the intent of congress that in fact the economic impact on a company such as garmin, is it, who needs to use some of those minerals because you can't get them anywhere else or they would become anti-competitive should be subject to some kind of economic analysis.
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do you actually ask those folks within your organization to help on this? >> absolutely. we have significantly expanded is size of our economists group. helping us analyze costs of different alternative ifs those are possible. they help us craft a request for comment on both cost benefit analysis we do and also in asking industry and others for data to help inform the public policy choices that we're making. we have a special new chief economist that built up that function, they're deeply involved in rule making and deeply involved in enforcement and study and do things after the flash crash. they're well integrated into the organization. >> would you use them also for
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example, this is just, i'm just using this as an example. i wasn't going to bring up the money market issue again. however, within the discussion of the rule making, i mean do they get involved in trying to fully consider, if you will, the economic impact of those proposed solutions to broader capital market ors the like? >> yes. they are very involved in the money market fund work that we're doing right now. >> okay. >> and when we did the rules two years ago implement the increased credit quality and other standards. they were very involved. >> so how many economists do you have versus how many lawyers? >> we have many more lawyers. and i can get you the exact numbers. but we have a lot of ph.d economists. we have 16 offers outstanding to new ph.d economists to join the sec when the school year the
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over. and we use them throughout the agency. >> how do you find these folks, just for example, they're all finishing up their ph.ds? >> we attempt many federal agencies do this a big conference every year where lots of ph.d candidates come and we can interview many of them at once. the staff will have gone to that conference having read anything those people have win, learned as much about them as they can. select the ones we want to interview and then make offers to them. >> interesting. >> we also bring in economists from the industry as well when we have the opportunity to do that. >> i would think the competition would be pretty fierce for them these days. >> you know, the competition is fierce, but again the sec because of our market regulation function is really very interesting place for economists because it's not just -- it's not singular focused.
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you can be involved in something like money market funds and mutual fund regulation, but you can also be involved in market structure questions and what's the impact of high frequency trading on our markets and then be looking at issues around how broker dealers compete. there's just so many different facets to sec regulation that make it interesting for economists. >> do they also get involved in review of what might be obsolete or outdated regulations for you. i know the regulations are trying to push the agency as well as the congress i might add, toward trying to get rid of outmoded regulations that are on the books that actually cost the private sector money but yet don't do anything because markets have changed so much or other circumstances have changed. how do you do that review process, or do you? ? >> we do it now but already, but
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we also will be doing it pursuant to the executive order that was signed in july that it does apply to the independent agencies asking them to develop a plan for a pretro spective rule review. that plan is with our commissioners awaiting their comments and their input to it. and the economists will fully involved in that. as well as one reason for a big increase for our economists group in this 2013 proposed budget is that the ten-year review of the sarbanes oxley rules will fall about that time. there will be an enormous amount of economic work that needs to be done in connection with that. >> can you dify up the rules, the other four commissioners different


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