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tv   SEC and CFTC Leaders Testify on FY 2018 Budget Requests  CSPAN  July 6, 2017 9:48am-11:03am EDT

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way that our adversaries would not have knowledge of them or that we could deny american association with them for those activities. that is not wrong. >> and sunday at noon historians, authors and former congressmen explore the consequences of what they call america's post world war ii security state. >> people who like authoritarianism, they know it's illegal for an individual to go into your house and take what they want. fortunately that moral standard still exists. you can't purposefully hurt people and take from people but it's not illegal for the government to do it. >> for our complete schedule go to last month the leaders of securities and exchange
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commission and commodities future trading commission talked about proposed budgets for their agencies. they were at a sub committee hearing for an hour and ten minutes. >> good morning the sub committee will come to order. i would like to welcome our witnesses. thank you both for being here. we look forward to hearing from both of you about the details of your budget reest requests. as members of this committee we have a responks blt to ensure the funds we see are spent wisely. both are seeking increases for 2018. requesting 242 million or 15%
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higher than 2017. the sec budget has grown to now 1.6 billion. the cftc is requesting 281.5 million. for comparison, the cftc was funded at 62.7 million in fiscal year 2000. the budget now has reached at least 250 million. access to funding does not necessarily ensure an agency will achieve its mission. you both have challenges.
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in the case of the cftc leasing costs and practices have raised concerns about effective management of federal funding. all agencies have to make strategic decisions on how to best allocate resources. as we review your budget request, i'm most interested to hear what decisions you have made to operate more efficiently. we all benefit from a system that promotes fair and orderly markets. so i'm concerned when regulations fragment the market. i ask you to be persistent in trying to work together and coordinate with other federal regulators and your international counterparts. we're also interested in hearing more about your efforts to ease regulatory burdens. your jobs have become more challenging with the rise in
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automated trading and constant technological innovations including financial tech and the need to operate markets undergoing digital transformation. i look forward to your testimony and learning more about these and other challenges that you face. thank you for convening this hearing. i welcome our witnesses jay clayton chairman of the sec and christian carlo. both of these agencies operate at the forefront of our economy and help stop fraud and manipulation in our securities and futures market. the u.s. economy as a whole relies on vigilant oversight by the fcc and cftc. given the concentration of publicly traded firms
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incorporated in my home state, i'm particularly interested in making sure your agency versus t -- agency versus the resources they need. we can ill afford a rerun of the debacle that cost americans more than 8 million jobs and 10 million housing foreclosures. we can't get our guard down but must make sure we have the necessary safeguards in place to keep our markets secure and stable. investors of all types, large investors, individual families saving for retirement depend on the work. the sec is responsible for maintaining fair, orderly and efficient markets.
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whether you have the right mix of talent and specialized expertise to be vigilant watchdogs, whether we have the technology to augment and secure that capital. and what would be the consequences be with budget cuts and a budget freeze. so i'm eager to discuss how you're currently using funds provided in fy 17 to get an answer to that. and i want to learn more about your most pressing funding priorities as well as your honest appraisal of the potential impacts of operations should your funding requests fall short. short changing your two agencies in particular in my view would be exceedingly irresponsible.
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>> for your support for the sec's important mission. your support has been crucial to the agency's success. i look forward to working with each of you on the 2018 request.
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for the sec's 1.602 billion. with a work force of about 4600 staff, the sec oversees approximately 75 trillion in securities trading annually on u.s. equity markets. the disclosures of 8800 public companies including 77 of the
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world's 100 largest companies and the activities of over 26,000 registered market participan participants. we also engage with the investing public on a daily basis. from our investor education programs to our portal.
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focus on five key areas. effective agency management, protecting investors, facilitating capital formation, leveraging technology and leasing. first as the agency's senior responsible executive, i am committed to ensuring that the sec is not only a good steward of the funds you entrust to us but also maximizes the value of those funds to the american investor. for fiscal year 2018, we continue to develop and leverage our capabilities for risk analysis to inform our decision making including how to most efficiently use our staff resources. second, we are committed to protecting and enhancing the world's most vibrant markets. under our request, more than 50% of the resources will be invested in the agency's enforcement and examination programs. in fiscal year 2018, the sec
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will continue a robust enforcement program with resources focused on key areas where misconduct harms investors, undermines confidence and impairs market integrity.
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as a result, invest opportunities for main street investors are more limited. also we will take action to staff the new office of the advocate for small business capital formation so that it can pursue its work to better assist small businesses and small business investors. fourth, the fiscal year 2018 budget request will help the sec to stay on top of critical technological developments in our capital markets. the $240 million that the sec requests to spend on i.t. in
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2018 is modest compared to the amounts that major wall street firms spend on their own i.t. systems. by way of comparison, in 2016 one large financial institution spent more than 9.5 billion on technology. the 2018 budget request relies on continued access to the reserve fund which will allow the sec to commit to critical long-term initiatives. key technological initiatives planned for fiscal year 2018 including expanding data analytic tools to protect potential fraud, improving surveillance tools, improving the access to and usefulness of information available through our edgar system. fifth and last, with the sec's existing headquarters lease expiring in the next few years, the budget request includes
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funding so that we may commence a procurement process for a headquarters lease. if the outcome of the gsa's competitive acquisition process should require us to relocate. the funds would not be used for sec operations. in the event the money is not needed for relocation, it would be refunded to the fee payers. thank you for the opportunity to present the fiscal year 2018 budget. i welcome your comments and advice and would be happy to answer any questions. >> thank you very much. next, chairman giancarlo. >> good morning. i'm honored to testify before you on the cftc's 2018 budget
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request. for more than 100 years american farmers and manufacturers have used derivative markets. it ensures we can always find plenty of food on grocery store shelves. they influence the price and availability of heating in american homes, electric power in our offices and factors, interest rates on mortgages and returns on retirement savings. these markets allow producers to manage changing production costs like the cost of raw materials, energy and interest rates. they enable business risks to be transferred from those who can't bear it to those who can. and they free up capital for investment and boost economic growth, job creation and american prosperity. today these markets are more fragmented, more concentrated and less supportive of economic
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growth than in the past. the time has come for these markets to be put more fully into service of american economic recovery. turning to our budget, the commission is requesting 281.5 million and 713 ftes for fiscal year 2018 operations. this is an increase of 31.5 million and 36 ftes over the fiscal year 2017 level. the 31.5 million is not an ad hoc number. it's a careful assessment of what the cftc needs to execute its mission in fiscal year 2018. i respect the priorities of this congress and president trump to balance the budget rather than pile up more debt on american citizens. i know this committee's essential role in appropriating and allocating resources.
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therefore we did not take lightly the use of bypass authority. previously i spent 30 years in the private sector where i was last a senior executive of a public company. it seemed to me that the budgeting process of government agencies always started with last year's budget to can which was added an additional increase. i approached the budget a little differently, the way i did back in business. i sat down with the heads of every unit. i reviewed their spending. together we built this budget up from zero based on real needs. no surprise i found areas where the agency could be more efficient. for example, by returning to regular order in its operations. taking greater care and more precision in its rule drafting, adopting less contracted time
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frames for public comment. and adopting a proper specification process for new technology spending, reestablishing our central service model and not over interpreting our mission. i hope i could have reduced our 2018 budget request below prior year levels or even held it steady. but it will take some time to see these efficiencies realized in our budget going forward. rather i discovered three critical areas where the agency falls short of its current mission. these are the commission's budget priorities for 2018. they explain the modest increase in our budget request. first, the office aufs ooffice economist is under resourced. we must conduct more thorough cost benefit and econometric
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analysis. as clearinghouses grow in size and scope, so too has the complexity of the oversight programs and procedures of the firms we regulate. it's said that an ounce of prevention is worth a pound of cure. the better our process for examining derivatives clearing houses the less risk of taxpayers bailing them out if something goes wrong. we must strengthen our examinations capacity to keep pace with the explosive growth in the amount and value of cleared swaps here and abroad. to avoid being a 20th century analog regulator of 21th century digital markets, the cftc must keep pace. a digital transformation is well underway and shows no sign of
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stopping. we have launched an important financial technology initiative that will help us catch up with the changing nature of markets. in conclusion, u.s. derivative markets should not be the most regulated or at least regulated but the best regulated. our proposed budget will meet the standard for the american people. i submit my written testimony for the record and i welcome your questions. thank you very much, director. i am going to begin the questions. i will begin with my five-minute question. chairman clayton, you mentioned in your opening statement that fewer companies are going public and you're concerned and some of the plans that you have to try
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to improve this situation. could you kind of dig down to what kind of imin fapact that h people's retirements, the ability to invest and what kind of choices are being curbed by this phenomenon and why is this occurring? >> when i started this job, this was a matter of concern to me. let me start with impact on main street investors. >> right. >> that's fewer choices for main street investors. 8,000 down to 4400. if that number continues to shrink, the choices for main street investors will shrink. our public capital markets are wonderful. they offer access to investments on a relatively costless basis
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compared to investing in private sector investments. said another way, it's very difficult for main street investors to access private sector investments because of the fixed cost of making such investments. so this is troubling to me. because the public equity markets are where our main street investors look for their investing needs. what are the drivers of this? i think they're multifaceted. i think the people who would tell you it's one thing or another, regulation is certainly one of them. the fixed costs and ongoing annual costs of being a public company have gotten higher. they've increased much in access of inflation. the ability to raise capital and private markets has gotten easier. there's more private capital available. and there's something that we're continuing to explore and i want to explore further which is the
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liquidity available for mid and small sized public companies that enter our public markets is not what people would like it to be. >> i think that is concerning because obviously that's a lot of retirement dollars that people look to in the long-term to be able to access. you want to look at growth, obviously to take you into your later years. if your options are curbed, your ability to have a comfortable retirement is certainly curbed as well. i want to ask both of you something. you both have issued related to the lease space issue. the inspector general estimate that is the cftc will spend throughout four of his offices over the terms of the current lease between 44 to $56 million on empty office space. what steps are you taking to
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reduce that footprint? and the other question i have and i'm going to ask you to respond to this too, mr. clayton, is on the telework issue, i understand that you have a lot of vacant offices because of your telework policies. are you working to rein the options in for that shared space? let's go to the empty offices first. >> we have four offices here in washington, new york, chicago and kansas city. our average leasing percentage is about 85% occupancy. in some of our offices such as kansas city and new york, it's less than that. those leases were entered into several years ago, i think at a time when perhaps there was an expectation amongst some that the cftc would become a much bigger agency and that space was
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taken on. we are handing that authority to enter into leases back to gao and we are searching now as hard as we can to fill that space whether through subtenancy or otherwise. we have been working very hard in kansas city in particular and have entertained a number of offers. unfortunately they didn't make economic sense for us. we continue to find ways to utilize that space in new york. your second question was? >> let me go to mr. clayton now. te telework was my question. >> teleworking has increased. it's one aspect of technology that i believe and our staff that handles operations believes
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can actually reduce the required footprint per employee. we have been working to do that. rough data, it used to be 290 square feet per employee. we're now down to about 245 square feet and we're looking to trend down to 230 square feet per employee. >> what about telework for you? >> we are in negotiations with our union right now. that is one of their requests, for increased telework. having come from the private sector, telework is an idea that is found to be less attractive in the private sector. ibm after going through a long experiment with it is going in a different direction. i think there's value in having our employees together in one place, the ability to look at different ideas and stimulate one another is present when
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people are together in one place. >> thank you to both our witnesses. i'd like to ask unanimous request that a written statement to us from anthony reardon be entered into the record. >> without objection. >> there's concern that the administration is choosing to not respond to requests from democrats which counters a longstanding bipartisan tradition upheld by both parties. will you commit to responding to requests and requests from information from both majority and minority? >> certainly. >> yes, senator. >> thank you both. if i might first, about the cftc, the funding has remained flat for three fiscal years. your materials describe the 31.5 million increase you're seeking after a thorough budgetary review to support three key priorities as you articulated.
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you also proposed to devote a portion to sustaining current i.t. investments. what particular set backs would the cftc experience if your requested increase doesn't get provided by this committee? if your budget authority is frozen at 250 million as proposed by the president, how would you address those needs? >> i said in my testimony that markets are changing dramatically before our eyes. when people think of the cftc they often think of a funny movie from the 1980s called trading places with trading pits. that world is gone. our markets are virtual, they're electronic. they're not pitting trading anymore. and yet our rules set is very
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much still written for that old world. we have to dramatically move to the future. a great hockey player wane gretzky said the reason he was successful because he didn't skate to where the puck was, but he skated to where the puck was going. our budget enables us to skate to where the puck is going. when i travel and meet with farmers and ranchers and others that use our markets, they're very concerned about developments such as high frequency trading. unfortunately we just don't have all the answers for them because we don't really have the capacity to look into that future direction. we need to build up that econometric unit so we can start understanding some of these new technologies like block chain, like machine learning, like big data computing that firms are using. mr. clayton mentioned that one
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firm alone has devoted $9 billion just to technology. we're proposing a $57 million technology budget. >> thank you. given the history of our having had a crash that in no small part was contributed to by a misunderstanding, a failure to effectively and transparently regulate a burgeoning derivatives and swaps market, your request strikes me as wise. the budget for sec is 3 million below a freeze. last year's request was 180 million more. your request appears to shave about 2% from each of the operating divisions except for the inspector general. i'm concerned that might be going in the wrong direction in terms of protecting investors. how do you believe a freeze will help the sec police highly sophisticated markets and increase oversight of investment advisors when we have such a
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robust market. you are making admirable progress in terms of inspections and over view but why not continue to invest? last, the administration proposed eliminating the sec reserve fund. >> we're essentially flat. maybe down less than $3 million. i'm comfortable that we can continue to fulfill our mission in the same way we have in the past at this funding level. it also gives me an opportunity, a new person in this seat, to assess where we may need funding going forward. again, our markets are changing and the pace of change is increasing. and i am certain there will be areas that this time next year i will want more funding that i don't know about today. just to give you the analysis i went through in getting in the
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seat -- and i want to thank the staff for really getting me up to speed quickly on the needs of the commission. at our current funding level, i'm comfortable. if you took a percent, i'd be pretty bummed out. it would hurt. and i think if i had a few more dollars, could i spend them wisely. i wouldn't know where to spend a whole lot more at this time. i look at the reserve fund at 50 millio million. it's very helpful to have a dedicated source of funds for technology. >> thank you. i think we can all agree broadly that federal agencies have not historically done a great job of i.t. procurement. i think having a reserve fund and the ability to prepare for it on a long-term basis makes
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great sense. >> senator moran. >> thank you very much for your public service. welcome to the capacity the positions you now hold and look forward to working with you. let me start with the cftc. chairman,as you know the swap dealer diminimus level is set to drop to $3 billion by the end of the year. i'm concerned this will negatively impact farmers and ranchers. they'd find themselves suddenly with fewer options for potential counter parties to help them meet their risk management. are you able to provide any insurance that this risk management tool remain at billion or higher? >> may i just say for the record in regard to a question from the chairwoman, i meant to say the
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gsa and not the gao. the question you raised is a very important one about getting this diminimus level right. the question is if by falling to 3 billion do we serve the purpose of capturing more swap dealers or do we in fact have market making activity leave the marketplace, the type of market making activity that actually serves our smaller market participants. when these levels were set five years ago, it was in complete absence of data. we took up that question and
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delivered a report. the report contained no recommendations. at the time i was very concerned about the data analysis done in that report. what i've done that year is asked that division to do that analysis using our most recent data and try to answer the question in seeking to lower it, will we be successful in capturing more swap dealers that should be regulated by us? we have 140. or will we simply drive those who are making liquidity in the market out of the market and hurt the very one who is s who those firms. once i get that data, then we will address that question fresh as to what is the right level, whether it's 8 billion, 3 billion. i don't know what the answer is
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but i'm hoping to be guided by a pure data analysis. >> you would think you would have a conclusion in time to make a difference before the drop occurs? >> yes. >> mr. chairman, i've raised this topic numerous times with your predecessor. that's regarding the fiduciary duty rule. i'm worried there's a lack of regular harmonization. >> thank you, senator. yes. several weeks ago i put out a request for information to the public in light of the department of labor moving forward with the fiduciary rule.
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it's not separate. what's happening at the department of labor is going affect the markets we regulate and vice versa. it's my intent as chairman to try and move forward and effectively deal with that in a way that is coordinated so that our main street investors have access to investment advice and access to investment products. i don't want to see any of these actions that we would take reduce the access to investment advice or products. at the same time very much fulfilling our investor protection mission. >> the sec, is there a level of cooperation with the department of labor that at least in my opinion didn't exist in the past? >> i am confident that we're going to have cooperation in this regard. it's a very complicated issue. i don't think it would have been here this long if it weren't complex. but i'm confident we're going to
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cooperate. >> my third question, i wanted to raise this issue about e.u. financial market overhaul. understanding this is an e.u. initiative, i wanted to check with you to see where the sec might be in its stance on how the sec intends to respond. my interest in this issue stems from entrepreneurs in small companies. if financial research becoming too difficult or expensive to access, i think that's very damaging to our economic growth. >> you identified the potential issue, which is i would say the largest potential issue, which is a reduction in research availability. this is a situation where an action taken by another regulator has an impact on firms. they have to change their behavior. that change in behavior impacts the way they're regulated here.
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and as a result, they may reduce or otherwise adjust the amount of research they provide. we're looking at this. we're engaged with our colleagues in europe and we're also looking at other ways to deal with it and the potential adverse impacts. >> i wanted to raise this issue as well so you know you had support. >> thank you very much. >> senator danes. >> thank you. thank you for testifying on behalf of your agencieagencies. i want to thank you for addressing the issue we spoke about just last month. appreciate the quick response. sometimes unusual in washington, d.c. so thank you for being a c contraryian and being
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responsive. and i want to thank you for speaking at our ag summit. it's important that we get the sec and the cftc's budgets right so you can continue to safeguard the investors, police the markets and encourage capital formation. mr. giancarlo there's a brookings institution report that shows the number of futures commissions merchants has dramatically fallen from 171 in charge of 2007 to just 64 in march of this year. that's over 62% consolidation in the market. what are the practical impacts of this reduction? >> this is a very important
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issue, one that i've been very concerned about at the cftc. there's a number of factors in this. fraud and mismanagement by some of these firms, firms like revco and mf global have caused the loss of some of these firms. the prolonged period of low interest rates has also been a factor. there's no question that some misdesigned regulation and over regulation in a number of cases has been the case. one of the areas that i've been particularly concerned about is something called the suppleme supplementary ratio that puts a cost on providing services to our farmers, ranchers and smaller manufacturers that use smaller for their services. the cost that the ratio places on them has reduced the availability of these services.
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we've seen a number of famous names go out of business and in so doing let the smaller accounts go as they transfer their larger accounts in a fire sale to some of the bigger wall street firms. increasingly smaller market participants are having to go to wall street if they're even able to access an account to help them trade in our markets. we've lost that more retail level tier of fcm services. the biggest flaw in the leverage ratio goes against one of our core reform efforts to bring more clearing activity in the swaps markets. >> is there something that you would recommend congress should consider, an action perhaps we should take to reverse this trend? >> well, secretary mnuchin just
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put forward a report that calls for two adjustments, not to eliminate the leverage ratio but to make adjustments in it that would allow for a greater provision of services. i'm not sure it requires congressional action. it requires the relevant agencies, not just ourselves but also fdic and a number of market and banking regulators to make these two adjustments in the leverage ratio that chairman mnuchin is recommending. >> i want to shift gears here and talk about cftc governments. earlier this week commissioner sharon bowen announced her intention to retire in the coming months although her term doesn't expire until april of 2018. could you share your thoughts on the practical impacts of not
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filling all five commissioner slots? >> whoever came up with the idea of commissions of five members was a wise person. there's a logic to a five member commission stricture. it allows for a range of views to be brought to bear in setting policy. it also allows for a balancing of efforts. i was the only republican on a commission which at various times had two or three democrats on it. currently has one democrat. when you're in that environment, it makes it really hard to reach a broad consensus and have a give and take. i think it's vitally important that we get back to a five member commission. i think we're a better commission with five members. having said that, we continue to work very well at the commission. so work is getting done. but i think we're better for it when we have a full commission. >> and given your perspective,
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experience in working with other commissioners, what traits do you believe are most important for us to consider to ensure the cftc functions properly to ensure market integrity and price stability? >> certainly in the markets of the cftc, i think it's vitally important that commissioners be willing to get out of washington frankly and meet with the users of these markets and understand their concerns, meet with farmers and ranchers. >> thank you for modeling that by coming to great falls. >> it was a pleasure. it is one of the most beautiful parts of the world. montana is spectacular. >> i do concur with your remarks. thank you. >> senator bozeman. >> thank you, madam chair. chairman clayton, senator moran
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also raised this issue and i'm also concerned with the negative impact of the e.u.'s method two, the impact that it could have on the ability of u.s. firms to produce investment research and inform capital formation. i understand the sec is looking into this. i hope that you can at least provide some short-term relief while we work on it toward a permanent solution. so short-term relief, working for a permanent solution. is there any limitation hindering your ability to provide relief? >> let me say this. i'm not certain that the power that we have will be able to facilitate all relief that people might want. but this is something that the
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staff is very much looking into. the amount of relief that may be necessary may depend on the amount of cooperation we receive from our european counterparts. so there's a kind of multivariable assessment going on here. but i want to assure you this is an issue that i'm aware of, that the staff is aware of. and we're looking to ensure that the fear that people have that research becomes restricted does not occur. >> so you're -- it's good to be aware, but we do need to move forward and make that awareness turn into action. >> there's a fixed timeline that i'm working against. >> i understand. chairman, as you pointed out the
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derivatives market are global and this allows u.s. companies to manage their risks wherever they do business around the world. this also means coordination amons among various jurisdictions oversees these markets has never been more important. we often hear that dodd-frank outside the u.s. has actually encumbered coordination and led to overlapping and conflicting rules. >> this is one of the most challenging issues in the post financial crisis era.
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the pittsburgh accords in 2009 addressed the issue of global swaps market reform and called for coordination in the implementation of reforms but to do so in a way that was not protectionist or marketplaces didn't seek to advance their own interests. unfortunately since then some of the effort has been to try to create rule sets with identicalty as opposed to coordination. what we need to do is recognize the goals of financial market reform that we are all pledged to and that i personal support the reforms of title vii. different details of implementation, it's not necessarily for one jurisdiction to have identical rules to another but that they adopt all of the core reforms in a way
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that's suitable for their own jurisdiction. >> thank you. mr. clayton, recently there was a report that was released that had to do with the financial accounting standards board. what plans do you have in mind to comply with the treasury report's recommendations of that? and further, what ways can the sec work with the fasb to ensure that financial products and services are not significantly altered due to the ccl standard? >> this new standard which is going to be implemented over the next several years on currently expected credit losses, there have been questions raised by the industry about whether an accounting rule will actually have operational effect and cause worse case a restriction
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in lending. we're looking at this. we have met with people from the industry continuing to monitor it. again, it is a bit of a multivariable problem. what does this say about bank capital requirements? bank capital requirements adjust as a result of this accounting rule. but it is something we're engaged with both the industry and our counterparts to make sure it doesn't have an adverse impact. >> we've finished the first round of questions and i have just two quick questions. we'll begin a second round that shouldn't take all that long. secretary -- chairman clayton, i was on the financial services committee in the house and on the conference committee for the dodd-frank bill. much of the discussion during
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that time was around the dark spaces or the lack of transparency in terms of trading, in terms of the platforms, in terms of the interconnectedness of where the platforms are and who's controlling those. that's about as technical as i can get on that. can you tell me where you see nine years later the transparency factor has been improved and how it differs from where it was during those times? >> that's a broad question. >> yes, it is. >> i do believe that the reforms in bringing certain trading within clearinghouses has significantly increased transparency. as i've discussed with you and with others, our markets are constantly evolving. some of the transparency issues that we may have identified nine
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years ago have been addressed. i think the question we keep asking ourselves is where are today's transparency issues and risk issues as a result of regulatory developments and changes. we've discussed this. that's very much part of i see my job and the job of the other commissioners and the staff is to continue to look forward. we are looking at things like the fixed income market. there have been developments in investment products we're looking at. if we sat here and talked about atfs, there wouldn't be many people who knew what we were talking about seven years ago and now it's a fundamental product in the marketplace. we are trying to anticipate whether there are areas where greater transparency would assist our mission and is necessary on a virtually continuous basis. >> i think that's a key element to the core of your mission. the budget that you have before
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us, you're satisfied that the aim of transparency can be met for this year with the staffing levels and the budget level you've requested? >> yes, for this year. i may be in a different position next year, but that's where i am this year. >> thank you. last question i had for you -- it kind of piqued my interest. at the end you said if the relocation dollars of 245 million were decided to not be unused, that you would not be using those for other purposes and you have mechanisms in mace for those to be refunded to the fee payers. is that unusual in your budget that you would refund money back to the fee payers for certain aspects of the budget? >> this is the only circumstance where i know where that would be the case, but i think it's a result of the procurement process itself and how you have to set aside the funds now to go
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through the process. that's driving that result. >> okay. thank you. thank you both. >> thank you, madam chair. if i might just follow up, the chair just asked about transparency. i want to ask about cyber security. both of your predecessors talked about the critical role of further investments in cyber security. your inspector general in both cases have made it one of the top priorities for your agencies. you've undertaken efforts in previous years to spreng th s s the -- respond to, recover from cyber attacks. do you share those concerns as articulated by your inspectors general and your predecessors? what are your approaches to investing in cyber security and what resources are you devoting to that now? does that play some central role in your request for additional
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funding? and how would you continue to invest in these ongoing and important concerns with flat funding? thank you. >> thank you for that question. cyber is absolutely priority number one. i had the honor of giving a guest lecture at harvard law school two years ago to identify what were the major megatrends we're seeing in our markets. and i identified cyber as the number one and most important. it is an enormously challenging threat, because it is threat that comes from so many different directions, everything from rogue individuals all the way up increasingly to nation states using cyber as a threat tactic. therefore, our response must be as multifaceted as well. it comes down to -- it ranges from individual firm defenses all the way up to public and private defenses. government certainly has a role to play in making our markets
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resilient and indeed durable in the face of ongoing attack. since i've come into the cftc, i've redoubled the number of areas. i monthly meeting with our head cyber officer to walk me through the attacks we've seen not just in our own agency but what we're seeing in the marketplace. we have resources built into our budget request. if we're not able to achieve that, we will still prioritize si cyber in this new world. it's essential that it remain our first priority at the agency. >> i agree with chairman giancarlo on the importance of this issue. on supplementing, i do think it's a priority for me at the commission to educate our
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investing community, particularly our main street investors on the cyber risks and wa th what they mean to them at an individual company across the market system and otherwise. turning to our own house at the sec, we have some what i'll call very important perhaps critical functionality for the marketplace that we administer, our edgar system. it's important to me that continues to function on a daily basis. i think i mentioned it gets 50 million down loads a day. keeping that up and running in the face of threats is very important. more generally at the commission, this is an area of intense focus because we recognize the consequences if the risks come to bear. >> i'll just say to both of you that we are best understood and defined as a democratic society also committed to capitalism given that a very capable state actor intentionally interfered
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in our last presidential election, i hope we are appropriately investing for our most important regulatory oversight entities. if i could briefly, chairman clayton, what reassurances can you give me? over a long period of time it's helped reduce conflict in the democratic republican of the congo. >> it has been subject to court challenge including first amendment holding. where it stands today, it is on the books. i'll try and summarize. there are three steps to it. do you have conflict minerals in your products? if you have conflict minerals, do they come from covered countries? the third step is the one that we're looking at as to whether the court action restricts it.
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and if so, to what extent, which is the audit function around a conflict minerals disclosure. >> thank you. i have a last question about whistle blowers to both . both of you have programs that have demonstrated important benefits for taxpayers and the investing public. what have been the most important benefits of the enforcement work your agencies are doing in terms of well functioning whistle blower programs? and what steps have you taken to protect whistle blowers? and are there any impediments? >> we view whistle blowers as an important referral source for enforcement action. we have taken under my leadership steps just recently to enhance retaliation protections for whistle blowers. we also abide by federal statutes within our own agencies
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to protect whistle blowers. we view the process as important to our work. >> thank you. >> i agree with chairman just yesterday we have a matter that's going to the supreme court, i won't comment on that, around whistle-blower protection and this is an area that is evolving and we're going to continue to pay attention to it to get the most out of it. >> it's generated thousands of tips, tens of millions of dollars of recovery and i commend you both for being attentive to that important tool. >> thank you. senator moran. >> chairman giancarlo, first of all i compliment you on your zero based budgeting, whatever the right words are for that process. i did not want your comments to go unresponded to. i think it has merit and we ought to be all pursuing that start and justify, not just add to what we have. secondly, i just wanted to follow up on your comments about lease space.
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what's the status of the cftc in kansas city with the merger that's occurred, what presence does the cftc now have and the same amount of space as you had before the merger? >> it is. but i'm so glad you asked about that, because when i stepped to the role of acting chairman i took a look at our offices and it was very clear to me of course why we're in washington. it's very clear to me why we are in new york because the swaps market is centered in new york, it's clear to me why we're in chicago, because the future's market is centered in chicago. i thought i would find the same logical connection to kansas city because of our work in the agricultural area and yet our kansas city office, at least in the last few years has become important but an office where we conduct enforcement action across the country. it's really not a center of our work in agriculture and i think in the post and financial crises area we've been focused in the
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swaps area, to some degree we're forgotten about our core role making sure that our commodities futures markets are there for our core users in agriculture, in manufacturing and other areas. perfect timing for my talk about how important agriculture is to my mission. >> only my wife has that number but this says jamaica. >> that was last week with the fcc we had that, remember? >> so we intend to reposition our kansas city office as our real foothold in our mission to make sure that our markets serve and serve well our agriculture producers, manufacturers, our users of marketplace. and we got a number of initiatives under way to which i look forward to announcing next month about how we're going to reposition kansas city for our outreach into those communities. >> we appreciate your presence in kansas city and i'm glad to
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hear you as the chairman have discovered value. we wouldn't want an office for the sake of having an office but appreciate the opportunities that kansas city, missourians and kansans may have, not only to benefit consumers but to provide employment in the mission that you have. thank you very much i look forward to working with you and what your plans are. >> thank you senator. >>? the senator boseman >> thank you madam chair and thank you both of y'all for being here and again your hard work. i just have one other thing chairman giancarlo. requiring -- as you know requiring margin for the over-the-counter derivatives was key g20 reform aimed at retuesdaying risk in the financial system. the authority to require margin is split in dodd frank between the cftc and the prudential regulators including the fed, ftic, occ, et cetera.
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in the cft's final margin rules the agency took what i believe is a sown approach in distirnging derivatives trading with external parties that occur between affiliates within the same corporate group. you didn't subject to a much higher margin requirement. unfortunately the regulators did not fall suit with initial market redemption in their final rule. this is not only locking out billion dollars of dollars but also creating an unlevel playing field, i think very important for u.s. companies is both european and asian regulators have like the cftc provided for such exemptions. we get kind of a common theme with a lot of this stuff, you know, dealing with our international partners which you simply have to get it worked out. do you support a legislative exemption for initial margin for inner affiliate swaps to level the playing field for u.s. companies both in the u.s. and
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globally, and do you think such an approach would be good for the markets overall? >> thank you for that question. some of this can get a little bit complicated in terms of how the margin rules work but at heart the issue is whether american firms can enter global swap markets on the same level playing field as some of their foreign competitors, and i believe some of the banking regulators approached to interaffiliate market which was not an issue in the affiliate crisis. it has been an effort to solve bankruptcy and solve risk of financial firms at the expense of american firm's access to global capital and the ability to act in global markets. as a market regulator we're sensitive to that concern in a way i think sometimes the banking regulators haven't been. this is something working with
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treasury secretary mnuchin i will look to be more sensitive to the concerns of the american firms at the end of the day trying to access global capital and global risk hedging markets and this intraaffiliate margin and some of its application, not all of it has been preventative of that. we need to take another look. that. >> thank you both so much. yes, sir, thank you so much for being here. we appreciate all you do. >> thank you. i want to again thank the witnesses for testifying today. if there are further questions, the hearing record will remain open until wednesday, july 1th, 2017 at noon for subcommittee members to submit any statements or questions to the witnesses on the record. the subcommittee hearing is hereby adjourned. thank you both.
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don't american histowill be live from the museum of the
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american revolution in philadelphia. we'll learn about exhibits and answer viewer questions about the american revolution. here's a preview. >> it's behind these doors, and it really is one of the most remarkable objects to survive from the revolution. as far as we can determine, it is the only tent other than one of washington's other tents to survive and it does survive because washington chose to take it home with him at the end of the revolution, and his family took care of it and preserved it. the full story of the tent is presented in this theater. but the tent itself actually is a wonderful emblem of the challenge of creating the exhibits in our museum. if you were to see this tent spread out on a table, you probably wouldn't give it a
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second glance. it's very old canvas. it's weather stained. it's tattered in places. it's over 240 years old, after all. but we had to make its story as being the shelter in which george washington made some of the most critical decisions of the revolution, where he was plunged into the depths of despair, where he exalted in victory and success, to make that tent tell its story. the first challenge we decided is we had to show the tent fully assembled as washington used it in the field, when it was truly his command headquarters. we couldn't put it up the way he did. it was put up with tall poles and ropes tied to the fabric itself pulled taut. that would pull that ancient fabric apart. we challenged engineers to develop a sophisticated umbrella structure so the tent appears to be full ly assembled and no tension or damage done to it at
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all. the umbrella had to replicate the slight sag in a taut line because it's not perfectly straight. once we solved all those problems, the next challenge is how do you tell the story? so we turned to filmmakers, historians, our lead vice president for collection scott stevenson, and they spent huddled together and spent almost two years pulling together this storyline, the imagery, thinking about the music, the narration, the presentation, the light quality, to really give this tent meaning. our goal is to give meaning to george washington's leadership. he was commander in chief for eight years. never left his troops, and he inspired a sense of loyalty. he instud a sense of responsibility, in the army, that has really become the bedrock of the traditions of the american military ever since. without him, the army would likely have dissolved, and the
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war would have been lost. so in many ways it's an emblem for the entire museum. how do you take these small objects, they didn't have tampgz a tanks and battleships in the revolution, they had guns and canteens and uniforms, how do you tell the incredible life and death decision, the horrors, the courage, the excitement of the revolutions? 'a turning point in history, and that's what we strive to do throughout this museum, and it's a very exciting place. these objects they really do speak when you visit. more exhibits from the museum of the american revolution in philadelphia and your phone calls about the museum, and the revolutionary war on american history tv, starting tonight at 7:00 eastern. bhaskar sunkara, thedi


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