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 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. 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, im 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 im 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. Were also interested in hearing more about your efforts to ease regulatory burdens. Your jobs have become more challenging with the rise in 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 incorporated in my home state, im 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 cant 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. 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 im eager to discuss how youre 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. For your support for the secs important mission. Your support has been crucial to the agencys success. I look forward to working with each of you on the 2018 request. For the secs 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 worlds 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 sec. Gov portal. Focus on five key areas. Effective agency management, protecting investors, facilitating Capital Formation, leveraging technology and leasing. First as the agencys 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 worlds most vibrant markets. Under our request, more than 50 of the resources will be invested in the agencys enforcement and examination programs. In fiscal year 2018, the sec will continue a Robust Enforcement Program with resources focused on key areas where misconduct harms investors, undermines confidence and impairs market integrity. 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 BusinessCapital 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 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 longterm 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 secs existing headquarters lease expiring in the next few years, the budget request includes funding so that we may commence a procurement process for a headquarters lease. If the outcome of the gsas 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. Im honored to testify before you on the cftcs 2018 budget 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 cant 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 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. Its 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 committees essential role in appropriating and allocating resources. 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 years 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 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 commissions 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 analysis. As clearinghouses grow in size and scope, so too has the complexity of the oversight programs and procedures of the firms we regulate. Its 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 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 fiveminute question. Chairman clayton, you mentioned in your Opening Statement that fewer companies are going public and youre concerned and some of the plans that you have to try to improve this situation. Could you kind of dig down to what kind of imin fapact that h peoples 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. Thats 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 compared to investing in private sector investments. Said another way, its 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 theyre multifaceted. I think the people who would tell you its 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. Theyve increased much in access of inflation. The ability to raise capital and private markets has gotten easier. Theres more private capital available. And theres something that were continuing to explore and i want to explore further which is the 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 thats a lot of retirement dollars that people look to in the longterm 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 reduce that footprint . And the other question i have and im 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 . Lets 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, its 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 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 didnt 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. Its one aspect of technology that i believe and our staff that handles operations believes 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. Were now down to about 245 square feet and were 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 theres value in having our employees together in one place, the ability to look at different ideas and stimulate one another is present when people are together in one place. Thank you to both our witnesses. Id like to ask unanimous request that a written statement to us from Anthony Reardon be entered into the record. Without objection. Theres 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 youre seeking after a thorough budgetary review to support three key priorities as you articulated. 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 doesnt 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, theyre electronic. Theyre not pitting trading anymore. And yet our rules set is very much still written for that old world. We