and that outlook guide, and ongoing search for opportunities to better protect investors in stabilized markets in ways that will make our financial system the pillar of a growing economy. she knows her job isn't about numbers, it's about people, about creating entrepreneurs and building a more prosperous country for us all. ladies and gentlemen, please join me in welcoming someone with whom it is an honor and a pleasure to serve as sec chairman, mary shapiro. [ applause ] >> thank you, rob, that was overwhelming. i'm not sure deserved at all, but very, very appreciative. it's a pleasure to be here this morning. i look forward to this conference every year as an opportunity to give a state of the sec exposition, reviewing our recent activities and how

we've evolved and how the changes we've made will benefit the markets we regulate and the investors we protect. 20 years ago when i first served as an sec commissioner, the financial world was a very different place. the dow was inching toward the 3,000 mark, derivatives were barely a blip on the radar, a portable macintosh weighed 16 pounds, and all you could do on a cell phone was talk. for most of the sec staff, the biggest market disruption in living memory was the black monday crash of 1987. a near cataclysmic experience, to be sure. so when president obama asked me to return as chairman, i knew the sec would be challenged as never before. markets that had nearly

self-sdrukself hi self-destructed, challenge to address risk, jumping from wildfire to wildfire, challe ledge in a pre-crisis era, and challenge that the agency could and would step up to play its role aggressively and effectively. given the scope of the financial crisis and the fallout from the madoff scandal, it was no surprise that some were calling for the agency to be disbanded. but the investing public and policymakers understood the importance of our mission, to protect investors and ensure the integrity of our market. and the men and women of the sec were eager to meet those challenges head on. and that was no surprise to me. from my earlier years with the sec, i knew well that the individuals who serve are a dedicated and talented team, able and eeg to hager to rise t

occasion. i knew we would come through and i'm pleased with how far we've come. i would like to ask everyone who currently works or has previously worked at the sec to stand and be recognized. [ applause ] >> it was to demand for aggressive and efficient action from us and for us to embrace newer reforms and better adjust to the new world in which we were operating. that's what the sec team set out to do. we redesigned the sec, investing in technology and human capital and significantly improving operations. we put in place a new operations strategy, rooted in an

entrepreneurial attitude and a collaborative approach. we immediately began to execute on an agenda that would better protect investors and reduce the chances of another systemic shock wave. i knew as we found our footing after the financial crisis and began implementing the strategy, that every move would be watched by many eyes. what i didn't realize was that the sec's energetic response to the challenges we face would list the profile to the heights rarely seen since the days of joe kennedy and the new deal. but i welcome the attention. it gives rise to needed debate about important issues and challenges us to be our very best. but i sometimes worry that the tendency of observers to focus on individual rules or discreet actions distracts them from the big picture. what the agency has accomplished is greater than the sum of the rules we've adopted and the cases we've brought. we have fundamentally changed the agency in ways that will allow us to carry out our

mission more effectively than ever in the 21st century. and it's not just that we've accomplished a great deal over the last three years. it's that we're now fundamentally better equipped to perform at an even higher level in the years to come. so first priority was to make better use of sec resources, carefully investing overdue budget increases in people and technology and improving management in ways that allowed us to make vet most of our funds. when i returned to the sec, i saw how much the staff was being asked to do and how little they were given to do it. although the agency experienced a brief period of funding growth, the budget failed to keep up win flation in the years leading up to the financial crisis. despite continued growth in the markets, the number of employees actually fell. and with oversight examination and enforcement stretched to the limit, operations and i.t. needs

were put on the back burner. investments in new i.t. fell by half. during my term, we've been fortunate to experience a modest funding turnaround. increases that we were determined to address strategical strategically. we want not just to grow but to grow more efficient as well, growing in ways that would expand capacity faster than the budget numbers were rising. we broadened our hiring approach, with recruits in special brackgrounds and specialized experience. we now have traders on staff in addition to attorneys and accountants, gifving us a great insight into the practices that drive today's market. we saw it increase to almost double than it was in 2009. we significantly upgraded our case management system.

overworked attorneys and paralegals can now take advantage of vastly reaching capabilities and we have ability to parse evidence and drill down on key subjects. perhaps our most reported i.t. investment has been our new system for handling the thousands of tips, complaints and referrals we receive each year. an ongoing series of upgrades has allowed us to better triage the information we receive as well as compare the data more effectively, open new investigations, follow up on tips of existing investigations or follow trends we should be watching. giving rise to these improvements, we also have found ways to create managing executive positions to handle important support areas. free and legal, examination and

other professionals to concentrate their skills on mission critical work. we're outsourcing things like leasing and management reporting to other agencies, focusing on core strength and deploying people and resources accordingly. we're implementing a number of management recommendations resulting from the dodd frank study of agency operations. after three years of intense effort, the sec is simply a sounder agency on a fundamental level, employing people and technology more effectively and maximizing the kbablimpact of o limited resources. it's all part of an effort to be more effective for years to come, but it should not suggest in any way that our work is done. parallel to our investments in people and tools, we began to put in place a new approach. we wanted to be more entrepreneurial, moving to diminish or head off threats within the market, trusting our teams to recognize these threats and move rapidly without the need for top down guidance in

every case. this approach has flourished, and while we don't have time to discuss every division, i would like to offer a few examples of how it is improving our efforts. one place to look is the division of corporate finance which, as rob said, is run by our co-chair meredith cross and has been particularly aggressive in handling its structure and focus. in the last year, courts established new groups to concentrate closely on three systemically critical facets of the financial world. the largest financial institutions, structured finance products and capital markets trends. these offices are helping ensure that investors have clear information about items that could, without the sunlight of disclosure, turn into malignant trends or dangerous practices. in addition, court fans disclosure teams have been proactive in targeting specific disclosure issues which have potentially significant consequences.

they've prompted companies to provide critical information about the potential financial impact of repatrioting cash from overseas. they've raised questions about whether companies are properly disclosing their litigation contingencies, and they've worked with enforcing accounting by stepping up scrutiny of related filing. court fan has also taken a lead in providing companies guidance on how they reply to fast-changing market. the staff issued guidance regarding a way financial services firms should disclose their exposure to european sovereign debt in time for these firms to use it when they prepare their annual report, helping to provide investors with adequate granular financial information even as that situation remains very fluid.

and the staff issued guidance on disclosing cyber material attacks, clearly an area of growing concern to investors. additionally, in reviewing the most recent wave of ipo, court fan quickly stopped revenue recognition practices, and they halted the use of non-gap measures. before these practices, the tech bubble of the '90s could take root again. similarly, disclosure teams acted swiftly when the right of investors to have their day in court was threatened by object ing to mandatory restriction of ipo. the result of these changes aren't always eye catching, but we are convinced that increased focus on systemically significant market sectors is a necessary shift in a pro crisis world. we know our proactive efforts to provide guidance have proved

helpful to many companies as they grapple with disclosure issues, and we believe based on our own review of disclosure statements that investors are getting more information that is both more complete and morrell vant than in the past. perhaps an area which changes an organization in approach have been most apparent are in our enforcement of examination units. in both, leadership has managed significa significa significant. over the last two years, ocs put in place a new national examination program. the program changes in a way examination teams are assembled. oc precisely matches examiner skills with the unique challenges each examination offers and examination materials are standardized. working with the division of risk, this program greatly expands the use of risk-based targeting.

better targeting and more effective examinations are paying off. over the last few years, 42% of exams have identified significant findings, up by a third since 2009. and over that same period, the percentage of exams resulting in referrals to enforcement has risen by half, from 10 to 15%. one such referral involved a fund which had come into our sites precisely because of our risk-based targeting efforts. during our examination, the findr admitted to an error in their trading algorithm, a failure that cost investors more than $200 million. thanks to the work of the exam team skp team and enforcement staff, they returned the money to investors almost before they knew they had been wrong and paying a $25 million penalty. meanwhile the enforcement division led by the other

co-chair, rob musami, put talented attorneys back on the front lines, creating specialized units and streamlined procedures. these reforms are already producing record results. while i won't steal all of rob's thunder, last year the sec brought a record 735 enforcement actions, including some of the most complex cases we've ever worked on. and we obtained orders for $2.8 billion in penalties and disgorgement. and of course, most satisfying for all of us is that last year we returned more than $200 billion to wronged investors. if congress agrees with my desire to return -- in an area of financial crisis related cases, we filed charges against 100 entities.

goldman sachs, jp morgan and top executives at countrywide, fannie mae and freddie mac. more than half of the individuals charged were ceos or other senior officers. it should come as no surprise that there were more cases to come. this division also realized significant gains from its performance inquiry, another collaborative effort with oc, one of which uses analytics whose claims are original enough to raise a red flag. in december, as a result of one of the aboriginal suites, we charged foreign advisers for inflating returns and other actions that materially misled and harmed investors. oc risk and enforce mments are w working together to target various types of misconduct, and

these initiatives will again be particularly important to our efforts to detect fraud before complaints are received. and one can clearly draw a direct line between enforcement's early restructuring and its current resolve. for instance, one unit created during the reorganization, the asset management unit, took the time to serve a group of firms that were actively communicating through social media. in the process, they learned about the various approaches firms were using, getting a sense of those that were legitimate and those that might not be. shortly thereafter, a staff member who is familiar with the survey noticed something irregular in the operation of an illinois-based investment adviser. in short order, the ensuing investigation uncovered the fact that the adviser was offering more than $500 billion in fictitious securities through various social media web sites, garnering significant attention from multiple potential buyers.

again, the agency acted before investors were harmed. we sued the adviser last month and effectively halted the fraud. but rather than just stopping there, enforcement teamed up with oc, the investment management division, and our investor education office. on the same day we shut down the fraud, we received two publicly ka -- publications, one that will help support the scam and another that will help keep them in compliance. it's hard to know how much savings won't be poured into fraudulent offerings or what tips might arise from the publications. but we think this is important and that this aggressive and coordinated approach is yielding superior results across the agency and will continue to do so going forward. yet another priority in recent years has been rededicating ourselves to our investor protection mission. an important task if we were to

bolster the confidence so necessary for our markets to thrive. that meant strengthening the regulatory structure and pulling back the veil that covered portions of the financial system. that is why even before dodd frank, we set out to address the resiliency of money market funds, to insist upon meaningful information regarding municipal securities and to require more information from investment advisers among many other initiatives. with the passage of dodd frank, our responsibilities have expanded dramatically. i'm proud of the across the board progress we are making against these man dates. of the more than 90 mandatory rule-making provisions, the sec has proposed or adopted rules for more than three-quarters of them. not to mention the number of other rules that give us systemic-making decision authority. we could talk for hours about dodd frank, but let me just touch on a few highlights.

in the area of corporate governance, we have finalized rules concerning shareholder approval of compensation and kbo golden parachute arrangements. led by the division of management, we've adopted new rules that have already resulted in approximately 1200 hedge fund and other private fund advisers registering with the sec. we've established a whistleblower program that already is providing the agency with hundreds of quality tips, helping us to avoid investigatory dead ends, and at the same time prodding companies to enhance their own internal compliance programs. in another area, a response to the meltdown of the mortgage-backed securities market, the sec has proposed rules that will protect investors by increasing dramatically investors' ability and to the assets underlying all types of abs, requiring secu

securetizers, keeping skin in the game, giving them the opportunity to double-check the practices, and whose misratings billions of dollars were kerosene on kindling. next is to build from the ground up the regime for the over-the-counter derivatives. the otc of the market has long presented a risk to the financial system. in october of 1993, i addressed the symposium for the foundation of research and international banking and finance of the potential problems. nothing wil the market more abruptly than the financial crisis that is perceived to be caused by unregulated activity in those markets. back then, of course, the notion al value of interest rate and

swaps was $4.7 trillion which seemed like an extraordinary figure. i was concerned this useful innovation might present significant risk for various reasons, including the derivatives market, weak or nonexistent settlements and the transactions among a number of small institutions. while concerns, in 2000, congress excluded most from regulation. by mid 2008, as the repercussions of the markets collapsed were echoing throughout the financial system, the notion of the market had increased from the extraordinary $4.7 trillion to more than $700 trillion. title seven of dodd-frank challenges the market that are

under scored by the events of 2008 by bringing these markets into the daylight. the sec is working with the ftc to write rules that strengthen the system by increasing the clearing of swaps and ensuring that margin and capital requirements insure the risk. ensuring to the regulators to shed light on the exposures and assist and developing more robust price discovery mechanisms and increase investment protection by enhancing the swap disclosure and mitigating conflicts of interest and improving our abilities to police these markets. it is my hope we complete the last remaining proposals regarding capital market and record keeping requirements. we are beginning to transition into the adoption phase. as a first step, i expect the commission soon to finalize rules that define who will be

covered by the new regulatory regime and next what will constitute a security based swap. we need to define the scope of the regime and letting the markets know whether their activities will subject them to the requirements we will adopt in the coming year. beyond this, the commission staff is continuing to develop a plan for exactly how the rules will be put in effect. the plan should establish and appropriate time line and sequence for implementation and avoid a costly big bang approach. in all stages of implementation, those subject to the requirements will be given adequate time to comply. while some issues are stand alone concerns, certain issues in title seven cut across the implementation. among the most important, given the global nature of the market is the national impact of our

rules. we are working hard to coordinate with the market and there has been significant progress on the international level. our cross border approach must strike a balance between sufficient domestic regulatory ov oversight and the marketplace. a one size fits all is neither feasible nor desirable. in the short-term, we will address the most salient issues in the single proposal. this will give interested parties, including international regulators an opportunity to consider as an integrated whole our cross border translations engaged in transactions with such parties. despite the breadth of

dodd-frank, one high profile interest is money market funds. as you know when the prime fund broke the buck in 2008, it setoff a run so serious that the federal government was forced to step in and guarantee a multitrillion dollar industry. it was a shock that reverberated across the market and compelled us to take action. so, two years ago, we adopted regulations making the mix to hold more liquid and less risky. at that time, i said we needed to do more. that is because money market funds remain you septembuscepti. we need to move forward to address the risks. we spent lots of time and outreach. there are two serious options we are considering for addressing this core structure weakness.

float the net asset value and impose capital requirements combined with limb thaitations fees. it is hard to miss the cry being raised by the industry against these approaches. fact is investors have been given a false sense of security by sponsor support and the one-time treasury guarantee. funds remain vulnerable to the reality that the single money market fund breaking of the buck could trigger a broad and destabilizing run. should that happen, the government will not have the tools it had in 2008. then, treasury used exchange stabilization fund to stop the run. congress eliminated that option when it passed the tarp legislation. the money market fund industry and the short-term credit market is working without a net. to the extent, there is a deadline. it is a pressure we should feel from living on borrowed time.

we have been deliberate about this. the president's working group report was issued in october of 2010. we had extensive public comment. we held a round table with the oversight council on money market funds. it is time for us to take the next step. finally, we are working to improve the sec's capacity to regulate and investigate. so another major initiative is the consolidated audit trail. standardizes platforms would seem to be a very obvious move. serving investors on two moves. and allowing more rapid and accurate reconstruction of unusual market events. the complexity of the under taking, however, has necessitated a detailed and ex-tended rule-making process.

including a thoughtful review of the comments received since we first proposed the system's creation. the contours of the regulation are being finalized and will be considered by the full commission. regardless of the details, the broader result must be a mechanism that gives the agency the ability to rapidly construct trading. something that doesn't exist today. in addition, while the initial proposal will be for an audit trail tracking for orders and trades in the equity markets, i believe the system should be expanded for fixed income and futures and other markets. it is important we get a structure in place sooner rather than later so the heavy lifting of working through the technical nuances of the system can begin. we expect to adopt a final rule in the months ahead and after that, i anticipate the exchange will be required to submit a detailed blueprint which will be in turn subject to public

comment and approval. i'm proud to have the opportunity to work at the sec during an exceedingly productive period in history. the agency has accomplished much and we are on the verge of rule makings that will strengthen the structure of the markets and enhance the sec's ability to oversee the markets and pursue investors interests. however, just as important as the cumulative affect in the market and attitude of the agency as an institution and the staff who make it work. improvements that all agencies should undergo and allow the sec to continue to function at a high level in the years ahead. no one can predict what challenges will arise, what new threats to market stability will emerge, what fraudsters will try down the road. whatever happens, the