industry and inactionability information for sec enforcement investigations. we implemented a new whistleblower program that is already providing high quality information regarding difficult to detect wrong doing and permitting investigators to focus resources more efficiently. we improved our internal financial controls, which resulted in a gao audit opinion for fq 2011 with no material weaknesses. sec staff with the assistance of targeted contracted expertise implemented a number of internal reforms designed to improve the agency's structure, strengthen capabilities, improve internal controls and enhance workplace competencies and obtained specialized expertise in the areas of quantity tafive analysis, computerized trading and structured products. in addition to improving core operations woorks we've worked

to improve significant responsibilities assigned to the agency and you the dodd frank act. the sec has proposed or adopted rule for over 3/4 of the provisions that require sec rule making. additionally the sext has finalized 13 of the required study and report. while the agency's budget has grown in recent years, so have our responsibilities and the size and complexity of the markets we oversee. during the past decade trading volume in the equity markets has more than doubled as have assets under management with investment visors. at the same time we recognize that it is incumbent upon us to maximize our efficiencies and continue our organizational modernization efforts. as we protect investors, we have an obligation to be good stewards of the resources provided to us and to carefully review our activities to identify efficiencies and cost savings wherever possible. our request for 2013 would

permit to us add approximately 676 positions to improve core operations and implement our new responsibilities and it could be fully offset of the matching collections of fees on security transas. it would allow to us achieve four initial tifts. it would allow the commission toin hance investor investment activities and continue to implement and develop robust models that identify regulated entities with high-risk profiles. second, these resources would support staffing levels sufficient to speed capital formation by eliminating regulatory bottle neck, improving economic analysis and more quickly providing authorizations to foufrms to engage in new lines of business. third, these funds would allow to us strengthen market stakt efforts. currently the sec has fewer than 25 staff to monitor the eight

agencies that clear and settle an average of $6.6 trillion in transactions every day. we believe a greater presence is needed. increased funding also would enable us to improve efforts against cyber security threats. and support investment in date a management, diskoshier review, internal accounting, election tronic reporting and electronic discovery it would fund much needed modernization of the sec.gov, which is such an important portal for investor information and is one of the federal government's most visited web sites with 450 million hits per month. for three years the subcommittee's support for increased funding of the sec has allowed to us fashion a better equipped, more expert and effective agency.

i like forward to working with you to build on this progress in fy 2013 and of course i'm happy to answer any questions you might have. >> thank you so much, chairman schapiro. i'm going start out with some plain old budget questions. and i appreciate so much your testimony. so we've talked -- you outlined in your testimony what you would spend the added -- the asked for increase of let's say $245 million over last yeared enacted level and last year's was of course a $200 million increase over the previous year. and i realize of course do you have a lot of added responsibilities as a result of dodd frank but most agencies haven't received increases like y'all, nowhere close.

so in spite of of the fact that the agency's budget is really funded by fees, we do take our oversight role quite seriously and it just worries me that in spite of how much money we threw into the sec that we still -- y'all still missed madoff and i realize that was before your time, the madoff and stanford. we had so many issues. can you tell me how the investors have benefited from such large sec funding increases? >> i'd be happy to. i want to start by saying we're very grateful for the funding increases we have received. we recognize that we have been not quite unique but close to unique mng federal agencies. i do believe the the agency was underfunded for many years and the task of regulating these enormously divorce and important and complex markets far outstrip the agency's responsibilities. we're responsible for about 35,000 regulated entity, some of

which engage in some the most complex financial transactions anywhere on the earth. and it was incumbent upon to us do a number of things to keep up with the markets and to remedy the flaws that were exposed by things like the failure to catch madoff or the failure of the consolidated supervised entity program. in the first instance we have tried to restructure -- we have successfully restructured the enforcement program to create specialized units that focus on particularly high-risk activities. for example, the construction and sale of structured product, violations of the foreign corrupt practices act, insider trading, fraud in connection with municipal securities. we took a layer of management out of the enforcement division and put people back on the front lines of investigating. the results of that -- we created an office of market intelligence to try to keep up with new issues and trends and weep developed technology to take all those many hundreds of thousands of tips and complaints

that come into the agency and collect them and triage and manage them in one coherent and cohesive way. so with respect to enforcement, i think thi the changes have been quite dramatic and the results are clearly demonstrating the wisdom of the choices we have made. we had a record year as i mentioned in our enforcement program. the other area where i think really fundamental change has taken place there are lots of changes in the agency but two others. one is the examination program where we're used a much more risk-based approach. so that we're focusing our efforts and our energy on those regulated institutions that create the highest level of risk for the public. and then we're transforming our technology as you mentioned if your remarks in rather dramatic ways to catch up to where our fellow regulators had been for a while but where the sec has lagged for a long time. >> so all of which is putting y'all on the rye track i know. are there any areas within the

sec that you think you could manage more efficiently or better? >> oh, without a doubt. and i'm pretty humble about that. continue to work on within the agency. when i arrived three years ago, there was a lot to fix. and we have systematically gone through the organization and worked on enforcement, worked on examination. we are aided very much by new leadership across the board and tremendous new talent that's come in with very pressure and current understanding of the markets, of trading, of products and so forth. we're now working on reforms in a number of important infrastructural areas that really support our ability to do our job. so human resources is going through a redesign, the office of financial man angment is going through a redesign.

we are offloading our financial management system to the department of transportation because we think that they have core skills in that area that we'd rather not build we shall would rather rely on another agency to provide. there are a number of areas puerto rico we are very focused. we're analyzing to see if we have the right offices in the right places. there are lots of, lots of efforts on going to continue to improt t improve the agency. >> do you find that you may be competing now with the consumer financial protection bureau for staff? >> i'm just curious. >> i don't think we have been. we tend to hire people with particular expertise in securities markets, options, derivatives. so i don't think we've had any head-to-head competitions that i

know of at any point. >> i'm curious, this is a real process question. i would like to know how exactly do you -- there a couple questions. number one, how do you put your budget together? exactly how do you come up with it? are the other commissioners involved? do they have any input? i'd be curious about that. and then i would like to know, then, how omb works with you all in paraing down and enhancing precisely how that works. >> sure the way we put the budget together is to ask our senior leadership for what their expectations are for the needs for that particular fiscal year, what legislative changes -- for example, dodd frank obviously influences the budget rather dramatically in 2012 and 2013 because of all the other week we have to do.

so we ask our senior management to give us their evaluation of what resources will be necessary to fulfill their obligations, what are the risks that if we don't have sufficient resources, how will we prioritize responsibilities that we have, where can we make cuts, where can we delay certain activities, particularly in the i.t. area, if the funding isn't sufficient. the chairman under something called reorganize plan 10 at the sec has responsibility for the budget. we do share with the commissioners the justification and they -- but they don't -- we don't vote at the sec on the full commission on the budget. and then i think we work with emb much the wave other agencies do. we provide them with our budget. under dad frank we provide it at the same time that we provided

it to congress, which is a simultaneous you'll budget. >> does omb oversee the spending of es with the same rigor that it oversees reggae appropriations? i'm just curious. >> i -- >> i appreciate that. i was just curious more than anything. so they're sometimes easy and sometimes difficult to work with on appropriations issues. so i wondered about the fee structure. i'm going to hold the rest of my questions, which are many in nature, pass it along to you, joe. >> thank you, thank you. the president's budget request of $1.556 billion is an increase of $245 million over your current operating level. the budget request states this level of funding will support 676 new positions.

so i have a question in various parts. one, what would happen to what you want to accomplish if you were not to get these new positions? secondly, if you were to get them, how quickly could you hire? >> sure. well, if we were not to get the new positions or that level of funding, a couple of things would be implicated, investments in information technology, which are sorely needed to make us a more efficient and more agile and frankly more expert regulator would be severely implemented. and we have a number of major technology programs that are of deep interest not just to us and how we do our jobs but to public corporations and to investors generally, the modernization of the edgar system which tests 21 million corporate filings in it and is how public experiences file their information with us but how investors search public

company information and investor.gov, sec.gov, which is our web site, which as i said has an extraordinary amount of public interaction with it. we would also reduce our enforcement coverage and our examination coverage and, as you know, we are already examining in my view far too little of our regulated entities on an annual basis. only about 8% of investment advisers and 10% of mutual funds. we have $12 trillion in assets of regular americans resides and i don't think that's adequate coverage. those numbers would be further strained, i believe, if our budget is cut. i'm sorry, the second part of your question was? >> if you got it -- >> yes. i mean, these are large numbers obviously. but in fiscal year 2010 where we also had a budget increase we were able to hire over 500

people into the sec. and one of the reasons for the changes in our human resources department is actually to enable to better support the hiring pipeline, the identification of the specialized skill sets that we need and to make us more efficient. we're also making use of the accepted hiring authority that we have and become much more efficient over the last several years in the hiring process. i believe we will be able to do it. >> let me ask you a question related to that. is it -- this is an easy one to answer if you want to spin on behalf of the agency. is it because people want to work for you folks or is it because the labor market is weak for folks with those little expertise? >> it's probably a little bit of both, though i'd like to believe it's because the sec is a great place work. i've been blown away by the

talent. people who have very important positions in investment banks, exchanges, rating agency, at trading desks, markets that wanted too come to the sec. it's important. new toolts are being provided to do that work. it's an opportunity to sit on our side of the table, which many people and clearly all of you want the opportunity to serve the public and so do a lot of people in the securities industry. we've been able to tap into that and bring in amazing talent supplement our great career civil servants. >> let me ask you to elaborate a little bit more. if in the last few years there's been a very serious -- there are signs showing that's getting much better.

where would you want it to be, say, in two two or three years from now in terms of the it infrastructure? >> our chief technology officer is here today. tom beard has done an strofrd job in a relatively short period of time . >> really improving the sec so that we are thoughtful and wearful and prioritize how we are going to spend our money and also bringing depth of knowledge about technologies generally to the agency. i would hope in two or three years that the edgar system that was build in the 1990s, lad modernized in 2001 would be a simple to use positive user friendly experience for both public apps and sec staff that you have to use and investors have to use it so that there's -- and that we decrease the costs of operation and maintenance of that system rather dramatically.

that sec.gov, which was designed in the 90s and has never been updated, which is the gate way to medical ger and many other sources 6 sext information is updated, works in real time to get information. and again, we believe we can cust the costs of operating that system by as much as 45 pfrs. with. >> we would like to person, a data where house. so that we don't replicate and have all of these siloed data systems within the agency. there will be cost savings, there would be securities, benefits fromming that as well. we have lots of individual systems that can benefit from enhancements and updates throughout the agency. >> yeah, we're getting quite a

good show to my left. not my lit call left but my physical left. i'm just going to take one second to ask you can you describe briefly the progress in implementing dodd frank. how far along do you think you are? >> we had more than 90 required rule makings under dodd frank. we have adopted or mostly proposed three quarters of that pem we have put in place, though, the registration system for hedge funds, the whistle blower program is in place. we've proposed all. rulesnd the otc drif tex section. we will shortly finalize the rules on con flakt. so we have accomplished a number of things, particularly in the area of the hedge fund and

private fund registration and wheef proposed many pruls in the area of title 7 derivatives, credit rating agencies, municipal advisers and some of the other -- >> so you're three quarters there. >> three quarters there but some the hefty lift hasuttet to go final. for example the vogel rule where we received 15 thousands letters. >> 14,000 from members of congress. >> let me just ask one quick follow-up. of those that y'all haven't fin rkd yet or of those 75 out of 90 that you have, how many of those are the ones that have could be coordinated with the kmondity future commission? >> many of the rules -- they're all done with the sec. the joint rules are the issues

that will be subject to the regulation and the products. those have be done jointly. those are hard and complicated to do. for one agency to do them jointly is complex. we have to do asset backed security rules jointly with with the bank regulators. and everything we're trying to do in coordination as much as we can with all of our regulatory colleague ps. >> so your goal for getting it completed by the end of the year sp. >> i would hope title 7 can be done by the end of the year. some areas like mining safety is already done. the other specialized disclosure rules should be done by the middle of the year i would think. municipal advisers and regulatory regime this year

also. >> thank you. i'm sorry to have done that, y'all. mr. alexander. >> can i go before the mayor? >> yes, because you are more senior. >> okay. thank you and good morning, miss chairman. i'd like to ask you a question about the vocal rule and how it applies to insurance companies. i'm kind of concerned that the rule doesn't capture the congressional intent or follow the statute by exempting from the vocal rule an insurance company's ability to engage in proprietary trading, or it doesn't extend the exemption to the invest mement and recover funds. cutting off that ability to make those investments in those

covered funds would directly impact the constituent who is we represent to rely on -- the goal of the rule was not to make retirement or long-term care more costly for americans but that would be the result if the regulators embraced the proposed rule as it is. so my question is can you give us your thoughts on whether there is any flexibility within the statute which would allow the agencies to extend the exemptment to extend to allow consumers to invest in funds? >> proposed rules expressly permitted proprietary trading by insurance company accounts bud did not allow in investment and covered funds.

we received a lot of comment on that issue with the voker rule was out for comment and particularlyfrom insurance companies expressing real concern just as you articulated. this is a really important issue. we understand that and we're reviewing the comment letters carefully. our staff has also met with a large group of insurance companies to talk about this issue. and we are looking at whether there could be flexibility on this point. we do have exemptive authority under the voker rule but the standard is high. we can exempt -- provide further exemptions where it would promote the stability of the u.s. financial system and the safety and soundness of the banking system. so that said we are looking very carefully at whether there's the possibility for us to provide further exemption from here and, as i said, we followed clearly the statuary language but we understand the intent may have been to be more permissive than

that. >> and your agency has been very vocal about the need for additional regulatory reform to money market funds. it's only been two years when you implemented changes to the money market fund regulation by enhancing the credit quality of the underlying assets, shortening the weighted average of maturity in the portfolio and increasing transparency for each fund. these were substantial changes that made the fund stronger and more able to withstand redemption pressure. have you done any analysis to show that those changes -- to see if they've been effective? >> congressman, i recognize that this is a very controversial issue and i will say i'm very proud of the changes that we made to money market funds two years ago to do all the things that you stated. i did say at the time, as did our senior republican commissioner, that more needed to be done because money market

funds are still susceptible because of structural weaknesses to a run that could be very destabilizing. when the reserve fund broke the buck in 2008, a massive run started on money market funds. $310 billion was withdrawn by investors very quickly after reserve broke the buck. and the run was only stopped because the treasury stepped in with a guarantee program and the fed stepped in with a liquidity program. and that experience i think is very sobering from my perspective and that of our regulators. we are -- we will be very thoughtful and have been very thoughtful as we approach this issue. the president's working group issued a report in october of 2010 that laid out all of the concerns of the collective regulators with respect to money market funds' potential for runs and laid out six different options for how we might deal with that.

we're focusing on several options now, a capital requirement or floating that asset value but we will put those ideas out if there are three votes to do so for public comment and debate and discussion. we will hear what people have to say. we will refine those ideas and go from there. but we appreciate that money market funds, which have $2.5 trillion of assets are important to investors, to corporations, to the fund industry, but we also never want the taxpayer to be on the hook again for a potential failure. >> thank you. >> thank you. mr. womack. >> thank you, madam chairman and i totally understand the tremendous pressure that your organization is under given the last several years of issues that have already been articulated in this hearing and in other hearings, but i want to

go back to some of your numbers for just a minute to be clear. you say you had a record number of enforcement actions and as i'm looking at the testimony, the number was 735 and an impressive list of different actions involving ceos, cfos, senior corporate officers, broker dealers, et cetera, et cetera. but of those 735, it is my understanding that a significant percentage of these actions are really follow-on administrative actions. and i realize they count in the numbers but if i'm looking at the numbers correctly between 2009 and 2011 the number of original cases is actually down. now, am i reading these numbers

wrong? >> well, a couple things. first of all, these are apples-to-ams comparisons. we count follow-on administrative proceedings both in the 2009 and 2011 numbers. but i think the point that's been perhaps lost in some of the commentary that i've read at least about this is that administrative proceedings that are follow-on are absolutely critical to our ability to enforce the federal security laws. it is only through that vehicle that we are able to bar people from continuing activity in the securities industry. if we want to bar somebody from acting as an investment dealer or really any other capacity, we have o use to follow-on administrative proceeding. some of them are hotly contested. some of them are not. but they are an absolutely critical tool for to us utilize in ensuring that peop