improvements, high frequency trading, exchange traded funds and enhanced efforts against cyber security threats. finally, the budget requests would support needed i.t. investments in data management, disclosure review, internal accounting and financial reporting, and electronic discovery. in particular, it would fund much-needed modernization of the edgar public date tay bass and sec.gov, such an important portal for investors information and one of the federal government's most visited websites with 450 million hits per month. for three years the subcommittee support for increased funding of the sec has allows us to fashion a better equipped more expert and effective agency. i look forward to working with you to build on this progress and in fq 2013 and of course am happy to answer any questions you might have. >> thank you so much, chairman shapiro. i'm going to start with just some plain, old budget question, and appreciate so much your

testimony. so we've talked -- you outlined no your testimony of what you would spend the added -- the asked for increase of -- several hundred million dollars, or let's just say $245 million over last year's enacted level. so, and then last year the enacted level was, of course, $200 million increase over the previous year. and i realize, of course, that you do have a lot of added responsibilities as a result of dodd-frank, but most agencies haven't received increases like y'all. at -- nowhere close. and so, in spite 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

made jauvgs i realize that wa before your time, the madoff and stanford. we had so many issues. can you tell me how investors have benefitted from such large sec funding e increases? >> i'd be happy to and want to start we are grateful for the funding increases we've received and recognize that we have been not quite unique but close to unique among federal agencies. i do believe the agency was underfunded for many years, and the task of regulating these enormously diverse and important and complex markets far outstripped the agency's capabilities. we're responsible for about 35,000 regulated entities some of which engage in some of the most complex financial transactions anywhere on the earth. and it was really incumbent upon us to do a number of things to keep up with the markets and remedy the flaws 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 not tried to, 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 products. 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, and i think the result of that, we created an office of market intelligence, i should add to try to keep up with new issues and trends and developed technology to take all of those many hundreds of thousands of tips and complaints that come into the agency and collect them and in triage and manage them in one coherent and cohesive way. with respect to enforcement the changes have been quite dramatic and the results are clearly

demonstrating the wisdom of the choices that 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, really lots of changes in the agency, but two others. one is the examination program. where we are using a much more risk-based approach to examinations. so we are focusing on efforts and 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 in your remarks, in rather dramatic ways, to catch up to where our fellow regulators have been for a while but where the sec has lagged for a long time. >> so all of which, which is putting y'all on the right 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 -- i'm pretty humble about that. there are lots and lots of things to continue to work on within the agency, and 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 bolstered capabilities in corporate finance division in our investment management division, aided very much by new leadership across the board and tremendous new talent that's come in with very fresh 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 jobs. so human resources is going through a redesign. the office of financial management is going through a redesign. we are off-loading, you well know, our financial management system, we're outsourcing it to the department of transportation, because we think they have core skills in that area that we'd rather not build. we would rather lrely on anothe

toogs provide. we're very focused, organizing structure of our torsion see if we have the right offices in the right places. there are lots of efforts ongoing to continue to improve the operations of the agency. >> i'll come back and ask you some more specific things about those, some of the things you mentioned with regard to your regional offices. now, do you find that you may be competing now with the consumer protection -- consumer financial protection bureau for staff? i'm just curious? >> i don't think that -- i don't think we have been. we tend to hire people with particular expertise in securities markets, options, derivatives. so i -- i don't think we've had any head-to-head competitions that i know of at any point. >> tell us just -- i'm curious. this is a real process question, but i would like to know, how exactly do you -- a couple questions. number one, how do you put your budget together? exactly how do you come up with it? and are the other commissioners

involved? do they have any input? i'd be curious about that, and then i -- i would like to know, then, how omb worked with you all in pairing down or enhancing, precisely how that works. >> sure. the way we put the budget together is ask all of our senior leadership for what their expect aces aations for their ns that particular year. what legislative changes are required, for example, dodd-frank obviously influences the budget rather dramatically in 2012 and 2013 because of all the required work we have to do with respect to hedge funds and credit rating agencies and over-theounter derivative markets. we ask our senior management to give us their evaluation of what resources will be necessary. sorry. will be necessary -- >> just driving little carts down the road. the hall. >> necessary to fulfill their

obligations. what are the risks that, if we don't have sufficient resource, 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 reor plan 10, responsibility for the budget, we do share with the commissioners the justification and the -- 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 omb much the way other agencies do. we provide them with our budget under dodd-frank we provided at the same time that we provided to congress, which is a change for us. the simultaneous submission of the budget to both omb and to congress, and then -- get feedback. >> does omb oversee the spending of your fees with the same rigor that it -- it oversees regular

operati appropriations? just curious. >> yeah. >> they do? i was just curious more than anything. so there -- they're sometimes easy and sometimes difficult to work with on appropriations issues. so i wondered about the fee structure. okay. 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. chairman shapiro, the president's budget request of $1.566 billion is an inrees of $245 million over your current operating level. the budget request states that this level of funding will support 676 new position paps question in various parts. one, would wou shg, what would were not to get these new positions? secondly, if were you to get them, how quickly could you

hire? >> sure. well, i think if we're not to get the new positions or that level of funding, a couple of things would be implicated. our 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 implementsed and a number of major technology programs that are of deep interest, not just to us and how we do our job but to the public, to public corporations, and to investmenters generally. the modernization of the edgar system, which has 21 million corporate filings in it and is what, how investors -- public companies file their information with us, but how investors search public company information and investor.gov, sec.gov, our website, which is, 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 around 10% of mutual funds. s 12ds trillion in assets of american 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. the -- sorry subpoena the second part of your question was -- >> if you got it, if you got the -- >> and we hire. yes. large numbers obviously. in fiscal year 2010, where we also had a budget increase, we able to hire over 500 people into the sec. and we have, one of the reasons for their changes in our human resources department is actually to enable to better support the hiring pipeline, the identification of a specialized

skill set that we need, and to make us more efficient. we're also making use of accepted hiring authority that we have, and become much more efficient over the last several years in the hiring process. so i believe we will be able to do t. a question relait. >> a question. this is easy if you want to spin on behalf of the agency. is it because people want to work for you folks or because the labor market also is weak for folks with those kinds of expertise? >> it's probably a little bit of both, to be perfectly honest. although i'd like to believe it's because the sec is actually a great place to work. i have to say that i've been blown away by the talent that we've been able to hire into the agency. people of the top of their fields. not people out of work, but people who have very important positions in investment banks, exchanges, ratings agencies, on trading desks, at markets, who wanted to come to the sec at a time that's very consequential.

important work is shapping, new tools are being provided to do that work. an opportunity to sit on our side of the table, which many people, clearly all of you, want the opportunity to serve the public, and so do lots of people in the securities industry, and we've been able to really tap into that and bring in amazing talent to supplement our great career civil servants. >> let me just ask you one more question, too, at this point. top elaborate a little bit more on the whole issue of your i.t., the growth, and the last three years there's been a very serious improvement in the i tm infrastructure and signs that show that's getting much better. where would you want it to be, say, in two or three years from now, in terms of the i.t. infrastructure? >> we have, our chief technology officers here today, tom bair's done an extraordinary job in a relatively short period of time

really improving the sec's governance over i.t. so we are thoughtful and careful and prioritize how we are going to spend our money and also bringing great depth of knowledge about technologies generally to the agency. i would hope that in two or three years that the edgar system, built in the 1990s, last modernized in 2001, would be a simp to use, positive user friendly experience for both public companies and for sec staff that you have to use it and investors have to use it so that there's, and that we can -- that we decrease the costs of operation and maintenance of that system rather dramatically. that sec.gov, designed in the '90s and never updated, the gateway to edgar and many other soerss of sec information, is, again, updated, has interactive capacity, works in realtimto

get information out, and again, we believe we can cut the costs of operating that system by as much as 45%. we would like to have most importantly and most fundamentally and chairwoman emerson and i talked about that, a data warehouse, the single goal source of information from all sec systems, which spend different applications, can pull data out of so we don't replicate and have all of these siloed date sta systems within the agency. again, it tl would be cost savings, there would be security benefits from doing that as well. and then we have lots of individual systems that can benefit from enhancements and updating throughout the agency. >> we're getting quite a good show, to my left. not my political left, but my physical left. so 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? >> sure. more than 90 required rule makings under dodd-frank. we have adopted or proposed, mostly proposed, three quarters of them. we have put in place, though, the registration system for hedge funds, the stemic systemic kicking in this summer. the whistle-blower program is in place. we've proposed all of the rules under the otc derivative section with the exception's capital market segregation and shortly finalize rules on conflict minerals from the democratic republicen the congo and extractive resources disclosure. we have accomplished a number of things particularly in the area of the hedge fund and private fund registration, and we've proposed many rules in the areas of title 7 derivative, credit rating agencies, municipal advisers and some of the other areas. >> so you're about three quarters there? you'd say? >> three quarters there, but

the -- to be honest, some of the heavy lift is yet to come, to go final on a number of the rules that have been particularly controversial. for example, the volcker rule where we received more than 15,000 comment letters. there's a lot of work to do. >> 14,000 from members of congress? you don't have to comment on that. >> many members, yes. >> thank you so much. >> one quick follow-up. sorry, guys, just take a second. of those that y'all haven't finished yet, or of the 75 out of 90 that you have, how many of those are the ones that have to be coordinated with the commodity futures trading commission? >> many of the title 7 derivative rules are all done in coordination with the ftc. the ones that join rules are the definitions of the entities that will be subject to the otc regulations, swap dealers, security based swap dealers and the products. what is a security based swap? what is a swap, what is a nix mixed swap. have to be done jointly.

it's hard. for one to do it is complex. asset backed security rules jointly, also, with the bank regulators, and to find qualified residential mortgage jointly with regulators. so, and everything we're trying to do in coordination as much as we can with all of our regulatory colleagues. >> so your goal for getting them completed? end of the year? >> i would hope the title 7 will be done by the end of the year. and some other areas, conflict mineral, specialized disclosure rule, mine and safety already done. other disclosure rooms should be done by the middle of the year, i would think. and municipal advisers and that regulatory regime this year, also. >> okay. thank you. i'm sorry to have done that. mr. alexander? >> the mayor? okay. >> yes. you are senior. >> okay. thank you.

and good morning, ms. chairman. i'd like to ask you question about the volcker 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 exempted from the volcker rule and insurance company's abilities to engage in proprietary trading while it exempts or it doesn't extend the exemption to the investment into cover funds. cutting off that ability to, interest to make those investments and those covered funds would directly impact the constituents, and we all represent, who depend on insurance companies to guarantee protection from the encentuncer is in life. the goal of the volcker rule was

clearly not to make retirement or long-term care more costly for americans, fwha americans, the result if embraced the proposed rule as-is. 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 exemption to allow insurers to invest in covered funds? >> i'm happy to do that, congressman. as you rightly point out, the proposed rule which followed the statute other language very closely expressly permitted proprietary trading by insurance company general accounts but did not allow for investment in covered funds by insurance company general accounts. we received a lot of comment on that issue when the volcker rule was out for comment, and particularly from 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 volcker rule but the standard is high. we can xavrpt, 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 here, and as i said, we followed clearly the statute other language, but we understand the intent may have been to be more permissive than that. >> okay. and your agency's been vocal about the need for additional regulatory reform to money market funds. only two years when you have had many changes to the money market

fund regulation by enhancing the quality of underlining assets, shortening waiting maturity and for the follow yo 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.

s $310 billion was withdrawn by investors quickly after reserve broke the buck, and with the run was only stopped because the treasury stepped in with a guaranteed program and the fed stepped in with a liquidity program, and that experience, i think, is very sobering, from my perspective, and that of other 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. capital requirement, or a floating net 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 from people have to

say. we will refine those ideas and go from there, but we appreciate the 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. >> all right. 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 -- 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 -- you say had you 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 ceo, cfos and senior corporate officers, broker dealers, et cetera, et set ral, 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 of things. first of all these are apples to apples comparisons. we count add minnive pro proceedings in the 2009 and 2011 numbers. the point last perhaps in some

of the commentary i've read at least about this is that administrative proceedings in follow-on are absolutely critical toll our ability to enforce the federal securities laws. it is sewn through that stleek we are able to bar people from continuing activity in the -- in the securities industry. so that if we want to bar somebody from acting as an investment adviser or as a broke dealer or a -- a -- really any other capacity, we have to use a follow-on add min straughtive proceeding. some of those are hotly contested. some of them aren't. some are followed naturally from the civil proceeding, but they are an absolutely critical tool for us to utilize in ensuring that people who vit violated the security laws don't keep coming back over and over and over again. >> i don't argue that point at all, but i'm going back to the numbers. on one hand we're talking about 735 enforcement actions, but less than 500 of those are

original actions, and there were more than 500 original actions in 2009. now, the reason i make this point is because we're sitting here today looking at a -- the bert part of a quarter of a billion dollar increase for an agency and making the argument that these -- this enforcement restructuring or this enforcement action by the sec is demonstrating its -- its enormous success, if you will, in what it's doing. now, either the numbers are misleading, or the actions that we're talking about are just much more complicated actions, and so i'm giving you an opportunity -- >> sure. >> to help me through these -- >> appreciate that. thank you, and i don't believe the numbers are misleading at all. i do believe that the actions are far more complex than they of have been historically. if you look at the many financial crisis cases involved

incredibly complex structure products and sales practices, and, of course, our diskorgment and penalty number is also very significant for this year. $2.8 billion that i think helps to recognize or represent the complexity of the kinds of cases we're bringing. we brought cases against firms for improper selling to school districts. we have brought cases for misleading investors in the sales of cdos. brought cases for big rigging in the municipal securities markets. extremely complex types of matters. obviously, the entire web of insider trading cases that is involved enormous amount of investigative resources to connect all of the people who were in a conspiracy, really, to insider trade. we've brought very complex foreign practices act cases. so i think the numbers don't give the full story, and we always try to say the numbers

don't give the full story, that the complexity of the cases that we're bringing and the number of senior people that we're naming in cases are also important factors in showing the eck kasy of the enforcement program. >> the additional funding you've had last year was -- how do you break down that funding insofar as how much went into enforcement-related activities? >> in last year's numbers we had an increase of 400 positions. 63 of which i believe went to enforcement to focus on risk assessment, litigation, building up our trial capabilities. excuse me. as we are, i believe, litigating for cases than we have historically. the largest number last year, in this current fiscal year, went to trading in markets division which is responsible for all of the regulation and oversight of the securities markets, and much