Companies are taking longer to go public and compliance costs are a deterrent, he said, but he did not offer policy solutions to the problem.
Throughout the hearing, Democrats including Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, repeatedly said Clayton's Wall Street relationships are a worry.
"In today's confirmation hearing for Jay Clayton, the matter of conflicts of interests was the skunk at the party," said Lisa Gilbert, a vice president of legislative affairs for Public Citizen, which has criticized Clayton's Wall Street ties.
Clayton's potential recusals could be significant because the commission currently only has two sitting members: Democrat Kara Stein and Republican Michael Piwowar. If Clayton recuses himself and the remaining two disagree, any measure before the commission would fail. He stressed he did not see this as a major concern because most enforcement votes are "unanimous."
Clayton also said he strongly believes in holding individuals accountable for wrongdoing, adding it could be a greater deterrent than coming down on corporations.
The SEC only has civil jurisdiction and cannot bring criminal prosecutions.
Democrats also questioned if Clayton is willing to stand up to Trump and his appointees.
Warren pointed to billionaire investor Carl Icahn, who is advising Trump on regulation, and asked Clayton about Icahn using his high-profile role to boost his own investments.
Icahn has a controlling stake in a refinery that could benefit from a change he has proposed to the U.S. biofuels program and a 24.57 percent stake in Herbalife Ltd, which is under investigation for violations of the Foreign Corrupt Practices Act.
Clayton acknowledged he met with Icahn after he was nominated to discuss the role of activist investors, but was careful not to judge Icahn's roles as investor and White House adviser.