18 Dec 2008
Dec. 18 (Bloomberg) -- Mary Schapiro, a top brokerage regulator tapped to head the U.S. Securities and Exchange Commission, is likely to promote an overhaul of the nation's financial-market regulations, including a possible merger of the SEC with the agency that oversees commodities trading.President-elect Barack Obama plans to announce Schapiro as his nominee for SEC chairman at a Chicago press conference today, according to a leading Democrat and a securities law expert who discussed the selection with Obama's transition team. Obama will also name Gary Gensler, a former U.S. Treasury undersecretary, to head the Commodity Futures Trading Commission, which has jurisdiction over $5 trillion in trades, according to a Democratic Party official.
Schapiro, 53, will inherit an agency that's become a flashpoint for criticism of the government's failure to prevent the financial-market meltdown. The SEC is under fire for not halting the collapse of two of the nation's biggest investment banks and missing a $50 billion fraud.
"It's going to be a tough job," said Donald Langevoort, a former SEC attorney who teaches securities regulation at Georgetown University in Washington. "She's going to have to communicate that the commission can keep up with the industry and not be in the position it's been in the last few years of apologizing for discovering problems long after they occurred."
Scrutiny for CFTC
The CFTC, to be headed by Gensler, an ex-partner at Goldman Sachs Group Inc. who served as undersecretary for finance at Treasury during President Bill Clinton's administration, has also come under heightened scrutiny from Congress. Lawmakers are pushing for greater regulation of the $31 trillion credit-default swaps market, financial instruments blamed in part for the credit crisis.
Both Treasury Secretary Henry Paulson and current SEC Chairman Christopher Cox endorse combining the SEC and CFTC. Schapiro headed the CFTC in the Clinton administration, and her experience at both agencies may help her lead a merger if Congress backs the idea.
"She would be the ideal candidate to understand how to combine the regulatory frameworks and the cultures," said William McLucas, a former SEC enforcement director who's now in private practice at WilmerHale in Washington. "She has the best combination of talents and experience of any candidate they could have selected."
If confirmed by the Senate, Schapiro will take over an agency that Cox said neglected to act for almost a decade on "credible and specific" accusations of wrongdoing by alleged fraud mastermind Bernard Madoff.
Lax Oversight
Cox and the SEC, which regulates brokers, stock exchanges money managers and public companies, were already under attack by lawmakers for lax oversight of Lehman Brothers Holdings Inc. and Bear Stearns Cos., which failed this year.
Schapiro is a former SEC commissioner who now heads the Financial Industry Regulatory Authority, which inspects more than 5,000 brokerages, writes rules for those selling securities and imposes sanctions. That role has also opened her up to scrutiny in connection with Madoff.
One Republican lawmaker questioned Finra's oversight of Bernard L. Madoff Investment Securities LLC, the firm Madoff registered as a broker-dealer in 1960 and had been subject to inspections.
Congressional hearings into the Madoff matter "should specifically examine the adequacy of the SEC's and Finra's examination programs," Representative Spencer Bachus of Alabama said yesterday. In a letter to House Financial Services Committee Chairman Barney Frank, Bachus also said Finra officials should testify.
Quick Approval
Still, she was praised by Senator Charles Schumer, a New York Democrat who heads Congress's Joint Economic Committee.
"Mary Schapiro is the kind of strong and experienced regulator that we very much need," Schumer said in a statement. "Her nomination could be approved quickly and without controversy."
Schapiro, whose SEC biography shows she is a political independent, would be the first woman nominated as permanent chairman in the agency's 74-year history. In 1994, then- President Clinton named her to lead the Washington-based CFTC, which regulates daily trading in everything from orange juice to foreign currencies.
"Her foremost challenge will be resuscitating the image of the SEC as a vigorous protector of investors and capital markets," said James Cox, a law professor at Duke University in Durham, North Carolina.
Political Battles
The SEC engaged in political battles in recent years, particularly under Cox's predecessor, William Donaldson. Donaldson, a Republican who stepped down in 2005, sided with the agency's two Democrats in approving rules for hedge funds and stiffer corporate fines that divided the commissioners.
Cox sought to eliminate disputes by advocating policies and enforcement actions that would produce unanimous votes, and deferring issues that would split the commission.
As an independent, Schapiro may have more success bridging the divide, said Steve Bartlett, president of the Financial Services Roundtable, a Washington-based industry group.
The choice shows "Obama is tracking a centrist course," Bartlett said.
Schapiro has shown aplomb during 20 years as a Washington- based-regulator. When she became CFTC chairman 14 years ago, then-Chicago Board of Trade President Thomas Donovan said he wouldn't be "intimidated by some blond, 5-foot-2-inch girl."
Schapiro replied: "I'm 5-foot-5."
Congressional Attention
The CFTC has also faced congressional inquiries into its capabilities, during price surges in energy and commodity markets. Oil futures prices touched a record $147.27 a barrel in July.
If confirmed by the Senate, Gensler would replace Walter Lukken, who has served as acting chairman of the agency since June 2007. Lukken, a Republican, said Nov. 11 he would step down as head of the agency when Obama becomes president and leave soon after.
Gensler, who was an economic adviser to New York Senator Hillary Clinton in her failed effort to win the Democratic presidential nomination, declined comment on today's press conference when reached by phone. He referred questions to the president-elect's transition spokesman.
Obama spokesman Dan Pfeiffer didn't respond to an e-mail and voicemail seeking comment.
"Gary is a very smart, very knowledgeable and very experienced guy," Geoffrey Aronow, former director of enforcement for the commission, said in an e-mail. "He would be a terrific choice to lead the CFTC at this critical time for addressing financial services regulatory reform."
