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Comment: A new broom at the SEC?


As the Securities and Exchange Commission and its (outgoing) chairman Christopher Cox agonise publicly over what they might have done to uncover the fraudulent activities of Bernard Madoff

As the Securities and Exchange Commission and its (outgoing) chairman Christopher Cox agonise publicly over what they might have done to uncover the fraudulent activities of Bernard Madoff before he had made up to USD50bn of his clients’ money disappear, president-elect Barack Obama has move swiftly to put his stamp on US financial regulation with the nomination of Mary Schapiro to chair the SEC.

Schapiro has a wealth of experience in the regulatory business, having first been appointed as an SEC commissioner 20 years ago by Ronald Reagan (she was even briefly named acting chairman by Bill Clinton). She then became head of the Commodity Futures Trading Commission in 1994 before becoming president and vice-chairman of regulation, then chairwoman and chief executive, of the National Association Of Securities Dealers.

Following the merger of the NASD with the regulation committee of the New York Stock Exchange, Schapiro became chief executive of the successor organisation, the Financial Industry Regulatory Authority. All this experience looks highly pertinent if, as is widely forecast, Obama and the next Congress push ahead with the much-mooted merger between the SEC and the CFTC.

The aim of such a merger would be to improve the thoroughness and co-ordination of US regulatory activity, which is perceived to have been shown as inadequate over the years leading up to the past 18 months of financial turmoil. Obama says the Madoff case demonstrates that the current US financial regulators have been ‘asleep at the switch’.

Should the industry fear chairwoman Schapiro (assuming that her appointment is confirmed by the Senate)? Not according to Duncan Niederauer, chief executive of NYSE Euronext, who says: ‘President-elect Obama has chosen well in selecting Mary Schapiro and Gary Gensler [who has been chosen to head the CFTC] … who possess the deep knowledge and experience required to effectively address the challenges facing our regulatory system and financial markets.’

There is some muttering in the industry that Schapiro is a ‘career regulator’ and that her experience has been with the very agencies that failed to nip a range of frauds and market failures in the bud, but her supporters counter that she has a firm grasp of the importance of balancing regulation with the freedom firms need to thrive. Given the global mood in favour of greater regulation, a balanced approach is probably something the investment industry and other areas of the financial sector can probably live with.

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