SEC:The Challenge of Regulating

Mary Schapiro,Chairman of the Securities and Exchange Commission,appeared before the Financial Crisis Inquiry Commission recently in Washington,D.C.She said she has spent a year taking the SEC apart,trying to understand where its strengths and weaknesses lay.It's quite an independent agency,but is subject to congressional appropriations,while other regulators are self-funded.It's critically important that we continue to have independent standard-setters for accounting;it's particularly important for the profession to remember that the investor is their audience at the end of the day,the soft-spoken Ms.Schapiro observed.
Mary Schapiro was herself an SEC commissioner 20 years ago.As a general matter,I am a huge fan of transparency across the board,she declared.The amount of data to sift through is overwhelming.For us,it's a matter of acquiring new technology,reviewing millions and millions of trades.Our tech budget is 50% below what it was five years ago.I'm concerned about over the counter derivatives markets,their ability to do what is not permissible in regulated markets,Ms.Schapiro added.
The SEC,which has five commissioners,has voted to approve the reining in of computer systems that certain financial firms use to trade huge amounts of shares at high speed.The SEC is concerned this practice may distort market activity and give these firms a leg up on other participants.The commission has also begun an inquiry into the impact of technology on financial markets generally.

International Perspective

Mary Schapiro said she has reservations about the costs and lack of rigor of proposed international accounting standards.It's time to have a well-crafted approach for access to the proxy for major shareholders,as 40 other world markets now permit.I want to ensure that investor protection is maximized in mutual recognition of Australian broker-dealers at virtually the retail level,Ms.Schapiro informed the Senate Banking Committee at her confirmation hearing.

Too Much Risk Around

Mary Schapiro stated that all systematically important products and financial institutions need to come under the regulatory regime.We need to think about the roles of the regulatory agencies.All of the SEC functions must continue to exist,as they matter to the integrity of our capital markets and investor confidence.We need to have federal oversight of insurance institutions.I would absolutely support proceeding with the regulation of hedge funds to get a picture of who is out there.I have long been in favor of clearing houses to regulate credit default swaps,which are a kind of insurance for bond buyers.A lot of procedural hurdles have been placed in the way of the Enforcement Division.It is absolutely essential to re-institute the Office of Risk Assessment,to have risk assessment permeate everything the SEC does,the nominee testified.

Ratings Agencies Inadequate

The effectiveness of examination of ratings agencies and others needs to be significantly bolstered,Mary Schapiro held.We don't need broken ratings agencies that give us bad information:that much is clear.Until we deal with their compensation model,people are not gonna have confidence in them.They should not be paid by the issuers of the bonds they rate.

System Behind the Times

Mary Schapiro told the Senate Banking Committee at her confirmation hearing that our regulatory system has not kept pace with the markets or the needs of investors.We need to modernize our regulatory system to match the reality of the global markets.The Securities and Exchange Commission needs more resources to investigate and go after cheats.Seventy-five years after its founding,the SEC finds itself in a position where it must rejuvenate our markets and economy.One of the real tragedies is that we have this stovepipe regulatory regime that allows activities to occur beyond the view of regulators,Ms.Schapiro observed.

Confirmation Hearing:More About Mary Schapiro

Senator Jack Reed(D-Rhode Island)praised Mary Schapiro,Chairman-designate of the Securities and Exchange Commission,at her confirmation hearing last week,expressing his complete confidence in her.For his part,Senator Charles Schumer(D-New York) said he was deeply impressed by the depth of Ms.Schapiro's experience and knowledge.Ms.Schapiro smiled readily at the senators.Her husband and two daughters,Anna and Molly,sat behind her at the hearing.Dressed in blue with a gold lapel pin,she said she grew up in New York,a short train ride from Manhattan,the daughter of a printer and a librarian.

SEC Criticized For Failures

The Securities and Exchange Commission has been criticized for not doing anything to prevent the financial crisis from developing,or seriously looking into the Ponzi scheme of Bernard Madoff that has ruined several investors.Ms.Schapiro says that, clearly,our regulatory system failed to compensate for the failures of market discipline.It failed to appreciate the interdependencies of financial institutions and the risks they shared.It did not allow regulators to stay ahead of this crisis and prevent it from ever occurring.Mary L. Schapiro is 53.Most observers have expressed confidence in her ability to head the SEC,which will be reformed over the next few years in consequence of its recent failures.

Who Is Mary Schapiro?

If Timothy Geithner,the Treasury Secretary-designate, is Mr.Experience,Mary Schapiro,whom President-elect Obama has chosen to head the Securities and Exchange Commission,the financial industry regulator,is Ms.Experience.Appointed by President Ronald Reagan,she served on the commission for six years,rising to the post of Acting Chairman before President Bill Clinton named her to the top job at the Commodity Futures Trading Commission.Currently,she leads the Financial Industry Regulatory Authority,or FINRA,a self-policing organization for the industry.She has worked for them since 1996.