Nov. 7 (Bloomberg) -- President-elect Barack Obama should act quickly to name a new leader for the U.S. Securities and Exchange Commission, an agency that has drawn fire for not doing enough to regulate markets and protect investors, lawmakers said.

``The new administration will have no more urgent priority, in my view, than putting a team of capable, experienced and qualified economic leaders swiftly in place, from the Treasury secretary, to the Federal Reserve and the Securities Exchange Commission,'' Senate Banking Committee Chairman Christopher Dodd said yesterday at a Washington news conference.

SEC Chairman Christopher Cox, 56, has said he will step down at the end of the Bush administration. Potential successors include William Brodsky, chief executive officer of the Chicago Board Options Exchange; Mellody Hobson, president of Ariel Capital Management; and Gary Gensler, a former Treasury Department undersecretary and partner at Goldman Sachs Group Inc., congressional aides, SEC officials and lobbyists said.

``It's part of the economic team that President-elect Obama'' should assemble ``quickly,'' Senator Jack Reed, a Rhode Island Democrat, said in an interview yesterday. ``You want someone, obviously, who's knowledgeable of markets and has good judgment with strong investor protection being the key,'' said Reed, who leads a banking subcommittee that oversees the SEC.

Tarnished Reputation

The regulator's reputation has been tarnished by the collapses of Bear Stearns Cos. and Lehman Brothers Holdings Inc. as well as criticism from lawmakers that it hasn't aggressively enforced securities laws. The next chairman will face the challenge of restoring the agency's luster and fighting for its relevancy as Congress considers overhauling financial regulation.

SEC chairmen are nominated by the president and must be confirmed by the Senate.

``The next SEC chairman will have to be loud and aggressive,'' said Donald Langevoort, a former agency attorney who teaches securities law at Georgetown University in Washington. ``You could paint this as the last chairman of the SEC -- the one who presides over its demise -- but it's going to be the rebirth of the SEC within a new structure.''

The SEC's job is to regulate stock markets, police securities sales and ensure public companies make adequate disclosures to investors. The agency, created in 1934 to address abuses that contributed to the Great Depression, has about 3,400 full-time employees.

`Very Distressing'

``The implication that the SEC may be irrelevant in the new regulatory world that we are about to go into is very distressing to those of us who care about investor protection,'' former SEC Chairman Arthur Levitt said in a Bloomberg TV interview. Levitt is a senior adviser to the Carlyle Group and a board member of Bloomberg LP, parent company of Bloomberg News.

One change Congress may consider is combining the SEC with the Commodity Futures Trading Commission, which regulates options markets and trades in commodities contracts and foreign currencies. Cox and Treasury Secretary Henry Paulson have endorsed such a merger.

Incoming presidents typically don't pinpoint the SEC's leadership as a top priority. George W. Bush nominated Harvey Pitt, his first chairman, four months after the inauguration. Former President Bill Clinton picked Levitt six months after he took office.

Goldschmid, Pozen

Additional candidates Obama may consider include former SEC Commissioner Harvey Goldschmid, former Fidelity Investments Vice Chairman Robert Pozen, AFL-CIO Associate General Counsel Damon Silvers and Federal Deposit Insurance Corp. director Martin Gruenberg.

Hobson, who's based in Obama's hometown of Chicago, contributed $4,600 to the president-elect's campaign. Gensler, who advised the campaign on economic issues, also gave $4,600. Brodsky donated $1,000. Gensler declined to comment and Brodsky and Hobson weren't available to return phone calls.

Goldschmid declined to comment and Pozen, Silvers and Gruenberg weren't available.

Obama spokeswoman Jen Psaki declined to comment about the selection process.

The president-elect will meet today with a group of economic advisers including former SEC Chairman William Donaldson and former SEC commissioner Roel Campos.

Donaldson, a Republican, became chairman in 2003 after the SEC had been battered by political attacks over Pitt's ties to the accounting industry. During Donaldson's tenure, which ended in 2005, he confronted scandals such as improper trading at mutual funds and internal fights over whether it was appropriate for the SEC to fine companies.

``Understanding the role of the SEC is a necessary component of addressing the broader economic crisis,'' said Charles Clark, a former SEC investigator who's now a partner at Kirkland & Ellis LLP in Washington. It ``speaks volumes'' that Obama would consult Donaldson, because he ``faced similar challenges in defining the scope of the SEC mission.''

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

Last Updated: November 7, 2008 11:28 EST