Can Schapiro's Successor Get a Grip on the SEC?

Securities and Exchange Commission Chairman Mary Schapiro at an SEC technology and trading roundtable in Washington on Oct. 2, 2012 Photograph by Andrew Harrer/Bloomberg

When Mary Schapiro steps down as chairman of the Securities and Exchange Commission in December, she will leave behind a regulatory body that is paralyzed by partisanship. The question is whether her successor can manage to carry out President Barack Obama’s regulatory agenda despite the opposition of Republican commissioners, skeptical judges, and the powerful financial industry.

“You need someone who’s pretty thick-skinned” to move the SEC forward, says Barbara Roper, director of investor protection at the Consumer Federation of America. “Schapiro’s been chairman under the most difficult conditions I’ve seen an SEC chair face in the 25 years I’ve been following these issues. I’ve never seen the just constant barrage of attacks in Congress on the agency that she’s been subject to. Just nasty.”

Schapiro, 57, will step down on Dec. 14, the SEC announced. Her departure will leave the five-member commission with just four members, two Democrats and two Republicans. One of those Democrats, Elisse Walter, will succeed Schapiro as chairman, Obama announced. But it’s not clear how long Walter will run the agency. Bloomberg reports that an administration official who spoke on condition of anonymity said Obama intends to nominate another person to the commission soon. The official didn’t specify whether the nomination would be for the chairman position.

Since Obama gets to have a 3-2 majority on the SEC, it seems like it would be easy for him to get his way on the commission. In practice it doesn’t work out that way. Schapiro needs the support of Republican commissioners and the financial industry to lessen the risk of court challenges from industry groups to rules that the SEC promulgates.

The SEC was responsible for making almost 100 rules to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in July 2010. Bloomberg reports that it’s behind on about half of them. In the meantime, the act’s protections involving derivatives, asset-backed securities, and credit agencies exist in name only.

In 2011, the SEC suffered a major defeat when a federal appeals court overturned a regulation giving investors more power to oust corporate directors. The appellate panel faulted the agency’s economic analysis supporting the rule.

This August, Schapiro failed to win the votes to push through a major reform of money-market mutual funds. She wanted to make them less vulnerable to runs by requiring the value of shares to fluctuate above and below $1 depending on the value of the underlying assets.

Schapiro’s departure makes the Democrats’ position even weaker by taking away the party’s majority on the commission until a new commissioner is named. Roper, the consumer advocate, says, “With the 2-2 division, in many ways the best we can hope for in the short term is sort of a stalemate.”

The Securities Industry and Financial Markets Association praised the departing Schapiro while acknowledging that they didn’t always see eye to eye. “She’s done a more than admirable job running the agency during an extremely tumultuous period,” Ken Bentsen, executive vice president for public policy and advocacy, said in an interview. Bentsen said Schapiro’s efforts to bullet-proof SEC rules against legal challenges made for a “painstakingly slow but methodical and thoughtful approach.”

“The agency has recognized that speed is not always the appropriate approach. It’s worth taking the time necessary to understand the consequences of a rulemaking action on markets,” Bentsen said.

Walter, like Schapiro, came to the SEC from the industry’s self-regulatory body, the Financial Industry Regulatory Authority (Finra). She was senior executive vice president for regulatory policy and programs. Walter served briefly as acting chairman of the SEC before Schapiro was named to the top post. “I’m confident that Elisse’s years of experience will serve her well in her new position, and I’m grateful she has agreed to help lead the agency,” Obama said in his statement.

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