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7 Massive Challenges Facing the New SEC Chief


Elisse Walter inherits a swollen to-do list. Here are the items on the short list.

With Securities and Exchange Commission Chairman Mary L. Schapiro set to leave the agency December 14, her successor, Elisse Walter, inherits a swollen to-do list. The agency still must implement most of the reforms mandated under the Dodd-Frank Act, in addition to addressing and dealing with other pressing issues identified by both Schapiro and Walter as concerns, such as high-frequency trading and money market fund regulation.

When Schapiro became the first woman to helm the securities regulator in 2009, she took over a commission badly battered by the financial crisis and collapse of Lehman Brothers, not to mention Bernard L. Madoff's multi-billion-dollar Ponzi scheme. Some commentators have called it the lowest point in the SEC's history.

In the immediate aftermath of the financial crisis, some in the Obama administration and on Capitol Hill called for the elimination of the SEC and a merger with the Commodity Futures Trading Commission. Schapiro managed to protect the agency's autonomy during Dodd-Frank negotiations and even received a budget increase to carry out the new regulatory mandate from Congress: Nearly 100 new, separate rules to set.

"Given the fact that the SEC went into the Dodd-Frank process with a tattered reputation, they came out of it with more power and authority," said Mark Calabria, director of financial regulation studies at the Libertarian Cato Institute. "It's not like she's leaving her successor a clean plate, but that might be an unrealistic expectation at the end of the day."

Walter is that successor, if only for the time being. She can legally serve as chairman without needing Senate confirmation until either a new chairman is nominated and confirmed or Congress adjourns in 2013, which is usually in November or December. Here are the seven looming challenges she'll grapple with in her new role, according to Calabria and other financial regulatory experts.

Leading a split commission. After Schapiro leaves the SEC, two Democratic and two Republican commissioners will remain. That means an end to the 3-to-2 votes that Schapiro managed to push through on issues such as conflict mineral disclosure, audit trails, short sales, and fund adviser registration.

"The biggest concern for the agency is that they won't have a working majority," Calabria said. "You certainly can get votes done, but it means Walter has to work across the aisle."

Moreover, if Walter aims to remain on the commission in a fresh term as chairman, she must tread lightly to avoid antagonizing lawmakers who would vote on her nomination.

Harmonizing, or cutting through, a chaotic jumble of rules. In addition to the 95 rulemakings mandated by Dodd-Frank – only a third of which have been finalized – the SEC must routinely review and enforce its existing body of regulations. Meanwhile, the banking and derivatives regulators have their own set of rules that may conflict with the SEC's, subjecting different institutions to different requirements when they carry out the same activities.
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