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7 Massive Challenges Facing the New SEC Chief

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

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"It is really striking how chaotic the framework is," said Karen Shaw Petrou, managing partner of Federal Financial Analytics, which recently conducted a study of unintended consequences from the regulatory overhaul. "These are hard issues and they're often being addressed in silos.... That's a key leadership goal: To make the rules make better sense."

Regulating money market funds. One of the top priorities for Schapiro was imposing new rules on money market funds, implicated by many observers in the financial crisis. This summer she failed to win support from a majority of commissioners for an SEC proposal, and instead punted the issue to the Financial Stability Oversight Council, which released a series of money market proposals for public comment. It remains to be seen whether Walter, a longtime ally of Schapiro, will defer to the FSOC or attempt to take the lead on the issue.

Writing rules for proprietary trading. One of the most contentious issues in the Dodd-Frank debate was the so-called Volcker Rule to ban banks from proprietary trading. The SEC is working with the banking regulators and the CFTC to craft a regulation that will stop banks from placing market bets with their own money. Advocates say the rule, named after former Federal Reserve Chairman Paul Volcker, would have limited the impact and spread of the financial crisis. Critics, particularly on Wall Street, contend that the rule would result in higher costs for companies and investors without effectively eliminating financial risks.

Improving oversight of high-frequency trading. The increase in computerized and automated trading, which exacerbated the 2010 flash crash, prompted criticism that the SEC hasn't done enough to rein in high-frequency traders. "For the public in general, the flash crash has faded from memory, but I don't think it's faded from the SEC thinking they should do something," Calabria said.

Dealing with blowback from courts. In another setback under Schapiro, a federal court overturned an SEC "proxy access" rule that would have given shareholders more power to nominate directors for the boards of publicly traded companies, blasting the agency for failing to adequately consider the cost-benefit tradeoffs. The agency has also faced criticism from a federal judge over its Citigroup settlement.

Implementing the JOBS Act. The new law gives startups with annual revenue under $1 billion an easier path to an initial public offering, by allowing confidential SEC filings and meetings before an IPO. Schapiro had expressed concern about the legislation eroding investor protections.

Editor's Note: This article by Katherine Reynolds Lewis originally appeared on The Fiscal Times.

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