Is the SEC any better off after Schapiro?

Share

Buried under the news Monday that Mark Carney is leaving for the Bank of England came word that the head of the U.S. Securities and Exchange Commission, Mary Schapiro, is stepping down.

Right after the announcement went live, the SEC put out a long – and somewhat bizarre – list of accomplishments that the organization is proud of under Ms. Schapiro's watch. They include hiring "experts in risk management, trading, quantitative analytics" and removing a layer of management to "put more expert attorneys on the front lines of investigations."

However, it's probably best to compare Ms. Schapiro's results relative to the goals she set for herself when she took the job. Just two months in, she outlined some key aspirations in April, 2009: improving disclosure of things like hedge funds, credit default swaps and mortgage backed securities (remember when those were a major problem?); improving disclosure of compensation structure and risk-taking; and becoming more stringent on money market funds.

On these fronts, progress is in the eye of the beholder – or something like that. Credit default swaps, for instance, will soon be better tracked because they will clear through a central counter-party, but that's because of the Dodd-Frank Act, not necessarily because of the SEC, while mortgage-backed securities have practically disappeared from the radar and hedge funds are still a black box.

Regarding risk-taking and compensation, the SEC has allowed shareholders to weigh in on executive compensation and golden parachute compensation arrangements. But with money market funds, Ms. Schapiro had to back away in August from her proposed reforms because there weren't enough commissioners supporting her,despite dire warnings advocating new rules from people such as Sallie Krawcheck.

There have been other shortfalls. As Mark Gongloff notes, not a single big-name individual has been charged for behaviour in the financial crisis, and the commission has often opted for wrist slaps, such as fining Goldman Sachs $550-million (U.S.) for selling subprime mortgage products the firm itself was betting against.

But some perspective here is necessary. Ms. Schapiro more or less inherited a shell of an organization in 2009 that lost almost all of its credibility during the financial crisis. No one thinks the SEC is now a shining beacon of regulatory success, but it's regained some of its respect, in large part because of high-profile insider-trading cases such as that of Galleon chief executive officer Raj Rajaratnam, a career case for some people inside the commission.

In fact, enforcement is something Ms. Schapiro is really proud of. In an interview with Kiplinger this year, she bragged about this arm. "It's bringing not just more and bigger cases, or the most complex cases coming out of the financial crisis, but cases across a wide range: market manipulation, insider trading, fraud in securities offerings, accounting fraud. The division has stepped it up in the last three years in an extraordinary way that protects investors and helps people understand there's a cop on the beat."

She also remained realistic. Regulation is still much too slow, and it's frustrating. "I'm a person with a pretty big sense of urgency, and I wish sometimes we could just move faster. We can't, for really good reasons. We're required to put our rules out as proposals, to do a cost-benefit analysis, to explain what we're doing, to let the public comment. We get thousands and thousands of comment letters. We have hundreds of meetings. All that results in a better product at the end of the day, but it takes so much time. Sometimes I just wish we could get on to the next thing because there's so much to do."

Keeping those limitations in mind, Ms. Schapiro has definitely helped to right the ship. But there's a long way to go, and there are already fears that the SEC is falling behind on things like electronic trading. In some respects, the regulator will never win because the innovators today are so fast. But she at least deserves some credit for salvaging an organization many people wanted to do away with.