Securities and Exchange Commission, Chairman

Department/Agency: Securities and Exchange Commission

Position:

Chairman

Executive Schedule: Executive Level III - Presidential Appointment with Senate Confirmation

Major Responsibilities:

Regulate U.S. securities markets
Protect investors against frauds
Maintain fair, orderly and efficient markets and facilitate capital formation
Oversee securities firms, exchanges, mutual funds, brokers and dealers, and investment advisers
Coordinate U.S. securities regulation with federal, state and foreign authorities
Coordinate with private regulatory organizations in the securities, accounting and auditing fields

Key Competencies and Preferred Qualifications:

Senior official in a major domestic stock exchange
Brokerage house
Understanding of U.S regulatory law

Insight:

President-elect Barack Obama is faced with many challenges, but none more pressing than restoring the health of the financial system. Outside the Treasury, no U.S. agency may play a more pivotal role in this undertaking than the Securities and Exchange Commission (SEC), which oversees the U.S. securities markets. The financial meltdown has exposed glaring weaknesses in the existing regulatory system, including past decisions by Congress to keep the SEC’s hands off big investment banks. The 2004 Gramm-Leach-Bliley Act gave the SEC no authority to regulate large investment banks such as Bear Stearns and Lehman Brothers, allowing these firms to simply opt out of federal supervision.

Still, the SEC has formidable powers to act as investors’ watchdog. Democrats in Congress have sharply criticized SEC Chairman Christopher Cox for not doing more to keep markets stable and protect consumers’ interests during the long slide that began in mid-2007 with the meltdown of the subprime mortgage lending market.

Obama will get to designate a Democrat as chairman of the SEC. There are five commissioners serving staggered, five-year terms. Cox’s term runs through 2010, but he will not remain chairman. Unless a vacancy opens up, Obama will designate one of the SEC’s two Democrats as the new chairman (By law, no more than three commissioners can belong to the same political party).

Cox, the SEC chairman since 2005, outlined his “core principles” for regulatory reform in a November 2008 op-ed in the Washington Post. “The global financial crisis has exposed many of the weaknesses and holes in our regulatory system that are far greater and more consequential than was previously understood,” Cox wrote. “The priority now must be to address those issues and rationalize that system. In doing so, legislators and policymakers should be guided by four core principles: closing regulatory gaps, providing clear statutory authority, consolidating regulatory agencies and increasing transparency.”

The SEC traces its roots to the Great Depression, when the country suffered through the longest and deepest downturn in its history. Congress established the Securities and Exchange Commission in 1934 to enforce newly-passed securities laws, promote stability in the markets and protect investors. President Franklin Delano Roosevelt appointed Joseph P. Kennedy, President John F. Kennedy's father, to serve as the first chairman.

The SEC has a staff of 3,500 in Washington and 11 regional offices to carry out its watchdog duties. Its reputation as a tough enforcer was badly tarnished by the 2001 collapse of Enron Corp. – which prided itself on its creative and largely unfathomable bookkeeping -- and the subsequent string of corporate failures. Allegations of too close ties to Wall Street dimmed the public’s confidence in the commission’s ability to protect investors.

Now, Lehman, Fannie and Freddie have replaced Enron as the poster companies for irresponsible corporate governance, leaving the next SEC chairman with the unenviable task of restoring investor confidence in the market.

The interconnectedness of world markets has highlighted the importance of coordinating U.S. regulatory policy with its foreign counterparts. “The events of recent months have demonstrated more clearly than ever that maintaining market confidence is a global responsibility and that securities regulators around the world have got to work together in order to achieve that objective,” Cox told the recent SEC International Enforcement Institute.

Building a collaborative relationship among the SEC, international market regulators, the Treasury Department, the financial sector’s self-regulatory organizations and state-level securities regulators must be a top priority of the next SEC chairman. The credit crunch demands a harsh look at the current regulatory structure, presenting a unique opportunity to create a more effective system for protecting investors.

Key Relationships – Within the Department or Agency:

The four other SEC commissioners, all presidential appointees
Heads of the Corporation Finance, Enforcement, Investment Management, and Trading and Markets divisions

Organizational Chart

Key Relationships – Within the Government:

Chairman and Vice Chairman of the Federal Reserve
Secretary of the Treasury
Chairman of the Commodities Futures Trading Commission ------President's Working Group on Financial Markets
Deputy and Under Secretary of Commerce

Key Relationships – Outside the Government:

Financial Industry Regulatory Authority (FINRA)
New York Stock Exchange, American Stock Exchange, Boston Stock Exchange, Chicago Stock Exchange, International Securities Exchange, NASDAQ Stock Market
Financial clearing houses
International Organization of Securities Commissions
North American Securities Administrators Association

Nomination Referred to:

Senate Committee on Banking, Housing and Urban Affairs

Current Position Profile:
1. Mary L. Schapiro (Confirmed: Jan. 26, 2009 ). Former Lead Director, Board of Directors, Kraft Foods Inc. Member, Advisory Board, RAND Center for Corporate Ethics and Governance, RAND Corporation.

Recent Position Profiles:

2. Christopher Cox, J.D. (2005-2009) Longtime congressman who chaired the House committee on homeland security and was a senior lawmaker on the Budget and Energy and Commerce committees. Authored Private Securities Litigation Reform Act, Senior associate counsel to President Reagan.

3. William H. Donaldson, M.B.A. (2003-2005). Founder, chairman and CEO of investment banking firm Donaldson, Lufkin & Jenrette. Former chairman and CEO of the New York Stock Exchange. First dean of Yale University School of Management. Former under secretary of state under Henry Kissinger. Special adviser to Vice President Nelson Rockefeller. Marine Corps veteran.

4. Harvey L. Pitt, J.D. (2001-2003) Lawyer in private practice and for the SEC. Served three years as SEC general counsel.