Back in November, I wrote about the misplaced attention to the horse race for the replacement of Mary L. Schapiro, who stepped down as the SEC chairman on Dec. 14. The focus should have been on quickly finding the right replacement and avoiding a deadlocked situation. Unfortunately, that’s not how it’s working out.
As it stands now, the SEC is without a permanent replacement for Schapiro. Elisse Walter, an SEC commissioner and Schapiro ally, is the acting chairman and it’s unclear whether Walter wants to take on the post permanently.
The current SEC commissioners are: Luis A. Aguilar, appointed by President George W. Bush and reappointed by President Barack Obama in 2011; Troy A. Paredes, appointed by Bush; Daniel M. Gallagher, appointed by President Barack Obama in 2011. (Gallagher is the former general counsel and senior vice president for Fiserv Securities, Inc., by the way.) The current configuration usually splits along party lines—two Democrats and two Republicans—without anyone to break the tie.
This deadlock is putting major industry concerns on hold just when the markets need swift action on major regulatory fronts.
Complicating matters is the fact that financial services reform (among other issues) got lost in the shuffle as Congress and the White House engaged in a death match over the fiscal cliff debacle and set the stage for more battles to come over Chuck Hagel, gun control and the federal debt ceiling.
The backers of Dodd-Frank knew that interest in revamping the financial services industry would wane and they wanted an accelerated implementation of their reforms. However, that is a distant dream especially as we move further away from the worst moments of the Great Recession.
The main casualty of the deadlocked SEC is finishing the overhaul of the over-the-counter (OTC) derivatives markets, which, in theory, should have been done and dusted by now. Instead, the fits and starts of the OTC initiatives make it clear that the SEC and CFTC have pretty much gone their separate ways when it comes to developing regulations. For better or worse, the CFTC has been more responsive and is at least taking action.
Along those lines, an OTC systems implementation expert, John P. Needham, of Needham Consulting, told me this week that in his opinion the CFTC is “the better of the two regulators, at proposing and implementing legislated regulatory changes.” (I was in touch with him for another story.) In fact, he adds, “As asset classes among the two regulators continue to blur, my own preference would be to see CFTC take the lead in both regulation and in enforcement.”
For the moment, this isn’t the case. The SEC is larger, older and clumsier than the CFTC and still makes Wall Street firms nervous when there’s a knock on the door from the Men in Black. And its work isn’t done. The SEC has a growing list of issues that need attention such as what to do about high-frequency trading; real reform for the mutual funds industry; and the drawn-out debate over the Volcker Rule—just to name three hot issues.
Some are hoping for a surprise announcement about a new SEC chairman that will satisfy the White House and the Senate. But such a scenario misses the point and may be a Band-Aid when surgery is needed.
The messy OTC overhaul is strong evidence that a single, nimble regulator should have overseen the process. The current players are too engaged in turf battles and red tape, and have forgotten that investors are at the heart of OTC reform.
It’s definitely time for Congress and the White House to completely review the essence and roles of the CFTC and SEC in light of the OTC debacle and the financial disasters to come for the 21st Century. My guess is that there is bipartisan support for changes that could make these two actually coordinate their regulatory development and enforcement efforts. Some in the GOP have even suggested a merger between the CFTC and the SEC. We’ll see if the Democrats like that idea.
Perhaps it’s a good thing that the SEC has fumbled OTC reform. Maybe it could lead to a constructive revamping of a regulator that’s too deadlocked to function.
Need a Reprint?
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