It was circa 1987 and we were in Switzerland on a boat from Lucerne to Bürgenstock for the annual Swiss Commodities and Futures Association meeting. She said she wanted to show me something and unzipped her suitcase to pull out a picture of two dogs. The picture was in the actual frame — not just a wrinkled polaroid. "I always travel with a picture of them," she said. As a dog person, I thought it was endearing. As a journalist, that memory always reminds me that regulators are human and have softer sides that typically we — or those they regulate — don’t see. The "she" was Mary Schapiro, now chairman of the Securities and Exchange Commission (SEC). At the time she was general counsel of the Futures Industry Association (FIA). We both were a lot younger then, but having watched Mary of the FIA move to the SEC to the Commodity Futures Trading Commission (CFTC) to the Financial Industry Regulatory Authority (Finra) to now Chairman Schapiro at the SEC gives me a certain sense of pride of knowing her when. No doubt becoming the first female chair of the SEC was a more difficult road than the one we took to Bürgenstock.
As entrenched as the derivatives industry is with the CFTC — the regulator of the futures industry — the SEC is as important, and now becoming more so with the blurring of the business. Truth be told, the SEC is as much a regulator as the CFTC is in the derivatives industry — and the main enforcer for securities traders, investment advisors and hedge funds. With the one-year anniversary of the Dodd-Frank Act, we thought getting perspective from not only the chairman of the SEC but someone who knows intimately all parts of financial regulation would provide insight to what traders can expect going forward. We weren’t disappointed (see Mary Schapiro: In the eye of the storm by Managing Editor Dan Collins).
Schapiro took over the SEC in early 2009 during one of its most stormy periods. The agency was under siege. The financial crisis was roiling Wall and Main streets and Bernie Madoff was fessing up: Yes he was a crook and by the way, why hadn’t the SEC caught me sooner? In addition, Congress was hashing out the Dodd-Frank bill, which meant once passed, rules righting the excesses of Wall Street and beyond had to be written and vetted. Staff was short. Systems were out of whack. And traders had attached thrusters to their electronic programs.
Then on May 6, 2010 the market dropped 1,000 points in a, well, flash, losing billions of dollars for market players. Although the market closed only 350 points down, the Street was shaken. It wasn’t an economic report or announcement that was the cause but something out of a Terminator movie: Computers had taken on a life of their own and were torpedoing the market. High-frequency traders — whether guilty or not — found the limelight that day and haven’t lost it since. Today they make up at least 60% of the volume in the securities world.
This is the environment Schapiro mostly inherited but in which she seems to be thriving. Perhaps it was her experience at so many key agencies that made her the best choice for the job. Just as Gary Gensler brings his Goldman Sachs’ trader knowledge to the CFTC, Schapiro has brought intrinsic legal and regulatory smarts garnered from her Washington experience.
When asked what accomplishments she would highlight during her tenure thus far, Schapiro noted reforming how the SEC operates, putting measures in place to prevent another flash crash and Bernie Madoff, and writing the rules for the Dodd-Frank Act, not an easy task in the year since it was passed, all on the same budget as prior to the bill. Sometimes it takes a Washington insider to tame Washington outsiders. In this case, my money is on Schapiro.