Mary Schapiro, SEC Chairman, Talks at the FWA

Photo courtesy

Photo courtesy

By Melissa J. Anderson (New York City)

“I’ve surrounded myself with great and talented people and that’s the secret of my success,” said Mary Schapiro, Chairman of the Securities Exchange Commission. Schapiro was interviewed by CNBC‘s Maria Bartiromo Monday at New York Law School, for an event hosted by the Financial Women’s Association of New York.

Schapiro attributed her level of success to, “Not being afraid to hire people much smarter than I am.” She also mentioned the importance of “diversity of perspective.”

She continued, “The people make it worthwhile. …We are well-positioned to make a difference for American investors.”

Views on New Regulation

On a broad level, Schapiro said, new regulations will mean “less of an incentive for institutions to become very, very large.” She continued, “Previously unregulated institutions will come under the regulatory umbrella.”

“I think the industry will look different and that is a good thing.”

Bartiromo asked Schapiro whether Washington was being too aggressive – was the pendulum swinging to far to the side of regulation? She answered, “We’re always worried about the pendulum …so the markets can operate freely but fairly. The key is to be thoughtful and deliberate with our process.”

Referring to the SEC’s practice of opening new rules to public comment, Schapiro said, “the input we get from the public helps us calibrate… hopefully we get it right, and hopefully we don’t stifle innovation.” The main focus, she said, was being fair and protecting the investor.

Bartiromo asked whether new regulations regarding derivative trading would put American companies at a disadvantage in the global community. Schapiro responded, “At the end of the day, I think we will see derivatives [regulation] in Europe and Asia,” so she doesn’t expect there to be a disadvantage in the long term.

Discussing Sen. Franken’s amendment on credit rating agencies, Schapiro said, “Clearly they didn’t perform well during the crisis. And there was an overreliance by the government, including the Securities Exchange Commission.” She continued, “One of the fundamental problems is the business model.” She explained that the issuer-pay business model created some transparency issues. Franken’s goal, she said, is to “break the bond between the issue of rating and compensation of the rating,” providing more sunlight on ratings as well as more due diligence.

Asked what her proudest achievement has been so far, she responded, “It may be a little nerdy to say, but our proposed rules on asset-backed securities.” Bartiromo later asked her if the media is getting it right, regarding trust and the markets. Schapiro joked, “A lot of the books have gotten it right. I think a lot of the media is getting it right. I wish someone would write a book about ABS regulations.”

But, she continued, “We are intent on fixing the things we can fix. We can’t fix everything and we can’t control everything. …There is a very long list of things we are going to continue to tackle.”

Inside the Agency

Schapiro spoke at length about the challenges the agency faces in terms of resources. “There are in excess of 30,000 regulated institutions. …We are just now in 2010 getting back to our staffing levels we enjoyed in 2005. [Meanwhile] business has grown in size and complexity. We have to have sustained growth over the next several years to keep up with Wall Street.”

She continued, “Congress has been generous over the past few years, but there is no assurance that it will continue.”

“We have a lot of lawyers,” she said. “We are a law enforcement agency.” But the SEC is bringing in more experts in other areas, such as risk, strategy, financial innovation, etc. “It’s an effort to really help us keep up with all the change on Wall Street.

Bartiromo asked how the agency manages to keep up with the pay-levels of Wall Street. Schapiro responded, “We certainly can’t pay competitive salaries.” But she said, “There’s tremendous enthusiasm by new leadership with the agency. …And it doesn’t hurt us that the market has been a buyers market for lawyers.” She added, the agency is made up of “people who just want to do something different for a while,” and work in the public sector.

Asked by an audience member whether Schapiro believed the regulatory structure in the US would move toward the UK’s FSA model, she responded, “I think the ship has sailed on that idea.” In fact, she said, “It’s not clear given the UK’s elections that the UK will have an FSA model.”

She did see some consolidation of US regulatory bodies, however – and not as much as she’d like. Regarding an SEC/CFTC merge, she said, “From a substantive perspective it is the right answer, but it’s not happening.” But she continues to work closely with the CFTC chairman.

Plans for New Circuit Breakers

One of the more popular topics of conversation over the evening was the “flash crash” that occurred on May 6th, when the Dow plunged nearly 1000 points in less than 30 minutes.

“Clearly a very serious issue in the market, although very short lived.” Schapiro recalled bringing her team together on the Monday following the “flash crash” and saying, “You’re not leaving this room until we figure out… how to fix this.”

She credited the circuit breaker program as being organized and orderly, as well as fair to investors. As explained in a recent CBS News article:

“Under the new rules, trading of any Standard & Poor’s 500 stock that rises or falls 10 percent or more in a five-minute period will be halted for five minutes. The “circuit breakers” would be applied if the price swing occurs between 9:45 a.m. and 3:35 p.m. Eastern time – almost the entire trading day.”

Schapiro stressed that this is just a pilot program at this point.

When Bartiromo asked if 5 minutes was too long, she replied, “this was a judgment by market leaders. And because it’s a pilot program, there is some flexibility.

She also stressed that they SEC hasn’t yet pinpointed the cause of the crash – although the “fat finger” hypotheses has been ruled out. “We’re still looking at the confluence of events. Pretty quickly it was easy to rule out the fat finger, cyberterrorism, a computer hacker.”

She said, “I’m a worrier, so several things [keep me up at night].” She described, however, how impressed she was with the SEC staff following the May 6th crash. “…While I had a few sleepless nights, my staff had multiple sleepless nights.”

She continued, “You would be proud of your government if you could see the amount of work” they did an accelerated period of time.

Advice for Young Women

Asked by an audience member what advice she would give to young women, Schapiro replied, “Just keep pushing on it. Keep working on it. Surround yourself with great people.”

She recalled advice by California Senator Dianne Feinstein as particularly powerful. “Become an expert in whatever you’re doing.” That way, she explained, people will take you seriously and listen to what you have to say. “It’s something to build off of. You become known as a go-to person.”