Mary L. Schapiro heads to Capitol Hill tomorrow morning for the hearing on her Senate confirmation as President-elect Barack Obama's nominee to chair the U.S. Securities and Exchange Commission.

A veteran securities regulator who served as an SEC commissioner in both Democrat and Republican administrations and chaired the Commodity Futures Trading Commission, Schapiro heads the Financial Industry Regulatory Authority, or FINRA. That experience has led some critics to call her part of a broken system, but they are far outnumbered by those who say that experience will make her effective at the helm of the SEC.

Schapiro's nomination, at a December 18 press conference, occurred just days after the arrest of Bernard Madoff in an alleged $50 Ponzi scheme that only came to light after Madoff himself confessed to his two sons, both senior employees at his firm. And, in fact, alluding to the Madoff scandal, Obama said, "Regulators who were assigned to oversee Wall Street dropped the ball." So there is some irony that Obama's choice would come from the very agencies accused of being, as he said later at the press conference, "asleep at the switch." (A point of clarification: Madoff's alleged criminal enterprise was his RIA, which is regulated by the SEC; but Madoff's broker/dealer, was regulated by FINRA.)

Schapiro is expected to get some tough questions tomorrow morning from the Senate Committee on Banking, Housing and Urban Affairs about how it could have missed the massive alleged fraud at Madoff's firm. But her nomination, applauded by Sen. Charles Schumer (D-N.Y.), one of the Senate Banking's most influential members, is expected to get approval by the committee and full Senate.

A complete overhaul of financial regulation is at the top of Obama's priorities. But Schapiro faces a more immediate and basic challenge at the SEC, whose image has been badly tarnished under the leadership of Chairman Christopher Cox: "She must rebuild and revitalize an agency that is very badly bruised in terms of morale and resources, and where too many substantive mistakes have been made," says Harvey Goldschmid, a professor of Columbia University School of Law who was an SEC commissioner from 2002 to 2005. "The commission has been far too passive during the past three years and now needs a heavy overhaul."

On the day of Obama's press conference, Tim Ryan, head of the Securities Industry and Financial Markets Association (SIFMA), issued a statement praising Schapiro's "exemplary service within the industry and broad range of knowledge" that will make her "prepared to step into her new role with immediate effectiveness."

SIFMA is Wall Street's largest lobbying group, and, according to some critics, praise for Schapiro should raise eyebrows on behalf of investors. Edward Siedle, a former SEC lawyer and owner of Benchmark Financial Services, a broker/dealer in Ocean Ridge, Fla., that conducts investigations of abuses by money managers on behalf of pension funds. "The large Wall Street firms should be very comfortable and assured with the nomination of Mary Schapiro, which is exactly why investors should be freaked out," says Siedle. "We need somebody to really shake things up."

Siedle has been a vocal critic of the merger of National Association of Securities Dealers and New York Stock Exchange, which created FINRA in July 2007. He complained to the SEC about proposed changes to the NASD bylaws in advance of the merger, calling them "a significant injustice to all NASD members, but particularly to the smaller member firms." Days after Schapiro's nomination, Benchmark Financial filed a class action complaint in New York federal court, a lawsuit that mimics claims in another case that was dismissed and is now on appeal.

The complaint names Schapiro and other FINRA executives as defendants, accusing them of making misrepresentations on the proxy solicitation issued to NASD members for their vote on the merger. Most eye-catching are the figures for compensation: The lawsuit lists Schapiro's 2006 compensation as $1.99 million and her 2007 compensation as $3.1 million, suggesting the spike was part of her motivation to complete the transaction.

"That is ten times what she will make as chair of the SEC," says Siedle. "It's absurd, and it really reflects that FINRA adds value to the brokerage industry by getting them off the hook. It was conceived and is perceived by its membership for serving as a buffer between the members and the true regulator."

Siedle is pressing a lawsuit, and so has an axe to grind. But some in the academic world are not particularly impressed by FINRA's regulatory record. "When I saw the announcement, I was a bit worried, because it seemed like she was an insider in some of these institutions that have not done so well," says Jill Fisch, who teaches securities law at the University of Pennsylvania Law School.

"FINRA is un-transparent; opaque is the right word. It's really hard to figure out what's going on there, and she's in charge," says Fisch. She cites complaints that brokers were able too easily to get "expungements" of customer complaints from their records, and criticisms of an arbitration process biased in favor of the industry. (SIFMA has repeatedly denied those criticisms.) New rules, put into place under Schapiro, have addressed some of these concerns. Even so, FINRA has rebuffed academics when they have sought the basic disclosures that arbitrators must file about their employment history and experience. In fact, FINRA fought for—and received—a protective order sealing most of the information about the proxy solicitation in the 2007 lawsuit challenging the merger that created FINRA.

But it's not just SIFMA that is singing Schapiro's praises. The National Association of Independent Broker/Dealers held a conference call for members yesterday, during which Duncan F. Williams, president of a Birmingham firm with his name, said of Schapiro: "We certainly have someone who understands the needs of the small firms." Williams has served on the FINRA board since October 2007. Those on the call were told to brace themselves for more regulation of RIAs and hedge funds, and Williams described these areas as "pet peeves" for Schapiro.

Dale Brown, the president of the Financial Services Institute, a lobby for independent-contractor b/ds, also praised Schapiro in an interview. "We have had a good constructive relationship with Mary and anticipate that continuing in her new role." Brown declined to comment on the legacy of SEC Chairman Cox. "The biggest problem that we have is almost 70 year old rules governing the delivery of financial advice and products and services in the 21st century," he said. "Just from that vantage point alone, you need a revamping."

Those who know Schapiro, among them Goldschmid and Joel Seligman, the president of the University of Rochester and a scholar on the history of the SEC, say she has got the right talents and temperament to revitalize the agency. "She gets things done," says Seligman, who is also a FINRA board member. He cited her infinite patience in going on road shows and meeting with reps to talk about the merger of NASD and NYSE. "While she is soft-spoken, she gets things done. And one of the things you are going to need particularly at this time is a new tone at the top, a new commitment to enforcement and someone who is going to bring in new talent."

And Seligman, like most everyone else, is confident she will be good at all those things.