Barack Obama is today expected to announce his own choice for the new chairman of the Securities and Exchange Commission as the Wall Street watchdog comes under fire to explain how it failed to spot the world's biggest fraud.

The US President Elect, who takes office on January 20, is to name Mary Schapiro, currently head of Wall Street's new self-regulator, the Financial Industry Regulatory Authority.

While every new US President appoints his own SEC chairman, the swift replacement of the present incumbent - Christopher Cox - comes at a time when the regulator is fielding bitter accusations that it has failed American investors.

Last week, Bernard Madoff, a 70 year old New York financier, confessed to his two sons that he had created a giant Ponzi scheme which had run up estimated losses of $50 billion.

It is believed to be the biggest financial scam in history and took place under the nose of the SEC.

Next year, Ms Schapiro will replace Mr Cox, who is scrambling to construct a case against Mr Madoff and to launch an inquiry into why the regulator failed to spot such a fraudulent scheme.

The appointment of Ms Schapiro will trigger speculation that a merger between the SEC and America's commodities regulator - the Commodity Futures Trading Commission which she chaired during the Clinton Administration - may be on the cards.

Ms Schapiro will also be under intense pressure from Mr Obama to help rewrite the Wall Street rule book which is structured around regulations that are seventy years old.

That new rule book is expected to address sensitive issues such as whether hedge funds should come under close regulatory scrutiny and short-selling regulations.

Since the credit crisis erupted eighteen months ago and the collapse of Lehman Brothers in September, Washington has been aghast at how out-dated and useless much of the Wall Street regulatory structure has proved to be.

Mortgage lenders have been allowed to extend loans to borrowers who were unlikely to be able to repay them and entirely unregulated markets such the credit default swap industry have ballooned, without any oversight.

In the event that the CFTC be merged with the SEC, it would bring under one roof all regulation for capital markets - such as shares and bonds trading - and also oil trading.

It would also make Ms Schapiro one of the most powerful financial regulators that the SEC has seen since it was created in 1934 by Franklin Roosevelt to inject confidence into stock markets.

In a speech in October 2007, Ms Schapiro said: "Investors can understand and accept a tech bubble or a recession - they go with the territory of a free market. What they won't accept is a system they can't trust. That's why it's so important for all of us to work together to safeguard that sense of trust and foster confidence among investors.

There's no question the future can be intimidating, but as a famous scientist once said, "The best way to predict the future is to invent it. Right now, we have an unprecedented opportunity to 'invent' the most effective and efficient regulatory approach. One that will better protect investors and allow you to do what you do best - help investors realize their dreams and give them the tools to invent their own financial futures."

Ms Schapiro may well prove to be a canny appointment by Mr Obama. Having trained as a lawyer, she worked as an attorney within the futures industry and helped to write new Government policy and regulations on the derivatives market in the wake of the 1987 stock market crash.

With a deep understanding of both financial futures and the commodity markets, she also is uniquely placed to merge the SEC and the CFTC in order to streamline capital and commodity market regulations.

Last year, Congress granted the SEC an annual budget of $906 million and the regulator employed 3,500 full time employees.

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