President-elect Barack Obama on Thursday chose veteran regulator Mary Schapiro to lead the Securities and Exchange Commission as he promised a broad overhaul of financial oversight.

“We are going to have to greatly strengthen our regulatory apparatus and update it from what worked for a 20th century financial system so that it works in a 21st century financial system,” Obama said.

Schapiro, the chief executive of Financial Industry Regulatory Authority, the largest non-governmental regulator for U.S. securities firms, is now slated to take over an agency that has been faced with the glare of an unfriendly spotlight over the past week following the arrest of an investment manager that defrauded clients of an estimated $50 billion.

“The alleged scandal at Madoff Investment Securities has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets,” Obama said at a news conference in Chicago.

Bernard L. Madoff, the 70-year-old hedge fund manager who served as an SEC advisor, was arrested Dec. 11 for allegedly running one of the most extensive — and expensive — Ponzi schemes in American history.

The SEC has come under fire for ignoring numerous warnings about Madoff’s dealings. Current SEC Chairman Christopher Cox directed a full internal review on the agency and said Tuesday that he was “gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

Obama also introduced Gary Gensler, a former U.S. Treasury undersecretary, as his choice to lead the Commodities Futures Trading Commission, an agency responsible for nearly $5 trillion in trades.

Schapiro, 53, was an SEC commissioner from 1988-93 and led the CFTC during the Clinton administration. That experience could prove paramount as calls to combine the two agencies — the CFTC regulates the controversial credit default swap market – have grown more regular in recent months.

Even before the current crisis mushroomed, Treasury Secretary Henry M. Paulson Jr. had suggested the SEC and CFTC be merged. While that plan initially found little momentum, the increasingly strenuous calls for regulatory reform in Congress may put some weight behind the idea.

Obama said he is in the midst of crafting a “detailed” regulatory restructuring plan, and that it will serve as one of his foremost priorities in the early months of his administration.

“The need to potentially consolidate some of the regulatory agencies that are out there, to streamline them, to make clear who has got what mission so that things aren’t falling through the cracks, those are all going to be part of the review we will be doing over the next several weeks,” he said.

Change in Outlook

If confirmed by the Senate, Schapiro would replace Cox, the former California Republican representative who has been blasted by critics for what they call the agency’s “do-nothing” philosophy on regulating financial instruments blamed for leading the nation into the current crisis.