Capital Markets

NYSE and NASD Lock Regulatory Arms

The creation of a single securities industry regulator aims to boost the U.S. capital markets.
Helen ShawNovember 28, 2006

The regulatory arms of the largest securities regulators in the U.S., the New York Stock Exchange and the National Association of Securities Dealers, have announced that they will merge, possibly in the first half of 2007.

The merger would create a single regulator that would oversee member regulation, examinations, arbitration, and mediation. “Consolidating NYSE and NASD member regulation will significantly change the way regulation is conducted,” Mary Shapiro, chairman and chief executive officer of NASD, stated at a news conference. “There will be one set of rules, examiners, and staff,” added Shapiro, who will be chief executive of the combined organization.

Richard Ketchum, the chief executive officer of NYSE Regulation Inc., will be nonexecutive chairman of the new organization. The board will include 23 members, with 10 members from the securities industry and 11 from outside the industry, Shapiro noted at the news conference held at the Securities and Exchange Commission on Tuesday.

The change, which the securities industry had long desired, is a response to the rise of a global marketplace, explained Christopher Cox, chairman of the Securities and Exchange Commission. Integration among world markets lets both investors and fraudsters trade in multiple markets, he said. “There are new opportunities for fraud—particularly when the regulators are limited to their turf in only one market,” noted Cox.

Additionally, the merger will create a sizeable amount of savings and efficiencies for member firms that have been complying with multiple rulebooks and examiners, said Shapiro. Currently, there are 200 member firms that are regulated by both the NYSE and NASD. The merger is expected to also help the 5,100 securities firms in the United States through cost savings.

The new, combined regulator will also achieve an unspecified amount of savings by combining NYSE and NASD technology platforms, said Shapiro. There are no plans to layoff NASD or NYSE employees, however, Shapiro expects there will be a decline in the number of employees through attrition over time.

To complete the deal, NASD membership must vote to change existing bylaws and allow the creation of a new self-regulatory organization. Afterwards, the SEC must approve those bylaws, and the regulators must complete due diligence procedures.

“The time has come to put an end to the duplication, conflicts, regulatory costs and competing rules that we all live with today,” declared Cox. “In ushering these changes, we’ll be improving America’s capital markets, and making our nation more competitive.”

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