NASD and NYSE Group to Consolidate Regulation of Securities Firms
NASD and NYSE Group on Nov. 28 announced the signing of a letter of intent to consolidate their member regulation operations into a new self-regulatory organization (SRO) that will be the private sector regulator for all securities brokers and dealers doing business with the public in the United States. By streamlining broker-dealer regulation, the plan is aimed at increasing the efficiency and consistency of securities industry oversight.  It also is expected to reduce regulatory costs to the industry by millions per year once the operations are fully integrated.

The new SRO, which will be named at a later date and is expected to begin operations in the second quarter of 2007, will consist of the current 2,400-person NASD organization and approximately 470 of NYSE Regulation’s member regulation, arbitration and related enforcement team. The new SRO will operate from Washington, D.C. ; New York , N.Y.; and 18 District and Dispute Resolution office locations around the country.

NYSE Regulation CEO Richard G. Ketchum will serve as the non-executive chairman of the organization’s Board of Governors during a three-year transition period and remain CEO of NYSE Regulation, Inc. NYSE Regulation will continue to oversee market surveillance and listed company compliance at the New York Stock Exchange and NYSE Arca.

NASD Chairman and CEO Mary L. Schapiro will serve as CEO of the combined organization, which will be responsible for regulatory oversight of securities firms, arbitration and, among other things, the professional training, testing and licensing of registered representatives and industry utilities like NASD’s Alternative Display Facility, OTC Bulletin Board and Trade Reporting Facility.

"This is a significant step forward for America 's investors and for our nation's capital markets,” said Christopher Cox, chairman of the Securities and Exchange Commission.  “Protecting investors from fraud in today's complex, integrated markets requires that regulators look across markets to prevent wrongdoers from exploiting the seams in regulatory jurisdiction. Eliminating overlapping regulation, establishing a uniform set of rules, and placing oversight responsibility in a single organization will therefore enhance investor protection while increasing competitiveness in our markets.”

Currently, NASD regulates more than 5,100 securities firms throughout the United States. Of this total, almost 200 firms, including most of the industry’s largest, are also members of the NYSE and regulated by both organizations. With this consolidation, those dually regulated firms and their registered representatives will ultimately be subject to one set of rules created and enforced by a single SRO.

The non-binding letter of intent has been unanimously approved by the NASD Board of Governors and approved by the boards of directors of NYSE Regulation and NYSE Group. The transaction is subject to completion of definitive documentation and customary closing conditions. The transaction will require certain amendments to the NASD bylaws, which are subject to an NASD member vote and the execution of a definitive agreement. The plan also is subject to review and approval by the SEC.

“NASD and NYSE Regulation recognize that world markets and regulation are changing,” said Ms. Schapiro. “Rather than stand by and let events overtake us, we have chosen to lead and help shape a better system of regulation that is good for investors and securities firms of all sizes.”

Mr. Ketchum stated, “New York Stock Exchange Regulation and NASD have worked extremely hard to coordinate and harmonize our regulatory oversight of some 180 of our nation’s largest securities firms. Upon completion of this agreement, we will take the further step of eliminating overlapping regulation of those firms by creating a new, single self-regulatory organization. This streamlined approach will benefit the public, the firms and U.S. capital markets. It is an idea whose time has come.”

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