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SEC approves NYSE reforms
Votes to accept governance structure, rules at Big Board
By David Weidner, CBS.MarketWatch.com
Last Update: 4:06 PM ET Dec. 17, 2003







NEW YORK (CBS.MW) -- The Securities and Exchange Commission on Wednesday approved the most sweeping reforms in the 211-year history of the New York Stock Exchange.



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The controversial reforms, which include a reconstituted board and new corporate governance measures aimed at eliminating conflicts of interest, come after nearly nine months of intense debate and scandal.

That scandal led to the September ouster of Richard Grasso as the exchange's chairman and CEO over his $187 million pay package and the emergency hiring of ex-Citicorp senior executive John Reed a few days later.

"The NYSE's governance structure allowed too great a consolidation of executive authority in the chairman and CEO, with unfortunate results," said SEC Chairman William Donaldson as the regulatory panel convened to vote on the reforms.

The exchange under Reed as interim chairman and CEO "has made a strong -- and speedy -- effort to address the governance problems it has faced," Donaldson said.

In opening remarks, he said Reed and the NYSE also have agreed to name a separate chief executive and chairman to lead the exchange on a permanent basis. Critics had called for the jobs to be made separate, but such a provision wasn't part of the package of reforms that Reed unveiled in early November.

Board members also praised the reform effort but said the SEC needed to revisit its relationship with so-called "SROs," or self-regulated organizations. Commissioner Roel Campos called for the SEC to study the effectiveness of SROs.

The reforms, however, failed to assuage some critics. On Tuesday, the California Public Employees' Retirement System, the nation's biggest pension fund, said the reforms don't go far enough to separate the regulatory arm of the exchange.

CalPERS filed suit against the NYSE, claiming it ignored improper trading practices by specialists on the trading floor. See full story.

Moore's 'frustration'

North Carolina Treasurer Richard Moore said Wednesday he will not join the CalPERS suit. Moore, who was named to a newly formed NYSE executive committee earlier this month, said the allegations "are not new" but that he shares CalPERS' frustration at the slow pace of the SEC's investigation into improper trading at the NYSE.

Moore also asked Reed in a letter to reconsider splitting the regulatory arm of the exchange from the business side.

"If the New York Stock Exchange and its specialist system truly add value to the marketplace, then it will be far better served by having someone with true independence both police it and defend its business practices," Moore wrote.

Separate boards

Among the changes approved Wednesday is the creation of a board of eight independent directors -- they would not be regulated directly by the exchange or work on the exchange -- and a second board composed of executives who would include broker/dealers, specialists, floor brokers, a state treasurer, a private fund company executive and listed company CEOs.

The board of directors would set compensation and oversee the regulatory side of the business. The executive board would meet at least six times a year and advise the board. It would have a standing market performance committee and a committee that decides for which stocks specialists are responsible.

Donaldson said he's asked the SEC staff whether it should have on-site staff at the NYSE.

The new board

Named to the new board of directors are two current board members: former U.S. Secretary of State Madeleine Albright, 66, and Herbert Allison Jr., 60, chairman of pension giant TIAA-CREF. They are the two newest members of the board, having been named this year.

Also nominated are Euan Baird, chairman of Rolls-Royce; Marshall Carter, former chairman and CEO of State Street Bank; Shirley Ann Jackson, president of Rensselaer Polytechnic Institute; James McDonald, CEO of the charitable foundation Rockefeller & Co.; Robert Shapiro, former CEO of Monsanto; and Dennis Weatherstone, former chairman and CEO of J.P. Morgan.

David Weidner covers Wall Street for CBS MarketWatch.com.

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