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E-MailA few weeks ago, the NASD announced that its members had approved the planned merger of regulatory functions with the NYSE. The decision promises to consolidate broker-dealer regulation into a single self regulatory organization, solving, among other things, serious problems of redundancy, a topic addressed in a WSJ editorial written by two former chairs of the Securities and Exchange Commission, William Donaldson and Harvey Pitt.
Little has been said, however, about the impact of the merger on the enforcement of listing standards. Listing standards, particularly in a post-SOX world, have become a critical component of the governance process. See Section 303A of the NYSE Listed Company Manual. Following the merger, NYSE Regulation, the non-profit entity responsible for regulatory oversight, will lose most of its purpose and most of its employees (with approximately 470 of the 745 employees going to the consolidated new SRO). Left behind will be a rump organization with responsibility for little more than market surveillance and listed company compliance.
At the same time, the NYSE Group has, as part of the approval process for the merger with Euronext, proposed changes in the independence policy applicable to its own board of directors and, indirectly, the board of NYSE Regulation. A copy of the proposing release can be found here. While deserving of separate commentary, these changes threaten to reduce the independence of the board of directors of NYSE Euronext (the holding company) and NYSE Regulation. Once the combination with the NASD is complete, the role of NYSE Regulation will be greatly reduced. As a result of the merger with Euronext, NYSE Regulation may well find itself with a less independent board. None of this bodes well for enforcement of listing standards, an area where the exchanges have never been particularly strong. All of this suggests that it may be time to revisit whether it is appropriate for the NYSE to retain any remaining regulatory enforcement authority.
