NYSE has `flaws,' says Reed
10/17/03
BRAD FOSS
The Associated Press
WASHINGTON - The man tapped to restore credibility at the New York Stock Exchange sketched out plans and a rough timeline for revamping the marketplace's corporate structure on Thursday, vowing to eradicate conflicts of interest and enhance transparency.
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John Reed, who became interim chairman and chief executive of the NYSE after last month's resignation of Richard Grasso, told a House subcommittee that these goals could be accomplished without scrapping the exchange's preference for self-policing.
Still, the NYSE's corporate structure has "fundamental flaws," Reed said, and Grasso's $187.5 million compensation package was certainly a symptom of them.
Reed said he intends to call Grasso early next month to address "any unresolved claims or any problems I may have with what he has already received." Grasso has already been paid $139.5 million of the package.
Reed, who plans to make formal proposals to NYSE members at the end of the month, said he wants to shrink the exchange's current 27-member board and ensure that a majority of its future directors are independent of NYSE management, the broker-dealer industry and companies listed on the exchange.
"My hope here is to create a board that is not made up of people who are regulated or who have a (financial) interest," he said.
A list of potential candidates for the new board will also be presented to members by November and Reed said he would expect members to hold a vote two weeks later.
A permanent chairman and CEO would be named after that and Reed, without naming them, said he's got two candidates in mind. Reed said he would consider joining the new board temporarily, although it is not his preference.
The hearing coincided with the NYSE's announcement on Thursday that it would discipline and fine five floor-trading firms for improper trading that may have cost investors millions.
Reed defended the NYSE's long-standing reliance on these firms, as opposed to automated systems, to match buyers and sellers, saying they provide the liquidity the market needs to function properly.
However, some House members and industry representatives questioned whether these so-called specialists actually serve the interests of average investors, since they make the bulk of their money buying and selling stocks held in their personal accounts.
"To me that sounds like a monopoly situation," Rep. Spencer Bachus, R-Ala., said. It is "far more important" for the NYSE to reconsider the use of specialists than it is for the exchange to overhaul its corporate governance, Bachus said.
While reviewing the specialist system is something the NYSE might need to consider down the road, Reed said now is not the time.
Rep. Richard Baker, R-La., said the debate is a worthy one to have. But he said the immediate task is to restore credibility to the NYSE and that that cannot begin until the exchange overhauls its corporate governance in a way that puts in-house regulators "beyond the reach" of NYSE members.
Rep. Michael Oxley, R-Ohio, chairman of the House committee on financial services, agreed, adding that self-policing was necessary to avoid overwhelming the Securities and Exchange Commission.
John Coffee, a professor at Columbia University Law School, told the House subcommittee that self regulation has several benefits: it is funded by the industry, not taxpayers, it gets people involved who have intimate knowledge of the exchange's day-to-day affairs, and it encourages ethical standards, in addition to legal ones.
That said, "a regulator, like Caesar's proverbial wife, must remain above suspicion," Coffee warned. |
