NYSE/NASD Regulators to Merge; Will Dissenters Challenge?

The securities industry won’t have dual self-regulatory organizations to complain about anymore. The NASD announced over the weekend that member firms “overwhelmingly approved” to consolidate the NASD and the NYSE into one.

The securities industry won’t have dual self-regulatory organizations to complain about anymore. The NASD announced over the weekend that member firms “overwhelmingly approved” to consolidate the NASD and the NYSE into one.

“The securities industry has embraced replacing an outdated regulatory structure with one that better serves firms and investors in a fast-changing marketplace,” said Mary Schapiro, NASD chairman and CEO, in a press release.

According to the NASD, nearly 83 percent of the 5,058 firms eligible to vote did so, with 64 percent voting in favor of the bylaw changes that are necessary for the consolidation of the two regulators. (Corporate Election Services, an independent proxy tabulation company, tallied the vote.)

The 36 percent opposition is illustrative of the divide within the membership over the perceived benefits of the merger. John Busacca, the president of North American Clearing and founder of the Financial Industry Association (FIA), an organization of mostly small broker/dealers, has been one of the loudest critics of the merger. In December, the FIA asked that the merger be revised to give firms more time to consider the implications. When that request wasn’t granted, it then asked for Schaprio’s resignation.

“It’s not surprising,” says Busacca of the vote count. “When there’s a $35,000 payment being dangled in front of voters just to sign their name, it’s difficult to compete,” he says. The $35,000 is the amount the NASD says the merger will save firms in duplicative regulation and will be handed out to firms upon completion of the merger.

“Congress and the SEC need to look at this—they offered money for firms that went along with the vote,” Busacca says. “Not only that, the NASD knew who voted for what. It’s as if the town sheriff knew who voted for him and who didn’t; that’s a huge conflict of interest.” And while it looks like the merger is inevitable—the SEC has only to approve the bylaw changes—Busacca may not be finished yet. “If we get 2,500 proxy votes [they have 1,500] we can go into Delaware court and have it overturned,” he says. “But I don’t know if we’ll do that,” he says.

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