New York Stock Exchange

Authors

Authors: Sanjib Dutta, K Subhadra,
Faculty Member, Faculty Associate,
ICMR (IBS Center for Management Research).

Links

Free Resources,
Articles,
Book Reviews,
Interviews

Tools

The Clean Up Exercise Contd...

Under the proposed reforms, the 27-member board of NYSE would be reduced to 6-12 directors. It was also reported that none of the directors would be from the securities industry or from the listed companies on NYSE. However, it was stated that executives from securities industry would be serving in advisory committees of the exchange.

The proposed changes received mixed reactions. While SEC reacted positively saying that the proposed reforms were a step in the right direction, the US's largest pension fund Calpers said that the proposed reforms were not enough for regaining investor confidence and asked SEC to reject the proposals. Sean Harrigan (Harrigan), President - California Public Employees' Retirement System Board said, "Our proposal at this point in time is just that the proposed governance model that Mr. Reed has put forth be rejected by the Securities and Exchange Commission. Self regulation, in my opinion is highly risky and simply will not work."¹⁶ Harrigan was of the opinion that the new proposals would not bring in any changes in the governance system of the NYSE but just shuffling the chairs.

Some were of the opinion that though Reed was expected to bring in drastic changes in the NYSE working by abolishing the specialist system he was not in favor of abolishing the specialist system as it would be difficult to get approval of the exchange members when put for voting. They felt that being an interim Chairman and CEO of the exchange, Reed might have concentrated only on the board structure and governance practices rather than on the tricky issues such as working of the specialist system. It was felt that by adopting moderate approach, Reed successfully gained the support of the floor members. The proposed reforms of the NYSE were held for voting on November 18, 2003 and gained acceptance of the members of the exchange. NYSE received a set back in December 2003, when Calpers filed a suit against NYSE and specialist trading firms in the US District Court, Southern District of New York alleging fraud and negligence in regulatory function resulting in high costs for investors. It was alleged that that "specialists, in conjunction with the NYSE routinely engaged in 'wide-ranging manipulative, self-dealing, deceptive and misleading conduct' that hurt public investors seeking to trade stocks."¹⁷

However the most important question was how far these reforms would ensure transparency in the working of the board. And more importantly whether the new board would be able to bring back the credibility to the exchange.

14] After various scandals rocked NASDAQ in mid 1990s, NASDAQ separated its regulatory function to totally independent body - NASD.
15] Liston, Broward, NYSE's Reed to Keep Specialist Trading, www.washingtonpost.com, November 4, 2003.
16] CALPERS: NYSE Proposal Not Good Enough, www.money.cnn.com, November 6, 2003.
17] Calpers sues NYSE, alleges fraud, The Economic Times, December 18, 2003.