NYSE Tightens Regulations to Help Curb Insider Abuses : Exchange Orders Member Firms to File Detailed Reports; Plans to Improve Surveillance and Dealings With SEC
Calling the recent spate of insider trading cases “abhorrent to our fundamental moral values,” the New York Stock Exchange on Wednesday ordered its 1,366 members to comply with tough new policing rules designed to combat such securities abuses.
In its first official response to the broadening scandal, the exchange also promised to make its own surveillance system faster and more effective and to improve its dealings with the Securities and Exchange Commission, chief government watchdog over the U.S. securities industry.
To “further protect the integrity of the marketplace,” NYSE President Robert J. Birnbaum vowed in a bulletin to exchange members to “do all we can to detect illegal and unethical trading activity.”
The exchange ordered its member investment companies to submit a number of new reports, including details of employee stock trading and of any securities law compliance problems. In addition, the exchange will require each member to “undertake a comprehensive review and enhancement of its internal supervisory and compliance efforts.”
The measures, which the exchange said were prompted by the disclosure last November of wide-scale trading abuses by confessed inside trader Ivan F. Boesky, drew quick praise from most observers.
SEC, Amex Laud Move
The SEC praised it as “a step in the right direction,” and Arthur Levitt Jr., chairman of the rival American Stock Exchange, lauded the program as “a constructive move.”
Levitt, an advocate of tough punishment for convicted inside traders, said that while the exchange he heads has “no plans for any formal review” of its surveillance system, “all of us are very carefully evaluating our procedures in light of Boesky.”
Boesky was exposed by government investigators last November as one of the masterminds of a huge insider trading ring. He is returning $50 million in illegal profits to the government, paying a $50-million fine and has agreed to plead guilty to a felony charge.
The millionaire stock speculator also has led the government to several other prominent Wall Street specialists who allegedly broke the law by trading on secret information about impending corporate deals.
Robert F. Shapiro, co-chairman of the New York investment firm of Wertheim & Co., considers self-regulation by Wall Street the best way to squelch such trading abuses.
“Wall Street has become very blase about regulating itself, so I am delighted to see the New York Stock Exchange join the parade” of critics calling for renewed surveillance and compliance of existing laws, Shapiro said.
Dissenting Viewpoint
Not everyone was laudatory, however.
“I’ve never thought the exchange was particularly concerned about the little investor, and this doesn’t do anything to change my mind,” said Roland Machold, director of investment for the New Jersey pension system. “It sounds to me that whatever they’re doing here is really trying to head off any action in Washington. Nothing more.”
The Senate Banking Committee and House Energy and Commerce Committee are among those considering legislation that would toughen securities laws to crack down on insider trading.
Publicly, every exchange member contacted said the tougher compliance rules are long overdue. But, privately, some companies complained bitterly Wednesday afternoon that the new measures are nothing more than “housekeeping” devices that will cost firms hundreds of thousands of extra dollars a year and do little good in catching white-collar crooks.
“We do portions of what they want anyway,” said an executive at one top Wall Street investment firm. “But even for us, these requirements seem cumbersome. And for some companies, they would be quite a burden because they are really a radical departure from what is required now.”
The extra expense most companies fear stems from the NYSE’s order to submit new quarterly reports to the exchange detailing any stock trades by the firm’s employees and the nature of all customer complaints. Once a year, each firm would be required to prepare a report detailing any securities laws compliance problems it had during the year and their resolution.
“We’re not doing any of that. I’ll tell you that right now,” said a startled executive at one Wall Street firm when notified of the new requirements. “You know how much extra paper work that’s going to mean?”
Stock exchange officials were not sympathetic.
Bristled at Criticism
Richard Torrenzano of the New York Stock Exchange bristled at the criticism. “This program has been in the works for some time. We wouldn’t be taking these measures if we didn’t think they were useful and not just busy work.”
For its part, the exchange said it will intensify its surveillance of stock trading by using special task forces to augment NYSE investigations of “high-priority cases” and by establishing a special advisory committee to work with the exchange’s regulatory group on compliance matters. Senior legal and compliance officers will be members of the advisory committee.
Additionally, the exchange promised to conduct more on-the-record interrogations in its investigations and to step up its use of disciplinary actions and fines when companies drag their feet in responding to NYSE requests for information.
