NASD Expected to OK Nasdaq Reorganization : Securities: Changes stop short of some of independent panel’s recommendations.
The National Assn. of Securities Dealers board of governors is expected today to approve a major reorganization of the Nasdaq Stock Market’s governing bodies to increase representation from outside the securities industry.
But the changes would stop short of some of the recommendations issued recently by an independent committee headed by former Sen. Warren Rudman (R-N.H.).
The NASD would be divided into three entities, each with its own board. The boards would have a much higher proportion of public representatives, although they would have only a total of 40 members, significantly fewer than the 55 recommended in September by Rudman’s committee.
Apart from increasing representation from outside the industry, the main aim of the reorganization is to sharply step up enforcement of regulations and to separate the Nasdaq market from the regulatory authority that enforces rules on trading and brokerage firms.
Rudman’s committee had criticized the NASD for not devoting enough resources to enforcement of rules and examination of trading records and brokerage firm books. Other critics had charged that the organization’s disciplinary boards had been dominated by representatives of the firms that were being regulated.
A new entity, NASD Regulation, with its own board and a big increase in funding for enforcement, would be established. The Nasdaq Stock Market and NASD Regulation, although independent of each other, would continue to be subsidiaries of the NASD itself.
Marc Beauchamp, an NASD spokesman, said the organization felt a total of 55 board members “would be too unwieldy.” But he emphasized that the proportion of public representatives would be in line with what the Rudman panel recommended: 60% public representation on the NASD board and 50% on the boards of the two subsidiaries. Currently, only five of the NASD board’s 26 members, or 19%, are public representatives.
Both the Securities and Exchange Commission and the Justice Department’s antitrust division have been investigating Nasdaq and the NASD, and the SEC has been working toward filing charges against the NASD for allegedly failing to enforce basic trading rules. The NASD has denied that its enforcement is lax.
The NASD commissioned the Rudman report under pressure from SEC Chairman Arthur Levitt Jr. Since the report was issued, Levitt has generally praised both the report and the NASD’s promised efforts to implement most of the proposals.
The SEC must approve any changes, and some SEC officials are said to be miffed that the NASD did not consult in detail with the commission before sending a formal plan to its board for approval.
Brandon C. Becker, head of the SEC’s division of market regulation, declined to comment on whether SEC officials would have preferred more consultation by the NASD. Michael Jones, SEC spokesman, said the SEC had spoken with the NASD, “however, we have not seen or been shown the actual proposals they intend to submit to their board.”
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Becker said, “It’s for them to determine what’s in their strategic best interests.”
Beauchamp said Rudman and NASD President Joseph R. Hardiman had met with Levitt and briefed him on the proposal going to the NASD board. But Beauchamp said he did not know if the NASD had sought the SEC’s opinion while drafting the proposal.
