NASD Board Selection Process Raises Questions
The National Assn. of Securities Dealers, despite pressure to end big dealer firms’ control of the Nasdaq Stock Market, apparently has avoided soliciting any of its critics to serve on its new boards of directors.
After a critical report last September that had been commissioned by the NASD itself, the association agreed to appoint three new boards, at least half of whose members do not work for brokerage houses.
The NASD is to announce membership of the first of these boards today.
In recent interviews, NASD officials contended that they had cast a wide net. But asked what steps they had taken to recruit qualified people who have been openly critical of how the nation’s second-largest stock market is run, they either declined to answer or said they did not know.
NASD spokesman Marc Beauchamp confirmed that the NASD issued no public notice soliciting candidates, announced no procedure for outsiders to submit candidates’ names and had left the selection to a standing nominating committee. That committee is made up almost entirely of Nasdaq dealers and other securities industry executives.
Who serves on the new boards is important because they will decide how far to go in reforming the Nasdaq market. The most basic issue is changing rules that have assured big profits to Nasdaq dealers by allowing them to act as middlemen on most trades.
The Securities and Exchange Commission, which is conducting a disciplinary investigation of the NASD, is also pushing hard for new rules that would give individual investors access to better prices, probably at the expense of dealers’ profits.
Faced with investigations by the Justice Department’s antitrust division and the Securities and Exchange Commission, the NASD commissioned a study by a committee led by former Sen. Warren Rudman (R-N.H.). The committee’s report called for the NASD to be run by three boards whose members would include independent outsiders who would give investors more say in how the market is run.
The NASD has already diverged from the report’s recommendations by announcing that the new boards will have 40 members instead of 55. And questions about the selection process make it unclear if the new boards will include directors as independent as the report envisioned.
The boards are the parent board--the NASD board of governors--and two subsidiaries, one for the Nasdaq market and one to oversee enforcement of NASD regulations.
Critics such as Harold S. Bradley, vice president and director of equity trading at the Twentieth Century Group of mutual funds, contended that the process of selecting new board members was cloaked in secrecy and appeared to be skewed in favor of people sympathetic to the dealers.
“It just looks to me that it’s business as usual,” Bradley said. “Rather than putting the defenders of the exchange on the boards, they ought to be looking at people who are constructive critics.”
Bradley said he submitted his name for consideration and obtained endorsements from Sen. Christopher S. Bond (R-Mo.) and prominent people in the investment community. But, he said, the NASD never contacted him.
Beauchamp said the organization is living up to its commitment to choose well-qualified independent directors. He said it considered more than 160 candidates, including some suggested by members of Congress and prominent professors.
