NASD to Overhaul Regulatory Unit, Add to Staff, Sources Say
The National Assn. of Securities Dealers’ regulatory arm will undergo a major reorganization involving a multimillion-dollar budget increase and the hiring of new examiners and lawyers, sources said Wednesday.
Mary Schapiro, president of the unit, is planning to announce the reorganization at an NASD Regulation Inc. symposium in Chicago today, the NASD and industry sources said.
The regulation unit has vast policing responsibilities, overseeing the conduct of more than 500,000 stockbrokers and other securities professionals and about 5,400 firms.
The regulatory and enforcement budget increase, which an NASD source described as in the millions of dollars, is in addition to the 15% boost that became effective earlier this year for NASD regulatory activities. The NASD budgets about $100 million annually for regulation.
The additional resources “will ensure we will have the ability to participate in sweeps and other focused regulatory or enforcement initiatives critical to the protection of investors and the maintenance of market integrity,” Schapiro said in remarks prepared for delivery at today’s conference. Associated Press obtained a copy of her remarks from a source.
The NASD plans to increase its staffing for market surveillance, the review of market-making activities, and its legal and examination operations, the NASD source said. Details about the number of new hires and size of the budget increase were not immediately available.
The restructuring was approved by the NASD Regulation Inc. board at its meeting Monday in Georgia.
The restructuring comes amid an investigation of the NASD’s enforcement activities, among other issues, by the Securities and Exchange Commission. NASD critics have accused the industry group of favoritism toward large brokerage firms, a charge it vehemently denies.
But former U.S. Sen. Warren Rudman (R-N.H.) recommended a series of changes in the NASD’s regulatory dealings last year, including creation of a division devoted to regulation, with its own board of directors.
Schapiro, former chairwoman of the Commodity Futures Trading Commission, was hired to lead the new regulatory body. The regulatory unit now is separate from the Nasdaq Stock Market, the nation’s second-largest stock market, which the NASD runs.
In recent months, the NASD has brought several significant enforcement cases, the latest being a $75,000 fine against Mayer & Schweitzer Inc., Nasdaq’s biggest market maker, along with a censure for trading ahead of customer stock orders and not providing the best execution of a customer’s stock trade in 1994. A market maker plays a central role on the Nasdaq market.
Mayer & Schweitzer, owned by Charles Schwab & Co., neither admitted nor denied the NASD’s findings when it reached settlement with the group. The firm said the improper trading occurred amid extremely heavy volume and that one of the traders who handled the disputed transactions was dismissed.
