Barnstorming for reforms at the New York Stock Exchange, interim Chairman John S. Reed met with trading seat owners from Southern California on Friday, urging them to back his plan for a slimmed down and independent board to direct the world's benchmark securities market.
As at other stops on an eight-city lobbying tour this week, Reed, a former Citigroup Inc. co-chairman, received qualified support for his plan to replace the 27-member board with a smaller panel, which will be voted on by the NYSE membership on Tuesday. The new board would be free of business or regulatory ties to the exchange, except for the chairman and chief executive, who would be chosen by the independent members.
Although generally backing changes in NYSE governance, some seat holders have expressed reservations about the proposed board's structure and Reed's eight nominees to it, all well-connected Northeasterners except for two from Britain.
"One of the problems with the New York exchange is that it has been like a private club that's not representative of the whole country," said Donald W. Crowell, managing partner at Los Angeles investment firm Crowell, Weedon & Co. Crowell took part in the two-hour discussion with Reed and about 20 other participants at a downtown Los Angeles hotel.
Crowell told Reed that the exchange should have more regional representation, suggesting as an example that former Los Angeles Mayor Richard Riordan would be an asset to the board. Reed was sympathetic and suggested the board might well evolve toward that model, Crowell said, but Reed said he initially wanted to pick people he knew.
The NYSE says about 30 of its 1,366 trading seat holders are from California.
Roland Seidler Jr., chairman of Los Angeles investment bank Seidler Cos., said Reed did an impressive job of explaining the NYSE's problems "from the trading floor to upstairs to management to regulatory issues."
Sitting at an oblong table, Reed told participants it was true that specialists -- the firms that handle the actual trades on the NYSE floor -- had improperly made money at the expense of clients. He added, though, that Securities and Exchange Commission Chairman William H. Donaldson's estimate of $155 million in unwarranted profits was probably too high and expressed hope that many suspicious-looking transactions would prove to have been legitimate.
"He's at the beginning of a long process," Seidler said. "He said it's going to take two or three years to get this ship righted."
Edward Wedbush, chief executive of Los Angeles-based Wedbush Morgan Securities, which holds two NYSE seats, said his message to Reed was that the NYSE's chairman and chief executive should be separate positions. In addition, although it's appropriate for the CEO to be a Big Board employee, the chairman should be independent, Wedbush said.
It has worked that way at Wedbush Morgan since 1975, he said. Moreover, Wedbush is the only insider on the seven-member board.