Who Said It Would Be Easy?

Let's be frank: In no U.S. industry does a for-profit company have the privilege of regulating itself, let alone its business partners. However, the NYSE may have become the first public company in U.S. history also empowered as a self-regulatory organization when its members approved the Archipelago deal in December.

History has shown that for-profit companies have an abysmal record of self-policing, hence the existence of the FCC, NTSB, FAA, FDA, SEC and so on. A public company's primary goal is to increase profits for shareholders; a regulator's mission is to protect - consumers, investors, travelers, patients, etc. Oftentimes, a public company's goals and a regulator's mission collide. Most companies are run by ethical business people. However, it only takes a few bad apples to spoil the bunch, as the Enron and mutual fund scandals have shown. Many investors still are wary of the financial markets, and the last thing the industry needs now is more speculation about its integrity.

Meanwhile, the SIA is lobbying the NYSE, Congress and the SEC to change the way the industry is regulated in order to trim compliance costs. One option is to form a single regulatory body that will monitor both NASD and NYSE member firms (see cover story, page 34). This is being billed as a way to reduce costs and regulatory redundancy. Some speculate that the move would result in as much as $100 million in savings industrywide. Others feel that the two SROs already work together to remove redundancies and that a hybrid regulator wouldn't produce any sizable cost savings or efficiencies.

This brings us back to the unique position of the NYSE - a public company that also is an SRO. The real debate should be focused on whether or not the NYSE can continue to be an SRO. If allowed to remain part of the NYSE, there always will be questions about how NYSE Regulation oversees its members, despite the assurances of NYSE Regulation's brass (who, by the way, are considered by observers to have the utmost integrity). For the NYSE, the industry and investors, a hybrid regulatory body is needed to streamline member firm regulation so the industry can focus on more important matters, such as its own electronic evolution, and to let the NYSE develop into a hybrid, for-profit exchange, unencumbered by questions about its SRO. What are your thoughts on the concept of a hybrid regulatory body? Write to me at [email protected].