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SEC OKs Reforms at New York Stock Exchange - 2003-12-17


Federal regulators have approved Wednesday a management overhaul of the New York Stock Exchange. The changes follow controversy after a multi-million dollar payment to its former chairman. The nation's largest stock exchange had voted to create a smaller and more independent board of directors. The plan also calls for the creation of a new advisory board and a chief regulatory officer. Now that the federal Securities and Exchange Commission has endorsed the change, the plan can go forward.

The overhaul follows a controversial $188 million payment to Dick Grasso, who was the chairman of the New York Stock Exchange. Under the new plan, the position of the chairman and the chief executive officer will be held by two people. Mr. Grasso resigned in September after controversy erupted over the size of his pay package, which was approved by the exchange's Board of Directors. Robert Schwartz, professor of finance at New York's Baruch College notes that it makes sense to establish a smaller and more independent board of directors.

"I think what happened with [Dick] Grasso very much involved board decisions," he said. "And so straightening [this] out, changing the managerial structure is also reflected in changing the board, and the composition of the board and I think it will streamline it and it can make things move forward more smoothly in the future."

The federal regulators approved the changes just one day after the largest pension fund in the United States announced that it is filing a lawsuit against the New York Stock Exchange. The multi-billion dollar fund, the California Public Retirement System, alleges that fraudulent practices at the exchange cost the system millions of dollars.

But, according to Mr. Schwartz of Baruch College, the changes will help maintain public confidence at a time of distrust following a series of corporate scandals.

"I think the biggest impact it could have, to the extent that they focus on it, is to just have their confidence renewed that the [New York Stock Exchange] is a solid place and it makes good markets and is a good place to do business, that the exchange is taking any possibility of accusations very seriously and are making strides to change their organization in response to public feeling," he said.

Although Mr. Schwartz cautions against implementing too many sweeping changes, some lawmakers say the New York Stock Exchange has not done enough to restore public confidence. Critics are calling for further separation between the Stock Exchange board and the firms being regulated.