February 2007 Monthly Luncheon

Wed, 28 Feb 2007 19:00:00 GMT

SIFMA Luncheon

Princeton Club

February 20, 2007

Speaker Elisse Walter

Senior Executive Vice President, Regulatory Policy and Programs - NASD.

Pending Consolidation of NYSE and NASD

Due in part to some of the initial opposition to the merger from small firms, three NASD groups (led by M. Schapiro, D. Shulman and E. Walter) traveled around the country to conduct meetings with members. These meetings reached about 20% of the membership, and the message received was that many firms feel disconnected from the SRO structure. The NASD reminded firms of how easy it was to get involved, e.g. on committees, and the NASD is beefing up their member-relations area.

Education and outreach to member firms and investors is expected to be user friendly and affordable. NASD educational programs include e-learning, podcasts, webcasts and seminars and the utility functions provide breakpoint calculations, templates and Q&As. These appear to be useful to firms.

The new organization will benefit from NYSE Regulation and NASD knowledge and talent.

Balance of Governance

The balance of governance was a concern of firms regarding the consolidation; the governing structure of the new entity is expected to be a combination of both NYSE and NASD. The majority of the board will be public. Representatives from small, large and mid sized firms will be represented and public seats and some industry seats will be appointed.

Consolidation Process and Harmonization of Rules

The new SRO has yet to be named and consolidation is in the due diligence and early integration phase. The new entity does not expect to have a unified rule-book before year- end 2007; however, the organizations themselves will be integrated by this time. The new organization expects to have many more employees in New York, in light of the new NYSE staff, and will retain all existing NASD and in-scope NYSE employees. Most integration work will fall on the Enforcement and Member Firm Regulation Departments, including FinOps where the NASD has historically not been as strong as NYSE. On day 1 after the merger, the status quo is expected to be maintained, such that dual member firms will be subject to both rulebooks. Rule harmonization is not expected to be completed in one-fell-swoop, and there are expected to be transitional periods before new rules are effective. As ‘all regulators are a lot alike,’ the new organization is expected to be similar to its predecessors; but and a ‘best of breed’ approach is expected to be used in the regulation and enforcement areas.

SEC Involvement

The SEC is kept up to date on rule integration and harmonization. The SEC must approve changes to the NASD by-laws and the SEC will be expected to provide input for those areas of the rules where they have a particular interest.

Outstanding Regulatory Proposals

Outstanding proposals with the SEC will most likely move forward and nothing in the merger is expected to directly impact current outstanding rule proposals. Rule-making has slowed in the last 12-18 months as the industry was overwhelmed by the pace of regulatory changes. The industry appears to need time to understand changes from the past 3-4 years.

New Rules

The industry is expected to have considerable input on new rules. The NASD promised their members that they will continue to get 'two bites at the apple' in the sense that future rule proposals will usually first be published in a notice to members for consultation. This contrasts with the NYSE which usually filed immediately.

Small Firms

The harmonization process will involve a review of rules that are particularly onerous for small firms. The Small Firm Advisory Board is to be re-populated, and a Small Firms Rules Impact Task Force has been set up for this purpose.

Exam Schedule

The coordination of exams will remain a logistical challenge until 2008. As before, if you feel that your firm is being subject to duplication, please raise this at a senior level with the regulators.

Gifts and Entertainment

The NASD is very willing to discuss the potential impact of the new rules on firms and to see how to work best within the requirements of the proposed rules.

Feb 28, 2007 2:00 PM

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February 2007 Monthly Luncheon