Chairman unveils NYSE reform plan

By Greg Farrell
USA Today

NEW YORK — Seeking to rescue the New York Stock Exchange from its worst crisis in decades, interim Chairman John Reed unveiled his plan yesterday to fix the institution's corporate governance, calling for a streamlined eight-member board of directors.

The new slate of directors, of whom two would be holdovers and the other six fresh faces, would replace the NYSE's cumbersome 27-member board, which was harshly criticized for allowing former chairman Richard Grasso to accumulate $188 million in accrued benefits in recent years.

Reed, who replaced Grasso on Sept. 29, suggested few other major changes, opting to let the new board, which NYSE members vote on Nov. 18, tackle thorny issues.

Critics have zeroed in on two facets of the NYSE's operations as causing the decline in credibility: self-policing, and the open-outcry auction system, in which buyers and sellers congregate around "specialists" on the NYSE floor.

A recent Securities and Exchange Commission report blasted the NYSE's regulatory division, saying the internal police routinely let multiple instances of bad behavior go unpunished. The report raised the possibility that the SEC might strip the self-regulation privileges, creating an independent regulator to police the NYSE in the way NASD regulators oversee trading on the Nasdaq.

"There's no question that the old board did not serve the institution well," Reed told reporters yesterday. "If you're going to be self-regulated, you can't have a board that is full of people who are being regulated, because that does create problems."

Reed's reform plan calls for the new board of directors to appoint a 20-member executive committee composed of active exchange participants to oversee operation of the NYSE. Currently, the NYSE's 27-member board does everything from setting salaries to overseeing regulation and operations. One of the complaints against the current structure is that floor members who criticized the NYSE feared a visit from the Big Board's regulators.

In a statement, the SEC praised Reed's plan, describing it as a "critical first step toward revamping the governance and regulatory structure at the NYSE." The SEC could still take action later affecting the NYSE. "At some point, we will step back and look at the market structure aspects of this," said commissioner Paul Atkins.

NYSE member Francis Maglio praised Reed's efforts, saying the most important way to reform the NYSE is to toss out its current board. "I would like to have seen a totally new board, but I understand his reasoning," he said of Reed's desire to have some continuity. Under Reed's plan, only former secretary of State Madeleine Albright and TIAA-Cref CEO Herbert Allison would remain.

Joseph Blasi of Rutgers University said he was worried there were no shareholder activists among Reed's proposed board members, and said there should be more candidates than board openings. "You don't need something that resembles a Chinese Communist election," he said.