Changes to come in Grasso's wake

By Meg Richards
Associated Press

NEW YORK — Dick Grasso's replacement as chairman of the New York Stock Exchange will get a less princely pay package, probably see a different job description and will preside over a reshaped institution.

Reforms of the exchange's governance structure are under way, and a statement from the Securities and Exchange Commission, which oversees the NYSE's regulatory functions, suggested there could be big changes ahead.

"The SEC will continue its review of governance standards and will work closely with the new leadership ... to put an appropriate structure in place that will ensure the credibility and integrity of the governance of the exchange," said the statement issued by Laura Cox, managing executive for external affairs.

The first priority likely will be to improve transparency and disclosure at the exchange, said Eugene Goldman, a former senior counsel in the SEC's Division of Enforcement, now a partner with the law firm of McDermott, Will & Emery in Washington, D.C.

Federal authorities also are likely to consider whether the NYSE's enforcement and regulatory role should be divorced from the exchange business.

Regulators may use the Nasdaq Stock Market as a model, he added. The NASD's enforcement division is separate and independent from the marketplace where companies are listed.

"I do see significant and continuing pressure from the SEC," Goldman said. "The commission will want to put reforms in place to guard against this happening again in the future."

The exchange, which arose from a pact signed in 1792 under a buttonwood tree, has evolved into a complex not-for-profit entity with a public purpose. It is owned by the 1,366 members who hold seats on its trading floor, but it is also obliged by federal law to monitor and regulate the brokerage industry.

Many believe the NYSE's role as a regulator is of great importance to its business as a marketplace. By seeking Grasso's resignation, the board may have been trying to neutralize anger over the pay package and head off further pressure for reforms. But it's not likely to stop change.

"This is more than an issue about Dick Grasso," said John Coffee, a securities law professor at Columbia University. "It's an issue about the level of influence the industry should have on the governance of an institution that is, in substantial part, a regulatory body."

Coffee agreed that the SEC will likely seek to insulate the NYSE's regulatory function from its workings as a business.

That pressure will likely spur the NYSE's board to divide Grasso's job into two positions, Coffee said, hiring one person as chief executive with another serving as non-executive chairman. The latter person would serve an oversight function and choose members for the board's committees, he said.

The board also will be pressured to create a compensation committee without any representatives from the financial industry, he said. That would remove the appearance of impropriety created by having companies regulated by the exchange setting the pay of its top officials.