Message to NASD Member Firms from Mary Schapiro, Chairman and CEO, NASD - November 14, 2006

Over the last few days, you have likely seen articles that discuss the possibility of regulatory consolidation between NASD and the New York Stock Exchange. As I mentioned in my October email, one of my top priorities is to make sure that NASD communicates more effectively with you. And, while it is my view that our talks with NYSE are not advanced enough for public disclosure, I do want you to know that they are ongoing—and give you as much detail as I can at this point.

One of the things that I heard from many of you on my recent listening tour was that our current regulatory structure is redundant, costly and inefficient. I agree with that, and for those of you who were able to hear SEC Chairman Cox's speech at SIFMA last week, you know he also feels strongly about this issue. If you haven't read his speech, I encourage you to do so.

NASD has been in discussions with the NYSE for some time now about how best to rationalize the member regulation functions of both SROs. My expectation is these talks will result in the creation of a new, independent self-regulatory body that will oversee the regulation of all securities firms.

This new organization would operate under a single set of rules, replacing the overlapping jurisdiction and duplicative regulation that exists today for many securities firms. This would greatly reduce unnecessary regulatory costs, while increasing regulatory effectiveness. And, this new organization will be committed to an ongoing program of reducing regulatory costs and reducing burdens for firms of all sizes.

For the many firms we regulate that are not members of both NASD and NYSE, I want to reassure you that this new entity would be committed to being more efficient and effective for all 5,100 firms in the securities industry. We anticipate being able to pass along the savings of this transaction to all firms, now and in the future.

More importantly, we are committed to making sure that firms of all sizes and business types will be represented on the new entity's Board of Governors. As you may know, NYSE no longer has securities firm representation on its parent board or the board of its regulatory subsidiary. However, I have made it clear that this transaction will not go forward without industry representation in governance. Small firms will be guaranteed more seats on the Board of this new entity than they currently are guaranteed at NASD.

While I won't predict timing or the ultimate outcome of this transaction, both NASD and NYSE are committed to this concept—and I expect to have more details for you in the coming weeks. In the meantime, I will keep you updated and as always, welcome your comments and questions.

Sincerely,