December 28, 2006
Dear NASD Member,
Recently, the SEC issued an order to extend by two years to January 1, 2009, the exemption from the requirement that non-public broker-dealers file financial statements with additional certifications by a Public Company Accounting Oversight Board (PCAOB) registered public accounting firm. This is very good news for smaller firms. With the continued help of NASD senior staff, particularly Chairman and CEO Mary Schapiro, the NASD Small Firm Advisory Board (SFAB) will work to make the exemption permanent.
You have also received by now the NASD proxy statement asking for your vote for By-Law changes necessary to clear the way for the consolidation of NASD and the member regulation division of NYSE Regulation into a single self-regulator. Members of the SFAB unanimously approve of the consolidation because the terms, as negotiated, are good for the industry, and are especially favorable for small firms. In order to take advantage of the terms—which include a $35,000 payment for anticipated cost savings to each firm regardless of size, and an annual $1,200 Gross Income Assessment reduction for five years—NASD members must approve the changes to the By-Laws related to the NASD/NYSE regulatory consolidation.
Currently, the NASD Board is made up of 19 members, seven of which are industry. One of the seven seats is guaranteed for a small firm Governor. I am the only small firm Governor currently on the Board.
With the new SRO's Board, however, the industry will pick up three of the four new seats, with small firms picking up two of those additional three seats. There will be a total of 10 industry seats versus seven now, and the new Board structure will guarantee three seats for small firms.
Small Firms will vote for the three small firm seats, large firms will vote for the three large firm seats, medium-sized firms will vote for the medium firm seat, and three industry seats will be appointed to make up 10 industry seats. The 11 public seats will be appointed by the Board, which will have substantial industry representation. Any changes to the new organization's By-Laws will require a vote of the members. The District Committee election process will not change. Petition candidates may run for both District and Board seats.
Statements by SEC Chairman Cox and Commissioner Nazareth make it clear that the SEC wants this consolidation to occur quickly. While there is no guarantee what would happen if NASD members reject the By-law changes, I believe that any terms the SEC put in place unilaterally would not be as favorable for the industry—especially for small firms. We have made progress in the past few years, but there is much work to be done. This new regulation structure will provide small firms with a better chance to provide input. But, in order for that to happen, NASD members must approve the changes to the By-Laws.
If you have any questions or need additional information, you are welcome to contact any SFAB member. Our telephone numbers are listed on the NASD Small Firm Web pages. You may also call me at (616) 942-7680.
William C. Alsover
Chairman, NASD Small Firm Advisory Board