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Remarks by Mary L. Schapiro

Chairman and CEO, NASD  

Securities and Exchange Commission News Conference Regarding NASD and NYSE Regulatory Consolidation
Washington, D.C.
November 28, 2006


Thank you very much, Chairman Cox. Your vision and leadership have brought us to this historic day for the securities industry and for investors. Joining me today is NASD's lead director, Richard Brueckner, CEO of Pershing. Rich's leadership on these issues has been critical to our success.

Consolidating NASD and NYSE member regulation will streamline the oversight of securities firms in the United States and will significantly change the way regulation is conducted. We recognize that world markets and regulation are changing. Rather than stand by and let events overtake us, we have chosen to lead and help shape a better system of regulation that is good for investors and financial services firms of all sizes.

When the new organization is in place and fully integrated, there will be one set of rules, one set of examiners and one enforcement staff. Duplicative and inconsistent regulation and overlapping jurisdiction will become a thing of the past.

These important reforms will make regulation more efficient and more effective. The industry will be better for it, the markets will be better for it and, most importantly, investors will be better for it.

The plan we have announced today will replace an outdated model with a single, independent, well-funded, not-for-profit SRO. It simplifies and reduces the cost and burden of regulation; it eliminates conflicts and confusion, and will enable securities firms—particularly the nearly 200 that are currently regulated by both NASD and NYSE—to allocate their compliance resources more effectively.

Let me spend a moment addressing NASD's membership, which is diverse in both size and business mix. All of us here today were focused on constructing a plan that would benefit the entire industry. And I believe we have done that.

This new entity will be committed to being more efficient and effective for all 5,100 securities firms in the United States that do business with the public, not just the 200 that are dually regulated. For smaller firms, this will mean finding ways to pass along the savings that a single SRO will create and finding ways to reduce their regulatory burden without weakening investor protection.

And, it will mean adopting a uniform set of rules flexible enough to accommodate the different business models and sizes of firms that exist within the industry.

The governance structure for the new organization is well suited to the task. The Board of Governors carries forward NASD's long tradition of industry involvement. Ten members of the board will be from the industry. This guarantees that the diversity of our industry will always be reflected on the board, and that industry representatives will have a seat at the table when important decisions are being made.

At the same time, eleven board members will come from outside the industry, assuring the appropriate balance on the board. I believe the board's design and composition is the right one for overseeing operations in one of the world's most dynamic and important industries.

We all believe that this new model will be better suited to protecting investors and ensuring market integrity. That is, of course, the primary goal of every regulator, and it will be the new organization's sole focus and mission. The fact that this new mode of operation will also make our capital markets more competitive means this consolidation plan is a blueprint for a winning trifecta—it's a win for our markets, a win for the industry and a win for investors. The new SRO will be responsible for all member regulation, arbitration, mediation, and all other current NASD responsibilities, including market regulation by contract for NASDAQ, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange.

It will oversee all member compliance examinations, rule writing, training, licensing and registration, and industry utilities like the Alternative Display Facility, the OTC Bulletin Board, and Trade Reporting Facilities. In addition, the new organization will continue NASD's deep commitment to work with the industry to support their compliance efforts.

And, it will continue the important work currently being done by NASD through our investor education foundation and other investor education programs.

In short, the new organization will have responsibility for a full spectrum of activities, all of which are geared toward investor protection and market integrity. And, it will have resources equal to the task. Most importantly, our resources will include the 2,500 dedicated men and women of NASD and the approximately 470 talented NYSE Regulation staff who will become part of the new organization.

It has been—and will continue to be—my privilege to lead a talented group of professionals who, day in and day out, demonstrate true passion for the important work they do. On behalf of the entire NASD, I want to welcome the members of NYSE Regulation who will be joining with us. I know they all share our deep commitment to investor protection, and we look forward to working with all of them, to learning from each other, and to continually improving self regulation in the securities industry.

In closing, let me again thank Chairman Cox, and I want to give a special thanks to Commissioner Nazareth who played an important role in bringing the parties together and providing wise counsel throughout the course of our deliberations. And Rick, I am thrilled to be working with you again. It will be a very exciting time.

Thank you.