SEC Mulling Tougher Governance Of Stock Exchanges

by Glen Shapiro, LawAndTax-News.com, New York

12 November 2004

The US Securities and Exchange Commission on Tuesday voted to put forward for public comment new rules, and amended existing rules and forms under the Securities Exchange Act of 1934 relating to the governance, transparency, oversight, and ownership of self-regulatory organizations (SROs) such as stock exchanges.

The proposals that the securities regulator is seeking opinions on include:

• Plans to require require SROs to adopt specified baseline governance standards, including a majority independent board and fully independent nominating, governance, audit, compensation, and regulatory oversight committees. Each SRO would also be required to take steps to separate its regulatory function from its business operations;
• A proposal to require SROs to publicly disclose, and update at least annually, specified information about their operation and structure, including their governance processes, regulatory programs, financial condition, and ownership;
• Plans to require SROs to submit quarterly and annual reports to the Commission containing specified information on the operation of their regulatory programs, including their examination, investigation, and enforcement activities. This information is intended to support the Commission's SRO inspections program;
• Plans to restrict the ownership and voting levels of members that are broker-dealers to no more than 20% with respect to the SRO or any separate facility. SROs and their members would also be obliged to report to the Commission information about any significant accumulations of SRO ownership interests and voting power; and
• A proposal to require SROs to comply with additional reporting and other requirements in the event they list or trade their own or an affiliate's securities, or the securities of a facility or an affiliate of a facility.

The drive to strengthen governance of the country's stock exchanges and to increase transparency was launched following a scandal at the New York Stock Exchange regarding the size of the compensation package afforded to its former head, Dick Grasso.

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