US Regulator Agrees To Conduct More Aggressive Oversight of Stock Exchanges

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

06 February 2008

The US Securities and Exchange Commission has committed to reviewing the internal audits and investigations of self-regulatory organizations (SROs) such as the New York Stock Exchange, following a request from a senior Senator.

Sen. Chuck Grassley, ranking Republican on the Senate Finance Committee, had asked in December that the SEC remedy its apparent failure to tap investigative resources provided by self-regulatory organizations, by coming up with a plan for the Commission to consider such information as part of its work to safeguard the integrity of US markets.

“It took way too long, but now maybe the SEC is finally getting serious about its duty to oversee self-regulatory organizations,” Grassley observed, adding: “Getting their internal audits is the obvious first step to knowing where the problems are. Yet, the SEC turned a blind eye, even three years after the GAO told them to take a look.”

Grassley made his appeal following the completion of an independent audit which revealed that the securities industry reports information about suspicious transactions, but SEC computer systems can’t search the data.

Grassley raised these concerns with SEC Chairman Christopher Cox in a letter in December, which stated that: "Reliance on SROs, such as the major stock exchanges, to police their members can work effectively only if the operations of the SROs are open and transparent. Therefore, I was disturbed to learn that the SEC does not obtain copies of internal audits and investigations conducted by SROs."

Grassley queried why the SEC had not implemented a Government Accountability Office (GAO) recommendation four years ago that the Commission routinely use such internal audits and investigations to plan and conduct inspections of SROs.

While recent SEC guidance calls for SROs to allow 'on-site' access to internal documents during SEC inspections, Grassley argued that "this is not an adequate substitute for actually implementing the GAO recommendation by obtaining copies and reviewing the documents to inform the planning of SRO inspections".

"I urge you to ensure that SEC staff obtain and review internal SRO audit reports on a routine basis," Grassley told Cox.

"If the SEC had begun routinely obtaining these reports four years ago, it would already have an idea of how reliable they are. It should not take this long to do something so basic. Given that SROs are entrusted with direct regulation of the securities industry, there is no excuse for them being anything less than completely transparent to the SEC," the letter stated.

Recommended