FINRA and NYSE Regulation to create one SRO.

November 30th, 2006 - FINRA and NYSE Regulation to create one SRO.
The FINRA and NYSE Regulation announced on November 28th a proposed a merger that would result in one SRO, one rulebook, and one enforcement staff for the broker-dealer industry. The plan to create one SRO makes sense from a regulatory streamlining perspective, but there will surely be some misgivings on certain governance issues. 1st BridgeHouse participated on a conference call with Mary Schapiro, the Chairman of FINRA, who explained parts of the proposal and answered pre-submitted questions. The highlights of the call are as follows:

NYSE Rules will not be applied to FINRA members which are not NYSE members. FINRA anticipates enough “flexibility” in the rules to accomplish this. Exemptions and exceptions may be used, if necessary. Ms. Schapiro stated up-front that there will be no new requirements for small firms as a result of the merger.

The District Committee structure will remain intact.

A Small Firm New Rule Task Force will review all rules and propose exceptions where it feels they are necessary.

The Board of Governors for the new SRO, at least for a three year interim period, will be comprised of 23 persons. Seven members of the board will be elected by the securities industry, three industry members will be appointed, eleven independent members will be appointed, and the CEO (Schapiro) and the Non-Executive Chairman (NYSE Regulation’s CEO Richard Ketchum) of the new SRO will automatically be members. The seven elected members from the industry will be elected in the following manner: three members by large firms (defined as 500 or more registered representatives), one member by medium sized firms 150-499 registered representatives), three members by small firms 9less than 150 registered representatives). The three appointed members will a NYSE floor member (appointed by the NYSE), a representative from an insurance company affiliated BD or independent BD (appointed by FINRA), and an Investment Company Act company (appointed by both).

Each FINRA member firm will receive $35,000 as a result of efficiencies relating to the merger and $1,200 of each firm’s annual assessment will be waived for five years.

The deal is expected to close and be operational in the second quarter of 2007.

Please call or email us if you have further questions.