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NASD Merging with Nasdaq Regulation

Kristen French

The board of the National Association of Securities Dealers, an organization for brokers and former parent of the Nasdaq Stock Market, agreed to merge with its regulatory arm and step up its enforcement activities.

The move comes as investor scrutiny of Wall Street analysts, business accounting practices and corporate executives reaches a fevered pitch.

It's the NASD's fourth reorganization since 1996, when the Securities and Exchange Commission cracked down on the company for poor oversight of its members.

The merger will create a single organization focused on regulation, and will include three divisions that will report to NASD Chairman and Chief Executive Officer Robert Glauber. Glauber's term was to end in 2003, but was extended to 2005.

No layoffs are anticipated. Instead the NASD plans to hire up to 60 workers to deal with new and developing regulatory matters, like enforcing new rules on analysts' conflicts.

Further details of the plan will be released in a statement Friday. NASD members still have to approve of the merger in a vote planned for later this summer. The SEC may also have to approve of the changes.

In 1996, the SEC investigated allegations that NASD members colluded to keep prices artificially high. The NASD didn't admit or deny the allegations, but agreed to invest $100 million to beef up its enforcement capacity. Following the settlement, the NASD split into three parts: the Nasdaq Stock Market, the NASD corporate parent and the new regulatory branch.

The NASD streamlined that structure in 1998, then agreed to split the Nasdaq from its regulatory arm in 2000, and last year sold its remaining stake in the Nasdaq.