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NASD, NYSE Regulatory Hookup a Benefit to Investors

NASD CEO Mary Shapiro says the merger will make regulation more effective.

The scheduled merger of the regulatory operations of the


and the

New York Stock Exchange

will benefit investors by streamlining regulations, Mary Shapiro, the chairman and chief executive of the NASD, told a mutual fund industry gathering Friday.

Despite lawsuits and other attempts to derail the merger, Shapiro said she expects the new self-regulatory organization, or SRO, to be up and running this summer.

"Self regulation will continue to play a big role in the U.S. markets," Shapiro told the Investment Company Institute, the fund industry's trade group, at its annual conference in Washington, D.C. "There will be one regulator where there were once were two: one set of rules, examiners and enforcement staff. Duplicate regulation and inconsistencies will become a thing of the past."

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Shapiro said she hoped the merger would encourage more cooperation among all financial products regulators. She said the current regulatory environment focuses more on products than investors, and that regulators need to look "beyond our narrow jurisdictions and stand in the shoes of investors."

She said the old paradigm of a different regulator for each product was outdated and that regulators "rarely work in concert." Functional regulation today, said Shapiro, must now be seen from the view of the investor.

"There is no excuse for offering investors second-class protections," she said. "In my opinion, the only thing that will redeem regulation is more cooperation."

She offered the example of the NASD and state insurance regulators issuing a joint statement in support of a new rule regulating insurance agents to only suggest suitable annuity products to their customers.

For the mutual fund industry and the U.S. markets to continue to have value, she said, more information needs to be given to investors in a timelier manner. She spoke about an NASD proposal called Profile Plus, which provides an opportunity to give investors better information at the point of sale. This program would explain fund strategies, performance costs, risks and other disclosures.

Shapiro added that new products also force regulators to be proactive and not reactive. Pointing to the flood of new products for retirement-age investors, she said a sophisticated approach for investor needs would focus on exceptionally high fees, hard-to-understand risk and products targeting vulnerable populations.

With the financial markets in a perpetual state of evolution, Shapiro said regulators need to learn to operate in a world without boundaries or time zones and "link arms" with fellow regulators across the world.

"We will seize every opportunity we can to build a stronger market, but your help will be crucial," she told the ICI. "Mutual funds and financial markets will only have value if they can respond to transformations going in the global economy. It will be up to all of us to be alert and flexible to the world around us."