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Securities Regulators to Become an Army of One

The NASD and NYSE securities cops will join forces.

Updated from 10:47 a.m.

The much-talked-about plan of creating a single self-regulatory organization for the securities industry is finally coming to fruition.

The NASD and

NYSE Group


officially announced a plan to join their regulatory operations in an attempt to save money and improve consistency in securities oversight.

The two entities signed a letter of intent to consolidate their member regulation operations into a new self-regulatory organization. The

Securities and Exchange Commission

, the nation's top securities cop, has signed on to the plan, which will dramatically reshape the regulatory landscape.

For years, the securities industry has complained about having to deal with two self-regulatory agencies, in addition to the SEC and state securities regulators. The decision to merge the regulatory operations of the NYSE and NASD will cut down on paperwork and enable all securities cops to speak with a single voice.

The new SRO, which has yet to be named, is expected to begin operating in the second quarter of 2007. The combined regulator will have oversight over 5,100 brokerages, including

Goldman Sachs

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Bear Stearns


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Merrill Lynch



Morgan Stanley

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Lehman Brothers



The new organization, in addition to bringing enforcement actions, will monitor arbitrations and be responsible for the training and licensing of brokers.

Other responsibilities under the NASD's oversight include market regulation by contract for the

Nasdaq Stock Market


, American Stock Exchange,

International Securities Exchange


and the Chicago Climate Exchange.

NYSE's regulation division will continue to oversee listed company compliance and market surveillance at its two exchanges: New York Stock Exchange and NYSE Arca.

NASD member firms will receive a one-time payment of $35,000 as a result of anticipated cost savings from the combined entity, the agency says. In addition, the gross income assessment fee -- the annual dues securities firms pay to the NASD -- will be reduced by $1,200 each year for five years.

Mary Schapiro, the NASD's chairman and CEO, will serve as chief executive of the combined entity. The head of NYSE regulation, Richard Ketchum, will serve as non-executive chairman of the entity's board for three years.

"When the new organization is in place and fully integrated, there will be one set of rules, one set of examiners and one enforcement staff," Schapiro said during a conference hosted by the SEC. "Duplicative and inconsistent regulation and overlapping jurisdiction will become a thing of the past."

Schapiro emphasized that the move was more about finding cost savings for those companies under both organizations' watchful eyes by removing dual regulatory requirements. There are no immediate plans to reduce the combined 2,900 headcount, however over time the SRO does anticipate headcount reduction through attrition and from overlapping programs and technology, she says.

"This is not about driving cost savings particularly out of the SRO," Schapiro says. "Within the firms that are dually regulated, there are clearly cost savings and have been estimated widely in tens of millions of dollars."

The integration is estimated at approximately three years. Schapiro says the creation of a new SRO requires amendments to existing NASD bylaws, which in itself requires a membership vote and SEC approval. The NASD and NYSE also need to decide which systems and programs are more adaptable, she says.

The new SRO will combine both organization's staff and will operate out of both Washington, D.C., and New York, with 18 supporting district offices.

The entity's board of governors includes 11 seats held by independent board members, 10 held by members who work within the securities industry along with Schapiro and Ketchum. The board will oversee the new SRO for a three-year transitional period.