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SIA Says Price of Compliance Too High

It urges a restructuring of the NYSE and NASD.

The amount of money that securities companies pay to police themselves is rising sharply, and part of the reason is the existence of two major exchange regulators, an industry group argued Monday.

The study conducted by the Securities Industry Association showed that the overall cost of compliance nearly doubled in the past three years, reaching more than $25 billion in 2005, up from $13 billion in 2002. The estimated increase over the past three years is almost 5% of the industry's annual net revenue.

Midsized firms, or those that have net revenue between $50 million and $500 million, were the ones hurt the most. Compliance costs made up 17.5% of the midsized firms' net revenue, versus 14.9% of large firm and 8.6% at small firms. Education and training, reporting and investigations, and "chaperoning," or monitoring contact between research and investment banking, were some of the costs associated with compliance. According to the survey, securities firms received an average of 231 inquires per firm over the last 12 months, "nearly one for each business day," according to the release.

The release promoted restructuring the

New York Stock Exchange

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and the NASD in order to "reduce regulatory duplication

that could result in significant cost savings."

"Having two regulators is like having to fill out two sets of federal tax returns from two different countries, each with its own rules and requirements and each needing different tax advisers," said Marc Lackritz, president of the SIA. "Our firms need one rulebook, one set of procedures, one set of examinations."

Lackritz said he wasn't arguing for easier regulation.

"We're not advocating regulatory rollback here. In fact, rewriting existing guidelines would only increase costs," he said. "Instead, we hope that going forward, this study influences how policy makers think about the rules they write."

Survey participants called for the consolidation of regulators in order to remove unnecessary duplication of rules. Other recommendations in the survey included asking regulators to "provide clearer guidance, in plain English, to avoid unnecessary and wasteful guesswork," and develop a new way to implement regulations so industry firms can meet requirements and continue to conduct business effectively.