Updated from 11:08 a.m. EST

A slimmed-down board of directors, composed of eight former corporate executives and Wall Street outsiders, is John Reed's fix for the corporate governance problems at the

New York Stock Exchange

.

Many critics, including some state treasurers and pension fund managers, said it's not enough.

Reed, the Big Board's interim chairman and chief executive, unveiled the proposal for overhauling the current 27-member NYSE board at Wednesday morning press conference.

Reed, the former

Citigroup

(C) - Get Report

chief executive, also has come up with a list of candidates to fill the new board, which would oversee the operation of the exchange, including its regulatory division. The new board would appoint a 20-member advisory panel, made up mainly of securities industry representatives.

A copy of the proposal was mailed out Tuesday evening to the NYSE's 1,336 member seatholders and current board members. Reed wants the outgoing board and the NYSE members to approve the new structure at the board's next meeting on Nov. 18.

Reed's plan is intended to respond to criticism over the current board's approval of Richard Grasso's supersized $139.5 million pay package. The furor over the pay package forced Grasso to resign and focused attention on the board's composition, which is dominated by executives from the brokerage business.

"I believe this structure is really good," said Reed. "It's robust.

The chance of another breakdown of our governance is extremely small."

Critics immediately labeled the proposal inadequate and some argued it puts pressure on the

Securities and Exchange Commission

to demand broader reform.

In many ways, Reed's proposal looks like reform-lite, especially after many NYSE outsiders called for sweeping reforms in the NYSE's regulatory division and its floor-based system of trading stocks.

"It's not anywhere near what has to be done," said Junius Peake, a business professor at the University of Northern Colorado, who has written a great deal on stock market reforms. "It has to separate its regulatory and market operations."

New York State Comptroller Alan Hevesi, speaking on behalf of a group of state treasury officials and pension managers, said he favored at least two boards: one to oversee the NYSE's regulatory division, and another to decide compensation issues and market-related matters.

"I think the separation has to be more clearly defined," said Hevesi, in a conference call with reporters.

Some critics go further and say the Big Board should get out of the regulatory business altogether.

The image of the NYSE as weak regulator was re-enforced this week after

The Wall Street Journal

reported that the Securities and Exchange Commission recently blasted the NYSE enforcement division in a confidential report. The SEC took issue with how the NYSE was conducting an investigation into allegations of improper trading activity by the Big Board specialist firms -- the teams that drive trading on the world's most famous stock exchange.

In fact, it was only after the NYSE got a private dressing down from the SEC that the Big Board's investigators took a tougher line with its specialists.

But Reed isn't suggesting any major reform of the NYSE's regulatory division. Under his plan, the Big Board would continue in its role as an industry regulator. The only change is that the NYSE's regulatory division would now answer to an independent board, as opposed to one that includes industry representatives. The new board also would choose a director to head a regulatory oversight committee.

In another blow to reform advocates, Reed isn't calling for any changes in the specialist system. His plan doesn't include a call to fully automate the NYSE and replace the specialists with electronic trading systems. Critics of the specialist system contend it is slower than electronic trading and is most susceptible to manipulation.

Peake said Reed is continuing to defend the specialist system just like Grasso and is catering to the interests of the NYSE's members. The professor said Reed is hasn't made the kind of structural changes that would benefit all investors.

"People are going to say John Reed rolled over," said Peake. "I've talked to many institutional investors who say the specialists are their competition."

Even the composition of the new eight-member board may disappoint critics.

The new board includes two current board members: former Secretary of State Madeline Albright and Herb Allison, chairman of the big teacher's pension group

TIAA-CREF

and a former president of

Merrill Lynch

(MER)

. Also on the list are Shirley Ann Jackson, president of

Rensselaer Polytechnic Institute

; Euan Baird, former chairman and chief executive of

Schlumberger

(SLB) - Get Report

, the big oil services company; James McDonald of

Rockefeller & Co.

, Marshall Carter, former chairman and chief executive of

State Street Bank

(STT) - Get Report

; Bob Shaprio, former chairman and chief executive of

Monsanto

(MON)

and Dennis Weatherstone a former

J.P. Morgan Chase

(JPM) - Get Report

banker.

Institutional investors, pension fund managers and state treasurers have been calling for greater investor representation on the new board. The appointment of Allison, a holdover from the current board, doesn't appear to satisfy those demands.

In an interview with

CNBC

early Wednesday, North Carolina State Treasurer Richard Moore, a member of that group of state officials and institutional money managers, said he was "disappointed" in Reed's proposals. Hevesi also expressed disappointment with Reed's failure to nominate several former pension fund managers, or other investor representatives. While Hevesi favored eliminating the 27-member board, he said Reed may have shrunk the board too much.

"Our sense is the investor community should be represented," said Hevesi. To do that, the NYSE may need "a larger board" than eight directors.

Reed also is taking no position on whether the role of chairman and chief executive should be split. He said the new board, which will have to decide on a new permanent leader for the exchange, should resolve that issue.

Ultimately, any changes approved by the NYSE's members and its current board also must be approved by the SEC. The SEC's initial response to Reed's proposal was to issue a generally supportive statement. But the SEC hinted that further changes at the NYSE may be needed.

Some reform advocates, however, suggested it's not fair to heap too much blame on Reed, since he never said he would propose sweeping changes at the Big Board. In fact, from the outset, Reed has said he didn't see the need for any major structural changes in either the exchange's regulatory operation or its specialist system

"This is pretty much what I expected," said Paul Hodgson, an official with the Corporate Library, a corporate governance advocacy group

Meanwhile, the Reed proposal did nothing to lift the sagging price of a member seat on the NYSE, one way of measuring Wall Street's support for the institution. The Big Board reported Wednesday that one of its seats sold for $1.3 million, a decline of 4% from the last seat sale on Oct. 21. And that October sale was down 27% from the going price for Big Board seats in September.

The price of a seat on the NYSE has fallen 57% from its $2.6 million high-water mark set in 1999.