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Reed Reluctant to Split NYSE's Regulatory Role

Interim chairman meets with his board and pledges to disclose the compensation of top exchange executives.

October 03, 2003|From Reuters

Interim New York Stock Exchange Chairman John S. Reed on Thursday sent his strongest signal yet that he was reluctant to divide the exchange's ability to serve as both regulator and marketplace, even while the NYSE undergoes broad reforms.

At the same time, Reed, whose predecessor resigned last month during a furor over his pay, said he intended to disclose the compensation of top NYSE executives by the end of the year.

Reed spoke to reporters after discussing with the board a draft of 27 proposed changes to the exchange's corporate governance.

He promised to present the changes to floor members, and to the public, within the next several weeks. But he indicated that he was reluctant to bow completely to growing calls for the exchange to separate its dual role as policeman and marketplace, which some critics see as a serious conflict of interest.

"The belief, widely held, is that the regulatory function in the exchange is ... working extremely well," Reed said.

Reed, the former co-chief executive of Citigroup Inc. who came out of retirement to run the world's largest stock exchange, called his conversation with board members "highly informative," even as he suggested that points of disagreement remained between him and several members of the board.

Reed said he and the board "want to keep the regulatory structure here, and we must come up with an architecture for governance that makes clear to everybody that the presence of industry people and so forth doesn't in any way compromise that."

The dual roles, he added, must remain "tightly coupled."

The comments came at Reed's third major media briefing in less than a week, a sharp departure from the habits of his predecessor, Richard Grasso, who rarely met with reporters.

On Thursday, former Federal Reserve Chairman Paul Volcker told Reuters that the NYSE should take steps to separate its business and regulatory sides.

Volcker, who played a key role in engineering corporate governance reforms last year, said his "instinct" was to separate the dual roles of the NYSE, but added that the self-regulation of markets "has a long history in our country."

Grasso resigned as chairman of the exchange in September after a public outcry over the disclosure that he received a $139.5-million payout of deferred compensation and was entitled to $48 million in additional benefits.

Since Grasso's departure, NYSE members have asked for details of the compensation of other top executives, including the compensation of the co-chief operating officers, Catherine Kinney and Robert Britz. Reed said both officials would continue to play visible roles at the exchange.

Addressing reporters' questions on lingering concerns about the Big Board's opacity -- particularly the question of how much senior management earns -- Reed said he was inclined to release compensation figures of top executives "within the next month."

Reed also said he was attempting to sort through the issues surrounding Grasso's pay, how much severance he would end up with, and whether he would be asked to return some of his payout. In August, Grasso promised to forgo an additional $48 million in compensation but never formally signed an agreement. According to the terms in his employment contract, Grasso could walk away with that amount, plus an additional several million dollars.

Reed said he wanted to have most of the governance reforms in place by the end of the year, but acknowledged that was an optimistic time frame.

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