NEW YORK — Wall Street is getting a new top cop.
In a big win for the securities industry, the two organizations that police stockbrokers and others in the industry have agreed to form a single self-regulatory body. The change is expected to cut costs for the financial industry, but some consumer advocates fear it could mean that abuses will go undetected.
Under the plan announced Tuesday, regulators at NYSE Group Inc. and the NASD (formerly the National Assn. of Securities Dealers) would consolidate operations in a new organization, which has yet to be named.
Backers said the plan would boost efficiency and eliminate bureaucratic overlap, but reaction among consumer advocates was divided.
Attorney Jerome Reisman, citing recent scandals in mutual fund trading and stock analyst research, said having multiple levels of supervision was beneficial.
"The best way for the industry to protect individual investors is to have more coverage and policing, not less," said Reisman, who practices in Garden City, N.Y. "Duplicate policing is good."
But Mary Schapiro, who heads the NASD and would lead the new entity, said consolidation would allow regulators to deploy their resources more effectively.
"I don't think there will be less regulation," Schapiro said. "There will be more tailored and focused regulation."
The plan was strongly endorsed by Christopher Cox, chairman of the Securities and Exchange Commission, which is expected to approve the merger next year. The federal agency, which oversees the NYSE and NASD regulators, would also oversee the new industry organization.
Currently, all 5,100 U.S. stockbrokerages are subject to regulation by the nonprofit NASD. Nearly 200 of the largest brokerages also are regulated by a unit of NYSE Group, the newly public company that owns the New York Stock Exchange.
The consolidation plan calls for the NASD's 2,400-person staff to be combined with 470 people from NYSE Group. There would be no immediate layoffs, but attrition could shrink the staff, Schapiro said.
Wall Street brokerages pay the costs of the industry's self-regulation, which are expected to decline as the regulators combine operations and diminish overhead costs. Under the consolidation plan, each brokerage would get a one-time refund of $35,000.
But the more significant cost savings would be realized by the larger brokerages, which would no longer have to comply with two sets of regulations. Schapiro said those savings could amount to tens of millions of dollars a year.
Barbara Roper, investor advocate at the Consumer Federation of America, said small investors were not likely to be harmed by the merger because the NASD would effectively be leading the operation. Until recently, she said, NYSE regulators were perceived to be ineffective.
But others voiced concern about a reduction in the number of enforcement bodies as business groups wage a fierce assault against many of the reforms that were enacted after Enron and other corporate scandals of recent years, including the Sarbanes-Oxley Act.
Critics say those regulations are costly and counterproductive, in some cases prompting overseas companies to list their stocks in their less-regulated home markets rather than in the U.S. Other companies, critics say, have ruled out going public, or have moved from public to private ownership.
Duke University law professor James Cox said business groups believe the strong performance by stocks this year, by reducing investor anger about the recent scandals, has made it possible to repeal the new corporate reform laws in the final two years of the Bush administration.
"This is part of the culture wars, and within those wars is a battle being fought against regulation," Cox said.
Harvey Goldschmid, a Columbia University law professor and former SEC commissioner, said there were legitimate concerns that corporate reforms could be undone, citing "an ongoing attempt to defang or diminish" regulations.
But Goldschmid said the effort to roll back corporate regulations was a separate issue from that of the number of regulators. He said the plan to combine the NYSE and NASD enforcement teams had merit.
"If you have one strong regulator," he asked, "why do you need two?"