By Mary Schapiro - 03/12/07 06:55 PM EDT
The rapid and sometimes unpredictable transformation of the marketplace is posing new challenges for regulators. We, too, must modernize and keep pace if we are to fulfill our responsibility to ensure the integrity of our markets and to protect the millions of investors whose individual decisions fuel those markets.
That burden is felt profoundly by private-sector regulators like the National Association of Securities Dealers (NASD), as well as by our governmental counterparts. The robust functioning of the financial-services industry is critical to the health of our economy, to our national security and to the financial well-being of our citizenry. The industry has the means and the intellect to solve a wide range of social and economic problems and to create the opportunity for secure financial futures for all Americans. Our task as regulators is to police the markets and protect investors without placing unnecessary burdens on firms or unnecessarily hampering competition, innovation and capital formation. These are not lofty goals; rather, they are absolute demands that regulators must meet or put the longstanding predominance of the U.S. markets and financial industry at risk.
NASD has not only recognized, but also embraced, the imperative to revamp the way we regulate to better serve investors and the industry in this new era. And to do that, we are about to undertake the most substantial modernization in securities regulation since the self-regulatory regime was created in the wake of the Great Depression nearly 70 years ago — one that I believe will well serve our markets, our industry and our investors for decades to come.
Later this year, upon final approval from the Securities and Exchange Commission, NASD and the industry’s other major self-regulatory organization, New York Stock Exchange (NYSE) Regulation, will consolidate into a single self-regulatory organization (SRO) that will become the sole private-sector regulator for the 5,100 broker-dealers and the more than 650,000 brokers doing business with the public in the U.S. The new SRO, with nearly 3,000 employees, will be responsible for member-firm regulation, enforcement and arbitration.
Combining the operations and expertise of NASD and NYSE Member Regulation into a single organization will make possible a more sensible and less complex regulatory regime that will make private-sector regulation more efficient and effective. It will reduce regulatory costs for securities firms while providing protection for the people and institutions that invest for their futures in the U.S. capital markets. When the new SRO is in place and fully integrated, there will be a unified rulebook that recognizes the diversity of firm sizes and business models, one set of examiners and one enforcement staff. Duplicative and inconsistent regulation, overlapping jurisdiction, competing examinations and redundant technologies will become a thing of the past.
It is not just the regulators, but the securities industry itself, that has recognized the need for replacing an outdated regulatory structure and has chosen this moment to make that happen. The consolidation could not have moved forward without a vote of securities firms. And their involvement and support was overwhelming.
The consolidation will also allow us to accelerate the pace of other modernization efforts already underway at NASD — including a high-tech overhaul of how we examine securities firms. Much of the current manual, on-site compliance exams will ultimately be replaced with automated reviews powered by the latest and best surveillance technology. For firms doing business the right way, this will mean a less intrusive, more flexible and more efficient exam program. Investors will be better served because we will identify areas of risk sooner and take actions to rectify problems faster.
My expectation is that by the end of the second quarter, this new and improved SRO — with a new name and a renewed sense of purpose and direction — will be up and running, to the decided benefit of our markets, the industry and the investors who rely on them.
Schapiro is chairwoman and CEO of the National Association of Securities Dealers and is a keynote speaker at the U.S. Chamber of Commerce Capital Markets Summit.
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