NASD Members Bestow Gift Upon Themselves

Hot news over the wire this afternoon, for those eager for their Sunday regulatory news fix: NASD members have overwhelmingly approved merging their regulatory oversight with the New York Stock Exchange.

The NASD press release is entitled "NASD Member Firms Embrace Streamlined, More Efficient Regulation," and quotes NASD chief exec Mary Schapiro as saying "The securities industry has embraced replacing an outdated regulatory structure with one that better serves firms and investors in a fast-changing marketplace."

A Wall Street Journal online article (subscription required) observes that smaller firms opposed the merger, in the view that it would "weaken the voice of smaller firms within NASD." OK, but what benefits, if any, will this merger bring from an investor perspective?

As the mutual fund scandals proved, competition among regulators is a good thing. With some exceptions, such as this Bloomberg column that I mentioned some weeks back, the media has generally skipped over the negative impact of the merger on investors. Hopefully the coverage overnight will be more skeptical than we've seen in the past.

UPDATE: In an interview for the Journal edition that appeared the next day, Schapiro said "This is a great thing for our industry and investors." She did not even bother to explain how reducing the number of regulators could possibly benefit investors. The New York Times ran a brief Bloomberg story that also did not mention investor impact, which was not mentioned in the Reuters coverage eithr.

However, the AP managed to squeeze in a few words on the subject. It quoted the president of the Public Investors Arbitration Bar Association as opining that "combining the two regulators is 'anti-investor' because it eliminates choice." Well, I guess a dozen words is better than nothing, which has been the norm in media coverage of the merger.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.

Is NASD Mending Its Ways?

One of the perennial insanities of Wall Street regulation is the "consent decree," in which a Wall Street firm agrees to a wrist-slap fine in return for agreeing to stop doing what it was accused of doing, without admitting or denying that it did that thing in the first place.

So I am pleased to report that NASD is suing Morgan Stanley for using a really sick excuse for not producing mails in arbitration cases. The Wall Street Journal (subscription required) reported that "NASD alleges that the brokerage arm of Morgan Stanley falsely claimed millions of its emails were destroyed in the Sept. 11, 2001, terrorist attacks on the World Trade Center, where Morgan Stanley had a large brokerage operation. The complaint alleges that the firm recovered most of those emails within days of the attacks."

Morgan Stanley called NASD's settlement demands "disproportionate and unprecedented." Sounds good to me.

I hope this isn't just showboating, and that NASD continues to take a hard line with Wall Street in the future. I also hope other regulators will follow suit with their own "disproportionate and unprecedented" settlement demands, and make the consent decree a thing of the past. All pretty slim hopes, I admit.

Incidentally, I hate to be picky, but I noticed that the Journal reported that the regulator taking this action was the "National Association of Securities Dealers." In fact, the NASD formally changed its name to just the initials "NASD" a few years ago. The New York Times account
didn't use the incorrect "National Association" nomenclature but incorrectly put the word "the" before NASD.

It was an ill-advised renaming, but if "NASD" wants to not be "the NASD," that is its affair.

© 2006 Gary Weiss. All rights reserved.

-----------

Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site.