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May 31, 1999

Putting It all Together. The Super SRO?

By William Hoffman

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  • Putting It all Together. The Super SRO?

The Securities Industry Association wants the Securities and Exchange Commission to study the feasibility of consolidating the industry's numerous self-regulatory organizations (SROs).

The SIA included the proposed study in a list of legislative proposals sent to the Senate Banking Committee, after committee chairman Sen. Phil Gramm (R-Texas) invited comments from industry representatives earlier this year.

The trade group suggested "this may be an appropriate time for a public discussion about the direction that self-regulation should take." Arguing the case, the SIA cited recent changes in the structure and governance of the NASD, consolidation among some SROs, and increasing competition between broker dealers and SROs in some areas the latter regulate.

"This is an idea that's been floating around for a number of years," noted Judith Poppolardo, associate general counsel and vice president for the SIA in Washington.

Prominent Discussions

SRO consolidation figured prominently in discussions leading up to passage of the 1996 National Securities Markets Improvements Act, she pointed out.

SIA's legislative proposal to the banking committee also notes that the SEC's recently adopted alternative trading system rules will allow qualified self-regulatory organizations to spin-off their regulatory functions.

"The time may have come to consider the idea of a single self-regulatory organization," Poppolardo said, "because otherwise there is the possibility of numerous [SROs]."

Poppolardo emphasized that SIA has not proposed consolidating the various industry SROs - as she said had been erroneously reported elsewhere - but rather simply to study the feasibility of the idea of a single SRO. An SIA ad hoc committee is soliciting member comment on the issue, she said.

SEC spokesman John Heine, said the agency had received the SIA's study suggestion and would respond to it in due time. Neither the National Association of Securities Dealers, nor the New York Stock Exchange would comment on the consolidation issue.

But Rick Roberts, an attorney at Thelen Reid & Priest in Washington and a former SEC commissioner, said, "I support conceptually what the SIA is talking about."

Regulatory overlap and duplication of effort, especially on matters that draw in state agencies, the SEC and the SROs, could be avoided with a thoughtful and thorough consolidation of the myriad self-regulatory authorities, Roberts said.

"You see a lot of [overlap] in the examination area," Roberts pointed out. Under a consolidated regime, various state, federal and self-regulatory authorities might perform one coordinated examination per year, rather than the current system where one risks "getting examined to death."

Worth a Look

Former NASD regulator John E. Pinto, who is now an executive vice president in Washington for Atlanta-based DOVER International, sounded a more cautious endorsement: "It's always worth looking at the issue."

It's easy to favor the principle of consolidation, Pinto noted, but far more problematic to make the principle work. Concerns about waste, overlap and duplication of effort must be balanced against jurisdictional concerns of the responsible SROs, he added.

Pinto said that, as much as SEC's new alternative trading system rules, what might be driving interest in SRO consolidation is recent talk about consolidation of trading markets.