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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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September 30, 1999

NASAA: Could For-Profit Exchanges Pay for Regulatory Functions?

By William Hoffman

The New York Stock Exchange hasn't made up its mind. The National Association of Securities Dealers is mum.

But there is just one major issue for others on the proposals to spin off the self-regulatory functions of the stock markets.

"We would want to make absolutely sure that the self-regulatory organizations had the revenue stream to continue to do the job that they do to protect investors," said Marc Beauchamp, spokesman for the North American Securities Admini-

strators Association (NASAA) in Washington.

Beauchamp likened the current securities industry regulatory framework to a three-legged household stool: One leg is the state regulators represented by his association; another leg is the Securities and Exchange Commission; and the final balancing leg is made up of self-regulatory organizations such as NASD Regulation (the NASD's regulatory arm). The later polices the industry from within.

"If any of the three legs of the stool' is weakened," he said, "we've got a problem."

Still Exploring

Ray Pellecchia, spokesman at the New York Stock Exchange, said the exchange's board recently authorized the headquarters staff to continue exploring the idea of an initial public offering.

But there is no timetable for an IPO decision, he said, and "a number of options" are being discussed with regard to the NYSE's self-regulatory functions.

NASD chairman Frank Zarb has alternately suggested spinning off the NASD's regulatory functions into a separate entity, or erecting a firewall between the regulators and Nasdaq members and staff.

The alternatives have given rise to heated debates among stock exchange watchers, and some raised eyebrows in Washington.

For Beauchamp and NASAA, though, the issue is simple: "All we care about is whether our investors are going to enjoy the benefits and protections of world-class regulation. If we're assured that they will, we'll probably support the [spin-off] plan."

Separate Body

A separate regulatory body could even improve the investing climate, Beauchamp said: "I think you might have more independence if you didn't have a stock market as part of the regulators' organizational chart."

The long-term health of any spun-off self-regulatory organization will depend primarily on money, Beauchamp said.

"That's got to come from the marketplace somehow," he said. "It's not going to come from the federal government."