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September 30, 2003

Donaldson's Early Warning on NYSE Reforms

By Gregory Bresiger

The SEC, in a statement following the resignation of Richard Grasso as chairman of the NYSE, affirmed that it is going to push for basic structural changes in how the Big Board is run. But even before the statement, SEC Chairman William Donaldson last month told the House Financial Services Committee that Grasso's controversial pay package will trigger a wholesale review of how the Big Board functions.

"The issue here, congressman," said Donaldson in response to a question from U.S. Rep. Scott Garrett (R-New Jersey), "is only partially the issue of exact compensation, the issue is how was that arrived at? What procedures were in place? How was it related to the other aspects of the financial side of the stock exchange?"

Later in the hearing, Donaldson warned that the NYSE, as the biggest exchange, must be held to the highest standards because it has a unique position in corporate America.

The SEC Chairman added: "I think the rules that the stock exchange writes, in terms of how the place is run, what companies must do to qualify to be listed, et cetera, et cetera, these are all issues where the stock exchange itself must be an exemplar of what they require of others."

Donaldson said that stock exchanges require special attention.

"It's a much more complex situation because of what the stock exchange represents. It represents a lot of different constituencies, the floor brokers and so forth. It doesn't fit into a corporate governance mold," he added.