A group of state pension fund officials said Tuesday that they remained confident that interim New York Stock Exchange chairman John S. Reed will reform the exchange despite pressure from entrenched interests.
"He indicated that there are a lot of powerful folks there that don't want to see much change," Iowa Treasurer Michael L. Fitzgerald said at a news conference after the fund officials met with Reed. "As a matter of fact, I think his words were that a lot of people wanted to see him come in and spray a little perfume around the place and leave. He's not going to do that."
Fitzgerald and other state officials who attended the meeting declined to elaborate on Reed's comments or to say who the NYSE chairman believes is trying to block reform. An NYSE spokesman did not return a call for comment.
The NYSE is a nonprofit organization owned by its 1,366 for-profit members. Members include traders who buy and sell individual stocks on the floor and large Wall Street brokerage firms. The exchange is also a self-regulatory organization charged by the Securities and Exchange Commission with overseeing its member firms.
Reed agreed to take over the exchange temporarily after Dick Grasso stepped down last month as chairman and chief executive, in the face of investor and member anger over his $187.5 million deferred compensation package. The exchange has since disclosed that other top executives received compensation packages worth tens of millions of dollars. Pay for Grasso and the other executives was approved in part by board members who work at companies that the NYSE regulates.
State pension fund officials, led by New York state Comptroller Alan G. Hevesi and California Treasurer Philip Angelides, have called for major reforms, such as separation of the exchange's business and regulatory functions. The pension officials believe it is an inherent conflict of interest for the exchange to regulate itself. Reed has said he believes the NYSE's regulatory and business functions should remain "tightly coupled."
The pension officials said Reed reiterated his belief that the exchange should maintain the regulatory function. But they said Reed also indicated a commitment to coming up with a new governance structure that would ensure securities firms have no influence over regulation.
Sources close to Reed said he favors reducing the NYSE board to as few as seven members, all of whom would come from outside the securities business. Securities industry representatives would sit on an advisory committee with no say over NYSE regulation or the compensation of NYSE executives.
North Carolina State Treasurer Richard H. Moore said Tuesday that he could support such a structure. "If you have a board where the actual users of the NYSE are not represented than you negate the need to separate the regulatory arm," he said.
The pension fund officials also released a set of proposed reforms presented to the NYSE board on Oct. 2 by the exchange's special committee on governance. The committee's report suggests reducing the board's size from 27 to 17 members and requiring that 10 directors come from outside the securities industry. Those directors would include four institutional investor representatives, three public representatives such as former public officials and three chief executives of NYSE-listed companies.
The report also suggests reducing the number of management directors from three to one and giving the board the "flexibility" to separate the roles of chairman and chief executive. Reed has said he may support some elements of the report but will also propose broader changes.
The pension fund officials declined to take a position on whether the exchange model, which includes human intervention in stock trades, should be scrapped. In an interview with the Wall Street Journal published Tuesday, Scott DeSano, head of global equity trading at Fidelity Investments, said his firm would prefer that the NYSE use a computer-based system similar to the Nasdaq Stock Market's to match buyers and sellers. Fidelity is the nation's largest mutual fund company, with $900 billion under management.
DeSano said specialists on the NYSE floor too often trade for their own accounts at the expense of investors. The trading practices of several specialist firms are being investigated by the NYSE and SEC.
Moore said that while the pension fund officials are concerned about trading practices, they are more focused on governance reforms. He said the future of the floor-based system would follow a "natural evolution." Reed has made similar comments about specialists.
Fidelity spokeswoman Anne Crowley said the specialist system would remain unless rules governing the NYSE are changed. For example, she said specialists should be forced to open their trading books.
"A lot of the debate is focusing on internal governance, the role of the board, the size of the board, and those are important things," Crowley said. "But far more critical from our standpoint are issues about promoting competition and reforming NYSE rules."
"He indicated that there are a lot of powerful folks there that don't want to see much change," Iowa Treasurer Michael L. Fitzgerald said at a news conference after the fund officials met with Reed. "As a matter of fact, I think his words were that a lot of people wanted to see him come in and spray a little perfume around the place and leave. He's not going to do that."
Fitzgerald and other state officials who attended the meeting declined to elaborate on Reed's comments or to say who the NYSE chairman believes is trying to block reform. An NYSE spokesman did not return a call for comment.
The NYSE is a nonprofit organization owned by its 1,366 for-profit members. Members include traders who buy and sell individual stocks on the floor and large Wall Street brokerage firms. The exchange is also a self-regulatory organization charged by the Securities and Exchange Commission with overseeing its member firms.
Reed agreed to take over the exchange temporarily after Dick Grasso stepped down last month as chairman and chief executive, in the face of investor and member anger over his $187.5 million deferred compensation package. The exchange has since disclosed that other top executives received compensation packages worth tens of millions of dollars. Pay for Grasso and the other executives was approved in part by board members who work at companies that the NYSE regulates.
State pension fund officials, led by New York state Comptroller Alan G. Hevesi and California Treasurer Philip Angelides, have called for major reforms, such as separation of the exchange's business and regulatory functions. The pension officials believe it is an inherent conflict of interest for the exchange to regulate itself. Reed has said he believes the NYSE's regulatory and business functions should remain "tightly coupled."
The pension officials said Reed reiterated his belief that the exchange should maintain the regulatory function. But they said Reed also indicated a commitment to coming up with a new governance structure that would ensure securities firms have no influence over regulation.
Sources close to Reed said he favors reducing the NYSE board to as few as seven members, all of whom would come from outside the securities business. Securities industry representatives would sit on an advisory committee with no say over NYSE regulation or the compensation of NYSE executives.
North Carolina State Treasurer Richard H. Moore said Tuesday that he could support such a structure. "If you have a board where the actual users of the NYSE are not represented than you negate the need to separate the regulatory arm," he said.
The pension fund officials also released a set of proposed reforms presented to the NYSE board on Oct. 2 by the exchange's special committee on governance. The committee's report suggests reducing the board's size from 27 to 17 members and requiring that 10 directors come from outside the securities industry. Those directors would include four institutional investor representatives, three public representatives such as former public officials and three chief executives of NYSE-listed companies.
The report also suggests reducing the number of management directors from three to one and giving the board the "flexibility" to separate the roles of chairman and chief executive. Reed has said he may support some elements of the report but will also propose broader changes.
The pension fund officials declined to take a position on whether the exchange model, which includes human intervention in stock trades, should be scrapped. In an interview with the Wall Street Journal published Tuesday, Scott DeSano, head of global equity trading at Fidelity Investments, said his firm would prefer that the NYSE use a computer-based system similar to the Nasdaq Stock Market's to match buyers and sellers. Fidelity is the nation's largest mutual fund company, with $900 billion under management.
DeSano said specialists on the NYSE floor too often trade for their own accounts at the expense of investors. The trading practices of several specialist firms are being investigated by the NYSE and SEC.
Moore said that while the pension fund officials are concerned about trading practices, they are more focused on governance reforms. He said the future of the floor-based system would follow a "natural evolution." Reed has made similar comments about specialists.
Fidelity spokeswoman Anne Crowley said the specialist system would remain unless rules governing the NYSE are changed. For example, she said specialists should be forced to open their trading books.
"A lot of the debate is focusing on internal governance, the role of the board, the size of the board, and those are important things," Crowley said. "But far more critical from our standpoint are issues about promoting competition and reforming NYSE rules."
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