As the NYSE and NASD move towards the harmonization of their rules, SEC Chairman Christopher Cox envisions the further step to a single SRO at some time in the future. In recent remarks to the Securities Industry and Financial Markets Association, he said that the time has come for a significant restructuring of the self-regulatory model as exchanges consolidate globally and ownership structures change.
Although incremental changes over the years to the SRO system by the SEC and Congress have assisted the SROs in meeting their statutory duties, said Cox, incremental progress may no longer be enough. What may be needed is a fundamental reevaluation of the system of self regulation, which has never occurred since the establishment of the system.
The current system of multiple SROs is costly and inefficient, he emphasized, with multiple rulebooks, duplicative inspection regimes, and redundant staff. In addition, the increasing prevalence of cross-market trading is making it ever more difficult for multiple SROs to conduct market surveillance.
He did note that a major restructuring of the model has already begun. Earlier this year, the NYSE and NASD agreed to submit to the SEC proposed changes that would harmonize inconsistencies in their two rulebooks, as well as report to the Commission on which of the rules have not been reconciled. Chairman Cox reported that the resulting recommendations are being reviewed internally at the NYSE and NASD. He expects that the proposed rule changes will soon be filed with the SEC for the purpose of harmonizing the NYSE and NASD rules.
But ultimately this will not be enough. While rulebook harmonization will be an important step in reducing regulatory costs and improving investor protection, noted the SEC chair, it will not address the broader problems of conflicting enforcement and interpretations, or the potential for duplicative examinations, that result from having multiple SROs. Thus, he firmly believes that, until there is a joint regulatory entity, any progress will only be incremental.