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Wall Street Repairs

November 24, 2003



Welcome reforms are afoot at the New York Stock Exchange, the symbolic headquarters of US capitalism whose operations touch most Americans' pocketbooks and nest eggs.

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The introduction of an eight-person board with directors who are independent of Wall Street is at the heart of the overhaul. The previous 27-person board included executives whose firms the NYSE regulates, a clear conflict of interest.

The reforms were approved last week by the exchange's member firms and individuals, with the Security and Exchange Commission (SEC) expected to approve them after taking public comment until Dec. 4.

Independent directors will certainly bring better oversight of the Big Board's operations - including regulation of market trading and NYSE executives' compensation. The exchange must operate with integrity and in the public interest.

Sadly, that has not always been the case. The NYSE was embarrassed into making the current wave of reforms when former chairman and chief executive, Dick Grasso, was found to have received a $187.5 million pay-and- retirement package from directors.

When Mr. Grasso was forced out in September, former Citigroup executive John Reed stepped in as interim chairman and, working for $1 a year, drafted the reform package.

The Reed plan doesn't satisfy everyone. Some state officials argue it does not go far enough and that the exchange should give up its self- regulatory functions. Republicans and Democrats on the Senate Banking Committee last week pressured SEC Chairman William Donaldson to consider forcing the NYSE to take bolder steps, including removing the exchange's ability to regulate trading of securities. The SEC chief said he wanted to withhold judgment on the NYSE plan until the public had had an opportunity to comment.

Whatever happens on the self-regulation issue, clearly the exchange has work to do. First on the agenda is finding a person of integrity like Mr. Reed to take his place.

Then the NYSE must deal with charges that some member firms who have acted as middlemen between buyers and sellers looked out for themselves rather than for investors. An SEC report alleges these "specialists," as the NYSE calls them, shortchanged investors by at least $155 million over the past three years.

The public has an enormous stake in the stability the 211-year-old exchange. With its famous bell ringing market openings, the NYSE is the visible symbol of the world's largest economy. The 363 billion shares that changed hands last year included individual investments, pensions, and mutual-fund holdings of countless investors. It's the premier place for raising funds to help companies grow and expand, creating more jobs.

As the world capital of capital, the NYSE has been a tremendous force in both creating and distributing wealth, but only when its private interests are guided to work in the public interest.

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