WASHINGTON Federal regulators, responding to a pay scandal at the New York Stock Exchange, approved an overhaul Wednesday after the exchange agreed to split its top executive position in two to avoid massing too much power in one person.
The Securities and Exchange Commission voted 5-0 to approve the overhaul plan proposed by the exchange's interim chair, John Reed, and endorsed last month by 98 percent of the exchange's members. The plan will establish a smaller and more independent board of directors to oversee regulation of the exchange and appointment of an autonomous chief regulatory officer.
The nation's largest stock exchange is emerging from controversy that arose in September over its chair's pay and power. SEC approval was required for the overhaul plan to go forward.
Commission chair William Donaldson announced that, in addition, the exchange had decided to separate the chairman and chief executive officer positions a change he had urged.
''In this way, the NYSE should be in a better position to protect against the concentration of too much executive authority in one individual,'' Donaldson said.
Reed had previously expressed opposition to the idea. But Donaldson told reporters after the meeting that ''there was no arm-twisting'' by the SEC and Reed and the NYSE board members simply ''decided that this was the way to go.''
They made the decision and informed him of it several days ago, Donaldson said.
On Tuesday, the nation's largest public pension fund, the $154 billion California Public Employees Retirement System, announced it was filing a class-action lawsuit against the NYSE and seven trading firms, alleging that fraudulent practices cost the system millions of dollars in recent years.
The NYSE and the SEC have been investigating the alleged trading abuses. CalPERS officials said they decided to sue rather than rely on the SEC because the agency had not fulfilled its regulatory duties.
Donaldson dismissed that criticism Wednesday, saying, ''We were on the scene immediately and have been on the scene ever since.''
Officials of CalPERS and other huge public pension funds, controlling hundreds of billions of dollars in nine states, have insisted that the proposed NYSE reforms are insufficient to restore investors' trust shaken by revelations of the $188 million pay package of then-chair Dick Grasso. He was ousted in September.
''We are very disappointed that the SEC has voted to approve the Reed plan without seeking further changes besides splitting the chair and CEO positions,'' the fund officials said in a statement Wednesday.
Several lawmakers have questioned the adequacy of the NYSE proposal, too, noting that the board members supervising the exchange's regulation would be up for election annually by the member firms being regulated.
Some critics have said strict separation between the exchange's self-regulation and commercial operations is needed.
But Donaldson, who headed the exchange in the early 1990s, insisted that the overhaul plan marked a ''very clear separation'' of the two a change he said should bolster ordinary investors' confidence in the market's integrity.
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