SRO merger called good deal for indies

BALTIMORE — The scheduled merger of the regulatory operations of NASD and the New York Stock Exchange offers an opportunity for independent-contractor broker-dealers, according to Douglas Shulman, the former’s vice chairman.
“It’s really the first modernization of the regulatory scheme in decades,” he said of the deal, which would form one self-regulatory organization for the securities industry. “There will be a single set of rules, adapted to firms of all sizes and business models.”
‘Cost savings’ due
Mr. Shulman spoke here last Wednesday morning at the Securities Industry and Financial Markets Association’s annual independent-firms conference.
“There’s going to be cost savings for firms. With one entity responsible for member firm oversight, we think there are real opportunities to tailor our rule book in a more-
targeted way toward firm size and business model,” Mr. Shulman said.
“We believe that this tiered approach in our thinking about regulation should yield rules that better rationalize the intent of the rules and the impact of those rules,” he said.
“This tiered approach to regulation that looks at different business models is clearly something that the independent-firms community is keenly interested in,” Mr. Shulman added. “We anticipate being in a lot of dialogue with you.”
But do not look for Washington-based NASD to immediately begin revamping its rule book once it merges with NYSE Regulation, Mr. Shulman said.
“Our timeline is, you’re not going to see a fully harmonized rule book immediately upon closing,” he said. “We’ll roll it out in an orderly fashion.”
Changes, however, could come before 2008, Mr. Shulman added. “If firms get together and decide quickly, and we decide quickly, you may see something” before next year, he said.
Some broker-dealer executives with independent-contractor firms were heartened by Mr. Shulman’s comments.
“I’m very optimistic to hear the term about having a ‘modern-day regulator.’ I think it’s something that we all in the industry have been looking for — for greater collaboration between the regulators and the industry,”said John Peluso, president of Richmond, Va.-based Wachovia Securities Financial Network LLC and chairman of SIFMA’s independent-firms committee.
“We have greater efficiencies to look forward to, and those efficiencies are going to result in improvements for our investors and the industry,” he said.
Wachovia is likely to see some of the improvements more quickly than most other independent-
contractor firms, because it is regulated by both NYSE and NASD, Mr. Peluso said.
In his speech, Mr. Shulman said that dual exams of firms would be one of the first redundancies to be eliminated. “That will be very helpful for us,” Mr. Peluso said.
“It’s very clear to me that [NASD] has really been listening,” said Valerie Brown, executive vice president, annuity and wealth management, for ING Advisors Network Inc. in Atlanta. Mr. Shulman spoke about “all the issues that are on our minds,” she said.
‘Very encouraged’
The “next generation” of rulemaking is likely to be more oriented to a broker-dealer’s size and business model, Ms. Brown said. That has to have some effect on the exam process, she said.
“Today, our exam process tends to be one-size-fits-all,” Ms. Brown said. But, she noted, the Securities and Exchange Commission has certain requirements for NASD exams of broker-dealers.
“I was very encouraged that harmonization across the other regulatory bodies, the SEC and the states, as well, is clearly on their minds,” Ms. Brown said. “That impacts our ability to do business well and serve our clients, and we need to keep that front and center with this new SRO.”

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