Feds approve revamped NYSE

WASHINGTON — Federal regulators, responding to a pay scandal at the New York Stock Exchange, approved an overhaul of the exchange Wednesday after the NYSE agreed to split its top executive position in two to avoid one person having excessive power.

The Securities and Exchange Commission voted 5-0 at a public meeting to approve the overhaul plan proposed by the NYSE’s interim chairman, 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 a scandal that erupted in September over its former chairman’s lavish pay, which raised the issue of an imperious chief executive. SEC approval was required for the reform plan to go forward.

Commission chairman William Donaldson announced that, in addition, the NYSE 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 to convince Reed and the NYSE board members, who simply "decided that this was the way to go." They made the decision and informed him of it several days ago, Donaldson said.

NYSE spokesmen in New York had no comment.

On Tuesday, the nation’s largest public pension fund, the $154 billion California Public Employees Retirement System, announced it is filing a class-action lawsuit against the NYSE and seven trading firms, alleging that fraudulent practices cost it millions of dollars in recent years. The pension fund is seeking an unspecified amount of money, but fund officials said it could add up to hundreds of millions of dollars if other parties join the suit.

The NYSE and the SEC have been investigating the alleged trading abuses. California officials said they decided to sue rather than rely on the SEC because the agency has 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 the California pension fund 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 shattered by revelations of the $188 million pay package of then-chairman Dick Grasso. He was ousted in September.

And several lawmakers have questioned the adequacy of the NYSE proposal, noting that the board members supervising the exchange’s regulation would be up for election annually by the member firms being regulated.