New York Stock Exchange's self-regulatory functions should be taken over by an independent organization, said two speakers testifying before the Senate Banking, Housing and Urban Affairs Committee.
They cited inherent conflicts if self regulation continues under the NYSE Group Inc., a publicly traded, for-profit company.
"Unfortunately, lapses in self regulation over the years - including failures to adequately oversee specialists, enforce rules and maintain up-to-date listing requirements - have harmed investors and shown that the self-regulatory model is in need of reform," said Ann Yerger, executive director of the Council of Institutional Investors.
Richard Ferlauto, director of pension and investment policy at the American Federation of State, County and Municipal Employees, said NYSE Group's retention and financing of its regulatory unit "poses a significant danger to investors." Congress should work with the SEC "with the goal of eliminating self-regulation by the exchanges," he said.
"The NYSE cannot, in any reasonable person's mind, be both a for-profit entity whose critical success is tied to growing revenues, including from listing fees, and at the same time be expected to take actions that would result in a negative impact on those fees," Mr. Ferlauto added.
John A. Thain, CEO of NYSE Group, supported the company's retention of self-regulatory functions in testimony before the committee.
"I believe a regulator with a real-time understanding of how the marketplace is evolving in the face of competitive forces has a better chance of keeping ahead of the curve and being integrally involved in shaping marketplace evolution to ameliorate any regulatory concerns," Mr. Thain said.
