When the NYSE went public in 2006, a spirited debate arose over whether a for profit company could adequately insulate its regulatory function from the for profit motives of the holding company.
In seeking to insulate the regulatory function, the NYSE formed NYSE Regulation, a non-profit with a board consisting entirely of independent directors (save only the CEO). The bylaws provided that NYSE Regulation could not have a majority of directors from the holding company. In addition, NYSE Regulation had its own compensation and nominating committee, both of which could not have a majority of directors from the holding company. The Exchange, pursuant to a delegation agreement, assigned regulatory functions to NYSE Regulation (although legal responsibility remained with the Exchange).
Thus, the structure created a number of safeguards designed to separate the regulatory and business functions of the exchange.
In June 2015, the Exchange proposed to end the structural separation of the regulatory and business function and replace it with a functional separation. The proposal is here.
Under the proposal, regulatory authority of the Exchange would no longer be delegated to NYSE Regulation. Instead, the proposal called for the creation of a regulatory oversight committee (ROC) of the board of the exchange and a chief regulatory officer (CRO). The proposal, however, allowed for greater potential influence from the directors of the for profit holding company than the NYSE Regulation structure. Moreover, the express language creating the ROC provided the committee with little substantive authority over the regulatory mission of the Exchange. Despite these concerns, the staff approved the proposal without significant change. The adopting release is here. We will discuss these issues in the next few posts.
These issues are discussed in an exchange of letters with the NYSE. The letters are here.