The model put in place by the NYSE generated, over time, some potential conflicts of interest. As a stock exchange, NYSE Euronext sometimes found itself having to oversee its own activities. NYSE Euronext has relied extensively on both NYSE Regulation and FINRA to address these potential conflicts.
At the time the NYSE went public, the NYSE predictably wanted to list the shares on its own exchange. The decision created circumstances whereby the NYSE would have to monitor itself for compliance and potentially bring enforcement actions against itself. The Commission noted the concerns over "self-listing."
- The Commission believes that such "self-listing" raises questions as to an SRO's ability to independently and effectively enforce its own and the Commission's rules against itself or an affiliated entity, and thus comply with its statutory obligations under the Act. For instance, an SRO might be reluctant to vigorously monitor for compliance with its initial and continued listing rules by the securities of an affiliated issuer or its own securities, and may be tempted to allow its own securities, or the securities of an affiliate, to be listed (and continue to be listed) on the SRO's market even if the security is not in full compliance with the SRO's listing rules. Similar conflicts of interest could arise in which the SRO might choose to selectively enforce, or not enforce, its trading rules with respect to trading in its own stock or that of an affiliate so as to benefit itself.
Exchange Act Release No. 53382 (Feb. 27, 2006).
The NYSE dealt with the potential conflict by, among other things, providing that NYSE Regulation would monitor the holding company for continued compliance with listing and trading requirements and would file quarterly reports with the Commission. Notification of non-compliance with listing standards and any plan to remedy the deficiency also had to be reported to the Commission. Finally, the NYSE committed to an annual compliance audit conducted by an independent accounting firm. See Exchange Act Release No. 53382 (Feb. 27, 2006). The requirements are reflected in NYSE Rule 497.
At the same time, the merger between the NYSE and Archipelago Holdings, Inc. resulted in the NYSE acquiring the Pacific Stock Exchange (renamed NYSE Arca). See Exchange Act Release No. 52497 (Sept. 22, 2005) (approving acquisition of Pacific Stock Exchange by Archipelago). The NYSE owned a member firm of NYSE Arca (Arca Securities). Arca Securities was apparently placed under the supervision of NYSE Regulation, something made explicit some years later. See Exchange Act Release No. 58681 (Sept. 29, 2008) ("NYSE Regulation will monitor Arca Securitiesfor compliance with NYSE Arca's trading rules, and will collect and maintain certain related information."). Arca Securities is also subject to review by FINRA. Id.
This oversight, coupled with responsibilities assigned to FINRA, was viewed by the Commission as adequate protection against any conflict of interest. See Exchange Act Release No. 58673 (Sept. 29, 2008) (“ the Commission believes that FINRA's oversight of Arca Securities, combined with NYSE Regulation's monitoring of Arca Securities' compliance with NYSE Alternext US's trading rules and quarterly reporting to NYSE Alternext US's CRO, will help to protect the independence of NYSE Alternext US's regulatory responsibilities with respect to Arca Securities.”).
The solution, therefore, relied upon the independence of NYSE Regulation. The analysis by the Commission largely addressed the problem of disparate oversight or enforcement. It did not address whether self listing or ownership of an Amex member provided the holding company with an incentive to weaken the regulatory burden of listed companies and members in general. Of course, had that issue been analyzed, the NYSE Euronext and Commission likely would have relied upon the independence of NYSE Regulation and its ability to resist any pressure even if the holding company were so motivated.