|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
SRO Immunity in New Era of For-Profit Exchanges
Roberta S. Karmel
New York Law Journal. December 20, 2007
_________________________________________________________________________
EXCERPT: The National Association of Securities Dealers Inc. (NASD) and NYSE Group Inc. (NYSE) have combined most of their regulatory operations into a new entity called the Financial Industry Regulatory Authority (FINRA). Both the NASD and the NYSE began as voluntary organizations of broker-dealers, but since 1983, all broker-dealers registered with the Securities and Exchange Commission (SEC) have been required to join the NASD. [FN1] Exchanges and the NASD long served two functions. They were marketplaces for the trading of securities and regulators of their markets and their members. From 1934 until the present, Congress and the SEC have struggled to convert these self-regulatory organizations (SROs) from 'private clubs' to public bodies, frequently exploiting scandals to impose governance reforms and more extensive SEC surveillance on exchanges and the NASD. [FN2] Private or Governmental Entities?
Recently, the NYSE and the NASD separated their market and regulatory functions into separate entities, so that the Nasdaq Stock Market Inc. (Nasdaq) and the NYSE operate as public corporations independent of FINRA and one another. Now that the broker-dealer regulatory functions of the NYSE and NASD have merged, the monopoly status of FINRA strengthens its role as a regulator of broker-dealers. Nevertheless, although the NYSE and NASD no longer generally regulate their members, they do continue to regulate their own markets. In connection with these developments, the SEC assumed greater plenary power over the governance structure of the SROs. Over the years, the NYSE and the NASD have been treated as private-sector business organizations for certain purposes and as government or quasi-government entities for other purposes. One of the important areas where courts have had to distinguish between treating SROs as private or governmental entities is immunity from prosecution for their failures to appropriately exercise their regulatory responsibilities. This column will discuss several recent cases that draw a distinction between the NASD and the NYSE as commercial enterprises, where they may not have immunity from prosecution, and SROs as regulators, where they are given governmental immunity. What is interesting is that these cases predated the separation of the SRO's market and regulatory functions, but address the role of an SRO as a regulator of its own market, a responsibility which both the NYSE and Nasdaq have retained. |
|
|
