Compliance
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NYSE Regulation's Richard Ketchum ... And the Exchange's New Bull Market for Compliance
September 1, 2005
It wasn't the sort of call to action that elicits whistles and applause. Last April, in a sternly worded announcement, the Securities and Exchange Commission charged that over the course of four years, the New York Stock Exchange had routinely allowed specialists to engage in widespread and illegal proprietary trading on the floor of the exchange. n In addition to failing to detect most of the violations, the SEC said that the NYSE did not adequately investigate the violations it did turn up. n Without contesting the charges, the NYSE agreed to a series of remedial measures that included strengthening oversight of floor members, spending $20 million on regulatory audits through 2011, and implementing an 18-month pilot program of audio and video surveillance of the trading floor. n "The relief we have obtained in this action will raise the bar for regulation at the NYSE," said Mark K. Schonfeld, director of the SEC's Northeast regional office, at the time.
Despite the bad publicity that resulted from the SEC's charges, there is a significant silver lining for the Big Board. After a long period of relative silence and low-profile activity in the regulatory sphere, the NYSE is behaving like it has been born again as a regulator: It is reaching out not only to floor members, other regulators and the broader securities industry, but it has also turned over a new leaf in its dealings with financial journalists long accustomed to viewing the NYSE as an uneven communicator.
"It is important to note our outreach and dialogue with member firms and the community," says Robert A. Marchman, the new executive vice president of market surveillance at the NYSE. "In the past, this is something the NYSE has been criticized for. Good compliance is good business."
In a visible sign of its metamorphosis into a good-guy regulator, NYSE Regulation, the independent regulatory arm of the NYSE, held its "first annual securities conference" on June 21-22 at the Grand Hyatt in New York. An audience of more than 500 compliance executives, lawyers and corporate bigwigs heard top SEC and NYSE regulatory officials address issues that included managing business conflicts, archiving electronic communications, and what to expect in regulatory exams.
"Self-regulation can be both aggressive and intelligent," says Richard G. Ketchum, the first chief regulatory officer of the exchange. "One of the ways we can achieve that goal is from a robust exchange of ideas."
Another way is through a top-to-bottom reorganization of the self-regulatory apparatus, undertaken not only to satisfy the SEC, but also to help its members cope with the new culture of compliance. "There has been a sea change in the industry's commitment to compliance," Ketchum said recently. "There is no doubt that one of the greatest exposures for a big [broker-dealer] is to have ineffective compliance, which poses a risk to the firm."
In a series of interviews with Securities Industry News, Ketchum and other top NYSE regulators laid out the thrust of their regulatory initiatives and previewed what members can expect going forward. Ketchum, 53, a former president of both the National Association of Securities Dealers and Nasdaq who came on board 18 months ago, does not hesitate when asked about the most important changes on his watch so far. He brought in new leadership in three key regulatory positions: Marchman, who was a branch chief in the SEC's enforcement division before becoming the NYSE's enforcement director in 1989, as chief of market surveillance; Grace Vogel, former Citigroup deputy controller, as head of member firm regulation; and Susan Merrill, a former partner in the Davis Polk & Wardwell law firm, as chief of enforcement. Ketchum also created a new risk assessment unit headed by Allison Bishop, who was previously an assistant district attorney in New York.
