THE NASD AND NYSE MERGER: MANY CHALLENGES AHEAD

First, allow me to define the aforementioned acronyms and give you a background as to the players of the merger. The NASD is the abbreviation for the National Association of Securities Dealers. The NYSE, the easy one, is the New York Stock Exchange. Both entities are SRO’s, self regulatory organizations. These particular SRO’s regulate the securities and investment industry, something near and dear to my heart. The NYSE is a for-profit agency and the NASD is a non profit agency. I am a member of the NASD only. There are 5,100 members of the NASD. Of that group there are approximately 180 members of the NYSE. The 180 members of the NYSE represent the largest Broker Dealers in the nation. The remaining members of the NASD represent the small to mid size Broker Dealers in the industry. For those who do not know me, my firm is small.

The SEC has basically mandated the two entities merge. This will cut down the duplicity of two SRO’s, streamline regulation and reduce expenses incurred as well. The members of the NYSE representing the largest broker dealers will be the greatest beneficiaries since they belong to both SRO’s. For the small to mid size firms it means change. With this change come increased compliance, more forms and paperwork. It is highly specialized and complex. Yet, for some reason I love it.

The primary concern to the small to mid size firms is the reduction of representation on the Board of Governors of the newly formed SRO. It does not have a name nor acronym as of yet. Currently my little firm has one vote that is equal to any of the largest firm’s one vote. The proposed format of the new Board will allow only six of twenty one board members to be represented by the small firms.

Being a member of this industry is an honor and a privilege. The work is hard and the benefits are great. There are many challenges ahead for small to mid size firms. With the merger there will be monetary savings for the years ahead for all firms. There could be fewer or less invasive audits for smaller firms as well. But we are not finished with this industry hurdle as of yet. A firm in California has filed suit to halt the merger based upon their interpretation of the vote to merge the SRO’s was misleading. Therefore, what was to take a couple of months will now be delayed. How long, we do not know.

Now that I have finished this discourse, you are probably wondering how this will affect you. For starters, if small firms such as mine are forced out of business by too much paperwork, regulation or by consolidation (rumor has it that the SRO’s would like to reduce the number of firms to 500 from 5100), the small investor will suffer the most. The vast majority of investors do not want to do the research and home work needed and will probably go underserved. They will end up dealing with a call center and technical service representative “du Jour,” possibly serviced by someone overseas. You think computer technical support is bad, wait until it is your money that is tied up and you are unable to communicate with anyone in a service center. Many small investors that are “do-it-your-selfers,” those willing to do their own research and decision making, will not be fazed a bit. Also, investment account minimums may be increased due to the increased cost to do business. There is much more change to come that will affect you the investor. The challenges are great but there are a couple thousand small firms such as myself willing to stick it out and voice our opinions.

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