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John Reed proposed to revamp the New York Stock Exchange’s governance structure on Wednesday but he left the day-to-day operations of the world’s largest stock market largely intact. The plan put forth by the exchange’s interim chairman would institute a two-tier board of directors to oversee the NYSE, which has come under fire following the furor over former chief Dick Grasso’s pay and allegations of improper trading. A board of six to 12 independent directors would replace the NYSE’s current 27-member board and would govern the exchange’s regulatory and compensation practices. A separate executive panel made up of industry participants would oversee the market’s operations, such as listing standards. The Securities and Exchange Commission strongly backed the plan. “This proposal represents a significant rethinking of the structure that has existed at the NYSE and addresses the issue of independent oversight of the exchange’s regulatory structure,” the agency said in a statement. The SEC must approve the reforms and will publish the proposal for public comment. Yet Reed stopped short of a more drastic overhaul, including separating the regulatory and market center operations of the exchange or eliminating the floor-trading specialist system. While acknowledging that there is room to criticize the exchange, he said self-regulation is something the NYSE does “superbly well,” adding that he prefers to keep such functions in-house. Instead, the independent board would appoint a chief regulatory officer, who would report to the exchange’s regulation oversight committee rather than to the NYSE’s chief executive. Jodi Burns, an analyst at Celent Communications LLC, praised the initiative, but she noted that it is certain to draw criticism from proponents of more extensive reform. “[Reed] wasn’t hired to make those changes; he was brought in to fix governance,” she said. “He stayed on task, and you can’t fault him for not taking on an overhaul of the entire system — that’s for whoever takes over.” The proposal, which was mailed Tuesday to the NYSE’s more than 1,300 members for approval by Nov. 18, would force all current board members to resign. Reed told reporters that directors “did not serve the institution well.” He has already requested and received the resignations of a majority of the board members, who will depart if the plan is approved. The only two holdovers from the board nominated to the new board are Madeleine Albright, former U.S. secretary of State, and Herbert Allison, chairman of pension fund giant TIAA-Cref. The other six nominees are Euan Baird, retired head of oil services company Schlumberger Ltd.; Marshall Carter, retired head of State Street Corp.; Shirley Ann Jackson, head of Rensselaer Polytechnic Institute; James McDonald, chief executive of Rockefeller & Co., which manages money for the Rockefeller family; Robert Shapiro, retired head of Monsanto Co.; and Sir Dennis Weatherstone, a former executive with J.P. Morgan & Co. Reed said he chose the slate of nominees and emphasized that the NYSE membership had no input into the selection. “The slate of candidates shows that he’s committed to an independent and knowledgeable board,” Burns said. Gordon S. Kaiser Jr., a partner at Squire, Sanders & Dempsey who specializes in securities law, said the nominees are “highly qualified, intelligent people with wonderful reputations. I don’t think you can improve that.” Under Reed’s plan the new board members would face election every year but would not be subject to term limits. Eliminating these limits is aimed at improving continuity in governance of the NYSE, Reed said. The frequent turnover of directors may have hurt communication between the board and Grasso, contributing to the problem, he added. Also under the plan the new board would have the authority to separate the roles of NYSE chairman and chief executive or preserve the joint position. If a single person held the two posts, a lead director would be named to serve as “a balance” to the exchange’s chairman and chief executive, Reed said. Kaiser said it is too soon to conclude whether the proposed reforms go far enough. “It remains to be seen if the constituencies calling for complete separation of regulation and market functions will be satisfied with this compromise,” he said. The Council of Institutional Investors complained Tuesday that the reforms did not go far enough, and it pressed the SEC to push for a full separation of the NYSE’s regulatory and market functions. Copyright �2003 TDD, LLC. All rights reserved.

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