Regulatory Consolidation on the Horizon

On November 28, 2006 the NASD and NYSE Group, Inc. announced the signing of a letter of intent to consolidate their member regulation operations into a new self-regulatory organization (“SRO”) that will be the private sector regulator for all securities brokers and dealers doing business with the public in the United States.  Mary L. Schapiro, the current NASD Chairman and CEO will become the CEO of the new SRO.

The new SRO, which will be named at a later date and will begin operations in the second quarter of 2007, will consist of the current 2,400 NASD personnel combined with approximately 470 NYSE staff members working within the member regulation, arbitration, and enforcement teams.  The new SRO will operate from Washington, DC, New York, NY, and 18 district and dispute resolution office locations around the country.

The new SRO will be responsible for all member examination, enforcement, arbitration and mediation functions, as well as all other current NASD responsibilities.  NYSE Regulation will continue to oversee the NYSE market, through its market surveillance division, related enforcement functions, and listed company compliance.

The regulatory consolidation plan has been aggressively pursued with the following goals in mind:

• Making U.S. Markets more competitive by streamlining regulation;
• Reducing regulatory complexity and elimination of potential conflicts of interest between regulators;
• Adoption of a uniform set of rules that has the flexibility to accommodate securities firms of different sizes and business models;
• Creation of cost savings for all firms within the industry; and
• Ensuring the best regulatory structure is in place for capital markets and investors

The activities of the new entity will be overseen by a 23-person Board of Governors with 11 of those seats held by Public Governors.  The remaining seats will be held by industry representatives from small, medium, and large firms based upon a prescribed formula.

Upon the closing of the transaction, each NASD member firm will receive a one-time payment of $35,000 in recognition of the anticipated cost savings that will result from the implementation of the plan.  Certain member fees also will be reduced for a period of 5 years.

More information regarding the Regulatory Consolidation Plan is available at www.nasd.com.

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