Governance Issues at the New York Stock Exchange
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Case Details:
Case Code : BECG035
Case Length : 20 Pages
Period : 2003 - 2004
Pub. Date : 2004
Teaching Note :Not Available
Organization : NYSE
Industry : -
Countries : USA
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BECG035) click on the button below, and select the case from the list of available cases:
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Please note:
This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Excerpts Contd...
NYSE Comes Under Flak
Over the years, the style of governance at NYSE has attracted a lot of criticism chiefly on account of 'misgovernance' and the role of specialists. Analysts pointed out that the governance structure at NYSE had failed to deliver results, and that the NYSE had failed to safeguard the interests of the general public...
COMPOSITION OF THE BOARD
Analysts said that while NYSE demanded greater transparency in the operations of the companies it regulated, it did not itself maintain any transparency in its own working processes. The process of electing the NYSE board was not transparent and, in fact, the board was handpicked by the Chairman...
The Role of Specialists
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The specialist system at the NYSE also attracted considerable criticism. In April 2003, the SEC initiated an investigation against trading violations committed by specialists. The specialists were alleged to be involved in front running .
However, the NYSE refuted the charges and announced that SEC was inquiring into violation of the negative-obligation rule.
But analysts pointed out that the objective of the inquiry remained the same, though the rules violated differed. The primary question which the NYSE needed to answer was whether its specialists purchased shares at lower price with an intention to sell them afterwards for profit...
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The Final Assault- CEO Compensation
Finally, NYSE also faced increased criticism because it did not reveal its executive compensation figures. Under increasing pressure from the media and SEC, the NYSE announced its executive compensation figures in August 2003. These figures indicated that Grasso had been paid a lumpsum amount of $140 million for his services and that his employment contract had been extended upto the year 2007. The exchange revealed that Grasso would be receiving around $1.4 million as salary per year and a bonus of $1 million per year in the period 2003 to 2007...
The Clean-Up Exercise
Reed who took over as the interim chairman and CEO of NYSE in October 2003 initiated reforms at the exchange. He conducted interviews with the specialists, outside critics and experts on the kind of reforms to be initiated in the exchange procedures. Many suggested that NYSE should go the NASDAQ way by separating the regulatory function. Further, it was also suggested that the specialist system should be done away with, and the NYSE should opt for electronic trading. However, to the disappointment of many, Reed announced that he intended to keep the specialist system and would be focusing only on restructuring the NYSE board and bringing more transparency into the decision-making process of the exchange...
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Exhibits
Exhibit I: A Note on Specialists
Exhibit II: NYSE Committees
Exhibit III: Proposed Corporate Governance Architecture of NYSE
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