Speech by SEC Commissioner:
Statement Regarding the NYSE Approval Order

by

Commissioner Roel C. Campos

U.S. Securities and Exchange Commission

Washington, D.C.
December 17, 2003

As the Chairman and my fellow Commissioners have noted, in the recent past, we and the public have become aware of severe problems at the NYSE: both as to the governance of itself and as to the fundamental question of whether the NYSE can ever regulate and police itself honestly and in a way that is fair to all investors.

Today's order, I believe is the "start of the beginning" of serious change and reform for the New York Stock Exchange. I do not believe that I could support the order today if I thought that the changes proposed in this order were the end of the matter. However, I have been given assurances on two fronts. I asked Interim Chairman John Reed last night, "Does the new board have the vision and the will to do a serious examination of the governance and regulation of the Exchange? Will the board study the trading function of the floor, and does the new board have the resolve to make tough changes where necessary in the public interest?" Chairman Reed emphatically answered "yes" to these questions.

Secondly, I have conferred with the Chairman and fellow Commissioners and staff and have determined that our Commission has the will to study further and in depth in the very near future the effectiveness of the concept of self regulation by our markets. I believe that we owe the public and Congress a thorough "bottoms up" review of the self regulation of our markets. As many have observed, self regulation has not been working well. We must begin with a thoughtful concept release, in which our agency solicits the best ideas from the best minds and from the savviest individuals in the industry. As Commissioner Glassman and Goldschmid have stated today, the full range of potential changes to the current self regulatory organizations should be examined and should "be on the table." Of course, as our Chairman has pointed out, the study of self regulation should be coordinated and spaced within the context of our agency's review of overall market structure. The Chairman and the other Commissioners have just stated their support for our agency to tackle and rationalize the way our markets do business. We need rulemaking to examine the efficacy of existing rules, such as the trade through rule, internalization, payment for order flow, and access fees to name a few. To this list we must add an examination of how to ensure that self regulation works.

I also believe that we as an agency, must also examine "how we examine" the exchanges. We too must have the strength and will to be self critical and to rethink old methodology. We too must think out of the box. I know the Chairman has emphasized this to the staff. In an effort to encourage bold thinking, I have asked the question of our staff as to whether the SEC should have an on-site presence at the NYSE (and perhaps other exchanges) to monitor how the SRO is performing its duties. This approach has served other regulators in other industries and might offer an alternative to those critics who demand that the SRO be separated and made to be external to the exchange. This may ultimately prove to be a bad idea, and I will once again be shown to be half baked. There may be far better approaches. The important thing is that the SEC must be second to none in innovative thinking.

There are several improvements to the NYSE governance that I have personally advocated and made known to the Chairman and the staff. First of all, I am delighted that the NYSE Chairman and CEO will be separate and that different individuals will serve in those positions. The new board and Chairman Reed have shown outstanding judgment in committing to this form of governance. Recent NYSE history shows that a person who is both Chairman and CEO can amass tremendous power and be able to keep the board uninformed and ineffective. Chairman Reed has informed me that he has been instructed by the board to search for two different individuals for those positions.

I was also concerned about the number of meetings of the board. The proposed rules provided for a minimum of four. Chairman Reed further assured me that the board will meet as often as necessary. It will certainly take much time and work and many meetings to deal with the issues at the NYSE.

I was concerned about the board committing to meet often in executive session outside the presence of management. Again, Chairman Reed has given me assurances. He told me that the board will meet as a standard practice for at least one hour in executive session at the beginning of each board meeting. That is an excellent practice.

As we all know, a board can be the victim of what has been termed the "tyranny of information flow." For this reason I asked the staff to ascertain that under the proposed structure the board had the right to spend funds to obtain independent consultants, advisers and staff. I have been told, and it is reflected in the order, that the board indeed does have that right. I believe that an independent board will need such staff support and consultants to be able to evaluate management positions effectively.

Finally, as did my fellow Commissioners, I also wish to thank Interim Chairman John Reed for taking on the tremendous challenge of restructuring the New York Stock Exchange. He has accomplished much in a short time and has faced enormous odds against him. Mr. Reed himself has said that establishing a structure with an independent board of directors will allow the board to study the situation and develop insights that will lead to further reform of the NYSE. That is exactly what I hope this board will be doing.

I also wish to thank the members of the new board for taking on the challenge of reforming the NYSE. At the end of the day only the will and dedication of the members of the board and their efforts to inspire the officers and employees of the NYSE will produce a new vigilence and integrity at the NYSE.

The staff is certainly to be commended for their hard work and dedication in this effort and the many long hours they have spent.

Mr. Chairman, I am pleased that we have arrived at this first crucial step. For the reasons I have articulated I support the order and will vote to aprove it.

Thank you

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