Page 10 - White-Collar Crime

S10 | MONDAY, FEBRUARY 8, 2016 | WHITE-COLLAR CRIME
| NYLJ.COM

NYSE Returns

BY JEFF KERN
AND CHRISTOPHER BOSCH
To the Regulatory Beat
N
ew York is a two regulator town again.
At least that’s the case when it comes
out to self-regulation in the securities
industry.
On Jan. 4, 2016, the New York Stock
Exchange (NYSE)—now owned by Inter-

continental Exchange—reassumed some of
the regulatory responsibilities it yielded to
the Financial Industry Regulatory Authority
(FINRA), starting in 2007 when the NYSE and
National Association of Securities Dealers
(NASD) merged their self-regulatory func-
tions.1 The goal then was to address inef-
iciencies and overlap that often resulted

from the concurrent oversight by these two
self-regulatory organizations (SROs).
This article will set forth a brief history of
securities industry self-regulation and then
discuss the events leading to the creation
of FINRA, the NYSE’s related ceding of its
regulatory functions, and its subsequent
decision to return to self-regulation, before
concluding with an overview of how NYSE

will operate its reconstituted regulatory
program.

The Origins of Self-Regulation

Securities industry SROs date back to
the 1930s, when Congress passed a series
of broad acts designed to avoid a repeat
of the 1929 Stock Market Crash. Included

among this legislation was the Securities
and Exchange Act of 1934 (the Exchange
Act), which, among other signiicant mea-
sures, set forth national exchange registra-
tion requirements.2 Under these require-
ments, a prospective exchange must ile
with the SEC its “rules of the exchange”3
designed to allow the exchange to regulate

the conduct of its members so as to pro-
tect investors and the public interest.4 In
effect, this requirement resulted in national
exchanges, such as NYSE, functioning as
SROs. In 1938, Congress passed the Maloney
Act, which amended the Exchange Act and
established registered national securities
association SROs. Certain provisions of
the Maloney Act required broker-dealers

to register with either a national securities
exchange or a “registered securities associa-
tion.”5 Accordingly, in 1939, the NASD was
founded to serve as the SRO responsible for
monitoring the conduct of member broker-
age irms and exchange markets.
Over the next 60 years, self-regulation
took hold and then dramatically expanded
to the point where the inancial irms sub-

ject to self-regulation, not to mention gov-
ernment oversight, became well-positioned
to make the case that they were unfairly
burdened by an overbroad and ineficient
regulatory regime. By the turn of the cen-
tury, both the NASD and NYSE, who shared

JEFF KERN is special counsel in Sheppard, Mullin, Rich-
ter & Hampton’s New York and Los Angeles oices,
where he practices in the white-collar defense and
corporate investigations group. CHRISTOPHER BOSCH OCK
is an associate in the irm’s government contracts, ST
investigations, and international trade practice group.
BIG