The Securities and Exchange Commission is turning up the heat on the New York Stock Exchange.
A top SEC official said yesterday her agency could block a Big Board IPO if the exchange doesn’t make concessions on key rule changes.
SEC Commissioner Laura Unger said in an interview with Bloomberg that NYSE’s infamous Rule 390 had to go.
“You wouldn’t want the appearance of an exchange that regulates trading also having a rule that’s anti-competitive,” Unger said.
“The rule is a particularly troubling issue in the context of the exchanges as for-profit companies.”
SEC approval is needed before the NYSE can become a for-profit company, and Unger said the SEC may use that as leverage against the Big Board to force the change.
Rule 390 bars NYSE members from trading off the exchange in companies listed before 1979.
That means brokers who are NYSE members can’t trade stocks like IBM or General Motors on electronic stock-trading networks after hours.
Along with drawing loud complaints from the electronic networks, the rule has led to quiet grumbling from some of the biggest brokerages on the Street.
Grasso said in congressional hearings last week he has “no intention” of changing the rule.
Unger became the first SEC official to publicly advocate merging the broker-policing units of the different exchanges when they go public.
“It makes a huge amount of sense in terms of efficencies,” Unger said.
“It most clearly satisfies our regulatory goals.”
The question of what happens to the exchanges’ self-policing bodies if they become for-profit companies has been a major sticking point since the NYSE and Nasdaq said they want to go public.
Grasso wants to keep all of the self-policing functions in-house and has drawn support from key congressional figures.
NYSE sees its self-regulation track record as a selling point in an increasingly competitive market.
Unger praised a plan that would have NYSE and Nasdaq police their own trading floors while all other responsibilities – known as broker-policing – would be merged into a new regulatory entity.
SEC Chairman Arthur Levitt has said he finds the plan “intriguing” and SEC staff have been pushing hard for it on Capitol Hill.
NASD Chairman Frank Zarb has gone further, advocating that all of the self-regulation functions being spun off and merged.