Panel Urges Overhaul Of Nasdaq Rudman Committee Finds Flaws In Administration Of Stock Market

An independent review of the Nasdaq Stock Market and its parent offered restrained criticism Tuesday, calling for additional public board members and a shake-up of the corporate governance to keep pace with the market’s rapid growth.

A special committee led by former New Hampshire Sen. Warren Rudman found problems in supervision of Nasdaq by its parent, the National Association of Securities Dealers Inc. The panel’s work began last year as a result of lawsuits and investigations questioning whether major Nasdaq dealers colluded to fix prices on the computerized market.

“… The NASD board is not well-suited to take a firm hand in regulating the Nasdaq market and its trading system,” the Rudman committee said.

The panel found the NASD “has failed to keep pace with the significant growth and continuing evolution of the Nasdaq market.”

It faulted the problems on the NASD’s divided mission: overseeing the booming Nasdaq market and policing all 500,000 registered stock brokers and securities professionals.

A persistent criticism is the NASD is dominated by a handful of large firms that aggressively protect their own interests to the exclusion of small firms and individual investors.

The Rudman panel found that a dozen large firms played a major role in the NASD, both from a financial and political perspective.

Twelve large firms together account for 24.5 percent of the NASD’s total revenue from membership fees, payment for the Nasdaq service, trading and related services, the panel found.

“Individuals associated with some of these firms routinely appear in the rosters of NASD governing bodies, while individuals from other firms appear sporadically,” the report said. It added that larger firms can afford to let their executives participate in NASD committees, while time-stretched executives at smaller firms might find that more difficult.

The Rudman report’s sharpest criticism was that NASD lacked a strong, independent auditor to ensure regulations are being carried out properly.

The existing NASD review of regional enforcement actions was criticized as “moribund” which represented a “significant deficiency,” the report said.

And it called for NASD to devote more resources to enforcement and coordinate better with state regulators.