January 11, 2010
Still Hazy After All These Years
Part of the call for reform in the wake of the financial crisis has sounded in the yearning for agency consolidation. But mergers of regulatory entities, even undertaken in quiet times, can be painfully slow ordeals.
Take, for example, the universally applauded merger of the enforcement divisions of the National Association of Securities Dealers and the New York Stock Exchange to form FINRA (the "Financial Industry Regulatory Authority"). Completed in July 2007, the deal necessitated the combination of two thick and storied rulebooks, the NASD Manual and the NYSE Constitution and Rules. Further complicating matters were the distinctly different markets to be overseen (Floored and cyberpspacetrading facilities), NASDAQ's 2006 conversion to a national securities exchange, and the transformation of "seats" on both entities into stock in the last decade.
The end result? It's now 2010, and the official "FINRA Manual"/Consolidated FINRA Rulebook is actually a checkpoint on the research road to guidance groupings referred to as "FINRA Rules," "NASD Rules," "Incorporated NYSE Rules" or "Incorporated NYSE Rule Interpretations." No one is accusing the nation's largest regulator of broker-dealers of sloth in its efforts at combining regulations, but the fact remains that the synergy of 1) cultural differences between the two market centers, 2) market complexities, 3) the SEC rule approval process, and 4) FINRA's shifting priorities have pushed a process that at one time was hoped to be completed in 18 months into its fourth year.
All of which serves as a reminder as both Congress and effected agencies throw around terms like "consolidation" and "harmonization". While it may be politically savvy to cut vague products in twain (e.g., by distinguishing securities-based derivatives from commodities-based derivatives), or seemingly expedient to cross-train examiners (e.g., by declaring a sole fiduciary standard for both brokers and investment advisers), sometimes it may be simply more efficient to keep the responsibility intact at one agency or one subdivision thereof and promise its rival the next opportunity that arises.
January 11, 2010 | Permalink