As expected the NASD members approved the regulatory consolidation of the NASD and NYSE. The vote took place on Friday. I'm sure the industry across the board is celebrating the decision as this move is expected to reduce the regulatory and financial burden of all member firms.

Compliance cost for financial services firms have doubled in the last three years, according Micah Green, co-ceo of SIFMA, up from $13 billion in 2002 to $25 billion in 2005.

The concept of one regulator with one "rule book" is expected to dramatically reduce these costs. The merger will combine the NASD’s regulatory, testing, examination, education and industry tools with member regulation of the NYSE. NYSE market surveillance and oversight of trading rules will not be part of the merger.

Doug Shulman, vice chairman of NASD, commenting last week at an industry conference said combining the operations is expected to save $200-400 million.

One of the burdens has been that the NASD and NYSE have each had their own rule book—which at times were not in sync. "These competing rule books ratchet up regulation," noted Shulman. Dueling rule books do not help the cause of rationalizing and streamlining regulation, he noted.

Shulman discussed some of the benefits to one regulator.

• One rule book will ensure that the industry is not spending time comparing one rule against another and trying to sort out and meet both requirements.


• A single SRO will help the US capital markets keep their competitive edge (Shulman noted that during one of his discussions on this topic, an industry exec noted, "Any time you get to kill a reulator, it's got to be good for an industry."


• A single SRO will give the regulators more time to create a "tiered and tailored" approach to rules. For example, all rules in the future may not cover all firm types and sizes. There might be special allowances or separate rules for firms with special business types and sizes.

This tiered and tailored approach would be a first for the industry and would be a welcome change from the one rule for all approach. It will be interesting to see if and when this type of new policy is set into motion.

Check out a NASD release on the merger decision.

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