The New York Stock Exchange: Governance and Market Reform


Publication Date: November 2003

Publisher: Library of Congress. Congressional Research Service


Research Area: Banking and finance



On September 17, 2003, Richard Grasso resigned as chairman of the New York Stock Exchange (NYSE) after a public uproar over his $187.5 million pay package . Although Grasso is not charged with any violation of law or other wrongdoing, many see his compensation as symptomatic of fundamental problems in NYSE governance, regulation, and operations. Numerous reform proposals are under discussion, both within the NYSE, among regulators, and in Congress. First, the NYSE has proposed to restructure its board of directors to exclude representatives of the securities industry. Second, some see a conflict of interest in the NYSE's role as a self-regulatory organization: is its responsibility to enforce trading rules compromised by its devotion to its members' financial interests? Finally, the NYSE is the last major stock market where most orders are executed by humans on a trading floor rather than matched by computers. Would public investors benefit if the exchange (or its regulators) made reforms in market structure to foster competition with the NYSE's electronic rivals?

As the world's largest stock exchange and a key part of the U.S. economy, the NYSE is a central focus of Congress's oversight of financial markets. In October 2003, the House Financial Services and Senate Banking Committees held hearings on market structure and the future of the securities industry. Further hearings are planned. This report sets out the basic issues in NYSE governance and market structure, and will be updated as events warrant.