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Full coverage of the November 29, 2005 event. Duration: 1h, 26min
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John Reed’s first job in restoring credibility at the New York Stock Exchange in 2003 was creating transparency in an “opaque” nonprofit company with no legal obligation to be otherwise. As chairman from September 2003 to April 2005, Reed rewrote the exchange’s constitution, later approved by the Securities and Exchange Commission.
“The board of the stock exchange then was very much an insiders board,” Reed said during a discussion at Gleacher Center November 29 sponsored by George J. Stigler Center for the Study of the Economy and the State and moderated by professor of economics Randy Kroszner, director of the Stigler Center. “There was some members’ representation, but it was dominated by the big Wall Street brokerage houses and investment banks. The whole governance structure spoke to a prior time in history when that is how financial institutions were operated,” Reed said.
Craig Donohue, CEO of Chicago Mercantile Exchange, led a more voluntary overhaul of the CME in which its board was reduced from 40 to 20 members and went from an “owner-operated mentality” toward a public company environment. “We believed the successful transformation of the company would be dependent on maintaining key stakeholders involved in the governance process,” Donohue said. “We don’t support the view that members of the exchange can’t be independent from the company. You have to get away from sort of preconceived ideas of conflicts of interest in terms of change.”
Donohue said risks at the CME have been reduced significantly in recent years through such improvements as better distribution and back-up of electronic trading. “In many ways, these markets are operating much more efficiently and effectively than 20 years ago,” he said.
Reed said the NYSE’s greatest risks come from “external shocks” such as 9/11 and from computer fraud. “In the banking business, we had problems with people getting into money transfer systems and moving money illegally around the world,” he said. “As you go electronic, a penny a share in the stock exchange is $5 billion a year.”
—Phil Rockrohr
Coverage of the event was carried in: