February 28, 2005
It had been my earnest, but spectacularly naiive, hope that the extension of the comment period for this Abomination of Desolation would bring forth some ridicule from all points of the compass as well as valuable suggestions from the public, from Academia, from practitioners, and from parties in the broker-dealer community as well as the investing public at large.
In fact, I had complained to Commuissioner Donaldson that it was not without irony that the SEC was proposing all sorts of democratic initiatives upon issuers while ignoring the dranconianly undemocratic policies of the Commissions two bedmates: The extravagantly compensated NYSE administrators and the slightly more modest remuneration of the NASD executives.
Furthermore, contrary to the Commissions current insincere bow to democracy, for years the Commissions preoccupation has been to enhance the power of the big firms and the multinational companies. Within the last few years the SEC allowed the NASD to enhance its ani-democratic election requirements to its Board of Governors. In part because previous challenges to get people on the board not vetted by the NASD have become perilously close to success and so the NASD with the quiet blessing of the Commission raised the bar to make further attempts to have the possibility of unapproved persons on the ballot increasingly remote. Moreover the NASD SEC cartel did this in such an obtuse manner that people in the industry interested in a more democratic Board were not even aware of it. And, of course, this passes over in silence what most consider the bedrock of democracy: THE SECRET BALLOT.
To even get a non approved candidate even on the ballots requires even more petitions and obscenely, this has to be accomplished by an open petition by a member firm. Young men and women are dying in Iraq and Afghanistan for greater democracy that member firms have been given to members by the SEC and their handmaiden the NASD.
When increasingly more courageous firms were found who would publically nominate others other than the handmaidens of the NASD, the NASD did what any tolitarian government could be expected to do: they raised the number of votes required to get on the ballot. And if any foolhardy soul can be found to challenge the new higher standard, is there any doubt that the James Brothers, the SEC and NASD, will raise the bar yet again? In fact, the raising of the bar before the last election was done so coyly that followers ofthe circumscription their voting rights until the proxy process was under way.
Of course, a secret ballot which is the sine qua non of democratic elections from Afghanistan to Abeline are deemed too democratic by the tolitarian SROs and GROs. Members have to publically declare their desire for alternate candidates to the NASD handmaidens and risk the wrath of both the NASD and the SEC by way of more intrusive exams than they would otherwise be subjected to.
The facts are that few in the Broker Dealer community see anything to be gained, and much to be lost , by taking on the agencies that can:Cry Havoc, and let slip the dogs of war. At any moment the SROs of the SEC can descend on a firm like a plague of locusts of biblical proportions so only the foolhardy speak out.
It is as if everyone is saying: We are going to be raped by our regulators if we speak out so lets be quiet and survive. To me that sounds more like Yugoslavia than the UNited States of America.
AS I understand it, and I was only a modest examiner from one of the poorest metro areas and state, the proposalmandates more outside directors finally the SEC put its money where its mouth has been. However, it seems to make no provision for participation of the smaller firms which is not only the largets group of the SRO member firms, but which account for fewer problemscertainly in order of magnitude. As I read it, the great majority of modest firms will have even less chance to serve on the Board while the wirehouses and the mulotinationals will dominate the Board notwithstanding their representing the most problems, in dollar terms. This proposal makes no provision for the prescence of small firms to have a pro reata share of the industry seats on Governing Boards.
This proposal will only reward the sinister and punish the virtuious. Moreover, the SROs and the SEC have been increasingly imposed policies to advantage the big firms to the detriment of the little firms: THey refused to enforce late trading violations until they were humiliated into it. They put in place a CRD system although to call crd a system is like confusing a horse with a horse radish, they created shelf registrations which deprive small firms of revenue part of which has always been there and done this to advantage the ethically challenged large firms.