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Chairman Donaldson On The Record


William H. Donaldson became chairman of the Securities & Exchange Commission eight months ago -- and hasn't had a dull moment since. The latest hot issues are scandals at the New York Stock Exchange and in the mutual-fund industry. On Oct. 17, he discussed these and many other issues with BusinessWeek editors.

Will we see more reforms at the NYSE?

It's open season for all those who have had any sort of frustration with the dominant position of the exchange. I don't think the ultimate solution is destruction of the system but rather to make it more competitive.

Can the Big Board's specialist system survive the current trading scandal?

[I hope] we would create an environment in which the specialist system can compete alongside other trading venues. I think you'll see more electronics, more competitive, speedy execution, side by side with the use of the auction system.

Should the NYSE keep its powers as a self-regulator?

We have oversight, and they're going to present a regulatory scheme, and we're going to either say 'that's a good scheme' or 'that's not a good scheme.' In the final analysis it has to be theirs, but it has to meet our standards.

Where is the SEC's probe of mutual funds going?

The main thrust of our work has been to bring sunlight -- through increased disclosure -- into the whole cost structure. [Then] along comes the very disturbing Canary situation [Hedge fund Canary Capital Partners LLC]. That opens up a whole new area of inquiry -- late trading and timing issues. We're very upset by what we've seen, and we're moving as rapidly as possible to see just how far it extends.

Are investors regaining confidence?

The perception [that people are buying stocks again] doesn't necessarily mean John Q. Investor thinks that all of a sudden there's a new dawn out there and everyone will be totally honest. I don't think that has happened yet

What's the matter with executive pay?

There's still a major disconnect between performance, as I define it, and pay. People should be paid well for turning companies around, less well for simply presiding over the status quo.

How are relations between the SEC and N.Y. Attorney General Eliot Spitzer?

We're not in the business of playing "gotcha." We're all working toward the same objective.

What about plans to make it easier for shareholders to nominate directors?

We must be doing something right because shareholder activists are saying we're not doing enough and Corporate America is saying this is the beginning of the end. Both camps are wrong. We've got to open up under controlled conditions.


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