The Big Board Wants a New Top Cop


Since the departure of Richard A. Grasso, one question has gone unanswered as Acting Chairman John Reed revamps the New York Stock Exchange's governance: Would the NYSE look for a new chief regulator, a position now held by much-criticized Edward A. Kwalwasser? The answer is at hand. BusinessWeek Online has learned that the exchange is indeed seeking a new top cop.

After initially declining to comment, NYSE spokesman Ray Pellechia confirmed on Nov. 18 that the Big Board has hired an executive recruitment firm to interview candidates to replace Kwalwasser as chief enforcer, with the new job title of chief regulatory officer. It's still unclear whether Kwalwasser, a 63-year-old New York native and 19-year employee of the exchange, will remain on the payroll. He has been a lightning rod for complaints about Big Board's enforcement program, and he has been criticized for his high pay -- $1.6 million in salary and bonuses in 2002.

Congress also is turning up the pressure on the NYSE and Securities & Exchange Commission to beef up their enforcement of securities firms. At hearings on Capitol Hill Nov. 18, SEC Chairman William H. Donaldson came under tough questioning from Senate Banking Committee Chairman Richard Shelby (R-Ala.). Donaldson promised to increase scrutiny of questionable market practices.

NO. 3 MAN. Through the NYSE spokesman, Kwalwasser declined to comment for this story. Nor would Pellechia comment directly on the possibility that Kwalwasser might stay on after a successor arrives. But he noted that at the time Kwalwasser's pay package was announced on Oct. 10, the exchange said it "desired to retain [Kwalwasser's] services" and would allow him to remain employed, without penalizing his retirement pay, through September 30, 2004.

Kwalwasser is the exchange's third-highest executive, outranked only by Reed and Co-Presidents Robert G. Britz and Catherine R. Kinney. The position of chief regulatory officer in the NYSE's new reorganization scheme was approved by exchange members on Nov. 18. According to people familiar with the search, it's being handled by Columbia Consulting Group, a Maryland-based executive-search firm.

He holds an equivalent position under the current setup -- group executive vice-president for regulation. But Kwalwasser now reports to Reed, and before that to Grasso, while the new CRO will report to a committee of the board of directors -- a move aimed at fostering more accountability.

Kwalwasser could step down before his replacement arrives or stay on for a while. But if he does, he'll likely be a piñata for critics. That's an unappetizing choice for a man who has embodied regulation at the NYSE for more than a decade. By Gary Weiss in New York


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