NYSE Slims Down After Grasso's Excess

The interim head of the New York stock exchange yesterday put forward proposals to replace the market's unwieldy board with a smaller, more independent set of directors.

The sweeping changes are part of the attempt to restore confidence in the exchange after the damaging row over the $188m (£117m) compensation package awarded to former chairman Richard Grasso.

John Reed, a one-time chairman of Citigroup hired by the NYSE to act as temporary chairman, proposed shrinking the board from 27 to six or 12. He has asked for the resignation of more than two dozen directors though he stopped short of a broader shake-up of the day-to-day running of the exchange.

Mr Reed nominated a handful of directors, mindful of the allegations of conflicts of interest that bedevilled the previous larger board made up of executives from investment banks and companies listed on the exchange.

He said the NYSE was taking "an important step towards a governance architecture with standards of independence and disclosure that are comparable to or stronger than those we require of our listed companies".

The exchange hopes the plan will be enough to calm the calls for a more seismic upheaval. Mr Reed has recommended that the exchange keep its regulatory powers and that the traditional open outcry system, long since abandoned in Europe, remain in place. Both issues have come under intense scrutiny.

"We simply have to manage our regulatory function more effectively, and I think we can," he said.

The securities and exchange commission, the chief regulator of US markets, needs to approve the plan. It described the proposals as a "substantial and critical first step" but made it clear that further changes would be needed.

The new NYSE board would oversee regulation, governance, compensation and other internal controls.

Mr Reed said the old board "did not serve the institution well". With the new board in place he said was "comfortable that the chance of another breakdown in corporate governance is extremely small".

Mr Grasso was forced to resign in September after his huge compensation package became public.

Only two members of the board have been asked to remain: Madeline Albright, the former US secretary of state, and Herbert Allison, chairman of pensions group TIAA-CREF.

Mr Grasso's chief lieutenants, co-chief operating officers Robert Britz and Catherine Kinney, will retain their jobs but will not be on the board.

Members of the exchange will vote on the proposals on November 18.