"FIN RAH!" ... A WELCOME CHANGE: WHY THE MERGER WAS NECESSARY TO PRESERVE U.S. MARKET INTEGRITY

Fordham Journal of Corporate & Financial Law, 2008 by Cervantes, Yesenia

B. The Solution

The consolidation between the NYSE and NASD happened at the right time. Not even a year into its existence, FINRA already initiated a sweep to investigate firms and their marketing to customers of financial products tied to mortgages.27 Because of its new structure, FINRA is able to place more emphasis on this crisis and on investor protection.28 With a two entity system, "multiple levels of regulation [made it] difficult to navigate and expose[d] consumers to gaps in protections."29 A single non-profit regulatory structure allows for more centralized oversight of these areas and is better able to safeguard investors.30 The NYSE and NASD previously acted as both market operators and regulators, which gave rise to potential conflicts and concerns.31 The new regulatory organization is again directing its attention on investors.32 FINRA is closely scrutinizing any areas where greater protection is required and taking further action regarding solicitation and product suitability for seniors.33 It also uses a risk-based approach to identify and combat critical financial industry issues.34 This is particularly necessary for the organizations entrusted with supervision over those engaged in the financial industry, since the markets are open to all participants, from the novice and inexperienced to the most sophisticated investor.

FINRA named investor protection as its primary goal and has already developed several programs to further its commitment to this objective.35 Although investor protection was previously an objective of both SROs, their preoccupation with other market activities, such as merging with exchanges, steered their attention away from this purpose.36 With U.S. capital markets serving as one of the leading and most powerful forces in the world, it is essential that investors have trust and confidence in the system.37 This requires constant transformation and adoption of innovative measures to keep up with the ever-changing environment.

C. The Merger

Aside from gaining recognition as the first exceptional change to the securities oversight structure in decades, this merger also drew great attention because of the parties involved. Regulatory organizations such as the former NASD are generally non-profit organizations and their main function is to effectively regulate their respective fields, not to generate income.38 Therefore, merging of such organizations involved different motivation than typical mergers between for-profit companies. Whenever for-profit organizations seek to merge, management has a tendency to "envision new markets, more product lines and healthier balance sheets."39 The transaction's main objective typically is to increase the bottom line.40 Profit is so important that parties in these impending mergers might be subjected to undesirable tactics since different people and entities might not share the same perspectives on profit.41

Non-profits generally have less financial-related motivations to consolidate.42 The most frequently cited benefits for merging non-profit organizations include "increased effect and reach," fewer redundancies in a specific area, "greater efficienc[y]," "stronger organization," and "the continued ability to fulfill one's mission."43 While FINRA's goal could be said to achieve all of these benefits, its foremost objectives are to protect investors and advance market integrity by increasing efficiency.44 Two separate regulators essentially performing the same functions was inefficient. Other countries recognized the presence of multiple regulators as a shortcoming within their regulatory systems and are now consolidating, if they have not already successfully done so.45