Frank G. Zarb, chairman of the National Association of Securities Dealers, will propose a reduction in the number of board members while leaving intact the industry body's three boards, NASD executive A.A. Sommer Jr. said this week..
NASD has separate boards that oversee the parent body, the regulatory unit that polices all U.S. brokers, and the Nasdaq Stock Market unit.
Mr. Zarb's long-awaited compromise seeks to streamline decision-making and improve coordination among the three boards, while protecting the independence of NASD's regulatory unit, Mr. Sommer said.
The plan softens an earlier Zarb idea to combine all three boards into one unit, which was met with sharp criticism.
"This achieves the efficiency that Frank Zarb wants while preserving the integrity and independence of the regulatory arm," said Mr. Sommer, a member of NASD Regulation's market-regulation committee who recently stepped down as chairman.
NASD Regulation, headed by Mary L. Schapiro, was separated from Nasdaq in early 1996 following the recommendations of an NASD-appointed panel headed by former Sen. Warren Rudman of New Hampshire.
Alfred Berkeley is Nasdaq president, while Mr. Zarb is both president and chairman of the NASD parent. The three boards have a total of 47 members.
Mr. Sommer, whose account was confirmed by two congressional aides of different parties, said Mr. Zarb's plan would have members of the unit boards also sit on the board of the parent body.
In addition, the meetings of the three boards would be scheduled in closer sequence to reduce decision-making delays, he said.
Mr. Sommer said the reduction of the number of board members would be phased in gradually.
He said he didn't know how many total board members Mr. Zarb would propose.
Mr. Zarb, 61, a former Smith Barney Inc. chairman who joined NASD in February, didn't respond to requests for comment.
Mr. Zarb has received support for his restructuring efforts from the Securities and Exchange Commission. "Although we haven't seen the specifics of the proposal, we support NASD efforts to streamline its governing structure and make it more efficient, provided that they maintain public representation and a separation of the regulator and the market," said SEC spokesman John Heine.
Mr. Zarb's proposal has received support in Congress, said the congressional aides, who asked not to be identified. A preliminary Zarb proposal, floated two months ago, would have eliminated the boards of the two NASD units altogether.
Both Mr. Sommer and Rep. Edward Markey, a Massachusetts Democrat, had voiced concern that elimination of NASD Regulation's board would compromise its independence from the securities industry.
The Rudman committee argued in 1995 that NASD's regulatory unit needed to be fortified and made more independent of Nasdaq, the nation's second- largest stock market.
"Frank Zarb's plan is thoroughly consistent with the Rudman report because it continues to allow daylight between the Nasdaq and regulatory sides," said Mr. Sommer, a member of the Rudman panel who also was an SEC commissioner.
The SEC censured Nasdaq executives last summer for turning a blind eye to dealer price collaboration and trading violations on Nasdaq.
