The new top executive of the National Association of Securities Dealers says he may recommend that it eliminate the boards of directors of its two subsidiaries to streamline decision-making.
That is a reversal for Frank G. Zarb, who has repeatedly denied he might propose removal of the Nasdaq stock market and broker regulatory boards.
Mr. Zarb, an aide to Presidents Nixon and Ford who has headed the NASD for two months, said elimination of these boards is the most dramatic of three options he might recommend to the parent body's board on June 26.
"Most everyone feels we need to streamline the process," Mr. Zarb said. "We're at a very preliminary stage, and I'm keeping an open mind."
Other options under consideration would retain all three boards. Under one plan, the parent body's board would expand while the unit boards would be scaled back. A third proposal would keep the three boards intact while improving coordination among them, Mr. Zarb said.
He also said that he had asked former U.S. Sen. Nancy Kassebaum Baker of Kansas to serve on the parent body's board, but that she has not made a final decision. Mr. Zarb also said plans to invite a corporate and a brokerage representative. The terms of several members are due to expire soon, he noted.
The three boards, which have 47 members in all, were created a year and a half ago to help shield the NASD's broker-regulatory unit from influence by the Nasdaq market and its brokerage members.
The NASD regulation unit, headed by Mary Schapiro, polices all U.S. brokers. Nasdaq, led by Alfred Berkeley, is the nation's second-largest stock market.
Last summer, the Securities and Exchange Commission censured NASD, then headed by Joseph Hardiman, accusing the organization of turning a blind eye to dealer price collusion and trading iolations on the Nasdaq market.
Mr. Zarb said he had not made up his mind about whether to seek an end to the boards. "I'm not strongly advocating elimination of the boards," he said."We're collecting information and not advocating any final solution."
One influential former NASD board member said that he "strongly feels" the NASD regulation board should not be eliminated.
"It's essential to have daylight between the Nasdaq market and the regulator," said A.A. Sommer Jr., a former NASD vice chairman and SEC commissioner.
Mr. Sommer, who said he has conveyed his views to Mr. Zarb, served on the panel led by former U.S. Sen. Warren Rudman that recommended the current board structure.
An influential congressman also warned against abolishing the unit boards.
"I have grave concerns that this reorganization threatens the independence of NASD regulation and may lead to a restoration of the old status quo,"said Rep. Edward J. Markey, a Massachusetts Democrat who is a senior House Commerce Committee member. "There's an ongoing risk that the integrity of regulation will be compromised on the altar of promoting the market."
Mr. Zarb, who is the NASD's chairman as well as its president and chief executive, said any restructuring would not impinge on the independence of Ms. Schapiro's regulatory unit. "The principles of separation are sacrosanct," he said.
Ms. Schapiro said the independence of her NASD regulation unit "is not inherently threatened by changes in the board structure."
"My mantra is the independence of the regulatory function," said Ms. Schapiro, who expressed support for Mr. Zarb's approach to the issue. "So long as this is a restructuring principle, I can make it work."
Mr. Zarb, a former Smith Barney Inc. chairman, said in recent weeks that he was considering only a paring of the subsidiary boards and an improvement in coordination among the three panels.
"We need to improve reporting lines among the boards," he said.
Mr. Zarb said that if the two unit boards were eliminated, many of their directors would be absorbed by the parent body's board.
The majority of the single board would be made up of public members rather than brokerage representatives, he said.
Mr. Zarb also said that under this option he would form separate Nasdaq and NASD regulation committees to continue some form of oversight of the two units and enable them "to retain their independence and autonomy."
Mr. Zarb said that under a second option the size of the unit boards would be scaled back and they would be given new missions.
The idea would be to limit overlap with the parent body's expanded board.
"This is going to take some noodling, and I don't completely understand it myself," Mr. Zarb said.
Several directors would sit on more than one board, he said.
Under the third option, the three boards would remain intact but some unit directors would sit on the parent body's board, Mr. Zarb said.
SEC Chairman Arthur Levitt Jr., who backed the current board structure when it was created in late 1995, has expressed support for Mr. Zarb's efforts.
"What you have today is cumbersome," he said recently. "I support streamlining."
Mr. Zarb said his restructuring also has the support of key members of Congress he has briefed. "No one has said stop," Mr. Zarb said. "They all agree we need to keep the principle of separation of the regulatory unit."
Mr. Zarb said he has discussed his efforts with Sen. Alfonse D'Amato, a New York Republican; Rep. Michael Oxley, an Ohio Republican, and Mr. Markey. He said he also plans discussions with, among others, Rep. Thomas Bliley, a Virginia Republican, and Rep. John Dingell, a Michigan Democrat.