Marc Lackritz, president of the U.S. Securities Industry Association, today called for reform of the securities industry’s self-regulatory organizations.

In his prepared oral testimony today before the U.S. Senate Committee on Banking, Housing, and Urban Affairs, Lackritz noted, “Self-regulation has two drawbacks: one, conflicts of interest between SROs’ roles as both market operators and regulators; and two, regulatory inefficiencies resulting from duplication among SROs.”

As the exchanges move towards becoming for-profit entities, these issues are amplified, Lackritz argued. “Our primary concern revolves around conflicts of interest as for-profit SROs attempt to wear two hats as both market operators and regulators,” he noted.

“To address these deficiencies, we support consolidation of the broker-dealer regulatory functions for firms that are regulated by both the NYSE and the NASD. This consolidated self-regulatory structure eliminates conflicts of interest and regulatory duplication. In addition, a single, principles-based rulebook would strengthen investor protection and the competitiveness of our markets,” Lackritz suggested, “This is the ideal time for a new risk-based rulebook. Consolidated interpretations, examinations and enforcement can then follow.”

“The SROs have broad agreement that consolidation is needed, but differences on details remain. We strongly urge this committee and the SEC to take the lead in capitalizing on the present opportunity. The differences between the NYSE and NASD are much less significant than their agreement that consolidation should occur,” he said.