“John Reed took the first steps toward overhauling how the New York Stock Exchange governs itself, but some investors and regulators signaled that the Big Board has to make a bigger leap to resolve concerns over potential investor abuses and the policing of its trading floor,” writes Susanne Craig in today’s Wall Street Journal.

“Wednesday, Mr. Reed, the NYSE’s interim chairman, said he hopes his new structure — a core board of six to 12 independent directors, and an advisory board with no input into regulation or compensation issues made up of Wall Street CEOs, among others — will provide the framework to begin fixing some of the NYSE’s problems.”

“The new directors were handpicked by Mr. Reed. He said it was the first ‘completely independent’ board in the 211-year history of the exchange. The exchange’s members, including 1,366 ‘seat holders,’ appear to back the proposal; they will vote on it Nov. 18. Mr. Reed said the proposal is an “important step toward a governance architecture with standards of independence and disclosure that are comparable to, or stronger than, those we require of our listed companies.” He added that it creates ‘a new structure that best serves our member-owners.’ “

“The move represents one of the biggest-ever shakeups in Big Board governance. It caps a five-week scramble by Mr. Reed to reorganize a board structure that to some resembled a private club. The previous NYSE board was unwieldy, with 27 members, and riddled with potential conflicts: Several directors were Wall Street chiefs who helped set the huge pay of former NYSE Chairman and Chief Executive Dick Grasso, even as their firms were regulated by Mr. Grasso. Mr. Reed’s new setup will remove those conflicts and set a tone for the exchange’s newer public face.”

“But critics, including a number of influential institutional investors, contend that the proposals don’t address several problems. At the top of the list is the NYSE’s regulatory unit, which the Securities and Exchange Commission criticized in a confidential report. The review of the NYSE’s trading-floor operations said the Big Board’s trading system is riddled with abuses.

“The report said the elite floor-trading firms known as ‘specialists firms’ that are supposed to make orderly markets in listed stocks routinely place their own trades ahead of those of customers — and that an in-house regulator is either ill-equipped or too worried about increasing its workload to care.”

” ‘It’s very difficult for the NYSE to self-police, even after the board’s makeup changes to people who aren’t regulating themselves,’ said Randall Edwards, state treasurer in Oregon. He called for a total separation of the exchange’s marketplace and regulatory arm. ‘Investors would have more comfort if the exchange broke off the regulatory side,’ Mr. Edwards said. ‘I’m still hopeful that there will be other forces that will move the NYSE in that direction.’ “