Why Is the NYSE and NASD Soft on Racism and Sexism?

March 9, 2006

This morning I read a story by Evelyn Juan of the Dow Jones Newswires: Merrill's O'Neal Attends Discussion With Black Brokers, in which she writes that Merrill's Chairman and Chief Executive Officer Stanly O'Neal has met with a number of his firm's African-American brokers who are considering joining a racial discrimination suit against the nation's largest broker-dealer. The lawsuit referenced was filed by George McReynolds in federal court in Chicago and is seeking class-action status. 

Okay, that's a good step, a commendable effort by Mr. O'Neal --- even if it may be nothing more than a public relations ploy. Of course, this lawsuit raises two intriguing questions. Where is the New York Stock Exchange? Where is the NASD? What? You say. This has nothing to do with a regulatory violation. Oh yeah? To the contrary, this has everything to do with regulation --- or, should I say, the unseemly politics of regulation. 

Wall Street's dirty little secret. The nasty truth that who gets investigated and what gets investigated is as much about hidden agendas and powerful friends in powerful places. Consider this. The NASD has a rule, Conduct Rule 2110: Standards of Commercial Honor and Principles of Trade, which says that "A member, in the conduct of his business, shall observe high standards of commercial honor and just and equitable principles of trade."  The New York Stock Exchange has a similar rule, Disciplinary Rule 476, which says in pertinent parts that firms and individuals may not engage in "conduct or proceeding inconsistent with just and equitable principles of trade; (7) acts detrimental to the interest or welfare of the Exchange;" Did you notice the phrase "high standards of commercial honor"? Did you notice the phrase "just and equitable principles of trade"? Did you notice the phrase "acts detrimental to the interest or welfare"? Now, let's take just a brief stroll down memory lane -- a sordid thoroughfare at that. 

Recently, we have seen cases brought, settled, and sustained by women and minorities against Wall Street's elite brokerage firms. We have read disgusting stories of harassment that was tolerated and discrimination that went unchecked. Not a proud chapter for the securities industry. Okay, so here's what I don't get. Nearly every month the NYSE and the NASD trot out their high fallutin' rules to fine and suspend individuals --- lowly men and women who labor at the bottom of Wall Street's pile --- and many of the charges do not involve fraud perpetrated against public customers. Go read some of these cases on http://rrbdlaw.com Folks are charged with lying on employment applications. Folks are charged with falsifying mortgage applications or misusing company letterhead. Folks are charged with submitting fictitious expense vouchers. Not that I would ever suggest that there's one set of rules for the major broker-dealers, and another set of rules for smaller BDs and their employees, BUT, gee . . . odd, isn't it --- the NYSE and NASD just don't seem that bothered by discrimination and harassment in their own industry. 

Please, show me the cases those regulators brought in the past 50 years in which member firms were charged with permitting racial or sexual discrimination/harassment. And what's the message? The regulators unwittingly encourage intolerant behavior by not deeming these practices to be conduct that offends basic notions of "high principles" and "honor." Do the SROs see such conduct as nothing more than an indiscretion? 

Wall Street is no longer a quaint road between a church, on one end, and a river, on the other. It is a metaphor for the entire capitalist world. And that world, which we all live in, is populated with minorities and women. Try as Wall Street has for generations to marginalize those two groups, the fact is now inescapable. The securities markets in the United States are in a battle with international markets. If we don't re-tool our industry to include more minorities and women in meaningful roles, we will inevitably lose out to more enlightened competitors. The NYSE may well become a luxury residential condominium. NASD may well become an off-shore gambling site. I can think of nothing more disgusting than to know that you are capable of doing a job but are denied employment solely based upon conditions of your birth. 

I hear these heart-rending stories virtually every day when I am contacted by potential clients. If this cancer is tolerated by Wall Street's regulators, how will we ever destroy it? If the NYSE and NASD see fit to bar folks from the brokerage industry because they have had felony convictions for drunk driving, then it's high time we roll out the same artillery to combat illegal discrimination.