DURHAM, N.C., May 25, 2004 – LAWFUEL – Monday’s action by the New York
Attorney General against former New York Stock Exchange (NYSE) chairman
Richard Grasso may have been avoided, in part, if the NYSE had continued its
pre-Grasso policy of releasing data for study by researchers, said Pete Kyle,
professor of finance at Duke University’s Fuqua School of Business.
“Grasso seemed to exercise control over the NYSE in part by managing the
flow of information,” Kyle said. “Soon after Grasso took over, the NYSE
curtailed its previously generous policy of providing information for study by
researchers because finance professors were beginning to find some regulatory
anomalies that were going to be embarrassing to the exchange.”
Kyle served as a consultant to the NYSE and later worked as a staff member
for the Brady commission during its investigation of the 1987 stock market
crash. He has participated in and helped organize conferences jointly with the
NYSE on topics related to trading and liquidity. He also closely monitors the
various rule changes that the NYSE is considering to make their trading
processes more competitive.
Kyle contends that had the NYSE continued to make its data more openly
available for academic research purposes, the recent specialist scandal would
probably have been uncovered and corrected by academic finance researchers
many years ago.
“That the release of information was curtailed tends to make me think that
Grasso not only manipulated the flow of information about his compensation to
allow himself to be paid overly generous amounts by a poorly informed board,
but that he did not want the valuable enhancements to self-regulatory scrutiny
that academic finance professors could have provided by doing academic
research on NYSE-supplied proprietary data.”
Kyle notes that NASDAQ also had regulatory problems that were uncovered by
finance professors doing their research in the 1990s. “This led to the major
changes at NASDAQ, which make it a much better marketplace today than it would
have been otherwise,” he said.