Fund's broadside at New York reforms

DOUBTS are growing about the reform plan for the New York Stock Exchange being proposed by interim chairman John Reed.

The US Securities and Exchange Commission meets today to consider the plan amid signs of a growing revolt among the stock market's largest customers.

With devastating timing, Calpers, the massive California state employees pension fund, launched a potentially damaging lawsuit accusing the NYSE and its specialist trading firms of failure to police its rules adequately.

The announcement of the suit was timed to influence today's SEC decision.

The pension fund, the largest in the US and a critic of Reed's reform package, plans to expand its suit into a class action involving potentially millions of investors who use the NYSE.

An SEC rejection of the Reed reform plan would put the NYSE in an extremely difficult position. Reed has said he will leave at the end of the year, but no successor has yet been appointed.

If his reform plan is thrown out, the NYSE would be left with neither a chairman nor a constitution.

Even if the SEC ratifies the plan, the Calpers lawsuit increases the pressure on the Exchange to switch to electronic trading.

Reed, however, does not see any need to change the current system of face-to-face trading, although the NYSE is one of the last major markets in the world to operate a physical trading floor.

'California and some other states feel their concerns are not being addressed with this reform effort,' said Patrick McGurn, special counsel for Institutional Shareholder Services, a group that advises large institutions including Calpers, on corporate governance issues.

'A lot of mainstream investors question the current trading structure at the Big Board.

Calpers was instrumental in forcing former NYSE chairman Dick Grasso to resign over governance problems at the Stock Exchange.

But it is bitterly disappointed by Reed's reforms, which give investors little influence on the NYSE board. It is also unhappy that he has not split the role of chairman and chief executive.

In its court case, Calpers says the specialist firms - each responsible for maintaining a market in specific stocks - in conjunction with the NYSE routinely engaged in 'wide-ranging manipulation, self-dealing, deceptive and misleading conduct' that has cost investors millions of dollars.