NASD/NYSE
Merger Update

Douglas Shulman, Vice Chairman of the NASD, was the keynote speaker at the NASD's Spring Conference in Chicago, Illinois, on May 23, 2007. While Mr. Shulman addressed a number of issues, there was substantial discussion of the proposed merger and consolidation of the National Association of Securities Dealers (NASD) and New York Stock Exchange (NYSE) member regulation functions into a single, self-regulatory organization ("New SRO").

At this time, it appears the NASD is still targeting a June closing of the merger of the NASD and the NYSE. The transaction is currently pending approval of the Securities and Exchange Commission (SEC), and the finalization and execution of a definitive merger agreement. The name of the surviving entity is still under wraps, and has not been announced as of this time.

The merger and consolidation of NYSE and the NASD will be addressed methodically, and after substantial planning. To this end, NASD Member Firms need to be aware that from a regulatory point of view, they will not see major changes at the time of closing. At this time, the NASD anticipates that most of 2007 will be spent integrating staffs, systems, and rule books. 2008 appears to be the year that Member Firms can expect to see significant changes.

During the transition period, the regulatory rules that firms were subject to prior to the merger will continue to be the same, until the rules are merged. Thus, NASD Member Firms will continue to be subject to the NASD's previous rules, and firms subject to both NYSE and NASD rules will continue to be subject to both sets of rules. Ultimately, there was no commitment as to when a new rule book would be issued, other than it is clearly not anticipated in fiscal 2007. It is believed that the regulatory approval process (integration and consolidation of overlapping rules, NYSE and NASD Member Firm comment periods, and the SEC approval process) will extend the delivery time well into late 2008.

Additionally, exam cycles will remain the same. However, firms that are both NYSE and NASD Member Firms will have coordinated exams and forms and technology interfaces will stay the same as the NASD and NYSE merge systems and rule books.

On a final note, the NASD intends for the New SRO to process and forward a one-time payment of $35,000 to each respective NASD and NYSE firm within two weeks of closing of the transaction to reflect future cost savings and efficiencies.