NYX Nyse Euronext

The Financial Industry Regulatory Authority will take over responsibility for policing NYSE Euronext's (NYX) equities and options markets, further expanding the body's oversight functions.

Finra, which already provides regulatory services to various Nasdaq OMX Group Inc. (NDAQ) markets as well as the BATS Exchange and the International Securities Exchange, will by late June take over responsibility for watching over trading on New York Stock Exchange, NYSE Arca and the NYSE Amex markets.

"This is the right thing for the markets and the right thing for customers," NYSE Euronext Chief Financial Officer Michael S. Geltzeiler said in an interview Tuesday.

"Moving these types of activities to Finra, coupled with the business they have from Nasdaq and BATS, marks one step toward the optimal structure were we have a single market surveiller," he said.

Finra, the self-regulatory organization for the U.S. securities-trading industry, has long called for a single regulator to watch over U.S. equities trading, scattered across a spectrum of exchanges, electronic platforms and private deals. An average 9.8 billion shares changed hands daily in the U.S. in April as market volatility pushed trading levels to a monthly high for 2010.

Finra will take over market surveillance and enforcement functions now conducted by NYSE Regulation Inc. That operation costs NYSE Euronext about $80 million per year while bringing in only about $40 million, according to the company.

Geltzeiler said that NYSE Euronext will pay Finra fees to run surveillance operations on its markets, and while those costs could come down, a majority of the expenses will remain. The exchange operator will continue to run compliance duties tied to its listings business, he said.

A final agreement is expected to be finished "in the next several weeks, with an effective date anticipated to be at or prior to the end of June," the companies said.

NYSE Regulation, a not-for-profit subsidiary of NYSE Euronext, will oversee Finra's performance of regulatory services for its markets, according to a press release.

Finra Chairman and Chief Executive Richard Ketchum said in a statement that the deal allows the group "to have a more holistic, cross-market approach to regulation" amid "fragmented markets, aggressive competition and complex trading strategies."

Ketchum has warned that multiple regulators jockeying to keep tabs on U.S. trading are working with an incomplete picture of the overall market, with differing sets of rules creating loopholes and the potential for some participants to avoid oversight.

Geltzeiler said that eventually he would prefer all U.S. share-trading volume to go through the same regulatory surveillance required of exchanges like NYSE Euronext, and that consolidating these functions could make the overall process cheaper and more efficient for everyone.

-By Nathan Becker, Dow Jones Newswires; 212-416-2855; nathan.becker@dowjones.com

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