NYSE/NASD regulation merger challenged by broker

NEW YORK (Reuters) - A broker-dealer firm sued brokerages watchdog NASD and the New York Stock Exchange on Friday to block a deal to merge oversight functions, saying the arrangement would be unfair to NASD members.

Standard Investment Chartered Inc., a California-based brokerage firm, said in the complaint that the terms of the consolidation "represent a massively unfair disenfranchisement of NASD members."

The lawsuit, filed in U.S. District Court in Manhattan, seeks class-action status. It also names several NASD executives as defendants, including NASD Chairman and Chief Executive Mary Schapiro, who is to become the head of the new, combined entity.

The stock exchange's regulation unit, part of the NYSE Group Inc. (NYX.N), and NASD, formerly known as the National Association of Securities Dealers, announced the planned consolidation in November 2006. The move is aimed at eliminating overlap that has caused brokerages to complain about duplicative costs, but it has drawn resistance from some small firms which say it will strip them of power.

In January, the NASD said that 64 percent of the more than 5,000 NASD member firms voting on the matter backed changes to bylaws that would allow the deal to go forward. The two groups have said the merger is expected to close by the middle of this year.

The lawsuit contends that NASD members gave their consent to the deal "only through a 'bum's rush' campaign that included millions of dollars in public relations ballyhoo."

An NASD spokeswoman, Nancy Condon, said that the association believes "this lawsuit will be found to have no merit, and that the transaction will move forward as planned."

She said that "the member vote was conducted in a fair manner, with significant opportunity for all firms to review the consolidation, attend regional information sessions, ask questions, and determine for themselves the merits of the proposal."

An NYSE spokesman declined to comment.