Bloomberg (December 1, 2006) -- The Wall Street crowd is giddier than a 10-year-old with a PlayStation 3 over news that the NASD and the New York Stock Exchange will be merging their regulatory units.

It has set off industry-wide celebration. Brokerage officials are handing out happy quotes to reporters about the welcome change. Lawyers who represent crooked stock brokers are making statesmanlike predictions of regulatory synergies.

The last time I saw people in the brokerage industry this happy, the Republicans had just swept the Senate. As with all mergers, though, this one is bound to be bum news for someone. I hate to throw cold water on this party, but what does it all mean for the customers?

Tucked tidily in press releases from the exchanges and from the chairman of the Securities and Exchange Commission were references to the benefits that investors would reap from the pending regulatory combination, which is expected to be completed in the second quarter of 2007.

Absent from the blather, though, were any specifics as to what it would mean for investors. There was talk that problems would be less likely to fall between regulatory cracks, which had a certain ``Oh really?'' ring to it, considering the rationale to merge was that two sets of cops were engaged in duplicative work.

And there were implications that the combination would result in a stronger, faster, meaner, more efficient set of industry watchdogs.

Obvious Benefits

But how?

For Wall Street, the benefits are obvious. There is less money and time spent on following the rules.

There's a cynical camp that would argue that the hapless regulators at NASD and NYSE were nothing more than Deputy Dog meets Scooby-Doo anyway.

``In both cases, it is basically the fox guarding the hen house,'' says James Keeney, a Sarasota, Florida, lawyer who represents investors against brokerage houses.

For all their inadequacies as regulators, at least there were two of them. And, when they tried, they did sometimes catch the bad guys, tooting their horns loudly in the process.

That competition was good for investors, Keeney says.

The merger ``will eliminate one of the very few motivations that sometimes force them to take customer complaints seriously.''

The loss of a second arbitration forum is another zinger for investors, says Steven Caruso, a plaintiffs' lawyer at Maddox Hargett & Caruso in Indianapolis and president of the Public Investors Arbitration Bar Association.

No Day in Court

Investors already are denied the right to sue brokerage firms in court; customer agreements used industry-wide prohibit lawsuits in favor of arbitration.

With a merged regulator, ``not only are they forcing investors to resolve disputes in arbitration, but they are forcing them to do it in one place,'' Caruso says. Today, ``you can choose one forum over the other to get a fair and advantageous'' hearing, he says.

Silly Caruso. That's exactly the reason that the change appeals to the lawyers who represent the brokerage firms.

``Now the claimants' bar is not going to be able to select that way,'' says Terry Weiss of Atlanta's Sutherland Asbill & Brennan, which represents major brokerage firms.

Joseph Borg, president of the North American Securities Administrators Association, an association of state regulators, gave his blessing to the deal earlier this week.

Fewer Police

Not all of NASAA's members, though, have fallen in line. William F. Galvin, secretary of the Commonwealth of Massachusetts, is distressed that ``we are losing a pair of eyes to watch the financial services industry.''

Galvin likens it to merging the state and local police. ``If you don't like a lot of cops, it's good,'' he says.

One way or the other, Wall Street will be the winner at investors' expense says Keeney, the Sarasota lawyer.

``For the typical middle-class brokerage firm customer, securities fraud will probably increase and little will be done about it,'' he said.

Say what you will about the new uni-regulator. At least the move to trim back is trendy. Yesterday, the Committee on Capital Markets Regulation released a report calling for a pullback on regulation. You can't say these guys aren't consistent.

Before the uni-regulator proposal is a done deal, though, it will have to pass muster with the SEC.

Votes for Sale

The NASD will also have to get a favorable vote from a majority of its 5,100 members, though you won't find an odds maker to make book against that. NASD will pay $35,000 to each of its 5,100 members if the merger is consummated. Imagine how paying $178.5 million would get out the vote on Election Day.

Caruso, the PIABA president, says there's something unsavory about doling out money by NASD. If that much dough is lying around as a result of efficiencies, he asks, why didn't someone think to hand it out to all the customers who win at arbitration but never get the check from the offending brokerage house?