Grasso's Exit Just the Beginning

The New York Stock Exchange has named a new interim chairman and CEO. John Reed's appointment, however, is but the first drop in a torrent of change that will hit the venerable institution in the coming months.

Reed, the former Citigroup (NYSE: C  ) CEO, replaces Dick Grasso, who resigned last week after his lavish compensation package became public. What really stoked criticism was the fact that the board members Grasso had recommended were among those responsible for setting his pay.

Thus, about half the NYSE's directors are now in hot water, and on their way down the drain. USA Today says 12 Wall Street executives on the board will be gone by the end of the year -- victims of a new reform plan being pushed by fellow board member and Goldman Sachs (NYSE: GS  ) CEO Henry Paulson.

Paulson's plan remedies the biggest sickness in the NYSE's structure: The very firms the exchange is supposed to regulate are helping run it.

In an op-ed piece in yesterday's New York Times, Muriel Siebert -- the head of Siebert Financial (Nasdaq: SIEB  ) and the first woman to own a seat on the exchange -- called Grasso's resignation a "once-in-a-generation opportunity" for reform. We'll know if the NYSE seized the opportunity, she says, if we see three things: a diversified board with the majority of directors from outside the industry; a new structure with management duties separated from regulatory functions; and an open-book policy that discloses revenue and earnings, the exchange's management and governance structure, and nomination procedures for board candidates.

In short, we'll know the NYSE is sincere when it operates the same way it wishes its member institutions would.