The Securities and Exchange Commission voted, 5-0, to open to public comment proposed new rules for the exchanges' governance, ownership structure and required disclosures. They could eventually be formally adopted sometime after the 45-day comment period.

"Investors have a vital interest in these issues," Commissioner Paul Atkins said before the vote.

Revelations of allegedly widespread violations by trading firms at the NYSE, along with a scandal late last year over the $188 million pay package of its former chairman, called into question the system of self-regulation by the exchanges. Under that system, they are responsible for policing their traders and the SEC oversees the exchanges themselves.

SEC Chairman William Donaldson, who headed the NYSE in the early 1990s, told all the U.S. exchanges in March 2003 to review their boards of directors and management practices to ensure they are behaving ethically and serving the public interest.

Under the rules proposed Tuesday, a majority of members of the exchanges' boards would have to be independent of management. The boards' committees, including those that set compensation for exchange officials, would have to be fully comprised of independent members.

Brokerage firms could together own no more than 20 percent of the exchanges. The exchanges would have to disclose annually specific information regarding their operations, ownership structure and regulatory programs.

The exchanges would be required to take steps toward separating their self-regulation from their business operations.

The New York Stock Exchange made sweeping governance changes last year in the wake of the pay scandal for ex-chief Dick Grasso, splitting the responsibilities of its chairman and chief executive, and completely overhauling its board. Former Goldman Sachs Group president John Thain became the exchange's new CEO in January.

The SEC approved the reform plan in December 2003.

Earlier this year, the SEC levied millions of dollars in civil fines on all seven so-called specialist firms that operate on the floor of the exchange for allegedly reaping illegal profits by putting their own trades ahead of those of other investors. Specialist firms make a market in particular stocks by matching buyers and sellers on the NYSE trading floor.

In addition, the regulators reportedly plan to sanction three other exchanges for allowing trading firms to cheat investors by allegedly failing to fully enforce their own rules. The SEC is said to be negotiating settlements with the three - the American Stock Exchange in New York, the National Stock Exchange in Chicago and the Philadelphia Stock Exchange - and pressuring them to investigate and possibly punish the trading firms involved.

The Justice Department and the SEC in 2000 sanctioned the American Stock Exchange, the Philadelphia exchange, the Chicago Board Options Exchange and the Pacific Exchange for allegedly not enforcing their options-trading rules, among other things.

-- Marcy Gordon