In what critics call a token gesture designed to make the AMEX marriage more palatable to smaller members, the NASD has proposed giving small broker/dealers--firms with fewer than 150 reps--a first-ever guaranteed seat on the board of governors while also adding two representatives from the American Stock Exchange.

In a special Notice to Members (NTM) last month, the NASD asked members to approve bylaw changes necessary for the merger along with the somewhat surprising plan to give small firms board representation. Ballots were due Sept. 9. The NASD hopes to formalize its acquisition of the AMEX and gain SEC approval this month.

New York-based securities attorney Bill Singer says the ballot deliberately misleads. When you look at the ballot, you wouldnt know youre voting on a historic merger. This is too important a matter to be hidden in verbiage, he says.

The August NTM plays up the new seat for a representative from a small firm, and both the notice and the ballot are phrased as a vote to amend the NASD bylaws to reconfigure the NASD board, rather than as an up or down vote on the merger.

In effect, though, if the new board positions for AMEX members werent approved, the AMEX deal would have to be renegotiated.

Alan Davidson, president of Zeus Securities in Jericho, N.Y., and president of the 100-member Independent Broker-Dealer Association, who has lobbied for small-firm representation, says the offer of a seat isnt enough. He estimates there are as many as 5,000 NASD firms each employing fewer than 150 brokers.

Davidson believes the NASD may have been worried that a straight vote on the merger would fail. More than 90% of the NASDs 5,500 members are small businesses, he says, many of which do not trade or make markets on the AMEX. This is going to do nothing for them but increase their fees and costs of doing business, he claims.

It creates the impression theyre tossing out a seat to the small-business membership, Davidson says. Theyre giving us one seat to represent 5,000 firms, while the Amex with 864 members receives two seats and representation on the NASDs executive committee, he says.

Under the proposal, the NASDs current 27-member governing board would grow to 30 with the addition of the small-business and AMEX representatives, and could expand to as many as 35 if additional governors were needed to maintain a non-industry majority, the NASD says.

An NASD spokesperson says it makes sense to make the changes to its board structure in one rule filing, but Davidson believes the merger issue, which by the NASDs own figuring will cost $180 million over several years, and the issue of small broker/ dealer representation, should have stood separately.

Some NASD firms feel NASD leadership had a moral obligation to put the merger to a vote. I take a dim view of the fact they can spend $180 million of my money without asking me, says Don Brooks, owner of Spectrum Securities in Woodland Hills, Calif., and president of the California Association of Broker Dealers, which represents 60 firms. Why dont they lower our dues and give us more regulators to assist us?

An NASD spokesperson says everything that legally needed to be submitted to the membership for approval has been submitted and that the AMEX merger has received preliminary approval from the Department of Justice.