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The largest trade group of the U.S. mutual fund industry on Tuesday rejected the proposed reforms of the New York Stock exchange because it believes they do not provide adequate board representation for institutional investors.

The Investment Company Institute asked the Securities and Exchange Commission to refuse approval of the proposed reforms of the NYSE unless the exchange grants board seats to institutional investor representatives.

The reforms drawn up by John Reed, the interim NYSE chief, will not best serve investors, the ICI wrote in a letter. “This is because the proposal does not guarantee any investor representation on the NYSE Board and creates a Board of Executives comprised primarily of ‘sellside’ representatives,” the ICI letter said.

The letter is the latest blow to the NYSE reform plans and marks the first criticism from private sector investment groups. Previously the heads of public pension funds had asked for similar changes to Mr. Reed’s reform proposals.

“Investor representation on the Board is now more important than ever, in view of the significant challenges facing the exchange relating to governance, self-regulation and market structure,” the ICI letter said.

The reform proposals it criticized were approved last month by NYSE members but they have to be vetted by the SEC, which is currently seeking public comment on the issue.

Mr. Reed has adamantly rejected calls for investors to be represented on the NYSE board, saying the exchange needs a fully independent group of directors.

“They want a board of industry groups, we had one of those and it didn’t serve us very well,” he told reporters at an industry conference in early November. He was referring to the previous NYSE board of 26 directors representing the exchange’s various constituencies.

That board, which had been embarrassed by the controversial $187.5m pay package it granted to Richard Grasso, the former NYSE chairman, resigned when the NYSE membership elected the current board of the exchange.

The new board has eight directors, including the head of TIAA-CREF, the teachers’ retirement fund, alongside academics, former executives and former public policy figures such as Madeleine Albright, secretary of state during the Clinton administration.

The ICI also asked for greater representation on the Board of Executives, where the proposals call for four institutional investor representatives, alongside four traders from the NYSE floor, four executives from NYSE-listed companies, two NYSE members who lease their trading rights and at least six Wall Street executives.

The membership of the Board of Executives is currently being appointed by Mr. Reed and the board to serve until June 2004, when the NYSE’s 1,366 members will get to vote on the matter.

© The Financial Times Ltd 2013. "FT" and "Financial Times" are trademarks of the Financial Times.

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