Public pension funds and other big investors on Thursday welcomed the resignation of New York Stock Exchange (search) Chairman Richard Grasso (search), but they said the exchange needs more reforms, including greater investor representation on its board.

Pension fund leaders in New York and California had pushed for Grasso's resignation in the furor over his $140 million pay package.

The NYSE now needs to take steps, including the addition of more board members who represent average investors, if it wants to restore investor faith in the financial system, said an official at the $145 billion California Public Employees' Retirement System (search), the biggest U.S. public pension fund.

"Up until now, the only thing that has happened at the New York Stock Exchange was cutting the tops off the dandelions," said Sean Harrigan, Calpers board president. "We must now travel down to the stem and get to the root of the problem."

Grasso resigned under pressure late Wednesday.

Among the most pressing questions after his departure are: who will lead the NYSE, how much money Grasso will ultimately walk away with, and the future of the exchange's dual role as a regulator and a for-profit securities market.

North Carolina Treasurer Richard Moore, who oversees the state's $56 billion pension fund and had been part of the chorus calling for Grasso's resignation, said the NYSE needs to move forward with reforms to help boost investor confidence.

"Unless the board follows up on this in a meaningful way, it will just be another episode, of 'Oops, we got caught,"' he said.

Moore said the exchange should designate at least one board seat for a major public institutional investor, such as a pension fund. If that person leaves the pension fund, the NYSE board membership should then go to another public investment fund representative, he said.

New York State Comptroller Alan Hevesi (search), the sole trustee of the $106 billion New York State Common Retirement Fund (search), in a statement also called for "fundamental reforms" at the stock exchange but did not provide any specific details.

Public pension funds, notably Calpers, tend to take more activist stances than private investment firms.

Fidelity Investments, the No. 1 U.S. mutual fund firm, had no comment on Grasso's departure, spokesman Vin Loporchio said.

Adam Kanzer, general counsel for investment firm Domini Social Investments, which oversees about $1.5 billion in "socially conscious" accounts, said the exchange needs to look more closely at executive compensation issues going forward.

"They need to change the mechanisms by which their executives' pay is calculated," he said. "We are going to continue to monitor the situation closely."

Veteran investor David Dreman, whose Dreman Value Management oversees about $7.5 billion in assets, said he also is concerned about future compensation issues at the exchange and that reforms are needed so investors will have more confidence in the financial markets.

"I think it's not only Grasso," he said. "It's the (exchange's) compensation committee, and the secrecy of it all that's disturbing."