NASD Board Approves Temporary Cease and Desist Authority Rule Filing
Nancy A. Condon - (202) 728-8379
Barry R. Goldsmith - (202) 974-2850
Washington, D.C.—The National Association of Securities Dealers’, Inc. (NASD®) Board of Governors today approved a proposal that would allow NASD Regulation, Inc., to issue temporary cease and desist orders to prevent continuing violations of specific NASD rules and the securities laws.
The rule, which will now be sent to the Securities and Exchange Commission (SEC) for approval, is part of NASD Regulation’s on going efforts to fight microcap stock fraud through vigorous enforcement, the development of new rules, and the application of better technology and surveillance.
Temporary cease and desist orders would be available only when the violations are likely to result in "significant dissipation of assets or other significant harm to investors prior to completion of the regular disciplinary proceeding." The proposed rule would provide a way for NASD Regulation to take prompt action to stop a broker or brokerage firm from continuing to violate NASD rules or the securities laws. In microcap fraud cases, investor losses often occur quickly, increasing the need for immediate action.
Under the proposed rule, the Enforcement Department must obtain the approval of NASD Regulation’s President or Chief Operating Officer before initiating a temporary cease and desist proceeding. The case will then be heard by a three-person hearing panel, which will decide whether to issue a temporary cease and desist order.
If a broker or brokerage firm violates the order, NASD Regulation can institute a second proceeding, and after a second hearing, seek to suspend or cancel the firm’s membership. Temporary cease and desist proceedings, and the underlying disciplinary actions, will be handled expeditiously.
In May, the NASD Board approved three rule proposals that will further enhance investor protection in the microcap area. These proposals will limit quotations on the OTC Bulletin Board® to securities of issuers that provide current issuer financial reports to the SEC or to appropriate bank or insurance regulators. The Board also approved a series of rule proposals that will require brokers to review current financial information before recommending the purchase of a non-listed OTC security, and to disclose risks to investors when they buy and sell those securities.
The National Association of Securities Dealers is the largest securities-industry self-regulatory organization in the United States. Through its subsidiaries, NASD Regulation, Inc., and The Nasdaq Stock Market, Inc., the NASD develops rules and regulations; provides a dispute resolution forum; conducts regulatory reviews of members’ activities; and designs, operates, and regulates securities markets all for the benefit and protection of investors.