The NASD Seeks Comment on Establishment of Criteria and Procedures for Expungements
Nancy A. Condon
Washington,DC—The National Association of Securities Dealers, Inc. (NASD®) announced that it would seek comment, through an NASD Notice to Members, on proposed rules that would establish standards and additional regulatory oversight over the expungement of information from the Central Registration Depository (CRD®). While expungement of information from the CRD in certain instances is appropriate, establishing standards and additional oversight will further safeguard regulatory and investor protection interests by limiting the inappropriate removal of information from the CRD system that is important to investors, regulators and the securities industry.
The NASD is seeking public comment on whether to limit the expungement of customer dispute information to cases where an arbitration panel, court or jury (independent fact-finders) finds:
- there is a clear error or factual impossibility in the subject matter or information in the claim. For example, when a person is named in a claim who did not work for the firm or who worked in a different office and was named in error;
- in favor of the firm or individual seeking expungement and makes the further specific finding that the claim is without legal merit; or
- the resulting information in CRD is defamatory in nature.
The NASD’s proposal would make permanent the January 1999 moratorium, which requires that any arbitration order for the expungement of customer dispute information must be confirmed by a court. In addition, NASD members and associated persons would be required to notify the NASD prior to seeking a court expungement order or court confirmation of an arbitration expungement order. They also would be required to make the NASD a party with respect to the expungement in any court proceeding. The NASD would reserve the right to oppose the expungement if it is not based on one or more of the three criteria.
Further, the NASD seeks comment on a proposal that would expressly articulate its authority to pursue a disciplinary action against a firm or individual who:
- seeks to have information relating to an arbitration claim expunged after there has been an award rendered by the arbitrators against the firm or individual; or
- seeks to expunge an arbitration award that does not contain an expungement order and a finding of at least one of the three criteria.
The CRD system is the registration and licensing system for the United States securities industry and its federal and state regulators and self-regulatory organizations and is jointly administered by the NASD and North American Securities Administrators Association (NASAA). The NASD has worked closely with NASAA and the Securities and Exchange Commission in developing its proposed rules.
Federal and state law require comprehensive reporting of each broker’s administrative information, including personal, employment and registration data as well as disclosure information (e.g., criminal, regulatory, customer complaint/dispute and financial) prior to and throughout their securities career. Individual broker and firm information is drawn from the CRD system by the NASD and made available to investors upon request through its Public Disclosure Program (PDP).
The National Association of Securities Dealers, Inc. (NASD®), is the largest securities-industry self-regulatory organization in the United States. It is the parent organization of NASD Regulation, Inc.; the American Stock Exchange, LLC; and NASD Dispute Resolution, Inc.