NASD Board Approves Proposed Amendments to Strengthen Authority in Member Application Reviews
Washington, D.C. — NASD's Board of Governors has approved for comment proposed amendments to rules that strengthen NASD's authority to preclude firms from using structural changes to avoid meeting their arbitration obligations to investors. Any final proposed amendment must be filed with the Securities and Exchange Commission for approval.
In part due to current market conditions and trends, more brokerage firms have been consolidating or otherwise restructuring their business operations, including selling their assets. Certain proposed changes in a firm's ownership, control or business operations require advance approval from NASD. In some instances, NASD has found proposed transactions, particularly when a firm seeks to transfer assets without liabilities, raise investor protection issues, especially when there are unpaid arbitration awards or pending arbitration claims. NASD policy currently prohibits members from using the membership rules to unfairly prejudice customer claims or awards.
To ensure that brokerage restructures do not negatively impact current and former investors, NASD has proposed several new provisions to its membership rules. The proposed amendments will:
- Expand NASD's authority to include review of any transfer involving a material amount of assets and/or revenues that contribute materially to earnings.
- Require the filing of an application with NASD for all transfers by non-NYSE selling members regardless of whether the acquiring firm is a NYSE member.
- Amend the membership rules to provide explicit authority allowing NASD to take into consideration unpaid arbitration awards and pending arbitration claims, as well as other adjudicated customer awards against a member when reviewing new and continuing member applications.
- Strengthen NASD's authority to consider an applicant's past behavior by requiring applicants to demonstrate that their application should be approved despite the presence of a regulatory history.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business -- from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information please visit www.nasd.com.