NASD Announces Rule Limiting Expungement of Customer Dispute Information from the Central Registration Depository
Washington, D.C.—NASD announced today that the Securities and Exchange Commission (SEC) approved a rule that will limit the expungement of customer dispute information from the Central Registration Depository® (CRD). The rule, developed after extensive consultation with the SEC and the North American Securities Administrators Association (NASAA), becomes effective on April 12, 2004.
The new rule, which makes permanent a previously imposed moratorium, requires a court to confirm any expungement of customer dispute information from CRD ordered in an arbitration award. In addition, the rule requires NASD-registered firms and their associated persons to make NASD a party to a court proceeding seeking either a court-issued expungement order or court confirmation of an arbitration award granting expungement. NASD will oppose expunging customer dispute information unless the expungement is based on an affirmative finding that:
- the information, claim, or allegation is factually impossible or clearly erroneous;
- the registered person was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation, or conversion of funds; or
- the claim, allegation, or information is false.
The rule also provides NASD discretion to not oppose expungement under extraordinary circumstances where the basis for the removal is appropriate, but does not fall within one of the three preceding standards. NASD would exercise this discretion only if it determines that the expungement is warranted and removal of the information would not have an adverse effect on investor protection, the integrity of the CRD system or regulatory requirements.
Finally, the rule includes a process by which NASD can waive its requirement to be made a party in a proceeding if it determines that the expungement order is based on affirmative findings of one or more of the above standards. NASD will notify state regulators when it is named as a party or receives a waiver request at which time they may decide to join the proceedings and oppose the expungement.
"NASD believes that this approach provides investors, regulators, and brokerage firms with important information while providing a narrowly defined means of permitting individuals to remove inaccurate data from their registration record," said Douglas Shulman, NASD's President in charge of regulatory services, information and markets.
The SEC, in approving the rule, noted that it "strikes the appropriate balance between permitting members and their associated persons to remove information from the CRD system that holds no regulatory value, while at the same time preserving information that is valuable to investors and regulators."
Detailed information regarding the rule can be found in Notice to Members 04-16.
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 NASD and the NASAA.
Federal and state laws 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 collected through the CRD system is used by federal and state securities regulators and the securities industry for regulatory and compliance purposes. NASD makes information from the CRD system available to investors upon request through its BrokerCheck program; state regulators also make CRD information public pursuant to state law.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity 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 our Web Site at www.nasd.com.