Notice to Members 01-29
SEC Approves Amendments to Prohibit Terminated or Suspended Member Firms From Enforcing Predispute Arbitration Agreements Against Customers in the NASD Arbitration Forum
On April 6, 2001, the Securities and Exchange Commission (SEC or Commission) approved an amendment to National Association of Securities Dealers, Inc. (NASD®) Rule 10301 to prohibit a member firm whose membership has been terminated, suspended, canceled, or revoked, or that has been expelled from the NASD, or that is otherwise defunct, from enforcing a predispute arbitration agreement against a customer in the NASD forum, unless the customer agrees to arbitration in writing after the claim has arisen.
As a corollary to this rule change, before serving a customer claim against a member firm, NASD Dispute Resolution, Inc. will notify the customer if the member firm falls into one of the categories enumerated in the rule, so customers can make an informed decision regarding whether to proceed in arbitration, to file their claim in court, or to take no action. Although the rule change only applies to claims against member firms, before serving a customer claim against an associated person, NASD Dispute Resolution will also inform the customer if the associated person's registration is terminated, revoked, or suspended.
Questions regarding this Notice may be directed to Laura Leedy Gansler, Counsel, NASD Dispute Resolution, Inc., at (202) 728-8275.