NASD Hot Line on Rogue Brokers Faces SEC Review : Securities: The association says it will also look at its policy barring the disclosure of arbitration settlements.
Responding to congressional criticism, two key agencies charged with overseeing the brokerage business have pledged to review the performance of a “hot line” designed to protect investors from rogue stockbrokers.
In a memo disclosed Monday by Rep. Edward J. Markey (D-Mass.), the Securities and Exchange Commission said it will undertake a thorough inspection of the 3-year-old hot line, which Markey and congressional investigators have repeatedly criticized as seriously deficient.
Also, the National Assn. of Securities Dealers, which operates the hot line, said one of its subcommittees will reconsider a policy that prevents disclosure of information about arbitration settlements between brokers and disgruntled customers.
Markey, chairman of the House subcommittee on telecommunications and finance, demanded further review of the hot-line system after subcommittee staff members were unable to obtain detailed background data about two brokers whose conduct had been probed by the panel at a Sept. 14 hearing.
According to letters Markey sent the SEC and Congress’ General Accounting Office following that hearing, the system’s shortcomings fall into two main categories.
First, Markey alleged, information about brokers’ disciplinary records is sometimes not fed into the NASD’s computer database (called the Central Registration Depository, or CRD) in a timely fashion. That, he said, can leave investors who call the NASD hot line with the erroneous impression that a broker’s record is clean, for months after regulatory sanctions have been imposed.
Second, he said, the hot line does not provide investors with information about arbitration cases settled before an award is made against a broker--no matter how large or how telling the settlement might be.
NASD officials say they are redesigning the CRD database to assure more timely reporting of discipline taken against brokers and will take action against brokerages that fail to cooperate.
But the group, a self-regulating association of brokerage houses, continues to believe that disclosing settlements--as opposed to formal arbitration decisions against brokers--would only serve to discourage such settlements, according to Jay Cummings, director of the NASD’s membership department, who responded to Markey’s concerns in a letter to the SEC.
Nonetheless, the NASD says it is reconsidering its position, as it has been pressed to do previously by the SEC.
Markey’s investigations of rogue brokers and the system for disciplining them--along with a parallel probe by the SEC--was prompted by a 1992 series of articles in The Times that reported that several of the nation’s biggest brokerage firms knowingly hired and retained brokers with long records of defrauding customers.
