NASD Urges Shield for Brokerages

The National Assn. of Securities Dealers recommended that securities firms be given partial immunity from arbitration claims filed by fired brokers over their dismissal notices.

These so-called U-5 notices, which contain the reasons for a broker’s termination, are forwarded by firms to the NASD, which makes the information available to investors and potential employers.

The NASD rule proposal, to be submitted to the Securities and Exchange Commission for final approval, seeks to encourage firms to flag rogue brokers without fear of being sued for libel or defamation. Many brokerages water down their U-5 explanations to avoid possible arbitration challenges, NASD officials said.

“We want forthcoming, candid disclosure why someone’s been terminated,” said Elisse Walter, chief operating officer of NASD’s regulatory unit.

The plan, made public Monday on the NASD Regulation Web site (https://www.NASDR.com), says: “The proposed rule is designed to strike a balance between the interests of the member firms, the employees and the public.”

Many brokers have accused firms of using the U-5 form to retaliate against them for reasons unrelated to their job performance. A former Nashville branch manager for Dean Witter, Discover & Co. was awarded $1.7 million last year after accusing the firm of firing him over his refusal to return annual $2,500 expense stipends that he said he deserved.

The NASD plan would exempt firms from arbitration claims if the brokerages’ statements on the U-5 form are true. The firms would be liable only if employees can demonstrate “with clear and convincing evidence” that the brokerage knew--or “was reckless in not knowing”--that its statements were false.