MARKET SAVVY : Savvy Confidential: A Briefing for Investors : NASD Seeks Greater Broker Pay Disclosure

The National Assn. of Securities Dealers’ regulatory unit Wednesday proposed rules that would expand brokerages’ disclosure of broker payment practices in an attempt to curb potential conflicts of interest.

NASD Regulation also proposed a rule that would exempt brokerages’ advertisements to institutional investors, such as pension and mutual funds, from advance review by regulators. All such ads are subject to review before they are disseminated.

The brokerage pay proposals, open for public comment before they are forwarded to the Securities and Exchange Commission for consideration, have been pushed by SEC Chairman Arthur Levitt.

One proposal would require firms to disclose when they give “accelerated payouts”--higher commissions for a temporary period--to new brokers to lure them from rival firms.

“The perceived problem with this practice is that it could act as an incentive for the representative to trade customer accounts inappropriately by, for example, ‘churning’ or trading the accounts excessively,” NASD Regulation said.

The proposals would also prohibit brokerages from offering higher pay to brokers who sell the firm’s own funds and from conducting in-house contests that promote the sale of a single security.

In July, the NASD board approved issuance of the pay and advertising proposals, an NASDR spokeswoman said. They were sent out last week to the NASD’s member brokerages, which have until Oct. 29 to comment. The NASD board will then decide whether to forward the proposals to the SEC, which would again solicit public comment before deciding whether to give final approval.