The Zamansky & Associates blog has moved!

You should be automatically redirected. If not, visit
and update your bookmarks.

Wednesday, April 13, 2005

The NASD's New Broker "Expungement" Rule: A Disaster for Investors and Regulators

On April 7, 2005, the Wall Street Journal ran an article entitled "Brokers' Past Can Still Be Covered Up" which discussed the practical application of the NASD's new broker "expungement" rule. I am quoted in the article as saying "this is a classic example of an investor-friendly rule having the opposite effect of what was intended."

Unfortunately, the practical effect of the Rule in the year since it was enacted has been to prevent investors and regulators from obtaining accurate information about brokers because brokerage firms "strong arm" customers seeking to settle disputes by requiring expungement as a condition of settlement. Given that 80-90 % of the customer arbitration cases are settled, unless a customer agrees to an expungement (or a process that would lead to an expungement), a case will not settle. The practical effect is that customers have either agreed to a "phony" expungement process or, even worse, will not even name a broker as a respondent in a case for fear of impeding a potential settlement.

The NASD and the SEC must immediately look at how the rule is being used to suppress naming of brokers as respondents in cases and the "phony" settlement process.

A copy of the Wall Street Journal article can be viewed on my website

Your comments would be appreciated.


Post a Comment

<< Home