WealthManagement Magazine

A.G. Edwards Only Dealer Opposed to U-5 Immunity Rule

Of 53 comment letters received by the NASDR on its proposed U-5 immunity rule, A.G. Edwards was the only firm to oppose the plan.In its letter, A.G. Edwards recommended against approving the rule, which would provide more legal protection for firms from defamation claims arising from language reported on forms U-4 and U-5, as well as oral statements subsequently incorporated on the forms. The originally

Of 53 comment letters received by the NASDR on its proposed U-5 immunity rule, A.G. Edwards was the only firm to oppose the plan.

In its letter, A.G. Edwards recommended against approving the rule, which would provide more legal protection for firms from defamation claims arising from language reported on forms U-4 and U-5, as well as oral statements subsequently incorporated on the forms. The originally stated purpose of the rule was to improve disclosure of rogue brokers.

" ... Regretfully, we do not believe that the proposed rule will accomplish its stated purpose but may in fact, make the situation worse then [sic] currently exists. For that reason, we would recommend against adoption of the rule," wrote Stephen Sneeringer, senior vice president and counsel, and director of law at the firm.

Sneeringer noted that qualified immunity is already recognized for required disclosures to quazi-governmental organizations, and claimed absolute immunity already applies in New York.

In marked contrast to other firms, Edwards argued that the proposal would improperly override state laws.

"We have serious questions concerning the legal validity of the proposed rule which is an attempt to establish NASD substantive law ... and purports to change both state and federal law as applied in NASD arbitration hearings," Sneeringer wrote. If the rule were "carried to the logical conclusion, the NASD could adopt an entire code of substantive law preempting state and federal law."

Merrill Lynch, Dean Witter, Smith Barney, EVEREN, Edward Jones, Schwab, Advest and Lehman Bros., among other dealers, supported the proposal.

Brokerages weren't alone in their support. Mutual fund giants Putnam and Fidelity, which both have broker/dealer distribution arms, also wrote in favor of the proposed rule.

The NASD board approved the rule Jan. 22, even though a final draft was not available.

The NASD board itself was officially voted into place Jan. 15 of this year, shortly after the Dec. 31 deadline for comment letters on the immunity rule.

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