WealthManagement Magazine

NASD Board Members Can't Recall U-4/U-5 Immunity Rule

Immediately after the NASD Board of Governors on Jan. 22 passed a qualified immunity rule for U-4 and U-5 statements, an NASD spokesperson told this magazine that no final version of the rule was available.A month later, on Feb. 23, the NASD filed the proposal with the SEC. The rule proposal is dated Feb. 20.It's still unknown whether the NASD Board of Governors had the final rule before it when it

Immediately after the NASD Board of Governors on Jan. 22 passed a qualified immunity rule for U-4 and U-5 statements, an NASD spokesperson told this magazine that no final version of the rule was available.

A month later, on Feb. 23, the NASD filed the proposal with the SEC. The rule proposal is dated Feb. 20.

It's still unknown whether the NASD Board of Governors had the final rule before it when it approved the proposal.

Several public members of the board of governors, who serve on the board to balance the interests of industry members, could not recall in March and early April what the board voted on in January. Board members confirmed that they did not read most of the 53 comment letters received by the NASD regarding the rule.

Board member John Markese, president of the Chicago-based American Association of Individual Investors, says he doesn't "recall directly" the wording of the immunity rule. "We reviewed some [of the comment letters]. I did not directly look at them--I reviewed some. We had access to them. We got summaries" of the letters, he says.

Elaine Chao, a distinguished fellow at The Heritage Foundation in Washington, D.C., says she can't "recall specifically at all" what the board voted on. "Generally, we get a well-prepared briefing book" from NASD staff, she adds, and "there was a great deal of concern" about the immunity issue. Chao did not read the comment letters, but they were available to board members, she notes.

Donald Kirk, an executive-in-residence at Columbia University's business school in New York also couldn't remember what he'd seen. "We received a good deal of material," he says.

Robert Glauber, a lecturer at the John F. Kennedy School of Government at Harvard University in Boston, says he "can't recall anything" about the immunity discussions. "It was an issue I did not get close to,"although he did read some of the comment letters, Glauber says.

RR was unable to obtain the phone number for another public board member, former U.S. Senator Nancy Kassebaum Baker. The NASD refused to provide Ms. Baker's number to this magazine, and said in a statement: " We regard personal information--addresses and phone numbers--of the members of our board of governors as proprietary information."

The NASD also did not respond to RR's requests for copies of briefing materials given to board members regarding the immunity proposal, or summaries of the comment letters board members received. The NASD also did not respond to follow-up inquiries regarding whether or not the board had the final draft before it approved the rule Jan. 22.

Two other public board members who are unaffiliated with dealers, Nasdaq-listed companies or industry vendors--Philip Lochner, a Time-Warner executive, and Paul O'Neil, chairman and CEO of ALCOA--were not immediately available for comment.

Calls to several industry members on the board were not returned.

In its rule filing, the NASD itself admits the immunity proposal would supersede state defamation laws. Board members confirm that the issue was discussed at the January meeting.

Does the NASD have the authority to override state law? "I'm not certain," Markese says. "I believe we have the right to propose rules to the SEC."

Chao can't recall the issue being discussed, adding that "I don't keep notes of meetings, generally speaking" after being on the United Way board and being burdened with discovery requests from litigation.

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