The NASDR has proposed a new rule covering temporary restraining order (TRO) cases, and it's not a pretty picture for brokers. The proposal gives firms freedom to pursue brokers in court, unlike an earlier plan that has been dropped.
Currently, a firm can seek a TRO, or injunction, against a departing broker. If granted, the order prevents a rep from contacting his or her customers. Firms can ask a court or an NASDR arbitrator for a TRO. Arbitrators are less likely to grant TROs, which is why firms usually go to court.
The new proposal does away with the NASDR TRO process. Court would be the only option.
Also unlike the earlier proposal, the new rule sets no limits on what firms can do in court and offers no process to expedite a hearing on the merits.
The previous rule, filed with the SEC in July 1998, would have limited firms to a 10-day court TRO. From there, the dispute would have gone to arbitration within 28 days so that brokers and clients were not unduly held up.
The 1998 proposal was supposed to take effect at the start of 1999, but got derailed by last-minute objections from American Express Financial Advisors (AEFA) and Merrill Lynch's TRO law firm Rubin & Associates in Paoli, Pa.
The NASDR put the rule on hold and formed a subcommittee to re-examine the issue. The subcommittee issued the new proposal.
The NASDR refused to disclose the names of members of the subcommittee to Registered Representative, but we have since confirmed that both AEFA and Merrill had representatives.
The text of the proposal is available under the Rule Filings section at www.nasdr.com. The SEC is expected to publish the rule for comment.