NASDR Proposes TRO Restrictions

The NASDR wants to stop firms from freezing customer accounts of brokers who have jumped ship. In a May 7 press release, the regulator said it will seek comments on an interpretation of existing rules that would prohibit any member firm from taking any action that interferes with a customer's right to transfer his or her account. The actual proposal was not available at press time. Firms sometimes

The NASDR wants to stop firms from freezing customer accounts of brokers who have jumped ship.

In a May 7 press release, the regulator said it will seek comments on an interpretation of existing rules that would prohibit “any member firm from taking any action that interferes with a customer's right to transfer his or her account.”

The actual proposal was not available at press time.

Firms sometimes go to court seeking temporary restraining orders (TROs) and injunctions to prohibit defecting brokers from contacting customers. The suing firm typically asks that a “nonaccept” clause be included in the order. The clause prohibits the receiving firm from accepting ACATS.

Enjoining clients is controversial and has sparked customer complaints. The rule interpretation is designed to minimize the number of clients who get caught in the middle of industry employment disputes.

The news release contained strong language from NASD CEO and President Robert Glauber. “Customers should have the freedom to choose the registered representative and the securities firm that service their brokerage accounts,” he said.

However, the NASDR release noted some exceptions to the interpretation. Firms would still be able to delay transfers due to nonportable proprietary products or faulty transfer requests.

The exceptions “could swallow the rule,” says an attorney who works both sides of TRO cases and asks not to be identified. Firms could, for example, define firm-branded cash accounts as proprietary products, he says, or delay transfers by claiming the information was inadequate.

But on balance, the source says the rule interpretation will “probably be favorable to the defense [broker] side.” Brokers can argue the clear intent of NASD rules is to prevent customers from being enjoined, he says.

Once it receives and considers the comments, the NASDR intends to file its final version of the rule interpretation with the SEC.

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