WealthManagement Magazine

NASDR Struggles with E-mail Rules

When the NYSE's new rule on broker/client correspondence was approved at the end of last year, (see March '98 RR, Page 42), the NASDR immediately moved to adopt the same standard of "reasonable supervision" through a rule change of its own that was due to go into effect Feb. 15.The intent was to give firms a uniform standard so they could finally implement broker/client E-mail, without having to review

When the NYSE's new rule on broker/client correspondence was approved at the end of last year, (see March '98 RR, Page 42), the NASDR immediately moved to adopt the same standard of "reasonable supervision" through a rule change of its own that was due to go into effect Feb. 15.

The intent was to give firms a uniform standard so they could finally implement broker/client E-mail, without having to review each outgoing E-mail. The SEC also said it would allow the same standard of "reasonable supervision" to be applied in terms of outgoing hard-copy correspondence.

But on Feb. 11, the NASD announced it was postponing the implementation of its new rule. The problem was that the NASD, unlike the NYSE, never had a rule that required its members to review every piece of incoming hard-copy correspondence, and "in our discussions with the SEC, the conclusion was reached that we should [implement such a rule to be completely uniform with the NYSE] ... and a sampling should not be used," said Elise Walter, the NASDR's chief operating officer and executive vice president, speaking at a recent Securities Industry Association conference in New York City on Feb. 12.

When the SEC approved the NYSE's rule, it also insisted NYSE members continue to review all incoming correspondence because of concerns that customer complaints could be suppressed, or checks could be lost or diverted.

But for much of the NASD's membership base, the opposite is true. A new requirement to review all incoming correspondence would mean an added burden. Much of the NASD's membership base includes smaller insurance-based and independent contractor firms, which complained about the proposed "pre-receipt review," which "presents very different challenges for them," Walter said.

Walter promised that the NASDR would "take a look" at the concerns that have been raised, but she added: "Quite frankly, from a personal point of view and without prejudging where the NASDR is going to come out, I have little or no sympathy for the arguments that are being raised with the supervision of E-mail and the notion that people ought to be able to use whatever home Internet provider they have to do that, and without supervision. I think that's simply unacceptable."

This latest hitch on the rulemaking front won't delay the implementation of E-mail for NYSE member firms, though. The NASDR says its members who are also NYSE members "may rely on that [NYSE] rule in structuring their supervision programs for review of correspondence."

An NASDR spokesperson says the regulator does not know how long it will take to formulate its own new proposed rule.

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