SIA Lobbies to Curb State Regulation

A bill now being drafted by the Senate Banking Committee could limit state securities regulators' ability to enforce securities laws.Three highly controversial proposals have been dropped from consideration, but state securities regulators still worry about several remaining proposals, including one that would prohibit states from pursuing securities law violators if federal or other regulators have

A bill now being drafted by the Senate Banking Committee could limit state securities regulators' ability to enforce securities laws.

Three highly controversial proposals have been dropped from consideration, but state securities regulators still worry about several remaining proposals, including one that would prohibit states from pursuing securities law violators if federal or other regulators have taken previous action against them.

Senate Banking, Housing and Urban Affairs Committee Chairman Phil Gramm, R-Texas, sought industry input in drafting the Securities Markets Enhancement Act of 1999. The SIA, in May, submitted its recommendations.

One of the SIA's recommendations would do away with duplicate fines where "multiple regulators bring duplicative cases based on the same underlying conduct merely to extract a financial payment unrelated to investor protection."

The North American Securities Administrators' Association (NASAA) counters that this proposal pre-empts state authority to punish offenders and is similar to a punitive damage cap.

In late July, Gramm and members of the securities subcommittee dropped three controversial SIA proposals from consideration. They were: a recommendation to eliminate individual state licensing of brokers, except if the broker had a place of business located in the state; a plan to designate a single self-regulatory organization to examine firms; and a recommendation to prohibit states from establishing broker or dealer registration requirements that differ from, or are in addition to, those of the SEC.

Gramm says the provisions would have doomed the bill. "It has been our goal from the beginning to produce legislation that enjoys wide support," he said in a press statement.

Still, state securities regulators are suspicious about remaining recommendations. Another SIA proposal would eliminate state filing of disciplinary information "as long as complete disciplinary and other disclosure records are readily available to the state ... through a national securities association registered with the Securities and Exchange Commission," the SIA proposal states.

The SIA claims that this would allow for the correction of erroneous information.

State regulators, however, view the proposal as an end-run around state open-records laws. "This could be quite controversial," says NASAA's Marc Beauchamp. "The SIA is essentially saying to states: 'Let the NASD run the CRD. Stay out of it--it's not your record.'" The NASD provides only an abbreviated edited version of the CRD, he says. "States wonder what governs the NASD's editing process."

State regulators are finding some support. "We do not think state securities law should be pre-empted," says Wayne Howell, chief of staff to Sen. Max Cleland, D-Ga., a former state securities regulator. "State securities regulation serves a formidable investor protection purpose in each state."

At press time, the Senate Banking Committee planned to have hearings in Washington, D.C., on the bill as early as September.

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