On Tuesday, the NASD released for comment a proposed rule interpretation designed to prevent clients from getting caught in the middle of industry employment disputes.
The notice to members explains that in granting temporary restraining orders against a broker, courts will also order the rep’s new employer to reject customer account transfers received from the former firm.
Such freezing of customer accounts has generated controversy and complaints to regulators (see July 2000 RR). In its notice, the NASDR says it believes customers have a right to choose their brokers and firms, and that restricting transfers can deprive customers of service and access to their accounts.
The NASDR is asking for comment by July 6. The proposal is Notice to Members 01-36, and can be viewed at http://www.nasdr.com/2610_2001.asp Commenters can respond by checking “yes” or “no” answers to questions and e-mailing their responses.
What the Rule Would Do
It would add an interpretation to NASD Rule 11870, the account transfer rule. The proposed interpretation reads:
It shall be inconsistent with just and equitable principles of trade for a member or person associated with a member to take any action that, directly or indirectly, interferes with a customer's ability to transfer his or her account, including seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. ...
The interpretation would not affect firms’ abilities to enforce employment agreements.
An Old Problem
Account-transfer delays are not a new problem. The NASDR notes in its current release that the SEC in 1979 warned firms that unwarranted delays were “improper” and “inconsistent … with just and equitable principles of trade,” according to the SEC.
Nevertheless, account-transfer complaints have been a chronic problem. In both 1999 and 2000, for example, transfer-of-account complaints topped the SEC’s complaint list.
Editor's note: For any comments regarding this article, or to suggest a story idea for RR Online or Registered Representative magazine, contact Editor in Chief Dan Jamieson at [email protected], Online Editor Rick Weinberg at [email protected], Online Managing Editor Cheryl Cooper at [email protected] or Senior Editor Michael Hayes at [email protected]