Today's WSJ (subscription required) reports that the NYSE is in the midst of an enforcement action against certain brokerage firms for failing to deliver prospectuses (prospecti?) to investors. While Section 5 of the 1933 Act is keyed around delivery of prospectuses, given that most investors have neither the time or inclination to read them, there is an element of a tree falling in the forest with no one around.
An article in this morning's WSJ (subscription required) indicates that Merrill Lynch, Smith Barney and UBS have reached a protocol regarding brokers who resign to go to another firm.
According to the article:
The protocol, expected to be effective in the fourth quarter, lets departing brokers take customer names, addresses (including e-mail) and phone numbers, but not account information, after resigning in writing to a branch manager. When a customer completes a one-page authorization, the old firm must transfer account data within a day, regardless of previous contractual restrictions.
It is surprising that something like this protocol has taken so long to arrive. For years, these firms have engaged in substantial litigation over departing brokers. The firms have rarely been able to stop brokers, or their clients, from leaving. While some firms have won substantial awards where another firm has conducted a full-blown "raid" (i.e., where an entire branch office has been induced to switch firms), the cost-benefit ratio of such litigation could not have been very attractive.
Last year, the NASD proposed a rule that would require that both the CEO and Chief Compliance Officer (CCO) of broker-dealers to annually certify as to the broker-dealer's compliance program.
Compliance officers immediately recognized that one effect of the proposed rule would be, in effect, to paint another target on their backs. In the event of any compliance problems, in addition to all the other disciplinary hammers that could be brought down on the CCO, the NASD would be able to take the certification and assert that (i) the CCO had filed a certification that was knowingly untrue; or (ii) the CCO had been negligent in investigating whether the certfication was true.
Today, an amendment to the proposed rule was published in the Federal Register. As revised, the rule no longer requires the CCO to file these certifications.
I think that the NASD realized that piling more potential liability on CCOs would primarily have the effect of driving good compliance officers out of the business.