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NASD bares all on brokers
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March 9, 1998: 3:13 p.m. ET
New public-disclosure system will give members' disciplinary history
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NEW YORK (CNNfn) - Much to the chagrin of some in the securities industry, curious investors are about to be given free rein to rummage at will through their brokers' closets, in search of skeletons.
On March 26, the National Association of Securities Dealers will unveil a revamped public-disclosure system allowing any would-be cyber-sleuth with a little moxie and access to a computer terminal, to download a broker's unabridged disciplinary history.
The souped-up, $50 million system comes in response to mounting pressures from regulators alarmed by what they say are rampant abuses by small-time brokers who thrive on the gullibility of many neophyte investors.
More Americans own stock today than at any time since World War II. Yet the equity boom, analysts say, has been accompanied by the emergence of a cottage industry of ethically unscrupulous brokers who continue in business because their clients simply aren't privy to their past practices.
Under the current system, brokerage houses have been able to commit widespread abuses without any of them showing up in the NASD's depository, which is shared by state regulators and the NASD, which runs the Nasdaq. In many cases, investors have learned of flagrant violations only after verifying state records, including court filings.
The new system will allow investors, via their computers, to tap into a broker's work history and registered business address. But more pertinently, investors will be able to punch up any pending customer complaints, arbitration claims, settlements of account disputes of more than $10,000, and court award to clients, among other cases of malfeasance.
Mary Condon, an NASD spokeswoman, said the database encompasses 5,500 member brokerage firms, employing 550,000 securities dealers. The expanded disclosures, she asserted, would effectively make the securities industry one of the most transparent in the country.
"It sure is more than any of the other rule filing professions," she said.
But Wall Street regulators contended the overhaul was a necessity. Under the current system, they say, investors who call NASD's 1-800 hotline number aren't informed about past complaints filed against a broker, only pending ones. Savvy investors can find out more from state regulators only if they know they have that option.
Mary Schapiro, the president of NASD regulation, is on record as defending the integrity of her association's disclosure rules, which she contends are as forthcoming as any in the world.
The new system is the product of compromise between dealers and regulators, who were asked for feedback through questionnaires. The Securities and Exchange Commission already has approved the new filing rules.
It will be some time, however, before the system is up to technical snuff. In an initial phase, investors will only be able to receive administrative data such as work history and the states in which a broker is licensed to operate. Later this year, NASD officials promise to have the disciplinary information up and accessible on the Web site.
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