The new rule would exclude any individual employed at a company that controls, is controlled by, or is under common control with, a securities firm. Spouses and immediate family members of such individuals would also be prohibited from serving as public arbitrators. The measure will be filed with the Securities and Exchange Commission and is subject to its approval.
"This rule will prevent individuals with even indirect ties to the securities industry from serving as a public arbitrator in our forum," said NASD Dispute Resolution President Linda Fienberg. "We made these changes to reassure investors that NASD's dispute resolution program provides them access to quality arbitrators who will evaluate disputes fairly and efficiently."
NASD currently requires arbitrators to disclose relevant information about their education, employment history and any potential conflicts of interest. If the new rule change is approved, arbitrators will be required to report information on relationships between their employers and a broker/dealer. NASD will update and reclassify arbitrators if necessary.
"The more information that investors have about arbitrators, the better the system works," said Fienberg. "We will continue to identify ways to promote transparency to the investors and improve the quality of our arbitration program."
The new rule proposal follows several changes to arbitrator classification rules made in July 2004. Those modifications included increasing from three years to five years the period for transitioning from a non-public to a public arbitrator; prohibiting anyone who has been associated with the industry for 20 years or more from ever becoming a public arbitrator; prohibiting attorneys, accountants, and other professionals whose firms derive 10 percent or more of their annual revenue from clients involved in securities business from serving as public arbitrators; and excluding investment advisers from serving as public arbitrators.
NASD Dispute Resolution is the largest securities dispute resolution forum in the world. NASD facilitates the efficient resolution of monetary, business, and employment disputes between investors, securities firms, and employees of securities firms by offering both arbitration and mediation services through a network of hearing locations across the United States.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
