NASD

NASD executive office on K Street in downtown Washington, D.C.

The NASD (formerly known as the National Association of Securities Dealers) is the primary Self Regulatory Organization (SRO) responsible for the regulation of persons and companies involved in the securities industry in the United States, with delegated authority from the U.S. Securities and Exchange Commission.

The NASD Board of Governors consists of two staff members (the CEO and the President of one of NASD's divisions), seven individuals representing the industry, seven individuals representing the public, and two individuals categorized as "non-public". [NASD Board of Governors]

Contents

1 Size and scope
2 Arbitration
3 See also
4 References
5 External links

Size and scope

NASD regulates trading in equities, corporate bonds, securities futures and options, with authority over the activities of more than 5,000 brokerage firms, approximately 150,000 branch offices, and more than 650,900 registered securities representatives. All firms dealing in securities that are not regulated by another SRO, such as the Municipal Securities Rulemaking Board (MSRB), are required to be member firms of the NASD.

NASD licenses individuals and admits firms to the industry, writes rules to govern their behavior, examines them for regulatory compliance, and can discipline those who fail to comply. It provides education and qualification examinations to industry professionals. It also sells outsourced regulatory products and services to a number of stock markets and exchanges.

NASD has a staff of nearly 2,000 and an annual budget of more than $500 million. [About NASD] The NASD is funded primarily by assessments of member firms' registered representatives and applicants, annual fees paid by members, and by fines that it levies. The annual fee that each member pays includes a basic membership fee, an assessment based on gross income, a fee for each principal and registered representative, and charge for each branch office.

Arbitration

The NASD operates the nation's largest arbitration forum for the resolution of disputes between customers and member firms, as well as between brokerage firm employees and their firms. As of June 2005, the pool of arbitrators consisted of 3,700 individuals classified as representing the public and 2,700 individuals considered industry panelists.

In 1987, in Shearson/American Express v. McMahon, the Supreme Court ruled that account forms signed by customers requiring arbitration for disputes were enforceable contracts. Brokerage firms now require all customers to sign such documents, requiring binding arbitration.

For disputes between customers and member firms, the panel that decides the case consists of three arbitrators, one representing the securities industry and two designated as public investor representatives. For a given case, the two sides are provided separate lists by NASD of local, available arbitrators, from which they chose. If one side rejects all listed arbitrators, NASD names the arbitrators who will serve; these can be rejected only for biases, misclassification, conflicts, or undisclosed material information, and biases or conflicts must be identified prior to the beginning of hearings.

According to NASD, there were 6,074 cases for arbitration filed in 2005, a decrease from the peak of 8,945 cases filed in 2003. The average time to complete a case has risen from 10.5 months in 1995 to 14.3 months in 2005, a decrease from 2004 when it was 15.4 months. The percentage of cases where customers are awarded damages has fallen from slightly above 50% in the 2000-2002 period to slightly above 40% in 2005. [This Game Already Over? Critics Say Arbitration Panels Often Have Hidden Conflicts], Gretchen Morgenson, New York Times, June 18, 2006

NASD rules do not require parties to be represented by attorneys. A party may appear without an attorney, or be represented by a non-attorney in arbitration. However, representation by a non-attorney may be considered to be the unauthorized practice of law in some states. [NASD Frequently Asked Questions], "Do I need a lawyer for arbitration?" Brokerage firms routinely hire attorneys, so a customer who does not can be at a serious disadvantage. One organization whose members specialize in representing customers against brokerage firms in NASD and NYSE arbitration is the [Public Investors Arbitration Bar Association ("PIABA")].

In June 2006, Lewis D. Lowenfels, an expert in securities law at a New York law firm, said of the NASD arbitration process: "What started out as a relatively swift and economical process for a public customer claimant to seek justice has evolved into a costly extended adversarial proceeding dominated by trial lawyers and the usual litigation tactics."

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References

External links