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UNREGISTERED
ORDER TAKERS AND VOLATILE MARKETS
The message from the states, the SROs, and the SEC about
extraordinary market conditions is taking shape:
If you build it, they will come . . . but we're
not going to allow 200,000 spectators into a 50,000-seat stadium.
The regulators are concerned about whether Wall Street is
adequately handling the unprecedented levels of market activity, particularly online.
Earlier last year, Chief Compliance Officer Therese Haberle of Charles Schwab requested
permission from NASD Regulation (NASDR) to use unregistered Customer Service
Representatives to transcribe customer orders from taped lines during certain periods of
peak telephone call volume. Haberle's request seemed sensible and cost-effective, and
calculated to throw sufficient numbers of human sandbags against surging floodwaters.
Following a review of the request by the Membership Committee and the Office of
General Counsel, Mary Dunbar, NASDR Assistant General Counsel, issued an Interpretative
Letter advising in pertinent part that the:
appropriate way for your firm to prepare for above-average call volume is to
register additional personnel as Assistant Representatives for Order Processing (Series
11). NASD Rule 1041 describes activities in which such representatives may engage, which
are consistent with the activities proposed in your letters.
| FRule 1041 requires that any associated
person who accepts unsolicited customer orders for submission for execution by the member
must be registered as a Series 11 Assistant Representatives-Order Processing |
Given recent Notices-To-Members 99-11
and 99-12 , it seems that NASDR has decided against approving
any quick fixes or temporary patches by its members. Dunbar reiterated the NASDR's
position against granting a "broad-based waiver of registration requirements based on
market activity or volume," and noted that the SRO would continue to consider
"specific requests" addressing "client needs during times of extraordinary
market conditions."
Focusing on the problem, NASDR has apparently concluded that so-called
"extraordinary" market conditions are not akin to acts of God and, in fact,
although intermittent and unusual, such market spasms are likely to recur. Consequently,
members' business plans should be flexible enough to have contingency plans in place to
swiftly and appropriately address market gyrations, no matter how extreme. Sort of like
the logic behind why (rain or shine) I carry a mini-umbrella in my briefcase.
In all fairness, Haberle's proposal made a lot of sense. She limited the use of
unregistered personnel to transcribing taped telephone orders. But NASDR's position is
consistent and, ultimately, persuasive: you simply don't want to be resorting to Amateur
Hour during a crisis.
For further reference:
May 27, 1998, NASDR Interpretative Letter to Therese Haberle from Mary M. Dunbar, Esq.
Questions should be directed to Mary M. Dunbar, Esq. At 202-728-8252
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