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NASD SPOKESPERSON FINALLY SPELLS IT OUT:
YOU CAN'T TRUST RR'S TO PUSH FOR WALL STREET REFORM

By Bill Singer, bsinger@rrbdlaw.com

August 16, 2002

On August 1, 2002, On Wall Street magazine published an article entitled: Attorney Seeks Broker Voice on NASD Board. The column discussed several proposals I had made, among which were that:

  1. NASD consider allowing some 700,000 registered persons the right to vote on rule proposals involving their careers --- as of now NASD solely offers voting to its member firms, some 5,500.  I believe that this process often favors employer over employee and management over labor.  I believe that registered persons will feel more involved in the regulatory process if they have a voice.
  2. Forms U-4 be filed directly by the RR with CRD (full copies to BD) and not through the member firm.  No change at all would be involved in supervision or any other rules and regulations.  I believe that RRs must have the ability to directly access their registration and that this is an important step to ensure that such individuals are viewed as professionals rather than mere salespersons.  It is the same process required of lawyers and doctors --- we do not file through our employers.  On a more basic level,  each of us applies for our driver's licenses directly with the Department of Motor Vehicles rather than through our employer.  There is simply no sensible justification as to why the U-4 may only be submitted by the member firm --- it simply makes life difficult for too many RRs, and at times with regulatory consequences. 

In response to those two proposals, On Wall Street noted the following reaction from NASD:

In response to a request for comment, Tom Holloman, a spokesman for NASD Regulation Inc., said: "Mr. Singer's agenda is clearly out of step with the times, pandering to those who would seek less, not more oversight and accountability. For example, Mr. Singer's proposal that registered representatives vote on all regulatory changes governing their behavior would almost certainly block or delay any effort to enact meaningful reforms. We will resist proposals that would water down industry oversight."

Over the years I have had my dealings with various NASD staff  --- in fact, I used to be a Regional Attorney for the SRO in New York City.  Quite frankly, I've never met Mr. Tom Hollomon, but one must wonder whether he fully appreciates his sensitive role as a "spokesman" for NASD Regulation, Inc.  It is comforting to finally have in print the NASD's official assessment of the registered representative community that it oversees:


  To give individual RRs a vote is to "certainly block or delay any effort to enact meaningful reforms" and would "water down industry oversight." 

 
As such, Mr. Holloman obviously assumes that RRs are not committed to effective regulation and are incapable of acting professionally.  What Mr. Hollomon doesn't answer --- and actually raises in a provocative manner --- is why is it appropriate to give NASD member firms the right to vote on the same issues?  Is it such a leap of faith to re-write the NASD's spokesman's comment as follows:

"For example, Mr. Singer's proposal that NASD member firms vote on all regulatory changes governing their behavior would almost certainly block or delay any effort to enact meaningful reforms. We will resist proposals that would water down industry oversight."

Maybe Mr. Hollomon finally got it right.  You just can't trust Wall Street.  You can't trust its registered persons.  You can't trust the firms.  And, as I've been saying for years, self-regulation may just not be workable in this day and age.  And if self-regulation can't rely upon the commonsense of its members and their employees, then we ought to close down NASD and ship their oversight back to the states and the SEC. 

Ultimately Mr. Hollomon just doesn't trust the registered community.  Either you have confidence in the integrity of the hundreds of thousands of men and women who make the member firms work, or you don't.  Mr. Hollomon also underscores my historic criticism of NASD management, that they too often view the SRO as just another regulator and find the whole concept of "self" regulation too cumbersome.  Fact is, Mr. Hollomon, the regulatory scheme in the United States includes a level of self-regulatory organizations.  If you will re-read the enabling legislation in the Maloney Act you will see that the industry was considered a valuable font of experience to promote more effective regulation.  That wealth of talent is not found in an entity but in the men and women of Wall Street --- in human beings.  You have simply turned the whole process on its head.  If giving the vote on certain regulatory matters to labor is dangerous --- why isn't it the same concern for management?  By the way, Mr. Hollomon might want to refresh his recollection about NASD's less-than-pristine history of industry oversight by reading the SEC's 21(a) Report of August 1996.  There are many of us who don't think all the reforms enacted since then are meaningful.

Finally, on a personal note, I usually make a point of trying to speak with someone before commenting on something they said.  Quite often things get lost in the mix.  NASD spokespersons might be well advised to do the same.  For example, for several months I have posted various versions of a Statement of Principles and Agenda for the NASD dissident movement.  I refer Mr. Hollomon to the following language in point 7 of the Statement of Principles  http://www.rrbdlaw.com/NASDELECT/agenda.htm:

[We] feel that Wall Street must maintain a vigilant, effective, and uncompromised system of regulation.  It is the hallmark of the integrity of our markets.  As painful as regulation may be at times, it is a worthy cost to pay for the public's confidence.  However, NASD too often views its function as regulation "with teeth," as NASD President Glauber recently stated.  We insist that there be a heart and a brain as well. . .

Block reforms?  Water down oversight?  C'mon Mr. Hollomon, where are you getting that from?  Given Mr. Hollomon's comments, it is obvious that the SRO has already made up its mind --- no discussion, no study --- typical! Of course we could settle this dispute quite simply.  I'll be happy to debate Mr. Hollomon on national television concerning the issues.  Why don't we call up CNBC or CNNfn and arrange for some air time?  





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