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Regulation and Compliance > Litigation

NASD Members Attack Proposed Rule

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NU Online News Service, Jan. 7, 2004, 5:55 p.m. EST, Washington – A proposal by the National Association of Securities Dealers, Washington, aimed at certifying member compliance with NASD rules and federal securities laws is drawing sharp criticism from NASD members.[@@]

The proposed rule, which is currently pending before the U.S. Securities and Exchange Commission, would require NASD members to designate a chief compliance officer.

Chief compliance officers, along with chief executive officers, would have to certify annually that their companies have in place processes to establish, maintain, review, modify and test policies and procedures designed to assure compliance with NASD rules and federal securities laws.

Of 166 comments on the proposal filed with the NASD, only 6 favor it, the NASD acknowledges in a notice published in the Federal Register.

In particular, those criticizing the proposal cite the potential liabilities facing the CCOs and CEOs as major concerns, the NASD says.

Commentators express concerns, the NASD says, that the proposal could spawn “baseless litigation by opportunistic plaintiffs’ attorneys.”

Commentators also complain that the proposed rule would duplicate existing requirements.

The NASD says it disagrees that the proposal would create new liability for CEOs and CCOs.

“Moreover,” the NASD says, “NASD does not believe the possibility of meritless litigation should dictate its regulatory actions?abusive litigation should be dealt with by sanctions, not abandoned policies.”

Carl Wilkerson, chief counsel for securities and litigation with the American Council of Life Insurers, Washington, says that, as a self-regulatory organization, the NASD should be more responsive to the overwhelming adverse reaction to the proposed rule.

“When only 6 of 166 letters support a proposal, something is fundamentally wrong with it,” Wilkerson says.


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