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Regulation and Compliance > Federal Regulation > SEC

NASD%3A Home Offices Not Branch Offices

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The U.S. Securities and Exchange Commission has approved a rule change that could force broker-dealers affiliated with life insurers to register more offices as branch offices.[@@]

The SEC has approved a proposal by the National Association of Securities Dealers Inc., Washington, to change the NASD’s definition of the term “branch office.”

The NASD, a securities industry self-regulatory organization, requires member firms to register branch offices with it and pay a registration fee to cover the NASD’s supervision costs for those offices.

The NASD hopes to begin requiring member firms to abide by the new definition in early 2006, a few months after it deploys the new branch office features of its Central Registration Depository system, according to a copy of the SEC order that appears today in the Federal Register.

The NASD filed the first version of the proposed rule change in July 2003 and the final version last month.

The NASD has been defining as “any location identified by any means to the public or customers as a location at which member conducts an investment banking or securities business.”

The old definition exempts certain types of satellite locations, such as locations identified on business cards or in advertisements, as long as the member firm also gives the telephone number and address of the branch office that supervises the satellite location.

The old NASD definition conflicts with the definitions used by the SEC and the New York Stock Exchange, and the NASD and the New York Stock Exchange have been working to come up with a single definition to increase the usefulness of the Central Registration Depository as a system for keeping track of branch offices and the reps associated with those offices, SEC officials write in a discussion of their order.

The NASD and New York Stock Exchange came up with definitions similar to the SEC definition, but the NASD left out a requirement that might have required member firms to register reps’ homes if the reps work in their homes at least 50 days a year.

The current version of the NASD definition leaves out the 50-day limit for reps’ use of homes as unregistered locations.

But reps might have to register their homes if they handle money or securities in their home offices, use their own electronic mail systems to communicate with their customers rather than the broker-dealers’ systems, or meet with customers in their homes.

The NASD exempts satellite locations other than homes if reps use those locations for fewer than 30 business days per year or effect fewer than 25 securities transactions at those locations per year.

The NASD also creates a new, 4-hour definition for “business day,” so that reps do not have to count 1-hour or 2-hour stints at a satellite location, such as a table at a convention center, when determining whether they have spent 30 days at a particular location

But, to benefit from an exemption from the branch office registration requirement, an NASD member firm may have to keep careful records to show how many securities transactions its reps effected at each satellite location.

Members of the public have sent the SEC 847 letters commenting on the NASD’s original proposal. Most of the letters have argued that the change would be especially unfair to the broker-dealer networks affiliated with life insurers, which work with large numbers of small, limited-purpose, “non-registered” offices, SEC officials write.

Opponents of the NASD proposal have included the American Council of Life Insurers, Washington, and the National Association of Insurance and Financial Advisors, Falls Church, Va.

An executive with a broker-dealer affiliated with Principal Financial Group Inc., Des Moines, predicted in one 2004 letter that the original July 2003 proposal could have increased the number of Principal branch offices to 1,100, from 42 today.

An executive with a broker-dealer affiliated with New York Life Insurance Company, New York, said the change might force his company to register 3,400 new branch offices.

In addition, “commenters stated that the proposed definition would place an undue burden on firms to track the number of transactions effected from a particular location,” SEC officials write.

But the SEC rejects commenters’ arguments that the definition change would increase their administrative burdens.

Improving the CRD system should make it easier for everyone to keep tabs on reps and branch offices, officials write.

The SEC “is concerned by the statements of some commenters that this proposed rule change will impose additional supervisory duties on them,” officials write. “The commission reminds all broker-dealers of their statutory duty to supervise.”

Life insurance company broker-dealers may have to spend money to register a large number of branch offices, but the NASD will have to spend more money to register those new branch offices, officials write.

A copy of the SEC order approving the NASD definition change is on the Web at


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