Here's an issue that has gone unaddressed by securities industry regulators
for far, far too long in my opinion. It appears that something is finally being done.
NASD Bars Members From Blocking Customer Account Transfers
Washington, Dec. 26 (Bloomberg) -- The National Association
of Securities Dealers Inc. decided to bar NASD member firms from
blocking customers from transferring accounts to their brokers
after they have switched companies.
The NASD board approved language earlier this month making it
clear that brokerages shouldn't use the courts to stop customers
from following their brokers to new firms, according to an NASD
press release today. The language clarifies an already-existing
rule.
``It is a fundamental right of an investor to choose with
whom he or she does business, and the fact that a broker changes
firms should not affect an investor's ability to continue to
access his or her account and to do business with that broker,''
the press release said.
The new rule interpretation has been approved by the
Securities and Exchange Commission, and NASD firms will have 30
days to comply. Last month, Merrill Lynch & Co., Morgan Stanley
Dean Witter & Co., and Salomon Smith Barney pledged to stop
blocking customers from transferring accounts.
The three largest U.S. brokerages acted voluntarily after
state securities regulators expressed concern that investors were
harmed by legal disputes between competing firms, said Joseph
Borg, president of the North American Securities Administrators
Association, which represents state regulators.
``We don't think customer accounts should be held hostage to
a legal dispute between two firms,'' Joseph Borg, Alabama's top
securities regulator said at the time. Borg is also the president
of the North American Securities Administrators Association, which
represents state regulators.
Fines Threatened
NASAA threatened to fine brokerages that try to use the
courts to stop customers from following their brokers to new
firms. Some states can impose fines of as much as $500,000 for
each account that's blocked, Borg said.
Dozens of large firms have filed lawsuits in recent years
when brokers have moved to competing firms. The suits, seeking
temporary restraining orders, have been lodged against the new
firms to stop them from accepting transfers of the brokers' former
customer accounts.
Court orders have stopped thousands of customers from
consulting their brokers on trades for as long as a week until
cases are settled, Borg said.
State regulators don't oppose efforts by brokerages in court
to enforce employment contracts that bar brokers from soliciting
former customers after the brokers change firms, Borg said. These
contract constraints represent a brake on brokers encouraging
former clients to bolt to new firms.
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