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NASD Notice to Members 99-09
NASD Regulation Imposes Moratorium On Arbitrator-Ordered Expungements Of
Information From The Central Registration Depository
Executive Summary
NASD Regulation, Inc. (NASD RegulationSM) is imposing a moratorium on
expungement of certain information from the Central Registration Depository
(CRDSM) that is ordered by arbitrators. Effective January 19, 1999, NASD
Regulation will not expunge information from the CRD system based on a
directive contained in an arbitration award rendered in a dispute between a public
customer and a firm or an associated person, unless the award has been confirmed
by a court of competent jurisdiction. Therefore, arbitration awards rendered in
such disputes that contain expungement directives that are not final (i.e., those
awards that have not been signed by a majority of the arbitrators) on or before
January 19, 1999, must be confirmed by a court of competent jurisdiction before
NASD Regulation will execute the expungement directive. During this
moratorium, NASD Regulation will continue to execute court-ordered
expungements, including expungement orders contained in an arbitration award
that is confirmed by a court of competent jurisdiction. In addition, NASD
Regulation will continue to expunge information from the CRD system based on
expungement directives in arbitration awards rendered in disputes between firms
and current or former associated persons, where arbitrators have awarded such
relief based on the defamatory nature of the information.
NASD Regulation is imposing this moratorium after discussions with the North
American Securities Administrators Association (NASAA), an association whose
members include state and other securities regulators in the United States, as well
as other securities regulators in North America. NASD Regulation operates the
CRD system pursuant to an agreement with NASAA. Although the agreement
governing the operation of the CRD system expressly addresses court-ordered
expungements, it does not specifically address arbitrator-ordered expungements.
NASD Regulation has taken the position that expungement of information from
the CRD system that is ordered by an arbitrator and contained in an award should
be afforded the same treatment as a court-ordered expungement. NASAA
disagrees with this position and has informed NASD Regulation that it does not
believe that arbitrator-ordered expungements should be afforded the same
treatment as court-ordered expungements. NASAA has informed NASD
Regulation that, in its opinion, according to various state laws, information
submitted to the CRD system is deemed to have been filed with each state in
which that person or entity seeks to be registered. Therefore, according to
NASAA, information in the CRD system that may be the subject of an arbitrator-
ordered expungement is in many cases a state record, and state laws do not
currently recognize the authority of an arbitrator to expunge a state record or do
not otherwise currently permit such expungements because of state recordkeeping
requirements. Pending further discussions with NASAA and the states, NASD
Regulation is imposing a moratorium on expunging information from the CRD
system based on a directive contained in an arbitration award rendered in a
dispute between a public customer and a firm or associated person, unless the
award has been confirmed by a court of competent jurisdiction. The moratorium is
effective January 19, 1999.
Questions concerning this Notice may be directed to Ann E. Bushey, Assistant
Director, CRD/Public Disclosure, NASD Regulation, at (301) 590-6389; Mary M.
Dunbar, Assistant General Counsel, Office of General Counsel, NASD
Regulation, at (202) 728-8252; or Richard E. Pullano, Associate Director and
Counsel, CRD/Public Disclosure, NASD Regulation, at (301) 212-3789.
Background And Discussion
The CRD system is an electronic registration and licensing system that contains
information used by the Securities and Exchange Commission (SEC), National
Association of Securities Dealers, Inc. (NASD®), other self-regulatory
organizations (SROs), and state securities regulators to make licensing and
registration decisions, among other things. The information on the CRD system
includes criminal information (e.g., indictments and convictions for certain
criminal offenses), disciplinary information (e.g., sanctions imposed by
regulators, customer complaints that meet specified criteria, and certain categories
of employment terminations), and other information. The information on the CRD
system is submitted by regulatory authorities (e.g., state securities regulators and
SROs) and by registered broker/dealers. NASD Regulation is responsible for
processing registration-related filings and entering information into the CRD
system.
NASD Regulation maintains and operates the CRD system pursuant to NASD
rules and an agreement between NASD Regulation and NASAA, an association
whose members include state and other securities regulators in the United States,
as well as other securities regulators in North America. NASD Regulation
expunges information from the CRD system when ordered to do so by a court of
competent jurisdiction. NASD Regulation, recognizing arbitrators¹ broad
authority to grant equitable relief and a party¹s ability to have an award confirmed
in court, also has honored such expungement directives provided they were
contained in an arbitrator¹s award. NASD Regulation provides NASAA with
copies of arbitration awards containing expungement directives before expunging
any information from the CRD system.
NASAA has informed NASD Regulation that, in its opinion, under the laws of
certain states, information filed with the CRD system is deemed to have been filed
with those states, and, according to NASAA, is therefore a state record subject to
all of the regulations and protocols that apply to state records. NASAA has further
informed NASD Regulation that, in its opinion, state laws do not currently
recognize the authority of an arbitrator to expunge a state record or do not
otherwise currently permit such expungements because of state recordkeeping
requirements. NASD Regulation has determined to impose a moratorium on
expungement of information from the CRD system that is awarded by arbitrators
in disputes involving public customers and firms or associated persons, but not
confirmed by a court of competent jurisdiction, while it discusses with NASAA
and the states certain legal and policy issues implicated by these expungements.
Therefore, effective January 19, 1999, NASD Regulation will not expunge
information from the CRD system based on a directive contained in an arbitration
award rendered in a dispute involving a public customer and a firm or associated
person, unless the award has been confirmed by a court of competent jurisdiction.
Awards rendered in such disputes that contain expungement directives that are not
final (i.e., those awards that have not been signed by a majority of the arbitrators)
on or before January 19, 1999, must be confirmed by a court of competent
jurisdiction before NASD Regulation will execute the expungement directive.
Notwithstanding this moratorium, NASD Regulation will continue to expunge
information from the CRD system based on expungement directives contained in
arbitration awards rendered in disputes between firms and current or former
associated persons, where arbitrators have awarded such relief based on the
defamatory nature of the information. In addition, NASD Regulation will
continue to execute court-ordered expungements, including expungement
directives contained in arbitration awards rendered in disputes between public
customers and firms or associated persons, provided those awards are confirmed
by a court of competent jurisdiction.
© 1999, National Association of Securities Dealers, Inc. (NASD). All rights
reserved. |
