Under the 49th: U.S. regulatory update

(February 18, 2005) It’s an old saying that has a ring of truth, “What happens there, will eventually happen here.” Let’s face it, securities regulators in Canada keep a close eye on their colleagues in the United States to see what measures they’re taking to monitor and guide compliance activities at advisory and brokerage firms.

Further, many of you have customers who either live or work in the U.S. for at least part of the year. Or you have trading partners down south and transact business on U.S. exchanges. So we thought we’d start keeping you posted on regulatory developments taking place south of the 49th parallel.

The Securities & Exchange Commission

The relationship between self-regulatory associations and the markets they oversee is the subject of a major SEC concept release. Among other things, it seeks to examine conflicts of interest between regulatory obligations and the interests of members, market operations, and listed issuers. It also asks for comment on the perceived inefficiencies of the multiple SRO model, including higher costs and difficulty ensuring proper cross-market supervision.

Starting in the late 1990s, the SEC began examining the idea of creating a single SRO to replace the multiple Designated Examining Authority model. It did so in part at the urging of the Securities Industry Association and other market advocates who complained that multiple SROs make it difficult for securities firms to keep track of regulatory requirements. Attempts at regulatory harmony notwithstanding, they say rules applied by the various SROs are different enough to make compliance officers’ jobs more difficult. So far none of the US self regulators has commented. The deadline is March 8.

To read the concept release, please click here.

Comments are mixed on a proposed rule to exempt brokers that sell wrap accounts and other fee-based products from the 1940 Investment Advisors Act. The SEC recently re-worked a rule that has been pending since 1999 and re-proposed it with an eye towards ending a lengthy debate on the issue.

But the SEC’s timing is bad. The Bush administration’s proposal to partially privatize Social Security has many saying now is not the time to add any confusion between bona fide investment advice and product sales. A temporary rule that exempts brokers when the advice they give is “solely incidental” to the sales service expires April 15.

To read the proposal, click here.

To read the temporary exemption, click here.

Comments received so far support ideas laid out in another SEC concept release on the use of tagged data by companies making financial reports to the regulator. The development of a system using common reporting points, they said, will make it easier to compare one company against another when making valuation and stock buying decisions. The SEC also adopted rules allowing firms to make such reports on a voluntary basis.

To read the concept release, click here.

To read the rule change, click here.

The self-regulatory organizations

Both the National Association of Securities Dealers (NASD) and New York Stock Exchange (NYSE) updated their rules related to customer arbitrations. NASD settled a longtime dispute by ruling arbitration panels, not courts, have authority to determine if a claim is eligible for arbitration. The rule change, which takes effect May 5, also clarified that a dismissal by an arbitration panel does not serve as a ticket for parties to bring a matter to court.

Further, an NASD rule requiring arbitration parties provide additional documentation during the pre-dispute phase takes effect May 1. NYSE, meanwhile, is now allowing parties to arbitration a choice of how panels are selected–either from a random list, or a system whereby parties are given a list from which they can make a limited number of strikes.

To read the eligibility rule, click here.

To read the pre-dispute rule, click here.

To read the NYSE proposal, click here.

Filed by Philip Porado, Associate Editor, Advisor’s Edge Philip.poradoadvisor.rogers.com

(02/18/05)

Philip Porado