nasd: sro enforcement and corporate governance latin american corporate governance roundtable steven...
TRANSCRIPT
NASD: SRO Enforcement and Corporate GovernanceLatin American Corporate Governance Roundtable
Steven Polansky
Presentation Outline
NASD overview
Enforcement objectives
Organization
Source of cases
Investigative process
Hearing process
Priorities
Who We Are
For more than 60 years, NASD has helped bring integrity to the US markets and confidence to investors
World’s leading private-sector provider of financial regulatory services
Self-regulatory organization for US securities industry
Membership encompasses virtually entire industry
Annual budget of $400 million
Operationally separate from NASDAQ
Regulatory Structure in the U.S.
Federal
State
Self-Regulatory Organizations
Member Firms
NASD in the US Regulatory Structure
NASD is a frontline self-regulatory organization (SRO) in the US securities market
Overseen by the Securities and Exchange Commission
Membership includes virtually all securities firms in the United States
Authority to collect fines, order restitution to investors, expel firms and bar individuals from the securities business
What We Do
We uphold high standards for ethics and business practices
Register member firms and their representatives
Write rules to govern their behavior
Examine brokerage operations for compliance
Discipline individuals and firms
Provide education to industry professionals and investors
Provide services to members to support their compliance efforts
Operate the largest securities dispute resolution forum in the world
Membership
By law, virtually all US securities firms that transact business with the public must be a member of NASD
Members
-5,500 member firms
-91,000 branch offices of member firms
-678,000 registered representatives (stockbrokers)
Types of members
- clearing firms - variable contract dealers
- self clearing firms - government security dealers
- introducing firms - merger & acquisition firms
- market makers - direct participation program firms
- mutual fund dealers
Enforcement Objectives
Fair and efficient
Maintain meaningful presence in all important program areas
Effective use of limited resources
Support NASD regulatory programs – such as the arbitration program
Support other regulators
Enforcement actors
• Market Regulation
– Surveils NASDAQ and OTCBB
– Investigates and prosecutes cases arising from this surveillance
• Enforcement Department
– The Enforcement Department is primarily devoted to the identification, investigation, and prosecution of high-profile, complex fraudulent activity
– Enforcement also oversees the Regional Attorney Program
Department of Enforcement
Staff of approximately 150
– Attorneys
– Managers
– Professional investigators
– Administrative staff
Headquartered in Washington DC
– Lawyers located in 14 regional offices throughout the U.S.
Source of Cases
Internal
– Periodic examination of member firms
– Terminations for cause
– Customer complaints
– NASDAQ and OTCBB surveillance
– Corporate financing department
– Arbitration referrals
– Advertising violations
Source of Cases
External
– Referrals from states, federal agencies, and criminal prosecutors
– Customer complaints
– News media
– Anonymous tips
Investigative Process
Analyze documents gathered during on-site inspection
Take on-the-record sworn testimony
Interview customers
Notify potential respondents of apparent rule violations
Settle case or initiate hearing process
Investigative Process
Results of investigations
– Informal action
– Formal action
Settlements (AWCs)
- Sanction guidelines
Complaints
- Wells process
ODA must authorize complaints or settlements
Hearing Process
Chief hearing officer assigns a hearing officer to each case
Hearing officer duties include:
– Holding pre-hearing conferences
– Resolving procedural and evidentiary matters, discovery requests and non-dispositive motions
– Create and maintain the official record of the proceeding
– Draft a decision that represents views of the hearing panel majority
Result: peer review augmented by participation of NASD staff
Appeals Process
Hearing panel’s decision may be appealed to National Adjudicatory Council (NAC) directly by either NASD staff or the respondent(s)
NAC will be able to call any decision for review
Formal Complaints and AWCs Issued
975 1012 10321051
1175 11961257
0100200300400500600700800900
100011001200130014001500
1995 1996 1997 1998 1999 2000 2001
Disciplinary Fines Collected
5.37.7
1011.1
27.1*
11.5
13.2
0
5
10
15
20
25
30
Do
llar
s in
Mil
lio
ns
1995 1996 1997 1998 1999 2000 2001
*Includes single $20 Million Fine
Enforcement Priorities
IPO underwriting and allocation issues
– CSFB
Analyst research reports
– Salomon Smith Barney, Jack Grubman and Christine Gochuico
– U.S. Bancorp Piper Jaffray
– Hornblower & Weeks
Variable annuity sales practice and supervision
Contact Information
For additional information, please contact:
Steven Polansky NASD 1735 K Street, N.W. Washington, DC 20006-1516 Tel.: 202 728 8331 Fax: 202 728 8089 E-mail: [email protected]