NASD Expungement Rule Effective April 12, 2004

New Rules Effective April 12, 2004

NASD RELEASE ON EXPUNGEMENT RULES

A March 4, 2004 “News Release” from NASD announced approval of “a rule that will limit the expungement of customer dispute information from the Central Registration Depository (CRD);” an accompanying Notice to Members (NTM 04-16) set an effective date of April 12, 2004.

Until the adoption of new Rule 2130 (SAA 04-01), NASD operated under a moratorium procedure (see NTM 99-09) that required confirmation of arbitration Awards that ordered expungement of customer dispute information from the CRD. This new Rule maintains much of that regime, but tightens the standards under which arbitrators should order expungement and requires that NASD be named in any confirmation or other judicial proceeding in which expungement is under consideration.

NASD will forego opposition to the petition for expungement where one of three stringent criteria are met. If the arbitrators determine that expungement should be granted, they must “state in the award the basis on which the expungement relief was granted. [Where a stipulated Award is involved] [t]he arbitrators may require the submission of documents or a brief evidentiary hearing to gather the information necessary to make such findings.” The requisite “affirmative findings” rely upon evidentiary determinations that the broker was not involved in the bad acts, that the allegations are factually impossible or clearly erroneous, or that the allegations are false. A waiver procedure will save parties in arbitration some time, by notifying NASD before filing for confirmation that the criteria are met; if NASD agrees, it will waive being named. “Persons who have been sued in court may seek expungement relief from the court; however, they will not be able to avail themselves of the rule’s waiver provision and will be required to name NASD as a party.” (SAC Ed: The April 12 effective date does not apply to all expungement orders issued after that date. The new procedures only apply to expungement orders in cases filed on or after April 12, meaning that this new procedure will be implemented very slowly and will not even start to have an impact until six to twelve months from now.) (SAC Ref. No. 04-11-04)

 

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