NASD Approves Customer Transfer Interpretation
Freezing accounts when broker transfers firms no longer an option
Approved by the SEC on January 4, 2002, this new policy will assure that customers will be able to transfer accounts without restriction to follow a departing broker.
The full text of IM 2110-7 states that:
It shall be inconsistent with just and equitable principles of trade for a member or person associated with a member to interfere with a customers request to transfer his or her account in connection with the change in employment of the customers registered representative, provided that the account is not subject to any lien for monies owed by the customer or other bona fide claim. Prohibited interference includes, but is not limited to, seeking a judicial order or decree that would bar or restrict the submission, delivery or acceptance of a written request from a customer to transfer his or her account. Nothing in this interpretation shall affect the operation of Rule 11870.
This language is quite similar to the initial proposal, published in NTM 01-36 in May 2001 (SAA 01-21), with the exception of the in connection with phrase and the reference to liens.
NASD received 85 comment letters and e-mails about the May proposal, 67 of which agreed that customers should be able to transfer without interference from the member firm holding the account.
The new Interpretation, which was declared immediately effective (SEC Rel. 34-45230, 1/4/02; SR-NASD-01-95) by the Commission, was announced in the Federal Register on January 14 (67 Fed. Reg. 9, p. 1790). The relationship between this Interpretation, which bars firms from seeking account freeze orders from the courts in raiding disputes, and the newly announced Rule 10335 is discussed in footnote 3 of the Release, with the Commission distinguishing between the procedural aspects of the Injunctive Relief Rule and IM 2110-7, which would address the substantive problem of customer harm resulting from firms obtaining temporary injunctive relief that prevents customers from transferring their accounts. (ed: Nevertheless, the prize in the TRO battles that characterize raiding disputes is retention of the accounts and, without freezes, that weapon may lose its sting (See article on NASAA and state action in this areas, TROs to Lose their Sting? On Wall Street Magazine, by Rosalyn Retkwa (Jan. 02, p. 49). This landscape change is likely to shift the focus to monetary damages and away from injunctive relief, we believe.) (SAC Ref. No. 02-04-02)
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Mark Astarita is a national securities attorney who represents financial professionals across the country in employment matters and transitions. For a free consultation, call 212-509-6544 or email him at firstname.lastname@example.org