Seeking TROs to stop transfers to be banned
May 22, 2001 – NASD Regulation today posted a request for comment on a proposal to prohibit NASD member actions interfering with the transfer of customer accounts. NASD Notice to Members 01-36 (June 2001).
As discussed in the Notice, registered representatives may agree that, for a certain period of time following their departure from the firm, they will not solicit the firm’s customers for business. Nevertheless, their clients may decide to continue their relationship with their representative by transferring their accounts to the representative’s new firm. The former firm sometimes seeks a temporary restraining order to prevent the transfer of accounts.
The proposed Interpretive Material IM-2110-7 would provide that a member or associated person may not take any action that, directly or indirectly, interferes with a customer’s ability to transfer his or her account, including 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.
The proposal would not prohibit a firm from otherwise seeking to enforce employment agreements with its former representatives.
Comments on the proposal are due by July 6, 2001.
In addition, the SEC today published in the Federal Register a notice of a proposed New York Stock Exchange rule change applicable to transfers of mutual funds through the automated Customer Account Transfer Service, or ACATS. Release No. 34-44302, 66 Fed. Reg. 28210 (May 14, 2001).
In the current ACATS environment, a carrying firm does not know if the receiving firm in an ACATS transfer has the capability to accept, service, and support the customer’s mutual funds, resulting in ACATS “fails-to-deliver.” The proposed rule would allow the receiving firm to review an asset validation report provided by the carrying firm and designate those proprietary and/or third party products it is unable to support. The customer then would be provided with several options with respect to the disposition of such assets.
Comments on the rule proposal are due June 12, 2001. The NASD indicated in Notice to Members 01-36 that it plans a similar rule proposal.
NASD Notice to Members 01-36 is accessible online in text or PDF format from http://www.nasdr.com/2610_2001.asp#01-36
Federal Register documents may be accessed online at http://www.access.gpo.gov/su_docs/aces/aces140.html
Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to email@example.com
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.