IRVINE, Calif. — NASD has dropped a controversial proposal to revamp its branch office definitions.
The idea, floated in February as a notice to members, would
have done away with the well established definition of “office of supervisory jurisdiction,” or OSJ, and in its place created four new branch office categories.
Washington-based NASD said at the time that the change was needed to prevent offices that only approve research reports from having to register as branches.
The notice asked for feedback on the proposal.
In comment letters, state regulators and industry groups that represent smaller firms blasted the proposal as unnecessarily complex.
“Based on comments we’ve received, we’ve decided not to go forward with it,” said NASD spokesman Herb Perone, adding that NASD has no plans to offer an alternative proposal.
Use in advertising
“The NASD did not realize the costs associated with the [proposed] change,” David Bellaire, general counsel of the Atlanta-based Financial Services Institute Inc., which represents independent-contractor firms, said in an interview.
Firms use the term “OSJ” in their advertising, written procedures and other materials, he said, and the change would have required additional employee training.
Independent contractors typically run their remote offices as OSJs. Mr. Perone said that the proposal was “just a change in nomenclature.”
But the OSJ definition has been “used for decades” and incorporated into some state statutes, Joseph Borg, president of the North American Securities Administrators Association Inc. of Washington, said in a comment letter.
“Any efforts to unilaterally eliminate or even substantially modify the OSJ definition will negatively impact the ability of firms to comply with state statutory provisions and rules,” said Mr. Borg, who also is director of the Alabama Securities Commission in Montgomery.
The proposed changes could require legislative action by states and “significant changes in registration [and disclosure] forms,” he said.
The FSI said in its comments that the new definitions would “burden the vast majority of NASD member firms with significant additional costs ... in order to resolve this minor problem for a small minority of [
New York Stock Exchange member] firms.”
But the Securities Industry and Financial Markets Association of New York and Washington argued in its comment letter that NYSE and NASD interpretations of branch offices varied and that new definitions are needed to exempt research offices and to harmonize branch definitions.
A SIFMA spokesperson hadn’t returned phone calls seeking comment by press time.
“If we’re in this process of harmonizing rules, why would you want to blow up the branch office definitions into multiple parts, which would be a lot harder to administer?” Rex Staples, NASAA general counsel, said in an interview.
Critics of the proposal wondered why new definitions had been proposed when a uniform definition of branch offices went into effect only last year.
As a result of the still-fresh uniform definitions, firms have “spent considerable time and money” in registering additional branch offices and completing other tasks to comply, the National Association of Independent Broker/Dealers Inc. in San Diego said in its comment letter.
For larger firms to register some research offices as OSJs “would [not] be disproportionately burdensome,” the NAIBD letter said.
Many of those that commented, including the FSI, the NAIBD and NASAA, suggested that research offices simply could be exempted from registering as OSJs, as are other types of offices.
The original NASD proposal, released under the title of “Proposed Amendments to Rules ... in Connection with the Rule Harmonization Project with the NYSE,” caught many in the industry off guard (InvestmentNews, March 12).
An initial March deadline for comments was extended into April.
