Delay in NASD Rulemaking Buys Time for Bank Brokers

The National Association of Securities Dealers has given the Securities and Exchange Commission a four-month extension to act on a pending rule that would govern bank broker-dealers.

That buys time for bank brokers worried about complying with the controversial proposal, first floated in 1994. And it raises hope that some of the most nettlesome provisions will be modified or dropped.

Restrictions on the exchange of confidential customer financial information and compensation between banks and their brokerage units remain the most important sticking points. But banking lawyers said some relief may have appeared in the Federal Reserve's recent move to ease restrictions on cross-selling by nonbank affiliates.

The Fed's moves may influence securities regulators, they said.

"Recent action by the Fed sort of pulls the rug out from under the NASD," said Melanie Fein, law partner at Arnold & Porter, Washington. "If the banking regulators feel it's appropriate to permit a banking organization to share information with (its) own affiliates, then I think it's more difficult for the NASD to argue there should be a restriction."

The NASD's standing committee of bank broker-dealers met July 30 to review comments filed with the SEC this spring and to discuss possible changes in the rule, an association spokesman confirmed.

"I'm hopeful that the July meeting and the time delay until December mean that there's work being done on the confidential customer information provision," said Sarah Miller, senior government relations counsel at the American Bankers Association.

The postponement of an SEC decision was technically approved by the NASD Aug. 12. Several lawyers said the primary purpose of the extension is to give the NASD time to revise the rule and then send it back to the SEC.

Now the commission has until Dec. 13 to review the NASD's rule proposal. Without the extension, the SEC would have had to reject or adopt the proposed broker-dealer rule by Aug. 22.

A spokesman for the NASD said the board of directors of its regulation unit will review the bank-broker dealer committee's work and act on it.

Minor revisions could be made without board approval, so several securities lawyers said this may signal that substantial modifications are planned. The NASD regulation board is to meet in September and November.

However, there is "no specific time frame" for action on the rule, the NASD spokesman said.

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