The National Association of Securities Dealers has made an 11th-hour revision to its proposed rules governing bank-affiliated brokerages - and bankers are up in arms.

The association, which sets professional standards for the brokerage industry, wants to bar investment sales in bank branches, such as supermarket locations, that are staffed by a lone employee. Its objection: such sales pose an unusually great risk of customer confusion.

Officials at the association said the revision, outlined in a Jan. 24 letter to the Securities and Exchange Commission, clarifies the proposed rules, which have been before the SEC since late December.

But banking executives view the revision as a significant change that could quash an innovative way of distributing mutual funds.

"I would have liked to see them run it by their bank broker-dealer committee," said Sarah A. Miller, senior government relations counsel at the American Bankers Association.

"These are substantive changes from the originally proposed rule and represent a potentially substantial retrenchment," added Robert M. Kurucza, a partner with the Washington law firm of Morrison & Foerster.

Right now, there are only about 50 single-employee supermarket bank branches nationwide. But Ms. Miller said the importance of the NASD's proposal could magnify as banks replace traditional branches with low-cost outposts in untraditional settings.

"They've clearly targeted supermarket branches, and that's the wave of the future," she said.

Last year, banks increased supermarket branches of all sizes by more than 20% and will "continue at that pace" or more in the future, said John W. Garnett, president of International Banking Technologies, a Norcross, Ga.-based consultant.

The association, however, sees substantial risk in allowing bankers to double as brokers in one-person supermarket branches. A guiding principle of the association's proposals governing investment sales by bank- affiliated brokers is that brokerage activities should be clearly separated from banking activities.

In its letter to the SEC, the NASD said it would be impossible for brokers operating in a one-person kiosk to comply with its rules governing the settings for brokerage sales.

"If your setting is a kiosk, there's no way to distinguish retail deposit and securities areas," said R. Clark Hooper, the association's vice president for advertising and investment company regulation. And that, she added, could be confusing to customers.

She added that the proposal's impact would be limited to cases where deposits and investment product sales were processed by the same person at a teller window or in a tiny setting.

Indeed, two of the leading banks in supermarket banking - Wells Fargo & Co. and BankAmerica Corp. - said the proposal would not affect their retail outposts. Both companies use registered employees other than deposit takers to make investment product sales at such locations.

But other bankers said the proposal was unwelcome.

Bank of Oklahoma uses one broker to serve as a "circuit rider" to 10 supermarket branches, so the proposal wouldn't affect the way the Tulsa- based company sells investment products now, said Steven Bradshaw, senior vice president of the bank's brokerage arm. But, he added, it could eliminate a future business option.

"I wouldn't want the NASD in charge of strategic planning for the industry - particularly when it's micromanagement that's limited to banks," Mr. Bradshaw said.

By emphasizing physical separation at a time when the nature of bank branches is changing, the association is making "a distinction without a difference," said Stephen A. Bennett, senior vice president and general counsel at Cleveland-based KeyCorp.

"The paramount consideration is: Does the customer understand the difference between the insured and uninsured product?" Mr. Bennett said.

But some bankers said the proposal is consistent with existing banking regulations - including the interagency agreement - which already prohibit securities sales directly by a bank teller.

"If you've got a one-person office, I don't see why that (alone) should prevent you from making investment sales," said Jordan A. Miller, vice president and head of compliance for Huntington Investment Co., the broker- dealer subsidiary of Huntington Bancshares, Columbus, Ohio. "But if it's a teller-type window, then I'd go along with it."

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