CORONADO, Calif. -- The securities industry needs to act on matters that may jeopardize investor confidence before Such problems attract the attention of federal regulators, a top official of the National Association of Securities Dealers stressed yesterday.
"Our responsibilities to the investing public are best achieved by diligently fulfilling our self-regulatory obligations, tasks that obviously begin with the firms themselves," Joseph R. Hardiman, president and chief executive officer of NASD, said in an opening speech at the association's fall securities conference.
Hardiman emphasized the importance of preserving the public finance industry's reputation.
"Work clearly needs to be done to maintain confidence in our municipal securities market, which is key to helping this country meet its own infrastructure needs," Hardiman said. "As you know, the political contributions issue has threatened to undermine the credibility of this market."
Hardiman said he welcomed a proposed political contributions rule by the Municipal Securities Rulemaking Board. The rule, which will be sent to the Securities and Exchange Commission by the end of the year, "bars a dealer from transacting municipal securities business with an issuer within two years after any contribution to an official of such issuer made by that dealer, any dealer-controlled PAC, or any municipal finance professional."
The rule, Hardiman said, "is strong medicine that should result in a healthier industry -- one in which municipal bond business is won, as it should be, by building customer trust through quality service."
Hardiman also lauded 17 of the largest municipal bond underwriters for imposing a voluntary political contributions ban Oct. 18.
"This is a great example of the industry acting on its own to address a growing problem before the regulatory agencies adopted formal policies," he said.
Hardiman said it is "a critical period in our history" because of numerous changes sweeping the securities markets.
"It's also in this new era that the NASD recognizes that just being an enforcer of federal regulations and our own rules isn't enough," he said. "We have to engage in preventive regulation."
Hardiman said preventive compliance is akin to preventive medicine and more cost effective in the long run, rather "than treating the patient after he's sick. Frankly, we must help our members avoid regulatory problems and thereby increase the protection of investors."
Hardiman said the NASD "is also concerned about the increasing cost of the regulatory burden on our members and wants to ensure that it does not duplicate what others are already doing."
He said the NASD board took this matter up last Friday during a meeting with Arthur Levitt Jr., chairman of the SEC.
Levitt "seems to see eye to eye with the NASD and its membership on this issue, and went so far as to immediately put the issue of regulatory duplication on the agenda of the next meeting of the SEC and [self-regulatory organizations]. The meeting will take place at the end of the month," Hardiman said.