The National Association of Securities Dealers is blocking publication of a book compiling disciplinary histories of brokerage firms for both retail and institutional investors. Something is wrong with the NASD's attitude toward disclosure of brokerage misbehavior when it blocks such a book. It suggests the NASD is not very interested in such disclosure.
The information contained in the book is available by telephone inquiries through a toll-free number or searches on a website, both maintained by the NASD, which serves as a publicly available repository for disclosure about brokerage firms and individuals brokers. But the information isn't necessarily easy to access.
The public can retrieve the information on only one brokerage firm or one individual broker at a time, making it difficult to make comparisons. Much information about major brokerage firms isn't available on the website; for them, the NASD has to mail the data to the inquirer. Two weeks after making an inquiry through its website, I'm still waiting for mail from the NASD.
With his book, Edward A.H. Siedle, president of Benchmark Financial Services Inc., Lighthouse Point, Fla., would compile in one place information about brokerage firms, especially disciplinary actions. His book, which he intends to update periodically, doesn't include individual brokers. Mr. Siedle eventually plans to create a rating for the firms, based in part on their disciplinary history, although his initial volume wouldn't contain rankings.
In February, Richard E. Pullano, chief counsel of NASD Regulation Inc., Rockville Md., informed Mr. Siedle "that the NASD has not consented to your use of the compilation of the broker-dealer data ... for any commercial use. Should you attempt to use this data for those purposes, the NASD will pursue all legal remedies available to it."
Where is the Securities and Exchange Commission on the control of this information? John Heine, SEC spokesman, referred inquiries to the NASD. Michael Shokouhi, NASD spokesman, said no one for the organization would provide a comment on the issue.
Brokerage firms play a prominent role for pension funds and other institutional investors. Besides trading, they fulfill practices such as soft dollars or directed brokerage. Their employees often serve as investment consultants.
Mr. Siedle said neither of two publishers interested in his book - CCH Inc., River Woods, Ill., and Data Trace Publishing Co., Towson, Md. - "is comfortable in going ahead now" until the NASD dispute is resolved. Officials for CCH confirmed the problem. Data Trace officials couldn't be reached.
The NASD's website states the broker-dealer information can be used for only non-commercial purposes. But what does that mean? Mr. Siedle's purpose clearly is commercial. But what about, say, an investment consultant. Can he or she access the NASD information to advise, for a fee, pension fund clients concerned about disciplinary actions of certain brokerage firms?
A few years ago, in Pensions & Investments, Richard Hinz, director of research and economics analysis at the Department of Labor, commented on the use of its data by outside researchers, including the Employee Benefit Research Institute.
"Government agencies are not very good at making the data practical and useful to those who would use it," he said.
"EBRI's strength lies in synthesizing government data and presenting it in an easily understood manner," the article noted.
The same could be said of the NASD and of Mr. Siedle's effort to try to make its data easily comparable for the market.
