ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, March 19, 1996 TAG: 9603190075
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Bloomberg Business News
Many securities firms continue to hire problem brokers and provide only lax supervision of their sales practices, federal and state regulators said Monday.
The Securities and Exchange Commission and the National Association of Securities Dealers, which polices all U.S. brokers, said they'll focus more of their brokerage examinations on broker supervision. The study, which looked at small- and medium-size securities firms, found that one-third hired brokers with histories of disciplinary action or customer complaints, as many firms conducted only a ``minimum'' review of applicants. About half the branch offices engaged in trading or supervisory offenses, in part because managers ``conduct inadequate or no routine review'' of brokers' trades with clients, the report said. About a quarter of the branches make unsolicited ``cold calls'' to customers that violate federal rules, regulators reported.
``When I say we need to `shut down' bad brokers, I don't mean `slap them on the wrist' - I don't even mean `fire them,' SEC Chairman Arthur Levitt said in a speech Monday. ``I mean shut them down.''
``Too many firms are willing to turn a blind eye,'' Levitt added.
The 17-page report, which didn't name any firms, was prepared by staff of the SEC, NASD, the New York Stock Exchange, and the national organization of state regulators. Its findings were based on a review of 347 problem brokers at 101 firms from December 1994 to November 1995.
``We're serving notice that regulators are going to be looking more closely at supervisory practices, and firms shouldn't be surprised at that,'' Lori Richards, SEC director of compliance, inspections and examinations, said in an interview. The SEC and self-regulatory bodies such as the NASD and NYSE conduct thousands of routine and ad hoc examinations of brokerage firms each year. Each U.S. firm is examined at least once every six years, and some as often as once a year, Richards said.
A spokesman for the Securities Industry Association, which represents most of the large brokerages, said that the examination changes will ``clearly encourage firms to focus more on their supervisory responsibilities.''
Levitt exhorted firms to toughen hiring and supervisory practices.
He urged firms to discuss with all applicants their previous customers and securities sold; check their credit and financial reports; and obtain detailed explanations of previous customer complaints and disciplinary actions.
Levitt also encouraged firms hiring brokers with a history of complaints to supervise them more closely, and asked compliance officers to review the accounts of any broker who is the subject of three customer complaints a year.
Levitt urged firms to tie branch managers' compensation to effective supervision, not simply sales.
``We fully expect firms to take this seriously,'' the SEC's Richards said.
LENGTH: Medium: 58 linesby CNB