NASDR maintains and operates CRD pursuant to NASD rules and in accordance with an agreement with North American Securities Administrators Association (NASAA), an association whose members include state and other securities regulators in the United States, as well as other securities regulators in North America. NASDR processes registration-related filings and enters information into the CRD system.

Imagine the following scenario: a public customer files an absolutely baseless Complaint against you in federal or state court. During the ensuing months and years of legal battles, your reputation suffers because the Complaint, which details the customer's serious allegations, is disclosed to the public through CRD. You defend the suit, at significant personal cost, and are fully exonerated. In fact, the court was outraged at the customer's bad faith or found the allegations totally baseless. Your attorney demanded that the court order the expungement of the Complaint from CRD. The court agrees. Subsequently, the court orders the expungement, the NASD processes the removal, and CRD's files are deleted. Justice is served.

Now, imagine that instead of the proceeding described above occurring in court, it occurred in arbitration. The result? The states insist that RRs spend the time and money necessary to present the arbitration order to a court for confirmation, before the NASDR may process the arbitration order to delete the CRD references.

Historically, NASDR expunged information from the CRD system when ordered to do so by a court or arbitration panel of competent jurisdiction. NASDR took the position that court-ordered or arbitration panel-ordered expungement of information from the CRD system should be afforded the same treatment. NASAA has informed NASDR that according to various state laws, information submitted to the CRD system is deemed to have been filed with each state in which that person or entity seeks to be registered. Therefore, according to NASAA, information in the CRD system that may be the subject of an arbitrator-ordered expungement is in many cases a state record, and state laws do not currently recognize the authority of an arbitrator to expunge a state record or do not otherwise currently permit such expungements because of state recordkeeping requirements.

To describe the NASD's capitulation to NASAA as anything less than outrageous would be to trivialize the unfair impact of this sell-out upon the lives and careers of more than 500,000 RRs. The rationale for honoring both court and arbitration orders is the underpinning that has historically justified the NASD's insistence that its members and their associated persons submit to arbitration, in lieu of recourse to the courts. That rationale, quite simply, was that participants in arbitration enjoyed due process rights, both of a procedural (i.e., the way in which cases are initiated, conducted, and adjudicated) and substantive (i.e., the laws, rules, and regulations at issue) nature. Absent such protection, arbitration is not a legally fair alternative to one's right to a "day in court."

NASD Rules make it a violation for an RR to fail to honor an arbitration award. Similarly, it is a violation for member firm to use an arbitration agreement that limits the ability of the arbitrators to make any award.

The disgrace of the NASDR moratorium is that it contradicts the NASD's own rules. RRs are forced to submit to arbitration with public customers. In the absence of a Motion to Vacate an arbitration award, RRs are forced to honor any award rendered by an arbitration panel. The penalty for disobedience could be a bar and fine. But now NASDR will not honor a duly rendered arbitration award. NASDR will not expunge CRD records when ordered by arbitrators.

Likewise, member firms are prohibited upon threat of fine and suspension from preparing arbitration agreements allowing limits on the ability of an arbitrator to make any award. This restriction was motivated by concerns that firms would seek to prevent arbitrators from awarding punitive damages. However, the provision has been interpreted to apply to any limit, presumably one that would prevent arbitrators from ordering the expungement of Complaints from CRD. But now NASDR will limit the ability of arbitrators to make any award. NASDR will not expunge CRD records when ordered by arbitrators.

For more information, or to voice your complaints, contact:
Ann E. Bushey, Assistant Director, CRD/Public Disclosure, NASD Regulation, at (301) 590-6389; Mary M. Dunbar, Assistant General Counsel, Office of General Counsel, NASD Regulation, at (202) 728-8252; or Richard E. Pullano, Associate Director and Counsel, CRD/Public Disclosure, NASD Regulation, at (301) 212-3789.