In 1996 the United States Department of Justice's Antitrust Division brought historic charges against 24 of NASDAQ's top market making firms.  In that same year, the SEC lambasted the NASD/NASDAQ in a critical 21(a) Report that detailed years of harassment and abuse that was tolerated by the regulator.  Finally, civil litigants entered into a much-publicized seven-figure settlement with the major NASDAQ firms because of the negative impact of their anti-competitive/anti-consumer practices.  It was from that forge that the NASD Dissident Movement emerged in 1998 to field a slate of four candidates to contest the NASD's Board of Governors election, of which I was one of the nominees.  Two of our candidates pulled off an historic, upset victory and from that moment, the landscape was forever changed.

Immediately below I have posted some seminal documents from the NASD Dissident Movement.  I hope that the re-publication of these materials will dispel allegations that the movement is of recent origin or that it is simply dedicated to ending all regulation --- which is an absurd and erroneous proposition. 

Bill Singer 

SOURCE DOCUMENTS FOR NASD DISSIDENT MOVEMENT

NASD DISSIDENTS' GRASSROOTS MOVEMENT
CONTESTED-ELECTION PLATFORM
Drafted in 2002

Whereas, it is resolved among the firms and registered persons constituting the NASD Dissidents' Grassroots Movement (NDGM) that the only remaining effective means of promoting meaningful reform at the NASD is to nominate candidates to contest the open seats on the NASD Board of Governors;
Whereas, it is resolved that said candidates support uncompromised consumer protection, fair regulation, competitive markets, and corporate governance reform;
Accordingly, NDGM publishes this Platform, which its candidates endorse:

STATEMENT OF PRINCIPLES

Wall Street has had a troubling history of the uneven application of its rules and regulations, which often results in regulators coming down more heavily on smaller firms than larger ones. Clearly, securities regulation can be hijacked to further political and anticompetitive agendas. As stated in 1996 in the SEC's 21(a) Report:

The NASD's failure to investigate and pursue aggressively clear indications of possible violations seriously undermined its ability to ensure compliance with the NASD's own rules as well as the requirements of the federal securities laws. As discussed below, the consequences for the Nasdaq market of this failure were exacerbated by the undue influence exercised by Nasdaq market makers over various aspects of the NASD's operations and regulatory affairs. This influence made vigorous enforcement by the NASD even more essential to the fair operation of the Nasdaq market.

NASD has made progress in redressing some of the wrongs referenced above, but further reforms are still needed. However, it is our observation that NASD functions too much as a clique in which entrenched management, larger firms and familiar faces maintain a stranglehold on the organization. NASD must set a larger table and become more inclusive of the majority of its member firms and some 600,000 plus disenfranchised registered persons. The wrong-minded and at times arrogant policies and mistakes of the past cannot be undone unless we introduce fresh ideas and new blood.

Sadly, NASD has become a ponderous bureaucracy that is largely unresponsive to our needs and frequently fails to understand the economic realities of our marketplace. While NASD recently pursued a plan of global expansion (the American Stock Exchange, London, Japan, etc.), the needs of its core constituency --- its typical member firm of approximately 125 registered persons and less --- were given short shrift. Worse, the bill for that folly has now come due, and we can ill afford such extravagances during these difficult economic times.
Today, self-regulation feels more like something imposed from above, rather than the participatory undertaking intended. Further, a cadre of professional regulators has implemented questionable bureaucratic measures that unnecessarily complicate the members' access to their SRO. Without question, Wall Street must maintain a vigilant, effective, and uncompromised system of regulation. It is the hallmark of the integrity of our markets. As painful as regulation may be at times, it is a worthwhile cost to pay for the public's confidence. Nonetheless, when regulators are seen as biased and unfair, those they regulate do not voluntarily participate in the process. This deprives the regulator of the eyes and ears of industry insiders. It often deters individuals from coming forward at the nascent stage of a problem and seeking the regulator's cooperation in resolving the situation. Finally, it prevents the development of an effective coalition to anticipate trouble, to mediate disputes, and to promulgate reasonable regulations.

In the final analysis, the NASD is a self-regulatory organization with an important role to play. It was not meant to be a mere proxy for the Securities and Exchange Commission nor for any state regulator. It must be a full and vibrant partner within the framework of Wall Street's regulation. Its present policies and management make the ascendancy to that role impossible.

NASD DISSIDENT MOVEMENT AGENDA
AS PROMULGATED IN 2002

I. OFFICE OF THE INDUSTRY'S ADVOCATE
We call for the creation of the Office of the Industry's Advocate (OIA), which would be a permanent office staffed with full-time employees and overseen by a board of elected members.
" Impact Studies. OIA would be charged with undertaking impact studies of all NASD proposals to ensure that adequate consideration has been given to the economic burden such initiatives impose upon member firms and their registered persons.
" Observor Status/Amicus Briefs. The Director of OIA would be given observer status at NASD Board meetings and would be authorized to submit amicus briefs during any contested disciplinary proceedings or appellate review.
" NASD Roundtable. OIA would house the NASD Roundtable, which would be a businessperson's forum for the amicable discussion and resolution of intra-industry disputes. The NASD Roundtable will serve as a mechanism to improve drafting of controversial rule proposals and their ultimate implementation. Such a forum may well have prevented the disastrous timetable for decimalization and perhaps have developed more pragmatic approaches to other improvident rule changes.

II. DISTRICT AND NATIONAL NOMINATING POLICIES
Corporate governance reform is not something to be prescribed for all companies besides NASD.
" Recent contested elections utilized ballots that unfairly favored NASD nominated candidates. Said ballots must provide for the uniform, neutral presentation of all candidates.
" Comprehensive term limits at the district and national levels should be imposed upon not only individuals but also member firms.
" Member firms/individuals with certain proscribed disciplinary histories should be barred from holding elective NASD office for specified periods of time.
" NASD elections should be robust and meaningful debate encouraged. As such, there should be no active support (beyond the NASD's announced endorsement of candidacy) provided by the NASD, any Board, or any Nominating Committee for officially nominated candidates. Such activity is an improper use of members' funds and an inappropriate politicizing of a regulatory organization. Nothing here is meant to suggest that officially nominated candidates should not be permitted to speak up on their own behalf.
" Finally, no NASD Board member should be permitted to serve on any other for-profit Board. We are entitled to the full attention of our Board members and they should be especially free from conflicts derived from multiple service. The business of regulating the NASD's members is not a part-time undertaking or a sinecure.

III. INVESTIGATION/EXAMINATION PRACTICES
We call for the uniform codification of many investigation/examination practices by NASD staff that we find are unfairly arbitrary and capricious.
" Uniformity. Towards achieving that goal we would require a uniform form for the transmission of notices of investigations/examination. Said forms should not vary from District to District and Examiner to Examiner, but should model themselves upon other standard notices, e.g., SEC Forms 1661 and 1662. Said forms should include, at a minimum, a precise Fifth Amendment statement that NASD does not recognize this privilege, a warning as to the consequences of not appearing or refusing to cooperate, and a clear statement of the right to retain independent legal counsel.
" Bill of Rights. We would promulgate an NASD Bill of Rights for member firms and their registered persons to be observed during investigations/examinations. Among the practices we will seek to codify are acceptable practices for scheduling and conduct of on-the-record (OTR) interviews. We will pointedly seek the creation of an impartial arbiter to resolve OTR disputes that arise between witnesses and staff. Similarly, we will insist upon the codification of fair practices for requesting the physical appearance of a witness. Notably we will seek to require that OTRs be held at
o an NASD office within state where RR presently resides, or
o is presently employed, or
o where mutually acceptable.
Further, NASD demands for travel outside of the state of residence or employment must be reimbursed at a rate equivalent to that required of state and federal prosecutors.

IV. REGULATORY SANCTIONS
We would seek a membership vote on whether monetary sanctions should be based upon a percentage of gross revenues or similar baseline. We believe that today's system of fines is unfairly biased in favor of major, national firms. The imposition of a flat, across-the-board fine, e.g., $25,000 fine, may be a hardship on smaller firms where it may be viewed as nuisance value by a larger one.

V. LARGE FIRM BIAS
We will also request a special study into the frequency with which management of major, national firms (in comparison to their counterparts at smaller firms) are personally fined and/or suspended. Similarly, we will ask for a similar study of the frequency and duration of on-the-record interviews for comparable executives.

VI. GOVERNANCE ISSUES
In light of the current publicized governance issues that have affected the public's opinion of management's focus at the NYSE, the AMEX, and the NASD, we want to strengthen the public's confidence in the idea of a fair and equitable marketplace. With this in mind NDGM proposes that the following points be addressed and enforced.
" All Governors must fully disclose outside relationships, in private and public sectors. Said disclosures are to be posted on NASD's website.
" No contracts are to be awarded to any company or individual with whom any Governor has a disclosed relationship without issuing prior notice on NASD's website.
" All contracts should be open to competitive bid.
" Contracts over $250,000.00 should be posted on NASD's website.
" All minutes, attendance, and member's individual voting records of board meetings should be posted on NASD's website.
" No board member may be removed without due process.

DISCUSSION TOPICS FOR JANUARY 31, 2003 MEETING
BETWEEN
NASD DISSIDENTS' GRASSROOTS MOVEMENT REPRESENTATIVES
AND
NASD SENIOR STAFF
January 29. 2003

1. OFFICE OF THE INDUSTRY'S ADVOCATE
a. Full-time staff, permanent office, and elected members
i. Undertake impact study of proposals
1. Economic
2. Business burden
ii. Advocate on behalf of members/associated persons
1. Not a disinterested ombudsman
iii. Observer status at Board meetings
iv. Could submit amicus briefs to NAC
v. Two year terms for "members"
vi. Must encourage dissent and diverse views
vii. Must insist upon collegial conduct
b. Create NASD Commission to regain investor confidence and propose ongoing reform measures
c. Create a Mediation Board for intra-industry conflicts
i. Subject to anti-trust concerns
ii. Promote collegial response to difficult proposals
iii. Phasing-in compromises
iv. Diversion from litigation/arbitration
v. Diversion from washing laundry in public

2. DISTRICT AND NATIONAL NOMINATING POLICIES
a. Better publicity of elections
b. Reform of ballots
i. Uniform, neutral presentation of all candidates
c. Term limits
i. Upon members (number of multiple reps at district and national levels)
ii. Upon individuals (no successive terms)
iii. Members/individuals with certain disciplinary histories barred for period of time
1. Large firms must be restricted as well as smaller firms
d. Direct membership nomination of "Industry" candidates
i. Elimination of National Nominating Committee for these candidates
e. Release of voting record of all elected officeholders

3. INVESTIGATION/EXAMINATION PRACTICES
a. Uniform Codification
b. Initial notices of Invest/Exam/OTRs
i. Should not vary from District to District and Examiner to Examiner
ii. Should model SEC Form 1661/1662
1. Precise Fifth Amendment statement (SRO does not recognize)
2. Consequences of making an appearance (can and will be used)
3. Clear statement of ramification of non-appearance or refusal to cooperate
iii. Unfettered right to attorney
1. No improper restrictions as to time or place that improperly inhibit ability to retain attorney of choice
2. No suggestion that witness should simply come in unrepresented and tell the truth
3. Statement discussing right of RRs to contact independent (non-BD provided counsel)
4. Codification of
a. OTR procedural issues:
i. Objections
ii. Round robin questioning
iii. Multiple call-backs
iv. Length of sessions
v. Right to counsel during OTR
vi. Right to private review with counsel of exhibits prior to questioning
iv. Protocol for requesting adjournment
1. Internal uniform notice times
2. No suggestion that request for adjournment will be automatically denied
3. No suggestion that attorney must be available on requested date or witness should come in alone
4. Use of blank calendar to respondent requesting available dates
5. Creation of a neutral arbiter for scheduling disputes
v. Codification of travel demand
1. OTR must be held at NASD office within state where RR
a. Presently resides, or
b. Presently employed, or
c. Where mutually acceptable
2. Demands for travel outside of state of residence or employment must be reimbursable
3. Creation of a neutral arbiter for venue disputes
vi. Clear explanation that transcripts are not provided by right and cost of preparing
1. Explanation that only witness' testimony will be made available
2. Explanation that no exhibits are attached
vii. Provide CRD run to witness before OTR
1. Eliminate waste of time
2. Permit witness to note errors
3. Have witness sign CRD and assent on the record
c. Statement of policy on Staff follow-up after witness' clarifying questions or statement
d. Statement of policy requiring Staff to carry business cards and distribute at meetings, interviews, etc.
e. Statement of policy on reduction/elimination of examinations/investigations by outside Districts
i. Staff not as familiar with market
ii. Often imposes communication difficulties
iii. Variation of competency among Districts

4. REGULATORY SANCTIONS/PUBLICITY
a. NTM seeking comment on whether monetary sanctions should be based upon a percentage of gross revenues or similar baseline.
b. Examination of perceived reduction in Minor Rule Violation fines versus plenary, and perceived use of de minimis fines (as stop gap financing for NASD) in lieu of prior no-action policies or constructive comment letters
c. Codification on Press Releases policies
i. When appropriate to release on a Friday
ii. When appropriate to release prior to holiday
iii. Special consideration as to concessions granted to larger rather than smaller members and as to firms versus individuals
iv. Publication of protocol for requesting press release consideration

5. CONTINUING EDUCATION AND REGISTRATION ISSUES
a. Better prior notification of pending CE disqualification
b. Overhaul of 24 month lapse policy
i. Too expensive and cumbersome to fully requalify
c. New member and continuance applications
i. Needs to be dramatically streamlined

6. MISCELLANEOUS MEMBER CONCERNS
a. NASD advocacy on e-mail and instant messaging retention practices
b. Better effort to promulgate multi-tiered regulation recognizing the differences between smaller, regional firms and larger, international members.
c. Staff must make a better effort to distribute business cards (growing complaint)
d. More emphasis on "customer service" for member's difficulties
e.NASD Staffing Policies
i. Must have balance among academics, regulators, and industry veterans
ii. Should be emphasis on hiring individuals with industry experience
iii. Must reward a job well done as well as successful prosecutions
iv. Salaries must remain competitive with industry
v. Clear cut, public guidelines about appearing before NASD after termination of employment relationship
1. Concerns about sharing of information with "hostile" contra-parties
2. Concerns about "organized crime" influence
3. Prompt and immediate disclosure by Staff upon scheduling of job interviews with industry members
4. Provide for notice to a confidential internal department --- no retribution.
f. NASD management must begin to better embrace organizational dissent
i. Sense that NASD has lost innovative edge
ii. Sense that NASD has been compromised by cronyism
iii. Notwithstanding regulatory function, NASD must also engage in more traditional "trade organization" practices, in keeping with its role as a membership organization.