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Broker email rules stalled

The National Association of Securities Dealers stalls the start date of new rules that could subject investment brokers to email monitoring.

Faced with online privacy concerns, the National Association of Securities Dealers (NASD) is stalling the start date of new rules that could subject investment brokers to email monitoring if they correspond with clients online.

The surveillance provision is part of amendments to NASD Regulation rules regarding the review of correspondence with the public, and it allows for the use of email, which was not clearly permitted before. The rules were supposed to go into effect Sunday.

As intially cleared by the Securities and Exchange Commission, the rules let investment firms use email for interacting with clients and the media on the condition that they write procedures for the review of incoming and outgoing electronic communication. If messages aren't previewed, firms must have a plan for "surveillance and follow-up to ensure that their procedures are implemented and adhered to," the SEC-approved rules state.

In addition, firms were told that they must monitor those employees who work from home: "NASD Regulation would expect members to prohibit correspondence with customers from employees' home computers or through third-party systems unless the firm is capable of monitoring such communications."

Although the New York Stock Exchange adopted identical rules, which went into effect in December, yesterday NASD Regulation delayed its rule until it can review the array of privacy issues raised. As reported earlier, the Electronic Messaging Association (EMA) asked the SEC to clarify the surveillance stipulation, and was especially concerned about the reach of firms' home-monitoring policies.

"This postponement will allow NASD Regulation to fully consider and address concerns that have been voiced since the adoption of the changes, including issues concerning their effect on review of incoming correspondence and the scope of the obligation of member firms to control the use of electronic communications systems that registered persons use to communicate with their customers," states a notice to members sent today.

The announcement went on to say, "After considering these issues, NASD Regulation will issue a subsequent notice providing a new effective date or proposing further changes."

As of now, all public communication has be to preapproved by a broker's firm because the SEC holds companies liable for employees' statements and correspondence with clients. When the amendment goes into effect, the companies won't have to approve all outgoing messages, but it is still accountable for making sure that letters or brokers' advice columns are timely and accurate.