EXCERPTS COURTESY OF … www.bdcompliance.com
The NASD contact information within the Regulatory Form Filing system must be updated between the 1st and 17th business day of each quarter. As the 17th business day is the same due date as the FOCUS filing, our suggestion would be to complete the contact information review and update at the time the firm submits their FOCUS data. (more…)
In this issue’s edition of The Lookout we wanted to examine the recruitment side of the business. We sat down with Niels Leppert, Managing Director of Accella Research. Entering their fifth year of business, Accella Research is an executive search firm with a practice focus in financial-advisor recruitment. Mr. Leppert is a Florida native who holds a bachelor’s degree from Brown University. He can be reached at nleppert@accellaonline.com.
Where do you see the industry in the next five years? (more…)
“I do all of my business in my state, and all of my clients are here. Why should I worry about registering in other states?”
— Hypothetical question circa 1964
“I do all of my business in the U.S. and all of my clients are here. Why should I worry about international operations?”
— Hypothetical question circa 2004
Who’s the Best Candidate for the Brokerage Industry?
If stockbrokers were the only voters in the upcoming presidential election, President Bush would win by a landslide of approximately 77 percent of the votes; Senator Kerry would receive approximately 19 percent with 4 percent undecided. (Poll conducted via email courtesy of Select Information Exchange, Inc.) Does this indicate unequivocally that President Bush is the best candidate for the stock brokerage industry? The short term answer is yes. The long term answer is no one knows for sure. Here’s why: (more…)
The Effects of the Federal Do Not Call Legislation on the Brokerage Industry
In October 2003 the federal Do Not Call legislation went into effect. As a result, a registry containing 64 million telephone numbers, representing more than half the U.S. adult population, is today off limits to telemarketers. While the Do Not Call legislation has slowed the pace of cold calls made by the securities industry, it has not stopped this practice, once a mainstay of the retail brokerage industry and an important method for new account creation. Now that we have arrived at the first anniversary of this controversial law, we can examine the Do Not Call regulations and some of their ramifications for cold calling. (more…)
This edition of the Compliance department will give the full text from the NASD rules governing the Federal Do Not Call Legislation. It is meant for informational purposes only. Please consult your compliance officer or consultant regarding the specifics of the rules and how to properly follow them. (more…)
by In Sun Geoum
It is nestled at the junction of superpowers and threatened with destruction by its northern twin. If you only see it on a map and in the news, you would think that South Korea is a dangerous place with an uncertain future. A closer view, however, reveals a strong economy with a bright future.
There are many reasons why South Korea is a strong prospect for investment. The economy of this democratic nation has grown quickly over the past decades (with the glaring exception of 1997-8) With no readily apparent bottlenecks to growth, it still has room for expansion before average incomes approach those of Japan, the U.S. and Europe.
Infrastructure was given a priority in 1988 for the Olympics, and was further improved in order to comfortably co-host the most recent World Cup soccer matches. Almost all forms of infrastructure are now well developed and maintained at high levels. DSL and mobile phone penetration rates are among the highest in the world, and the younger generations of Koreans are extremely well educated and technologically savvy.
Yet, there are of course a number of problems, the simmering conflict with the north being one of them. That said, the situation does not faze the general public and is not causing as much panic as the media in the U.S. suggests. The conflict’s only noticeable impact on Korea at present is that there are relatively strict draft laws, and that there are large numbers of U.S. military personnel in the country. This military presence has helped incite some anti-Americanism after a spate of fatal accidents and misbehavior involving U.S. soldiers.
Another factor to consider is that while Korea has a high savings rate, it also has a looming credit card debt problem. There are concerns that any adverse conditions might provoke credit card debt defaults on a large scale.
There are two main exchanges — the Kospi and the Kosdaq. The average daily Kospi turnover is $2.5 billion. The average daily Kosdaq turnover is close to $1 billion. This is a fairly impressive amount relative to total capitalization and is even more impressive when you consider that it is driven far more by retail investors than the market in the United States.
There are currently several foreign owned brokerage firms in Korea. Merrill Lynch, Morgan Stanley, Goldman Sachs, UBS, Citigroup, and many other major international firms maintain offices in Seoul. These firms are primarily focused on international institutional accounts. The retail market is dominated by domestically owned firms — Samsung Securities, LG Sec-urities, Hyundai Securities, Daewoo and Good Morning/Shinhan Securities.
Most of the names are quite familiar to Americans because they were mainly part of the Chaebol. The Chaebol are Korea’s large conglomerates. You may own a Samsung TV or an LG (formerly Lucky Goldstar) VCR, or drive a Hyundai car. Imagine if General Motors had allowed GMAC to become a full service brokerage… It might have worked well. One exception to this Chaebol trend was Good Morning Securities. It developed somewhat independently from the Chaebol, but was taken over by a large Korean bank — Shinhan Bank. The brokerages offer a wide array of services. However, there is an apparent overcapacity. A substantial part of Korean retail volume is the result of on-line trading. The independent model of stock brokerage does not seem to have a major presence in Korea, but may have a bright future should domestic retail firms finally consolidate.
The costs of doing business in Seoul are similar to those in any major capital city. While real estate is generally expensive, administrative personnel are reliable and less expensive than comparable workers in the U.S. The quality of life is good, but not great. The winters are harsh and there aren’t really any offsetting advantages unless it is your home.
The growth prospects for the economy are excellent as long as war is avoided. Korea is home to several internationally powerful industrial groups which will very likely continue to grow. The country is a strong competitor in semiconductors, cars, steel and electronics. It is dominant in shipbuilding. The investment industry in Korea will almost certainly benefit from the economic growth stemming from these sectors. However, there are several obstacles to a profitable retail brokerage in Korea. The onset of on-line trading is especially advanced in Korea and will continue to pressure commission-based brokerages.
The same factors which fuel the growth — an increasingly well educated workforce, reasonable regulation, and technological prowess — will also lend strength to domestic brokerage firms and thus make it less likely that foreign brokerages will have any extreme competitive advantages outside of international finance and trading.
There is room for specialized niche players in the market. A venture in Korea is imminently doable, but due to competition there is no reason to expect a standard branch in Korea would achieve a much higher return than a U.S. branch. That is the analysis before the obvious currency risks and the chance of war. There is a great deal of potential for the retail investment industry in Korea, but it will not be tapped by foreign firms unless they bring innovative products and strategies to the Korean market.
The remuneration of high level executives has been news for this entire bear market. In truth, it was news during the bull market as well, but for different reasons. We all want to know what the famous people make, whether in Hollywood or Wall Street or Washington. If times are good, we are envious and in awe. If times are bad, we are envious and angry. But why does it matter? Surely, we all want to make as much as we can. That drive, some argue, is why capitalism works.
Reaction to Grasso’s compensation has been mostly negative. Outsiders and insiders have voiced their grave opinions all over the media. Heads of many of the member firms were less than thrilled. A chain reaction of shock and criticism speedily encircled Grasso, the dubious compensation committee, and worst of all, The NYSE.
The NYSE, although not a monopoly, is the most prestigious stock exchange in the world. Being listed on the NYSE is typically a good move for a public company. The NYSE brand is passed onto it’s members so freely that one presumes a NYSE listed company is of a higher standard solely due to that listing.
Theoretically then, they can charge their members large premiums for membership compared to NASDAQ — citing increased perceived value — and they do. Theoretically, the head of the NYSE can use his power and influence to receive larger fees, make more money for his business, and in the end push for a larger compensation package.
But couldn’t members move to another exchange if they found the NYSE too expensive? Not very likely. Moving off the NYSE would probably adversely hurt the stock price and a class action lawsuit could follow. Despite this considerable obstacle it is important to note that they do have a choice. Furthermore, if this disclosure (Grasso’s package) hurts the NYSE brand, it is doing just that … weakening the brand.
But why is this news? Why has it come to our attention? Why have numerous media outlets chosen to cover this “event?” The main consensus and rationale is that it was just too much money. That amount of money, in this climate, was going to attract attention.
So, what is too much money anyway? If $139.5 million is too much, then where is the cut off? Keep in mind, this is for 35 years of service, broken up as retirement benefits of $51.6 million and $47.9 million, and $40 million from an executive savings plan. Maybe, the number would have to drop below $100 million … maybe below $20 million … perhaps no money at all. No, that would be poor retirement planning. You don’t want people to think that the NYSE doesn’t provide for their long-term employees.
The truth is, the real question is not about the amount of money, but where it came from. Doesn’t the NYSE consider itself a self-regulating entity that makes sure it’s members are on the up and up, and that investors can be comfortable trading shares on the exchange? And, isn’t Grasso’s “perceived” role to be that of top monitor of the exchange? That is one side of the coin. However, the NYSE is a business, while the SEC is the federal enforcing entity of that business and industry.
Everyone knows the NYSE is the most reputable exchange in the world. It is a liquid marketplace, and it lists some of the most successful companies in existence. At the same time, it is a business. A business with paying customers, and the customer is always right. In this case the customers were in the dark about what they were paying for. However, that should not factor into the question of “what is too much?” “Too much” isn’t suppossed to exist within this system. Isn’t the more apt saying “what the market will bear?” Anyone who invests in stocks should know that all prices are correct at that moment. A stock is worth what someone will pay for it … as is a house … and a service. And in the end, overpriced items tend to correct themselves. Do sports figures deserve the money they get? Who knows. Are they worth it? Absolutely. The value comes from the purchaser. As it applies to Grasso, there has been a lot of growth at the BIG BOARD during his time. Maybe the money was well spent.
There is definitely one thing you can accuse Grasso of … poor timing. Maybe his reasoning for taking all the money at once is his prerogative. And maybe, at 57, he wants to start preparing for retirement. But the number really rubs people the wrong way when times are bad. If he had taken his money in late 1999 or early 2000 it would have made news, but it would have been buried beneath an avalanche of all the dot comers making mind-boggling fortunes. More than likely it would have been attributed to the excess of the times. Unfortunately for Grasso he just might be the last scandal to the ball (not a good position to be in).
Frugality is the culture of today’s Wall Street and corporate America (by all outward appearances). Surely, Grasso knew this was going to raise eyebrows, and maybe he should have waited for better times. But why does it matter? It matters because it may further affect investor confidence. Ironically, the compensation was disclosed to continue reform efforts of the NYSE’s corporate governance policies.
It is clear that in the coming weeks, perhaps months, we will learn a lot about the NYSE. The SEC chairman, William Donaldson, must rightfully show the investing public that there is no wrongdoing, and if there is, he will lead the SEC in prosecuting those that have done wrong. Donaldson will surely be thorough and unbiased. During his tenure as CEO of the NYSE (1990-1995) he learned the ins and outs of the organization, although paid far less.
Where Do You Rank?
Analysis of income, age and length of service in the brokerage industry
How are stockbrokers really doing? Most articles about the financial industry usually start with “The last three years have been bad…” You read about brokerages laying off thousands and lots of reps leaving the business. Yet, most stockbrokers and their employers are still making money and paying the bills. According to the following study, the average income of registered representatives is $125,112 per year. Their average age is 43 and they have spent on average 11 years in the business. (more…)
EXCERPTS COURTESY OF … www.bdcompliance.com
Anti-Money Laundering (AML)
The NASD has an enhanced tool for automated searching of the U.S. Treasury´s Office of Foreign Asset Control´s (OFAC) "Specially Designated Nationals and Blocked Persons" (SDN) List. The new tool is located at: http://
www.nasdr.com/ofac/.
The MSRB has proposed new Rule G-41 to ensure that all brokers, dealers and municipal securities dealers that effect transactions in municipal securities — and in particular those that only effect transactions in municipal securities — are aware of, and in compliance with, anti-money laundering program requirements. Proposed Rule G-41 requires that all dealers establish and implement anti-money laundering programs that are in compliance with the rules and regulations of either its registered securities association (i.e., NASD) or its appropriate banking regulator governing the establishment and maintenance of anti-money laundering programs.
On July 1, 2003, the Department of the Treasury requested comment on two issues relating to the final customer identification regulations issued recently under Section 326 of the Patriot Act. The issues are: 1) Whether and under what circumstances financial institutions should be required to retain photocopies of identification documents relied on to verify customer identity; and, 2) whether there are situations when the regulations should preclude reliance on certain forms of foreign government issued identification to verify customer identity. Written comments must be submitted on or before July 31, 2003. For more information: http://www.treas.gov/offices/general-counsel/ 326_notice_of_inquiry.html.
CRD
Release 5.1 is scheduled for implementation July 14th. This release will incorporate changes to Forms U4 and U5 if approved by the SEC. The changes will (1) streamline the language associated with questions on the Form U-4 question relating to fingerprint requirements; (2) add a question and disclosure reporting page (DRP) to the Form U-5 that parallels the Form U-4 question and DRP relating to terminations for cause; (3) add new disclosure questions to require reporting of certain events that now subject individuals to a "statutory disqualification" under the expanded definition of that term in the Securities Exchange Act of 1934; and (4) make certain technical, clarifying, and conforming changes on the Forms U-4 and U-5 to facilitate accurate reporting.
NASD and SEC proposals
The SEC has approved a rule filed by the NASD and the International Securities Exchange (ISE) to transfer from the ISE to the NASD certain responsibilities for regulating the options-related sales practices of members that belong to both SROs. After a comment period in which no comments were received, the SEC approved the rule change and said that the change would prevent a pattern from developing in which broker-dealers maintaining membership in more than one SRO could be subject to multiple examinations.
FYI
The NASD reminds members that the use of “instant messaging” by employees is subject to the same requirements as e-mail communications. It must be retained for at least three years and the communication cannot violate rules governing sales literature and correspondence. In addition, members must ensure that their use of instant messaging is consistent with their basic supervisory and record keeping obligations.
The SEC has published guidance for the new books and records requirements. The guidance is contained in Rel. No. 34-47910.
The Municipal Securities Rulemaking Board (MSRB) has published two documents regarding its planned move to real-time municipal securities transaction reporting. The first is a notice requesting comments on how real-time prices should be disseminated. The second notice contains specifications for dealers wishing to program their automated trade processing systems to report municipal transaction data to the MSRB. For more information contact the MSRB at 703-797-6600 or www.msrb.org.
The MSRB´s electronic Rule G-37 Submission System which generates electronically reports of political contributions and/or new public finance business (as defined by MSRB Rule G-37), is now operational. Although firms are not required to file their Form G-37/38 or Form G-37x electronically, the use of the MSRB eG-37 System will permit municipal securities dealers to eliminate their paper filings. In order to first use the MSRB eG-37 System, municipal securities dealers must register on the MSRB´s Web Site at www.msrb.org. For more information, contact the MSRB at (703) 797-6600.
A joint NYSE/NASD advisory group has completed a report on IPO practices and has recommended significant changes in the process.
A proposed rule enabling members that are registered as market markers or ECN’s to request and receive a second market participant identifier with which to enter a second attributable quote/order in the NASDAQ quotation montage or to enter non-attributable orders into SIZE in SuperMontage is established as a two month pilot program scheduled to begin July 1, 2003. NASDAQ will issue a Head Trader Alert publicly announcing the precise start and end dates of the pilot.
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