NASD, NYSE propose rule changes on entertainment
NEW YORK – The NASD and New York Stock Exchange on Monday unveiled proposed rules governing how much brokerage firms can spend on business entertainment.The rules don’t impose specific dollar limits for business entertainment, but instead require firms to establish their own policies for what is acceptable. They will have to set dollar limits or establish guidelines for expenses that would require advance written approval.The NASD is seeking comments on its proposed rule change regarding entertainment guidelines. The NYSE is finalizing a draft.Neither has submitted their proposed rule changes to the Securities and Exchange Commission. NASD will do so after it considers the comments it receives, and the NYSE will do so after it finalizes its draft.The comments period on the NASD’s proposed rule expires Feb. 23.According to the proposed rules, member firms will have to keep detailed records of business entertainment expenses and make those lists available to customers.Mutual-fund companies are supposed to consider service and price when they pick which brokerage firms to use. But in an atmosphere of intense competition, brokerage firms have long lavished clients with sports and entertainment tickets, expensive wines and trips to ritzy locations. Although both the NASD and NYSE set a $100 limit for gifts, rules for entertainment are much hazier.”The rule is intended to ensure no improper quid pro quos, that they’re not unduly influencing customers to send business to the firm,” said Grace Vogel, executive vice president for member firm regulation at the NYSE.Vogel said she expected firms to establish relatively comparable dollar limits, making it easier for regulators to spot policies that are out of line.She said regulators would consider a firm’s geography and business model when evaluating their policies.In a high-profile case of egregious spending, the NASD and SEC last year investigated a bachelor party for a Fidelity Investments trader, paid for in part by Wall Street brokerage firms competing for Fidelity’s business. The party included a private jet, a yacht cruise and a dwarf-tossing event.Bull markets create especially intense competition for clients, spawning an environment where lavish entertainment becomes the norm, said Roy Smith, a professor at New York University’s Stern School of Business and a former Goldman Sachs partner.Brokers might welcome the rules, pointing to them to bow out of paying for more outrageous escapades, Smith said.”We’d all prefer to have less regulation, and we’d all prefer to have employees who do not need to be restrained,” he said. But “sometimes self-restraint doesn’t do it.”
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