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84-34 Implementation of the NASAA/CRD Temporary Agent Transfer Program (TAT) Via the Central Registration Depository — Need to File Broker-Dealer Undertaking

TO: All NASD Members and Other Interested Persons

BACKGROUND

The securities industry, in late 1983, asked the North American Securities Administrators Association (NASAA) to review the registration delays resulting from agent transfers between broker-dealers. After extensive deliberations by the NASAA/CRD Committee and its NASD advisors, a Temporary Agent Transfer program was developed by the Committee and approved by the NASAA membership at its spring meeting on April 28, 1984.

The NASD Board endorsed the Temporary Agent Transfer concept at its November, 1983 meeting. This endorsement together with the NASAA membership approval has paved the way for the implementation of this new program.

Historically, it has taken a considerable amount of time to transfer the registration of a representative from one firm to another. Although the Central Registration Depository (CRD) has significantly reduced the overall time to effect a transfer, there are outside factors which have continued to impede a timely transfer, i.e., the U.S. mail. From the regulatory perspective, termination requirements create delays in those state jurisdictions which require the filing of a U-5 before permitting approval of a transfer to occur. Both administrative delays as well as the lack of timely submissions by terminating firms amplify this problem.

Factors such as these have led to unreasonable delays and burdens on the individual representatives which preclude them from conducting business during the interim period.

Given the technological advances made by the CRD, a new program is being implemented to correct the long standing problem. This program, known as The NASAA/CRD Temporary Agent Transfer (TAT), will become effective on July 2, 1984 via the CRD. Prior to a Firm's participation in this program, a "Broker-Dealer Undertaking" must be submitted with the CRD.

PROGRAM DESCRIPTION

The Temporary Agent Transfer program will permit the immediate transfer of an agent upon telephone or Firm Access Query System (FAQS) notification to the CRD. The TAT program will replace the NASD's conditional approval process and will be effective for NASD registration as well as participating State jurisdictions.

Participation in the TAT program does require the execution and one time filing of the enclosed "Broker-Dealer Undertaking" with the CRD which outlines the terms, limitations and conditions of the program. The components of the TAT program and the CRD role are substantially as follows:

  • Eligibility

* Applicants and broker-dealers must be currently registered with the NASD and each jurisdiction where temporary transfer of registration is requested.

* Applicants must be currently qualified by examination and registered in the category which is requested in the transfer.

* Applicants must have terminated their employment and registration with a terminating broker-dealer, without disciplinary reasons, within the preceding seven (7) calendar days of the transfer request.

* Applicants may only sell securities for the firm to which temporary transfer is made.

* Applicants must submit to the employing broker-dealer a complete signed Form U-4 that has no affirmative responses to the disciplinary questions contained on the form.

* The broker-dealer must have sufficient funds on deposit with the CRD to pay the required registration fees generated by the applicant transfer request.

* All temporary registrations effected through the TAT program expire twenty-one (21) calendar days after issuance unless the temporary registration is made permanent by receipt of a properly completed and executed Form U-4 for the applicant.

  • Member Firm Responsibilities

* The broker-dealer must review the Form U-4 submitted by the agent to determine if it is complete and signed by the individual.

* The broker-dealer must take appropriate steps to verify the information contained on the form.

* The broker-dealer must contact the terminating firm and verify that the individual terminated without disciplinary reasons within the preceding seven (7) calendar days.

* The broker-dealer must submit the complete signed Form U-4 to the CRD within the twenty-one (21) day temporary registration period.

* The broker-dealer must promptly withdraw the temporary registration by submitting a Form U-5 to the CRD if there is a material change in the application which would have resulted in the individual being ineligible for the temporary registration. Registration must then be pursued through the filing of a Form U-4 and fees in the normal fashion.

* The broker-dealer must properly supervise each person subject to a temporary transfer to prevent the unauthorized offer and sale of securities in jurisdictions where no temporary registration is in effect and in the event that the twenty-one (21) day temporary registration expires without receiving a permanent registration.

THE ROLE OF THE CRD

By the implementation of this new program, the CRD will be changing a few basic operating principles. First is the processing of Form U-5 Termination Notices. An integral part of the TAT program involves the tracking of terminations. Upon issuance of a temporary registration, the CRD will not only send confirmation to the new firm but it will also send a notice to the terminating firm to advise them of the individual's termination and the need for the prompt filing of a Form U-5. Should the required U-5 not be received within thirty (30) days of the issuance of the temporary registration, the system will automatically debit the firm's CRD account for a "late U-5 fee" as provided for in the NASD By-Laws. When this is done both the firm and the applicable State Jurisdictions will be notified through the system. This tracking system will not only apply to the TAT program but for all terminations. When a transfer is processed in the normal fashion via the filing of a Form U-4, the terminating broker-dealer will be notified of the termination and will be subject to the same thirty (30) day filing period.

The second major element to this new program is that all temporary registrations will expire unless a complete U-4 is received by the CRD within the twenty-one (21) day period. Those U-4 forms received after the twenty-first day, when the temporary registration expires, will again cause full fees to be deducted from the firm's BD account upon processing of the Form U-4.

The word "complete" is defined as having all data requested on the form present and in such a manner so as not to cause a "deficiency" condition to be generated by the CRD system. Further, the form must be manually signed, notarized and be accompanied by a photograph and fingerprint card unless exempted by Rule 17f-2. Should the form be received and processed with deficiencies, amendment filings to correct the deficiency conditions must be received by the twenty-first day or the temporary registration will expire. Members using the TAT program are therefore advised and encouraged to take every precaution to ensure each form submitted for a person subject to the TAT program is truly "complete" and filed promptly.

Allowances have been made by the CRD system to expire only the temporary transfers for those forms received after the twenty-first day. The program bases its comparison on the date received, not the date the form is processed.

Upon filing an executed Broker-Dealer Undertaking, a copy of which is attached, the member will designate a TAT password which must be used each time a request for a temporary transfer either by telephone or through a FAQS terminal is made. This password will be communicated to the appropriate party at the firm and thereafter the security of its use rests with the member. Telephone requests for temporary transfers should be directed to the CRD Communications Center at 202-728-8800. Those Members who are participating in the FAQS program will be sent an update for their FAQS manual which will fully describe the procedures. System entry of the TAT assigned password will be required for execution of a transfer through the FAQS system.

Further communications relating to the implementation of this program will be addressed in upcoming issues of the Q&R Report. Shortly after July 2, 1984, a Q&R issue will list any States that elect to not participate in the TAT program.

A description of the TAT program and a Broker-Dealer Undertaking are enclosed in order to provide each member with the complete program definition. If your firm intends to join, an executed Broker-Dealer Undertaking for participation in the TAT program should be forwarded to Craig Thompson, Assistant Director, Special Registration Review, 1735 K Street, N.W., Washington, D.C. 20006.

Questions related to the TAT program may be addressed to the CRD Communications Center at 202-728-8800.

Sincerely,

John T. Wall
Executive Vice President
Member and Market Services

Attachments

NASAA/CRD TEMPORARY AGENT TRANSFER PROGRAM

APRIL 28, 1984

I. INTRODUCTION

The North American Securities Administrators Association, Inc. (hereinafter "NASAA") has deemed it to be in the public interest and consistent with the goals of investor protection to provide an efficient, expedient, and uniform temporary agent transfer program for securities sales agents (hereinafter "agent") transferring from a registered broker-dealer (hereinafter "terminating broker-dealer") to another registered broker-dealer (hereinafter "employing broker-dealer"). The implementation of the temporary agent transfer program will permit an immediate transfer of an agent upon telephone or FAQS notification to the Central Registration Depository System (hereinafter "CRD").

II. DISCUSSION

The basic premise underlying agent registration on the CRD is a requirement to file a uniform application for securities industry registration form (hereinafter "Form U-4") for entry into the CRD and a uniform termination of securities industry registration form (hereinafter "Form U-5") to exit the CRD System. This system functions efficiently for the initial registration of an agent but it is occasionally burdensome for the transfer of an agent from a terminating broker-dealer to an employing broker-dealer.

There are many problems associated with the requirements of the filing of Form U-5 prior to registering an agent with an employing broker-dealer. The filing of Form U-5, required to be signed and submitted by the terminating broker-dealer, is often delayed for administrative reasons and is sometimes intentionally withheld by the terminating broker-dealer so that the agent will not be able to service former clients. This tactic provides unreasonable delays and burdens on the agent and does not allow the agent to conduct business during the interim processing period.

The employing broker-dealer, attempting to aid the new agent during this period often violates state law by allowing the agent to offer and sell securities prior to the effective date of the registration. This is not an acceptable method of agent transfer. With the technological advances made by the CRD a new program must be implemented to correct what is an apparent deficiency in the registration process.

It is imperative that Form U-5 be promptly filed by the terminating broker-dealer in order for the CRD and the states to have the reason for termination and whether disciplinary proceedings may have been the reason for the termination. This procedure is needed in order to maintain up-to-date records on registered agents and to provide a mechanism for disciplinary reporting. The NASAA/CRD Committee is currently working with the National Association of Securities Dealers (hereinafter "NASD") to provide for uniform interpretations and procedures for the filing of Form U-5.

The NASAA/CRD Committee met in Savannah, Georgia, on November 17-18, 1983, to consider a temporary agent transfer program. Tentative drafts were submitted by the committee chairman and the NASD representatives. The basic concept was agreed upon and further discussed in a telephone conference on December 2, 1983.

On December 20, 1983, a proposal for a temporary agent transfer program was submitted to the NASAA membership. On January 21, 1984, the NASAA Board of Directors approved the general concept of the program and authorized the distribution of the proposal for comment and a public hearing.

On February 28, 1984, a public hearing was held in the World Trade Center in New York City. The following persons testified at the hearing: James McCormick, NASD Registration Committee; Michael Kiey, SIA State Regulation Committee; Ray Vass, SIA Legal and Compliance Section; and Nancy Lopez, Association of Registration Managers.

This proposal incorporates certain changes approved by the NASAA/CRD Committee as a result of the aforementioned hearing. The program was approved by the NASAA membership on April 28, 1984, at its annual spring meeting in Washington, D.C. The system implementation date is scheduled for July 1, 1984.

The NASAA Forms Revision Committee is currently considering certain changes to Forms U-4 and U-5 that may allow the program to be amended, at a later date, to confirm further requests made at the public hearing.

Generally speaking, the NASAA/CRD temporary agent transfer program involves a participating broker-dealer completing the Broker-Dealer Undertaking for participation in the NASAA/CRD temporary agent transfer program; a telephone or FAQS notification to the CRD for an agent who terminates, without disciplinary reasons, his employment and registration with the terminating broker-dealer the preceding seven (7) calendar days; the timely filing of a completed and signed Form U-4; the timely filing of Form U-5; and the issuance of a twenty-one (21) day temporary registration.

III. TEMPORARY AGENT TRANSFER PROGRAM

The NASAA/CRD temporary agent transfer program shall be applicable in all CRD states unless a state notifies the CRD, in writing, that it does not desire to participate in the NASAA/CRD temporary agent transfer program. The program shall be subject to the terms, conditions and limitations described in this report and the Broker-Dealer Undertaking for participation in the NASAA/CRD temporary agent transfer program.

A. AGENT In order to qualify for temporary agent transfer, the agent must:
1. Have terminated employment and registration with the terminating broker-dealer, without disciplinary reasons and within the preceding seven (7) calendar days;
2. Have no disciplinary history that would require disclosure on Form U-4;
3. Complete, sign and submit to the employing broker- dealer a Form U-4 that has "no" answers to questions 27, 28 and 29;
4. Have been properly registered in each jurisdiction where registration is requested; and
5. Be qualified by examination for the type of registration requested.
B. PARTICIPATING BROKER-DEALER A broker-dealer participating in the temporary agent transfer program must:
1. Execute and file with the CRD the Broker-Dealer Undertaking for participation in the NASAA/CRD temporary agent program;
2. Have sufficient funds on deposit with the CRD to pay the required regulatory fees;
3. Preview the Form U-4 submitted by the agent to determine that it is complete (except for fingerprints and photographs), signed by the agent, and ready for submission to the CRD;
4. Take appropriate steps to verify the statements in the Form U-4 and inquire into the past record and reputation of the agent.
5. Contact the terminating broker-dealer to verify that the agent terminated employment and registration with said broker-dealer within the preceding seven (7) calendar days, without disciplinary reasons.
6. Have an authorized person contact the CRD by telephone or FAQS and report, confirm, or verify the required information, to allow issuance of a NASAA/CRD temporary registration;
7. Submit the completed and properly signed Form U-4 to the CRD prior to the expiration of the twenty-one (21) day temporary registration.
8. Promptly notify the CRD upon any material changes in the application or information submitted to the CRD on behalf of an agent;
9. Promptly notify the CRD upon receipt of any material changes in the application or information submitted to the CRD on behalf of an agent, and in the event such information would have resulted in the agent being ineligible for the temporary registration, the broker- dealer will, during the pendency of the temporary registration, immediately withdraw the agent's registration by submitting a Form U-5 to the CRD terminating the registration in each state where the agent was the subject of a temporary registration. A new application and registration fee will be required to further consider such applicant for registration.
10. Promptly file Form U-5 for all terminated agents;
11. Furnish information to an employing broker-dealer concerning a terminated agent, including but not limited to the answers to be submitted for questions 13 and 14 on Form U-5, and
12. Properly supervise each agent subject to a temporary registration in order to prevent the unauthorized offer and sale of securities in the event the temporary registration expires after twenty-one (21) days.
C. THE CENTRAL REGISTRATION DEPOSITORY In order to properly administer the CRD record keeping functions, the NASD will:
1. Process all temporary agent transfer requests;
2. Provide adequate password security (see Exhibit "8") for identifying participating broker-dealers authorized to request temporary agent transfers;
3. Establish procedures to receive and edit the required information to effectuate a temporary agent transfer;
4. Provide specific edit procedures for verification of information regarding disciplinary history, previous employment, registration history, and regulatory fees, and for timely notices to the broker-dealer of filing deficiencies;
5. Collect and disburse regulatory fees;
6. Send a notice of temporary agent registration to the employing broker-dealer reflecting a twenty-one (21) day expiration date;
7. Send a notice to the terminating broker-dealer demanding the prompt filing of Form U-5;
8. Notify each CRD state, via the on-line accounting system, of each temporary registration processed for its jurisdiction;
9. Provide each CRD state with the capability of terminating a temporary agent registration;
10. Notify each CRD state, via the mail command, of the expiration of the temporary agent registration for the failure of the employing broker-dealer to file a completed and non-deficient Form U-4;
11. Process each complete Form U-4 received within twenty-one (21) calendar days of the temporary agent registration and approve the permanent registration in accordance with automatic approval criteria established by the CRD System; however, each state may elect to terminate such registration according to its specific registration criteria;
12. Send a notice to the employing broker-dealer of the effectiveness of the permanent registration (the effective date shall be the date of the temporary registration), subject to termination by an individual CRD state;
13. Notify the respective CRD states when a deficient Form U-4 is received on a temporary agent registration and allow the state to take whatever action it deems appropriate including approval, denial, or postponement. In the absence of an approval or denial by a jurisdiction, each temporary registration will expire on its expiration date unless a completed and non-deficient Form U-4 is filed with the CRD;
14. Notify the employing broker-dealer when a deficient Form U-4 is received on an applicant subject to a temporary agent registration;
15. Process a Form U-4 received after the temporary registration has expired in accordance with the requirements of a new registration and collect and disburse the required regulatory fees incident to such registration;
16. Notify each CRD state when a Form U-5 is not received at the time a temporary registration is made permanent; and
17. Notify each CRD state when the NASD administers a penalty against a participating broker-dealer registered in such state for failing to timely file Form U-5.
D. CRD STATES Each CRD state participating in the temporary agent transfer program:
1. Will accept automatic approval of a temporary and permanent agent registration, as set forth in Section C, providing a completed and non-deficient Form U-4 is received by the CRD prior to the expiration of the temporary agent registration; however, each jurisdiction shall maintain the right to terminate such registration according to its individual requirements;
2. May terminate a temporary and permanent registration at any time, in accordance with its individual regulatory requirements;
3. Will take whatever action it deems necessary and appropriate against participating broker-dealers for their failure to timely file Forms U-4 and promptly file Forms U-5 or for violating any other provision of the NASAA/CRD undertaking for participation in the temporary agent transfer program;
4. May suspend the temporary agent transfer program privileges of a participating broker/dealer, provided, however, that the enforcement of this sanction rests solely with the individual states and not be techno logically enforced by the CRD System; and
5. Will have the right to withdraw from the temporary agent transfer program upon written notice to the CRD System and the president of the North American Securities Administrators Association, Inc.

IV. CONCLUSIONS

The agent transfer problem is one of the most common criticisms of state securities regulation. It is a problem that can be solved by NASAA, the NASD, the CRD System, and the securities industry. This efficient and expedient agent transfer program is based on sound logic, and it is reasonable in light of investor protection, industry regulation, and regulatory efficiency. This program will not deter any state from its mandated regulatory responsibilities but will actually assist the regulatory program by providing timely information and reports.

V. NASAA CRD COMMITTEE MEMBERS

H. Wayne Howell, Chairman
Georgia Securities Division
Suite 802, West Tower
2 Martin Luther King Jr. Drive
Atlanta, Georgia 30303
404/656-7810

Peggy Peters, Vice Chairman
Texas Securities Commission
P.O. Box 13167, Capitol Station
Austin, Texas 78711
512/474-2233

Nancy Diana, Secretary
Pennsylvania Securities Commission
471 Forum Building
Harris burg, Pennsylvania 17120
717/787-8061

Nancy Jones
Assistant Securities Commissioner
#1 Capitol Mall, 4B, 206
Little Rock, Arkansas 72201
501/371-1101

Stanley Lewis
Deputy Securities Commissioner
816 Keenan Building
Columbia, South Carolina 29201
803/758-2833


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