Stockbrokers on Active Duty: No Laughing Matter

June 28, 2005

In recent weeks I have been contacted by Registered Representatives (stockbrokers) or their family members concerning a number of issues involving members of the National Guard/Reserves who have been or expect to be called to active duty. Specifically, the queries involve two general areas of concerns. One, since many stockbrokers are paid commissions and not salaries, is there a way that they can continue to earn some income from their accounts while serving their country. Two, in a quirk somewhat unique to Wall Street, individuals who pass registration examinations must be employed in their registered status within a 24 month period or the registration is deemed expired and they must requalify (or seek a waiver of the requalification). Apparently, the inability to receive commissions while on active duty and the possibility that two years may pass before a called-up veteran could obtain registered employment, are causing some concerns and difficulties among the ranks of active-duty stockbrokers. And yes, there are many brokers who are proudly serving their country and are in harm's way.

In an effort to assist these men and women, I have contacted the NYSE, the NASD, and NASAA. Below you may find a version of a letter that has substantially been sent to each of those regulators.


To Whom It May Concern:

My name is Bill Singer and I am the publisher or RRBDLAW.com (a leading Wall Street regulatory/legal website) and am a partner in the law firm of Gusrae, Kaplan, Bruno & Nusbaum PLLC. My practice is largely limited to securities-industry matters.

I have been contacted by several individuals who are seeking assistance with an issue involving their being called to active duty as a result of their National Guard/Reserve status. Some of the callers are registered personnel (or married to same) and are concerned about two issues.

One, can they continue to receive commissions from their accounts while on active duty and unable to go to their BD? I think the more pointed question, which I will re-phrase for these folks, is can they enter into joint-production agreements by which their accounts are handled by a "caretaker" colleague with whom they would share commissions?

Two, can they toll the 24 month clock on their registrations while on active duty so that their registrations don't lapse and they must requalify?

Personally, I would urge Wall Street's regulators (NASAA and the SROs) to issue a joint release on the issues because they seem to be a growing concern. Clearly, I would urge that the SROs and NASAA clarify that under the limited circumstances of RRs being called to active duty that
1. a toll on the 24 month registration expiration be put in place as of the date active duty service begins and for 90 days following termination of such status; and
2. RRs on active duty may arrange for a joint production agreement (in writing and approved by their member firm) by which they may share commissions with another registered colleague provided all accounts receive written notification of the agreement and its material terms, and that such agreements must automatically terminate within 90 days of termination of active duty.

Would you kindly respond to:

Bill Singer
email: rrbdlawyer@aol.com
phone: 917-520-2836

mailing address:
Gusrae, Kaplan, Bruno & Nusbaum PLLC
120 Wall Street
New York, NY 10005

Sincerely,

Bill Singer
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FOLLOW-UP:
==============================================

I just received the following email:

Hi Bill:

NASD seems to have already addressed your concerns regarding registration/commission issues for personnel on active military duty. Please see links below:

http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_014635

http://www.nasd.com/web/idcplg?IdcService=SS_GET_PAGE&ssDocName=NASDW_005228&ssSourceNodeId

UNFORTUNATELY, THE WRITER HAS FALLEN INTO THE SAME TRAP THAT A NUMBER OF OTHER FOLKS HAVE BROUGHT TO MY ATTENTION. PLEASE READ THE FOLLOWING:

The NYSE and NASD (see NYSE Information Memo 03-17 and NASD Notice to Members 02-12) essentially waive compliance with the Regulatory and Firm Element continuing education obligations to registered active military duty RRs. Your BD must notify CRD/Public Disclosure (send a copy of the official call-up notice). Similarly, it appears that the 24 month clock is tolled for the duration of active service.

Also, read this Interpretive Memo from NASD:

IM-1000-2. Status of Sole Proprietors and Registered Representatives Serving in the Armed Forces
Any Registered Representative of a member who volunteers or is called into the Armed Forces of the United States shall be placed, after proper notification to the Executive Office, upon inactive status and need not be re-registered by such member upon his or her return to active employment with the member.
Any member (Sole Proprietor) who temporarily closes his or her business by reason of volunteering or being called into the Armed Forces of the United States, shall be placed, after proper notification to the Executive Office, on inactive status until his or her return to active participation in the investment banking and securities business.

A Registered Representative who is placed on inactive status as set forth above shall not be included within the definition of "Personnel" for purposes of the dues or assessments as provided in Article VI of the By-Laws.
Any member placed on inactive status as set forth above shall not be required to pay dues or assessments during the pendency of such inactive status and shall not be required to pay an admission fee upon return to active participation in the investment banking and securities business.
A Registered Representative who is placed on inactive status as set forth above shall not be required to complete either of the Regulatory or Firm Elements of the continuing education requirements set forth in Rule 1120 during the pendency of such inactive status.



I was thrilled to see that we're getting a number of helpful responses, but some of the assistance is underscoring the concerns many of you have raised. For example, looking at the NASD's posted materials, one gets the initial impression that they have resolved the 24 month and CE issues --- but they don't.
If you read the NASD's Interpretive Memo carefully, you will note that it only applies to the "member firm" with which the RR was registered at the time he/she went on active duty. As such, if you were not presently registered --- say you had left BD1 about 2 months ago --- then the NASD doesn't toll your registration while you're on active duty. Additionally, say that BD1 terminates you or you decide upon stepping down from active duty that you want to go to BD2, the NASD again doesn't seem to grant you a waiver of requalification if more than 24 months have passed. Finally, the NASD has failed to address allowing continuing commissions for any period of time for RRs on active duty.

Consequently, what a number of veterans or folks concerned about being called up are seeking is
1. a simple toll on the 24 month expiration of registrations for any active duty timeframes and a reasonable period thereafter (say, 90 days) to become re-registered;
2. the removal of any limitation on Continuing Ed or requalification requirements that are related to returning to the member firm with which one was registered before active duty; and
3. some relief from the commissions policy to permit continuing commissions for a reasonable period --- perhaps 18 months.



CONTACT INFORMATION:
Bill Singer
rrbdlawyer@aol.com
917-520-2836
http://www.rrbdlaw.com