December 22, 2006
1st Global Capital Corp. is not in favor of this rule proposal. Once again the regulatory solution to a perceived problem is to burden the industry with another seemingly innocuous disclosure requirement. While the increased costs of an additional piece of paper, the printing of the disclosure, the stuffing of the envelopes and the additional postage might be insignificant to large wirehouses (e.g., Goldman Sachs with $37.67 billion in revenue, Morgan Stanley with $33.9 billion in revenue, Lehman with $4.5 billion in revenue and Bear Sterns with $2.4 billion in revenue), it is significant to the majority of NASD member firms where such resources can be better used to make a far greater incremental benefit for clients by using the funds on such things as better exception reporting, higher quality staff, etc. The offensive nature of this proposal is just enhanced by the fact that in all likelihood the notice will wind up in the garbage, unread with the other junk mail received on that particular day.
The NASD should cease moving forward with this proposal until they have conducted a test mailing demonstrating the percentage of individuals within the mailing who actually read the disclosure and out of that group the number of individuals who actually comprehend the material provided. The results would define the investor benefit of the proposal. That can then be compared to the industry-wide cost of implementation of the program. 1st Global believes that such a cost benefit analysis would result in a need to scuttle the proposal.
Assuming that such a reasonable and rationale approach will not be undertaken and that the proposed new rule will move forward in the process, 1st Global would also like to propose a modification to the proposed rule. The rationale - SIPC helps individuals whose money, stocks and other securities are put at risk when a brokerage fails. It does so by providing the first line of defense to a client in the event a brokerage firm fails owing them cash and securities which are missing from their account. It is therefore not pertinent in a situation where a particular member firm does not hold customer funds or securities. Therefore, such members should be excluded from the proposed rules requirements. This approach would be entirely consistent with current version of NASD Conduct Rule 2340 Customer Account Statements which is the other rule that has been modified in relationship to the same GAO report which is the genesis of this particular rule proposal.
1st Global thanks you for the opportunity to provide comment on this proposal.