Jefferson Pilot Securities Corporation
October 17, 2003
Jonathan G. Katz, Secretary,
Re: Comments on NASD Amendment No. 4 to Proposed Rule 3510 (File No. SR-NASD-2002-108)
Dear Mr. Katz:
We welcome the opportunity to comment on amendment No. 4 to the proposal ("Proposal") by the National Association of Securities Dealers, Inc. ("NASD") to adopt Rule 3510 (concerning Business Continuity Plans).
Proposed Rule 3510 would require all member firms to create and maintain a Business Continuity Plan that contains procedures that will enable a firm to meet its existing obligations in the event of an emergency or significant business disruption. Jefferson Pilot Securities Corporation (JPSC) is in agreement with most of the Proposal, as it requires firms to follow sound business practices and will serve the purpose of protecting the investing public. However, the NASD has proposed the addition of paragraph (e) that would require member firms to disclose in writing to its customers a summary of how its business continuity plan addresses the possibility of a future significant business disruption and how the member plans to respond to events of varying scope. The disclosure must be made at the time an account is opened, at least annually, at the client's request and must be posted on the firm's website (if the firm maintains one). JPSC believes that the proposed disclosure rule poses an unduly burdensome requirement on member firms, is unnecessary and is likely to actually confuse customers.
The Proposed Amendment is Unduly Burdensome
JPSC believes that requiring member firms to make a disclosure regarding their business continuity plans at the opening of the account and at least annually is unnecessarily burdensome. Recent regulatory mandates have significantly increased the amount of disclosures that member firms are required to disseminate.1 The costs for labor and mailing of this additional disclosure is significant and will result in competitive disadvantages to smaller firms. The posting of the summary on a firm's website and/or providing it to a client upon request will provide sufficient means for customers to evaluate a firm's business continuity plan if they chose to and is less costly to member firms.
Providing disclosure at the opening of an account and at least annually is Unnecessary
JPSC believes that providing the public with access to its business continuity plan through a member's website or upon specific request should be adequate to meet any demand for disclosure. We do believe that providing the disclosure at the opening of a customer account and on an annual basis will be unduly burdensome and will not result in improvement of investor awareness. In its supporting comments the NASD states that it believes that requiring disclosure will "enable investors to make an educated decision about whether to place their funds and securities at the specific member based on the firm's business continuity planning and also would deter members from creating plans that do not adequately address contingency planning". There is no supporting evidence cited that the investing public is demanding that they be provided this information at account opening and/or on an annual basis.
There is no reason to believe that disclosing business continuity information to customers of introducing broker dealers like JPSC will have material bearing on the investment decision making process. Since introducing broker dealers custody client assets with third parties, customers will not be making "...an educated decision about whether to place their funds and securities at the specific member based on the firm's business continuity planning..." The adoption of deficient business continuity plans by member firms can be detected and deterred sufficiently through the regulatory audit process.
The Proposed Amendment will more likely than not confuse customers
While JPSC believes that an educated customer is desirable, there is a danger that providing business continuity plan summaries along with the myriad of other paperwork that is required to a customer may be confusing. The nature of current business continuity planning for broker dealers revolves largely around IT systems protection and recovery. This highly technical discipline does not lend itself to readily understood language that can be conveyed to customers even in a summary fashion. JPSC is concerned that providing a summary that is not easily understood will lead to customer confusion.
JPSC supports the passage of Rule 3510 as it will enhance protection of the investing public. JPSC also supports providing a customer with a summary of its business continuity plan upon request an/or via posting on its website. JPSC does not support the proposed additional requirement that member firms provide customers a written summary of their business continuity plan when an account is opened and at least annually for the reasons stated above.