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SEC Adopts Program Aimed at Reducing Cheating by Brokers : Securities: It is designed to protect investors and elevate the industry's standards.

February 09, 1995|From Associated Press

WASHINGTON — A training program aimed at making Wall Street brokers better informed about regulations and rapid developments in the markets was approved Wednesday by the Securities and Exchange Commission.

The SEC also hopes the continuing education program, the first ever in the securities industry, will reduce cases in which problem brokers cheat and steal from customers.

Currently, brokers must pass standardized tests, and individual firms have their own training programs, but there has been no industrywide standard for training.

"And now, for the first time, the investing public can have confidence that their brokers will be trained--not just once or twice--but on a regular basis," SEC Chairman Arthur Levitt Jr. said. He said the program was a major element of his campaign to protect investors and elevate the industry's standards. Other commissioners agreed.

"At the end of the day, this will help improve our markets," according to Commissioner Steven M.H. Wallman, who said it will enhance broker knowledge about the array of sophisticated securities for sale.

The rules were developed by the SEC, the industry's self-regulatory organizations and the brokerages themselves.

Joseph R. Hardiman, chief executive for the National Assn. of Securities Dealers Inc., said the industry has spent more than $2 million developing the program, "and the brokerage firms will invest millions more each year in its implementation."

The program evolved amid criticism that the industry needed to do more to eliminate problem brokers who prey on customers. A General Accounting Office study last year estimated that about 2% of all brokers have at least one violation in their disciplinary file.

The education program requires brokers to take periodic training, including a 3 1/2-hour interactive computer course, which covers topics that range from handling of customer complaints to telephone solicitations.

The program refreshes brokers about regulations, such as a reminder that they must notify their employers if they receive any inquiry from a securities regulator or written complaint from a customer.

Brokers are required to take the training course at regular intervals--on their second, fifth and 10th anniversaries of entering the industry.

There are exceptions. Brokers with a clean record over the past 10 years--an estimated 17% of the total--needn't take the courses, unless they are the subject of a regulatory action later on. The training could also be a requirement for brokers under a settlement agreement of a regulators case.

The training also teaches brokers about relatively new investment products, such as derivatives and limited partnerships. Individual firms will create this aspect of the training because firms engage in diverse lines of business, and a "one size fits all" program imposed by regulators wouldn't be relevant in all cases, the SEC said.

A firm would have to describe the general investment risk, suitability and registration requirements of various investment products. This material will be part of a firm's training program.

The regulatory part of the program will have to be in place beginning July 1; the firm's part of the package will be phased in from July 1 through 1996.

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