Notice To Members 84-71

SEC Rule 15c2-2 Fully Effective

Published Date:

I M P O R T A N T

Officers * Partners * Proprietors

TO; All NASD Members

As discussed in Notice to Members 83-73, the Securities & Exchange Commission adopted Rule 15c2-2 on November 18, 1983. The Rule prohibits broker-dealers from using mandatory arbitration clauses in customer agreements that purport to bind public customers to the arbitration of claims arising under the federal securities laws. Those clauses, in the view of the Commission, are inconsistent with the deceptive practice prohibitions of Section 10(b) and Section 15(c) of the Act.

The Rule, which is reprinted below, sets forth a transitional period, during which broker-dealers could use existing supplies of customer agreement forms until December 31, 1984, provided they were accompanied by a separate written disclosure specified in the Rule.

In addition, broker-dealers whose customers had signed agreements that would violate the Rule were required to send the written disclosure to all active, existing customers no later than December 31, 1984. Active customers are defined as those for whom, after July 1, 1983, the broker-dealer carried a free credit balance, held securities for safekeeping, or effected a securities transaction. All other customers must be sent such disclosure upon the completion of their next transaction.

This Notice is to remind members that the transition period has almost ended, and that after January 1, 1985, no new customer agreement forms may contain provisions that purport to bind the customer to arbitrate future disputes arising under the federal securities laws.

Please direct any questions concerning SEC Rule 15c2-2 to Jean McNeill, at (202) 728-8286.

Sincerely,

Frank JY/Wilson
Executive Vice President and General Counsel

Attachment

TEXT OF RULE 15c2-2

Disclosure regarding recourse to the
courts notwithstanding arbitration
clauses in broker-dealer customer agreements

(a) It shall be a fraudulent, manipulative or deceptive act or practice for a broker or dealer to enter into an agreement with any public customer which purports to bind the customer to the arbitration of future disputes between them arising under the federal securities laws, or to have in effect such an agreement, pursuant to which it effects transactions with or for a customer.
(b) Notwithstanding paragraph (a) of this section, until December 31, 1984 a broker or dealer may use existing supplies of customer agreement forms if all such agreements entered into with public customers after December 28, 1983 are accompanied by the separate written disclosure:
Although you have signed a customer agreement form with FIRM NAME that states that you are required to arbitrate any future dispute or controversy that may arise between us, you are not required to arbitrate any dispute or controversy that arises under the federal securities laws but instead can resolve any such dispute or controversy through litigation in the courts.
(c) A broker or dealer shall not be in violation of paragraph (a) of this section with respect to any agreement entered into with a public customer prior to December 28, 1983 if:
(1) Any such public customer for whom the broker or dealer has after July 1, 1983 (i) carried a free credit balance, or (ii) held securities for safekeeping or as collateral, or (iii) effected a securities transaction is sent, no later than December 31, 1984, the disclosure prescribed in paragraph (b) of this section; or
(2) Any other public customer is sent upon the completion of his next transaction pursuant to such agreement, the disclosure prescribed in paragraph (b) of this section.