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Tim Quast
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May 31, 1999

A New SRO for Market Makers? A Pair of Professionals Wants to Play Ball Against the NASD

By Tracey Longo with staff reports

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  • A New SRO for Market Makers? A Pair of Professionals Wants to Play Ball Against the NASD

If we build, it they'll come. Well, that's what they thought.

"We thought it would be like Field of Dreams,'" said Curtlan McNeily, referring to the uplifting tale about an Iowa farmer who builds a baseball diamond in the middle of a corn field.

McNeily, a partner at securities law firm, McNeily & Rosenfeld in Washington, and his client Tony Roberts, a former president of a broker dealer, are disenchanted with the National Association of Securities Dealers.

Both have spent four years now trying to start a national self-regulatory organization they claim would surpass the NASD as an SRO. They call it the United Stockbrokers Association, or the USA. But don't let the name fool you. Market makers are very welcome.

"Our primary purpose is to break away from the NASD and set up a more open and democratic SRO for brokers and market makers in the U.S," said Roberts, currently employed as a telecommunications consultant. "Every individual broker and trader would have a vote within the new SRO."

Today, the duo says the NASD's coveted status is protected because brokers are required under law to be members of a registered national securities association. There is only one such SRO - the NASD - and an overly bureaucratic one at that, they say. "Instead of rules an inch-and-a-half thick that grew up during the Great Depression before computers, our new SRO has five basic rules," said McNeily. (USA has more details on its web site, www.usadvisors.com.)

The START

The idea for the new SRO, McNeily says, came to a head when he was representing a client who got called on the carpet by an NASD official for allegedly violating the net-capital rule.

"I actually got the idea from an NASD attorney who wanted my client to consent to a fine," McNeily said. "But there was no harm to any customer, and there were significant questions about what the actual net-capital requirement should have been."

"The stunning part of the whole encounter," he added, "was when the NASD attorney said, Hey, we have to show a profit here.'"

That was too much for the lawyer and his client. "We didn't pay the fine," McNeily said. "We said, No, you're wrong. You didn't count things that should have counted and we're not willing to settle. We're willing to go forward with this', I guess you'd say we called their bluff."

He didn't hear from the NASD again on the issue, McNeily says. But it struck the longtime securities lawyer that there was no other place for broker dealers to go if they didn't want to be a member of the SRO.

"In order to be a broker dealer you have to be a member of the NASD. And if you're a broker, you have to belong to a broker dealer. It's a monopoly," he said.

Roberts, president of the now-shuttered U.S. Securities Corporation in Chevy Chase, Md,, was having similar thoughts after several experiences with the NASD, experiences that, he says, were illogical.