The NASD, the private sector regulator of the U.S. securities industry, set a record in 2003 for both the number of new enforcement actions filed (1,352) and the number of individuals barred or suspended (830) from the securities industry as a result of violations of securities rules and laws.

The regulator also collected more than US$32.5 million in disciplinary fines.

The NASD reports that it brought more than 60 enforcement actions against securities firms in 2003 for violations in the area of sales of mutual funds. Violations in these cases ranged from suitability of the mutual fund share classes that brokers recommended, sales practices, improper disclosures and compensation arrangements between the funds and brokers. The 60 mutual fund related actions bring to more than 200 the number of cases NASD has taken in the investment company area since 2000.

NASD also has proposed requiring disclosure of two types of cash compensation — payments for “shelf space” by mutual fund advisers to brokerage firms that sell their funds, and differential compensation paid by a brokerage firm to its salesmen to sell the firm’s proprietary funds. NASD also designed a regulation that would require disclosure of mutual fund expenses in advertisements and other sales material that promotes the fund’s performance. It is critical that investors understand not only the costs involved in acquiring a fund and owning it over time, but also any conflicts that may rise through compensation arrangements.

In the area of late trading and market timing, in September the NASD sought information regarding these practices from 160 firms and has ongoing investigations into conduct at several dozen firms. NASD’s review indicated that a number of firms clearly received and entered late trades, while others were not always able to tell with clarity whether or not they had entered trades late. NASD will continue to focus on this area in the coming year.

The regulator continued its focus on the issues surrounding initial public offerings in 2003 by filing the first set of proposed IPO rules aimed at promoting fair allocation of IPOs with the Securities and Exchange Commission in September. And, it brought several cases in the area of IPO practices. It also continued to investigate and take enforcement actions against individuals for conflicts of interest between research and investment banking

NASD Dispute Resolution had its third consecutive record year in 2003 with about 8,900 new cases filed in its arbitration forum, an increase of 16% in the number of cases filed over 2002, and 29% over 2001.