employees."
In proceedings
brought under the rule, the
courts have applied decisions in
which the Commission has held
that the president of a broker-
dealer is in charge" of all the
firm's employees and activities
and is responsible for compliance
with all of the requirements
imposed on his firm unless and
until he reasonably delegates
particular functions to another
person in the firm. (See,

e.g. Patrick v. SEC. No. 93-4148
(2d Cir.) (January 18, 1994))

In addition to SRO regulation,
broker-dealer firms establish
rules and procedures for their
representatives at the firm
level, and provide an initial
level of
review through their
duty to supervise their
employees. Generally, at least
one office in the broker-dealer
firm, managed by a registered
principal, is responsible for
reviewing the firm's compliance
activities.

Section 20 (a) of the Exchange Act
establishes liability for broker-
dealers for the conduct of any
controlled persons liable under
any provision of the Exchange Act
or any rule ΟΙ regulation
thereunder, subject to a good
faith defense.

1. Chinese Walls

Broker-dealers must establish
internal policies and procedures
to restrict the flow and prevent
the misuse of material nonpublic
information.

Section 15 (f) of the Exchange Act
requires registered broker-

dealers to maintain and enforce written policies and procedures reasonably designed to prevent the misuse, in violation of the statute or the rules and regulations thereunder, of material,

nonpublic information by the broker-dealers or their associated persons.

A notable area of oversight by SROS concerns the policies and procedures employed by brokerdealers to segment the flow of sensitive information, often referred to collectively as "Chinese Walls." For example, Commission Rule 14e-3 prohibits the trading of securities which may be the subject of a tender offer while in possession of material nonpublic information. However, paragraph (b) of the rule provides a safe harbor for transactions by multi-service financial institutions under certain circumstances that otherwise would be proscribed, provided, among other factors, that the broker-dealer firm has established reasonable policies and procedures to ensure that the individuals making the investment decisions for the firm were not trading on the basis of material nonpublic information obtained from another area of the firm.

federal banking laws do not comprehensively address conflict of interest issues.

The federal banking agencies require banks to establish written policies and procedures to address the assignment of responsibility for the disclosure of the securities activities of officers or employees of the bank who are involved in or obtain information with regard to investment recommendations or decisions for the accounts customers. (This disclosure need not include transactions involving in the aggregate $10,000 or less during the calendar year and transactions in mutual fund shares.) (12 C.F.R. SS 12.6 (OCC), 208.8 (k) (Federal Reserve Board), 344.6 (FDIC))

of

Commission may (among other things) censure; suspend or bar - for life, or for life but with permission to reapply to the Commission after passage of a specified period of years firms and individuals from acting as broker-dealers or associated persons of broker-dealers; limit the functions and operations of a broker-dealer; or revoke a broker-dealer's registration.

(Exchange Act SS 15 (b) (4), (6)) The Commission may also impose cease and desist orders and/or civil money penalties. (Exchange Act SS 21B, 21C)

violate

the

Each SRO has rules specifying procedures for disciplining members who securities statutes or Commission rules. (Exchange Act §§ 6(b)(6), 15A (b) (8), and 15A (h)) SRO rules also set forth disciplinary procedures and penalties for violations of the SRO's Own rules. (See, e.g., NASD Rules of Fair Practice, art. V, S 1, providing for monetary fines, suspension from membership or associated person status, and expulsion or revocation of associated person registration.) SRO action taken in connection with such disciplinary proceedings may be appealed to the Commission (or the Commission may review the SRO action on its own motion). (Exchange Act SS 19 (d), (e), (f))

The federal banking agencies are required to "publish and make available to the public" any final order issued in connection with any administrative

enforcement proceeding. (12 U.S.C. $1818 (u)) Releases issued by the federal banking agencies, however, usually do not describe the nature of the violation and the enforcement action taken. Rather, the releases are lists of enforcement actions that typically only include the docket number, names of the parties involved, the type of action, the date of the action, and whether the action was by consent. It is difficult for an investor to determine from the listings which proceedings are of interest in order to request copies of documents of specific final

• The federal securities laws have been interpreted to confer private rights of action to investors for certain violations of the federal securities laws, including the major antifraud provisions. In addition, SRO rules require broker-dealers to resolve disputes with their customers in industry-sponsored arbitration forums that are subject to Commission oversight. Individuals and private entities may bring private rights of action in federal court seeking redress for violations of certain provisions of the securities laws and SRO rules. For example, investors have an implied right of action under Rule 10b-5 and $ 10 (b) of the Exchange Act. Individuals also may bring actions arising under the securities laws in the SRO arbitration forums. In addition, section 29 (b) of the Exchange Act provides that contracts made in violation of the Exchange Act or rules under the Exchange Act are voidable by the aggrieved party. This provides investors with a private right of action for rescission.

The SROS operate arbitration programs for resolution of disputes between SRO members and