The information disclosed by the program is derived from the Central Registration Depository (CRD). The staff are to send any disclosable information to the caller upon request. Scope and Methodology

To obtain information on the accessibility of the NASD Regulation hotline, we interviewed NASD Regulation officials; reviewed NASD Regulation Public Disclosure Program policies and procedures, and related documents; reviewed the results of calls to the hotline requesting disciplinary information; and conducted surveys of hotline callers and state securities regulators. However, these callers constituted less than 1 percent of the estimated 41 million U.S. investors who directly owned shares in a publicly traded company or a mutual fund as of 1992. NASD Regulation also does not inform hotline callers of the types of information that are not disclosed, unless the callers ask. Hotline Did Not Always Provide Callers With All Disclosable Information

NASD Regulation disclosed information in accordance with its current disclosure policies in 87 of the 100 cases we reviewed. The effectiveness of the NASD Regulation hotline greatly depends on NASD Regulation’s willingness to fully inform investors of their brokers’ disciplinary records. provide hotline callers with all the relevant disciplinary-related information available in CRD, such as whether a broker is the subject of a customer complaint, a settled arbitration, or a settled civil case; if NASD Regulation does not disclose this additional information, it should at least inform callers that the information is available from most state regulators. GAO Comments

1. 2. 3. 4. 5. 6. 7. We have carefully reviewed every instance in which we use the term “broker” to refer to both broker-dealers and their individual associated persons. 8.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the effectiveness of the National Association of Securities Dealers (NASD) hotline, focusing on: (1) investors' accessibility to the hotline; and (2) whether the information provided by the hotline meets NASD disclosure policies.

What GAO Found

GAO found that: (1) over 300,000 investors have used the NASD Regulation hotline to obtain background information and disciplinary histories on their brokers; (2) less than 1 percent of the investors using the hotline own shares in publicly traded companies or a mutual fund; (3) most investors make investment-related decisions without using the NASD hotline; (4) the hotline does not disclose information related to a broker's involvement in civil cases, arbitration, or customer complaints; (5) these allegations are not disclosed until they are proven; (6) most state securities regulators disclose brokers' disciplinary histories to those investors that request background information; (7) the amount and type of information an investor receives depends on who the investor calls; (8) most of the disclosed information meets NASD disclosure policies; (9) NASD does not routinely verify whether an investor receives all of the information it requested; (10) NASD did not comply with disclosure polices in 13 cases; (11) there were 42 instances in which NASD failed to disclose complete background or all of the disclosable information, and 2 instances in which it disclosed more information than necessary; and (12) NASD Regulation is redesigning its central registration depository (CRD) to provide more accurate and timely disciplinary information.