In Focus

he New York Stock Exchange is launching a wide-ranging investigation of how effectively brokerage firms supervise their brokers. The exchange is not pleased, for example, that Frank Gruttadauria succeeded for so long in orchestrating a major fraud upon investors while working at Lehman Brothers.

One core issue is whether branch office managers should be allowed to be "in production" - that is, to have his own customers. Many brokerage firms do not allow it. Some, like Lehman Brothers, do allow it. The problem is obvious: who is supervising the branch office manager? Most would agree that compliance department employees simply are not as effective as a branch office manager in supervising those in production, especially when the compliance department is off-site.

The NYSE also wants to gain a better understanding of how brokerage firms handle tasks such as change of address requests, letters of authorization, post-office boxes (as the official mailing address for the customer) and investment performance reports. That information should be very interesting.

— James J. Eccleston
FinancialCounsel.com