What’s in a Name? Ask the NASD

The NYSE and its former boss Dick Grasso were heavily criticized over salary and benefits to Grasso of well over $100 million. Many thought it unconscionable for the head of a self-regulatory body to earn that kind of money. For that reason, and so it could play ball in the international arena, the NYSE simply bribed all 5000+ members of the NASD $35,000 each to vote to take over its regulatory functions.

The National Association of Securities Dealers, Inc. is an association. Its members are securities dealers. Yet, it does not like its name and wants to change it. After all, it sounds strange for an association of securities dealers to be the primary regulator of securities dealers – too much like a fox in charge of a hen house.

The NYSE takeover seemed a perfect excuse to change the name. So a few folks at the NASD thought about names that would sound more like it was something other than an association of securities dealers. After not so careful thought, the NASD came up with “The Securities Industry Regulatory Authority”, or SIRA.

Not too bad, except Webster’s defines an “authority” as “a governmental agency or corporation to administer a revenue-producing public enterprise, i.e. ‘the transit authority’.” In reality, the NASD is a non-profit corporation owned by its members. Basically, it has the same structure as a country club. Be that as it may, SIRA was announced as the new name of the NASD.

This name was not so carefully conceived because the NASD soon drew criticism for “SIRA.” Even the slightest modicum of research would have revealed “sira” or “sirah” as a well recognized Islamic term for the study of the life of Muhammad. (What if, for example, the acronym “GOSPEL” had been selected?)

A test balloon was sent up for “The Securities Industry and Financial Markets Association,” which semed ok — until abbreviated “Sifma” which, said the NYSE Chief Executive, was reminiscent of “certain unpleasant diseases.” Nor did it contain the misnomer “authority,” which was decidedly a keeper. Eventually, “Financial Industry Regulatory Authority” or “FINRA” was selected. It was a healthy name that did not offend any Constitutionally protected class and sufficiently obscured that the group is actually an association of securities dealers.

Well — Oops! What were they thinking, says The National Association of Personal Financial Advisors (NAPFA) claiming the name will cause confusion. Securities dealers are dealers in securities and financial advisors are wholly different animals, not regulated by the NASD but by state regulators and the SEC.

Actually, these financial advisors have a point. For example, you have a problem with a “financial advisor” who would you call? If you called the “Financial Industry Regulatory Authority,” they would tell you “wrong number.” NAPFA said NASD made a “grave error in judgment,” since it would be insinuating it has “authority” over everyone in the financial industry, which is simply not true.

Back to the drawing board? Not likely! If the NASD has one quality it is arrogance. Offending 1.4 billion Islamic people in the world is one thing, but admitting yet another mistake is just not going to happen. As for confusion over what FINRA is or does … well, isn’t that the whole reason for the name change?

During these events CEO of the NASD, Mary Schapiro remarked: “What’s in a name?” Perhaps, Mary, a name might give some indication of what you are, so why not call your organization “The National Association of Securities Dealers?”

Shepherd Smith and Edwards is a securities law firm which represents investors nationwide in claims against securities dealers and investment firms (but rules require us to use our names). Thus, whether you have a problem with a securities dealer or an investment advisor you can call us at 800-259-9010 or contact us via email to arrange a free confidential consultation with one of our attorneys.