NASD gets new chairman, rough-talking agenda; financier Roberts sets sights on 'bad-apple brokers.' (National Association of Securities Dealers; Frederic M. Roberts)

The National Association of Securities Dealers last week installed Los Angeles corporate financier Frederic M. Roberts as chairman and hammered out a 1993 agenda designed to increase stock market integrity and weed out "bad-apple brokers."

Roberts, 50, said he is only the third California resident to ever chair the NASD, a self-regulatory agency for the over-the-counter stock market. It has 5,200 member firms and 429,000 registered professionals.

The NASD operates the Nasdaq market, which set record highs in 1992 in terms of share volume and dollar volume of initial public offerings. Total dollar volume on the Nasdaq market through Nov. 30 reached $801.4 billion, up more than 27 percent from the same period the previous year.

Roberts said as NASD chairman his 1993 goals include: a $150 million technological facelift for Nasdaq, changes in the small order execution system, continuing education and assessment for broker-dealers and the introduction of tough new arbitration rules designed to beef up the enforcement division of the NASD.

"I want to leave the legacy of a strong, regulated market that can finance the growth of the 1990s," said Roberts. "We are by far the best SRO (self-regulatory organization) in any industry. We know more about wrongdoing in our industry and we know how to catch a crook better than anyone."

Roberts was made chairman of the NASD during a Board of Governors meeting on Jan. 18 in Arizona, after being selected in November.

Roberts is president of F.M. Roberts & Co., a corporate finance company based in Westwood. He said the NASD will begin this year to implement a $150 million technological overhaul, including new mainframe computers, a new communications network and new software. The new system will be designed to handle increased loads in unusual markets, such as the market crash of Oct. 19, 1987.

"The most important thing going on at the NASD is the improvement of technology," said David S. Ruder, outgoing NASD governor and chairman of the Securities and Exchange Commission from 1987-89. "They've always been a leader in technology, now they will continue to be a leader through the year 2000 and beyond."

Roberts said the NASD is in the process of awarding contracts for the system.

"It used to be that people yelled at each other across the trading floor, now they yell at each other through their commuters," said Roberts.

Another key issue will be changes to the Nasdaq small order execution system, which handles purchases up to 1,000 shares, to discourage so-called "SOES bandits," said Roberts.

An SOES bandit operates this way: If Apple Computer is trading at $60.25 a share and good news suddenly comes out forcing the price up, but one trading desk is asleep at the switch and keeps offering the old price.

SOES bandits can automatically and electronically buy up to 1,000 shares from that desk at the lower price, explained an NASD spokesman. This can affect market efficiency.

Roberts said he hopes to work this year to curtail moves by the SEC to loosen reporting requirements for companies interested in selling stock.

"Long-term, these moves are extremely harmful," said Roberts. "When you're dealing with very small companies, information to the investor is critical."

Another focus of the NASD this year will be continuing education and assessment for brokers, said Roberts, though he cautioned assessment may mean an oral exam by industry peers rather than a written test.

Roberts said the NASD will place an even greater emphasis on its arbitration division, and will work to collect from brokers who are fined, even if they leave the securities industry.

Many cases which end up being arbitrated by the NASD involve allegations that a broker churned an investor's account, which can mean making unauthorized trades, falsifying records or purchasing riskier securities than the investor wanted.

During 1992, the NASD fined 484 individuals and broker-dealers, according to a NASD spokesman. In addition, it expelled 32 firms and barred 491 individuals. Eleven firms and 191 individuals were suspended, the spokesman said.

"We're going to hound these guys to their death," said Roberts. "When a bad broker sets foot in this business we want them to know they are up against a tiger."

Roberts complained about recent reports criticizing the NASD for not sufficiently regulating bad brokers and said the NASD will publish new tough arbitration guidelines sometime this year.