Three of the world’s biggest brokerage houses have been sanctioned by the NASD Inc. for failing to turn over evidence in arbitration cases.

The NASD announced Monday that it has censured and fined Citigroup Global Markets Inc. (formerly Salomon Smith Barney), Merrill Lynch, Pierce, Fenner & Smith Inc., and Morgan Stanley DW Inc. US$250,000 each for failing to comply with their discovery obligations in 20 arbitration cases during the period 2002 through 2004.

All three firms must also implement written procedures designed to ensure that future violations that lead to sanctions are elevated to senior officers for review and appropriate corrective action.

These cases arise from arbitrations conducted before NASD Dispute Resolution Inc. and third-party arbitration panels. In these cases, arbitration panels cited the firms for failing to produce documents to the disgruntled investors, as required by rules involving document discovery. In each case, after finding that the firms failed to fully comply with their discovery obligations – even after arbitration panels had issued orders compelling that production – the panels sanctioned the firms in amounts as high as $52,000.

In the cases announced Monday, NASD found that by failing to comply with their discovery obligations, each of the firms violated NASD’s rule requiring that securities firms adhere to just and equitable principles of trade. Citigroup, Merrill Lynch and Morgan Stanley agreed to the sanctions while neither admitting nor denying the allegations. Citigroup was involved in six cases, and Merrill Lynch and Morgan Stanley were each involved in seven cases.

“NASD is committed to making our arbitration forum faster, fairer, and less expensive than court procedures,” said Robert Glauber, chairman and CEO. “We cannot deliver on this commitment if firms fail to produce all required documents in a timely manner to opposing parties. We will not tolerate any failure by NASD-regulated firms to cooperate fully in the arbitration process and we will bring enforcement actions as necessary to assure full compliance with our arbitration code.”