[Federal Register Volume 60, Number 132 (Tuesday, July 11, 1995)]
[Notices]
[Pages 35757-35759]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16924]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35924; File No. SR-NASD-95-22]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Accelerated Approval to Proposed Rule 
Change Relating to Extending the Continuing Education Requirement for 
Registered Persons to Government Securities Principals and 
Representatives

June 30, 1995.

I. Introduction

    On May 11, 1995, the National Association of Securities Dealers, 
Inc. 

[[Page 35758]]
(``NASD'') submitted to the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to amend Schedule C of the NASD By-Laws to include government 
securities principals and representatives in the continuing education 
requirement for registered persons.

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change was published for comment in the Federal 
Register on June 9, 1995.\3\ One comment letter was received on the 
proposed rule change,\4\ to which the NASD responded.\5\ This order 
approves the proposed rule change on an accelerated basis.

    \3\ See Securities Exchange Act Release No. 35820 (June 7, 
1995), 60 FR 30624.
    \4\ Letter from William S. Crews, Senior Vice President/
Securities Compliance Manager, Wachovia Investments, Inc., to 
Secretary, Commission, dated June 20, 1995 (``Comment Letter'').
    \5\ Letter from Craig L. Landauer, Associate General Counsel, 
NASD, to Francois Mazur, Attorney, Division of Market Regulation, 
Commission, dated June 28, 1995 (``NASD Response'').
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II. Description of the Proposal

    The purpose of the NASD's proposal is to make an amendment to the 
definition of ``registered person'' contained in Section (1)(e) of Part 
XII of Schedule C of the NASD By-Laws, Continuing Education 
Requirements.\6\ The effect of the proposed change will be to require 
government securities principals and representatives who are designated 
in Part XI of Schedule C of the NASD By-Laws to participate in the 
continuing education program.\7\ Such persons, however, were 
inadvertently excluded from the definition of ``registered person'' 
contained in Section (1)(e) of Part XII of Schedule C of the NASD By-
Laws and approved by the Commission on February 8, 1995.\8\

    \6\ On February 8, 1995, the Commission approved proposals by 
the self-regulatory organizations establishing a two-part continuing 
education program that requires uniform periodic training for 
registered persons in regulatory matters (``Regulatory Element'') 
and job and product-related subjects (``Firm Element''). Securities 
Exchange Act Release No. 35341 (February 8, 1995), 60 FR 8426.
    \7\ Part XI of Schedule C of the NASD By-Laws currently requires 
all persons associated with a member not previously registered as a 
principal who are to function as government securities principals to 
be registered as government securities principals; and all persons 
associated with a member who are to function as government 
securities representatives who have not previously been registered 
to register as government securities representatives. NASD By-Laws, 
Schedule C, Part XI, Secs. 1 & 2.
    \8\ Securities Exchange Act Release No. 35341, supra note 6.
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III. Comment Letter

    The Comment Letter on the proposed rule change raises two concerns. 
First, the commenter states that given that government securities 
principals and representatives are not required currently to undergo 
professional qualification by examination or experience, such 
individuals should not be required to participate in the continuing 
education program. Second, the commenter believes that the aggregate 
training results reported to firms will be skewed by the performance of 
such individuals because they will not have prepared for a professional 
qualification examination, and thus may lack industry knowledge.
    The NASD Response addresses both of the commenter's concerns. The 
NASD notes that the Government Securities Act Amendments of 1993 (``GSA 
Amendments'') removed from Section 15A of the Act the restrictions on 
the NASD's authority to regulate its members' transactions in 
government securities.\9\ Consequently, requiring government securities 
principals and representatives to participate in the continuing 
education program is a first step in such persons being subject to 
regulation comparable to that applicable to other securities industry 
professionals. Moreover, the NASD states that it is desirable for all 
registered persons to be subject to the continuing education 
requirements now, rather than waiting for approval of other rules 
affecting government securities registered persons. In response to the 
commenter's second concern, the NASD states that the aggregate training 
results that it will provide to its members will be broken-down by 
registration categories.\10\

    \9\ Compare Sections 15A (f) & (g) of the Act, 15 U.S.C. 780-3 
(f) & (g), with text prior to enactment of the GSA Amendments.
    \10\ The categories that will be provided will be Series 6, 
Series 7, all principal registration categories, and ``other.'' 
Government securities principals and representatives would fall 
within the ``other'' category.
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IV. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to the NASD, and, in particular, the requirements 
of Section 15A and the rules and regulations thereunder. The Commission 
believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act because the proposed change 
to Schedule C of the By-Laws will improve the standards of training, 
experience, and competence for persons associated with NASD members.
    As noted in the NASD Response, the GSA Amendments removed from 
Section 15A of the Act the limitations on the ability of the NASD to 
regulate its members' transactions in government securities. The 
Commission believes that requiring government securities principals and 
representatives to participate in the continuing education program is 
appropriate in view of the role these persons play in the market for 
government securities. The continuing education program has been 
designed to impart knowledge regarding existing standards and should 
ensure that government securities principals and representatives become 
aware of new regulatory developments and concerns.
    The Commission also believes that the commenter's concerns have 
been adequately addressed. While the Commission recognizes that 
government securities principals and representatives have not yet been 
required to undergo qualification examinations, the Commission believes 
that any concerns that thereby may arise are outweighed by the benefits 
to be derived from the participation of such persons in the continuing 
education program. It should be emphasized that the Regulatory Element, 
which addresses a variety of compliance, ethics, and sales practice 
issues, is not a test. Rather, the Regulatory Element requires that a 
person complete a prescribed training program, which is administered 
using computer-based interactive training techniques that provide 
immediate feedback as a person works through a set of scenarios and 
problems.
    The aggregated information obtained from the Regulatory Element is 
one of several factors that a firm should consider in evaluating its 
training needs when complying with the Firm Element. Moreover, as 
stated in the NASD Response, firms will be provided with a registration 
category break-down of the aggregated information.
    Pursuant to Section 19(b)(5) of the Act,\11\ the Commission has 
consulted with and considered the views of the Department of the 
Treasury (``Treasury'').\12\ The Treasury supports the NASD's proposal 
that the continuing education program apply to government 

[[Page 35759]]
securities principals and representatives.\13\

    \11\ 15 U.S.C. 78s(b)(5).
    \12\ Section 19(b)(5) of the Act states generally that the 
Commission shall consult with and consider the views of the 
Secretary of the Treasury prior to approving a proposed rule filed 
by a registered securities association that primarily concerns 
conduct related to transactions in government securities.
    \13\ Telephone conversation between Donald Hammond, Assistant 
Director, Government Securities Regulation Staff, Treasury, and Glen 
Barrentine, Senior Counsel, Division of Market Regulation, 
Commission, on June 29, 1995.
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    Finally, the Commission finds good cause for approving the proposed 
rule change prior to the thirtieth day after the date of publication of 
notice of filing thereof in the Federal Register. The Commission 
believes that accelerated approval of the proposal is appropriate in 
order to allow the uniform implementation of the continuing education 
program on July 1, 1995. The Commission notes that the 15 day notice 
period provided for in the notice has expired. The Commission notes 
further that the rule change establishing the continuing education 
program was noticed in the Federal Register for the full statutory 
period \14\ and that on August 15, 1994, the NASD published Special 
Notice to Members 94-59 to request comment regarding the NASD's then 
draft rules to create a mandated continuing education program for the 
securities industry. As a result, commentators have had an extensive 
opportunity to comment on the requirements of the continuing education 
program.

    \14\ See Securities Exchange Act Release No. 35102 (December 15, 
1994), 59 FR 65563.
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASD-95-22) is approved.

    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\

    \16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 95-16924 Filed 7-10-95; 8:45 am]
BILLING CODE 8010-01-M