[Federal Register Volume 62, Number 81 (Monday, April 28, 1997)]
[Notices]
[Pages 22984-22986]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10794]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38534; File No. SR-NASD-97-21]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the National Association of Securities Dealers, Inc. Relating 
to Registration Category, Study Outline and Specifications for Series 
55 Examinations, Equity Trader

April 21, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 26, 1997, the NASD Regulation, Inc. (``NASD Regulation'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by NASD Regulation. On 
April 11, 1997, NASD Regulation submitted Amendment No. 1 to the 
proposed rule change.\3\ The Commission is publishing

[[Page 22985]]

this notice to solicit comments on the proposed rule change, as 
amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240. 19b-4.
    \3\ See letter from Craig L. Landauer, Associate General 
Counsel, NASD Regulation to Yvonne Fraticelli, Attorney, Division of 
Market Regulation (``Division''), SEC, dated April 11, 1997 
(``Amendment No. 1''). In Amendment No. 1, NASD Regulation clarified 
that individuals who have been ``grandfathered'' from taking either 
the General Securities Representative Examination (Series 7) or the 
Limited Representative-Corporate Securities Examination (Series 62) 
will not be required to take either examination to qualify to take 
the Series 55 examination currently proposed by NASD Regulation.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The National Association of Securities Dealers, Inc. (``NASD'' or 
``Association'') proposes to amend NASD Rule 1032, ``Categories of 
Representative Registration,'' to add a new registration category, 
Equity Trader (Series 55). Below is the text of the proposed rule 
change. Proposed new language is italicized.

Rule 1032. Categories of Representative Registration

(f) Limited Representative--Equity Trader

    (1) Each person associated with a member who is included within the 
definition of a representative as defined in Rule 1031 must register 
with the Association as a Limited Representative-Equity Trader if, with 
respect to transactions in equity, preferred or convertible debt 
securities effected otherwise than on a securities exchange, such 
person is engaged in proprietary trading, the execution of transactions 
on an agency basis, or the direct supervision of such activities, other 
than any person associated with a member whose trading activities are 
conducted principally on behalf of an investment company that is 
registered with the Securities and Exchange Commission pursuant to the 
Investment Company Act of 1940 and that controls, is controlled by or 
is under common control, with the member.
    (2) Before registration as a Limited Representative--Equity Trader 
as defined in subparagraph (1) hereof may become effective, an 
applicant must:
    (A) be registered pursuant to Rule 1032, either as a General 
Securities Representative or a Limited Representative--Corporate 
Securities: and
    (B) pass an appropriate Qualification Examination for Limited 
Representative--Equity Trader. Any person who has filed an application 
to take this examination by (date thirty (30) days after the effective 
date of this rule) must pass the examination by (24 months after 
effective date above). Any person who is eligible for this extended 
qualification period and who fails this examination during such twenty-
four (24) month time period must wait (30 days from the date of failure 
to take the examination again. Any person who files an application to 
take this qualification examination after (date thirty (30) days after 
the effective date of this rule) must pass this examination before 
conducting such activities as described in paragraph (f)(1) above. In 
no event may a person who is eligible for the extended qualification 
period function as an Equity Trader beyond the 24-month period without 
having successfully passed the appropriate qualification examination.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD Regulation included 
statements concerning the purpose of and basis for the proposed rule 
change and discussed any comments it received on the proposed rule 
change. The text of these statements may be examined at the places 
specified in Item IV below. NASD Regulation has prepared summaries, set 
forth in Sections A, B, and C below, of the most significant aspects of 
such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    It is the NASD's responsibility under Section 15A(g)(3) of the Act 
\4\ to prescribe standards of training, experience and competence for 
persons associated with NASD members. Pursuant to this statutory 
obligation, the NASD has developed examinations and administers 
examination developed by other self-regulatory organizations designed 
to establish that persons associated with NASD members have attained 
specified levels of competence and knowledge.
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    \4\ 15 U.S.C. 78o-3(g)(3).
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    In 1995, the NASD's Market Surveillance staff and the NASD's 
National Business Conduct Committee (``NBCC'') became concerned about 
the escalating number of rule violations by traders conducing market 
making and principal trading functions in both the Nasdaq Market and 
over-the-counter (``OTC'') equity trading markets. With the view that 
better training and qualification of traders was necessary, the NASD's 
Market Surveillance staff conducted an assessment of how traders are 
prepared to carry out the role of trading and market making in equity 
securities by visiting member firms and discussing the issue with 
several senior managers of the Association and several members of the 
NASD's Market Surveillance Committee. In particular, the NASD staff 
discussed with these parties a qualification examination requirement 
designated specifically for traders. The parties contacted supported 
the establishment of a qualification examination for traders.
    This proposed rule change will establish a registration category 
(Series 55) and qualification examination for equity traders. Paragraph 
(1) of proposed NASD Rule 1032(f) defines the scope of the requirement 
to include market makers, agency traders and proprietary traders in 
equity or convertible debt securities. The inclusion of convertible 
debt securities \5\ reflects that fact that, under certain conditions, 
convertible debt securities trade similarly to equity security and many 
of the same regulatory issues and concerns apply to trading in both 
types of securities.
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    \5\ Pursuant to a telephone conversation between Craig 
L.Landauer, Associate General Counsel, NASD Regulation and Yvonne 
Fraticelli, Attorney, Division, SEC, on April 7, 1997, Commission 
staff has replaced the word ``exclusion'' with the word 
``inclusion.''
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    This paragraph also contains an exemption for traders whose 
principal activities are executing orders on behalf of an affiliated 
investment company which is registered with the Commission under the 
Investment Company Act of 1940. This exemption is intended to reflect 
the reality that such traders are generally in the same position as 
buy-side professionals employed within investment companies, who would 
not be subject to the examination requirement.
    Paragraph (2) of proposed NASD Rule 1032(f) establishes that an 
individual must be registered as either a Series 7 or Series 62 
representative in addition to passing the Series 55 Examination before 
he can be registered in the Series 55 category.\6\ This requirement is 
consistent with the requirements applicable to other specialized 
registration categories.
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    \6\ Under the proposal, individuals ``grandfathered'' from 
taking either the Series 7 or Series 62 examinations will not be 
required by the proposal to take either examination to qualify to 
take the proposed Series 55 examination. See Amendment No. 1, supra 
note 3.
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    Paragraph (2) does not have a ``grandfather'' provision. The NASD 
believes that such a provision is not appropriate due to the uneven 
knowledge of existing rules among traders as well as the large number 
of rule and structural changes occurring in the equity markets. The 
proposed rule provides that presently registered traders must pass the 
qualification examination within two years of the effectiveness of the 
rule. The two year time period is intended to provide

[[Page 22986]]

traders sufficient time to study and pass the examination. This time 
period also takes into consideration that some traders with many years 
of experience in the securities industry may not have been required to 
take either the Series 7 or Series 62 examinations.
    This examination will consist of ninety questions, and candidates 
will have three hours to complete the examination. The passing score 
for the examination will be 70%.
    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) \7\ and 15A(g)(3) \8\ of the Act in 
that the NASD is required to prescribe standards of training, 
experience and competence for persons associated with NASD members. 
Pursuant to this statutory obligation, the NASD develops and 
administers examinations to establish that persons associated with NASD 
members have attained specified levels of competence and knowledge.
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    \7\ 15 U.S.C. 78o-3(b)(6).
    \8\ 15 U.S.C. 78o-3(g)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD Regulation does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) As the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consent, the Commission will:
    A. By order approve such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
NASD. All submissions should refer to File No. SR-NASD-97-21 and should 
be submitted by May 19. 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-10794 Filed 4-25-97; 8:45 am]
BILLING CODE 8010-01-M