[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