[Federal Register Volume 62, Number 90 (Friday, May 9, 1997)]
[Notices]
[Pages 25683-25685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12079]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38566; File No. SR-NASD-97-23]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Relating to 
Registration Category, Study Outline and Specification for Series 72 
Examination, Government Securities Representative.

May 1, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ notice is hereby given that on April 11, 1997, the NASD 
Regulation, Inc. (``NASD Regulation'') filed with the Securities 
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. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. Sec. 78s(b)(1) (1988).
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I. Self-Regulatory Organizations Statement of the Terms of Substance of 
the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Act, NASD 
Regulation is herewith filing a proposed rule change to create a new 
category of representative registration, the Government Securities 
Representative (Series 72), and to conform the registration 
requirements of the existing Registered Options Representative (Series 
42) category to take into consideration this new category. Below is the 
text of the proposed rule change. Proposed new language is in italics; 
proposed deletions are in brackets.
Rule 1032. Categories of Representative Registration
[(d) Registered Options Representative]
    [Each person associated with a member whose activities in the 
investment banking or securities business include the solicitation and/
or sale of option contracts shall be required to be certified as a 
Registered Options Representative and to pass an appropriate 
certification examination for such or an equivalent examination 
acceptable to the Association. Registered Options Representatives 
qualified in either put or call options shall not engage in both put 
and call option transactions until such time as they are qualified in 
both such options. Members shall be required to report to

[[Page 25684]]

the Association the names of any associated persons certified as 
Registered Options Representatives pursuant to an examination approved 
by the Association. Registered Options Representatives must also be 
qualified with the Association as either General Securities 
Representatives or as Limited Representatives--Corporate Securities; 
provided, however, Registered Options Representatives of members that 
are members of a national securities exchange which has standards of 
approval acceptable to the Association may be deemed to be approved by 
and certified with the Association, so long as such representatives are 
approved by an registered with such exchange.]

(d) Limited Representative--Options

    (1) Each person associated with a member who is included within the 
definition of a representative as defined in Rule 1031 may register 
with the Association as a Limited Representative--Option if:
    (A) such person's activities in the investment banking or 
securities business of the member involve the solicitation or sale or 
option contracts, including option contracts on government securities 
as that term is defined in Section 3(a)(42)(D) of the Act, for the 
account of a broker, dealer or public customer; and
    (B) such person passes an appropriate qualification examination for 
Limited Representative--Options.
    (2) Each person seeking to register and qualify as a Limited 
Representative--Options must, concurrent with or before such 
registration may become effective, become registered pursuant to the 
Rule 1032 Series, either as a Limited Representative--Corporate 
Securities or Limited Representative--Government Securities.
    (3) A person registered as a Limited Representative--Options shall 
not be qualified to function in any area not prescribed by subparagraph 
(1)(A) hereof.
* * * * *

(g) Limited Representative--Government Securities

    (1) Each person associated with a member who is included within the 
definition of a representative as defined in Rule 1031 may register 
with the Association as a Limited Representative--Government Securities 
if:
    (A) such person's activities in the investment banking or 
securities business involve the solicitation, purchase or sale of 
``government securities,'' as that term is defined in Section 3(a)(42) 
(A) through (C) of the Act, for the account of a broker, dealer or 
public customer, and
    (B) such person passes an appropriate qualification examination for 
Limited Representative--Government Securities.
    (2) A person registered solely as a Limited Representative--
Government Securities shall not be qualified to function in any area 
not prescribed by subparagraph (1)(A) hereof.
    (3) A person who has been performing the functions of a Limited 
Representative--Government Securities on or before [insert date two 
years before effective date of this rule change] may register as such 
without first meeting the requirement of subparagraph (1)(B) above 
unless (A) such person is currently subject to a statutory disqualified 
as defined in Section 3(a)(39) of the Act or (B) during the past ten 
years before the effective date of that requirement was the subject of 
a suspension or fine of $5,000 or more by the Association, the 
Securities and Exchange Commission, the Commodity Futures Trading 
Commission, state securities commission, foreign financial regulatory 
authority, or any other regulatory organization responsible for the 
investment banking or securities business.
[1112. Registration of Representatives]
    [All persons associated with a member who are to function as 
government securities representatives who have not previously been 
registered shall be registered as such with the Association.

(a) Definition of Representative

    Persons associated with a member, including assistant officers 
other than principals, who are engaged in the government securities 
business for the member including:
    (1) underwriting, trading or sales of government securities;
    (2) financial advisory or consultant services for issuers in 
connection with the issuance of government securities;
    (3) research or investment advice, other than general economic 
information or advice, with respect to government securities in 
connection with the activities described in subparagraphs (1) and (2) 
above;
    (4) activities other than those specifically mentioned that involve 
communication, directly or indirectly, with public investors in 
government securities in connection with the activities described in 
subparagraphs (1) and (2) above; are designated as representatives.

(b) Notification of Representative Status

    A member shall promptly notify the Association of the assumption by 
an individual not previously registered with the member of 
representative status on the form designated by the Board of Governors 
accompanied by the applicable fees.

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

    The National Association of Securities Dealers, Inc. (``NASD'') is 
responsible under Section 15A(g)(3) of the Act to prescribe standards 
of training, experience and competence for persons associated with NASD 
members. Pursuant to this statutory obligation, NASD Regulation 
administers examinations developed by NASD Regulation and other self-
regulatory organizations to establish that persons associated with NASD 
members have attained specified levels of competence and knowledge.
    The Government Securities Act of 1986 (``1986 Act''), an amendment 
to the Act, required sole government securities broker-dealers to 
register with the SEC for the first time. The 1986 Act also granted the 
NASD authority to require associated persons of such firms to register 
with the NASD. However, the 1986 Act did not allow the NASD to apply 
its qualification examination standards to associated persons of 
government securities broker-dealers. Since January 1989, such 
associated persons have been required to register as Government 
Securities Representatives or Government Securities Principals, but 
have not been required to pass a qualification examination. Under a 
1993 amendment to the Act, the NASD was given authority to apply its 
qualification standards to Government Securities Representatives and 
Government Securities Principals.
    The proposed rule change will establish an examination 
qualification

[[Page 25685]]

requirement for government securities representatives. A person may 
qualify to sell government securities by passing the existing Series 7 
examination or the new Series 72 examination. The proposed rule change 
replaces current Rule 1112, which was adopted in 1989. The proposed 
rule change is consistent with the format of the other NASD limited 
registration categories.
    NASD Regulation has determined to adopt a ``grandfather'' provision 
for this examination requirement. Persons who have been registered with 
the NASD as a government securities representative for two years prior 
to the effective date of the rule will not have to take the examination 
unless they are subject to a statutory disqualification as defined in 
Section 3(a)(39) of the Act or in the last ten years have been subject 
to a suspension or fine of $5,000 or more imposed by a securities or 
commodities regulator. This provision is consistent with previous 
practice in permitting persons who have achieved a certain level of 
experience in a segment of the securities industry to be 
``grandfathered'' if a new qualification examination is adopted for 
that particular industry segment.
    Currently, individuals who sell OTC options on government 
securities are not required to pass a qualification examination. The 
proposed rule change also will amend Rule 1032(d) for Registered 
Options Representatives to establish registration and qualification 
requirements for such individuals, and to add the Series 72 Examination 
to the list of those examinations which prequalify an individual to 
take the Limited Representative--Options (Series 42) Examination. A 
person selling OTC options on government securities would be required 
to pass the new Series 72 examination and the existing Series 42 
examination. This proposed rule change will change the language of Rule 
1032(d) Registered Option Representative so that it is similar to the 
language used in the other registration categories in Rule 1032.
    The Series 72 examination will consist of one hundred (100) 
questions. 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 Sections 15A(b)(6) and 15A(g)(3) 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.

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

    Wriftten 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 NASD consents, 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, N.W., Washington, D.C. 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. Sec. 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. NASD-97-23 and should be 
submitted by May 30, 1997.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\2\
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    \2\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-12079 Filed 5-8-97; 8:45 am]
BILLING CODE 8010-01-M