[Federal Register Volume 63, Number 6 (Friday, January 9, 1998)]
[Notices]
[Pages 1520-1521]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-539]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39516; File No. SR-NASD-97-21]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Amendment No. 1 by the National Association of Securities 
Dealers, Inc. Relating to Registration Category, Study Outline and 
Specifications for Series 55 Examination, Equity Trader

January 2, 1998.

I. Introduction

    On March 26, 1997, the National Association of Securities Dealers, 
Inc. (``NASD'' or ``Association'') submitted to the Securities and 
Exchange Commission (``SEC'' or ``Commission''), pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 
19b-4 thereunder,\2\ a proposed rule change to adopt a new registration 
category, Equity Trader, and a new examination, Series 55.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The proposed rule change and Amendment No. 1 \3\ were published for 
comment in the Federal Register on April 28, 1997.\4\ One comment was 
received on the proposal.\5\ This order approves the proposal, as 
amended.
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    \3\ See Letter from Craig L. Landauer, Associate General 
Counsel, NASD Regulation, to Yvonne Fraticelli, Esq., Division of 
Market Regulation, Commission, dated April 11, 1997 (``Amendment No. 
1''). In Amendment No. 1, the Association clarified that registered 
representatives who have been ``grandfathered'' from taking the 
General Securities Representative (Series 7) or Limited 
Representative-Corporate Securities Examination (Series 62) will not 
be required to take either examination in order to qualify to take 
the Limited Representative-Equity Trader Examination (Series 55).
    \4\ See Securities Exchange Act Release No. 38534 (April 21, 
1997), 62 FR 22984.
    \5\ See Letter from Dennis Marino, Chairman, and John N. 
Tognino, President, Security Traders Association (``STA''), to 
Jonathan G. Katz, Secretary, Commission, dated June 2, 1997. In its 
letter, the STA supported the proposed Series 55 examination, noting 
that ``[e]ntry qualifications and testing are the foundation for 
building investor confidence in the securities market.''
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II. Description of the Proposal

    The NASD proposes to adopt NASD Rule 1032(f)(1), which will require 
each registered representative who engages in proprietary or agency 
trades of equities, preferred securities or convertible debt 
securities, or who directly supervises such activities, to register as 
a limited representative-equity trader. In order to register as a 
limited representative-equity trader, the representative must be 
registered as a general securities representative or as a limited

[[Page 1521]]

representative-corporate securities, and must pass the Series 55 
examination.\6\ The proposed rule contains an exemption for 
representatives whose principal trading activities involve executing 
orders on behalf of an affiliated investment company which is 
registered with the Commission under the Investment Company Act of 
1940. The Association believes the exemption is appropriate because 
such traders generally are in the same position as buy-side 
professionals employed by investment companies, who would not be 
subject to the examination requirement.
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    \6\ Representatives who have been ``grandfathered'' from taking 
the Series 7 or the Series 62 will not be required to take either 
examination in order to take the Series 55. See Amendment No. 1, 
supra note 3.
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    The proposal provides that presently registered representatives who 
file an application to take the Series 55 within 30 days of the 
effective date of the rule must pass the Series 55 examination within 
two years of the effective date of the rule. A currently registered 
representative who fails to file an application to take the Series 55 
within 30 days of the effective date of the rule must pass the Series 
55 examination before conducting the activities described in NASD Rule 
1032(f)(1). The Association believes that the two-year time period will 
provide representatives with sufficient time to study and to pass the 
Series 55 examination. The Series 55 examination will consist of 90 
questions, and candidates will have three hours to complete the 
examination. The passing score for the examination will be 70%.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\7\ Specifically, the Commission believes the proposal is 
consistent with the requirements of Sections 15(b)(7),\8\ 15A(b)(6),\9\ 
and 15A(g)(3),\10\ of the Act. Section 15(b)(7) \11\ states that a 
registered broker or dealer may not effect any transaction, or induce 
the purchase or sale of, any security unless such broker or dealer 
meets such standards of operational capability and all those associated 
with such broker or dealer meet certain standards of training, 
experience, competence, and such other qualifications as the Commission 
finds appropriate in the public interest or for the protection of 
investors. Section 15A(b)(6) \12\ requires, in relevant part, that the 
rules of a registered national securities association be designed to 
prevent fraudulent and manipulative acts as practices, to promote just 
and equitable principles of trade, and to protect investors and the 
public interests. Section 15A(g)(3) \13\ provide that a registered 
national securities association may deny membership to, or condition 
the membership of, a registered broker or dealer if such broker or 
dealer does not meet the requisite standards of knowledge and 
competence.
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    \7\ In approving this rule, the Commission notes that it has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78o(b)(7).
    \9\ 15 U.S.C. 78o-3(b)(6).
    \10\ 15 U.S.C. 78o-3(g)(3).
    \11\ 15 U.S.C. 78o(b)(7).
    \12\ 15 U.S.C. 78o-3(b)(6).
    \13\ 15 U.S.C. 78o-3(g)(3).
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    The Commission believes that the Series 55 examination will help to 
ensure that registered representatives required to take the examination 
have adequate knowledge of current NASD rules and of the Act. The 
Commission recognizes the importance to investors of the NASD's efforts 
to ensure that registered persons have an appropriate level of 
knowledge and expertise regarding applicable laws and regulations. By 
helping to establish this level of knowledge, the Commission believes 
that the Series 55 examination will help registered representatives 
carry out their responsibilities under the federal securities laws.
    The Commission believes that the proposed examination focuses on 
relevant subject matter in view of changes in applicable laws, rules, 
regulations and industry practices. The Commission further believes 
that the topics covered by the Series 55 examination are appropriate 
and include a reasonably broad range of subject matter. Finally, the 
Commission believes that the two-year time period provided for 
currently registered representatives to pass the examination is 
reasonable and should provide currently registered representatives with 
sufficient time to prepare for the examination.\14\
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    \14\ As noted above, registered persons who file an application 
to take the Series 55 examination within thirty days after the 
effective date of the rule must pass the Series 55 within two years 
of the effective date of the rule.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NASD-97-21), including 
Amendment No. 1, is approved.

    \15\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-539 Filed 1-8-98; 8:45 am]
BILLING CODE 8010-01-M