[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10451-10456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-850]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51240; File Nos. SR-NASD-2005-022; SR-NYSE-2005-12]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Changes by the National Association of 
Securities Dealers, Inc. To Provide an Exemption From the Research 
Analyst Qualification Examination for Certain Associated Persons Who 
Prepare Technical Research Reports and the New York Stock Exchange, 
Inc. Relating to an Alternative Qualification Standard for the Research 
Analyst Qualification Examination Requirement for Technical Analysts

February 23, 2005.
    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 January 27, 2005 the New York Stock Exchange (``NYSE'' or the 
``Exchange''), and on February 4, 2005, the National Association of 
Securities Dealers, Inc. (``NASD''), filed with the Securities and 
Exchange Commission (``SEC'' or ``Commission'') the proposed rule 
changes as described in items I, II, and III below, which items have 
been prepared by the respective self-regulatory organizations 
(``SROs''). The SROs have designated the proposed rule changes as 
constituting a stated policy, practice, or interpretation with respect 
to the meaning, administration, or enforcement of an existing rule 
series under paragraph (f)(1) of Rule 19b-4 under the Act,\3\ which 
renders the proposals effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule changes from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

I. Self-Regulatory Organizations' Statements of the Terms of Substance 
of the Proposed Rule Changes

A. NASD

    NASD is filing with the Securities and Exchange Commission a 
proposed rule change to amend NASD Rule 1050 to provide for an 
exemption from the analytical portion of the Research Analyst 
Qualification Examination (Series 86) for certain applicants who 
prepare only ``technical research reports'' and have passed Levels I 
and II of the Chartered Market Technician (``CMT'') certification 
examination administered by the Market Technicians Association 
(``MTA'').
    Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are in brackets.
* * * * *

1050. Registration of Research Analysts

    (a) All persons associated with a member who are to function as 
research analysts shall be registered with NASD. Before registration as 
a Research Analyst can become effective, an applicant shall:
    (1) be registered pursuant to Rule 1032 as a General Securities 
Representative; and
    (2) pass a Qualification Examination for Research Analysts as 
specified by the Board of Governors.\4\
---------------------------------------------------------------------------

    \4\ Correspondence between SEC staff and NASD staff.
---------------------------------------------------------------------------

    (b) For the purposes of this Rule 1050, ``research analyst'' shall 
mean an associated person who is primarily responsible for the 
preparation of the substance of a research report or whose name appears 
on a research report.
    (c) Upon written request pursuant to the Rule 9600 Series, NASD 
will grant a waiver from the analytical portion of the Research Analyst 
Qualification Examination (Series 86) upon verification that the 
applicant has passed:
    (1) Levels I and II of the Charter Financial Analyst (``CFA'') 
Examination; or
    (2) if the applicant functions as a research analyst who prepares 
only technical research reports as defined in paragraph (e), Levels I 
and II of the Chartered Market Technician (``CMT'') Examination; and
    (3) has either [(1)] functioned as a research analyst continuously 
since having passed the Level II CFA or CMT examination or [(2)] 
applied for registration as a research analyst within two years of 
having passed the Level II CFA or CMT examination.
    (d) An applicant who has been granted [such] an exemption pursuant 
to paragraph (c) still must become registered as a General Securities 
Representative and then complete the regulatory portion of the Research 
Analyst Qualification Examination

[[Page 10452]]

(Series 87) before that applicant can be registered as a Research 
Analyst.
    (e) For the purposes of paragraph (c)(2), a ``technical research 
report'' shall mean a research report, as that term is defined in Rule 
2711(a)(8), that is based solely on stock price movement and trading 
volume and not on the subject company's financial information, business 
prospects, contact with subject company's management, or the valuation 
of a subject company's securities.
* * * * *

B. NYSE

    The NYSE hereby proposes an interpretation to Rule 344 to establish 
an alternative qualification standard for the Research Analyst 
Qualification Examination for Technical Analysts. Below is the text of 
the proposed rule change. Proposed new language is italicized; proposed 
deletions are in brackets.

Rule 344 Research Analysts and Supervisory Analysts/01 Research 
Analysts

* * * * *

Exemptions

    Successful completion of Levels I and II of the Charter Financial 
Analyst (``CFA'') Examination administered by the CFA Institute allows 
a Research Analyst candidate to request an exemption from Part I 
(Series 86) of the Research Analyst Qualification Examination. If an 
exemption is granted for Part I (Series 86), a candidate will be 
qualified as a Research Analyst after passing Part II (Series 87) 
[only] and the prerequisite examination (i.e., Series 7, 17, or 37/38 
examinations).
    Successful completion of Levels I and II of the Chartered Market 
Technician Program (``CMT'') administered by the Market Technician 
Association (``MTA'') allows a Research Analyst candidate who prepares 
only technical research reports to request an exemption from Part I 
(Series 86) of the Research Analyst Qualification Examination. If an 
exemption is granted for Part I (Series 86), a candidate will be 
qualified as a Research Analyst only after passing Part II (Series 87) 
and the prerequisite examination (i.e., Series 7, 17, or 37/38 
examinations).
    To qualify for a CFA or CMT exemption a Research Analyst candidate 
must have: (i) completed the CFA [Part]Level II or CMT Level II within 
two years of application for registration or (ii) functioned as a 
research analyst continuously since having passed the CFA [Part]Level 
II or CMT Level II. Applicants that have completed the CFA [Part]Level 
II or CMT Level II that do not meet criteria (i) or (ii) may where good 
cause is shown based upon previous related employment experience make a 
written request to the Exchange for an exemption.
    A technical research report is a research report as defined in Rule 
472.10(2) that is based solely on stock price movement and trading 
volume and not on the subject company's financial information, business 
prospects, contact with the subject company's management, or the 
valuation of a subject company's securities.
* * * * *

II. Self-Regulatory Organizations' Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, NASD and the NYSE included 
statements concerning the purpose of and basis for the proposed rule 
changes. The text of these statements may be examined at the places 
specified in item IV below. NASD and the NYSE have prepared summaries, 
set forth in sections A, B, and C below, of the most significant 
aspects of such statements.

A. Self-Regulatory Organizations' Statements of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. NASD's Purpose
    NASD Rule 1050 requires an associated person who functions as a 
research analyst to register as such with NASD and pass a qualification 
examination. Rule 1050 is intended to ensure that research analysts 
possess a certain competency level to perform their jobs effectively 
and in accordance with applicable rules and regulations. In the context 
of this requirement, Rule 1050 defines ``research analyst'' as ``an 
associated person who is primarily responsible for the preparation of 
the substance of a research report or whose name appears on a research 
report.'' The term ``research report'' in Rule 1050 has the meaning as 
defined in Rule 2711(a)(8): ``a written or electronic communication 
that includes an analysis of equity securities of individual companies 
or industries, and that provides information reasonably sufficient upon 
which to base an investment decision.''
    Pursuant to Rule 1050, and in conjunction with the NYSE, NASD has 
implemented the Research Analyst Qualification Examination (Series 86/
87). The examination consists of an analysis part (Series 86) and a 
regulatory part (Series 87). Prior to taking either the Series 86 or 
87, a candidate also must have passed the General Securities Registered 
Representative Examination (Series 7), the Limited Registered 
Representative (Series 17), or the Canada Module of Series 7 (Series 37 
or 38). Persons who were functioning as research analysts on the 
effective date of March 30, 2004, and submitted a registration 
application to NASD by June 1, 2004, have until April 4, 2005, to meet 
the registration requirements.
    Rule 1050 provides an exemption from the Series 86 examination for 
an applicant that has passed Levels I and II of the Chartered Financial 
Analyst (``CFA'') examination and has either (1) functioned 
continuously as a research analyst since having passed Level II of the 
CFA examination or (2) passed Level II of the CFA examination within 
two years of application for registration as a research analyst.
    The Series 86 examination consists of 100 multiple-choice questions 
that test fundamental analysis and valuation of equity securities. In 
contrast, technical research is a discipline that eschews fundamental 
analysis of companies and valuation of their securities and instead 
focuses on stock price movements and trading volume. For the purposes 
of Rule 2711, technical research of securities is treated the same as 
fundamental research because the same conflicts that the rule addresses 
can exist, and investors similarly benefit from the required 
disclosures under the rule, including, for example, price charts. 
However, the content of the Series 86 examination focuses exclusively 
on fundamental analysis and does not test technical research concepts.
    The MTA and CMT. The MTA was established in 1973 and began the 
development of the CMT examination program in 1985. The program was 
developed by conducting job analysis surveys and working with a group 
of subject matter experts to determine the tasks and knowledge required 
to perform the job of a technical research analyst.
    MTA first administered the exam in 1988. Through 2002, MTA relied 
on outside consultants to revise and update the examination program. 
According to the MTA, these consultants also contributed to the 
development of the CFA examination program. In 2002, the MTA retained 
the Chauncey Group \5\ to manage the CMT Examination Program. As part 
of its review, Chauncey utilized

[[Page 10453]]

subject matter and testing experts to review the exam and developed one 
form of each examination for the past three administrations. In 
addition, the MTA retained Chauncey to conduct a job analysis study, 
otherwise referred to as a body of knowledge study. Such studies are 
conducted periodically to ensure that the existing job analysis/body of 
knowledge reflects current practice.
---------------------------------------------------------------------------

    \5\ Chauncey recently merged with Thomson Prometric, and is now 
known as Thomson Prometric.
---------------------------------------------------------------------------

    In sum, the MTA has subjected its examination program to standard 
testing practices that includes job analysis studies and regular 
updating of the CMT examination in consultation with content experts. 
These activities conform to the Standards for Educational and 
Psychological Testing (1999) \6\ that were developed jointly by the 
American Psychological Association, the American Educational Research 
Association, and the National Council on Measurement in Education. 
These same standards are followed for the development and maintenance 
of NASD qualification examinations.
---------------------------------------------------------------------------

    \6\ The Standards for Educational and Psychological Testing is a 
technical guide that provides criteria for evaluating tests, testing 
practices and the effects of test use.
---------------------------------------------------------------------------

    NASD has reviewed descriptions of the subject matter that is 
covered on the CMT examination and compared it to the subject matter 
that is covered on the Series 86 examination. The results of the review 
indicate that the subject matter is different. As such, the Series 86 
examination does not test for the job functions identified by the MTA 
as applicable to technical analysts. In addition, staff has analyzed 
the process in which the MTA has developed its examination and is 
satisfied that it meets generally accepted test development procedures. 
NASD believes that investors will be better served by proposing a 
qualification standard directly applicable to persons preparing 
technical research reports, which will demonstrate their competency 
based on the job functions and knowledge needed to perform such 
functions.
    The proposed rule change therefore would add an exemption from the 
Series 86 for certain associated persons who function as a research 
analyst but prepare only technical research reports. Like the CFA 
exemption, such analysts would be eligible for an exemption from the 
Series 86 if they have passed both Levels I and II of the CMT 
examination and also have functioned continuously as a research analyst 
since having passed Level II of the CMT examination or passed Level II 
of the CMT examination within two years of application for registration 
as a research analyst. Eligible applicants would remain obligated to 
meet all other qualification requirements, including the Series 7 or an 
equivalent examination (e.g., Series 17, 37 or 38 examination) and the 
Series 87 before being qualified as a research analyst.
    For the purposes of eligibility for the exemption, the proposed 
rule change would establish a definition of a ``technical research 
report'' as a research report (as that term is defined in Rule 
2711(a)(8)) that is based solely on stock price movement and trading 
volume and not on the subject company's financial information, business 
prospects, contact with subject company's management, or the valuation 
of a subject company's securities.
    NASD believes that the proposed exemption is appropriate for this 
specific class of research analysts because the Series 86 does not test 
the functions associated with technical analysis. NASD has reviewed the 
CMT examination development program and found it to meet generally 
established psychometric standards.
    Importantly, the exemption is available only to research analysts 
who exclusively prepare technical research reports. An associated 
person who prepares any research report or whose name appears on a 
research report that does not meet this definition of a ``technical 
research report'' would be required to pass the Series 86 or qualify 
for another exemption or waiver.
2. NASD's Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act, which require, among other 
things, that NASD rules must be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. NASD believes that that the proposed rule change is 
consistent with the provisions of the Act noted above in that it will 
ensure that those functioning as research analysts possess a minimum 
competency level and knowledge of applicable laws, rules and 
regulations, thereby enhancing investor protection.
3. NYSE's Purpose
    Recent amendments to Rule 344 (``Research Analysts and Supervisory 
Analysts'') require Research Analysts to be registered with, qualified 
by, and approved by the Exchange. The Exchange is proposing to adopt a 
new interpretation to Rule 344 to establish an alternative 
qualification standard for Part I (Series 86) of the Research Analyst 
Qualification Examination.
    Background. In July 2003, the Commission approved amendments to 
Exchange Rules: 472 (``Communications with the Public''), 351 
(``Reporting Requirements''), 344 (``Research Analysts and Supervisory 
Analysts''), and 345A (``Continuing Education for Registered 
Persons'').\7\ The amendments included, among others, a new 
registration category and qualification examination for research 
analysts. The amendments were the culmination of joint regulatory 
efforts among the NYSE, NASD and the SEC to address potential conflicts 
of interest relating to research analysts.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 48252 (July 29, 
2003), 68 FR 45875 (August 4, 2003) (SR-NYSE-2002-49) (giving notice 
of the proposed rule change).
---------------------------------------------------------------------------

    During the comment period for this rule proposal, it was noted that 
with regard to acknowledging, for qualification purposes, research 
analysts who have passed other professional examinations, the Exchange 
would study the appropriateness of providing such comity. Accordingly, 
as discussed in more detail below, Exchange staff, after thorough 
review, is proposing that research analysts who prepare only technical 
research reports and who otherwise demonstrate competency to be exempt 
from Part I of the Research Analyst Qualification Examination.
    Research Analyst Qualification Examination. In February 2004, the 
SEC published notice of the Study Outline for the Research Analyst 
Qualification Examination.\8\ The Research Analyst Qualification 
Examination is part of the SROs regulatory effort to safeguard the 
investing public from potential conflicts of interest. The purpose of 
requiring a qualification examination was to protect the investing 
public by helping to ensure that research analysts are competent to 
perform their jobs and are knowledgeable about the new regulatory 
requirements affecting them. Given the scope and magnitude of these 
requirements, the SROs developed an examination with a part designed 
specifically to address the new SRO Rule requirements.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 34-49253 (February 
13, 2004), 69 FR 8257 (February 29, 2004) (SR-NYSE-2003-41). See 
also NYSE Information Memo 04-5, dated February 3, 2004, for the 
Study Outline for the Examination.
---------------------------------------------------------------------------

    The Research Analyst Qualification Examination (Series 86/87) is a 
five-and-a-half hour examination, consisting of 150 questions. The exam 
is divided into two parts. Part I, the Series 86, consists of 100 
questions, which address fundamental security analysis and

[[Page 10454]]

valuation of equity securities. Part II, the Series 87, consists of 50 
questions, which primarily address pertinent SRO and SEC rules and 
regulations, including the recent Research Analysts' Conflicts Rules.
    The requirement to take and pass the Series 86/87 examination 
applies to all research analysts, as the term is defined in Exchange 
Rule 344.10. Exchange Rule 344.10 provides that the term ``research 
analyst'' includes a member, allied member, or employee who is 
primarily responsible for the preparation of the substance of a 
research report and/or whose name appears on such report. Research 
analysts, as defined in Exchange Rule 344.10, must be registered with, 
qualified and approved by the Exchange. The registration and 
qualification requirements became effective March 30, 2004. Candidates 
who have been functioning as research analysts as of the effective date 
of March 30, 2004, have been given one year, until April 4, 2005, to 
meet the qualification requirement.
    In March 2004, the SEC approved an interpretation to Rule 344 
establishing certain prerequisites to and exemptions from the Research 
Analysts Qualification Examination.\9\ The interpretation to Rule 344 
requires, among other things, that each candidate pass either the 
General Securities Registered Representative Examination (Series 7), 
the United Kingdom (``UK'') Limited Registered Representative (Series 
17) Examination or the Canadian Limited Registered Representative 
(Series 37/38) Examination (prior to taking either Part I or Part II of 
the examination). Persons qualified to conduct a general public 
securities business in the UK and Canada can also be qualified for the 
same in the U.S. by taking the Series 17 or the Series 37/38 
respectively in lieu of the Series 7. These examinations are intended 
to cover subject matter unique to the U.S. securities markets otherwise 
not covered by the UK/Canada examinations.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 49464 (March 24, 
2004), 69 FR 16628 (March 30, 2004) (SR-NYSE-2004-03). See also NYSE 
Information Memo 04-16, dated April 1, 2004.
---------------------------------------------------------------------------

    The interpretation to Rule 344 also allows a research analyst 
candidate that has passed both Level I and Level II of the Chartered 
Financial Analyst (``CFA'') Examination administered by the CFA 
Institute, to request an exemption from Part I (Series 86) of the 
Research Analyst Qualification Examination. The CFA Examination 
consists of 10 general topic areas which provide a framework for making 
investment decisions. Each level of the CFA Examination has a different 
learning focus: Level I focuses on tools and concepts that apply to 
investment valuation and portfolio management; and Level II focuses on 
asset valuation and applying the tools and concepts from Level I. 
Candidates who receive an exemption from the Series 86 must still 
satisfy the Series 7, 17, or 37/38 prerequisite examination and pass 
the Series 87 to be registered and qualified as Research Analysts.
    To qualify for the CFA exemption from the examination requirement a 
Research Analyst candidate must have: (i) Completed the CFA Level II 
within 2 years of application or registration or (ii) functioned as a 
research analyst continuously since having passed the CFA Level II. 
Applicants that have completed the CFA Level II that do not meet either 
of the above criteria may, upon a showing of good cause based upon 
previous related employment experience, make a written request to the 
Exchange for an exemption.
    Proposed Exemptive Relief. Beginning March 2004, the Exchange and 
NASD held several conference calls/meetings and have exchanged 
correspondences with the Market Technicians Association, Inc. (``MTA'') 
Task Force with regard to its efforts to seek exemptive relief from the 
Series 86 examination for individuals who have passed Levels I and II 
of the Chartered Market Technician Program (``CMT'') who prepare 
technical research reports.
    The CMT Levels I and II are in total six-hour examinations, 
consisting of a total of 270 multiple-choice questions. CMT Level I 
tests the working knowledge of the basic tools of technical analysis, 
including: basic definitions and information; methods of charting; 
establishing price targets; market trend determination; and bond, 
commodity, currency, futures, index and option analysis. Level II tests 
more technical analytical techniques and the ability to apply the 
principles tested in Level I.
    As noted above, an interpretation of Rule 344 provides an exemption 
from the Series 86 examination for individuals who have passed Levels I 
and II of the CFA examination. The Exchange is proposing a similar 
exemption for research analysts who only prepare technical research 
reports and who have passed Levels I and II of the CMT. For purposes of 
the exemption, a ``technical research report'' is a research report as 
defined in Rule 472.10(2) \10\ that is based solely on stock price 
movement and trading volume and not on the subject company's financial 
information, business prospects, contact with the subject company's 
management, or the valuation of a subject company's securities. The 
proposed definition builds on the core definition of ``research 
report'' in Rule 472 and incorporates, in relevant part, the substance 
of the definition (discussed below) of ``technical research report'' in 
the Global Research Analyst Settlement.\11\
---------------------------------------------------------------------------

    \10\ Rule 472.10(2) defines a research report as written or 
electronic communication, which includes an analysis of equity 
securities of individual companies or industries and provides 
information reasonably sufficient upon which to base an investment 
decision.
    \11\ See SEC Litigation Release No. 18438 (October 31, 2003).
---------------------------------------------------------------------------

    The proposed exemption would be similarly conditioned on passing 
the Series 7, 17, or 37/38 prerequisite examination and Series 87 
examination as well as the time limitations also noted above. Further, 
if such analysts were to prepare a research report (e.g., a fundamental 
equity analysis report) as defined in Exchange Rule 472.10(2), they 
would be required to pass either the Series 86 examination or have 
obtained the CFA exemption as well as pass the Series 87 examination. 
While exempt from the Series 86 examination, these analysts would still 
be subject to all other Exchange rules governing communications with 
the public and still be subject to the supervision of their firms.
    Exchange staff believes that it is appropriate, and consistent with 
its regulatory objectives, to provide exemptive relief to technical 
analysts similar to that which has been provided for fundamental 
analysts. First, the genesis of the Research Analyst Qualification 
Examination was to help address the conflicts of interest inherent with 
respect to the interaction between research analysts, investment 
bankers and subject companies in obtaining and retaining investment 
banking relationships.
    The Series 86 exam was developed by NYSE and NASD staffs in 
conjunction with a committee of fundamental analysts and is intended to 
test fundamental securities analysts. This is quite clear from the 
exam's Study Outline. Technical analysis is quite different than 
fundamental and therefore such analysts should not unnecessarily be 
subjected to taking an examination, when there is a superior 
alternative to demonstrate competency. Indeed, securities regulators 
recognize the distinctions among various types of research disciplines. 
In this regard, the recently approved amendments to the

[[Page 10455]]

Global Research Analyst Settlement make this distinction by providing 
for the following definition:

    The term ``technical research report'' means any written 
(including electronic) communication that is furnished by the firm 
to investors in the U.S. and includes an analysis of the securities 
of an issuer or issuers, that is based solely on prices and trading 
volume and not on the issuer's financial information, business 
prospects, or contact with issuer management, and that provides 
information reasonably sufficient upon which to base an investment 
decision.

    The Exchange reviewed descriptions of the subject matter that is 
covered on the CMT examination and compared it to the subject matter 
that is covered on the Series 86 examination. The results of the review 
indicate that the subject matter is different, and confirms that the 
work process and product of a technical analyst is distinctly different 
from the work of a fundamental analyst. In addition, staff has analyzed 
the process in which the MTA has developed its examination and is 
satisfied that it meets generally accepted test development procedures. 
The Exchange believes that investors will be better served by proposing 
a qualification standard directly applicable to persons preparing 
technical research reports, which will demonstrate their competency 
based on the work functions and knowledge needed to perform such 
functions.
    The MTA and CMT. The MTA was established in 1973, and began the 
development of the CMT examination program in 1985, by conducting job 
analysis surveys and working with a group of subject matter experts to 
determine the tasks and knowledge required to perform the job of a 
Technical Research Analyst.
    In 1988, the original examinations were administered. From 1988 
through 2002, the examination continued to be revised and updated by 
employing outside consultants. According to the MTA, these consultants 
were also contributors to the CFA examination process, which the SEC 
approved as exemptions to both Part II of the Supervisory Analyst 
(Series 16) Examination \12\ and Part I (Series 86) of the Research 
Analyst Qualification Examination.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 41021 (February 4, 
1999), 64 FR 7680 (February 16, 1999) (SR-NYSE-98-44).
---------------------------------------------------------------------------

    In 2002, the MTA retained the Chauncey Group to manage the CMT 
Examination Program. As part of its review, Chauncey utilized subject 
matter and testing experts to review the exam and developed one form of 
each examination for the past three administrations. In addition, the 
MTA retained Chauncey to conduct a job analysis study, otherwise 
referred to as a body of knowledge study. Such studies are conducted 
periodically to ensure that the existing job analysis body of knowledge 
is reflective of current practice.
    In sum, the MTA with its professional consultants have subjected 
the examination to standard testing practices that the Exchange 
believes sufficient to allow it to be used to provide an exemption for 
the Series 86 examination. This is evidenced by the fact that the MTA 
has been conducting job analysis studies, updating the CMT examinations 
periodically, and involving content experts in such studies and updates 
of the examinations. Such activities conform to the Standards for 
Educational and Psychological Testing (1999),\13\ which were developed 
jointly by the American Psychological Association (APA), the American 
Educational Research Association (AERA), and the National Council on 
Measurement in Education (NCME). These same standards are followed for 
the development and maintenance of NYSE qualification examinations.
---------------------------------------------------------------------------

    \13\ The Standards for Educational and Psychological Testing is 
a technical guide that provides criteria for evaluating tests, 
testing practices and the effects of test use.
---------------------------------------------------------------------------

    For purposes of consistency, the Exchange is also amending the text 
of the interpretation to Rule 344 by inserting the term ``Level'' in 
place of ``Part'' when referencing the CFA examination.
4. NYSE's Statutory Basis
    The statutory basis for this proposed rule change is section 
6(b)(5) \14\ and section 6(c)(3)(B) \15\ of the Act. Under section 
6(b)(5), the rules of the Exchange must be designed to protect 
investors and the public interest. By requiring a qualification 
standard directly applicable to persons preparing technical research 
reports, which will demonstrate their competency based on the work 
functions and knowledge needed to perform such functions, investors 
will be better protected.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b)(5).
    \15\ 15 U.S.C. 78f(c)(3)(B).
---------------------------------------------------------------------------

    Under section 6(c)(3)(B) it is the Exchange's responsibility to 
prescribe standards of training, experience and competence for persons 
associated with Exchange members and member organizations. In addition, 
under section 6(c)(3)(B), the Exchange may bar a natural person from 
becoming a member or person associated with a member, if such natural 
person does not meet such standards of training, experience and 
competence as prescribed by the rules of the Exchange. Pursuant to this 
statutory obligation, the Exchange has: (1) Developed an examination 
that will be administered to establish that Research Analysts have 
attained specified levels of competence and knowledge; and (2) provided 
for exemptions from Part I of the examination were candidates have 
their competency based on their work functions and the knowledge they 
need to perform such functions (e.g., passing Levels I and II of the 
CFA or CMT).

B. Self-Regulatory Organizations' Statement on Burden on Competition

    NASD and the NYSE do not believe that the proposed rule changes 
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

    NASD and the NYSE has neither solicited nor received written 
comments on the proposed rule changes.

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

    The proposed rule changes have been filed by NASD and the NYSE as 
stated policies, practices, or interpretations with respect to the 
meaning, administration, or enforcement of an existing rule under Rule 
19b-4(f)(1) under the Act.\16\ Consequently, they have become effective 
pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1) 
thereunder.
---------------------------------------------------------------------------

    \16\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
changes, the Commission may summarily abrogate these proposals if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
changes are consistent with the Act. Comments may be submitted by any 
of the following methods:

[[Page 10456]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NASD-2005-022 and/or SR-NYSE-2005-12 on the subject 
line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Numbers SR-NASD-2005-022 and/
or SR-NYSE-2005-12. These file numbers should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, please use only one method. The 
Commission will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies 
of such filing also will be available for inspection and copying at the 
principal office of the NASD and the NYSE. All comments received will 
be posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Numbers SR-NASD-2005-022 and/or SR-NYSE-2005-12 
and should be submitted on or before March 24, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-850 Filed 3-2-05; 8:45 am]
BILLING CODE 8010-01-P