[Federal Register Volume 59, Number 74 (Monday, April 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9268]
[[Page Unknown]]
[Federal Register: April 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-33892; File No. SR-NASD-89-16]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to
Specifications and Study Outline for the Registered Options Limited
Representative Examination
April 11, 1994.
On March 23, 1989, the National Association of Securities Dealers,
Inc. (``NASD'') filed with the Securities and Exchange Commission
(``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 establish examination questions,
specifications, and a study outline for a Registered Options Limited
Representative Examination (``Series 42'') to be administered by the
NASD.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
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The proposed rule change was published for comment in the Federal
Register on April 12, 1989.\3\ The Commission received a total of seven
comment letters opposing the proposed rule change. The comment letters
were submitted by the American Stock Exchange, Inc. (``Amex''),\4\ the
New York Stock Exchange, Inc. (``NYSE''),\5\ the Philadelphia Stock
Exchange, Inc. (``Phlx''),\6\ and the Chicago Board Options Exchange,
Inc. (``CBOE'')\7\ The Commission also received two letters from the
NASD in response to those comment letters.\8\
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\3\See Securities Exchange Act Release No. 26695 (April 4,
1989), 54 FR 14718 (April 12, 1989).
\4\See Letter from Ivers W. Riley, Senior Executive Vice
President, Amex, to Jonathan G. Katz, Secretary, SEC, dated June 16,
1989 (``Amex Letter'').
\5\See Letters from James E. Buck, Senior Vice President and
Secretary, NYSE, to Diana Luka-Hopson, Branch Chief, Division of
Market Regulation (``Division''), SEC, dated August 16, 1993 (``NYSE
August 16 Letter''), and December 31, 1993.
\6\See Letter from Nicholas A. Giordano, President, Phlx, to
Jonathan G. Katz, Secretary, SEC, dated July 10, 1989 (``Phlx
Letter'')
\7\See Letters from Charles J. Henry, President and Chief
Operating Officer, CBOE, to Jonathan G. Katz, Secretary, SEC, dated
June 15, 1989; from Charles J. Henry, President and Chief Operating
Officer, CBOE, to Richard Ketchum, Director, Division, SEC, dated
September 17, 1990; and from Charles J. Henry, President and Chief
Operating Officer, CBOE, to Jonathan Kallman, Associate Director,
Division, SEC, dated June 24, 1993 (``CBOE June 24 Letter'').
\8\See Letters from Frank J. McAuliffe, Vice President,
Qualifications Department, NASD, to Kathy England, Branch Chief,
Division, SEC, dated September 27, 1989 (``NASD September 27
Letter''); and from Suzanne Rothwell, Associate General Counsel,
NASD, to Thomas Gira, Branch Chief, Division, SEC, dated July 25,
1991 (collectively, ``NASD Response Letters'').
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I. Background
Since the inception of the Series 7 General Securities
Representative Examination program (``Series 7'') in 1974,\9\ the NASD
has continually maintained limited qualification programs for
specialized product areas.\10\ The NASD represents that the limited
qualification programs provide qualification mechanisms that are
appropriate to NASD-only member firms that are involved in limited
aspects of the securities industry.\11\ Until 1988, the NASD maintained
two limited representative qualification programs: (1) The Series 6,
for investment company products and variable contracts; and (2) the
Series 22, for direct participation programs.\12\ In 1988, the NASD
implemented the Series 62 examination (``Series 62'') which qualifies
candidates to sell only stocks, bonds, rights, warrants, closed-end
investment company shares, real estate investment trusts, and money
market funds.\13\ The NASD has also acted as the administrative agent
for the Series 52 Municipal Securities Representative Examination since
it became effective in 1978.\14\
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\9\The Series 7 was jointly developed by the Amex; CBOE; Chicago
Stock Exchange, Inc., NYSE, Phlx, NASD, and Pacific Stock Exchange,
Inc. The Series 7 qualifies candidates to sell the full range of
securities products, including options.
\10\See NASD September 27 Letter, supra note 8.
\11\Id.
\12\Id.
\13\See Securities Exchange Act Release No. 25719 (May 20,
1988), 53 FR 19076 (May 26, 1988) (``Exchange Act Release No.
25719'').
\14\See NASD September 27 Letter, supra note 8.
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II. Description of the Proposal
The NASD is now proposing to establish a Series 42 examination
which would be used to qualify persons seeking registration as
registered options representatives (``RORs'') for options overlying
equity, debt, foreign currency, and index options. The Exchange
represents that the Series 42 examination, when combined with the
NASD's other limited product examinations and the Series 52 examination
would provide an alternate to the Series 7 for full general securities
representative registration.\15\
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\15\That is, the combination of the Series 6, 22, 42, 52, and 62
cover the same range of products as the Series 7. Id.
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The examination will be a ninety-minute, 50 question multiple-
choice examination, covering all option product areas. A prerequisite
to registration as an ROR is registration as a Corporate Securities
Limited Representative which requires passing the Series 62, or
registration as a General Securities Registered Representative which
requires passing the Series 7.\16\
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\16\According to the NASD, only registered representatives who
passed the Series 7 exam prior to the revisions to the Series 7 in
1986 when only equity options were tested, would opt to take the
Series 42 exam. Telephone conversation between David Uthe, Assistant
Director, Qualifications, NASD, and Brad Ritter, Attorney, Office of
Derivatives and Equity Regulation, Division of Market Regulation,
Commission, on April 11, 1994 (``Uthe April 11 Conversation'').
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III. Comments Received on the Proposal
The Commission received comment letters from the Amex, Phlx, NYSE,
and CBOE in opposition to the proposal, and response letters from the
NASD.\17\ The commentators raised objections regarding the utility of
the Series 42 and believe that the availability of an alternative
qualification scheme to the existing Series 7 could result in investor
and regulatory confusion, and could limit investors' access to the
options markets.
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\17\See supra notes 4 through 8.
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A. Utility of the Series 42
The Amex, Phlx, NYSE, and CBOE argue that the usefulness of the
Series 42 is limited because broker-dealers who trade options should
understand the entire marketplace, especially instruments which
underlie options. The Amex believes that the Series 42 will result in
broker-dealers having only a narrow understanding of just one type of
product, namely options.\18\ Furthermore, the Amex, CBOE, NYSE, and
Phlx each believe that the Series 7 is the most effective way of
ensuring that the investing pubic will be served by qualified and
informed options representatives because the examination covers
virtually every securities product trading on U.S. exchanges and the
NASD Automated Quotation System (``NASDAQ'').\19\
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\18\See Amex Letter, supra note 4.
\19\See Amex Letter, supra note 4; CBOE June 24 Letter, supra
note 7; NYSE August 16 Letter, supra note 5; and Phlx Letter, supra
note 6.
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The Phlx, CBOE, and NYSE believe that except for the Series 62,\20\
the NASD's current limited product examinations can be justified
because these examinations are intended to accommodate limited purpose
broker-dealers and their representatives whose securities activities
are limited to specific, discrete product lines, such as investment
company products/variable annuities (Series 6), direct participation
programs (Series 22), and municipal securities (Series 52) and,
therefore, the potential for investor confusion is minimal.\21\ In this
context, the CBOE notes that unlike the Series 42 and 62, the NASD's
other limited product exams do not conflict with the current Series 7
test because such non-exchange traded securities are within the
regulatory purview of the over-the-counter market.\22\ Further, the
Phlx believes that the same economic efficiencies will not be realized
from the implementation of the Series 42 because there is not a
sufficient number of firms whose business is limited solely to options,
or to corporate securities and options, to achieve these
efficiencies.\23\
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\20\The Phlx, CBOE, and NYSE, believe that the introduction of
the Series 62 added confusion to the existing regulatory scheme by
creating multiple levels of qualification standards for
stockbrokers. See Phlx Letter, supra note 6; CBOE June 24 Letter,
supra note 7; and NYSE August 16 Letter, supra note 5. The
Commission notes, however, that it did not receive any written
comments to the NASD proposal for the Series 62 exam prior to its
approval. See Exchange Act Release No. 25719, supra note 13.
\21\Id.
\22\See CBOE June 24 Letter, supra note 7.
\23\See Phlx Letter, supra note 6.
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Finally, the CBOE and Phlx argue that the usefulness of the Series
42 is limited because it is likely that no national securities exchange
will recognize the examination.\24\
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\24\See CBOE June 24 Letter, supra note 7; and Phlx Letter,
supra note 6.
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B. Investor Confusion
The CBOE and NYSE argue that the Series 42 will confuse investors
by fragmenting the elements of qualification for the offering of listed
securities options contracts, thus requiring an investor to determine
whether or not his stockbroker is qualified to accept his orders in
certain products.\25\ The CBOE and NYSE also believe that the knowledge
and capabilities of a limited product stockbroker may not be as sound
as those of a stockbroker who is qualified for all products in the
securities markets. For this reason, the CBOE and NYSE recommend that
limited product representatives be required to disclose limited
qualifications in writing.\26\
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\25\See CBOE June 24 Letter, supra note 7; and NYSE August 16
Letter, supra note 5.
\26\Id.
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Further, the Phlx argues that use of the Series 42 could confuse
and mislead public investors by creating specialized representatives
within general purpose firms.\27\ The Phlx believes that it is possible
that a representative qualified under the Series 42 and Series 62
examinations would be unqualified to make recommendations on the range
of available investment products suitable to a particular customer, or
might seek to dissuade an investor from pursuing certain otherwise
appropriate investment products because the representative is not
qualified to recommend them.\28\ Further, the Phlx believes that
because there is no requirement for disclosing the capacities in which
a representative is qualified, a customer would not know whether a
representative was fully qualified, nor be able to assess any possible
``extraneous motives'' for a representative's advice.\29\
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\27\See Phlx Letter, supra note 6.
\28\Id.
\29\Id.
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C. Regulatory Confusion
The Phlx argues that because the Series 42 covers a product traded
almost exclusively on the nations options exchanges, those exchanges
should have substantial input in determining the qualifications of
representatives who market exchange-traded options.\30\ The Phlx states
that it is unclear whether the Series 42 is sufficient to qualify a
representative to trade certain products, such as non-equity options
and whether the examination will be updated to encompass new exchange-
traded products.\31\
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\30\Id.
\31\Id.
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The Phlx argues that regulatory confusion is also created because
it does not appear likely that any exchange will recognize the validity
of the Series 42.\32\ The Phlx believes that regulatory concern is
raised by Phlx products, such as foreign currency options being
marketed to customers by representatives who have not passed the Series
7, which is one of the Exchange's qualification requirements.\33\
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\32\Id. See also, CBOE June 24 Letter, supra note 7.
\33\See Phlx Letter, supra note 6.
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Further, the Phlx and CBOE believe that the Series 42 raises
concerns for their member firms because the Phlx and CBOE believe that
they will have to notify their members that they may incur liability by
accepting orders from broker-dealers whose representatives are not
Series 7 qualified if the exchanges determine that successful
completion of the Series 42 (and Series 62) is inadequate for entry
into their markets.\34\
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\34\See Phlx Letter, supra note 6; and CBOE June 24 Letter,
supra note 7.
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The CBOE believes that regulatory concern is raised by the Series
42 because individuals registered with organizations which are members
solely of the NASD may have the ability to recommend listed options
trading on an exchange without any assurance that such individuals have
the requisite knowledge to do so.\35\
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\35\See CBOE June 24 Letter, supra note 7.
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D. Limited Access to Options Markets
The CBOE argues that the introduction of the Series 62 represented
the first time since options were integrated into the Series 7 exam
that individuals have been permitted to qualify to trade the underlying
securities without being qualified to trade the derivative product.\36\
As a result, the CBOE believes the Series 62 permits individuals to
deal with the public concerning products with option-like
characteristics (e.g., index warrants) without being qualified to deal
in options.\37\ While these concerns apply to the Series 62, the CBOE
believes the NASD should be required to amend that exam to test for
options products rather than introducing the Series 42 as a separate
exam.\38\
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\36\Id.
\37\Id.
\38\Id.
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Similarly, the NYSE and the Phlx argue that the implementation of
the Series 42 could result in limiting investor access to the options
markets by erecting artificial barriers that could impede or deny
access by customers to closely interrelated products because their
representatives had not been qualified to trade those products.\39\
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\39\See Phlx Letter, supra note 6; and NYSE August 16 Letter,
supra note 5.
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E. NASD Response to Commentators
The NASD does not agree that the usefulness of the Series 42 is
limited.\40\ The NASD believes that the Series 42 would raise
qualification standards in the options regulatory area and provide a
modular alternative route for NASD-only members to achieve a general
securities representative status.\41\ Additionally, the NASD believes
that the Series 42 would improve qualification standards by replacing
the Put and Call Questionnaire, which is given ``in-house'' by the
member firms, as a method of testing the qualifications of
representatives to trade equity options who have not previously been
options qualified.\42\ The NASD believes the Series 42 would,
accordingly, raise qualification standards by eliminating the use of
this questionnaire which is administered by the firms and not by the
NASD under test conditions,\43\ and provide the NASD with a means of
maintaining a permanent record of its registered representatives who
have taken the exam and are options qualified.\44\
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\40\See NASD September 27 Letter, supra note 8.
\41\Id.
\42\According to the NASD, the Put & Call Questionnaire was
developed at the inception of the options markets in 1973 to qualify
existing representatives to trade equity options. Id. With the
development of additional options products, a registered
representative who wants to trade a full range of options products
and who has only passed the Series 62, would currently have to
either (i) complete the Series 7 exam, or (ii) complete the Put &
Call Questionnaire as well as the Series 5 (interest rate options)
and the Series 15 (foreign currency options). See the April 11
Conversation, supra note 16.
\43\See NASD September 27 Letter, supra note 8.
\44\Currently, records as to the qualifications of
representatives to trade various options products are maintained by
the member firms, not by the NASD. See the April 11 Conversation,
supra note 16.
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The NASD further argues that implementation of the Series 42 will
not result in investor confusion. The NASD states that there is no
evidence that the introduction of the Series 62 has caused investor
confusion.\45\ The NASD further states that it has not received any
inquiries from the investing public which suggest confusion over broker
registration regarding the limited registration categories and that the
routine examination of their member firms by its surveillance staff
shows no particular problems in supervising or controlling marketing
staffs with limited registrations, even within general securities
firms.\46\ The NASD believes that the investing public is more
concerned with the fact that a representative is registered and
properly qualified with the NASD or a national securities exchange than
with the specific examination taken by the representative.\47\
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\45\See NASD September 27 Letter, supra note 8.
\46\Id.
\47\Id.
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Finally, the NASD argues that the Series 42 is a substantively
adequate examination which will not result in regulatory confusion. The
NASD states that the Series 42 was developed by the same industry
participants responsible for the development and maintenance of the
Series 4 Registered Options Principal (``ROP'') Examination. The NASD
represents that these individuals are ROPs at general securities firms
which are members of all the option exchanges.\48\
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\48\Id.
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The NASD believes that its modular qualification program is fully
comparable to the Series 7 and that it provides needed flexibility in
meeting appropriate qualification standards for the NASD's diverse
membership.\49\ The NASD states that candidates electing the NASD
modular approach are subject to five tests totaling 450 questions
compared to the 250-question Series 7 examination.\50\ The NASD further
believes that requiring candidates to take the Series 62 prior to
taking the Series 42 adequately addresses the derivative nature of the
options markets.\51\ The NASD, for these reasons, does not believe that
implementation of the Series 42 will lessen the basic qualification
standards for registered representatives.
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\49\Id.
\50\Id.
\51\Id.
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IV. Discussion
A. General
After a careful review of the proposal, the comment letters
received, and the NASD's responses to these comment letters, the
Commission believes that the proposed rule change is consistent with
the requirements of the Act. Specifically, the Commission believes that
implementation of the Series 42 examination is a proper exercise of the
NASD's responsibility under section 15A(g)(3) of the Act\52\ to
prescribe standards of training, experience, and competence for persons
associated with NASD members.
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\52\15 U.S.C. 78o-3(g)(3) (1988).
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The Commission notes that Article III, section 33 of the NASD Rules
of Fair Practice grants NASD members or persons associated with NASD
members the authority to effect transactions in options contracts if
those transactions are effected in accordance with the rules,
regulations, and procedures adopted by the NASD's Board of Governors.
Further, each person associated with an NASD member whose activities in
the investment banking or securities business include the solicitation
and/or sale of options contracts is required, by paragraph 1785(2)(d)
of Schedule C to the NASD By-Laws, to be certified as a registered
options representative and pass an appropriate certification
examination.
For these reasons, the NASD has the responsibility, under section
15A(g)(3) of the Act, to prescribe standards of competence for persons
associated with NASD member firms who effect transactions in options.
The Commission believes that the Series 42, in conjunction with the
Series 62, satisfies the NASD's responsibility for prescribing these
standards for competence. As described below, the Series 42 has been
reviewed by the Commission's Division of Market Regulation and found to
be substantively adequate.\53\ As also discussed below, the Commission
does not agree with the commentator's assertions that the usefulness of
the Series 42 is limited or that implementation of the examination will
cause regulatory or investor confusion, or will limit access to the
options markets.
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\53\The Commission notes, however, that due to the length of
time since the submission of this proposal, the SEC's approval of
the use of the Series 42 is contingent upon the NASD updating the
Series 42, and review by the Commission staff of such changes in the
exam, to ensure that it covers all types of options products
currently listed and trading on the options exchanges.
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B. Utility of the Series 42
The Series 42 will complete the NASD's modular examination program
and provide an alternative route to the Series 7 examination for NASD-
only members to achieve a general securities representative status. As
such, the Series 42 is within the NASD's discretion for providing
adequate qualification mechanisms for persons associated with its
members.
The Commission staff has reviewed the Series 42 as proposed and
found it to be substantively adequate.\54\ Furthermore, the NASD has
represented that the Series 42 was developed by the same industry
participants responsible for the development and maintenance of the
Series 4 ROP examination and that these individuals are ROPs at general
securities firms which are members of all the options exchanges. In
addition, the NASD has a written agreement with the NYSE pursuant to
which selected questions from the Series 7 exam are reviewed for use in
its limited product examinations and questions from NASD's limited
product exam question banks are sent to the NYSE for possible inclusion
in the Series 7.\55\ The Commission believes that the sharing of this
information ensures the comparability of the general and limited
examination programs and the Commission expects this sharing agreement
to continue for the NASD's Series 42 examination. Finally, by requiring
successful completion of the Series 62 as a prerequisite for the Series
42, the Commission finds that the NASD has provided an examination
structure which will adequately test a candidate's knowledge of the
instrument that underlie options.\56\ The requirement that the Series
42 be taken in conjunction with the Series 62 adequately addresses the
derivative nature of the options markets. Successful completion of the
Series 62 ensures that a representative will be knowledgeable about
equity securities and their regulation. The knowledge required by the
Series 62 exam, combined with the knowledge required by the Series 42,
together would be sufficient to ensure that representatives understand
the relationship between options and the markets that underlie most
options transactions.\57\
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\54\Id.
\55\See NASD September 27, Letter, supra note 8.
\56\In response to assertions that certain subjects should be
covered by options qualifications examinations, the NASD represents
that ``interest rate theory'' is covered by the Series 62 and the
``fundamentals of currency markets'' are covered by the Series 42.
See NASD September 27 Letter, supra note 8. The NASD further
represents that all options related areas covered on the Series 7
are tested on the Series 42 exam. See the April 11 Conversation,
supra note 16.
\57\To the extent that some options overlie assets other than
equities or equity indexes (e.g., currency options and interest rate
options), the Series 62 and/or the Series 42 will contain questions
designed to ensure that representatives understand the
characteristics and risks pertaining to non-equity options. Id.
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The Commission does not believe that the options exchanges' failure
to recognize the Series 42 will impair the examination's usefulness to
NASD member firms. To the Commission's knowledge, the U.S. securities
exchanges do not recognize completion of the Series 62 as being an
adequate demonstration of requisite knowledge for purposes of testing
the knowledge and competence of their members or the registered
representatives of their member firms. Exchange members, however, are
permitted, and do, provide clearing and execution services for non-
exchange NASD member firms even though some of the registered
representatives at these firms have only completed the Series 62.
Implementation of the Series 42 should not alter this situation even if
the exchanges do not recognize the Series 42. Additionally, the Series
42 should provide benefits to the NASD, and by extension, NASD members.
NASD-only members are currently tested and qualified to trade options
through use of the Put & Call Questionnaire which is administered in-
house by member firms. Therefore, even if the exchanges do not
recognize the Series 42, the Commission believes that by replacing the
in-house Put & Call Questionnaire with an options specific exam
administered under established testing procedures, the NASD will be
better able to ensure that its members have the requisite knowledge to
engage in options transitions. This may also benefit NASD-only members
because the Series 42 may be viewed as being a more accurate and
therefore more credible reflection of a member's knowledge of options
products than the Put & Call Questionnaire.
C. Investor Confusion
The Commission does not believe that implementation of the Series
42 will result in investor confusion. Since the introduction of the
Series 62, the NASD has not received inquiries which suggest that
investors are confused by the limited registration categories.\58\
Further, the Commission notes that the routine examination of NASD
member firms by the NASD surveillance staff has not uncovered any
particular problems in supervising or controlling marketing staffs with
limited registrations, even within general securities firms.
Accordingly, separate qualification standards for a limited product
stockbroker should not confuse investors or result in the knowledge and
capabilities of the broker being less sound than those of a stockbroker
who has qualified for all products in the securities markets. For these
reasons, the Commission believes that there is no factual basis at this
time for supporting a requirement that limited product representatives
disclose in writing that their registration is limited.
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\58\See supra note 46.
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With respect to the possibility of a limited representative
dissuading an investor from certain investment products because the
representative was not qualified to trade those products, such conduct
could violate the representative's fiduciary obligations to his or her
customer.\59\ Further, the NASD's member firm compliance examinations
will check for any abuses which could occur as a result of the NASD's
limited registration program. In addition, customers are free to change
brokers. If a customer wants to trade a product that the representative
is not qualified to handle, and tries to steer the client from, the
customer can switch to a different representative. Sufficient client
demand for uncovered products should force a representative to broaden
his or her qualifications to cover a wider product base.
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\59\The Series 42 is intended to enable representatives to
handle options orders and not restrict them from recommending
options.
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D. Regulatory Confusion
The Commission does not believe that implementation of the Series
42 will result in regulatory confusion. As a preliminary matter,
neither the Act nor the NASD Rules require the NASD to develop jointly
an options examination with the options exchanges. Although uniformity
of tests across self-regulatory organizations (``SROs'') would be the
most efficient means of ensuring industry competency, an SRO is still
capable of developing an exam to cover its particular membership. In
this regard, the Act permits the NASD to develop an examination that
tests the qualifications of individuals associated with NASD members to
trade options.\60\
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\60\If the NASD determines that it is unable to maintain the
quality of the Series 42 so that the examination adequately tests
the competency of representatives to effect transactions in options,
the NASD should discontinue using the examination.
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The Commission also disagrees with the assertion that regulatory
concerns are raised by the fact that the options exchanges may not
recognize the validity of the Series 42. The Commission believes that
implementing the Series 42 is not inconsistent with the options
exchanges retaining the Series 7 as their basic qualification
requirement for exchange member firms.\61\ Use of the Series 42 by the
NASD to test the qualifications of its members to trade options does
not diminish the options exchanges' authority to determine the
qualifications of their own members to trade options. The exchanges can
continue to require exchange members to take and pass the Series 7
examination.
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\61\As the NASD notes, it is likely that most full service firms
will continue to opt for the Series 7 examination for their
representatives. See NASD September 27 Letter, supra note 8.
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The Commission further disagrees with the assertion that
individuals registered with NASD member organizations could recommend
listed options transactions trading on an exchange without the exchange
knowing that such individuals have the requisite knowledge to do so. As
discussed above, the Commission believes that the Series 42 is adequate
to test the training, experience, and competence of representatives
regarding all types of options transactions.
Finally, the Commission does not believe that there will be
increased legal liability on options exchange members because they
accepted orders from representatives of NASD-only members who, although
not Series 7 qualified, had passed the Series 42 exam. Implementation
of the Series 42 will not alter the status quo as far as these options
exchange members are concerned. These services are currently provided
to NASD-only members who have completed only the Series 62 and the Put
& Call Questionnaire. The Commission has not been aware of any case in
which an exchange member has incurred liability based solely on the
fact that the exchange member provided clearing and execution services
to a non-Series 7 registered NASD member broker-dealer. The Commission,
therefore, does not believe that replacing the Put & Call Questionnaire
with the Series 42 will increase the potential for exchange member
liability in this regard.
E. Limited Access to Options Markets
The Commission disagrees with the assertion that implementation of
the Series 42 would result in limiting investor access to the options
markets by erecting artificial barriers that could impede or deny
access by customers to closely inter-related products because their
representatives had not been qualified to trade them. The Commission
believes that the Series 42 increases investor access to the options
markets because it provides representatives that are only Series 62
qualified with a procedure for becoming qualified to affect
transactions in options without having to take the Series 7 exam.
Further, the Commission believes that the Series 42 provides better
testing for qualified representatives than the current Put & Call
Questionnaire administered by firms.
In summary, the Commission believes that the Series 42 exam is an
appropriate exercise of the NASD's statutory authority to ensure
qualification of its members. The exam itself is sound and tests
options knowledge in depth. Despite the objections of the options
exchanges, the Commission does not believe there is a regulatory reason
to disapprove the Series 42 exam as proposed.
For the reasons set forth above, the Commission finds that the
proposed rule changes is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a registered
securities association, and, in particular the requirements of section
15A,\62\ and the rules and regulations thereunder.
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\62\15 U.S.C. 78o-3 (1988).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\63\ that the proposed rule change (SR-NASD-89-16) is approved
contingent upon the NASD's updating of the exam as necessary to reflect
the changes that have occurred in the options markets since the time
that the Series 42 was originally proposed (e.g., new products) and the
Commission's review of the revised examination.
\63\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\64\
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\64\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9268 Filed 4-15-94; 8:45 am]
BILLING CODE 8010-01-M
