Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Granting Accelerated Approval to Proposed Rule Change Relating to Extending the Continuing Education Requirement for Registered Persons to Government Securities Principals and Representatives

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35924; File No. SR-NASD-95-22]

Self-Regulatory Organizations; National Association of Securities

Dealers, Inc.; Order Granting Accelerated Approval to Proposed Rule

Change Relating to Extending the Continuing Education Requirement for

Registered Persons to Government Securities Principals and

Representatives

June 30, 1995.

I. Introduction

On May 11, 1995, the National Association of Securities Dealers,

Inc.

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(``NASD'') submitted to 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

proposal to amend Schedule C of the NASD By-Laws to include government

securities principals and representatives in the continuing education

requirement for registered persons.

\1\ 15 U.S.C. 78s(b)(1).

\2\ 17 CFR 240.19b-4.

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The proposed rule change was published for comment in the Federal

Register on June 9, 1995.\3\ One comment letter was received on the

proposed rule change,\4\ to which the NASD responded.\5\ This order

approves the proposed rule change on an accelerated basis.

\3\ See Securities Exchange Act Release No. 35820 (June 7,

1995), 60 FR 30624.

\4\ Letter from William S. Crews, Senior Vice President/

Securities Compliance Manager, Wachovia Investments, Inc., to

Secretary, Commission, dated June 20, 1995 (``Comment Letter'').

\5\ Letter from Craig L. Landauer, Associate General Counsel,

NASD, to Francois Mazur, Attorney, Division of Market Regulation,

Commission, dated June 28, 1995 (``NASD Response'').

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II. Description of the Proposal

The purpose of the NASD's proposal is to make an amendment to the

definition of ``registered person'' contained in Section (1)(e) of Part

XII of Schedule C of the NASD By-Laws, Continuing Education

Requirements.\6\ The effect of the proposed change will be to require

government securities principals and representatives who are designated

in Part XI of Schedule C of the NASD By-Laws to participate in the

continuing education program.\7\ Such persons, however, were

inadvertently excluded from the definition of ``registered person''

contained in Section (1)(e) of Part XII of Schedule C of the NASD By-

Laws and approved by the Commission on February 8, 1995.\8\

\6\ On February 8, 1995, the Commission approved proposals by

the self-regulatory organizations establishing a two-part continuing

education program that requires uniform periodic training for

registered persons in regulatory matters (``Regulatory Element'')

and job and product-related subjects (``Firm Element''). Securities

Exchange Act Release No. 35341 (February 8, 1995), 60 FR 8426.

\7\ Part XI of Schedule C of the NASD By-Laws currently requires

all persons associated with a member not previously registered as a

principal who are to function as government securities principals to

be registered as government securities principals; and all persons

associated with a member who are to function as government

securities representatives who have not previously been registered

to register as government securities representatives. NASD By-Laws,

Schedule C, Part XI, Secs. 1 & 2.

\8\ Securities Exchange Act Release No. 35341, supra note 6.

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III. Comment Letter

The Comment Letter on the proposed rule change raises two concerns.

First, the commenter states that given that government securities

principals and representatives are not required currently to undergo

professional qualification by examination or experience, such

individuals should not be required to participate in the continuing

education program. Second, the commenter believes that the aggregate

training results reported to firms will be skewed by the performance of

such individuals because they will not have prepared for a professional

qualification examination, and thus may lack industry knowledge.

The NASD Response addresses both of the commenter's concerns. The

NASD notes that the Government Securities Act Amendments of 1993 (``GSA

Amendments'') removed from Section 15A of the Act the restrictions on

the NASD's authority to regulate its members' transactions in

government securities.\9\ Consequently, requiring government securities

principals and representatives to participate in the continuing

education program is a first step in such persons being subject to

regulation comparable to that applicable to other securities industry

professionals. Moreover, the NASD states that it is desirable for all

registered persons to be subject to the continuing education

requirements now, rather than waiting for approval of other rules

affecting government securities registered persons. In response to the

commenter's second concern, the NASD states that the aggregate training

results that it will provide to its members will be broken-down by

registration categories.\10\

\9\ Compare Sections 15A (f) & (g) of the Act, 15 U.S.C. 780-3

(f) & (g), with text prior to enactment of the GSA Amendments.

\10\ The categories that will be provided will be Series 6,

Series 7, all principal registration categories, and ``other.''

Government securities principals and representatives would fall

within the ``other'' category.

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IV. Discussion

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to the NASD, and, in particular, the requirements

of Section 15A and the rules and regulations thereunder. The Commission

believes that the proposed rule change is consistent with the

provisions of Section 15A(b)(6) of the Act because the proposed change

to Schedule C of the By-Laws will improve the standards of training,

experience, and competence for persons associated with NASD members.

As noted in the NASD Response, the GSA Amendments removed from

Section 15A of the Act the limitations on the ability of the NASD to

regulate its members' transactions in government securities. The

Commission believes that requiring government securities principals and

representatives to participate in the continuing education program is

appropriate in view of the role these persons play in the market for

government securities. The continuing education program has been

designed to impart knowledge regarding existing standards and should

ensure that government securities principals and representatives become

aware of new regulatory developments and concerns.

The Commission also believes that the commenter's concerns have

been adequately addressed. While the Commission recognizes that

government securities principals and representatives have not yet been

required to undergo qualification examinations, the Commission believes

that any concerns that thereby may arise are outweighed by the benefits

to be derived from the participation of such persons in the continuing

education program. It should be emphasized that the Regulatory Element,

which addresses a variety of compliance, ethics, and sales practice

issues, is not a test. Rather, the Regulatory Element requires that a

person complete a prescribed training program, which is administered

using computer-based interactive training techniques that provide

immediate feedback as a person works through a set of scenarios and

problems.

The aggregated information obtained from the Regulatory Element is

one of several factors that a firm should consider in evaluating its

training needs when complying with the Firm Element. Moreover, as

stated in the NASD Response, firms will be provided with a registration

category break-down of the aggregated information.

Pursuant to Section 19(b)(5) of the Act,\11\ the Commission has

consulted with and considered the views of the Department of the

Treasury (``Treasury'').\12\ The Treasury supports the NASD's proposal

that the continuing education program apply to government

[[Page 35759]]

securities principals and representatives.\13\

\11\ 15 U.S.C. 78s(b)(5).

\12\ Section 19(b)(5) of the Act states generally that the

Commission shall consult with and consider the views of the

Secretary of the Treasury prior to approving a proposed rule filed

by a registered securities association that primarily concerns

conduct related to transactions in government securities.

\13\ Telephone conversation between Donald Hammond, Assistant

Director, Government Securities Regulation Staff, Treasury, and Glen

Barrentine, Senior Counsel, Division of Market Regulation,

Commission, on June 29, 1995.

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Finally, the Commission finds good cause for approving the proposed

rule change prior to the thirtieth day after the date of publication of

notice of filing thereof in the Federal Register. The Commission

believes that accelerated approval of the proposal is appropriate in

order to allow the uniform implementation of the continuing education

program on July 1, 1995. The Commission notes that the 15 day notice

period provided for in the notice has expired. The Commission notes

further that the rule change establishing the continuing education

program was noticed in the Federal Register for the full statutory

period \14\ and that on August 15, 1994, the NASD published Special

Notice to Members 94-59 to request comment regarding the NASD's then

draft rules to create a mandated continuing education program for the

securities industry. As a result, commentators have had an extensive

opportunity to comment on the requirements of the continuing education

program.

\14\ See Securities Exchange Act Release No. 35102 (December 15,

1994), 59 FR 65563.

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V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\15\ that the proposed rule change (SR-NASD-95-22) is approved.

\15\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\16\

\16\ 17 CFR 200.30-3(a)(12).

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Jonathan G. Katz,

Secretary.

[FR Doc. 95-16924 Filed 7-10-95; 8:45 am]

BILLING CODE 8010-01-M