Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. to Extend the Deadline for Presently Registered Representatives to Apply for the Equity Trader, Series 55 Examination

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40137; File No. SR-NASD-98-43]

Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by the National Association of

Securities Dealers, Inc. to Extend the Deadline for Presently

Registered Representatives to Apply for the Equity Trader, Series 55

Examination

June 26, 1998.

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 June 12, 1998, the National Association of Securities Dealers, Inc.

(``NASD'' or ``Association'') through its wholly-owned subsidiary, NASD

Regulation, Inc. (``NASDR'') filed with the Securities and Exchange

Commission (``SEC'' or ``Commission'') the proposed rule change as

described in Items I, II, and III below, which Items have been prepared

by the NASDR. The NASDR has designated this proposal as one

constituting a stated policy, practice, or interpretation with respect

to the meaning of an existing rule under Section 19(b)(3)(A)(i) of the

Act,\3\ which renders the rule effective upon the Commission's receipt

of this filing. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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

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

\2\ 17 CFR 240.19b-4.

\3\ 15 U.S.C. 78s(b)(3)(A)(i).

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

I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposed Rule Change

The NASDR is proposing to amend NASD Membership and Registration

Rule 1032 to change the date by which registered representatives who

currently trade equity securities in the Nasdaq Stock Market (Nasdaq)

and/or over-the-counter must apply for Equity Trader registration.

Below is the text of the proposed rule change. Proposed new language is

in italics; proposed deletions are in brackets.

Rule 1032. Categories of Representative Registration

* * * * *

(f) Limited Representative--Equity Trader

* * * * *

Before registration as a Limited Representative--Equity Trader as

defined in subparagraph (1) hereof may become effective, an applicant

must:

* * * * *

(B) pass an appropriate Qualification Examination for Limited

Representative-Equity Trader. Any person who was performing any of the

activities described in paragraph (f)(1) above on or prior to May 1,

1998 and who has filed an application to take this examination by

[(date thirty (30) days after the effective date of this rule)] August

31, 1998 must pass the examination by [(24 months after effective date

above)] May 1, 2000. Any person who is eligible for this extended

qualification period and who fails this examination during [such] the

twenty-four (24) month time period commencing on May 1, 1998 and ending

on May 1, 2000 must wait thirty (30) days from the date of failure to

take the examination again. Any person, other than a person who is

eligible for the extended qualification period, who files an

application to take this qualification examination after [(date thirty

(30) days after the effective date of this rule)] May 1, 1998 must pass

this examination before conducting such activities as described in

paragraph (f)(1) above. In no event may a person who is eligible for

the extended qualification period function as an Equity Trader beyond

the 24-month period without having successfully passed the appropriate

qualification examination.

[[Page 36463]]

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the NASDR included statements

concerning the purpose of and basis for the proposed rule change and

discussed any comments it received on the proposed rule change. The

text of these statements may be examined at the places specified in

Item IV below. The NASDR has prepared summaries, set forth in sections

A, B and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

On January 2, 1998, the Commission approved the NASD's proposal to

amend NASD Rule 1032 to add an additional category of representative

registration.\4\ Specifically, Rule 1032(f) requires each registered

representative who engages in proprietary or agency trades of equities,

preferred securities or convertible debt securities otherwise than on a

securities exchange, or who directly supervises such activities (i.e.,

functioning as an ``Equity Trader''), to register as a Limited

Representative-Equity Trader. In order to register as a Limited

Representatives-Equity Trader, the representative must be registered as

a General Securities Representative or as a Limited Representative-

Corporate Securities, and must pass the Series 55 examination.\5\ The

rule contains an exemption for representatives whose principal trading

activities involve executing orders on behalf of an affiliated

investment company that is registered with SEC under the Investment

Company Act of 1940.

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

\4\ See Securities Exchange Act Release No. 39516, 63 FR 1520

(January 9, 1998) (order approving File No. SR-NASD-97-21).

\5\ Registered representatives who have been ``grandfathered''

from taking the Series 7 or the Series 62 examinations will not be

required to take either examination in order to take the Series 55

examination.

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

The rule provides that presently registered representatives who

file an application to take the Series 55 examination within 30 days of

the effective date of the rule must pass the Series 55 examination

within 2 years of the effective date of the rule. The effective date of

the rule was April 1, 1998, which was announced in Notice to Members

98-17. Accordingly, a presently registered representative had until May

1, 1998 to file an application to take the Series 55 examination and

until May 1, 2000 to receive a passing score on the exam. The rule also

provides that any person, including a presently registered

representative, who files an application to take the Series 55

examination after May 1, 1998 must pass the Series 55 examination

before functioning as an Equity Trader.

It has come to the NASDR's attention that many presently registered

representatives who would have been eligible for the two year grace

period to pass the Series 55 examination failed to file applications by

May 1, 1998. Thus, such registered representatives must immediately

cease functioning as Equity Traders until they pass the Series 55

examination. As discussed above, the original proposal provided

presently registered representatives 30 days from the effective date of

the rule to file applications to take the Series 55 examination. The

NASDR believed this would provide such representatives sufficient time

to file the requisite applications. Unfortunately, this has not been

the case. If the deadline is not extended, those registered

representatives who failed to file applications by the deadline will be

forced to cease certain activities, which could cause disruptions at

NASD member firms and could cause harm to customers. The NASDR does not

believe the markets or customers will be served by a strict application

of this administrative deadline. Consequently, the NASDR is proposing

to extend the deadline for filing an application from May 1, 1998 until

August 31, 1998. This will allow a registered representative who had

been eligible for the two year grace period but failed to file an

application by May 1, 1998 to file an application by August 31, 1998

and continue to function as an Equity Trader until he/she receives a

passing score on the Series 55 examination. However, such registered

representative cannot continue functioning as an Equity Trader after

May 1, 2000 unless he/she receives a passing score on the Series 55

examination before May 1, 2000. Any person not functioning as an Equity

trader on or before May 1, 1998 must pass the Series 55 examination

before functioning as such.

2. Statutory Basis

The NASDR believes the proposed rule change is consistent with

Section 15A(b)(6) of the Act,\6\ which requires, among other things,

that the Association's 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. The NASDR believes the proposal is consistent with the

Act because it continues to require presently registered

representatives to receive a passing score on the Series 55 examination

before May 1, 2000 and to cease conducting certain specified activities

if a passing score is not received by that date. The proposed change

only allows certain registered representatives additional time to file

applications to take the Series 55 examination.

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

\6\ 15 U.S.C. 78o-3(b)(6).

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

B. Self-Regulatory Organization's Statement on Burden on Competition

The NASDR does not believe that the proposed rule change will

impose a 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

Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing

for Commission Action

The foregoing rule change constitutes a stated policy, practice, or

interpretation with respect to the meaning, administration or

enforcement of an existing rule of the Association and, therefore, has

become effective pursuant to Section 19(b)(3)(A) of the Act \7\ and

subparagraph (e) of Rule 19b-4 thereunder.\8\

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

\7\ 15 U.S.C. 78s(b)(3)(A).

\8\ 17 CFR 19b-4(e).

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

At any time within 60 days of the filing of such rule change, the

Commission may summarily abrogate such rule change 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

change is consistent with the Act. Persons making written submission

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

Copies of the submissions, all subsequent amendments, all written

statements with respect to the proposed rule

[[Page 36464]]

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 Room, 450 Fifth Street, NW., Washington, DC. Copies of such

filing also will be available for inspection and copying at the NASD.

All submissions should refer to File No. SR-NASD-98-43 and should be

submitted by July 27, 1998.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\9\

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

\9\ 17 CFR 200.30-3(a)(12).

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

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98-17710 Filed 7-2-98; 8:45 am]

BILLING CODE 8010-01-M