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86-17 Availability of New Outline for the Series 7 General Securities Representative Examination; Updating of Margin Questions on Option Principal Examinations
TO: All NASD Members and Other Interested Persons
ATTN: Training Directors and Registration Personnel
The purpose of this notice is twofold:
- Part I announces the availability in mid-March of study outlines for a revised Series 7 General Securities Representative Qualification Examination. Pending SEC approval, it is expected that this new version of the test will be introduced at the June 1986 administration.
- Part II addresses the margin requirement changes that were approved by the SEC in September 1985 for mandatory use after January 31, 1986. Margin calculations for short options positions using the new standards will be reflected in questions on the option principal examinations, Series 4 and Series 8, beginning March 16, 1986.
The Series 7 examination was adopted as an industry-wide general securities representative qualification examination in 1974. In the years since its inception, several new securities products have been conceived, existing product mixes within general securities firms have been redefined and, generally, the job of the registered representative has been modified slightly as firms offered an ever wider range of financial services.
In October 1983, staff members of the American Stock Exchange, the Chicago Board Options Exchange, the Municipal Securities Rulemaking Board, the Philadelphia Stock Exchange, the National Association of Securities Dealers and the New York Stock Exchange met to begin a fundamental review of the material tested in the Series 7 examination and to make the changes necessary to update the test to reflect today's registered representatives' general securities activities.
In accomplishing this modification, the regulators received invaluable help from an experienced group of securities industry professionals. These volunteers worked both in the project studies that led to the creation of the new outline and in the writing and review of new test questions. The Series 7 project is now completed and a new outline will be available within the next few weeks. The NASD will soon file the new outline and test specifications with the SEC and, pending approval, begin administering this new version of the test in June 1986.
Structure and Content of the New Series 7 Test
The examination will remain a six-hour, two-part, 250-question (four-option, multiple-choice) paper and pencil test. Its purpose also remains unchanged: to determine whether candidates are capable of functioning as entry-level representatives in a general securities environment working under reasonable supervision. For this reason, there should be little change in the overall level of difficulty of the Series 7 examination.
All the financial product areas covered on the present Series 7 test will also be covered on the revised test. In addition, several new products will be added to the test's content, including Index Options, Interest Rate Options and Foreign Currency Options. Direct Participation Programs will receive a more thorough treatment on the revised test, both in terms of subject content and the number of questions in each test form. All the questions used on the present test are being reviewed for inclusion on the revised test. In addition, four regionally based, industry-staffed teams are writing new test questions based on the revised exam's subject content. These new questions place less emphasis on factual recall and more emphasis on application, evaluation and analysis.
To provide member organizations' training departments with detailed information on the revised test, two initiatives have been undertaken. First, a new study outline (see the order form attached) is available for $8.10 per copy, including postage. It contains a new job-related presentation of all subject areas covered in the revised Series 7 examination along with the weightings of those areas on each form of the test. Information on score reporting and a series of model questions for question-format familiarization are also included. For course developers, a revised bibliography of source material has been included. Second, four seminars will be held during March 1986 in four financial centers throughout the country (see the attached schedule and reservation form). These seminars are intended to provide opportunities for those involved in training Series 7 candidates to ask questions of regulatory staff members and industry representatives about the revised examination.
In January 1986, the options industry adopted the new SEC-approved margin requirements for short option positions. The new requirement for a short put or call equity option is 100 percent of the option premium, plus 15 percent of the market value of the underlying security, less any out-of-the-money amount, to a minimum of the option proceeds plus 5 percent of the underlying security value. Accordingly, option margin questions on the Series 4 Registered Options Principal Qualification Examination and in Section 5 of the Series 8 General Securities Sales Supervisor Qualification Examination will be changed on March 16, 1986, to reflect the new requirements.
Any questions regarding this notice may be directed to David Uthe, NASD Qualifications Department, at (202) 728-8138.
John T. Wall
Executive Vice President
Member and Market Services