Legal & Compliance
*These are suggested departments only. Others may be appropriate for your firm.
The Securities and Exchange Commission recently approved two additions to the NASD's qualification and registration programs. The two new tests, which will be available for member use beginning January 2, 1990, are:
- Assistant Representative-Order Processing (Series 11)
- Limited Principal-Introducing Broker-Dealer Financial and Operations (Series 28)
Each of these tests correlates to a new registration category in Schedule C to the NASD By-Laws.
ASSISTANT REPRESENTATIVE-ORDER PROCESSING (Series 11)
In June 1989, the Securities and Exchange Commission approved a new level of registration for Assistant Representative-Order Processing that is contained in Part IV of Schedule C to the NASD By-Laws and is reprinted at the end of this notice. An Assistant Representative-Order Processing may accept unsolicited customer securities orders for direct submission for execution by the member. An Assistant Representative-Order Processing may not solicit transactions or new accounts, render investment advice, make recommendations, or act as a trader. Activity in municipal securities and direct participation programs is excluded from the purview of this category of registration. Further restrictions on compensation and supervision are delineated in paragraph (2) of Part IV. (Note: Sales assistants who relay last-sale price information to satisfy customer inquiries or who, during very high volume periods or brief absences of registered personnel, write memoranda of unsolicited customer instructions may continue to do so without the need of registering in any capacity.)
Because this registration category is new to the industry and not presently shared by other regulators, members are urged to determine the appropriateness of their firm's utilization of this program in light of the regulations of the state securities commissions and stock exchanges under which they operate.
The Series 11 Assistant Representative-Order Processing examination contains 50 questions on securities products and markets, customer account forms, providing price information, order processing,, and general regulations affecting the conduct of a customer business. Candidates have 60 minutes to complete the test. A total of 35 questions correct (70 percent) is required to receive a passing score. To apply for this registration, submit Form U-4 (on page 1, under "Type of Examination/Registration Requested," type "Series 11-AR" in the space labeled "Other").
Study outlines are $4 each (add 20 percent if the outlines are to be shipped first class) and may be ordered from:
Book Order Department
P.O. Box 9403
Gaithersburg, MD 20898-9403
Questions regarding this program may be directed to David Uthe, Senior Qualifications Analyst, at (301) 590-6695.
LIMITED PRINCIPAL-INTRODUCING BROKER-DEALER FINANCIAL AND OPERATIONS (Series 28)
The NASD Board of Governors, in November 1988, approved a new category of financial and operations principal registration for introducing member firms. The test developed for this new category of registration should soon be approved by the SEC and should be available for member use beginning January 2, 1990.
The Series 28 is a derivative of the NASD's Financial and Operations Principal Examination (Series 27). It will test candidates registering with introducing broker-dealers or with $5,000-category general securities firms that neither carry customer accounts nor hold customer funds or securities pursuant to SEC Rule 15c3-l(a)(2)(i) or (vi) and SEC Rule 15c3-3(k)(2)(ii). The Series 28 will feature 75 multiple-choice questions plus a 25-point net capital computation appropriate to the financial and operational responsibilities of such firms. Candidates have up to three hours to complete the test, and an overall score of 70 percent or better is required for a passing grade.
The amendment to Section (2)(c) in Part II of Schedule C to the By-Laws, creating this new category of registration, is reprinted at the end of this notice. Study outlines may be ordered for $10 each from the Book Order Department at the aforementioned address (add 20 percent for first class postage).
Questions regarding the Series 28 program may be directed to Carole Hartzog, Senior Qualifications Analyst, at (301) 590-6696.
SCHEDULE C TO THE NASD BY-LAWS
(Note: New text is underlined; deleted text is in brackets.)
(1) Registration Requirements
(e) Requirement of Two Registered Principals for New Applications for Membership
(i) An applicant for membership in the Corporation, except a sole proprietorship, shall have at least two officers or partners who are qualified to become registered as principals with respect to each aspect of the applicant's investment banking and securities business pursuant to the provisions of Part II, Section 2(a), [2(c)] 2(d) and [2(d)] 2e, whichever are applicable, before it shall be admitted to membership.
(iii) In addition to the provisions of Part II Section (l)(e)(i) hereof, an applicant for membership, if the nature of its business so requires shall have at least one person qualified for registration pursuant to Part II, Section 2(b), 2(c), and 2(e) 2(f) hereof.
(2) Categories of Principal Registration
(a) General Securities Principal
(b) Limited Principal-Financial and Operations
(c) Limited Principal-Introducing Broker-Dealer Financial and Operations
(i) Every member of the Corporation, which is operating pursuant to the provisions of SEC Rule 15c3-l (a)(2)(i) or (vi) and to the provisions of SEC Rule 15c3-3(k)(2)(ii), shall designate as Limited Principal-Introducing Broker-Dealer Financial and Operations those persons associated with it, at least one of whom shall be its chief financial officer, who perform the duties described in Part II, Section (2)(c)(ii) hereof. Each person associated with a member who performs such duties shall be required to register as a Limited Principal-Introducing Broker-Dealer Financial and Operations with the Corporation and shall pass an appropriate Qualification Examination before such registration may become effective.
(ii) The term "Limited Principal-Introducing Broker-Dealer Financial and Operations" shall mean a person associated with a member whose duties include:
(a) final approval and responsibilities for the accuracy of financial reports submitted to any duly established securities industry regulatory body;
(b) final preparation of such reports;
(c) supervision of individuals who assist in thepreparation of such reports;
(d) supervision of and responsibility for individuals who are involved in the actual maintenance of the member's books and records from which such reports are derived;
(e) supervision and/or performance of the member's responsibilities under all financial responsibility rules promulgated pursuant to the provisions of the Securities Exchange Act of 1934;
(f) overall supervision of and responsibility for the individuals who are involved in the administration and maintenance of the member's back office operations; or
(g) any other matter involving the financial and operational management of the member.
(iii) Except as provided in Part II, Section (l)(c) hereof, a person designated pursuant to the provisions of Part II, Section (2)(c) hereof shall not be required to take the Limited Principal-Introducing Broker-Dealer Financial and Operations examination and shall be qualified for registration as a Limited Principal-Introducing Broker-Dealer Financial and Operations if such a person is qualified to be registered or is registered as a Limited Principal-Financial and Operations as defined in Part II, Section (2)(b)(ii) hereof.
(iv) A person registered solely as a Limited Principal-Introducing Broker-Dealer Financial and Operations shall not be qualified to function in a principal capacity with responsibility over any area of business activity not prescribed in Part II, Section (2)(c)(ii) hereof. Such person shall not be qualified to function in a principal capacity at a member unless such member operates under Part II, Section (2)(c)(i).
Subsequent sections to be renumbered accordingly.
Registration of Assistant Representatives-Order Processing
(1) Registration of Assistant Representatives-Order Processing
(1) Registration Requirements
(a) All Assistant Representatives-Order Processing Must Be Registered — All persons associated with a member who are to function as Assistant Representatives-Order Processing shall be registered with the Corporation. Before their registrations can become effective, they shall pass a Qualification Examination for Assistant Representatives-Order Processing as specified by the Board of Governors.
(b) Definition of Assistant Representative-Order Processing — Persons associated with a member who accept unsolicited customer orders for submission for execution by the member are designated as Assistant Representatives-Order Processing.
(c) Requirement for Examination on Lapse of Registration — Any person whose most recent registration as an Assistant Representative-Order Processing has been terminated for a period of two (2) or more years immediately preceding the date of receipt by the Corporation of a new application shall be required to pass a Qualification Examination for Assistant Representative-Order Processing.
(a) Prohibited Activities — An Assistant Representative-Order Processing may not solicit transactions or new accounts on behalf of the member, render investment advice, make recommendations to customers regarding the appropriateness of securities transactions, or effect transactions in securities markets on behalf of the member. Persons registered in this category may not be registered concurrently in any other capacity.
(b) Compensation — Members may only compensate Assistant Representatives-Order Processing on an hourly wage or salaried basis and may not in any way, directly or indirectly, relate their compensation to the number or size of transactions effected for customers. This provision shall not prohibit persons registered in this capacity from receiving bonuses or other compensation based on a member's profit sharing plan or similar arrangement.
(c) Supervision — The activities of Assistant Representatives-Order Processing may only be conducted at a business location of the member that is under the direct supervision of an appropriately registered principal.
[Part IV added effective June 12, 1989.]