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87-76 New Category of Limited Representative Registration for Corporate Securities and Availability of a Study Outline for the Series 62 — Corporate Securities Limited Representative Qualification Examination

TO: All NASD Members and Other Interested Persons

EXECUTIVE SUMMARY

On January 4, 1988, the NASD will install the Limited Representative—Corporate Securities category of registration on the Central Registration Depository System. This new registration category will qualify persons associated with NASD members to solicit, purchase, or sell corporate securities, as defined in the amendment to Schedule C Part III, Section 2(e) to the NASD By-Laws.

A study outline for the new Series 62—Corporate Securities Limited Representative Qualification Examination is now available. The Series 62 examination will, under certain conditions, fulfill the prerequisite examination requirements for candidates seeking General Securities Principal registration. The new, examination will be administered in the PLATO network.

The text of the amendment to Schedule C, Part HI, to the By-Laws as well as the conforming change to Schedule C, Part II, is attached.

BACKGROUND

When the NASD adopted the Series 7—General Securities Registered Representative Examination in 1974, the NASD Board of Governors recognized that the broad product coverage in test was not suitable for many representatives whose firms specialized in limited products. The Board therefore elected to retain the predecessor Series 1—Registered Representative Examination to qualify representatives who "limited" their securities activities to either investment company products and variable annuities, or to direct participation programs. The Series 1 examination was used until August 1980, when the Series 6—Investment Company Products/Variable Contracts Representative Examination and the Series 22—Direct Participation Programs Representative Examination were implemented. In addition, in 1978, the Municipal Securities Rulemaking Board introduced the Series 52—Municipal Securities Representative Examination which created, from an NASD perspective, another category of limited representative registration.

These three limited examinations offered members and their representatives some, but not total, flexibility in qualifying for registration. For example, representatives who were already registered in one or more limited areas would be re-tested in those same areas when they sought General Securities Representative status through the Series 7 examination. Also, limited representatives who only wanted to add equity products to their qualifications would still have to study the full spectrum of municipal securities, investment company/variable products, and options products for the General Securities test. Compounding this problem, the options material in the Series 7 examination was significantly revised in June 1986 to include debt, foreign currency, and index options as well as the traditional coverage of equity options.

Therefore, the NASD Qualifications Committee decided to add two more limited representative registration categories:

1. Series 62—Corporate Securities Limited Representative Examination.
2. Series 42—Options Limited Representative Examination (planned for the near future).

A member or representative would then have total flexibility in qualifying in one or more product areas. Additionally, representatives qualifying in all five limited representative categories would be designated "General Securities Representatives," thereby offering an alternative to the Series 7 examination. The NASD has established procedures with other self-regulatory organizations to ensure comparability of subject matter coverage between the Series 7 examination and the five limited examinations.

Members have indicated a need for qualification tests that reflect the various product areas in the industry, and it is expected that the Corporate Securities Limited Registration category will apply to many firms. Expected users of the program include:

  • Existing limited representatives, especially those associated with insurance companies, who want to expand their product offerings to include securities that currently require Series 7—General Securities Representative qualification.
  • Representatives of smaller firms who are not involved in all the product areas included in the Series 7—General Securities Representative program.
  • Representatives who prefer to attain general securities qualification in successive steps rather than in the all-or-nothing manner required by the Series 7 — General Securities Representative program.
  • Equity and corporate debt traders.
  • Corporate finance personnel.
  • Certain research personnel required to be registered under NASD rules.

SUMMARY OF ADOPTED AMENDMENTS TO SCHEDULE C

Under the adopted amendments to Schedule C to the NASD By-Laws, a Series 62—Corporate Securities Limited Representative can transact a member's business in common and preferred stocks, corporate bonds, stock rights, warrants, foreign securities, ADRs, shares of closed-end investment companies and money market funds, privately issued mortgage-backed securities, other asset-backed securities, and REITs. Registration in this category alone will not allow a representative to transact a member's business in municipal securities, direct participation programs, redeemable securities of companies registered under the Investment Company Act of 1940, variable contracts, or options. A representative seeking to transact business in these latter products must register in one or more of the NASD's other limited representative categories, or as a General Securities Registered Representative.

The amendments do not affect a member's ability to require its associated persons to qualify as Series 7—General Securities Representatives as a matter of policy. The Series 62—Corporate Securities Limited Representative Examination, either alone or in conjunction with other limited representative examinations, is intended to provide members greater flexibility in qualifying their personnel, while maintaining the necessary investor protection afforded by the NASD's qualification program. The Series 62 exam, like the other limited examinations, will be administered on a daily basis using the NASD's automated testing system in the PLATO network.

Additionally, the Series 62 exam and registration as a Corporate Securities Limited Registered Representative may be used to fulfill the prerequisite representative qualifications requirement for becoming a General Securities Principal and taking the Series 24—General Securities Principal Examination. A candidate who qualifies as a Corporate Securities Limited Representative as a basis for becoming a General Securities Principal may only supervise a member's corporate securities business, unless the candidate also qualifies in the other limited product areas covered by the Series 24 exam; namely, investment company products/variable contracts and direct participation programs.

* * * * *

The attached amendments to Schedule C to the NASD By-Laws have been approved by the NASD Board of Governors and filed for approval with the Securities and Exchange Commission. Pending SEC approval, the Series 62—Corporate Securities Limited Representative Qualification Examination will be available beginning January 4, 1988. A study outline for the Series 62 examination can be obtained by sending a request with a check for $2, payable to the NASD, to: NASD, Attn: Book Order Department, P.O. Box 9403, Gaithersburg, Maryland 20898-9403.

Questions concerning this notice can be directed to either Frank J. McAuliffe, Vice President, NASD Qualifications, at (301) 738-6694, or David Uthe, NASD Senior Qualifications Analyst, at (301) 738-6695.

John T. Wall

Executive Vice President
Member & Market Services

Attachments

AMENDMENT TO SCHEDULE C, PART III TO THE NASD BY-LAWS

III

REGISTRATION OF REPRESENTATIVES



(2) Categories of Representative Registration



[The following section is new.]

(e) Limited Representative—Corporate Securities
(i) Each person associated with a member who is included within the definition of a representative in Part III, Section (1) hereof may register with the Corporation as a Limited Representative—Corporate Securities if:
(a.) Such person's activities in the investment banking or securities business involve the solicitation, purchase, and/or sale of a "security," as that term is defined in Section 3(a)(10) of the Securities Exchange Act of 1934 (the "Act"), and do not include such activities with respect to the following securities unless such person is separately qualified and registered in the category or categories of registration related to these securities:
(1.) Municipal securities as defined in Section 3(a)(29) of the Act;
(2.) Option securities as defined in Article III, Section 33(d) of the NASD Rules of Fair Practice;
(3.) Redeemable securities of companies registered pursuant to the Investment Company Act of 1940, except for money market funds;
(4.) Variable contracts of insurance companies registered pursuant to the Securities Act of 1933; and/or,
(5.) Direct Participation Programs as defined in Part II, Section 2(d)(ii) thereof.
(b.) Such person passes an appropriate qualification examination for Limited Representative—Corporate Securities.
(ii) A person qualified solely as a Limited Representative—Corporate Securities shall not be qualified to function in any area not prescribed by Part III, Section 2(e)(i) hereof.

CONFORMING CHANGE TO SCHEDULE C, PART II TO THE NASD BY-LAWS*

II

REGISTRATION OF PRINCIPALS



(2) Categories of Principal Registration
(a) General Securities Principal
(i) [Change to last sentence of this paragraph:]
Each person seeking to register and qualify as a General Securities Principal must, prior to or concurrent with such registration, become registered pursuant to Part III hereof, either as a General Representative or as a Limited Representative—Corporate Securities.
(ii) A Limited Representative—Corporate Securities seeking registration as General Securities Principal who will have supervisory responsibility over the conduct of business in investment company and variable contracts products and/or direct participation programs as defined herein must, prior to or concurrent with registration as a General Securities principal, become registered pursuant to Part III hereof as a Limited Representative—Investment Company/Variable Contracts Products and/or a Limited Representative—Direct Participation Programs.

[Existing Sections (ii) through (v) are renumbered to reflect the above.]


*New language is underlined.



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