Document ID: SEC-2005-0097-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2005-10-11T04:00Z

[Federal Register: October 11, 2005 (Volume 70, Number 195)]
[Notices]               
[Page 59109-59111]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11oc05-80]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52546; File No. SR-NASD-2005-109]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed 
Rule Change Relating to Revisions to the Series 4 Examination Program

September 30, 2005.
    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 September 13, 2005, the National Association of Securities Dealers, 
Inc. (``NASD'') 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 NASD. 
NASD has designated the proposed rule change as constituting a stated 
policy, practice, or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule of the self-
regulatory organization pursuant to Section 19(b)(3)(A)(i) of the Act 
\3\ and Rule 19b-4(f)(1) thereunder,\4\ which renders the proposal 
effective upon filing with the Commission. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is filing revisions to the study outline and selection 
specifications for the Limited Principal--Registered Options (Series 4) 
examination program.\5\ The proposed revisions update the material to 
reflect changes to the laws, rules, and regulations covered by the 
examination, as well as modify the content of the examination program 
to track more closely the functional workflow of a Series 4 limited 
principal. NASD is not proposing any textual changes to the By-Laws, 
Schedules to the By-Laws, or Rules of NASD. The revisions that NASD is 
submitting with this filing supersede all prior revisions to the Series 
4 examination program submitted by NASD.
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    \5\ NASD also is proposing corresponding revisions to the Series 
4 question bank, but based upon instruction from the Commission 
staff, NASD is submitting SR-NASD-2005-109 for immediate 
effectiveness pursuant to Section 19(b)(3)(A)(i) of the Act and Rule 
19b-4(f)(1) thereunder, and is not filing the question bank for 
Commission review. See letter to Alden S. Adkins, Senior Vice 
President and General Counsel, NASD Regulation, from Belinda Blaine, 
Associate Director, Division of Market Regulation (``Division''), 
Commission, dated July 24, 2000. The question bank is available for 
Commission review.
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    The revised study outline is available on NASD's Web site (http://www.nasd.com
), at NASD, and at the Commission.\6\ However, NASD has 

omitted the Series 4 selection specifications from this filing and has 
submitted the specifications under separate cover to the Commission 
with a request for confidential treatment pursuant to Rule 24b-2 under 
the Act.\7\
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    \6\ Telephone conversation between Mia Zur, Attorney, Jan Woo, 
Attorney, Division, Commission, and Afshin Atabaki, Counsel, NASD, 
dated September 23, 2005.
    \7\ 17 CFR 240.24b-2.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD 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. NASD 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
    Pursuant to Section 15A(g)(3) of the Act,\8\ which requires NASD to 
prescribe standards of training, experience, and competence for persons 
associated with NASD members, NASD has developed examinations, and 
administers examinations developed by other self-regulatory 
organizations (``SROs''), that are designed to establish that persons 
associated with NASD members have attained specified levels of 
competence and knowledge. NASD periodically reviews the content of the 
examinations to determine whether revisions are necessary or 
appropriate in view of changes pertaining to the subject matter covered 
by the examinations.
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    \8\ 15 U.S.C. 78o-3(g)(3).
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    NASD Rule 1022(f) states that member firms engaged in, or intending 
to engage in, transactions in security futures or put or call options 
with the public must have at least one Registered Options and Security 
Futures Principal. In addition, every individual engaged in the 
management of the day-to-day options or security futures activities of 
a firm must be registered as a Registered Options and Security Futures 
Principal. The Series 4 examination, an industry-wide examination, 
qualifies an individual to function as a Registered Options and 
Security Futures Principal, but only for purposes of supervising a 
member firm's options activities.\9\ The Series 4 examination tests a 
candidate's knowledge of options trading generally, the industry rules 
applicable to trading of option contracts, and the rules of registered 
clearing agencies for options. The Series 4 examination covers, among

[[Page 59110]]

other things, equity options, foreign currency options, index options, 
and options on government and mortgage-backed securities.
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    \9\ A Registered Options and Security Futures Principal also 
must complete a firm-element continuing education program that 
addresses security futures and a principal's responsibilities for 
security futures before such person can supervise security futures 
activities.
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    The Series 4 examination program is shared by NASD and the 
following SROs: The American Stock Exchange LLC, the Chicago Board 
Options Exchange, Incorporated, the New York Stock Exchange, Inc., the 
Pacific Exchange, Inc., and the Philadelphia Stock Exchange, Inc.
    A committee of industry representatives, together with the staff of 
NASD and the SROs, recently undertook a periodic review of the Series 4 
examination program. As a result of this review and as part of an 
ongoing effort to align the examination more closely to the supervisory 
duties of a Series 4 limited principal, NASD is proposing to modify the 
content of the examination to track the functional workflow of a Series 
4 limited principal. More specifically, NASD is proposing to revise the 
main section headings and the number of questions on each section of 
the Series 4 study outline as follows: Options Investment Strategies, 
decreased from 35 to 34 questions; Supervision of Sales Activities and 
Trading Practices, increased from 71 to 75 questions; and Supervision 
of Employees, Business Conduct, and Recordkeeping and Reporting 
Requirements, decreased from 19 to 16 questions. NASD is further 
proposing revisions to the study outline to reflect the SEC short sale 
requirements. The revised examination continues to cover the areas of 
knowledge required to supervise options activities.
    NASD proposes these changes to the entire content of the Series 4 
examination, including the selection specifications and question bank. 
The number of questions on the Series 4 examination will remain at 125, 
and candidates will continue to have three hours to complete the exam. 
Also, each question will continue to count one point, and each 
candidate must correctly answer 70 percent of the questions to receive 
a passing grade.
    On February 9, 2005, NASD filed with the SEC for immediate 
effectiveness similar revisions to the Series 4 examination 
program.\10\ NASD originally proposed to implement the Series 4 
examination program revisions no later than April 29, 2005. However, 
due to administrative issues, NASD delayed until no later than November 
30, 2005 the implementation date of the revisions.\11\ In the interim, 
the SROs that share the Series 4 examination program recommended 
additional revisions to the examination program. These additional 
revisions are reflected in the examination material that NASD is 
submitting with this filing. NASD understands that the other SROs also 
will file with the Commission similar proposed rule changes reflecting 
the revisions to the Series 4 examination program. NASD continues to 
propose to implement the revised Series 4 examination program no later 
than November 30, 2005.
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    \10\ See Securities Exchange Act Release No. 51216 (February 16, 
2005), 70 FR 8866 (February 23, 2005) (relating to revisions to the 
Series 4 examination program) (SR-NASD-2005-025).
    \11\ See Securities Exchange Act Release No. 51688 (May 12, 
2005), 70 FR 28970 (May 19, 2005) (to delay implementation date of 
revisions to the Series 4 examination program) (SR-NASD-2005-053).
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2. Statutory Basis
    NASD believes that the proposed revisions to the Series 4 
examination program are consistent with the provisions of Sections 
15A(b)(6) \12\ and 15A(g)(3) of the Act,\13\ which authorize NASD to 
prescribe standards of training, experience, and competence for persons 
associated with NASD members.
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    \12\ 15 U.S.C. 78o-3(b)(6).
    \13\ 15 U.S.C. 78o-3(g)(3).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    NASD does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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 proposed rule change has become effective pursuant to Section 
19(b)(3)(A)(i) of the Act \14\ and Rule 19b-4(f)(1) thereunder,\15\ in 
that the proposed rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the self-regulatory organization. 
NASD proposes to implement the revised Series 4 examination program no 
later than November 30, 2005. NASD will announce the implementation 
date in a Notice to Members to be published no later than 60 days after 
Notice of this filing.
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    \14\ 15 U.S.C. 78s(b)(3)(A)(i).
    \15\ 17 CFR 240.19b-4(f)(1).
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    At any time within 60 days of the filing of the proposed 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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NASD-2005-109 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NASD-2005-109. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule 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. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NASD. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File

[[Page 59111]]

Number SR-NASD-2005-109 and should be submitted on or before November 
1, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. E5-5562 Filed 10-7-05; 8:45 am]

BILLING CODE 8010-01-P