[Federal Register Volume 63, Number 19 (Thursday, January 29, 1998)]
[Notices]
[Pages 4510-4513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2186]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39574; File No. SR-NASD-98-03]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Continuing Education Requirements
January 23, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on January 22, 1998, the
National Association of Securities Dealers, Inc. (``NASD'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared by NASD Regulation, Inc. (``NASD Regulation''). The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.\2\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ The Commission is concurrently publishing notice of parellel
proposed rule changes from other self-regulatory organizations
relating to continuing education for registered persons. See
Securities Exchange Act Releases Nos. 39575 (CBOE); 39576 (MSRB);
and 39577 (NYSE).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD Regulation is proposing to Amend Rule 1120 regarding the
continuing education requirements for registered persons. Below is the
text of the proposed rule change. Proposed new language is italicized;
proposed deletions are in brackets.
[[Page 4511]]
1120. Continuing Education Requirements
This Rule prescribes requirements regarding the continuing
education of certain registered persons subsequent to their initial
qualification and registration with the Association. The requirements
shall consist of a Regulatory Element and a Firm Element as set forth
below.
(a) Regulatory Element
(1) Requirements: No member shall permit any registered person to
continue to, and no registered person shall continue to, perform duties
as a registered person unless such person has complied with the
requirements of paragraph (a) hereof.
(A) Each registered person shall complete the Regulatory Element on
[three occasions, after] the occurrence of their second[, fifth and
tenth] registration anniversary [dates] date and every three years
thereafter, or as otherwise prescribed by the Association. On each [of
three occasions] occasion, the Regulatory Element must be completed
within [one hundred twenty] 120 days after the person's registration
anniversary date. A person's initial registration date shall establish
the cycle of anniversary dates for purposes of this Rule. The content
of the Regulatory Element shall be [prescribed by the Association]
determined by the Association and shall be appropriate to either the
registered representative or principal status of person subject to the
Rule.
(B) Persons Exempted from the Rule--[Registered persons] Persons
who have been continuously registered for more than 10 years [as of the
effective date of this Rule] on July 1, 1998, shall be exempt from
participation in the Regulatory Element programs for registered
representatives, provided such persons have not been subject within the
last ten years to any disciplinary action [within the last 10 years] as
enumerated in paragraph (a)(3). A person who has been continuously
registered as a principal for more than 10 years on July 1, 1998, shall
be exempt from participation in the Regulatory Element programs for
registered principals, provided such person has not been subject within
the last ten years to any disciplinary action as enumerated in
paragraph (a)(3). In the event [of such disciplinary action,] that a
[person] registered representative or principal who was exempt from
participation in Regulatory Element programs subsequently becomes the
subject of a disciplinary action as enumerated in paragraph (a)(3),
such person shall [will] be required to satisfy the requirements of the
Regulatory Element [by participation for the period from the effective
date of this Rule to 10 years after the occurrence of the disciplinary
action] as if the date of such disciplinary action is such person's
initial registration date with the Association.
(C) Persons who have been currently registered for 10 years or less
as of [the effective date of this Rule] July 1, 1998, shall [initially]
participate in the Regulatory Element within 120 days after the
occurrence of the second[, fifth or tenth] registration anniversary
date, or every third year thereafter, whichever anniversary date first
applies[, and on the applicable registration anniversary date(s)
thereafter. Such persons will have satisfied the requirements of the
Regulatory Element after participation on the tenth registration
anniversary].
[(D) All registered persons who have satisfied the requirements of
the Regulatory Element shall be exempt from further participation in
the Regulatory Element subject to re-entry into the program as set
forth in paragraph (a)(3).]
(2) Failure to Complete--No change.
(3) Re-entry into Program: Unless otherwise determined by the
Association, a registered person will be required to re-enter the
Regulatory Element and satisfy all of its requirements in the event
such person:
(A)-(C) No change.
Re-entry shall commence with initial participation within 120 days
of the registered person becoming subject to the statutory
disqualification, in the case of (A) above, or the disciplinary action
becoming final, in the case of (B) and (C) above[, and on three
additional occasions thereafter, at intervals of two, five and 10 years
after re-entry, notwithstanding that such person has completed all or
part of the program requirements based on length of time as a
registered person or completion of ten years of participation in the
program]. The date of the disciplinary action shall be treated as such
person's initial registration date with the Association.
(4) Reassociation in a Registered Capacity: Any registered person
who has terminated association with a member and who has, within two
years of the date of termination, become reassociated in a registered
capacity with a member shall participate in the Regulatory Element at
such intervals [(two, five and 10 years)] that may apply (second
anniversary and every three years thereafter) based on the initial
registration anniversary date rather than based on the date of
reassociation in a registered capacity.
(5) Definition of Registered Person: For purposes of this Rule, the
term ``registered person'' means any person registered with the
Association as a representative, principal, or assistant representative
pursuant to the Rule 1020, 1030, 1040, and 1110 Series.
(b) Firm Element
(1) Persons Subject to the Firm Element--No change.
(2) Standards for the Firm Element: (A) Each member must maintain a
continuing and current education program for its covered registered
persons to enhance their securities knowledge, skill, and
professionalism. At a minimum, each member shall at least annually
evaluate and prioritize its training needs and develop a written
training plan. The plan must take into consideration the member's size,
organizational structure, and scope of business activities, as well as
regulatory developments and the performance of covered registered
persons in the Regulatory Element. If a member's analysis establishes
the need for supervisory training for persons with supervisory
responsibilities, such training must be included in the member's
training plan.
(B) Minimum Standards for Training Programs--Programs used to
implement a member's training plan must be appropriate for the business
of the member and, at a minimum must cover the following matters
concerning securities products, services, and strategies offered by the
member:
(i) General investment features and associated risk factors;
(ii) Suitability and sales practice considerations; and
(iii) Applicable regulatory requirements.
(C) Administration of Continuing Education Program--A member must
administer its continuing education programs in accordance with its
annual evaluation and written plan and must maintain records
documenting the content of the programs and completion of the programs
by covered registered persons.
(3) Participation in the Firm Element: Covered registered persons
included in a member's plan must take all appropriate and reasonable
steps to participate in continuing education programs as required by
the member.
(4) Specific Training Requirements: The Association may require a
member, individually or as part of a larger group, to provide specific
training to its covered registered persons in such areas as the
Association deems appropriate. Such a requirement may stipulate the
class of covered registered persons for
[[Page 4512]]
which it is applicable, the time period in which the requirement must
be satisfied, and, where appropriate, the actual training content.
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 Regulation 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 Regulation 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
The purpose of the proposed rule change is to revise Rule 1120.
Rule 1120 provides for a continuing education program for certain
persons registered with the NASD. The program, which is uniform within
the industry, consists of two parts, a Regulatory Element and a Firm
Element. The Regulatory Element requires registered persons to
participate in interactive computer-based training at specified
intervals and encompasses regulatory and compliance issues, sales
practice concerns, and business ethics. The Regulatory Element program
applies generally to all registered persons and currently does not
distinguish among registration types or categories. The existing
program contains content common to registered representatives,
supervisors, and other registration categories. The Securities
Industry/Regulatory Council on Continuing Education \3\ has recommended
development of a new program component specifically for supervisors. In
addition, it is contemplated that in the future, specific programs may
be implemented for other registration categories. The proposed
amendments to Rule 1120 would allow for NASD Regulation to require new
programs as appropriate with customized training for various
registration categories, with the supervisor's program being the first
initiative. For purposes of the proposed rule, all the principal
registration categories under Rule 1022 would be included in the
supervisory program.
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\3\ The Securities Industry/Regulatory Council on Continuing
Education was created in November 1993 and comprises six self-
regulatory organizations (``SROs'') and 13 broker-dealers to
represent the interests and needs of a wide cross-section of the
industry. The SROs include the American Stock Exchange; the Chicago
Board Options Exchange, Incorporated; the Municipal Securities
Rulemaking Board; the National Association of Securities Dealers
Inc.; the New York Stock Exchange, Inc.; and the Philadelphia Stock
Exchange. In addition, the Commission and the North American
Securities Administrators Association have each assigned liaisons to
the Council.
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The proposed amendments also address the time frames at which
registered persons must participate in the Regulatory Element computer-
based training. Rule 1120 currently requires all registered persons to
complete the training on three occasions, i.e., their second, fifth and
tenth registration anniversaries. After a person is registered for more
than ten years, he or she is graduated from the program and not
required to participate further in the Regulatory Element. However, if
at any time a registered person is subject to certain disciplinary
actions enumerated in the Rule, then the registered person is required
to re-enter the Regulatory Element program. The Council has recommended
that these requirements be revised to require ongoing participation in
the program by registered persons. In accordance with that
recommendation, the proposed amendments to Rule 1120 would require
participation in the Regulatory Element throughout a registered
persons's career, specifically, on the second registration anniversary
and every three years thereafter, with no graduation from the program.
Proposed Rule 1120 would allow a one-time exemption for persons
currently graduated from the program by providing that those persons
who have been registered for more than ten years as of the effective
date of the proposed rule, and who have not been the subject of a
disciplinary action enumerated in the Rule during the past ten years,
would continue to be excluded from required ongoing participation in
the Regulatory Element. Persons registered in a supervisory capacity
would have to have been registered in a supervisory capacity for more
than 10 years in order to be covered by this one-time provision for
graduation from participation in the program. Therefore, those
supervisors who have graduated from the program requirements based on
their initial registration date but who have not completed 10 years as
a supervisor would be required to re-enter the program.
The Firm Element requires that each member conduct annually an
analysis of their training needs and administer such training, as is
appropriate, to their registered persons who have direct contact with
customers and the immediate supervisors of such registered persons, on
an ongoing basis. Topics must be specifically related to their
business, such as new products, sales practices, risk disclosure, and
new regulatory requirements and concerns. The proposed amendments to
Rule 1120 would require members to focus specifically on supervisory
training needs in conducting their analysis of training needs, and if
it is determined that there is a specific need for supervisory
training, it must be addressed in the Firm Element training plan.
These amendments, which would be adopted uniformly with rule
changes of the other SRO Council members, would significantly enhance
the continuing education program by requiring all registered persons to
participate in the Regulatory Element on an ongoing basis throughout
their securities industry careers. In addition, NASD Regulation
believes that the proposed rule allowing for the implementation of a
program specifically geared towards supervisory and the issues that may
arise in that role would result in more effective regulatory training
of supervisors as well as improved overall supervision of members.
NASD Regulation proposes to make the rule change effective on July
1, 1998.
2. Statutory Basis
NASD Regulation believes the proposed rule change is consistent
with the Act and the rules and regulations thereunder applicable to the
NASD, and in particular, Section 15A(g)(3).\4\ Under that Section, it
is the NASD's responsibility to prescribe standards of training,
experience, and competence for persons associated with NASD members.
Pursuant to this statutory obligation, NASD Regulation has proposed
this rule change in order to enhance the established continuing
education program for registered persons.
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\4\ 15 U.S.C. 78o-3(g)(3).
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The proposed rule change also is consistent with Section 15A(b)(6)
of the Act,\5\ which requires, among other things, that the rules of a
registered securities association be designed to promote just and
equitable principles of trade, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest.
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\5\ 15 U.S.C. 78o-3(b)(6).
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[[Page 4513]]
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe the proposed rule change would
result in any 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
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.
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 will also be
available for inspection and copying at the principal office of NASD
Regulation. All submissions should refer to the file number in the
caption above and should be submitted by February 19, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\6\
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\6\ 17 CFR 300.30(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-2186 Filed 1-28-98; 8:45 am]
BILLING CODE 8010-01-M