Technical Changes to the NASD Registration Rules

INFORMATIONAL

Registration Rules

Effective: Immediately

Executive Summary

On February 26, 2003, NASD filed with the Securities and Exchange Commission (SEC) for immediate effectiveness changes to the NASD Registration Rules.¹ The changes are technical in nature and include, among other things, removing references to old NASD forms and registration categories, deleting provisions regarding outdated grandfathering clauses, deleting duplicative provisions, and combining certain provisions to eliminate redundancies in the rule language. The text of the amendments and Federal Register version of the SEC Notice are attached (see Attachments A and B). For a detailed description of the amendments, members should review the attached SEC Notice (see Attachment B).

Questions/Further Information

Questions concerning this Notice may be directed to Afshin Atabaki, Attorney, Office of General Counsel, NASD Regulatory Policy and Oversight, at (202) 728-8902.

Background

As part of NASD's rule modernization initiative, NASD identified certain registration rules that were antiquated and needed updating to reflect changes in the regulatory landscape. The amendments clarify and clean up existing rules to reduce burdens on the industry resulting from these outdated registration requirements. These rule changes include:

• amendments to Rules 1021(a) and 1031(a) to permit a member to maintain or make application for the registration of a principal or representative who performs back-office operations;



 
• amendment to Rule 1021(d)(1) to reflect that members are required to submit an amended "Uniform Application for Securities Industry Registration or Transfer" (Form U-4) rather than an "elevation form," which was an outdated form;



 
• deletion of Rule 1021(d)(3) because it inaccurately suggested that an applicant who did not take the examination within 90 days or failed the examination could submit a new form and continue to function as a principal until qualified. This was inconsistent with Rule 1021(d)(1), which states that in no event may a person function as a principal beyond the initial 90-day period;



 
• amendment to Rule 1021(e) to clarify that existing members as well as new applicants are required to have at least two principals with respect to each aspect of their investment banking and securities business;



 
• removal of the reference to "financial principal" from Rule 1022(a)(3) because it related to an examination that is no longer administered;



 
• combining Rules 1022(a)(4), (5), and (6) to eliminate certain redundancies in the language and to clarify that a person registered solely as a general securities principal is not automatically qualified to function as a municipal securities principal or municipal fund securities limited principal;



 
• amendment to Rule 1022(g)(2)(A) to state that a person registered solely as a limited principalægeneral securities sales supervisor shall not be qualified to function in a principal capacity with responsibility over any of the areas of business not described in that rule. This change will clarify that such persons may be registered in other categories, if applicable;



 
• deletion of Rules 1032(a)(2)(A)-(D) and 1032(a)(2)(F) because these sections are no longer relevant to a majority of NASD members and, if necessary, the staff may provide waivers;



 
• amendment to Rule 1032(a)(2)(G) to reflect the Financial Services Authority's (FSA) new authorization and approval process;



 
• deletion of Rule 1032(g)(3) because most persons who were eligible for grandfathering have been processed and, if necessary, the staff may provide waivers to new applicants;



 
• removal of the phrase "on a pass/fail basis only" from Rule 1070(c) because NASD provides more than just pass/fail information to members;



 
• amendment to Rule 1070(e) to clarify that although age or physical infirmity will not individually of themselves constitute sufficient grounds to waive an examination, experience in an ancillary field may be sufficient grounds to waive an examination; and



 
• replacement of the terms "Application for Classification as a Foreign Associate" in Rule 1100(b) with the terms "Uniform Application for Securities Industry Registration or Transfer," which is the current application.

For a more detailed description of the amendments, members should review the attached SEC Notice.

¹ See Securities Exchange Act Release No. 47433 (March 3, 2003), 68 FR 11424 (March 10, 2003) (notice of filing and immediate effectiveness of File No. SR-NASD-2003-24) ("SEC Notice").

Attachment A

New language is underlined; deletions are in brackets.

1000. Membership, Registration and Qualification Requirements

1020. Registration of Principals

1021. Registration Requirements

1022. Categories of Principal Registration

IM-1022-1. Limited Principal—Registered Options and Security Futures [Principals]

No Change to rule language.

1030. Registration of Representatives

1031. Registration Requirements

1032. Categories of Representative Registration

1070. Qualification Examinations and Waiver of Requirements

1080. Confidentiality of Examinations

[The Association] NASD considers all of its Qualification Examinations to be highly confidential. The removal from an examination center, reproduction, disclosure, receipt from or passing to any person, or use for study purposes of any portion of such Qualification Examination, whether of a present or past series, or any other use which would compromise the effectiveness of the Examinations and the use in any manner and at any time of the questions or answers to the Examinations are prohibited and are deemed to be a violation of Rule 2110. An applicant cannot receive assistance while taking the examination. Each applicant shall certify to the Board that no assistance was given to or received by him during the examination.

1100. Foreign Associates

[1110. Registration of Government Securities Principals and Representatives]

[1111. Registration of Principals]

[All persons associated with a member not previously registered as a principal who are to function as government securities principals shall be registered as such with the Association.]

[1113. Persons Exempt from Registration

Persons associated with a member whose functions are exclusively clerical or ministerial are not required to register with the Association.]