Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Changes by the National Association of Securities Dealers, Inc. To Provide an Exemption From the Research Analyst Qualification Examination for Certain Associated Persons Who Prepare Technical Research Reports and the New York Stock Exchange, Inc. Relating to an Alternative Qualification Standard for the Research Analyst Qualification Examination Requirement for Technical Analysts, 10451-10456 [E5-850]
Download as PDF
<![CDATA[
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSE–2005–05 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Number SR–NYSE–2005–05. 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 (https://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 Exchange. 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
Number SR–NYSE–2005–05 and should
be submitted on or before March 24,
2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.10
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–849 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51240; File Nos. SR–
NASD–2005–022; SR–NYSE–2005–12]
Self-Regulatory Organizations; Notice
of Filing and Immediate Effectiveness
of Proposed Rule Changes by the
National Association of Securities
Dealers, Inc. To Provide an Exemption
From the Research Analyst
Qualification Examination for Certain
Associated Persons Who Prepare
Technical Research Reports and the
New York Stock Exchange, Inc.
Relating to an Alternative Qualification
Standard for the Research Analyst
Qualification Examination Requirement
for Technical Analysts
February 23, 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 January
27, 2005 the New York Stock Exchange
(‘‘NYSE’’ or the ‘‘Exchange’’), and on
February 4, 2005, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
changes as described in items I, II, and
III below, which items have been
prepared by the respective selfregulatory organizations (‘‘SROs’’). The
SROs have designated the proposed rule
changes as constituting a stated policy,
practice, or interpretation with respect
to the meaning, administration, or
enforcement of an existing rule series
under paragraph (f)(1) of Rule 19b–4
under the Act,3 which renders the
proposals effective upon filing with the
Commission. The Commission is
publishing this notice to solicit
comments on the proposed rule changes
from interested persons.
I. Self-Regulatory Organizations’
Statements of the Terms of Substance of
the Proposed Rule Changes
A. NASD
NASD is filing with the Securities and
Exchange Commission a proposed rule
10 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(1).
10451
change to amend NASD Rule 1050 to
provide for an exemption from the
analytical portion of the Research
Analyst Qualification Examination
(Series 86) for certain applicants who
prepare only ‘‘technical research
reports’’ and have passed Levels I and
II of the Chartered Market Technician
(‘‘CMT’’) certification examination
administered by the Market Technicians
Association (‘‘MTA’’).
Below is the text of the proposed rule
change. Proposed new language is
italicized; proposed deletions are in
brackets.
*
*
*
*
*
1050. Registration of Research Analysts
(a) All persons associated with a
member who are to function as research
analysts shall be registered with NASD.
Before registration as a Research Analyst
can become effective, an applicant shall:
(1) be registered pursuant to Rule
1032 as a General Securities
Representative; and
(2) pass a Qualification Examination
for Research Analysts as specified by
the Board of Governors.4
(b) For the purposes of this Rule 1050,
‘‘research analyst’’ shall mean an
associated person who is primarily
responsible for the preparation of the
substance of a research report or whose
name appears on a research report.
(c) Upon written request pursuant to
the Rule 9600 Series, NASD will grant
a waiver from the analytical portion of
the Research Analyst Qualification
Examination (Series 86) upon
verification that the applicant has
passed:
(1) Levels I and II of the Charter
Financial Analyst (‘‘CFA’’) Examination;
or
(2) if the applicant functions as a
research analyst who prepares only
technical research reports as defined in
paragraph (e), Levels I and II of the
Chartered Market Technician (‘‘CMT’’)
Examination; and
(3) has either [(1)] functioned as a
research analyst continuously since
having passed the Level II CFA or CMT
examination or [(2)] applied for
registration as a research analyst within
two years of having passed the Level II
CFA or CMT examination.
(d) An applicant who has been
granted [such] an exemption pursuant
to paragraph (c) still must become
registered as a General Securities
Representative and then complete the
regulatory portion of the Research
Analyst Qualification Examination
1 15
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
PO 00000
Frm 00099
Fmt 4703
Sfmt 4703
4 Correspondence between SEC staff and NASD
staff.
E:\FR\FM\03MRN1.SGM
03MRN1
10452
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
(Series 87) before that applicant can be
registered as a Research Analyst.
(e) For the purposes of paragraph
(c)(2), a ‘‘technical research report’’
shall mean a research report, as that
term is defined in Rule 2711(a)(8), that
is based solely on stock price movement
and trading volume and not on the
subject company’s financial
information, business prospects, contact
with subject company’s management, or
the valuation of a subject company’s
securities.
*
*
*
*
*
B. NYSE
The NYSE hereby proposes an
interpretation to Rule 344 to establish
an alternative qualification standard for
the Research Analyst Qualification
Examination for Technical Analysts.
Below is the text of the proposed rule
change. Proposed new language is
italicized; proposed deletions are in
brackets.
Rule 344 Research Analysts and
Supervisory Analysts/01 Research
Analysts
*
*
*
*
*
Exemptions
Successful completion of Levels I and
II of the Charter Financial Analyst
(‘‘CFA’’) Examination administered by
the CFA Institute allows a Research
Analyst candidate to request an
exemption from Part I (Series 86) of the
Research Analyst Qualification
Examination. If an exemption is granted
for Part I (Series 86), a candidate will be
qualified as a Research Analyst after
passing Part II (Series 87) [only] and the
prerequisite examination (i.e., Series 7,
17, or 37/38 examinations).
Successful completion of Levels I and
II of the Chartered Market Technician
Program (‘‘CMT’’) administered by the
Market Technician Association
(‘‘MTA’’) allows a Research Analyst
candidate who prepares only technical
research reports to request an
exemption from Part I (Series 86) of the
Research Analyst Qualification
Examination. If an exemption is granted
for Part I (Series 86), a candidate will be
qualified as a Research Analyst only
after passing Part II (Series 87) and the
prerequisite examination (i.e., Series 7,
17, or 37/38 examinations).
To qualify for a CFA or CMT
exemption a Research Analyst candidate
must have: (i) completed the CFA
[Part]Level II or CMT Level II within two
years of application for registration or
(ii) functioned as a research analyst
continuously since having passed the
CFA [Part]Level II or CMT Level II.
Applicants that have completed the
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
CFA [Part]Level II or CMT Level II that
do not meet criteria (i) or (ii) may where
good cause is shown based upon
previous related employment
experience make a written request to the
Exchange for an exemption.
A technical research report is a
research report as defined in Rule
472.10(2) that is based solely on stock
price movement and trading volume
and not on the subject company’s
financial information, business
prospects, contact with the subject
company’s management, or the
valuation of a subject company’s
securities.
*
*
*
*
*
II. Self-Regulatory Organizations’
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Changes
In their filings with the Commission,
NASD and the NYSE included
statements concerning the purpose of
and basis for the proposed rule changes.
The text of these statements may be
examined at the places specified in item
IV below. NASD and the NYSE have
prepared summaries, set forth in
sections A, B, and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organizations’
Statements of the Purpose of, and
Statutory Basis for, the Proposed Rule
Changes
1. NASD’s Purpose
NASD Rule 1050 requires an
associated person who functions as a
research analyst to register as such with
NASD and pass a qualification
examination. Rule 1050 is intended to
ensure that research analysts possess a
certain competency level to perform
their jobs effectively and in accordance
with applicable rules and regulations. In
the context of this requirement, Rule
1050 defines ‘‘research analyst’’ as ‘‘an
associated person who is primarily
responsible for the preparation of the
substance of a research report or whose
name appears on a research report.’’ The
term ‘‘research report’’ in Rule 1050 has
the meaning as defined in Rule
2711(a)(8): ‘‘a written or electronic
communication that includes an
analysis of equity securities of
individual companies or industries, and
that provides information reasonably
sufficient upon which to base an
investment decision.’’
Pursuant to Rule 1050, and in
conjunction with the NYSE, NASD has
implemented the Research Analyst
Qualification Examination (Series 86/
87). The examination consists of an
analysis part (Series 86) and a regulatory
PO 00000
Frm 00100
Fmt 4703
Sfmt 4703
part (Series 87). Prior to taking either
the Series 86 or 87, a candidate also
must have passed the General Securities
Registered Representative Examination
(Series 7), the Limited Registered
Representative (Series 17), or the
Canada Module of Series 7 (Series 37 or
38). Persons who were functioning as
research analysts on the effective date of
March 30, 2004, and submitted a
registration application to NASD by
June 1, 2004, have until April 4, 2005,
to meet the registration requirements.
Rule 1050 provides an exemption
from the Series 86 examination for an
applicant that has passed Levels I and
II of the Chartered Financial Analyst
(‘‘CFA’’) examination and has either (1)
functioned continuously as a research
analyst since having passed Level II of
the CFA examination or (2) passed Level
II of the CFA examination within two
years of application for registration as a
research analyst.
The Series 86 examination consists of
100 multiple-choice questions that test
fundamental analysis and valuation of
equity securities. In contrast, technical
research is a discipline that eschews
fundamental analysis of companies and
valuation of their securities and instead
focuses on stock price movements and
trading volume. For the purposes of
Rule 2711, technical research of
securities is treated the same as
fundamental research because the same
conflicts that the rule addresses can
exist, and investors similarly benefit
from the required disclosures under the
rule, including, for example, price
charts. However, the content of the
Series 86 examination focuses
exclusively on fundamental analysis
and does not test technical research
concepts.
The MTA and CMT. The MTA was
established in 1973 and began the
development of the CMT examination
program in 1985. The program was
developed by conducting job analysis
surveys and working with a group of
subject matter experts to determine the
tasks and knowledge required to
perform the job of a technical research
analyst.
MTA first administered the exam in
1988. Through 2002, MTA relied on
outside consultants to revise and update
the examination program. According to
the MTA, these consultants also
contributed to the development of the
CFA examination program. In 2002, the
MTA retained the Chauncey Group 5 to
manage the CMT Examination Program.
As part of its review, Chauncey utilized
5 Chauncey recently merged with Thomson
Prometric, and is now known as Thomson
Prometric.
E:\FR\FM\03MRN1.SGM
03MRN1
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
subject matter and testing experts to
review the exam and developed one
form of each examination for the past
three administrations. In addition, the
MTA retained Chauncey to conduct a
job analysis study, otherwise referred to
as a body of knowledge study. Such
studies are conducted periodically to
ensure that the existing job analysis/
body of knowledge reflects current
practice.
In sum, the MTA has subjected its
examination program to standard testing
practices that includes job analysis
studies and regular updating of the CMT
examination in consultation with
content experts. These activities
conform to the Standards for
Educational and Psychological Testing
(1999) 6 that were developed jointly by
the American Psychological
Association, the American Educational
Research Association, and the National
Council on Measurement in Education.
These same standards are followed for
the development and maintenance of
NASD qualification examinations.
NASD has reviewed descriptions of
the subject matter that is covered on the
CMT examination and compared it to
the subject matter that is covered on the
Series 86 examination. The results of
the review indicate that the subject
matter is different. As such, the Series
86 examination does not test for the job
functions identified by the MTA as
applicable to technical analysts. In
addition, staff has analyzed the process
in which the MTA has developed its
examination and is satisfied that it
meets generally accepted test
development procedures. NASD
believes that investors will be better
served by proposing a qualification
standard directly applicable to persons
preparing technical research reports,
which will demonstrate their
competency based on the job functions
and knowledge needed to perform such
functions.
The proposed rule change therefore
would add an exemption from the
Series 86 for certain associated persons
who function as a research analyst but
prepare only technical research reports.
Like the CFA exemption, such analysts
would be eligible for an exemption from
the Series 86 if they have passed both
Levels I and II of the CMT examination
and also have functioned continuously
as a research analyst since having
passed Level II of the CMT examination
or passed Level II of the CMT
examination within two years of
6 The Standards for Educational and
Psychological Testing is a technical guide that
provides criteria for evaluating tests, testing
practices and the effects of test use.
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
application for registration as a research
analyst. Eligible applicants would
remain obligated to meet all other
qualification requirements, including
the Series 7 or an equivalent
examination (e.g., Series 17, 37 or 38
examination) and the Series 87 before
being qualified as a research analyst.
For the purposes of eligibility for the
exemption, the proposed rule change
would establish a definition of a
‘‘technical research report’’ as a research
report (as that term is defined in Rule
2711(a)(8)) that is based solely on stock
price movement and trading volume
and not on the subject company’s
financial information, business
prospects, contact with subject
company’s management, or the
valuation of a subject company’s
securities.
NASD believes that the proposed
exemption is appropriate for this
specific class of research analysts
because the Series 86 does not test the
functions associated with technical
analysis. NASD has reviewed the CMT
examination development program and
found it to meet generally established
psychometric standards.
Importantly, the exemption is
available only to research analysts who
exclusively prepare technical research
reports. An associated person who
prepares any research report or whose
name appears on a research report that
does not meet this definition of a
‘‘technical research report’’ would be
required to pass the Series 86 or qualify
for another exemption or waiver.
2. NASD’s Statutory Basis
NASD believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act, which
require, among other things, that NASD
rules must be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and, in general, to
protect investors and the public interest.
NASD believes that that the proposed
rule change is consistent with the
provisions of the Act noted above in
that it will ensure that those functioning
as research analysts possess a minimum
competency level and knowledge of
applicable laws, rules and regulations,
thereby enhancing investor protection.
3. NYSE’s Purpose
Recent amendments to Rule 344
(‘‘Research Analysts and Supervisory
Analysts’’) require Research Analysts to
be registered with, qualified by, and
approved by the Exchange. The
Exchange is proposing to adopt a new
interpretation to Rule 344 to establish
an alternative qualification standard for
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
10453
Part I (Series 86) of the Research Analyst
Qualification Examination.
Background. In July 2003, the
Commission approved amendments to
Exchange Rules: 472 (‘‘Communications
with the Public’’), 351 (‘‘Reporting
Requirements’’), 344 (‘‘Research
Analysts and Supervisory Analysts’’),
and 345A (‘‘Continuing Education for
Registered Persons’’).7 The amendments
included, among others, a new
registration category and qualification
examination for research analysts. The
amendments were the culmination of
joint regulatory efforts among the NYSE,
NASD and the SEC to address potential
conflicts of interest relating to research
analysts.
During the comment period for this
rule proposal, it was noted that with
regard to acknowledging, for
qualification purposes, research analysts
who have passed other professional
examinations, the Exchange would
study the appropriateness of providing
such comity. Accordingly, as discussed
in more detail below, Exchange staff,
after thorough review, is proposing that
research analysts who prepare only
technical research reports and who
otherwise demonstrate competency to
be exempt from Part I of the Research
Analyst Qualification Examination.
Research Analyst Qualification
Examination. In February 2004, the SEC
published notice of the Study Outline
for the Research Analyst Qualification
Examination.8 The Research Analyst
Qualification Examination is part of the
SROs regulatory effort to safeguard the
investing public from potential conflicts
of interest. The purpose of requiring a
qualification examination was to protect
the investing public by helping to
ensure that research analysts are
competent to perform their jobs and are
knowledgeable about the new regulatory
requirements affecting them. Given the
scope and magnitude of these
requirements, the SROs developed an
examination with a part designed
specifically to address the new SRO
Rule requirements.
The Research Analyst Qualification
Examination (Series 86/87) is a five-anda-half hour examination, consisting of
150 questions. The exam is divided into
two parts. Part I, the Series 86, consists
of 100 questions, which address
fundamental security analysis and
7 See Securities Exchange Act Release No. 48252
(July 29, 2003), 68 FR 45875 (August 4, 2003) (SR–
NYSE–2002–49) (giving notice of the proposed rule
change).
8 See Securities Exchange Act Release No. 34–
49253 (February 13, 2004), 69 FR 8257 (February
29, 2004) (SR–NYSE–2003–41). See also NYSE
Information Memo 04–5, dated February 3, 2004,
for the Study Outline for the Examination.
E:\FR\FM\03MRN1.SGM
03MRN1
10454
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
valuation of equity securities. Part II, the
Series 87, consists of 50 questions,
which primarily address pertinent SRO
and SEC rules and regulations,
including the recent Research Analysts’
Conflicts Rules.
The requirement to take and pass the
Series 86/87 examination applies to all
research analysts, as the term is defined
in Exchange Rule 344.10. Exchange Rule
344.10 provides that the term ‘‘research
analyst’’ includes a member, allied
member, or employee who is primarily
responsible for the preparation of the
substance of a research report and/or
whose name appears on such report.
Research analysts, as defined in
Exchange Rule 344.10, must be
registered with, qualified and approved
by the Exchange. The registration and
qualification requirements became
effective March 30, 2004. Candidates
who have been functioning as research
analysts as of the effective date of March
30, 2004, have been given one year,
until April 4, 2005, to meet the
qualification requirement.
In March 2004, the SEC approved an
interpretation to Rule 344 establishing
certain prerequisites to and exemptions
from the Research Analysts
Qualification Examination.9 The
interpretation to Rule 344 requires,
among other things, that each candidate
pass either the General Securities
Registered Representative Examination
(Series 7), the United Kingdom (‘‘UK’’)
Limited Registered Representative
(Series 17) Examination or the Canadian
Limited Registered Representative
(Series 37/38) Examination (prior to
taking either Part I or Part II of the
examination). Persons qualified to
conduct a general public securities
business in the UK and Canada can also
be qualified for the same in the U.S. by
taking the Series 17 or the Series 37/38
respectively in lieu of the Series 7.
These examinations are intended to
cover subject matter unique to the U.S.
securities markets otherwise not
covered by the UK/Canada
examinations.
The interpretation to Rule 344 also
allows a research analyst candidate that
has passed both Level I and Level II of
the Chartered Financial Analyst
(‘‘CFA’’) Examination administered by
the CFA Institute, to request an
exemption from Part I (Series 86) of the
Research Analyst Qualification
Examination. The CFA Examination
consists of 10 general topic areas which
provide a framework for making
Securities Exchange Act Release No. 49464
(March 24, 2004), 69 FR 16628 (March 30, 2004)
(SR–NYSE–2004–03). See also NYSE Information
Memo 04–16, dated April 1, 2004.
investment decisions. Each level of the
CFA Examination has a different
learning focus: Level I focuses on tools
and concepts that apply to investment
valuation and portfolio management;
and Level II focuses on asset valuation
and applying the tools and concepts
from Level I. Candidates who receive an
exemption from the Series 86 must still
satisfy the Series 7, 17, or 37/38
prerequisite examination and pass the
Series 87 to be registered and qualified
as Research Analysts.
To qualify for the CFA exemption
from the examination requirement a
Research Analyst candidate must have:
(i) Completed the CFA Level II within
2 years of application or registration or
(ii) functioned as a research analyst
continuously since having passed the
CFA Level II. Applicants that have
completed the CFA Level II that do not
meet either of the above criteria may,
upon a showing of good cause based
upon previous related employment
experience, make a written request to
the Exchange for an exemption.
Proposed Exemptive Relief. Beginning
March 2004, the Exchange and NASD
held several conference calls/meetings
and have exchanged correspondences
with the Market Technicians
Association, Inc. (‘‘MTA’’) Task Force
with regard to its efforts to seek
exemptive relief from the Series 86
examination for individuals who have
passed Levels I and II of the Chartered
Market Technician Program (‘‘CMT’’)
who prepare technical research reports.
The CMT Levels I and II are in total
six-hour examinations, consisting of a
total of 270 multiple-choice questions.
CMT Level I tests the working
knowledge of the basic tools of technical
analysis, including: basic definitions
and information; methods of charting;
establishing price targets; market trend
determination; and bond, commodity,
currency, futures, index and option
analysis. Level II tests more technical
analytical techniques and the ability to
apply the principles tested in Level I.
As noted above, an interpretation of
Rule 344 provides an exemption from
the Series 86 examination for
individuals who have passed Levels I
and II of the CFA examination. The
Exchange is proposing a similar
exemption for research analysts who
only prepare technical research reports
and who have passed Levels I and II of
the CMT. For purposes of the
exemption, a ‘‘technical research
report’’ is a research report as defined in
Rule 472.10(2) 10 that is based solely on
9 See
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
10 Rule 472.10(2) defines a research report as
written or electronic communication, which
includes an analysis of equity securities of
PO 00000
Frm 00102
Fmt 4703
Sfmt 4703
stock price movement and trading
volume and not on the subject
company’s financial information,
business prospects, contact with the
subject company’s management, or the
valuation of a subject company’s
securities. The proposed definition
builds on the core definition of
‘‘research report’’ in Rule 472 and
incorporates, in relevant part, the
substance of the definition (discussed
below) of ‘‘technical research report’’ in
the Global Research Analyst
Settlement.11
The proposed exemption would be
similarly conditioned on passing the
Series 7, 17, or 37/38 prerequisite
examination and Series 87 examination
as well as the time limitations also
noted above. Further, if such analysts
were to prepare a research report (e.g.,
a fundamental equity analysis report) as
defined in Exchange Rule 472.10(2),
they would be required to pass either
the Series 86 examination or have
obtained the CFA exemption as well as
pass the Series 87 examination. While
exempt from the Series 86 examination,
these analysts would still be subject to
all other Exchange rules governing
communications with the public and
still be subject to the supervision of
their firms.
Exchange staff believes that it is
appropriate, and consistent with its
regulatory objectives, to provide
exemptive relief to technical analysts
similar to that which has been provided
for fundamental analysts. First, the
genesis of the Research Analyst
Qualification Examination was to help
address the conflicts of interest inherent
with respect to the interaction between
research analysts, investment bankers
and subject companies in obtaining and
retaining investment banking
relationships.
The Series 86 exam was developed by
NYSE and NASD staffs in conjunction
with a committee of fundamental
analysts and is intended to test
fundamental securities analysts. This is
quite clear from the exam’s Study
Outline. Technical analysis is quite
different than fundamental and
therefore such analysts should not
unnecessarily be subjected to taking an
examination, when there is a superior
alternative to demonstrate competency.
Indeed, securities regulators recognize
the distinctions among various types of
research disciplines. In this regard, the
recently approved amendments to the
individual companies or industries and provides
information reasonably sufficient upon which to
base an investment decision.
11 See SEC Litigation Release No. 18438 (October
31, 2003).
E:\FR\FM\03MRN1.SGM
03MRN1
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
Global Research Analyst Settlement
make this distinction by providing for
the following definition:
The term ‘‘technical research report’’
means any written (including electronic)
communication that is furnished by the firm
to investors in the U.S. and includes an
analysis of the securities of an issuer or
issuers, that is based solely on prices and
trading volume and not on the issuer’s
financial information, business prospects, or
contact with issuer management, and that
provides information reasonably sufficient
upon which to base an investment decision.
The Exchange reviewed descriptions
of the subject matter that is covered on
the CMT examination and compared it
to the subject matter that is covered on
the Series 86 examination. The results
of the review indicate that the subject
matter is different, and confirms that the
work process and product of a technical
analyst is distinctly different from the
work of a fundamental analyst. In
addition, staff has analyzed the process
in which the MTA has developed its
examination and is satisfied that it
meets generally accepted test
development procedures. The Exchange
believes that investors will be better
served by proposing a qualification
standard directly applicable to persons
preparing technical research reports,
which will demonstrate their
competency based on the work
functions and knowledge needed to
perform such functions.
The MTA and CMT. The MTA was
established in 1973, and began the
development of the CMT examination
program in 1985, by conducting job
analysis surveys and working with a
group of subject matter experts to
determine the tasks and knowledge
required to perform the job of a
Technical Research Analyst.
In 1988, the original examinations
were administered. From 1988 through
2002, the examination continued to be
revised and updated by employing
outside consultants. According to the
MTA, these consultants were also
contributors to the CFA examination
process, which the SEC approved as
exemptions to both Part II of the
Supervisory Analyst (Series 16)
Examination 12 and Part I (Series 86) of
the Research Analyst Qualification
Examination.
In 2002, the MTA retained the
Chauncey Group to manage the CMT
Examination Program. As part of its
review, Chauncey utilized subject
matter and testing experts to review the
exam and developed one form of each
12 See Securities Exchange Act Release No. 41021
(February 4, 1999), 64 FR 7680 (February 16, 1999)
(SR–NYSE–98–44).
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
examination for the past three
administrations. In addition, the MTA
retained Chauncey to conduct a job
analysis study, otherwise referred to as
a body of knowledge study. Such
studies are conducted periodically to
ensure that the existing job analysis
body of knowledge is reflective of
current practice.
In sum, the MTA with its professional
consultants have subjected the
examination to standard testing
practices that the Exchange believes
sufficient to allow it to be used to
provide an exemption for the Series 86
examination. This is evidenced by the
fact that the MTA has been conducting
job analysis studies, updating the CMT
examinations periodically, and
involving content experts in such
studies and updates of the
examinations. Such activities conform
to the Standards for Educational and
Psychological Testing (1999),13 which
were developed jointly by the American
Psychological Association (APA), the
American Educational Research
Association (AERA), and the National
Council on Measurement in Education
(NCME). These same standards are
followed for the development and
maintenance of NYSE qualification
examinations.
For purposes of consistency, the
Exchange is also amending the text of
the interpretation to Rule 344 by
inserting the term ‘‘Level’’ in place of
‘‘Part’’ when referencing the CFA
examination.
4. NYSE’s Statutory Basis
The statutory basis for this proposed
rule change is section 6(b)(5) 14 and
section 6(c)(3)(B) 15 of the Act. Under
section 6(b)(5), the rules of the Exchange
must be designed to protect investors
and the public interest. By requiring a
qualification standard directly
applicable to persons preparing
technical research reports, which will
demonstrate their competency based on
the work functions and knowledge
needed to perform such functions,
investors will be better protected.
Under section 6(c)(3)(B) it is the
Exchange’s responsibility to prescribe
standards of training, experience and
competence for persons associated with
Exchange members and member
organizations. In addition, under section
6(c)(3)(B), the Exchange may bar a
natural person from becoming a member
or person associated with a member, if
13 The Standards for Educational and
Psychological Testing is a technical guide that
provides criteria for evaluating tests, testing
practices and the effects of test use.
14 15 U.S.C. 78f(b)(5).
15 15 U.S.C. 78f(c)(3)(B).
PO 00000
Frm 00103
Fmt 4703
Sfmt 4703
10455
such natural person does not meet such
standards of training, experience and
competence as prescribed by the rules of
the Exchange. Pursuant to this statutory
obligation, the Exchange has: (1)
Developed an examination that will be
administered to establish that Research
Analysts have attained specified levels
of competence and knowledge; and (2)
provided for exemptions from Part I of
the examination were candidates have
their competency based on their work
functions and the knowledge they need
to perform such functions (e.g., passing
Levels I and II of the CFA or CMT).
B. Self-Regulatory Organizations’
Statement on Burden on Competition
NASD and the NYSE do not believe
that the proposed rule changes will
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
NASD and the NYSE has neither
solicited nor received written comments
on the proposed rule changes.
III. Date of Effectiveness of the
Proposed Rule Changes and Timing for
Commission Action
The proposed rule changes have been
filed by NASD and the NYSE as stated
policies, practices, or interpretations
with respect to the meaning,
administration, or enforcement of an
existing rule under Rule 19b–4(f)(1)
under the Act.16 Consequently, they
have become effective pursuant to
section 19(b)(3)(A) of the Act and Rule
19b–4(f)(1) thereunder.
At any time within 60 days of the
filing of the proposed rule changes, the
Commission may summarily abrogate
these proposals 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
changes are consistent with the Act.
Comments may be submitted by any of
the following methods:
16 17
E:\FR\FM\03MRN1.SGM
CFR 240.19b–4(f)(1).
03MRN1
10456
Federal Register / Vol. 70, No. 41 / Thursday, March 3, 2005 / Notices
Electronic Comments
SOCIAL SECURITY ADMINISTRATION
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–022 and/or
SR–NYSE–2005–12 on the subject line.
Privacy Act of 1974, as Amended
Alteration to Existing System of
Records and New Routine Use
Disclosure
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
450 Fifth Street, NW., Washington, DC
20549–0609.
All submissions should refer to File
Numbers SR–NASD–2005–022 and/or
SR–NYSE–2005–12. These file numbers
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 (https://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
Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing also will be available for
inspection and copying at the principal
office of the NASD and the NYSE. 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
Numbers SR–NASD–2005–022 and/or
SR–NYSE–2005–12 and should be
submitted on or before March 24, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.17
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–850 Filed 3–2–05; 8:45 am]
BILLING CODE 8010–01–P
17 17
CFR 200.30–3(a)(12).
VerDate jul<14>2003
16:38 Mar 02, 2005
Jkt 205001
AGENCY:
Social Security Administration
(SSA).
Altered systems of records,
including proposed new routine use.
ACTION:
SUMMARY: In accordance with the
Privacy Act (5 U.S.C. 552a(e)(4) and
(11)), we are issuing public notice of our
intent to alter two existing systems of
records, the Recovery of Overpayments,
Accounting and Reporting, 60–0094 and
the Supplemental Security Income
Record and Special Veterans Benefits,
60–0103. The proposed alterations will
result in the following changes to these
two systems of records:
(1) Expansion of the categories of
individuals covered by the systems to
include former beneficiaries and
representative payees of Social Security
payments and former recipients of
Supplemental Security Income (SSI)
payments who received an overpayment
and owe a delinquent debt to the SSA;
(2) Expansion of the purposes for
which SSA uses information maintained
in the systems; and
(3) A proposed new routine use
disclosure in each system providing for
the release of information to employers
to assist SSA in collecting delinquent
debts owed to the Agency from the
disposable pay of the debtors described
above.
All of the proposed alterations are
discussed in the SUPPLEMENTARY
INFORMATION section below. We invite
public comment on this proposal.
DATES: We filed a report of the proposed
new routine use disclosures with the
Chairman of the Senate Committee on
Homeland Security and Governmental
Affairs, the Chairman of the House
Committee on Government Reform, and
the Director, Office of Information and
Regulatory Affairs, Office of
Management and Budget (OMB) on
February 22, 2005. The proposed altered
systems of records, including the
proposed new routine use respective to
those systems, will become effective on
April 3, 2005, unless we receive
comments warranting them not to
become effective.
ADDRESSES: Interested individuals may
comment on this publication by writing
to the Executive Director, Office of
Public Disclosure, Office of the General
Counsel, Social Security
Administration, Room 3–A–6
Operations Building, 6401 Security
Boulevard, Baltimore, Maryland 21235–
PO 00000
Frm 00104
Fmt 4703
Sfmt 4703
6401. All comments received will be
available for public inspection at the
above address.
Contact Joan
Peddicord, Social Insurance Specialist,
Strategic Issues Team, Office of Public
Disclosure, Office of the General
Counsel, Social Security
Administration, in Room 3–A–6
Operations Building, 6401 Security
Boulevard, Baltimore, Maryland 21235–
6401, telephone at (410) 966–6491, email: joan.peddicord@ssa.gov.
FOR FURTHER INFORMATION:
SUPPLEMENTARY INFORMATION:
I. Background and Purpose of the
Proposed Alterations to the Recovery of
Overpayments, Accounting and
Reporting System and the
Supplemental Security Income Record
and Special Veterans Benefits System
A. General Background
Administrative wage garnishment
(AWG) is authorized by the Debt
Collection Improvement Act (DCIA) of
1996. Section 31001(o)(1) of Public Law
104–134 (1996) amended Chapter 37,
subchapter II of Title 31, United States
Code by adding section 3720D to permit
Federal agencies to use AWG to recover
overdue debts. SSA will use AWG to
collect program overpayments arising
under the Title II and Title XVI
programs owed by former beneficiaries
and representative payees of Social
Security payments and former
recipients of SSI payments. SSA plans
to use AWG to collect delinquent debts
owed to the Agency from the disposable
pay of the debtor by sending a nonjudicial order to his or her employer.
SSA is developing AWG as an
automated system. Using automated
routines, SSA will identify Title II and
Title XVI debtors who meet the criteria
for AWG. SSA will send an automated
notice to the debtors informing them
about the planned action, providing
them with opportunity to repay the debt
and avoid AWG, and also providing
them with their due process rights. If
the debtor does not respond to the
notice, SSA will launch AWG no sooner
than 60 days after the date of the notice.
SSA will launch AWG by sending the
non-judicial garnishment order to the
last known employer of the debtor. The
garnishment order directs the employer
to withhold 15 percent of the debtor’s
disposable wages consistent with the
DCIA and send them to SSA each
payday as payment toward the
delinquent debt. AWG will generally
continue until the debt is repaid or
disposed of in some other way.
E:\FR\FM\03MRN1.SGM
03MRN1
]]>Agencies
[Federal Register Volume 70, Number 41 (Thursday, March 3, 2005)]
[Notices]
[Pages 10451-10456]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-850]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51240; File Nos. SR-NASD-2005-022; SR-NYSE-2005-12]
Self-Regulatory Organizations; Notice of Filing and Immediate
Effectiveness of Proposed Rule Changes by the National Association of
Securities Dealers, Inc. To Provide an Exemption From the Research
Analyst Qualification Examination for Certain Associated Persons Who
Prepare Technical Research Reports and the New York Stock Exchange,
Inc. Relating to an Alternative Qualification Standard for the Research
Analyst Qualification Examination Requirement for Technical Analysts
February 23, 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 January 27, 2005 the New York Stock Exchange (``NYSE'' or the
``Exchange''), and on February 4, 2005, the National Association of
Securities Dealers, Inc. (``NASD''), filed with the Securities and
Exchange Commission (``SEC'' or ``Commission'') the proposed rule
changes as described in items I, II, and III below, which items have
been prepared by the respective self-regulatory organizations
(``SROs''). The SROs have designated the proposed rule changes as
constituting a stated policy, practice, or interpretation with respect
to the meaning, administration, or enforcement of an existing rule
series under paragraph (f)(1) of Rule 19b-4 under the Act,\3\ which
renders the proposals effective upon filing with the Commission. The
Commission is publishing this notice to solicit comments on the
proposed rule changes from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organizations' Statements of the Terms of Substance
of the Proposed Rule Changes
A. NASD
NASD is filing with the Securities and Exchange Commission a
proposed rule change to amend NASD Rule 1050 to provide for an
exemption from the analytical portion of the Research Analyst
Qualification Examination (Series 86) for certain applicants who
prepare only ``technical research reports'' and have passed Levels I
and II of the Chartered Market Technician (``CMT'') certification
examination administered by the Market Technicians Association
(``MTA'').
Below is the text of the proposed rule change. Proposed new
language is italicized; proposed deletions are in brackets.
* * * * *
1050. Registration of Research Analysts
(a) All persons associated with a member who are to function as
research analysts shall be registered with NASD. Before registration as
a Research Analyst can become effective, an applicant shall:
(1) be registered pursuant to Rule 1032 as a General Securities
Representative; and
(2) pass a Qualification Examination for Research Analysts as
specified by the Board of Governors.\4\
---------------------------------------------------------------------------
\4\ Correspondence between SEC staff and NASD staff.
---------------------------------------------------------------------------
(b) For the purposes of this Rule 1050, ``research analyst'' shall
mean an associated person who is primarily responsible for the
preparation of the substance of a research report or whose name appears
on a research report.
(c) Upon written request pursuant to the Rule 9600 Series, NASD
will grant a waiver from the analytical portion of the Research Analyst
Qualification Examination (Series 86) upon verification that the
applicant has passed:
(1) Levels I and II of the Charter Financial Analyst (``CFA'')
Examination; or
(2) if the applicant functions as a research analyst who prepares
only technical research reports as defined in paragraph (e), Levels I
and II of the Chartered Market Technician (``CMT'') Examination; and
(3) has either [(1)] functioned as a research analyst continuously
since having passed the Level II CFA or CMT examination or [(2)]
applied for registration as a research analyst within two years of
having passed the Level II CFA or CMT examination.
(d) An applicant who has been granted [such] an exemption pursuant
to paragraph (c) still must become registered as a General Securities
Representative and then complete the regulatory portion of the Research
Analyst Qualification Examination
[[Page 10452]]
(Series 87) before that applicant can be registered as a Research
Analyst.
(e) For the purposes of paragraph (c)(2), a ``technical research
report'' shall mean a research report, as that term is defined in Rule
2711(a)(8), that is based solely on stock price movement and trading
volume and not on the subject company's financial information, business
prospects, contact with subject company's management, or the valuation
of a subject company's securities.
* * * * *
B. NYSE
The NYSE hereby proposes an interpretation to Rule 344 to establish
an alternative qualification standard for the Research Analyst
Qualification Examination for Technical Analysts. Below is the text of
the proposed rule change. Proposed new language is italicized; proposed
deletions are in brackets.
Rule 344 Research Analysts and Supervisory Analysts/01 Research
Analysts
* * * * *
Exemptions
Successful completion of Levels I and II of the Charter Financial
Analyst (``CFA'') Examination administered by the CFA Institute allows
a Research Analyst candidate to request an exemption from Part I
(Series 86) of the Research Analyst Qualification Examination. If an
exemption is granted for Part I (Series 86), a candidate will be
qualified as a Research Analyst after passing Part II (Series 87)
[only] and the prerequisite examination (i.e., Series 7, 17, or 37/38
examinations).
Successful completion of Levels I and II of the Chartered Market
Technician Program (``CMT'') administered by the Market Technician
Association (``MTA'') allows a Research Analyst candidate who prepares
only technical research reports to request an exemption from Part I
(Series 86) of the Research Analyst Qualification Examination. If an
exemption is granted for Part I (Series 86), a candidate will be
qualified as a Research Analyst only after passing Part II (Series 87)
and the prerequisite examination (i.e., Series 7, 17, or 37/38
examinations).
To qualify for a CFA or CMT exemption a Research Analyst candidate
must have: (i) completed the CFA [Part]Level II or CMT Level II within
two years of application for registration or (ii) functioned as a
research analyst continuously since having passed the CFA [Part]Level
II or CMT Level II. Applicants that have completed the CFA [Part]Level
II or CMT Level II that do not meet criteria (i) or (ii) may where good
cause is shown based upon previous related employment experience make a
written request to the Exchange for an exemption.
A technical research report is a research report as defined in Rule
472.10(2) that is based solely on stock price movement and trading
volume and not on the subject company's financial information, business
prospects, contact with the subject company's management, or the
valuation of a subject company's securities.
* * * * *
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In their filings with the Commission, NASD and the NYSE included
statements concerning the purpose of and basis for the proposed rule
changes. The text of these statements may be examined at the places
specified in item IV below. NASD and the NYSE have prepared summaries,
set forth in sections A, B, and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organizations' Statements of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
1. NASD's Purpose
NASD Rule 1050 requires an associated person who functions as a
research analyst to register as such with NASD and pass a qualification
examination. Rule 1050 is intended to ensure that research analysts
possess a certain competency level to perform their jobs effectively
and in accordance with applicable rules and regulations. In the context
of this requirement, Rule 1050 defines ``research analyst'' as ``an
associated person who is primarily responsible for the preparation of
the substance of a research report or whose name appears on a research
report.'' The term ``research report'' in Rule 1050 has the meaning as
defined in Rule 2711(a)(8): ``a written or electronic communication
that includes an analysis of equity securities of individual companies
or industries, and that provides information reasonably sufficient upon
which to base an investment decision.''
Pursuant to Rule 1050, and in conjunction with the NYSE, NASD has
implemented the Research Analyst Qualification Examination (Series 86/
87). The examination consists of an analysis part (Series 86) and a
regulatory part (Series 87). Prior to taking either the Series 86 or
87, a candidate also must have passed the General Securities Registered
Representative Examination (Series 7), the Limited Registered
Representative (Series 17), or the Canada Module of Series 7 (Series 37
or 38). Persons who were functioning as research analysts on the
effective date of March 30, 2004, and submitted a registration
application to NASD by June 1, 2004, have until April 4, 2005, to meet
the registration requirements.
Rule 1050 provides an exemption from the Series 86 examination for
an applicant that has passed Levels I and II of the Chartered Financial
Analyst (``CFA'') examination and has either (1) functioned
continuously as a research analyst since having passed Level II of the
CFA examination or (2) passed Level II of the CFA examination within
two years of application for registration as a research analyst.
The Series 86 examination consists of 100 multiple-choice questions
that test fundamental analysis and valuation of equity securities. In
contrast, technical research is a discipline that eschews fundamental
analysis of companies and valuation of their securities and instead
focuses on stock price movements and trading volume. For the purposes
of Rule 2711, technical research of securities is treated the same as
fundamental research because the same conflicts that the rule addresses
can exist, and investors similarly benefit from the required
disclosures under the rule, including, for example, price charts.
However, the content of the Series 86 examination focuses exclusively
on fundamental analysis and does not test technical research concepts.
The MTA and CMT. The MTA was established in 1973 and began the
development of the CMT examination program in 1985. The program was
developed by conducting job analysis surveys and working with a group
of subject matter experts to determine the tasks and knowledge required
to perform the job of a technical research analyst.
MTA first administered the exam in 1988. Through 2002, MTA relied
on outside consultants to revise and update the examination program.
According to the MTA, these consultants also contributed to the
development of the CFA examination program. In 2002, the MTA retained
the Chauncey Group \5\ to manage the CMT Examination Program. As part
of its review, Chauncey utilized
[[Page 10453]]
subject matter and testing experts to review the exam and developed one
form of each examination for the past three administrations. In
addition, the MTA retained Chauncey to conduct a job analysis study,
otherwise referred to as a body of knowledge study. Such studies are
conducted periodically to ensure that the existing job analysis/body of
knowledge reflects current practice.
---------------------------------------------------------------------------
\5\ Chauncey recently merged with Thomson Prometric, and is now
known as Thomson Prometric.
---------------------------------------------------------------------------
In sum, the MTA has subjected its examination program to standard
testing practices that includes job analysis studies and regular
updating of the CMT examination in consultation with content experts.
These activities conform to the Standards for Educational and
Psychological Testing (1999) \6\ that were developed jointly by the
American Psychological Association, the American Educational Research
Association, and the National Council on Measurement in Education.
These same standards are followed for the development and maintenance
of NASD qualification examinations.
---------------------------------------------------------------------------
\6\ The Standards for Educational and Psychological Testing is a
technical guide that provides criteria for evaluating tests, testing
practices and the effects of test use.
---------------------------------------------------------------------------
NASD has reviewed descriptions of the subject matter that is
covered on the CMT examination and compared it to the subject matter
that is covered on the Series 86 examination. The results of the review
indicate that the subject matter is different. As such, the Series 86
examination does not test for the job functions identified by the MTA
as applicable to technical analysts. In addition, staff has analyzed
the process in which the MTA has developed its examination and is
satisfied that it meets generally accepted test development procedures.
NASD believes that investors will be better served by proposing a
qualification standard directly applicable to persons preparing
technical research reports, which will demonstrate their competency
based on the job functions and knowledge needed to perform such
functions.
The proposed rule change therefore would add an exemption from the
Series 86 for certain associated persons who function as a research
analyst but prepare only technical research reports. Like the CFA
exemption, such analysts would be eligible for an exemption from the
Series 86 if they have passed both Levels I and II of the CMT
examination and also have functioned continuously as a research analyst
since having passed Level II of the CMT examination or passed Level II
of the CMT examination within two years of application for registration
as a research analyst. Eligible applicants would remain obligated to
meet all other qualification requirements, including the Series 7 or an
equivalent examination (e.g., Series 17, 37 or 38 examination) and the
Series 87 before being qualified as a research analyst.
For the purposes of eligibility for the exemption, the proposed
rule change would establish a definition of a ``technical research
report'' as a research report (as that term is defined in Rule
2711(a)(8)) that is based solely on stock price movement and trading
volume and not on the subject company's financial information, business
prospects, contact with subject company's management, or the valuation
of a subject company's securities.
NASD believes that the proposed exemption is appropriate for this
specific class of research analysts because the Series 86 does not test
the functions associated with technical analysis. NASD has reviewed the
CMT examination development program and found it to meet generally
established psychometric standards.
Importantly, the exemption is available only to research analysts
who exclusively prepare technical research reports. An associated
person who prepares any research report or whose name appears on a
research report that does not meet this definition of a ``technical
research report'' would be required to pass the Series 86 or qualify
for another exemption or waiver.
2. NASD's Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act, which require, among other
things, that NASD rules must be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. NASD believes that that the proposed rule change is
consistent with the provisions of the Act noted above in that it will
ensure that those functioning as research analysts possess a minimum
competency level and knowledge of applicable laws, rules and
regulations, thereby enhancing investor protection.
3. NYSE's Purpose
Recent amendments to Rule 344 (``Research Analysts and Supervisory
Analysts'') require Research Analysts to be registered with, qualified
by, and approved by the Exchange. The Exchange is proposing to adopt a
new interpretation to Rule 344 to establish an alternative
qualification standard for Part I (Series 86) of the Research Analyst
Qualification Examination.
Background. In July 2003, the Commission approved amendments to
Exchange Rules: 472 (``Communications with the Public''), 351
(``Reporting Requirements''), 344 (``Research Analysts and Supervisory
Analysts''), and 345A (``Continuing Education for Registered
Persons'').\7\ The amendments included, among others, a new
registration category and qualification examination for research
analysts. The amendments were the culmination of joint regulatory
efforts among the NYSE, NASD and the SEC to address potential conflicts
of interest relating to research analysts.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 48252 (July 29,
2003), 68 FR 45875 (August 4, 2003) (SR-NYSE-2002-49) (giving notice
of the proposed rule change).
---------------------------------------------------------------------------
During the comment period for this rule proposal, it was noted that
with regard to acknowledging, for qualification purposes, research
analysts who have passed other professional examinations, the Exchange
would study the appropriateness of providing such comity. Accordingly,
as discussed in more detail below, Exchange staff, after thorough
review, is proposing that research analysts who prepare only technical
research reports and who otherwise demonstrate competency to be exempt
from Part I of the Research Analyst Qualification Examination.
Research Analyst Qualification Examination. In February 2004, the
SEC published notice of the Study Outline for the Research Analyst
Qualification Examination.\8\ The Research Analyst Qualification
Examination is part of the SROs regulatory effort to safeguard the
investing public from potential conflicts of interest. The purpose of
requiring a qualification examination was to protect the investing
public by helping to ensure that research analysts are competent to
perform their jobs and are knowledgeable about the new regulatory
requirements affecting them. Given the scope and magnitude of these
requirements, the SROs developed an examination with a part designed
specifically to address the new SRO Rule requirements.
---------------------------------------------------------------------------
\8\ See Securities Exchange Act Release No. 34-49253 (February
13, 2004), 69 FR 8257 (February 29, 2004) (SR-NYSE-2003-41). See
also NYSE Information Memo 04-5, dated February 3, 2004, for the
Study Outline for the Examination.
---------------------------------------------------------------------------
The Research Analyst Qualification Examination (Series 86/87) is a
five-and-a-half hour examination, consisting of 150 questions. The exam
is divided into two parts. Part I, the Series 86, consists of 100
questions, which address fundamental security analysis and
[[Page 10454]]
valuation of equity securities. Part II, the Series 87, consists of 50
questions, which primarily address pertinent SRO and SEC rules and
regulations, including the recent Research Analysts' Conflicts Rules.
The requirement to take and pass the Series 86/87 examination
applies to all research analysts, as the term is defined in Exchange
Rule 344.10. Exchange Rule 344.10 provides that the term ``research
analyst'' includes a member, allied member, or employee who is
primarily responsible for the preparation of the substance of a
research report and/or whose name appears on such report. Research
analysts, as defined in Exchange Rule 344.10, must be registered with,
qualified and approved by the Exchange. The registration and
qualification requirements became effective March 30, 2004. Candidates
who have been functioning as research analysts as of the effective date
of March 30, 2004, have been given one year, until April 4, 2005, to
meet the qualification requirement.
In March 2004, the SEC approved an interpretation to Rule 344
establishing certain prerequisites to and exemptions from the Research
Analysts Qualification Examination.\9\ The interpretation to Rule 344
requires, among other things, that each candidate pass either the
General Securities Registered Representative Examination (Series 7),
the United Kingdom (``UK'') Limited Registered Representative (Series
17) Examination or the Canadian Limited Registered Representative
(Series 37/38) Examination (prior to taking either Part I or Part II of
the examination). Persons qualified to conduct a general public
securities business in the UK and Canada can also be qualified for the
same in the U.S. by taking the Series 17 or the Series 37/38
respectively in lieu of the Series 7. These examinations are intended
to cover subject matter unique to the U.S. securities markets otherwise
not covered by the UK/Canada examinations.
---------------------------------------------------------------------------
\9\ See Securities Exchange Act Release No. 49464 (March 24,
2004), 69 FR 16628 (March 30, 2004) (SR-NYSE-2004-03). See also NYSE
Information Memo 04-16, dated April 1, 2004.
---------------------------------------------------------------------------
The interpretation to Rule 344 also allows a research analyst
candidate that has passed both Level I and Level II of the Chartered
Financial Analyst (``CFA'') Examination administered by the CFA
Institute, to request an exemption from Part I (Series 86) of the
Research Analyst Qualification Examination. The CFA Examination
consists of 10 general topic areas which provide a framework for making
investment decisions. Each level of the CFA Examination has a different
learning focus: Level I focuses on tools and concepts that apply to
investment valuation and portfolio management; and Level II focuses on
asset valuation and applying the tools and concepts from Level I.
Candidates who receive an exemption from the Series 86 must still
satisfy the Series 7, 17, or 37/38 prerequisite examination and pass
the Series 87 to be registered and qualified as Research Analysts.
To qualify for the CFA exemption from the examination requirement a
Research Analyst candidate must have: (i) Completed the CFA Level II
within 2 years of application or registration or (ii) functioned as a
research analyst continuously since having passed the CFA Level II.
Applicants that have completed the CFA Level II that do not meet either
of the above criteria may, upon a showing of good cause based upon
previous related employment experience, make a written request to the
Exchange for an exemption.
Proposed Exemptive Relief. Beginning March 2004, the Exchange and
NASD held several conference calls/meetings and have exchanged
correspondences with the Market Technicians Association, Inc. (``MTA'')
Task Force with regard to its efforts to seek exemptive relief from the
Series 86 examination for individuals who have passed Levels I and II
of the Chartered Market Technician Program (``CMT'') who prepare
technical research reports.
The CMT Levels I and II are in total six-hour examinations,
consisting of a total of 270 multiple-choice questions. CMT Level I
tests the working knowledge of the basic tools of technical analysis,
including: basic definitions and information; methods of charting;
establishing price targets; market trend determination; and bond,
commodity, currency, futures, index and option analysis. Level II tests
more technical analytical techniques and the ability to apply the
principles tested in Level I.
As noted above, an interpretation of Rule 344 provides an exemption
from the Series 86 examination for individuals who have passed Levels I
and II of the CFA examination. The Exchange is proposing a similar
exemption for research analysts who only prepare technical research
reports and who have passed Levels I and II of the CMT. For purposes of
the exemption, a ``technical research report'' is a research report as
defined in Rule 472.10(2) \10\ that is based solely on stock price
movement and trading volume and not on the subject company's financial
information, business prospects, contact with the subject company's
management, or the valuation of a subject company's securities. The
proposed definition builds on the core definition of ``research
report'' in Rule 472 and incorporates, in relevant part, the substance
of the definition (discussed below) of ``technical research report'' in
the Global Research Analyst Settlement.\11\
---------------------------------------------------------------------------
\10\ Rule 472.10(2) defines a research report as written or
electronic communication, which includes an analysis of equity
securities of individual companies or industries and provides
information reasonably sufficient upon which to base an investment
decision.
\11\ See SEC Litigation Release No. 18438 (October 31, 2003).
---------------------------------------------------------------------------
The proposed exemption would be similarly conditioned on passing
the Series 7, 17, or 37/38 prerequisite examination and Series 87
examination as well as the time limitations also noted above. Further,
if such analysts were to prepare a research report (e.g., a fundamental
equity analysis report) as defined in Exchange Rule 472.10(2), they
would be required to pass either the Series 86 examination or have
obtained the CFA exemption as well as pass the Series 87 examination.
While exempt from the Series 86 examination, these analysts would still
be subject to all other Exchange rules governing communications with
the public and still be subject to the supervision of their firms.
Exchange staff believes that it is appropriate, and consistent with
its regulatory objectives, to provide exemptive relief to technical
analysts similar to that which has been provided for fundamental
analysts. First, the genesis of the Research Analyst Qualification
Examination was to help address the conflicts of interest inherent with
respect to the interaction between research analysts, investment
bankers and subject companies in obtaining and retaining investment
banking relationships.
The Series 86 exam was developed by NYSE and NASD staffs in
conjunction with a committee of fundamental analysts and is intended to
test fundamental securities analysts. This is quite clear from the
exam's Study Outline. Technical analysis is quite different than
fundamental and therefore such analysts should not unnecessarily be
subjected to taking an examination, when there is a superior
alternative to demonstrate competency. Indeed, securities regulators
recognize the distinctions among various types of research disciplines.
In this regard, the recently approved amendments to the
[[Page 10455]]
Global Research Analyst Settlement make this distinction by providing
for the following definition:
The term ``technical research report'' means any written
(including electronic) communication that is furnished by the firm
to investors in the U.S. and includes an analysis of the securities
of an issuer or issuers, that is based solely on prices and trading
volume and not on the issuer's financial information, business
prospects, or contact with issuer management, and that provides
information reasonably sufficient upon which to base an investment
decision.
The Exchange reviewed descriptions of the subject matter that is
covered on the CMT examination and compared it to the subject matter
that is covered on the Series 86 examination. The results of the review
indicate that the subject matter is different, and confirms that the
work process and product of a technical analyst is distinctly different
from the work of a fundamental analyst. In addition, staff has analyzed
the process in which the MTA has developed its examination and is
satisfied that it meets generally accepted test development procedures.
The Exchange believes that investors will be better served by proposing
a qualification standard directly applicable to persons preparing
technical research reports, which will demonstrate their competency
based on the work functions and knowledge needed to perform such
functions.
The MTA and CMT. The MTA was established in 1973, and began the
development of the CMT examination program in 1985, by conducting job
analysis surveys and working with a group of subject matter experts to
determine the tasks and knowledge required to perform the job of a
Technical Research Analyst.
In 1988, the original examinations were administered. From 1988
through 2002, the examination continued to be revised and updated by
employing outside consultants. According to the MTA, these consultants
were also contributors to the CFA examination process, which the SEC
approved as exemptions to both Part II of the Supervisory Analyst
(Series 16) Examination \12\ and Part I (Series 86) of the Research
Analyst Qualification Examination.
---------------------------------------------------------------------------
\12\ See Securities Exchange Act Release No. 41021 (February 4,
1999), 64 FR 7680 (February 16, 1999) (SR-NYSE-98-44).
---------------------------------------------------------------------------
In 2002, the MTA retained the Chauncey Group to manage the CMT
Examination Program. As part of its review, Chauncey utilized subject
matter and testing experts to review the exam and developed one form of
each examination for the past three administrations. In addition, the
MTA retained Chauncey to conduct a job analysis study, otherwise
referred to as a body of knowledge study. Such studies are conducted
periodically to ensure that the existing job analysis body of knowledge
is reflective of current practice.
In sum, the MTA with its professional consultants have subjected
the examination to standard testing practices that the Exchange
believes sufficient to allow it to be used to provide an exemption for
the Series 86 examination. This is evidenced by the fact that the MTA
has been conducting job analysis studies, updating the CMT examinations
periodically, and involving content experts in such studies and updates
of the examinations. Such activities conform to the Standards for
Educational and Psychological Testing (1999),\13\ which were developed
jointly by the American Psychological Association (APA), the American
Educational Research Association (AERA), and the National Council on
Measurement in Education (NCME). These same standards are followed for
the development and maintenance of NYSE qualification examinations.
---------------------------------------------------------------------------
\13\ The Standards for Educational and Psychological Testing is
a technical guide that provides criteria for evaluating tests,
testing practices and the effects of test use.
---------------------------------------------------------------------------
For purposes of consistency, the Exchange is also amending the text
of the interpretation to Rule 344 by inserting the term ``Level'' in
place of ``Part'' when referencing the CFA examination.
4. NYSE's Statutory Basis
The statutory basis for this proposed rule change is section
6(b)(5) \14\ and section 6(c)(3)(B) \15\ of the Act. Under section
6(b)(5), the rules of the Exchange must be designed to protect
investors and the public interest. By requiring a qualification
standard directly applicable to persons preparing technical research
reports, which will demonstrate their competency based on the work
functions and knowledge needed to perform such functions, investors
will be better protected.
---------------------------------------------------------------------------
\14\ 15 U.S.C. 78f(b)(5).
\15\ 15 U.S.C. 78f(c)(3)(B).
---------------------------------------------------------------------------
Under section 6(c)(3)(B) it is the Exchange's responsibility to
prescribe standards of training, experience and competence for persons
associated with Exchange members and member organizations. In addition,
under section 6(c)(3)(B), the Exchange may bar a natural person from
becoming a member or person associated with a member, if such natural
person does not meet such standards of training, experience and
competence as prescribed by the rules of the Exchange. Pursuant to this
statutory obligation, the Exchange has: (1) Developed an examination
that will be administered to establish that Research Analysts have
attained specified levels of competence and knowledge; and (2) provided
for exemptions from Part I of the examination were candidates have
their competency based on their work functions and the knowledge they
need to perform such functions (e.g., passing Levels I and II of the
CFA or CMT).
B. Self-Regulatory Organizations' Statement on Burden on Competition
NASD and the NYSE do not believe that the proposed rule changes
will 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
NASD and the NYSE has neither solicited nor received written
comments on the proposed rule changes.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The proposed rule changes have been filed by NASD and the NYSE as
stated policies, practices, or interpretations with respect to the
meaning, administration, or enforcement of an existing rule under Rule
19b-4(f)(1) under the Act.\16\ Consequently, they have become effective
pursuant to section 19(b)(3)(A) of the Act and Rule 19b-4(f)(1)
thereunder.
---------------------------------------------------------------------------
\16\ 17 CFR 240.19b-4(f)(1).
---------------------------------------------------------------------------
At any time within 60 days of the filing of the proposed rule
changes, the Commission may summarily abrogate these proposals 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
changes are consistent with the Act. Comments may be submitted by any
of the following methods:
[[Page 10456]]
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2005-022 and/or SR-NYSE-2005-12 on the subject
line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Numbers SR-NASD-2005-022 and/
or SR-NYSE-2005-12. These file numbers 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
(https://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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies
of such filing also will be available for inspection and copying at the
principal office of the NASD and the NYSE. 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 Numbers SR-NASD-2005-022 and/or SR-NYSE-2005-12
and should be submitted on or before March 24, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
---------------------------------------------------------------------------
\17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-850 Filed 3-2-05; 8:45 am]
BILLING CODE 8010-01-P
