A person who processes agency transactions by communicating all orders to another firm, which then calls or electronically communicates with the contra-side of the transaction, is not involved in the execution of transactions for purposes of Rule 1032(f) and thus is not required to be Series 55 registered.
January 29, 2001
Mr. Dennis Roth
Vice President of Research
Chesapeake Securities Research Corporation
40 W. Chesapeake Ave., Suite 215
Towson, MD 21204
Re: Series 55 Registration Requirement
Dear Mr. Roth:
I am writing in response to our phone conversations on October 13, 2000, November 4, 2000, January 8, 2001 and January 25, 2001, your email message dated October 5, 2000, and your facsimile dated January 8, 2001. You have asked for guidance as to whether the functions that you perform at Chesapeake Securities Research Corporation ("Chesapeake") trigger the equity trader registration requirements.
Based on the information that you provided, the following is my understanding of your situation. You provide brokerage services to Chesapeake's institutional customers. Chesapeake clears its transactions on a fully-disclosed basis. In the past, you sent orders to your clearing firm for execution. You are now submitting all of your orders to a broker/dealer other than your clearing firm for execution. Since Chesapeake's large institutional orders typically take several days to fill, you often need to approve price adjustments in response to market changes. However, you and the other Chesapeake employees play no role in the execution of the orders.
On April 1, 1998, NASD Regulation implemented amendments to NASD Registration Rules, creating Rule 1032(f). This new rule establishes the qualification requirements for representatives who trade equity securities in The Nasdaq Stock Market and/or over-the-counter markets. Rule 1032(f) established the Series 55 registration category and qualification examination for equity traders. The rule requires a representative to register as a Limited Representative—Equity Trader if the representative is engaged in proprietary trading or in the execution of transactions on an agency basis in equity, preferred, or convertible debt securities. The rule also applies to persons who directly supervise those who are engaged in such activities.
In the Regulatory & Compliance Alert (Fall 1999), NASD Regulation explains that a person who processes agency transactions by communicating orders to the member's clearing firm, which then calls or electronically communicates with the contra-side of the transaction, is not required to register under Series 55. The person is not involved in the execution of transactions. Rather, he or she simply is acting as an order processor.
The staff of NASD Regulation's Office of General Counsel (the "staff") believes that the mere fact that a firm sends all of its orders to a firm other than its clearing firm for execution does not affect the analysis provided in the Regulatory & Compliance Alert. Accordingly, based on the facts that you have described, the staff believes that your level of participation in the execution of trades will not trigger the equity trader registration requirements.
I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised based on the facts as you have described them, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.
Very truly yours,
Eric J. Moss
Assistant General Counsel
John P. Nocella, Senior Vice President and District Director
Carole Hartzog, Associate Director