NASD Rule 1020 Series - Registration of Principals

Registration and qualification requirements for the chief executive officer of a member firm engaged solely in the solicitation and sale of redeemable securities of companies registered under the Investment Company Act of 1940 and variable contracts.


 

July 29, 2010

 

Michael Brennan
Vice President of Compliance
Allianz Life Insurance Company of North America
5701 Golden Hills Drive
Minneapolis, MN 55416

 

Re: Registration and Qualification Requirements

 

Dear Mr. Brennan:

 

This is in response to your letter dated January 7, 2010, in which you request interpretive guidance regarding the registration and qualification requirements for the chief executive officer of a member engaged solely in the solicitation and sale of redeemable securities of companies registered under the Investment Company Act of 1940 ("Investment Company Act") and variable contracts.

 

Background

 

Based upon your letter and subsequent correspondence, we understand the facts to be as follows. Allianz Life Financial Services, LLC ("ALFS") is a registered broker-dealer under the Securities Exchange Act of 1934 and a FINRA member. ALFS is a wholly-owned subsidiary of Allianz Life Insurance Company of North America, an insurance company. ALFS is engaged solely in the solicitation and sale of redeemable securities of companies registered under the Investment Company Act and variable contracts.

 

ALFS's representatives are registered as general securities (Series 7) representatives and investment company and variable contracts products (Series 6) representatives. ALFS's principals are registered as general securities (Series 24) principals and investment company and variable contracts products (Series 26) principals. ALFS's representatives and principals, including the firm's general securities representatives and general securities principals, are engaged solely in securities activities relating to redeemable securities of companies registered under the Investment Company Act and variable contracts.

 

ALFS's chief executive officer manages and supervises ALFS's activities. As part of his duties, he has overall authority to supervise the firm's securities business and is also responsible for supervising the activities of certain registered principals, including certain general securities principals of the firm. You seek guidance on whether the chief executive officer's registration and qualification as an investment company and variable contracts products principal rather than a general securities principal is consistent with FINRA's requirements.

 

Analysis

 

Pursuant to NASD Rule 1021, an officer of a member who is actively engaged in the management of the member's investment banking or securities business is required to register and qualify in a category of principal registration appropriate to his or her functions and responsibilities. Additionally, NASD Rule 3010(a)(2) requires a firm to designate an appropriately registered principal(s) with authority to supervise each type of business in which the firm engages that requires registration as a broker-dealer. Further, NASD Rule 3010(a)(5) requires the assignment of each registered person to an appropriately registered supervisor.

 

NASD Rule 1022(d) provides that a registered investment company and variable contracts products principal is qualified to engage in, including manage and supervise, activities involving, among others: redeemable securities of companies registered under the Investment Company Act and variable contracts.

 

You state that the securities activities of ALFS and its registered persons, including the firm's general securities principals, are limited solely to redeemable securities of companies registered under the Investment Company Act and variable contracts.

 

Accordingly, consistent with FINRA's rules, to the extent that the securities activities of ALFS and its registered persons are limited solely to redeemable securities of companies registered under the Investment Company Act and variable contracts, ALFS's chief executive officer may be registered and qualified as an investment company and variable contracts products principal, rather than a general securities principal, in order to manage and supervise the firm's business and supervise the activities of certain registered principals of the firm, including certain general securities principals.1

 

We trust that this letter is responsive to your request. Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the FINRA Board of Governors. This letter responds only to the issues you have raised based on the facts as you have described them, and does not address any other rule or interpretation of FINRA, or all the possible regulatory and legal issues involved. In addition, you should be aware that any changes in the facts as you have described them will require further consideration and may cause us to reach a different conclusion.

 

If you have any questions on this matter, please do not hesitate to contact me at (202) 728-8902.

 

Very truly yours,

 

 

 

Afshin Atabaki
Assistant General Counsel

 

cc:

Thomas D. Clough
Associate Vice President and District Director
Kansas City District Office

 

Hans L. Reich
Senior Vice President and Regional Director
New York District Office

 



 

1 While not the case here, it should be noted that a general securities principal may engage in a broader range of activities (i.e., general securities activities). Where a general securities principal is engaged in general securities activities, an investment company and variable contracts products principal may only supervise those activities of the general securities principal for which the investment company and variable contracts products principal is qualified to supervise (e.g., sale of variable contracts), and an appropriately qualified principal would have to supervise the general securities principal's other activities.