Interpretive Letter to Ms. M. LaRae Bakerink, Pacific American Securities, LLC
August 14, 2000
Ms. M. LaRae Bakerink
First Vice President and Chief Compliance Officer
Pacific American Securities, LLC
9191 Towne Centre Drive, Suite 406
San Diego, CA 92122-1225
Re: Series 55 Registration Requirement
Dear Ms. Bakerink:
I am writing in response to our phone conversations on July 20, August 1 and August 2, 2000, and your letter dated July 20, 2000. You have asked for guidance as to whether an Executive Vice President at Pacific American Securities, LLC ("Pacific American") needs to register as an Equity Trader based upon his role in: (1) supervising the firm's trading departments; and (2) making proprietary trading decisions.
Supervision through the role of compliance.
Your letter states that Pacific American has three trading departments that report to the Executive Vice President. The firm has assigned a head trader to each of these departments who, in addition to supervising traders, also executes and processes transactions. Each head trader is registered under Series 55 and Series 24.1 Your letter further states that: "The Executive Vice President does not 'supervise' the day-to-day activities of each of the traders; he is merely the next in line of the chain of command, working in an administrative capacity. The Compliance Director actually reviews the day-to-day activities of the traders through the role of compliance. The Compliance Director has also passed the Series 55."
The staff of the Office of General Counsel, NASD Regulation (the "Staff"), believes that the mere fact that the head traders report to the Executive Vice President will not cause him to be subject to the Equity Trader registration requirements. Although Notice to Members 00-46 includes an illustration describing a supervisor who needs to be Series 55 registered, this example is not meant to suggest that all persons to whom Equity Traders report need to be Series 55 registered. Based on the facts that you have described, it does not appear that the level of participation of the Executive Vice President in the operation of the firm's trading departments is sufficient to trigger the Equity Trader registration requirements.
Further, your letter states that the Executive Vice President makes investment decisions for the firm's proprietary account (including quantity and price), but does not participate in the execution or processing of the transactions. Whenever the Executive Vice President determines that a security should be purchased or sold for the firm's proprietary account, he communicates with a trader employed by the firm. The traders are registered under Series 55.
The Staff believes that the Executive Vice President's role in investing the firm's capital is not conduct that requires Equity Trader registration. As we explained in Notice to Members 00-46, a person will not be deemed to be engaged in proprietary trading for registration requirements based solely on the fact that he or she is making decisions to invest the firm's capital in specific Nasdaq or over-the-counter securities. This conclusion, however, assumes that this person will not participate in the execution or processing of trades, and that someone qualified under Series 55 will perform these tasks.
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
Frank McAuliffe, Vice President
Lani M. Woltmann, District Director
1 One of the head traders is registered to take the Series 24 examination. This representative was elevated to the position of head trader in July 2000. The firm understands that he needs to pass the Series 24 within 90 days following the date his duties changed. See NASD Rule 1021(d).