Interpretive Letter to Elliott R. Curzon, Esq., Dechert Price & Rhoads
September 27, 2001
Elliott R. Curzon, Esq.
Dechert Price & Rhoads
1775 Eye Street, NW
Washington, DC 20006-2401
Re: Series 55 Registration Requirement
Dear Mr. Curzon:
I am writing in response to our phone conversations, and your letter dated August 3, 2001. You have asked for guidance as to whether individuals who trade distressed convertible debt securities need to register as equity traders.
Your client, Primeshares (New York) - Capital Markets, LLC (“Primeshares”), intends to engage in the business of purchasing and selling distressed or defaulted debt securities. On occasion the debt instruments include a feature enabling the securities to be converted into equity securities. Your letter contends that distressed convertible debt securities do not have any of the characteristics of equities because the conversion features of these products are worth very little, if anything. For this reason, you do not believe that persons who trade distressed convertible debt securities should be required to register as equity traders.
NASD Rule 1032(f) requires persons who engage in certain trading activities to register as equity traders and pass the Series 55 qualification exam. Among those persons explicitly covered under the rule are those who trade (other than on a securities exchange) convertible debt securities. NASD Notice to Members 98-17 explains that convertible debt securities are included in the products covered by the Series 55 registration category because, under certain conditions, convertible debt securities trade similarly to equity securities and many of the same regulatory issues and concerns apply to trading in both types of securities. The rule does not contain an exception for any particular categories of convertible debt securities.
Accordingly, based on the facts that you have described, the staff of NASD Regulation’s Office of General Counsel believes that Primeshares’ registered representatives, must register as equity traders and pass the Series 55 qualification exam prior to trading distressed convertible debt securities (other than on a securities exchange).
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
Associate General Counsel
|cc:||Cathleen Shine, Sr. Vice President and Director
NASD Regulation, Inc. - District 10