Amendments to Section 4 of Schedule A to the NASD By-Laws Governing Qualification Examination Fees

GUIDANCE

Examination Fees

Implemention Date: January 1, 2005

Executive Summary

NASD has filed for immediate effectiveness amendments to Section 4 of Schedule A to the NASD By-Laws.¹ The amendments increase certain examination fees, as described below, and also list the fees for all qualification examinations that may be required by NASD for its members, regardless of whether the current examination fee has been increased.

The amendments to Section 4 become operative on January 1, 2005. The published fee schedule represents the fee that will be charged at the time the individual registers for the examination, starting on January 1, 2005. The individual then has 120 days in which to take the examination.

Included with this Notice is Attachment A, the text of amended Section 4.

Questions/Further Information

Questions concerning this Notice may be directed to Ann Griffith, Associate Vice President and Director, Testing and Continuing Education, at (240) 386-5051.

Background and Discussion

Any person associated with a member firm who is engaged in the securities business of the firm must register with NASD. As part of the registration process, securities professionals must pass a qualification examination to demonstrate competence in the areas in which they intend to work. NASD sponsors (i.e., develops) some of these examinations while others are sponsored by NASAA, NYSE, MSRB, and other selfregulatory organizations (SROs).

NASD administers these qualification examinations on behalf of the securities industry. NASD owns a proprietary system (the PROCTOR^® system) to administer qualification examinations to securities industry professionals via computer. The examinations are delivered to candidates at test centers operated by vendors under contract with NASD.²

NASD has not adjusted examination fees for NASD-sponsored examinations since 1989, nor has NASD increased the fees charged to its clients for administration and delivery of their examinations during that same time period. NASD recently conducted an analysis of the costs of developing, administering, and delivering qualification examinations. The analysis showed that NASD's costs, particularly technology³ and delivery costs, are rising. After consulting with several NASD committees and the clients for whom NASD administers and delivers examinations, NASD staff received approval from the NASD Finance Committee to adjust examination and delivery fees beginning in January 2005.

The amendments to Schedule A eliminate existing provisions relating to specific examinations and, instead, list all qualification examinations that may be required by NASD for its members. The fees for these examinations represent the fees to be charged persons who register for any of these examinations beginning on January 1, 2005.⁴ NASD plans to conduct an annual review of its costs and adjust examination and delivery fees, if necessary, as of January 1 each year after making the appropriate rule filings.

Fee Changes

As a result of the cost increases explained above, examination fees for the following examinations that are delivered by NASD and that may be required by NASD for its members⁵ will be adjusted as follows:

Publication of Fee Schedule in Schedule A

NASD will publish the following schedule of qualification examination fees in Schedule A.

¹  Under Section 19(b) of the Securities Exchange Act of 1934, the SEC has the authority to summarily abrogate this type of rule change within 60 days of filing.

²  The vendors are Pearson Professional Centers (contact Pearson VUE's National Registration Center toll-free at 1-866-396-6273 or 952-681- 3873 (toll number)) and Prometric Testing Centers (contact Prometric's National Call Center toll-free at 1-800-578-6273 or go to www.prometric.com/nasd for Web-based scheduling).

NASD's contract with Pearson in January 2004 added more than 200 test centers to the existing network. With this addition, candidates may choose from more than 400 test delivery centers located throughout the United States and overseas.

³  A substantial proportion of the cost increase is attributable to the need to redesign and rebuild the current PROCTOR^® system, which is more than 10 years old. The new system, expected to be deployed in 2006, will incorporate up-to-date technology and will include many new features such as additional item (question) formats (short answer, matching, drag/drop), on-line exhibits, and advanced biometrics for greater security.

⁴  The published fee represents the fee that will be charged at the time the individual registers for the examination. The individual then has 120 days to take the examination.

⁵  NASD also administers and delivers examinations sponsored by NYSE, MSRB, NASAA, PHLX, and NFA that, while not required by NASD rules, are taken by persons associated with NASD members to obtain certain licenses. Fees for the following examinations developed by these sponsors will be adjusted as follows effective January 1, 2005: NYSE—Series 12 (Branch Manager), from $75 to $80. MSRB—Series 52 (Municipal Securities Representative), from $60 to $80; Series 53 (Municipal Securities Principal), from $75 to $80. NASAA—Series 63 (Uniform Securities Agent State Law), from $70 to $82; Series 65 (Uniform Investment Advisor Law), from $110 to $120. NFA—Series 3 (National Commodity Futures), from $75 to $90.

Attachment A

(New language is underlined; deletions are in brackets.)

SCHEDULE A TO THE NASD BY-LAWS