MSRB NOTICE 2002-32 (SEPTEMBER 30, 2002)

MUNICIPAL FUND SECURITIES LIMITED PRINCIPAL QUALIFICATION EXAMINATION (SERIES 51): FILING OF TEST SPECIFICATIONS, STUDY OUTLINE AND EXTENSION OF TRANSITION PERIOD

On September 30, 2002, the Municipal Securities Rulemaking Board (“MSRB”) filed with the Securities and Exchange Commission (“SEC”) a proposed rule change consisting of the test specifications and the study outline for the MSRB’s new Municipal Fund Securities Limited Principal Qualification Examination (Series 51), as well as an amendment to Rule G-3, on professional qualifications.[1]  Administration of the new Series 51 examination will begin on or about January 1, 2003.  The amendment to Rule G-3 will extend to March 31, 2003 the transition period during which Series 24 and Series 26 principals may continue to supervise municipal fund securities activities without further qualification. This extension will provide a three-month period during which candidates can take and pass the new Series 51 examination.  Under the amendment, all municipal fund securities limited principals will be required to have taken and passed the Series 51 examination by April 1, 2003.

SUMMARY OF PROPOSED RULE CHANGE

Under section (b)(iv) of Rule G-3, on professional qualifications, an associated person of a broker, dealer or municipal securities dealer (“dealer”) may undertake supervisory activities with respect to the dealer’s municipal fund securities activities by qualifying as a municipal fund securities limited principal.  Current Rule G-3(b)(iv)(E)(4) provides that, on and after January 1, 2003, all municipal fund securities limited principals must be qualified by taking and passing the new Series 51 examination.[2]

The Series 51 examination will qualify an associated person of a dealer to manage, direct or supervise certain specified activities, but solely as such activities relate to transactions in municipal fund securities.[3]  The examination will be a 90-minute, 60 multiple choice question examination with 70% as the passing score.  It will measure a candidate’s knowledge of municipal fund securities and the securities industry rules and regulations pertinent to such products.  The examination will require that the individual taking it have previously or concurrently taken and passed the general securities principal qualification examination (Series 24) or investment company and annuity principal qualification examination (Series 26).

A subcommittee of the MSRB’s Professional Qualifications Advisory Committee consisting of industry representatives, working with MSRB staff in consultation with NASD staff, developed the Series 51 study outline and test specifications.  The examination will be divided into seven topical sections.  The topical sections and the percent of questions designated for each such section are as follows:  Regulatory Structure (5%); Product Knowledge (20%); General Supervision (20%); Fair Practice and Conflicts of Interest (15%); Sales Supervision (20%); Underwriting and Disclosure Obligations (10%); and Operations (10%).  The specifications for the Series 51 examination specify how the questions asked on each examination are to be allocated among the various subtopics within these topical sections. 

Rule G-3 currently allows general securities principals (Series 24) and investment company limited principals (Series 26) to supervise municipal fund securities activities during a transition period that ends on December 31, 2002.  On and after January 1, 2003, all municipal fund securities limited principals must be qualified by taking and passing the new Series 51 examination.  However, administration of this examination will not begin until on or about January 1, 2003.  Thus, the MSRB is extending the period during which Series 24 and 26 principals may continue to supervise municipal fund securities activities without further qualification.  The amendment to Rule G-3 will accomplish this by extending the transition period to March 31, 2003.  This extension will provide a three-month period during which candidates can take and pass the examination.  Under the amendment, all municipal fund securities limited principals will be required to have taken and passed the Series 51 examination by April 1, 2003.

September 30, 2002

TEXT OF AMENDMENT [4]

Rule G-3. Classification of Principals and Representatives; Numerical Requirments; Testing; Continuing Education Requirements

(a) No change.

(b) Municipal Securities Principal; Municipal Fund Securities Limited Principal.

(i)-(iii) No change.

(iv) Municipal Fund Securities Limited Principal.

(A)-(D) No change.

(E) Temporary Provisions for Municipal Fund Securities Limited Principal.  Notwithstanding any other provision of this rule, until March 31, 2003, December 31, 2002, the following provisions shall apply to any broker, dealer or municipal securities dealer whose municipal securities activities are limited exclusively to municipal fund securities:

(1)-(3) No change.

(4) On and after April 1, 2003, January 1, 2003, all municipal fund securities limited principals (including any municipal fund securities limited principals designated as provided in clause (b)(iv)(E)(1)) must be qualified as provided in subparagraph (b)(iv)(B).

(c)-(h) No change.

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[1] File No. SR-MSRB-2002-13.  Comments on the proposed rule change should be submitted to the SEC and should reference this file number.  The MSRB has requested confidential treatment of the test specifications, pursuant to SEC Rule 24b-2.  The proposed rule change will become operative on November 1, 2002.

[2] Prior to this date, a general securities principal (Series 24) or investment company/variable contracts limited principal (Series 26) may act as a municipal fund securities limited principal without further qualification.

[3] These activities consist of (A) underwriting, trading or sales of municipal fund securities; (B) financial advisory or consultant services for issuers in connection with the issuance of municipal fund securities; (C) processing, clearance, and (in the case of non-bank dealers) safekeeping of municipal fund securities; (D) research or investment advice with respect to municipal fund securities (but only to the extent related to the activities described in (A) or (B)); (E) any other activities which involve communication, directly or indirectly, with public investors in municipal fund securities (but only to the extent related to the activities described in (A) or (B)); (F) maintenance of records with respect to the activities described in (A) through (E); and (G) training of municipal securities principals, municipal fund securities limited principals or municipal securities representatives with respect to municipal fund securities.  Municipal securities principals (Series 53) will continue to be qualified to manage, direct or supervise such activities, as they relate to municipal fund securities or to any other type of municipal securities.  Municipal securities sales principal (Series 9/10) will continue to be qualified to supervise sales to and purchases from customers of municipal securities, including municipal fund securities.

[4] Underlining indicates new language; strikethrough indicates deletions.