RRBDLAW.COM

INDEX PAGE ONLINE BIOGRAPHY EMAIL RRBDLAW.COM



WAIVERS OF QUALIFYING EXAMINATIONS

There's a lot of time involved in studying for and taking the many securities industry qualifying examinations. However, failure to obtain the necessary registrations will restrict you from serving in many capacities, limit your ability to supervise, and may even prevent you from owning your own firm. Occasionally, the SROs grant waivers of examinations, but the circumstances under which such waivers are granted are frequently misunderstood. Read how a 31-year industry veteran lost his broker-dealer following the NASD's refusal to grant a waiver.

BACKGROUND

Jon G. Symon (Symon) was the president and owner of Braveheart, LLC (BLLC), which applied for NASD membership in July 1997. BLLC's application proposed Symon as its General Securities Principal (GSP) and Financial and Operations Principal (FINOP). Previously, Symon was registered in both capacities at CKS Securities, Inc. (BD1) but left that firm in August 1994.

From November 1994 through July 1995 Symon became associated with D.E. Frye & Company, Inc. (BD2). However, BD2 only submitted paperwork to register Symon as a General Securities Representative (RR). BD2 did not "transfer" Symon's GSP or FINOP registrations from BD1. Consequently, Symon was not registered as a GSP or FINOP upon his termination from BD1 in August 1994.

BLLC APPLIES FOR NASD MEMBERSHIP

Upon reviewing BLLC's application for NASD membership, the NASD Staff discovered that Symon, the firm's proposed GSP and FINOP, had not been registered in those capacities for nearly three years.

NASD Rule 1021: Registration Requirements

(a) All Principals Must Be Registered
All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as principals shall be registered as such with the Association in the category of registration appropriate to the function to be performed as specified in Rule 1022. Before their registration can become effective, they shall pass a Qualification Examination for Principals appropriate to the category of registration as specified by the Board of Governors.
A member shall not maintain a principal registration with the Association for any person (1) who isno longer active in the member’s investment banking or securities business, (2) who isno longer functioning as a principal, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c). A member shall not make application for the registration of any person as principal where there isno intent to employ such person in the member’s investment banking or securities business. A member may, however, maintain or make application for the registration as a principal of a person who performs legal, compliance, internal audit, or similar responsibilities for the member or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.
. . .
(c) Requirements for Examination on Lapse of Registration
Any person . . . whose most recent registration as a principal has been terminated for a period of
two or more years immediately preceding the date of receipt by the Association of a new application shall be required to pass a Qualification Examination for Principals appropriate to the category of registration as specified in Rule 1022 hereof.

Consequently, under Rule 1021(c) the Staff found that Symon's GSP and FINOP registrations had lapsed effective August 1996. Accordingly, the NASD terminated BLLC's application because the firm lacked a qualified principal. On September 25, 1997, Symon requested a waiver of the examinations pursuant to NASD Rule 1021: (e).

NASD Rule 1070. Qualification Examinations and Waiver of Requirements
(e) Pursuant to the Rule 9600 Series, the Association may,
in exceptional cases and where good cause is shown, waive the applicable Qualification Examination and accept other standards as evidence of an applicant’s qualifications for registration. Advanced age, physical infirmity or experience in fields ancillary to the investment banking or securities business will not individually of themselves constitute sufficient grounds to waive a Qualification Examination.

Symon claimed that BD2 had mistakenly failed to transfer his GSP and FINOP registrations from BD1. In support of his contention, Symon attached a letter from BD2's Director of Compliance stating that the firm had inadvertently failed to register Symon as a GSP and FINOP. The Staff then contacted BD2 and requested a statement acknowledging that Symon had actually functioned as a GSP and FINOP at BD2.

What's Going On Here?

Apparently the NASD's thought process was that if

  • Symon believed his GSP and FINOP registrations were transferred, and
  • BD2's failed transfer was inadvertent, then
  • Symon should have been functioning as a GSP and FINOP at BD2.

  • Why? Because both Symon and BD2 should have been operating under the assumption that he had been registered in both principal capacities. Further, given those assumptions, if Symon wasn't so operating, then the firm had "parked" his registrations in violation of NASD rules (See, Rule 1021(a)(1)-(3)).

    Between the Lines: For some reason, the Staff wasn't buying the inadvertence scenario. However, BD2 is now in the regulatory version of check. If BD2 admits it allowed Symon to operate as an unregistered GSP/FINOP, the firm could be charged with a violation. If the firm retracts its statement of inadvertence, it could be viewed as having made a material misstatement and Symon would be cast as a liar.

    Moving the King Out of Harm's Way:Not surprisingly, BD2 declined to affirm Symon's functioning as GSP/FINOP and apparently used its discretion to extricate itself from further involvement.

WAIVERS DENIED

On October 21, 1997, the Staff declined to grant Symon the requested examination waivers. Shortly thereafter, on November 13, 1997, the Staff informed Symon that BD2's explanation of an inadvertent failure to register conflicted with the registration documents Symon had actually submitted, which indicated that upon association with BD2 he would only function as an RR, and not as a GSP or FINOP. On November 18, 1997, Symon appealed the Staff's denial of waivers to the NASD's National Adjudicatory Council (NAC).

At the NAC hearing, the Staff introduced a letter from BD2 stating that Symon "was not assigned any supervisory functions during his affiliation . . .was never responsible for the preparation of . . . financial records or financial reporting requirements." The Staff also presented a new account form signed by Symon's supervisor at BD2 (apparently to demonstrate that Symon was not a GSP capable of signing such documents) and an organization chart showing that he was only functioning as a RR. The NAC affirmed the Staff's denial of the requested waivers. On May 22, 1998, Symon appealed to the SEC.

SEC APPEAL

Initially the NASD challenged the SEC's jurisdiction over Symon's appeal, arguing that the waiver denial did not result in a denial of association with the NASD and, thus, was not a final decision capable of appeal. Rejecting the NASD's position, the SEC stated that the denial of the waiver of examination effectively barred Symon from associating as a GSP or FINOP with any NASD member. Consequently, the SEC dismissed the NASD's contention that because Symon could still associate with any member as a RR, he was not denied association. The SEC pointedly disagreed, saying that "[a]llowing association in another capacity does not diminish the fact that Symon has been denied association as a FINOP or a principal."

WAIVER GUIDELINES

The SEC reviewedRule 1070(e) and noted that there were defined bases for granting waivers. Further, the SEC noted the NASD had conceded that "where a firm, acting in good faith, has failed to file the appropriate application forms, the NASD would grant relief from the re-examination requirements." The legal fiction apparently engaged in is that the NASD does not view such relief as a waiver, but "considers this relief to be a correction of its records . . ." Okay . . . but a rose by any other name smells just as sweet.

The SEC dismissed Symon's appeal rather handily and took the opportunity to reiterate that under Rule1021(a) a member firm cannot park any registrations. The SEC found persuasive the facts that BD2's records clearly showed that Symon did not function as a GSP or FINOP, and ultimately concluded that Symon never presented any evidence "demonstrating his association . . . in a capacity requiring principal and FINOP registrations." Symon also argued that he was 63 year old, had 31 years of industry experience, had an unblemished disciplinary history, and had handled significant responsibilities during his career.   Nonetheless, the SEC affirmed the NASD denial of the waivers.

UNCONDITIONAL WAIVERS

The NASD occasionally grants an unconditional waiver, but usually limited to individuals

  • with substantial industry experience who also have some equivalent qualification such as being a Chartered Financial Analyst or completing a similar rigorous professional program, or
  • with significant experience at an industry regulator, or
  • with public stature whose registrations lapsed.

Factors generally considered in granting unconditional waivers are
Length and quality of experience
Age and physical condition
[however, see qualification inRule 1070(e)]
Registration requested and type of business the person will engage in
Previous registration history
Absence of disciplinary sanctions; and
Other qualification examinations that are suitable substitutes for the normal industry qualification requirements
.

CONDITIONAL WAIVERS

The NASD, if it is to grant a waiver, is more apt to grant a conditionalone. For example, the RR examination might be waived but the GSP would be required, or an applicant would have to take continuing education courses. Normally conditional waivers are limited to applicants demonstrating prior, substantial investment-related experience or previous registration that lapsed (but the applicant remained in a securities-related field). A common situation in which conditional waivers are granted is to individuals entering into management of a member firm.

THE MECHANICS OF SEEKING A WAIVER
NASD RULE 9610. Application
(a) Where to File
A member seeking an exemption . . . shall file a written application with the appropriate department or staff of the Association and provide a copy of the application to the Office of General Counsel of NASD Regulation.
(b) Content
An application filed pursuant to this Rule shall contain the member's name and address, the name of a person associated with the member who will serve as the primary contact for the application, the Rule from which the member is seeking an exemption, and a detailed statement of the grounds for granting the exemption. If the member does not want the application or the decision on the application to be publicly available in whole or in part, the member also shall include in its application a detailed statement, including supporting facts, showing good cause for treating the application or decision as confidential in whole or in part. . .

For Further Reference:

In the Matter of Jon G. Symon, 34-41285, Admin. Proc. 3-9609 (April 14, 1999).





RRBDLAW.COM AND SECURITIES INDUSTRY COMMENTATORô © 2004 BILL SINGER

THIS WEBSITE MAY BE DEEMED AN ATTORNEY ADVERTISEMENT OR SOLICITATION IN SOME JURISDICTIONS. AS SUCH, PLEASE NOTE THAT THE HIRING OF AN ATTORNEY IS AN IMPORTANT DECISION THAT SHOULD NOT BE BASED SOLELY UPON ADVERTISEMENTS. MOREOVER, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. NEITHER THE TRANSMISSION NOR YOUR RECEIPT OF ANY CONTENT ON THIS WEBSITE WILL CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE SENDER AND RECEIVER. WEBSITE SUBSCRIBERS AND ONLINE READERS SHOULD NOT TAKE, OR REFRAIN FROM TAKING, ANY ACTION BASED UPON CONTENT ON THIS WEBSITE. THE CONTENT PUBLISHED ON THIS WEBSITE REPRESENTS THE PERSONAL VIEWS OF THE AUTHOR AND NOT NECESSARILY THE VIEWS OF ANY LAW FIRM OR ORGANIZATION WITH WHICH HE MAY BE AFFILIATED. ALL CONTENT IS PROVIDED AS GENERAL INFORMATION ONLY AND MUST NOT BE RELIED UPON AS LEGAL ADVICE. CONTENT ON THIS WEBSITE MAY BE INCORRECT FOR YOUR JURISDICTION AND THE UNDERLYING RULES, REGULATIONS AND/OR DECISIONS MAY NO LONGER BE CONTROLLING OR PERSUASIVE AS A MATTER OF LAW OR INTERPRETATION.


Telephone: 917-520-2836
Fax at 720-559-2800
E-mail to bsinger@rrbdlaw.com

FOR DETAILS ABOUT MR. SINGER, PLEASE READ HIS
ONLINE BIOGRAPHY
PAGE TOP