Jay Suskind, head trader at Ryan Beck & Co. in West Orange, N.J., is frustrated. He must eventually sit for an exam he doesn't think is necessary. And he's too busy to get all the details.
Suskind is one of about ten professionals at Ryan Beck taking the new exam, recently introduced by the National Association of Securities Dealers for Nasdaq and over-the-counter traders.
At the moment, the Limited Representative-Equity Trader Examination, or Series 55, is a challenge for Suskind, given his other professional priorities.
Suskind hasn't seen the exam materials, and hasn't taken time to study. Frankly, he says, his busy workload doesn't allow him the necessary time to prepare for the exam.
Not to worry, though, Suskind was given a two-year grace period to pass a grace period granted, as of mid-July, to more than 15,000 professionals who registered for the exam ahead of the August 31 deadline. Suskind and the other professionals must pass the exam by May 1, 2000.
Even so, Suskind, a ten-year trading veteran, has reservations.
"The NASD could probably do a better job educating its members with regular training programs," he said. "I can understand the NASD testing new traders, but I doubt anyone trading has time to study for a new exam."
Sooner or later, however, all market makers, trading supervisors, agency traders and proprietary traders in Nasdaq, OTC and convertible-debt securities must take the 90-question Series 55.
Not all traders share Suskind's pessimistic view about the Series 55. To be sure, traders must juggle study time with their professional duties, but many acknowledge the exam's fundamental importance.
"Continuing education is never a problem," said Lou Todd, head of trading at J.C. Bradford & Co. in Nashville. "I just want our traders to get the exam out of the way so they can get back to business."
More than 30 traders from Todd's firm will sit for the Series 55 starting in August.
The exam will test traders in market making, trading systems, reporting rules, securities regulations and in other areas of responsibility.
The NASD said the Series 55 will help to establish consistent standards among professionals of the rules and regulations that affect their business.
The roots of the exam date back to the Securities and Exchange Commission's and the Department of Justice's 1995 investigations of Nasdaq.
"The exam is a way of ensuring that traders have been tested, and can be held accountable if they don't follow trading rules," said John Ramsay, deputy general counsel at NASD Regulation, the NASD's regulatory arm.
"The NASD, of course, is not naive enough to think the exam will stop infractions among traders," he added. "But the test makes sure everyone has a basic level of understanding."
John Pinto, who was a senior official at NASD Regulation when the Series 55 was first proposed, said the initiative for the exam was taken by NASD Regulation's Market Surveillance Committee.
"Market Surveillance felt that the trader's job had taken on new regulatory and compliance features," said Pinto, who now heads the Washington branch of Atlanta-based consultant Dover International. "The NASD recognized the time had come to better train its traders, and the SEC and Justice investigations pushed them in that direction."
During the investigations, Market Surveillance staff visited member firms, assessing the performance of Nasdaq and OTC trading professionals. After consulting with several senior NASD officials and making its assessment, Market Surveillance endorsed the creation of a new qualification exam for Nasdaq and OTC traders.
With the support of Market Surveillance, NASD Regulation prepared an exam proposal in 1996. Pinto said there was little opposition at the NASD to the Series 55. Market Surveillance, for example, unanimously endorsed the written proposal for the new exam, even though nine of the 12 committee members were traders.
Ramsay said the process of preparing the exam was rigorous, involving staff at the NASD and SEC through most of 1997.
"We wanted to make sure we covered every issue we felt was important, and that we had the right balance," Ramsay added.
The 90-question, multiple-choice exam is divided into four sections: Nasdaq and market-maker activities, automated execution and trading systems, trade-reporting requirements and securities-industry regulations.
The first section, covering Nasdaq and market-maker activities, has 47 questions and is the largest section of the exam.
A professional must correctly answer 63 questions, or 70 percent of the exam questions, to pass. Professionals must wait 30 days before retaking a failed exam. If the exam is failed more than three times, the waiting period continues to be 30 days, rather than the 180-day waiting period normally required by the NASD after failing a test three times.
The NASD is utilizing its contract with Sylvan Learning Centers to proctor the Series 55. More than 150 Sylvan locations nationwide have been approved by the NASD as exam sites. The Series 55 can be scheduled during regular Sylvan testing hours.
The closed-book exam is taken on a computer, and results are immediately available following completion of the exam. As accessories, Sylvan provides professionals scratch paper and basic electronic calculators.
Before taking the Series 55, a candidate must have passed the General Securities Registered Representative Examination (Series 7) or the Corporate Securities Limited Representative Examination (Series 62).
The exam fee is $60, while registration for applicants not yet registered as traders with the NASD is $85.
Ramsay says the test was not intended to create unnecessary problems for firms, emphasizing that the two-year grace period was one practical way the NASD has tried to lighten the burden.
"It's new, and it's one more thing for a firm to worry about," Ramsay said. "We want to make the Series 55 as relatively easy to take as possible."
Firms vary in how they are approaching the Series 55. Some desks have scheduled study courses for their traders, and plan to have them take the exam as soon possible. Other desks have shown little interest in preparing immediately for the Series 55, putting off the test until later in the grace period.
Peter Coolidge, head trader at New York-based Brean Murray & Co., provided his seven traders with an NASD-published study outline to prepare for the exam.
"We're not going to wait. We want to take the test as soon as possible," said Coolidge, who served on the NASD committee that helped formulate questions for the Series 55.
Coolidge thinks the exam relates well to what his traders should know about market making. Besides, he doesn't expect his traders to lose valuable time on the desk studying for the exam.
"I don't think it's a test that requires traders to sit for long hours and study," he said. "Our traders should already know a lot of the information covered on the Series 55, and they can study at night for the rest."
Dan Heenan, head trader at John G. Kinnard & Company in Minneapolis, who served on the same NASD committee with Coolidge, has already passed the Series 55.
None of the traders at his firm have scheduled to sit for the Series 55, however. "Not one person on my desk has asked me about the test. We don't even have any study material yet," Heenan said. "The desk has just been too busy."
At New York-based Sharpe Capital, Judy Payer, co-manager of equity trading, is scheduled to sit for the exam in August, alongside four compliance officers and trading managers from her firm. She expects up to 40 Sharpe employees to eventually sit for the exam.
"We want to get a good impression of the Series 55 right off the bat," Payer said. "If we get a feel for the test, we can help prepare everyone else to take it."
Early this year, the NASD published a study outline for the Series 55. The 12-page pamphlet includes a brief outline of the exam, four sample questions and a list of test references. All material covered on the Series 55 is available from manuals on the reference list.
Aside from the NASD's material, a number of companies are providing training courses and study guides based on the NASD outline.
New York-based Securities Training Corporation (STC) is offering 17 one-and-a-half day training classes this year, in Chicago, Los Angeles, New York and San Francisco. STC will also schedule classes tailored for the schedules and needs of individual firms.
STC offers a 250-page study guide for the Series 55, with four practice exams and a bank of 360 questions.
Todd Rosenfeld, who is in charge of the STC's Series 55 initiative, said the STC course and study guide cover every point mentioned in the NASD outline.
"Our study guide has everything that could possibly be included on the test," Rosenfeld said. "The classes streamline what's covered, and help motivate traders to study."
Rosenfeld recommends that traders either enroll in a class or read a study guide.
"There are certain things that will be covered on the test that traders might take for granted if they don't study," he said. "A good training program will make sure every base is covered."
Similar training courses and study guides are also being provided by Atlanta-based Investment Training Institute (ITI ) and Chicago's Dearborn Financial Training.
ITI is a subsidiary of Atlanta-based Dover International, the consulting firm represented in Washington by John Pinto.
"ITI created a program that will help traders understand the complex rules and regulations covered in the exam," Pinto said. "ITI's study material will give traders a requisite understanding of what they need to know."
ITI has scheduled six 16-hour training classes through August in New York, and four classes at offices in Atlanta through September.
The ITI training program was reviewed and publicly endorsed by the Security Traders Association, representing more than 7,000 equity professionals. (The STA will receive royalties from ITI for the endorsement).
At J.C. Bradford, Todd said the compliance department has prepared its own training course and study guide for the firm's traders.
"A lot of people get worried about tests, and some traders have complained about this one," Todd said. "Our program will get everyone ready to take the test."
Todd hopes the exam enhances the image of the trading industry.
"I think this is an NASD effort to upgrade the quality of the industry and get rid of some of the rogue brokers," Todd added. "I know people have complained about the new exam, but I don't think good traders have anything to worry about."
