In the Matter of the Application of GINA M. GUZZONE For Review of NASD Action Denying Waiver of Examination Requirements 
Securities Exchange Act of 1934 Release No. 49727, May 19, 2004


 A Little Background

After nearly a year's unemployment, Gina M. Guzzone was hired by a broker-dealer in August 2002.  She filled out the necessary paperwork, provided her fingerprints, and thought that her new employer submitted her Series 7 and Series 55 registrations.  Unfortunately, that job only lasted three months and Guzzone was once again unemployed.  Seven months after she was laid off, Guzzone finally found another job on Wall Street and was hired.  Within a few days she was terminated when her new employer learned that her last broker-dealer had failed to get her registered and she was now deemed inactive.  Faced with the unpleasant prospect of having to re-take the two examinations, Guzzone expected some compassion from the NASD when they heard her tale of registration woe. After all, the ensuing years covered 9/11, the Tech Wreck and Dot.com Bust, and a whole host of shocking disclosures about Wall Street's fraud and conflicts of interest.  Thousands of hardworking men and women had lost their jobs.  It had been a tough time.   

NASD Membership and Registration Rule 1031. Registration Requirements

(a) All Representatives 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 representatives shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1032. Before their registration can become effective, they shall pass a Qualification Examination for Representatives appropriate to the category of registration as specified by the Board of Governors. A member shall not maintain a representative registration with NASD for any person (1) who is no longer active in the member's investment banking or securities business, (2) who is no longer functioning as a representative, or (3) where the sole purpose is to avoid the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 representative where there is no 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 representative of a person who performs legal, compliance, internal audit, back-office operations, or similar responsibilities for the member, or a person who performs administrative support functions for registered personnel, or a person engaged in the investment banking or securities business of a foreign securities affiliate or subsidiary of the member.

(b) Definition of Representative
Persons associated with a member, including assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.

(c) Requirement for Examination on Lapse of Registration
Any person whose registration has been revoked pursuant to Rule 8310 or whose most recent registration as a representative or principal has been terminated for a period of two (2) 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 Representatives appropriate to the category of registration as specified in Rule 1032.



The NASD Membership and Registration Rule 1070:
Qualification Examinations and Waiver of Requirements

 (a) Qualification Examinations specified in this Rule 1000 Series shall consist of a series of questions based upon topics contained in study outlines provided by the Association, a list of which is available from the Qualifications & Examination Department. 

(b) Examinations shall be given at such times and places and under such conditions as shall be prescribed by the Board of Governors and shall be graded according to the procedure prescribed by the Board. 

(c) Examination results shall be reported to member firms and may be accompanied by an analysis of the candidate's performance on the examination. Passing scores assigned to each examination series shall be determined by the Board of Governors, or its designee. 

(d) Pursuant to the Rule 9600 Series, NASD 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 or physical infirmity will not individually of themselves constitute sufficient grounds to waive a Qualification Examination. Experience in fields ancillary to the investment banking or securities business may constitute sufficient grounds to waive a Qualification Examination. 

(e) Any person associated with a member who fails to pass a qualification examination prescribed by the Association shall be permitted to take the examination again after either a period of 30 calendar days has elapsed from the date of the prior examination or the next administration of an examination administered on a monthly basis, except that any person who fails to pass an examination three or more times in succession shall be prohibited from again taking such examination either until a period of 180 calendar days has elapsed from the date of such person's last attempt to pass the examination or until the sixth subsequent administration of an examination administered on a monthly basis.  

 What Happened Here?

The key to understanding an examination-waiver-request case is in getting a clear picture of the dates and timeframes involved.  To facilitate that perspective, let's set everything out in a table:

Date Event Comment
1996 Guzzone first becomes registered  
October 30, 2000 Guzzone hired by Abel/Noser Corp General Securities Rep and Equity Trader Limited Rep (Series 7 and Series 55) capacities.  
June 6, 2001 Guzzone terminates registrations with Abel/Noser Corp Rule 1031(c): the 2-year clock starts ticking
June 6, 2001 through August 4, 2002 Unemployed  
August 5, 2002 Guzzone hired by Parker Financial Equity Trader
August 14, 2002 Parker Financial files Guzzone's Form U4 with NASD Series 7 and Series 55
November 7, 2002 Parker Financial terminates Guzzone per Form U5 Corporate restructuring closed Manhattan office where she was employed
June 6, 2003 Rule 1031(c) 2-year clock expires From November 2002 through July 2003, Guzzone works at temporary employment service in non-investment capacity
August 1, 2003 Gagnon Securities hires Guzzone  
August 13,2003 Gagnon terminates Guzzone  
August 25, 2003 Parker Financial re-hires Guzzone  
August 26, 2003 Parker Financial requests waiver of Series 7 and Series 55 Rule 1070 waiver application filed with NASD.
September 15, 2003 NASD Department of Testing and Continuing Education denies waiver NASD says request not "warranted." Guzzone appeals to NAC.
November 14, 2003 NASD National Adjudicatory Council affirms denial NAC sustains Dept. on appeal by Guzzone.  She appeals to SEC.

Upon Guzzone's hiring by Gagnon Securities in August 2003, that member firm apparently discovered that her Series 7 and Series 55 registrations were inactive and had aged beyond the Rule 1031(c) two-year limitation (and then terminated her for that reason).  Subsequently, in a letter dated August 26, 2003, Parker Financial informed the NASD that it had failed to complete the transfer of Guzzone's licenses before her 2002 termination and attributed the delay to a deficiency in the Firm's CRD account. The NASD/SEC record of these proceedings also indicates that Parker Financial filed Guzzone's fingerprint card late (more than 30 days after the filing of her Form U4), although Guzzone had submitted the fingerprint card to Parker Financial in a timely fashion. Further, the firm's compliance officer, Patrick Walker, stated in the waiver request to NASD that: 

Apparently as it turns out Ms. Guzzone's registration had never been completed at the time a Form U-5 was submitted to CRD. It appears as though this oversight resulted in her licenses becoming inactive. I interviewed Ms. Guzzone and the former [c]ompliance [o]fficer to determine if [Guzzone] had effected any business during the delay period in question and was informed by both that she had not done any securities related business at that time. 

Clearly,  Guzzone's former (and again current) employer admitted that an "oversight" had regrettably resulted in the failure to register her licenses.  She did everything she was supposed to do and everything she had been asked to do.  Her registrations expired through no omission by her.  Nonetheless, NASD denied her waiver request --- presumably her situation wasn't exceptional and she had shown good cause.

 Straining the Quality of Mercy

In considering Guzzone's appeal, the SEC notes that NASD guidelines provide relief from the re-examination requirements to individuals where a member firm, acting in good faith, has failed to file the appropriate application forms. In order to qualify for this relief, a member firm must document the nature of the filing error and confirm that the individual in question has in good faith conducted investment banking or securities business during the period that his or her registration was not reflected in CRD.  Accordingly, the NASD might have granted a waiver to Guzzone if she had written at least one ticket to demonstrate that she thought she had been approved to act in a registered capacity.  The problem with that good-faith test is that it also requires the member firm to admit that it failed to verify that an individual who was engaged in registered activity wasn't actually registered.  For an example of this type of quandary, read In The Matter of Jon G. Symon (S.E.C., 34-41285, April 14, 1999) http://www.rrbdlaw.com/1999/q299/examwv.html  

Although Guzzone contended that during the time that her registration was not reflected in CRD, she functioned in good faith as a general securities representative and equity trader at Parker Financial, the SEC noted that the waiver request contained a representation from the current Director of Compliance that both Guzzone and the firm's former compliance officer assured him that Guzzone had not conducted any securities-related business during the relevant period. Moreover, in her application for review, Guzzone states that, while working at Parker Financial, she had to expend her retirement money to survive because "no commission dollars were ever made." 

Was This Really Necessary?

The NASD initially moved to dismiss Guzzone's application to the SEC because the regulator claimed she had failed to prosecute the proceeding.  Adding insult to injury, Guzzone appeared before the SEC in a pro se capacity --- meaning she handled her legal representation by herself.  No, that doesn't entitle her to a free ride during an appeal, but it does entitle her to some reasonable consideration.  Thankfully, the SEC determined that "Guzzone is acting pro se and her application for review articulated her position in sufficient detail to enable NASD to respond. Accordingly, we deny NASD's motion."  Sometimes it's downright difficult to tell the good guys from the bad guys.

Consequently, the SEC determined that Guzzone 

[H]as not functioned as a general securities representative or an equity trader for over two years. It is reasonable to conclude that, in that time, there have been changes to the securities laws and regulations with which Guzzone should become familiar. We believe that requiring Guzzone to retake the qualification examinations is fully consistent with the statutory goal of ensuring the requisite levels of knowledge and competency of associated persons.


The SEC sustained the NASD's denial of Guzzone's waiver request.

Bill Singer's Comment

There is no public-policy justification for the "use it or lose it" approach to securities-industry registrations.  Professional licensing should not be dependent upon employment with a particular firm.  Pointedly, registrations should only be invalidated in the absence of meeting one's continuing education obligation or in response to a disciplinary sanction.  The present regulatory system by which industry analysts and salespersons are registered with a member firm, rather than directly with a regulatory organization is anticompetitive and not in the consumer's best interest.  

Keeping registrations active only during periods of employment discourages registered persons from resigning from a firm whose policies and practices are fraudulent.  The threat is clear:  Once you resign you only have twenty-four months to find registered employment or you'll have to sit for the examinations all over again.  You don't think twenty-four months is unreasonably short?  Okay, go look at the massive numbers of Wall Street employees who lost their jobs during this last round of business failures and corporate downsizing.  You think the brokerage industry rehired everyone within two years?  Get serious!

Industry regulators seem to think that the mere act of being on the job encourages some osmosis by which you become educated as to changes in securities laws and regulations.  If only that were ever true.  Fact is, the reason Wall Street implemented a continuing education program is because no one was learning about law or compliance by merely sitting at a desk, answering a phone, and writing an ticket.  Additionally, the Series 7 and Series 55 examinations aren't qualifying tests for compliance/legal staff.  To the contrary, they are supposedly designed to ensure familiarity with the basic obligations and skills of a general securities representative and trader.

Imagine that you have a driver's license but your state requires that after you pass the road test you have to find an employer, who then submits your application to become a licensed driver to the state.  Can you imagine the absurdity if your employer went out of business or you quit, and then you were informed that unless you could find employment within 2 years that your driver's license would be invalidated and you would need to take a new road test?  Further, in my state, a driver's license is issued for a term of 8 years.  If I get the license on day one and never drive for the next 7 years and 364 days --- but put the pedal to the metal on the last day of the year, well I'm still legally entitled to drive.  Look at the absurdity of this comparison.  Driving skills, which should be used somewhat regularly to stay sharp, are allowed to languish for 8 years without a new license --- and even when you renew your license, the only test is for your eyes (not your driving skills).  However, poor Ms. Guzzone supposedly lost all her Wall Street knowledge within two years and has to be completely re-tested.

Similarly, I am a lawyer.  I passed a Bar examination more than 20 years ago.  My license to practice law was granted by the state.  If I don't practice law but still satisfy my bi-annual continuing education credits, my license stays in force.  If I go out and practice law as a solo practitioner and do not join another law firm, my license stays in force.  The same holds generally true for doctors, accountants, and virtually all so-called professionals.  Why, then, is a stockbroker's license so dependent upon employment at a member firm?

The speciousness in the SEC's decision is the fallacy of its basis for denying Guzzone's waiver

[T]here have been changes to the securities laws and regulations with which Guzzone should become familiar. We believe that requiring Guzzone to retake the qualification examinations is fully consistent with the statutory goal of ensuring the requisite levels of knowledge and competency of associated persons.

The SEC confuses licensing with continuing education.  If the goal the commissioners and NASD sought to support was that Wall Street professionals should stay current with changes in laws and regulations, then that could have been achieved by simply requiring Guzzone to satisfy her continuing education requirements rather than forcing her to re-take her registration examinations.  Surely the SEC and NASD are not going to suggest that the "statutory goal of ensuring the requisite levels of knowledge and competency" is satisfied merely by putting in time on the job.  How absurd!  

First, assume that Parker Financial had timely submitted Guzzone's Series 7 and Series 55 registrations.  Second, assume NASD confirmed she was registered.  Third, now assume that one second after Parker  Financial was notified that Guzzone's registrations were effective, the member firm fired her because of corporate downsizing. How do you think that changes the result?  Simple.  For that one second during which she was officially registered, the clock was stopped and re-set for an entire 24 months.  No need for a waiver.    How does that satisfy the SEC's professed concern for ongoing competency? It doesn't.  

Public investors need the services of Wall Street Professionals.  Stockbrokers, analysts, and the whole host of men and women who populate the industry should be licensed in a manner similar to most other professionals --- the license goes with you; it's not held captive by your employer.  Until we implement this much needed reform, brokerage firms will control the hearts and minds of their workers.  And as long as that continues, the blemish of conflict of interest will still be on the face of Wall Street.  Lost in the shuffling of legal papers and academic concerns is the simple fact that Guzzone didn't violate any laws, isn't accused of defrauding a public customer, and isn't accused of doing any single act that resulted in the failure to timely file her registrations.  She is a double victim --- first by her firm's negligence and then by the regulatory community's lack of mercy.  Worse,  the public continue to be short-changed by Wall Street's failure to enact meaningful reforms.

NASD Qualification Examination Waiver Guidelines

Coordination With Other Regulatory Agencies
Be aware that  NASD can grant qualification examination waivers only for its requirements, and not for other regulatory agencies (most notably, state licensing and qualification requirements).

Waiver Guidelines
NASD has identified certain typical waiver requests and provides a summary of them.

Waiver Requests Based On Registration Filing Errors
Individuals who have in good faith been functioning as representatives or principals in member firms but whose registrations, for reasons related to the filing of the appropriate application forms, are not reflected in the Central Registration Depository (CRD) system.  For example, a  member firm files an incomplete application that is eventually purged from the CRD system. NASD will waive the examination(s) in the cases provided the firm(s) involved document the nature of the filing error and confirm that the individual has in good faith engaged in the conduct of the investment banking or securities business during the period when the registration was not reflected in the CRD system.

Waiver Requests Based On Continuing Registrations With Other Regulatory Authorities
The CRD system only contains active registrations for persons associated with NASD members. If an individual becomes associated with a broker/dealer that is not an NASD member, the CRD system is incapable of recognizing the continuance. These situations normally arise when a person transfers to a non-member broker/dealer that is a member of a national securities exchange, a bank municipal securities dealer, or intra-state securities firm. NASD staff will verify the registration continuance with the appropriate regulatory authority and then waive the applicable qualification examination(s).

Waiver Requests Based On Experience
Considers an applicant’s experience in the securities industry and/or in related investment fields such as investment banking, securities trading on behalf of a financial institution, securities research, portfolio management, investment advisory services, or securities activities in a foreign broker/dealer. Certain law, accounting, and consulting practices related to the securities acts and regulations also may provide an appropriate basis for waiving a qualification examination. When reviewing such requests, NASD will consider such factors as:

  1. the length and quality of the applicant’s securities industry experience or professional experience in investment related fields;
  2. the specific registration the applicant requests and the type of business to be conducted in relation to the applicant’s experience;
  3. the applicant’s previous registration history, if any;
  4. the nature of any regulatory matters as disclosed on the applicant’s application for registration;
  5. the applicant’s age or physical condition if this is part of the basis for the waiver request, but only in conjunction with experience and other factors above;
  6. other examinations taken by the applicant, such as those for Certified Financial Planner or Chartered Financial Analyst, that may be acceptable substitutes in conjunction with experience and other factors above, for the normal securities industry qualification examination.

Waiver Requests Based On Educational Achievement
 NASD will consider waiver requests for persons who terminate their registrations and enroll in a master’s program with a substantial emphasis on Finance and Investments. The applicant must return to a member firm promptly after completing the course of study and furnish a copy of the course transcript with the waiver request.

Waiver Requests Based On Regulatory Experience
An applicant for registration whose most recent employment has been with a securities regulatory agency, and who was previously registered with a member firm, may use the waiver process to have the registration reinstated. An applicant with regulatory experience, but no prior securities registration, must have at least five years of regulatory experience for a waiver request to be considered. In either case, NASD will consider the scope of the regulatory experience in deciding the waiver request.

Disposition Of Waiver Requests
On average, approximately one-third of the waiver requests are denied or withdrawn; one-third result in reinstatements of registration based on filing errors or continuance with other regulatory agencies; and, one-third result in waiver of the qualification examination. Unconditional waivers represent only a small fraction of the waivers granted. Most waivers of registered representatives’ examinations are conditional on the applicant successfully completing a Regulatory Element training session pursuant to NASD Continuing Education Rule 1120(a). In some cases involving principals, the prerequisite registered representative examination is waived conditional on the applicant taking and passing the appropriate principal examination. Principal examinations are rarely waived.

Waiver Request Process

  1. The waiver request must be submitted by a member firm on behalf of the applicant. Requests by individuals who are not associated with a member firm cannot be considered. Requests should be submitted to:

    Qualification Examination Waiver Review
    9509 Key West Avenue, 3rd Floor
    Rockville, MD 20850

  2. The member firm must submit a Uniform Application for Securities Industry Registration or Transfer (Form U-4) electronically via the CRD system before NASD can consider the waiver request.
  3. The member firm must respond to any NASD staff requests for additional information before the request can be considered.
  4. NASD will convey its decision on the request in writing. The applicant must satisfy any conditions attached to a waiver before the applicant’s registration will become effective.
  5. A member firm may appeal a waiver decision on behalf of the applicant within 15 calendar days after receipt of the decision letter. Any such appeal should be submitted in the form described in NASD Rule 9630 to:

    Office of General Counsel
    1735 K Street, NW
    Washington, DC 20006

  6. Individuals who have questions regarding the waiver process should be directed to the registration and licensing group in their member firms. Questions member firms have regarding the waiver process may be directed to the following NASD staff members:

    Marie Clapp (240) 386-4682
    Sue Friedlander (240) 386-4683


NASD Notice to Members 04-59

SEC Announces Immediate Effectiveness of Amendments to the Rule 9600 Series 
Establishing Waiver Subcommittee of the National Adjudicatory Council; Effective 
Date: September 1, 2004

Effective September 1, 2004, a newly created Waiver Subcommittee, rather than the full National Adjudicatory Council (NAC), will have the authority to affirm, modify, or reverse a decision of NASD's Department of Member Regulation (Member Regulation) denying a request 
for a waiver from a required qualifications examination pursuant to NASD Rule 1070.

NASD's Rule 9600 Series sets forth the procedures under which NASD members and their associated persons may seek exemptive relief from the NASD rules enumerated in Rule 9610(a). Among those rules is Rule 1070, which governs qualification examinations and waiver of requirements. Under the new rules, the Waiver Subcommittee will consist of one industry NAC member and one non-industry NAC member (annually appointed by the NAC), will have the authority to affirm, modify, or reverse a Member Regulation decision denying a request for a waiver from an applicable qualification examination requirement and issue decisions in such matters that will constitute final NASD action.  The amended Rule 9600 Series will permit the Waiver Subcommittee to review appeals of Department denials of requests to waive an applicable qualification examination requirement and issue decisions that affirm, modify, or reverse such Department decisions. The Waiver Subcommittee will also have the authority, where appropriate, to provide expedited review, order oral argument, and consider new evidence. The Waiver Subcommittee will retain discretion to refer an appeal to the full NAC when, for example, there is a split vote or the subcommittee believes that the issues in the appeal warrant consideration by the full NAC.

After reviewing the qualifications examination waiver process, the NAC recognized that a subcommittee would have the flexibility to review such decisions on a timelier basis than the full NAC, which generally meets only five times each year. The NAC considered that any 
delay arising from the NAC's schedule may harm the associated person on whose behalf the NASD member is appealing, as well as the member, because the associated person is unable to function in the requested registered capacity while his or her firm's appeal is pending. The NAC also considered that its specialized expertise in reviewing disciplinary matters and policy issues is not required in the examination waiver process because appellate review of examination waivers is based on application of the Guidelines to the specific 
facts of the case. 



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