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Notice I-97-21

September 24, 1997

New Examination for Associated Persons Soliciting or Accepting Orders for Financial Futures

NFA has recently developed a specialized examination for registered representatives of Securities Broker Dealers whose only involvement in the futures industry will be to solicit or accept customer orders for futures or options involving stock index, currency or interest rate products.

Candidates can immediately begin applying to take the new examination using NASD form U-10 only (not U-4). Once the form U-10 has been processed by NASD, candidates may contact an NASD authorized testing center on or after October 6, 1997 in order to schedule an exam. The new examination will include 60 objective questions (multiple choice and true and false) and candidates will be given 80 minutes to complete the examination. A score of 70percent (42 correct answers) will be required to pass the test. The examination will be referred to as the Series 33 exam. The Series 33 will be available via computer terminals at all NASD authorized testing centers. Candidates will be charged a fee of $60.00 to take the examination. An outline of the subject areas covered by the examination is attached.

Each registered securities representative who wants to become registered as an AP by taking the Series 33 exam must submit the attached certification signed by both the applicant and the sponsor, along with a copy of the test results, a completed CFTC 8-R application form, a fingerprint card and application fee. Submitting the certification and test results at the same time will ensure that the application will be processed smoothly.

If you have any questions regarding this notice, please contact Susan Fields at (312) 781-1321.

FINANCIAL INSTRUMENTS EXAMINATION SERIES 33

This guide is intended to be an outline of the subject areas covered by the examination, and does not represent an exhaustive list of the actual test questions.

A. General Theory

B. Hedging: Theory

  1. Risk reduction
  2. Short hedging
  3. Long hedging

C. Speculation: Theory

  1. Leverage
  2. Risk
  3. Market liquidity
  4. Price volatility

D. General Futures Terminology

  • Associated Person
  • Futures Commission Merchant
  • Limit Up/Down
  • Short
  • Synthetic Options/Futures
  • Forward Contract
  • Introducing Broker
  • Long
  • Spread
  • Variation Call

E. Margins, Premiums, Price Limits, Settlement, Exercise, Assignment

  1. Margin Requirements
  2. Option Premiums
  3. Price Limits
  4. Offsetting Contracts, Settlements, Delivery
    1. Liquidating long and short positions
    2. First notice day
    3. Trading in the spot month
    4. Cash settled contracts; how settlement is computed
  5. Options Exercise, Assignment, Settlement
    1. Process of assignment
    2. Margin requirements upon exercise
    3. Final trading/exercise dates

F. Characteristics and Uses of Orders

  1. Basic Characteristics and Uses of
    1. Market orders
    2. Stop orders
    3. Stop-limit orders
    4. Market-if-touched orders
  2. Additional Orders
G. Basic Hedging with Futures
  1. Short Hedging and Long Hedging
  2. The Basis
    1. How determined
    2. Effect of basis charge on the hedger
    3. The basis in financial markets
  3. Hedging Calculations
    1. Net result of hedge
    2. Net price received on purchase or sale

H. Speculating with Futures

  1. Profit/loss calculations for speculative trades (including spreads)
    1. Gross profit on speculative trades, single or multiple contract positions
    2. Effect of commissions on gross profits
    3. Return on (margin) equity calculations
  2. Trading Applications
    1. Recommend appropriate speculative trades given certain circumstances
    2. Use appropriate orders both to initiate and protect position
I. Spreading
  1. Spread Trading
    1. Order execution
    2. Expectations
      • Narrowing or widening basis
      • Normal or inverted market strategies
  2. Common Types of Spreads
    1. Carrying charge or "limited risk" spreads
      • Intra-market
      • Intra-delivery
    2. Bull and bear spreads
    3. Intermarket spreads

J. Option Hedging, Speculating, Spreading

  1. Option Theory
  2. Option Hedge Strategies/Calculations
  3. Option Speculative Strategies/Calculations
  4. Option Spread Strategies/Calculations

K. Regulations

  1. General
    1. NFA/CFTC Registrations
    2. Futures account opening requirements "Know Your Customer Rule" (NFA Rule 2-30) Verbatim risk disclosure statements Commodity customer agreement
    3. General account handling and exchange regulations
    4. Futures options accounts
    5. Position reporting requirements
    6. Speculative position limits
    7. Discretionary account regulations
  2. FCM/IB Regulations
    1. Guaranteed and non-guaranteed IBs
    2. Net capital requirements
    3. Quarterly and annual financial reports
    4. Collection of margin deposits
    5. Customer complaints
    6. Time-stamping requirements
    7. Promotional material rule (NFA Rule 2-29)
    8. Disclosure by FCMs and IBs required for costs associated with futures transactions
  3. Arbitration Procedures
  4. NFA Disciplinary Procedures

CERTIFICATION - E

CERTIFICATION FOR APs SOLICITING OR
ACCEPTING ORDERS FOR FINANCIAL FUTURES

I, ____________________________ ("Applicant"), and _________________________ ("Sponsor") as part of Applicant's application for registration as an Associated Person ("AP") of Sponsor hereby certify as follows:

1. Applicant is currently registered with the National Association of Securities Dealers as a General Securities Representative (documentation attached).

2. Applicant's sole activities, subject to regulation by the Commodity Futures Trading Commission, are and will continue to be limited to the solicitation or acceptance of customer orders for futures or options involving stock index, currency or interest rate products, or the supervision of person whose activities are so limited unless and until Applicant submits to National Futures Association ("NFA") satisfactory evidence of having taken and passed the National Commodity Futures Examination.

3. Sponsor, a registered Securities Broker/Dealer, understands that it must supervise Applicant's compliance with the limitation on Applicant's activities set forth in paragraph 2 above and that any failure of Applicant to adhere to this limitation may be cause for, among other things, disciplinary action by NFA for violation of NFA Compliance Rule 2-9.

4. Applicant and Sponsor understands that willfully making a materially false or misleading statement in this Certification is cause for denial, suspension or revocation of registration, as well as criminal prosecution.

___________________
(Signature of Applicant)
_________________________________
(Signature of Sponsor's Authorized Signatory)
___________________
(Print Name of Applicant)
__________________________________
Print Name & Title of Sponsor's Authorized Signatory*)
___________________
(Date)
__________________________________
(Print Name of Sponsor)
  ____________________
(Date)

* Must be signed by an officer if a corporation, a general partner if a partnership, or the sole proprietor if a sole proprietorship.

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