NEW YORK - Almost 2,000 people trying to qualify as stockbrokers were flunked in last 14 months because of a software error in a test program, the NASD said Friday.
The private-sector regulatory group, formerly the National Association of Securities Dealers, is notifying 1,882 individuals — about 10 percent of those who failed — that they actually passed.
About 30 percent of people who take the test fail on average, said NASD spokeswoman Nancy Condon.
The errors occurred in so-called Series 7 exams taken by about 60,500 people at more than 400 brokerage firms between Oct. 1, 2004, and Dec. 20. Any broker who conducts securities business with the public must pass the exam.
The NASD urged individuals with questions to contact their firms' registration departments or to directly call the organization at 301-869-6699.
The error comes at a time when the NASD is battling with the New York Stock Exchange and other self-regulatory groups for dominance in overseeing sales and trading practices of the securities industry.
"Because the integrity of our testing program is fundamental, we have undertaken a full review of this issue and are putting in place enhanced quality control measures designed to prevent a future reoccurrence," NASD Chief Executive Robert Glauber said. "We apologize for the problems this caused for the individuals and firms affected."
The NYSE develops the Series 7 exam but contracts with the NASD to administer it, said Brendan Intindola an exchange spokesman. He had no comment on the glitches. The NASD said it plans later this year to begin replacing the 15-year-old technology for administering the Series 7 tests.
Condon said the errors were discovered as part of the NASD's performance maintenance and testing procedures.
More than 1,000 people who mistakenly received a failing grade have retaken the exam and passed, and about 600 have rescheduled the exams. They or their firms will be reimbursed the $250 test registration cost, Condon said. Most brokerage firms pay for their employees' tests.
The Series 7 exam includes 250 questions that are selected from a large database and regularly replenished. Since each exam is unique, the NASD grading software makes "minor statistical adjustments based on the overall difficulty of each individual's examination," the regulatory group said.
The errors related to adjustments for 213 questions that were introduced in October 2004. The test requires a passing score of 70 percent.
There is no good news pending for brokers who failed other qualifying exams administered by the NASD, such as those for selling mutual funds and annuities or for supervising other brokers, because only the Series 7 exam is adjusted for degree of difficulty.
"Every other exam is graded on a raw score basis," Condon said.