The National Association of Securities Dealers announced today that almost 1,900 people received failing grades on their Series 7 exams due to a software error.

The regulator said that it has begun notifying 1,882 individuals who took the Series 7 broker qualification exam between Oct. 1, 2004, and Dec. 20, 2005, to tell them that they incorrectly received a failing grade. The error, which affected only exams on the cusp of the pass/fail line, caused some test takers to score just below the minimum passing grade. No one received a passing grade in error.

The NASD is contacting all affected individuals and firms with an initial focus on advising those currently rescheduled to take the exam that they have passed and do not need to re-take the Series 7. In addition to contacting exam takers, the NASD also is contacting firms who sponsored these individuals to take the exam, and is correcting individual records in its registered representative database. And any affected individual who is not currently associated with a firm in the securities industry will be afforded a 2-year period starting Feb. 1, 2006, to reassociate without having to re-take the Series 7 exam.

“NASD will immediately notify the affected individuals and firms,” said Robert Glauber, chairman and chief executive officer of the NASD. “In addition, 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. As appropriate, we will communicate any corrective measures. We apologize for the problems this caused for the individuals and firms affected.”

Approximately 60,500 aspiring brokers took the exam from Oct. 1, 2004, to Dec. 20, 2005. NASD noted that of the 1,882 people who incorrectly received a failing grade, slightly over 1,000 have already re-taken the exam and passed; more than 600 have not as yet rescheduled an exam date, and just over 200 individuals are scheduled to retake the exam.

In addition to reaching out to those affected and correcting all records, the NASD also is implementing a full software code review and conducting independent manual test validation reviews. It is also creating more sophisticated monitoring mechanisms to alert reviewers when certain statistical parameters are crossed.